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COMMODATUM 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. 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

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. . . 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 Jos 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 Jos 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:

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(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 Jos V. Bagtas and that "all persons having claims for money against the deceased Jos 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

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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 Jos V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court. ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

G.R. No. L-46240

November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants, vs. BECK, defendant-appellee. IMPERIAL, J.: The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs. The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up

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the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff. In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her. As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps. As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may desire to present. The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract ofcommodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that

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he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed. The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances. So ordered. Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

G.R. No. 26085

August 12, 1927

SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants, vs. BENITO GONZALEZ SY CHIAM, defendants-appellee. Araneta and Zaragoza for appellants. Eusebio Orense for appelle. JOHNSON, J.: PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL The principal questions presented by this appeal are: (a) Is the contract in question a pacto de retro or a mortgage? (b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a certain amount per month as rent, may such rent render such a contract usurious when the amount paid as rent, computed upon the purchase price, amounts to a higher rate of interest upon said amount than that allowed by law? (c) May the contract in the present case may be modified by parol evidence? ANTECEDENT FACTS Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon, situated in the municipality of Tarlac of the Province of Tarlac for the price of P25,000, promising to pay therefor in three installments. The first installment of P2,000 was due on or before the 2d day of May, 1921; the second installment of P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable on or about the 30th day of November, 1922. One of the conditions of that contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any of the installments on the date agreed upon, the property bought would revert to the original owner.

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The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the record shows upon the due dates. The balance of P15,000 due on said contract of purchase was paid on or about the 1st day of December, 1922, in the manner which will be explained below. On the date when the balance of P15,000 with interest was paid, the vendor of said property had issued to the purchasers transfer certificate of title to said property, No. 528. Said transfer certificate of title (No. 528) was transfer certificate of title from No. 40, which shows that said land was originally registered in the name of the vendor on the 7th day of November, 1913. PRESENT FACTS On the 7th day of November, 1922 the representative of the vendor of the property in question wrote a letter to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of said indebtedness was not paid, an action would be brought for the purpose of recovering the property, together with damages for non compliance with the condition of the contract of purchase. The pertinent parts of said letter read as follows: Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos judicialmente contra Vd. para reclamar la devolucion del camarin y los daos y perjuicios ocasionados a la compaia por su incumplimiento al contrato. Somos de Vd. atentos y S. S. SMITH, BELL & CO., LTD. By (Sgd.) F. I. HIGHAM Treasurer. General Managers LUZON RICE MILLS INC. According to Exhibits B and D, which represent the account rendered by the vendor, there was due and payable upon said contract of purchase on the 30th day of November, 1922, the sum P16,965.09. Upon receiving the letter of the vendor of said property of November 7, 1922, the purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began to make an effort to borrow money with which to pay the balance due, began to make an effort to borrow money with which to pay the balance of their indebtedness on the purchase price of the property involved. Finally an application was made to the defendant for a loan for the purpose of satisfying their indebtedness to the vendor of said property. After some negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property. In accordance with that agreement the defendant paid to the plaintiffs by means of a check the sum of P16,965.09. The defendant, in addition to said amount paid by check, delivered to the plaintiffs the sum of P354.91 together with the sum of P180 which the plaintiffs paid to the attorneys for drafting said contract of pacto de retro, making a total paid by the defendant to the plaintiffs and for the plaintiffs of P17,500 upon the execution and delivery of said contract.

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Said contracts was dated the 28th day of November, 1922, and is in the words and figures following: Sepan todos por la presente: Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de edad, residentes en el Municipio de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de Manila, de una parte, y de otra, Benito Gonzalez Sy Chiam, mayor de edad, casado con Maria Santiago, comerciante y vecinos de esta Ciudad de Manila. MANIFESTAMOS Y HACEMOS CONSTAR: Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideracion a la cantidad de diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra entera satisfaccion de Don Benito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de dicho Don Benito Gonzalez Sy Chiam, sus herederos y causahabientes, una finca que, segun el Certificado de Transferencia de Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de Tarlac a favor de "Luzon Rice Mills Company Limited" que al incorporarse se donomino y se denomina "Luzon Rice Mills Inc.," y que esta corporacion nos ha transferido en venta absoluta, se describe como sigue: Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio de Tarlac. Linda por el O. y N. con propiedad de Manuel Urquico; por el E. con propiedad de la Manila Railroad Co.; y por el S. con un camino. Partiendo de un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17' E.859.42 m. del mojon de localizacion No. 2 de la Oficina de Terrenos en Tarlac; y desde dicho punto 1 N. 81 gds. 31' O., 77 m. al punto 2; desde este punto N. 4 gds. 22' E.; 54.70 m. al punto 3; desde este punto S. 86 gds. 17' E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42' E., 61.48 m. al punto de partida; midiendo una extension superficcial de cuatro mil doscientos diez y seis metros cuadrados (4,216) mas o menos. Todos los puntos nombrados se hallan marcados en el plano y sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L. S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.: la orientacion seguida es la verdadera, siendo la declinacion magnetica de 0 gds. 45' E. y la fecha de la medicion, 1. de febrero de 1913. Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez y Chiam a retrovendernos la finca arriba descrita; pero si transcurre dicho plazo de cinco aos sin ejercitar el derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable. Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto a condiciones siguientes:

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(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, era de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes. (b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi como tambien la prima del seguro contra incendios, si el conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca. (c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a la terminacion de este arrendamieno y a la perdida del derecho de retracto que nos hemos reservado, como si naturalmente hubiera expirado el termino para ello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam tomar posesion de la finca y desahuciarnos de la misma. Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura en los precisos terminos en que la dejan otorgada los conyuges Severino Tolentino y Potenciana Manio. En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por cuadruplicado en Manila, hoy a 28 de noviembre de 1922. (Fdo.) SEVERINO TOLENTINO (Fda.) POTENCIANA MANIO (Fdo.) BENITO GONZALEZ SY CHIAM Firmado en presencia de: (Fdos.) MOISES M. BUHAIN B. S. BANAAG An examination of said contract of sale with reference to the first question above, shows clearly that it is a pacto de retro and not a mortgage. There is no pretension on the part of the appellant that said contract, standing alone, is a mortgage. The pertinent language of the contract is: Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don Benito Gonzales Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arriba descrita; pero si transcurre dicho plazo de cinco (5) aos sin ejercitar al derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable. Language cannot be clearer. The purpose of the contract is expressed clearly in said quotation that there can certainly be not doubt as to the purpose of the plaintiff to sell the property in question, reserving the right only to repurchase the same. The intention to sell with the right to repurchase cannot be more clearly expressed. It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing the absolute sale of the property, entered into a contract with the purchaser by virtue of which she became the "tenant" of the purchaser. That contract of rent appears in said quoted document above as follows:

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10

Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto a condiciones siguientes: (a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, sera de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes. (b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi como tambien la prima del seguro contra incendios, si le conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca. From the foregoing, we are driven to the following conclusions: First, that the contract of pacto de retro is an absolute sale of the property with the right to repurchase and not a mortgage; and, second, that by virtue of the said contract the vendor became the tenant of the purchaser, under the conditions mentioned in paragraph 3 of said contact quoted above. It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, to declare the same to be a mortgage and not a sale whenever the interpretation of such a contract justifies that conclusion. There must be something, however, in the language of the contract or in the conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a "mortgage" and not a pacto de retro. (International Banking Corporation vs. Martinez, 10 Phil., 252; Padilla vs. Linsangan, 19 Phil., 65; Cumagun vs. Alingay, 19 Phil., 415; Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42 Phil., 925; Velazquez vs. Teodoro, 46 Phil., 757; Villavs. Santiago, 38 Phil., 157.) We are not unmindful of the fact that sales with pacto de retro are not favored and that the court will not construe an instrument to one of sale with pacto de retro, with the stringent and onerous effect which follows, unless the terms of the document and the surrounding circumstances require it. While it is general rule that parol evidence is not admissible for the purpose of varying the terms of a contract, but when an issue is squarely presented that a contract does not express the intention of the parties, courts will, when a proper foundation is laid therefor, hear evidence for the purpose of ascertaining the true intention of the parties. In the present case the plaintiffs allege in their complaint that the contract in question is a pacto de retro. They admit that they signed it. They admit they sold the property in question with the right to repurchase it. The terms of the contract quoted by the plaintiffs to the defendant was a "sale" with pacto de retro, and the plaintiffs have shown no circumstance whatever which would justify us in construing said contract to be a mere "loan" with guaranty. In every case in which this court has construed a contract to be a mortgage or a loan instead of a sale with pacto de retro, it has done so, either because the terms of such contract were incompatible or inconsistent with the theory that said contract was one of purchase and sale. (Olino vs. Medina, supra; Padilla vs. Linsangan,supra; Manlagnit vs. Dy Puico, 34 Phil., 325; Rodriguez vs. Pamintuan and De Jesus, 37 Phil., 876.) In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature of the conveyance of the land was "pledged" instead of "sold". In the case of Manlagnit vs. Dy Puico, while the vendor used to the terms "sale and transfer with the right to repurchase," yet in said contract he described himself as a "debtor" the purchaser as a "creditor" and the contract as a "mortgage". In the case of Rodriguez vs. Pamintuan and De Jesusthe person

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who executed the instrument, purporting on its face to be a deed of sale of certain parcels of land, had merely acted under a power of attorney from the owner of said land, "authorizing him to borrow money in such amount and upon such terms and conditions as he might deem proper, and to secure payment of the loan by a mortgage." In the case of Villa vs. Santiago (38 Phil., 157), although a contract purporting to be a deed of sale was executed, the supposed vendor remained in possession of the land and invested the money he had obtained from the supposed vendee in making improvements thereon, which fact justified the court in holding that the transaction was a mere loan and not a sale. In the case of Cuyugan vs. Santos (39 Phil., 970), the purchaser accepted partial payments from the vendor, and such acceptance of partial payments is absolutely incompatible with the idea of irrevocability of the title of ownership of the purchaser at the expiration of the term stipulated in the original contract for the exercise of the right of repurchase." Referring again to the right of the parties to vary the terms of written contract, we quote from the dissenting opinion of Chief Justice Cayetano S. Arellano in the case of Government of the Philippine Islands vs. Philippine Sugar Estates Development Co., which case was appealed to the Supreme Court of the United States and the contention of the Chief Justice in his dissenting opinion was affirmed and the decision of the Supreme Court of the Philippine Islands was reversed. (See decision of the Supreme Court of the United States, June 3, 1918.)1 The Chief Justice said in discussing that question: According to article 1282 of the Civil Code, in order to judge of the intention of the contracting parties, consideration must chiefly be paid to those acts executed by said parties which are contemporary with and subsequent to the contract. And according to article 1283, however general the terms of a contract may be, they must not be held to include things and cases different from those with regard to which the interested parties agreed to contract. "The Supreme Court of the Philippine Islands held the parol evidence was admissible in that case to vary the terms of the contract between the Government of the Philippine Islands and the Philippine Sugar Estates Development Co. In the course of the opinion of the Supreme Court of the United States Mr. Justice Brandeis, speaking for the court, said: It is well settled that courts of equity will reform a written contract where, owing to mutual mistake, the language used therein did not fully or accurately express the agreement and intention of the parties. The fact that interpretation or construction of a contract presents a question of law and that, therefore, the mistake was one of law is not a bar to granting relief. . . . This court is always disposed to accept the construction which the highest court of a territory or possession has placed upon a local statute. But that disposition may not be yielded to where the lower court has clearly erred. Here the construction adopted was rested upon a clearly erroneous assumption as to an established rule of equity. . . . The burden of proof resting upon the appellant cannot be satisfied by mere preponderance of the evidence. It is settled that relief by way of reformation will not be granted unless the proof of mutual mistake be of the clearest and most satisfactory character. The evidence introduced by the appellant in the present case does not meet with that stringent requirement. There is not a word, a phrase, a sentence or a paragraph in the entire record, which justifies this court in holding that the said contract of pacto de retro is a mortgage and not a sale with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282 provides: "in order to judge as to the

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intention of the contracting parties, attention must be paid principally to their conduct at the time of making the contract and subsequently thereto." We cannot thereto conclude this branch of our discussion of the question involved, without quoting from that very well reasoned decision of the late Chief Justice Arellano, one of the greatest jurists of his time. He said, in discussing the question whether or not the contract, in the case of Lichauco vs. Berenguer (20 Phil., 12), was apacto de retro or a mortgage: The public instrument, Exhibit C, in part reads as follows: "Don Macarion Berenguer declares and states that he is the proprietor in fee simple of two parcels of fallow unappropriated crown land situated within the district of his pueblo. The first has an area of 73 quiones, 8 balitas and 8 loanes, located in the sitio of Batasan, and its boundaries are, etc., etc. The second is in the sitio of Panantaglay, barrio of Calumpang has as area of 73 hectares, 22 ares, and 6 centares, and is bounded on the north, etc., etc." In the executory part of the said instrument, it is stated: 'That under condition of right to repurchase (pacto de retro) he sells the said properties to the aforementioned Doa Cornelia Laochangco for P4,000 and upon the following conditions: First, the sale stipulated shall be for the period of two years, counting from this date, within which time the deponent shall be entitled to repurchase the land sold upon payment of its price; second, the lands sold shall, during the term of the present contract, be held in lease by the undersigned who shall pay, as rental therefor, the sum of 400 pesos per annum, or the equivalent in sugar at the option of the vendor; third, all the fruits of the said lands shall be deposited in the sugar depository of the vendee, situated in the district of Quiapo of this city, and the value of which shall be applied on account of the price of this sale; fourth, the deponent acknowledges that he has received from the vendor the purchase price of P4,000 already paid, and in legal tender currency of this country . . .; fifth, all the taxes which may be assessed against the lands surveyed by competent authority, shall be payable by and constitute a charge against the vendor; sixth, if, through any unusual event, such as flood, tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly or in part, it shall be incumbent upon the vendor to repair the damage thereto at his own expense and to put them into a good state of cultivation, and should he fail to do so he binds himself to give to the vendee other lands of the same area, quality and value.' xxx xxx xxx

The opponent maintained, and his theory was accepted by the trial court, that Berenguer's contract with Laochangco was not one of sale with right of repurchase, but merely one of loan secured by those properties, and, consequently, that the ownership of the lands in questions could not have been conveyed to Laochangco, inasmuch as it continued to be held by Berenguer, as well as their possession, which he had not ceased to enjoy. Such a theory is, as argued by the appellant, erroneous. The instrument executed by Macario Berenguer, the text of which has been transcribed in this decision, is very clear. Berenguer's heirs may not go counter to the literal tenor of the obligation, the exact expression of the consent of the contracting contained in the instrument, Exhibit C. Not

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because the lands may have continued in possession of the vendor, not because the latter may have assumed the payment of the taxes on such properties, nor yet because the same party may have bound himself to substitute by another any one of the properties which might be destroyed, does the contract cease to be what it is, as set forth in detail in the public instrument. The vendor continued in the possession of the lands, not as the owner thereof as before their sale, but as the lessee which he became after its consummation, by virtue of a contract executed in his favor by the vendee in the deed itself, Exhibit C. Right of ownership is not implied by the circumstance of the lessee's assuming the responsibility of the payment is of the taxes on the property leased, for their payment is not peculiarly incumbent upon the owner, nor is such right implied by the obligation to substitute the thing sold for another while in his possession under lease, since that obligation came from him and he continues under another character in its possessiona reason why he guarantees its integrity and obligates himself to return the thing even in a case of force majeure. Such liability, as a general rule, is foreign to contracts of lease and, if required, is exorbitant, but possible and lawful, if voluntarily agreed to and such agreement does not on this account involve any sign of ownership, nor other meaning than the will to impose upon oneself scrupulous diligence in the care of a thing belonging to another. The purchase and sale, once consummated, is a contract which by its nature transfers the ownership and other rights in the thing sold. A pacto de retro, or sale with right to repurchase, is nothing but a personal right stipulated between the vendee and the vendor, to the end that the latter may again acquire the ownership of the thing alienated. It is true, very true indeed, that the sale with right of repurchase is employed as a method of loan; it is likewise true that in practice many cases occur where the consummation of a pacto de retro sale means the financial ruin of a person; it is also, unquestionable that in pacto de retro sales very important interests often intervene, in the form of the price of the lease of the thing sold, which is stipulated as an additional covenant. (Manresa, Civil Code, p. 274.) But in the present case, unlike others heard by this court, there is no proof that the sale with right of repurchase, made by Berenguer in favor of Laonchangco is rather a mortgage to secure a loan. We come now to a discussion of the second question presented above, and that is, stating the same in another form: May a tenant charge his landlord with a violation of the Usury Law upon the ground that the amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of interest? When the vendor of property under a pacto de retro rents the property and agrees to pay a rental value for the property during the period of his right to repurchase, he thereby becomes a "tenant" and in all respects stands in the same relation with the purchaser as a tenant under any other contract of lease. The appellant contends that the rental price paid during the period of the existence of the right to repurchase, or the sum of P375 per month, based upon the value of the property, amounted to usury. Usury, generally speaking, may be defined as contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of moneythe taking of more interest for the use of money than the law allows. It seems that the taking of interest for the loan of money, at least the taking of excessive interest has been regarded with abhorrence from the earliest times. (Dunham vs. Gould, 16 Johnson [N. Y.], 367.) During the middle ages the people of England, and especially the English Church, entertained the opinion, then,

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current in Europe, that the taking of any interest for the loan of money was a detestable vice, hateful to man and contrary to the laws of God. (3 Coke's Institute, 150; Tayler on Usury, 44.) Chancellor Kent, in the case of Dunham vs. Gould, supra, said: "If we look back upon history, we shall find that there is scarcely any people, ancient or modern, that have not had usury laws. . . . The Romans, through the greater part of their history, had the deepest abhorrence of usury. . . . It will be deemed a little singular, that the same voice against usury should have been raised in the laws of China, in the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, we may say, in the laws of all nations that we know of, whether Greek or Barbarian." The collection of a rate of interest higher than that allowed by law is condemned by the Philippine Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner of a property to enter into a contract with the tenant for the payment of a specific amount of rent for the use and occupation of said property, even though the amount paid as "rent," based upon the value of the property, might exceed the rate of interest allowed by law? That question has never been decided in this jurisdiction. It is one of first impression. No cases have been found in this jurisdiction answering that question. Act No. 2655 is "An Act fixing rates of interest upon 'loans' and declaring the effect of receiving or taking usurious rates." It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on "loans." A contract of "loan," is very different contract from that of "rent". A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to return the same thing. To "loan," in general parlance, is to deliver to another for temporary use, on condition that the thing or its equivalent be returned; or to deliver for temporary use on condition that an equivalent in kind shall be returned with a compensation for its use. The word "loan," however, as used in the statute, has a technical meaning. It never means the return of the same thing. It means the return of an equivalent only, but never the same thing loaned. A "loan" has been properly defined as an advance payment of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the moment the contract is completed the money, goods or chattels given cease to be the property of the former owner and becomes the property of the obligor to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same. At all events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former owner and becomes the absolute property of the obligor. A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply loses control of the same in a limited way during the period of the contract of "rent" or lease. In a contract of "rent" the relation between the contractors is that of landlord and tenant. In a contract of "loan" of money, goods, chattels or credits, the relation between the parties is that of obligor and obligee. "Rent" may be defined as the compensation either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof. It is defined as the return or compensation for the possession of some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land, whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the other some

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nonconsumable thing, in order that the latter may use it during a certain period and return it to the former; whereas a contract of "loan", as that word is used in the statute, signifies the delivery of money or other consumable things upon condition of returning an equivalent amount of the same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under the civil law, it is called a "commodatum." From the foregoing it will be seen that there is a while distinction between a contract of "loan," as that word is used in the statute, and a contract of "rent" even though those words are used in ordinary parlance as interchangeable terms. The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the use and occupation of the property may depend upon a thousand different conditions; as for example, farm lands of exactly equal productive capacity and of the same physical value may have a different rental value, depending upon location, prices of commodities, proximity to the market, etc. Houses may have a different rental value due to location, conditions of business, general prosperity or depression, adaptability to particular purposes, even though they have exactly the same original cost. A store on the Escolta, in the center of business, constructed exactly like a store located outside of the business center, will have a much higher rental value than the other. Two places of business located in different sections of the city may be constructed exactly on the same architectural plan and yet one, due to particular location or adaptability to a particular business which the lessor desires to conduct, may have a very much higher rental value than one not so located and not so well adapted to the particular business. A very cheap building on the carnival ground may rent for more money, due to the particular circumstances and surroundings, than a much more valuable property located elsewhere. It will thus be seen that the rent to be paid for the use and occupation of property is not necessarily fixed upon the value of the property. The amount of rent is fixed, based upon a thousand different conditions and may or may not have any direct reference to the value of the property rented. To hold that "usury" can be based upon the comparative actual rental value and the actual value of the property, is to subject every landlord to an annoyance not contemplated by the law, and would create a very great disturbance in every business or rural community. We cannot bring ourselves to believe that the Legislature contemplated any such disturbance in the equilibrium of the business of the country. In the present case the property in question was sold. It was an absolute sale with the right only to repurchase. During the period of redemption the purchaser was the absolute owner of the property. During the period of redemption the vendor was not the owner of the property. During the period of redemption the vendor was a tenant of the purchaser. During the period of redemption the relation which existed between the vendor and the vendee was that of landlord and tenant. That relation can only be terminated by a repurchase of the property by the vendor in accordance with the terms of the said contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No. 2655. As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right to make contracts for parties. They made their own contract in the present case. There is not a word, a phrase, a sentence or paragraph, which in the slightest way indicates that the parties to the contract in question did not intend to sell the property in question absolutely, simply with the right to repurchase. People who make their own beds must lie thereon. What has been said above with reference to the right to modify contracts by parol evidence, sufficiently answers the third questions presented above. The language of the contract is explicit, clear, unambiguous and beyond question. It expresses the exact intention of the

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parties at the time it was made. There is not a word, a phrase, a sentence or paragraph found in said contract which needs explanation. The parties thereto entered into said contract with the full understanding of its terms and should not now be permitted to change or modify it by parol evidence. With reference to the improvements made upon said property by the plaintiffs during the life of the contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separate action the right guaranteed to them under article 361 of the Civil Code. For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relation with the law applicable thereto, that the judgment appealed from should be and is hereby affirmed, with costs. So ordered. Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ., concur.

G.R. No. 112485

August 9, 2001

EMILIA MANZANO, petitioner, vs. MIGUEL PEREZ SR., LEONCIO PEREZ, MACARIO PEREZ, FLORENCIO PEREZ, NESTOR PEREZ, MIGUEL PEREZ JR. and GLORIA PEREZ,respondents. PANGANIBAN, J.: Courts decide cases on the basis of the evidence presented by the parties. In the assessment of the facts, reason and logic are used. In civil cases, the party that presents a preponderance of convincing evidence wins. The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the March 31, 1993 Decision1 of the Court of Appeals (CA)2 in CA-GR CY No. 32594. The dispositive part of the Decision reads: "WHEREFORE, the judgment appealed from is hereby REVERSED and another one is entered dismissing plaintiff's complaint." On the other hand, the Judgment3 reversed by the CA ruled in this wise: "WHEREFORE, premises considered, judgment is hereby rendered: 1) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the properties in question void or simulated; 2) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the properties in question rescinded; 3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez, Florencio Perez, Miguel Perez, Jr., Nestor Perez and Gloria Perez to execute an Extra Judicial

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Partition with transfer over the said residential lot and house, now covered and described in Tax Declaration Nos. 1993 and 1994, respectively in the name of Nieves Manzano (Exh. 'Q' & 'P'), subject matter of this case, in favor of plaintiff Emilia Manzano; 4) Ordering the defendants to pay plaintiff: a) P25,000.00 as moral damages; b) P10,000.00 as exemplary damages; c) P15,000.00 as and for [a]ttorney's fees; and d) to pay the cost of the suit."4 The Motion for Reconsideration filed by petitioner before the CA was denied in a Resolution dated October 28, 1993.5 The Facts The facts of the case are summarized by the Court of Appeals as follows: "[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of a residential house and lot, more particularly described hereunder: 'A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan), together with all the improvements thereon, situated at General Luna Street, Siniloan, Laguna. Bounded on the North by Callejon; on the East, by [a] town river; on the South by Constancia Adofina; and on the West by Gen. Luna Street. Containing an area of 130 square meters more or less, covered by Tax Dec. No. 9583 and assessed at P1,330.00. 'A residential house of strong mixed materials and G.I. iron roofing, with a floor area of 40 square meters, more or less. Also covered by Tax No. 9583.' "In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of the herein [private respondents], allegedly borrowed the aforementioned property as collateral for a projected loan. The [petitioner] acceded to the request of her sister upon the latter's promise that she [would] return the property immediately upon payment of her loan. "Pursuant to their understanding, the [petitioner] executed two deeds of conveyance for the sale of the residential lot on 22 January 1979 (Exhibit 'J') and the sale of the house erected thereon on 2 February 1979 (Exhibit 'K'), both for a consideration of P1.00 plus other valuables allegedly received by her from Nieves Manzano. "On 2 April 1979, Nieves Manzano, together with her husband, [respondent] Miguel Perez, Sr., and her son, [respondent] Macario Perez, obtained a loan from the Rural Bank of Infanta, Inc. in the sum of P30,000.00. To secure payment of their indebtedness, they executed a Real Estate Mortgage (Exhibit 'A') over the subject property in favor of the bank.

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"Nieves Manzano died on 18 December 1979 leaving her husband and children as heirs. These heirs, [respondents] herein, allegedly refused to return the subject property to the [petitioner] even after the payment of their loan with the Rural Bank (Exhibit 'B'). "The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and that the unwarranted refusal of the [respondents] to return the property caused her sleepless nights, mental shock and social humiliation. She was, likewise, allegedly constrained to engage the services of a counsel to protect her proprietary rights. "The [petitioner] sought the annulment of the deeds of sale and execution of a deed of transfer or reconveyance of the subject property in her favor, the award of moral damages of not less than P50,000.00, exemplary damages of P10,000.00, attorney's fees of P10,000.00 plus P500.00 per court appearance, and costs of suit. "In seeking the dismissal of the complaint, the [respondents] countered that they are the owners of the property in question being the legal heirs of Nieves Manzano who purchased the same from the [petitioner] for value and in good faith, as shown by the deeds of sale which contain the true agreements between the parties therein; that except for the [petitioner's] bare allegations, she failed to show any proof that the transaction she entered into with her sister was a loan and not a sale. "By way of special and affirmative defense, the [respondents] argued that what the parties to the [sale] agreed upon was to resell the property to the [petitioner] after the payment of the loan with the Rural Bank. But since the [respondents] felt that the property is the only memory left by their predecessor-in-interest, they politely informed the [petitioner] of their refusal to sell the same. The [respondents] also argued that the [petitioner] is now estopped from questioning their ownership after seven (7) years from the consummation of the sale. "As a proximate result of the filing of this alleged baseless and malicious suit, the [respondents] prayed as counterclaim the award of moral damages in the amount of P10,000.00 each, exemplary damages in an amount as may be warranted by the evidence on record, attorney's fees of P10,000.00 plus P500.00 per appearance in court and costs of suit. "In ruling for the [petitioner], the court a guo considered the following: 'First, the properties in question after [they have] been transferred to Nieves Manzano, the same were mortgaged in favor of the Rural Bank of Infante, Inc. (Exh. 'A') to secure payment of the loan extended to Macario Perez.' 'Second, the documents covering said properties which were given to the bank as collateral of said loan, upon payment and [release] to the [private respondents], were returned to [petitioner] by Florencio Perez, one of the [private respondents].' '[These] uncontroverted facts [are] a clear recognition [by private respondents] that [petitioner] is the owner of the properties in question.' xxx xxx xxx "'

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'Third, [respondents'] pretense of ownership of the properties in question is belied by their failure to present payment of real estate taxes [for] said properties, and it is on [record] that [petitioner] has been paying the real estate taxes [on] the same (Exh. 'T', 'V', 'V-1', 'V-2' & 'V- 3')." xxx xxx xxx 'Fourth, [respondents] confirmed the fact that [petitioner] went to the house in question and hacked the stairs. According to [petitioner] she did it for failure of the [respondents] to return and vacate the premises. [Respondents] did not file any action against her.' 'This is a clear indication also that they (respondents) recognized [petitioner] as owner of said properties.' xxx xxx xxx 'Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and the same was sent to her (Exh. 'F' & 'G'). xxx xxx xxx 'Sixth, upon request of the [petitioner] to return said properties to her, [respondents] did promise and prepare an Extra Judicial Partition with Sale over said properties in question, however the same did not materialize. The other heirs of Nieves Manzano did not sign." xxx xxx xxx 'Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of the properties in question is P1.00 and other things of value. [Petitioner] denies she has received any consideration for the transfer of said properties, and the [respondents] have not presented evidence to belie her testimony."6 Ruling of the Court of Appeals The Court of Appeals was not convinced by petitioner's claim that there was a supposed oral agreement of commodatum over the disputed house and lot. Neither was it persuaded by her allegation that respondents' predecessor-in-interest had given no consideration for the sale of the property in the latter's favor. It explained as follows: "To begin with, if the plaintiff-appellee remained as the rightful owner of the subject property, she would not have agreed to reacquire one-half thereof for a consideration of P10,000.00 (Exhibit 'U-1'). This is especially true if we are to accept her assertion that Nieves Manzano did not purchase the property for value. More importantly, if the agreement was to merely use plaintiff's property as collateral in a mortgage loan, it was not explained why physical possession of the house and lot had to be with the supposed vendee and her family who even built a pigpen on the lot (p. 6, TSN, June 11, 1990). A mere execution of the document transferring title in the latter's name would suffice for the purpose.

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"The alleged failure of the defendants-appellants to present evidence of payment of real estate taxes cannot prejudice their cause. Realty tax payment of property is not conclusive evidence of ownership (Director of Lands vs. Intermediate Appellate Court, 195 SCRA 38). Tax receipts only become strong evidence of ownership when accompanied by proof of actual possession of the property (Tabuena vs. Court of Appeals, 196 SCRA 650). "In this case, plaintiff-appell[ee] was not in possession of the subject property. The defendant-appellants were the ones in actual occupation of the house and lot which as aforestated was unnecessary if the real agreement was merely to lend the property to be used as collateral. Moreover, the plaintiff-appellee began paying her taxes only in 1986 after the instant complaint ha[d] been instituted (Exhibits 'V', 'V-1', 'V-2', 'V-3' and 'T'), and are, therefore, self-serving. "Significantly, while plaintiff-appellee was still the owner of the subject property in 1979 (Exhibit 'I'), the Certificate of Tax Declaration issued by the Office of the Municipal Treasurer on 8 August 1990 upon the request of the plaintiff-appellee herself (Exhibit 'W') named Nieves Manzano as the owner and possessor of the property in question. Moreover, Tax Declaration No. 9589 in the name of Nieves Manzano (Exhibits 'D' and 'D-1 ') indicates that the transfer of the subject property was based on the Absolute Sale executed before Notary Public Alfonso Sanvictores, duly recorded in his notarial book as Document No. 3157, Page 157, Book No. II. Tax Declaration No[s]. 9633 (Exhibit 'H'), 1994 (Exhibit 'P'), 1993 (Exhibit 'Q') are all in the name of Nieves Manzano. "There is always the presumption that a written contract [is] for a valuable consideration (Section 5 (r), Rule 131 of the Rules of Court; Gamaitan vs. Court of Appeals, 200 SCRA 37). The execution of a deed purporting to convey ownership of a realty is in itself prima facie evidence of the existence of a valuable consideration and xxx the party alleging lack of consideration has the burden of proving such allegation (Caballero, et al. vs. Caballero, et al., C.A. 45 O.G. 2536). "The consideration [for] the questioned [sale] is not the One (P1.00) Peso alone but also the other valuable considerations. Assuming that such consideration is suspiciously insufficient, this circumstance alone, is not sufficient to invalidate the sale. The inadequacy of the monetary consideration does not render a conveyance null and void, for the vendor's liberality may be a sufficient cause for a valid contract (Ong vs. Ong, 139 SCRA 133)."7 Hence, this Petition.8 Issues Petitioner submits the following grounds in support of her cause:9 "1. The Court of Appeals erred in failing to consider that: A) The introduction of petitioner's evidence is proper under the parol evidence rule. B) The rules on admission by silence apply in the case at bar.

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C) Petitioner is entitled to the reliefs prayed for. "2. The Court of Appeals erred in reversing the decision of the trial court whose factual findings are entitled to great respect since it was able to observe and evaluate the demeanor of the witnesses."10 In sum, the main issue is whether the agreement between the parties was a commodatum or an absolute sale. The Court's Ruling The Petition has no merit. Main Issue: Sale or Commodatum Obviously, the issue in this case is enveloped by a conflict in factual perception, which is ordinarily not reviewable in a petition under Rule 45. But the Court is constrained to resolve it, because the factual findings of the Court of Appeals are contrary to those of the trial court.11 Preliminarily, petitioner contends that the CA erred in rejecting the introduction of her parol evidence. A reading of the assailed Decision shows, however, that an elaborate discussion of the parol evidence rule and its exceptions was merely given as a preface by the appellate court. Nowhere therein did it consider petitioner's evidence as improper under the said rule. On the contrary, it considered and weighed each and every piece thereof. Nonetheless, it was not persuaded, as explained in the multitude of reasons explicitly stated in its Decision. This Court finds no cogent reason to disturb the findings and conclusions of the Court of Appeals. Upon close examination of the records, we find that petitioner has failed to discharge her burden of proving her case by a preponderance of evidence. This concept refers to evidence that has greater weight or is more convincing than that which is offered in opposition; at bottom, it means probability of truth.12 In the case at bar, petitioner has presented no convincing proof of her continued ownership of the subject property. In addition to her own oral testimony, she submitted proof of payment of real property taxes. But that payment, which was made only after her Complaint had already been lodged before the trial court, cannot be considered in her favor for being self-serving, as aptly explained by the CA. Neither can we give weight to her allegation that respondent's possession of the subject property was merely by virtue of her tolerance. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our Rules.13 On the other hand, respondents presented two Deeds of Sale, which petitioner executed in favor of the former's predecessor-in-interest. Both Deeds - for the residential lot and for the house erected thereon - were each in consideration of P1.00 "plus other valuables." Having been notarized, they are presumed to have been duly executed. Also, issued in favor of respondents' predecessor-in-interest the day after the sale was Tax Declaration No. 9589, which covered the property. The facts alleged by petitioner in her favor are the following: (1) she inherited the subject house and lot from her parents, with her siblings waiving in her favor their claim over the same; (2) the property was mortgaged to secure a loan of P30,000 taken in the names of Nieves Manzano Perez and Respondent Miguel Perez; (3) upon full payment of the loan, the

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documents pertaining to the house and lot were returned by Respondent Florencio Perez to petitioner; (4) three of the respondents were signatories to a document transferring one half of the property to Emilia Manzano in consideration of the sum of ten thousand pesos, although the transfer did not materialize because of the refusal of the other respondents to sign the document; and (5) petitioner hacked the stairs of the subject house, yet no case was filed against her. 1wphi1.nt These matters are not, however, convincing indicators of petitioner's ownership of the house and lot. On the contrary, they even support the claim of respondents. Indeed, how could one of them have obtained a mortgage over the property, without having dominion over it? Why would they execute a reconveyance of one half of it in favor of petitioner? Why would the latter have to pay P10,000 for that portion if, as she claims, she owns the whole? Pitted against respondents' evidence, that of petitioner awfully pales. Oral testimony cannot, as a rule, prevail over a written agreement of the parties.14In order to contradict the facts contained in a notarial document, such as the two "Kasulatan ng Bilihang Tuluyan" in this case, as well as the presumption of regularity in the execution thereof, there must be clear and convincing evidence that is more than merely preponderant.15 Here, petitioner has failed to come up with even a preponderance of evidence to prove her claim. Courts are not blessed with the ability to read what goes on in the minds of people. That is why parties to a case are given all the opportunity to present evidence to help the courts decide on who are telling the truth and who are lying, who are entitled to their claim and who are not. The Supreme Court cannot depart from these guidelines and decide on the basis of compassion alone because, aside from being contrary to the rule of law and our judicial system, this course of action would ultimately lead to anarchy. We reiterate, the evidence offered by petitioner to prove her claim is sadly lacking. Jurisprudence on the subject matter, when applied thereto, points to the existence of a sale, not a commodatum over the subject house and lot. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 146364

June 3, 2004

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents. CARPIO, J.: The Case Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 December 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside

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the 11 November 1996 decision3 of the Regional Trial Court of Quezon City, Branch 81,4affirming the 15 December 1995 decision5 of the Metropolitan Trial Court of Quezon City, Branch 31.6 The Antecedents In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985. On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand. In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra refused. Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 ("MTC"). In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot. On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision reads: WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to: A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under him; B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for the use of the premises starting from the last demand; C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and D) pay the cost of suit. SO ORDERED.7 Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC"). On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:

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WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in accord with the law and evidence presented, and the same is hereby affirmed en toto. SO ORDERED.8 Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with the Supreme Court a "Motion for Extension of Time to File Appeal by Certiorari Based on Rule 42" ("motion for extension"). Guevarra theorized that his appeal raised pure questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13 December 1996 or one day before the right to appeal expired. On 3 January 1997, Guevarra filed his petition for review with the Supreme Court. On 8 January 1997, the First Division of the Supreme Court issued a Resolution9 referring the motion for extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no special and important matter for the Supreme Court to take cognizance of at the first instance. On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution10 granting the motion for extension conditioned on the timeliness of the filing of the motion. On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On 11 April 1997, Pajuyo filed his Comment. On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of the decision reads: WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943 is REVERSED andSET ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant is without factual and legal basis. SO ORDERED.11 Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have dismissed outright Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping. On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The dispositive portion of the resolution reads: WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs. SO ORDERED.12 The Ruling of the MTC

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The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of the house illegal. The Ruling of the RTC The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the house on demand. The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National Government Center Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights under these laws. The RTC declared that in an ejectment case, the only issue for resolution is material or physical possession, not ownership. The Ruling of the Court of Appeals The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the contested lot which the government owned. Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot because it is public land. The assignment of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where they are. The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but acommodatum because the agreement is not for a price certain. Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra has a better right over the property under Proclamation No. 137. President Corazon C. Aquino ("President Aquino") issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project ("the Code"), the actual occupant or caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the hierarchy of priority. In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed his motion for extension beyond the period to appeal. The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was stamped "13 December 1996 at 4:09 PM" by the Supreme Courts Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra filed the motion for extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary period on 14 December 1996. Thus, the motion for

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extension properly complied with the condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for review was deemed granted because of such compliance. The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for review because it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal of the case after he had extensively argued on the merits of the case. This technicality, the appellate court opined, was clearly an afterthought. The Issues Pajuyo raises the following issues for resolution: WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION: 1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file petition for review at the time when there was no more period to extend as the decision of the Regional Trial Court had already become final and executory. 2) in giving due course, instead of dismissing, private respondents Petition for Review even though the certification against forum-shopping was signed only by counsel instead of by petitioner himself. 3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and in holding that "the ejectment case filed against defendant-appellant is without legal and factual basis". 4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q96-26943 and in holding that the parties are in pari delicto being both squatters, therefore, illegal occupants of the contested parcel of land. 5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government Center Housing Project instead of deciding the same under the Kasunduan voluntarily executed by the parties, the terms and conditions of which are the laws between themselves.13 The Ruling of the Court The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is submitting for resolution. Procedural Issues Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the RTC decision had already become final and executory when the appellate court acted on Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead

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of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a petition for review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension with this Court did not toll the running of the period to perfect the appeal. Hence, when the Court of Appeals received the motion, the period to appeal had already expired. We are not persuaded. Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of Appeals by petition for review in cases involving questions of fact or mixed questions of fact and law.14 Decisions of the regional trial courts involving pure questions of law are appealable directly to this Court by petition for review.15 These modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure. Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for extension to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for review gives the impression that the issues he raised were pure questions of law. There is a question of law when the doubt or difference is on what the law is on a certain state of facts.16 There is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.17 In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a Presidential Proclamation governing the lot on which a squatters structure stands be considered in an ejectment suit filed by the owner of the structure? These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However, some factual questions still have to be resolved because they have a bearing on the legal questions raised in the petition for review. These factual matters refer to the metes and bounds of the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137. The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,18 we declared that the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,19 we clarified that the prohibition against granting an extension of time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation and research to present a persuasive position.20 The drafting of the petition for review entails more time and effort than filing a notice of appeal.21 Hence, the Court of Appeals may allow an extension of time to file a petition for review. In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we held that Liboros clarification ofLacsamana 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

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limited to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant a longer period. A judgment becomes "final and executory" by operation of law. Finality of judgment becomes a fact on the lapse of the reglementary period to appeal if no appeal is perfected.23 The RTC decision could not have gained finality because the Court of Appeals granted the 30-day extension to Guevarra. The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension. The Court of Appeals gave due course to the motion for extension because it complied with the condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give due course to the motion for extension if filed on time. The motion for extension met this condition. The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing of the motion for extension.24 It is the date of the filing of the motion or pleading, and not the date of execution, that determines the timeliness of the filing of that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing stamped on it is the reckoning point for determining the timeliness of its filing. Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to appeal. Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for review. A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is estopped from attacking the jurisdiction of the court.25 Estoppel sets in not because the judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the courts jurisdiction after voluntarily submitting to it is against public policy.26 In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification, claiming that the counsels verification is insufficient since it is based only on "mere information." A partys failure to sign the certification against forum shopping is different from the partys failure to sign personally the verification. The certificate of non-forum shopping must be signed by the party, and not by counsel.27 The certification of counsel renders the petition defective.28 On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite.29 It is intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith.30 The party need not sign the

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verification. A partys representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the verification.31 We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue too late in the proceedings. Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of Possession Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court of its jurisdiction over the ejectment case.32 Even if the pleadings raise the issue of ownership, the court may pass on such issue to determine only the question of possession, especially if the ownership is inseparably linked with the possession.33 The adjudication on the issue of ownership is only provisional and will not bar an action between the same parties involving title to the land.34 This doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is the physical or material possession over the real property.35 In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested property and that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case? The Court of Appeals believed so and held that it would just leave the parties where they are since they are in pari delicto. We do not agree with the Court of Appeals. Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of the possession when necessary to resolve the issue of physical possession.36 The same is true when the defendant asserts the absence of title over the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case. The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical possession of the premises, that is, to the possession de facto and not to the possession de jure.37 It does not even matter if a partys title to the property is questionable,38 or when both parties intruded into public land and their applications to own the land have yet to be approved by the proper government agency.39 Regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.40 Neither is the unlawful withholding of property allowed. Courts will always uphold respect for prior possession. Thus, a party who can prove prior possession can recover such possession even against the owner himself.41 Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him.42 To repeat, the only issue that the court has to settle in an ejectment suit is the right to physical possession.

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In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did not authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had prior possession and had already introduced improvements on the public land. The plaintiff had a pending application for the land with the Bureau of Lands when the defendant ousted him from possession. The plaintiff filed the action of forcible entry against the defendant. The government was not a party in the case of forcible entry. The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the application of the plaintiff was still pending, title remained with the government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff, by priority of his application and of his entry, acquired prior physical possession over the public land applied for as against other private claimants. That prior physical possession enjoys legal protection against other private claimants because only a court can take away such physical possession in an ejectment case. While the Court did not brand the plaintiff and the defendant in Pitargue44 as squatters, strictly speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners permission. Title to the land remained with the government because it had not awarded to anyone ownership of the contested public land. Both the plaintiff and the defendant were in effect squatting on government property. Yet, we upheld the courts jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in the ejectment case did not have any title over the contested land. Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his.45 The party deprived of possession must not take the law into his own hands.46 Ejectment proceedings are summary in nature so the authorities can settle speedily actions to recover possession because of the overriding need to quell social disturbances.47 We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made the following pronouncements in Pitargue: The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving these public lands before final award is made by the Lands Department, and before title is given any of the conflicting claimants? It is one of utmost importance, as there are public lands everywhere and there are thousands of settlers, especially in newly opened regions. It also involves a matter of policy, as it requires the determination of the respective authorities and functions of two coordinate branches of the Government in connection with public land conflicts. Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the American occupation, or in the new, we have a possessory action, the aim and purpose of which is the recovery of the physical possession of real property, irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of

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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

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alienation of public lands. On the other hand, if courts were deprived of jurisdiction of cases involving conflicts of possession, that threat of judicial action against breaches of the peace committed on public lands would be eliminated, and a state of lawlessness would probably be produced between applicants, occupants or squatters, where force or might, not right or justice, would rule. It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting applicants or claimants would be no other than that of forcible entry. This action, both in England and the United States and in our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet possession may recover the possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can conclusion be arrived at that the use of the remedy in the courts of justice would constitute an interference with the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it be pretended at all that its result would in any way interfere with the manner of the alienation or disposition of the land contested? On the contrary, it would facilitate adjudication, for the question of priority of possession having been decided in a final manner by the courts, said question need no longer waste the time of the land officers making the adjudication or award. (Emphasis ours) The Principle of Pari Delicto is not Applicable to Ejectment Cases The Court of Appeals erroneously applied the principle of pari delicto to this case. Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto. We explained the principle of pari delicto in these words: The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement. It leaves the parties where it finds them.49 The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these exceptions is where the application of the pari delicto rule would violate well-established public policy.50 In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions of forcible entry and unlawful detainer. We held that: It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be turned out by strong hand, violence or terror. In affording this remedy of restitution the object of the statute is to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort

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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.53Even the owner who has title over the disputed property cannot take the law into his own hands to regain possession of his property. The owner must go to court. Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The determination of priority and superiority of possession is a serious and urgent matter that cannot be left to the squatters to decide. To do so would make squatters receive better treatment under the law. The law restrains property owners from taking the law into their own hands. However, the principle of pari delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or violently retake possession of properties usurped from them. Courts should not leave squatters to their own devices in cases involving recovery of possession. Possession is the only Issue for Resolution in an Ejectment Case The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court held that the pivotal issue in this case is who between Pajuyo and Guevarra has the "priority right as beneficiary of the contested land under Proclamation No. 137."54 According to the Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual occupant or caretaker is the one qualified to apply for socialized housing. The ruling of the Court of Appeals has no factual and legal basis. First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it declared open for disposition to bona fide residents. The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137. He failed to do so. Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.

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There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September 1994. During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take any step to comply with the requirements of Proclamation No. 137. Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a pending application over the lot, courts should still assume jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts would be limited to the issue of physical possession only. In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving public land to determine the issue of physical possession. The determination of the respective rights of rival claimants to public land is, however, distinct from the determination of who has the actual physical possession or who has a better right of physical possession.56 The administrative disposition and alienation of public lands should be threshed out in the proper government agency.57 The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the decision of the administrative agency mandated by law to determine the qualifications of applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder and breaches of peace.58 Pajuyo is Entitled to Physical Possession of the Disputed Property Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it. Guevarra expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads: Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng "walang bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote. Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo. Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos demand to vacate. These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from another of the possession of real property to which the latter is entitled after

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the expiration or termination of the formers right to hold possessionunder a contract, express or implied.59 Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will lie.60 The defendants refusal to comply with the demand makes his continued possession of the property unlawful.61 The status of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance of the owner.62 This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use the property. TheKasunduan expressly articulated Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued possession of the property unlawful. We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum. In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it.63 An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period.64 Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted.65 If the bailor should have urgent need of the thing, he may demand its return for temporary use.66 If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium.67 Under 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 Kasunduandid not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease.69 The tenants withholding of the property would then be unlawful. This is settled jurisprudence. Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.70 These contracts certainly involve the obligation to deliver or return the thing received.71 Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void.

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Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra. The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as there would still be an implied promise to vacate. Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act."72 Guevarra bases his argument on the preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized housing. We are not convinced. Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is physical possession. Prior possession is not always a condition sine qua non in ejectment.73 This is one of the distinctions between forcible entry and unlawful detainer.74 In forcible entry, the plaintiff is deprived of physical possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession.75 But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right to possess under any contract, express or implied. In such a case, prior physical possession is not required.76 Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess the property ended as well. Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of actual possession. Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not mean that a man has to have his feet on every square meter of the ground before he is deemed in possession.77 One may acquire possession not only by physical occupation, but also by the fact that a thing is subject to the action of ones will.78 Actual or physical occupation is not always necessary.79 Ruling on Possession Does not Bind Title to the Land in Dispute We are aware of our pronouncement in cases where we declared that "squatters and intruders who clandestinely enter into titled government property cannot, by such act, acquire any legal right to said property."80 We made this declaration because the person who had title or who had the right to legal possession over the disputed property was a party in the ejectment suit and that party instituted the case against squatters or usurpers.

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In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is between squatters. Had the government participated in this case, the courts could have evicted the contending squatters, Pajuyo and Guevarra. Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts in settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession just because they are squatters would have the same dangerous implications as the application of the principle of pari delicto. Squatters would then rather settle the issue of physical possession among themselves than seek relief from the courts if the plaintiff and defendant in the ejectment case would both stand to lose possession of the disputed property. This would subvert the policy underlying actions for recovery of possession. Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until a person who has title or a better right lawfully ejects him. Guevarra is certainly not that person. The ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing evidence and presenting arguments before the proper administrative agency to establish any right to which they may be entitled under the law.81 In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical possession does not affect title to the property nor constitute a binding and conclusive adjudication on the merits on the issue of ownership.82 The owner can still go to court to recover lawfully the property from the person who holds the property without legal title. Our ruling here does not diminish the power of government agencies, including local governments, to condemn, abate, remove or demolish illegal or unauthorized structures in accordance with existing laws. Attorneys Fees and Rentals The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.83 Thus, the award of attorneys fees is the exception rather than the rule.84 Attorneys fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.85 We therefore delete the attorneys fees awarded to Pajuyo. We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not dispute this factual finding of the two courts. We find the amount reasonable compensation to Pajuyo. The P300 monthly rental is counted from the last demand to vacate, which was on 16 February 1995. WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is deleted. No costs. SO ORDERED.

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G.R. No. 115324

February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents. CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution2 dated May 5, 1994, denying the motion for reconsideration of said decision filed by petitioner Producers Bank of the Philippines. Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation. She assured private respondent that he could withdraw his money from said account within a months time. Private respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchezs request.3 On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from Doronilla authorizing Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.4 Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that onlyP90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor of Sterela.5

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Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from Doronilla, assuring him that his money was intact and would be returned to him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private respondent. However, upon presentment thereof by private respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to present the same check on September 15, 1979 but when the latter presented the check, it was again dishonored.6 Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his clients money. Doronilla issued another check for P212,000.00 in private respondents favor but the check was again dishonored for insufficiency of funds.7 Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the dispositive portion of which reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally (a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of the complaint until the same is fully paid; (b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages; (c) the amount of P40,000.00 for attorneys fees; and (d) the costs of the suit. SO ORDERED.8 Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC.9 It likewise denied with finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.10 On June 30, 1994, petitioner filed the present petition, arguing that I. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION; II. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;

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III. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS; IV. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE; V. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.11 Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing private respondent with copy of the reply12 and several substitutions of counsel on the part of private respondent.13 On January 17, 2001, the Court resolved to give due course to the petition and required the parties to submit their respective memoranda.14 Petitioner filed its memorandum on April 16, 2001 while private respondent submitted his memorandum on March 22, 2001. Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount ofP212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank account.15 Moreover, the fact that private respondent sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was not merely gratuitous but "had a business angle" to it. Hence, petitioner argues that it cannot be held liable for the return of private respondentsP200,000.00 because it is not privy to the transaction between the latter and Doronilla.16 It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain any authorization for these two to withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings account.17 Petitioner points out that no evidence other than the testimonies of private respondent and Mrs. Vives was presented during trial to prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its incorporation.18 Hence, petitioner should not be held liable for allowing Doronilla to withdraw from Sterelas savings account.1a\^/phi1.net Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the findings of fact therein were not accord with the evidence presented by petitioner

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during trial to prove that the transaction between private respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from Sterelas savings account.19 Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual damages suffered by private respondent, and neither may it be held liable for moral and exemplary damages as well as attorneys fees.20 Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an accommodation,21 since he did not actually part with the ownership of his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same time, he retained some degree of control over his money through his wife who was made a signatory to the savings account and in whose possession the savings account passbook was given.22 He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for the return of his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterelas current account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as well as the approval of the authority to debit Sterelas savings account to cover any overdrawings in its current account.23 There is no merit in the petition. At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence presented by the parties during trial.24 The Courts jurisdiction is in principle limited to reviewing errors of law that might have been committed by the Court of Appeals.25 Moreover, factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court unless these findings are not supported by the evidence on record.26 There is no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this Court to review and overturn the factual findings of that court, especially since the conclusions of fact of the Court of Appeals and the trial court are not only consistent but are also amply supported by the evidence on record. No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise: By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest.

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In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the contract would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides: Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum. The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract.27 In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such determination.28 As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear "that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be returned within thirty (30) days."29 Private respondent merely "accommodated" Doronilla by lending his money without consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the transaction that the money would not be removed from Sterelas savings account and would be returned to private respondent after thirty (30) days. Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latters money deposited with petitioner. Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private respondents money because it was not privy to the transaction between Doronilla and private respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitioners liability for the return of private respondents money because the factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private respondents money and is liable for its restitution. Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings Account No. 10-1567 expressly states that "2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated, and neither a deposit nor a withdrawal will be permitted except

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upon the production of the depositor savings bank book in which will be entered by the Bank the amount deposited or withdrawn."30 Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals because he was party to Doronillas "scheme" of defrauding private respondent: XXX But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of the fraud but he likewise helped in devising the means by which it can be done in such manner as to make it appear that the transaction was in accordance with banking procedure. To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for "it will be easier for them to get a certification". In fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the amount of P200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x" (Exh. 1). This is a clear manifestation that the other defendants had been in consultation with Atienza from the inception of the scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.1awphi1.nt Then there is the matter of the ownership of the fund. Because of the "coordination" between Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her husband and the deposit was merely to accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives. Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could only be made by persons whose authorized signatures are in the signature cards on file with the bank. He, however, said that this procedure was not followed here because Sterela was owned by Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the time aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives that they were only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much amount to be sued in the incorporation of the firm. In the second place, the signature of Doronilla was not authorized in so far as that account is concerned

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inasmuch as he had not signed the signature card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw. Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings account to the current account was without the submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela because the original passbook had been surrendered to the Makati branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, was aware that the contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to her. Besides, as assistant manager of the branch and the bank official servicing the savings and current accounts in question, he also was aware that the original passbook was never surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no effect whatsoever. The circumstance surrounding the opening of the current account also demonstrate that Atienzas active participation in the perpetration of the fraud and deception that caused the loss. The records indicate that this account was opened three days later after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the current account considering that Doronilla was all the while in "coordination" with him. That it was he who facilitated the approval of the authority to debit the savings account to cover any overdrawings in the current account (Exh. 2) is not hard to comprehend. Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.31 Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks. To hold the employer liable under this provision, it must be shown that an employer-employee relationship exists, and that the employee was acting within the scope of his assigned task when the act complained of was committed.32 Case law in the United States of America has it that a corporation that entrusts a general duty to its employee is responsible to the injured party for damages flowing from the employees wrongful act done in the course of his general authority, even though in doing such act, the employee may have failed in its duty to the employer and disobeyed the latters instructions.33 There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in which account private respondents money was deposited, and in transferring the money withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in furtherance of petitioners interests34 even though in the process, Atienza violated some of petitioners rules such as those stipulated in its savings account passbook.35 It was established that the transfer of funds from Sterelas savings account to its current account could not have been accomplished by Doronilla without

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the invaluable assistance of Atienza, and that it was their connivance which was the cause of private respondents loss. The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from Sterelas savings account, and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of suit to private respondent. WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED. SO ORDERED.

MUTUUM G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. VENANCIO CONCEPCION, defendant-appellant. Recaredo Ma. Calvo for appellant. Attorney-General Villa-Real for appellee. MALCOLM, J.: By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest, were taken up and paid by July 17, 1919. "Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company. On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to imprisonment for

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one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs. Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921. Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one. The question presented are reduced to their simplest elements in the opinion which follows: I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747? Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan). The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit," II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"? Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount." In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction comes under the first or the latter denomination.

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Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name paper. Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name and not double-name paper. The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, so should we here lay down the same ruling. III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No. 2747? Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection, it should be recalled that the wife of the defendant held onehalf of the capital of this partnership. In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve two masters that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially interested in the success or failure of his wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the prohibition. Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director. That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for collateral security. In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said: What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the

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bank, against the temptation to which the directors and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the bank. In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said: We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made indirectly to him through his firm. IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment? As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who shall violate any of the provisions of the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal prosecution. This same question has been previously submitted and has received an answer adverse to such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with violations of the old law. V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law? Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of said Act provides a punishment not on the bank when it violates any provisions of the law, but on aperson violating any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section 35 is without penal sanction.lawph!l.net The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director separately and individually. (People vs. Concepcion, supra.) VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

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Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank. Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and public interest, constitutes the crime. And, in this instance, as previously demonstrated, the acts of the President of the Philippine National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling effect. Morse, in his work, Banks and Banking, section 125, says: It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest intent. JUDGMENT On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the law. Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

G.R. No. 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. GUERRERO, J: 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

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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 said justice. On the other hand, the answer of defendant Bank, 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; of 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 SV 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 SV 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: 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 decide on August 19, 1968 was null and void;

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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 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, executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in consideration of the sum of P100,000.00, P25,000.00 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 them, as it was on December 12, 1966 when they and their comaker 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.

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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: a) petitioners were never notified of the foreclosure sale. b) The notice of auction sale was not posted for the period required by law.

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c) 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 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 public 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, stares 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). 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.

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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. Thru 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 lose 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 the 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. 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

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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.

G.R. No. L-20240

December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE GRIJALDO, defendant-appellant. Office of the Solicitor General for plaintiff-appellee. Isabelo P. Samson for defendant-appellant. ZALDIVAR, J.: In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans are evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans were due one year after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental. By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loans in question, were subsequently transferred to the Republic of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under the administration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws. On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. The record shows that the appellant had actually received the written demand for payment, but he failed to pay.

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The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per annum compounded quarterly, computed as of December 31, 1959 was P2,377.23. On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. The appellee appealed to the Court of First Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and costs. The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court. In the present appeal the appellant contends: (1) that the appellee has no cause of action against the appellant; (2) that if the appellee has a cause of action at all, that action had prescribed; and (3) that the lower court erred in ordering the appellant to pay the amount of P2,377.23. In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract with the appellant. It is claimed that the transaction between the Taiwan Bank, Ltd. and the appellant, so that the appellee, Republic of the Philippines, could not legally bring action against the appellant for the enforcement of the obligation involved in said transaction. This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between the appellant and the Bank of Taiwan was a private contract of loan. However, pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the enemy country (Japan), were vested in the United States Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the Philippines. The successive transfer of the rights over the loans in question from the Bank of Taiwan, Ltd. to the United States Government, and from the United States Government to the government of the Republic of the Philippines, made the Republic of the Philippines the successor of the rights, title and interest in said loans, thereby creating a privity of contract between the appellee and the appellant. In defining the word "privy" this Court, in a case, said: The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one subrogated to it, etc. will be privies; in short, he who by succession is placed in the position of one of those who contracted the judicial relation and executed the private document and appears to be substituting him in the personal rights and obligation is a privy (Alpurto vs. Perez, 38 Phil. 785, 790).

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The United States of America acting as a belligerent sovereign power seized the assets of the Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the assets of the Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by international law, the United States succeeded to the rights and interests of said Bank of Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of, the property rights of the United States of America over the loans in question, the Republic of the Philippines had thereby become a privy to the original contracts of loan between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the Philippines has a legal right to bring the present action against the appellant Jose Grijaldo. The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing the amount of money representing the total sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops. In his second point of contention, the appellant maintains that the action of the appellee had prescribed. The appellant points out that the loans became due on June 1, 1944; and when the complaint was filed on January 17,1961 a period of more than 16 years had already elapsed far beyond the period of ten years when an action based on a written contract should be brought to court. This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the present case was brought by the Republic of the Philippines not as a nominal party but in the exercise of its sovereign functions, to protect the interests of the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code prescription, both acquisitive and extinctive, does not run against the State. This Court has held that the statute of limitations does not run against the right of action of the Government of the Philippines (Government of the Philippine Islands vs. Monte de Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of prescription of the action to collect the loan from the appellant was interrupted by the moratorium laws (Executive Orders No. 25, dated November 18, 1944; Executive Order No. 32. dated March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in

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question, as evidenced by the five promissory notes, were incurred in the year 1943, or during the period of Japanese occupation of the Philippines. This case is squarely covered by Executive Order No. 25, which became effective on November 18, 1944, providing for the suspension of payments of debts incurred after December 31, 1941. The period of prescription was, therefore, suspended beginning November 18, 1944. This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68), declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are unconstitutional; but in that case this Court ruled that the moratorium laws had suspended the prescriptive period until May 18, 1953. This ruling was categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-9396, August 16, 1956. It follows, therefore, that the prescriptive period in the case now before US was suspended from November 18,1944, when Executive Orders Nos. 25 and 32 were declared unconstitutional by this Court. Computed accordingly, the prescriptive period was suspended for 8 years and 6 months. By the appellant's own admission, the cause of action on the five promissory notes in question arose on June 1, 1944. The complaint in the present case was filed on January 17, 1961, or after a period of 16 years, 6 months and 16 days when the cause of action arose. If the prescriptive period was not interrupted by the moratorium laws, the action would have prescribed already; but, as We have stated, the prescriptive period was suspended by the moratorium laws for a period of 8 years and 6 months. If we deduct the period of suspension (8 years and 6 months) from the period that elapsed from the time the cause of action arose to the time when the complaint was filed (16 years, 6 months and 16 days) there remains a period of 8 years and 16 days. In other words, the prescriptive period ran for only 8 years and 16 days. There still remained a period of one year, 11 months and 14 days of the prescriptive period when the complaint was filed. In his third point of contention the appellant maintains that the lower court erred in ordering him to pay the amount of P2,377.23. It is claimed by the appellant that it was error on the part of the lower court to apply the Ballantyne Scale of values in evaluating the Japanese war notes as of June 1943 when the loans were incurred, because what should be done is to evaluate the loans on the basis of the Ballantyne Scale as of the time the loans became due, and that was in June 1944. This contention of the appellant is also without merit. The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959, plus interest rate of 6% per annum compounded quarterly from the date of the filing of the complaint. The sum total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is equivalent to P889.64 in genuine Philippine currency which was considered the aggregate amount due as principal of the five loans, and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on the principal sum of P889.64 compounded quarterly from the time the obligations were incurred in 1943. It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the obligation was incurred, and that was in June 1943. This stand of the appellee was upheld by the lower court; and the decision of the lower court is supported by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472), which states: ... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts after the liberation to the extent of the just obligation of the contracting parties and, as said notes have become worthless, in order that justice may be done and the party entitled to be paid can recover their actual value in Philippine

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Currency, what the debtor or defendant bank should return or pay is the value of the Japanese military notes in relation to the peso in Philippine Currency obtaining on the date when and at the place where the obligation was incurred unless the parties had agreed otherwise. ... . (italics supplied) IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant. Inasmuch as the appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in the execution of the judgment in the present case.

G.R. No. L-19189

November 27, 1922

FROILAN LOPEZ, plaintiff-appellant, vs. SALVADOR V. DEL ROSARIO and BENITA QUIOGUE DE V. DEL ROSARIO, defendantsappellants. Araneta and Zaragoza for plaintiff-appellant. Jose Espiritu and Gibbs, McDonough and Johnson for defendants-appellants. MALCOLM, J.: Both parties to this action appeal from the judgment of Judge Simplicio del Rosario of the Court of First Instance of Manila awarding the plaintiff the sum of 88,495.21 with legal interest from May 13, 1921, without special finding as to costs. The many points pressed by contending counsel can be best disposed of by, first, making a statement of the facts; next, considering plaintiff's appeal; next, considering defendant's appeal; and, lastly, rendering judgment. STATEMENT OF THE FACTS On and prior to June 6, 1920, Benita Quiogue de V. del Rosario, whom we will hereafter call Mrs. Del Rosario, was the owner of a bonded warehouse situated in the City of Manila. She was engaged in the business of a warehouse keeper, and stored copra and other merchandise in the said building. Among the persons who had copra deposited in the Del Rosario warehouse was Froilan Lopez, the holder of fourteen warehouse receipts in his own name, and the name of Elias T. Zamora. (Exhibits C, D, and R.) The warehouse receipts, or negotiable warrants, or quedans (as they are variously termed) of Lopez named a declared value of P107,990.40 (Exhibits L-1 to L-13). The warehouse receipts provided: (1) For insurance at the rate of 1 per cent per month on the declared value; (2) the company reserves to itself the right to raise and/or lower the rates of storage and/or of insurance on giving one calendar month's notice in writing; (3) this warrant carries no insurance unless so noted on the face hereof, cost of which is in addition to storage; (4) the time for which storage and/or insurance is charged is thirty (30) days; (5) payment for storage and/or insurance, etc., shall be made in advance, and/or within five (5) days after presentation of bill. It is admitted that insurance was paid by Lopez to May 18, 1920, but not thereafter.

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Mrs. Del Rosario secured insurance on the warehouse and its contents with the National Insurance Co., Inc., the Commercial Union Insurance Company, the Alliance Insurance Company, the South British Insurance Co., Ltd., and the British Traders Insurance Co., Ltd., in the amount of P404,800. All the policies were in the name of Sra. Benita Quiogue de V. del Rosario, with the exception of one of the National Insurance Company, Inc., for P40,000, in favor of the Compaia Coprera de Tayabas. (Exhibits N, O, P, R-1 to R-4.) The warehouse of Mrs. Del Rosario and its contents were destroyed by fire on June 6, 1920. The warehouse was a total loss, while of the copra stored therein, only an amount equal to P49,985 was salvaged. Following an unsuccessful attempt by Henry Hunter Bayne, Fire Loss Adjuster, to effect a settlement between the insurance companies and Mrs. Del Rosario, the latter, on August 24, 1920, authorized Attorney F. C. Fisher to negotiate with the various insurance companies. (Exhibit A.) As a result, an agreement between Mrs. Del Rosario and the insurance companies to submit the matter to administration was executed in September, 1920. (Exhibit B.) Mrs. Del Rosario laid claim before the arbitrators, Messrs. Muir and Campbell, to P419,683.95, and the proceeds of the salvage sale. The arbitrators in their report allowed Mrs. Del Rosario P363,610, which, with the addition of the money received from the salvaged copra amounting to P49,985, and interest, made a total of P414,258, collected by her from the companies. (Exhibits E, F, G, H, and Q.) Mrs. Del Rosario seems to have satisfied all of the persons who had copra stored in her warehouse, including the stockholders in the Compaia Coprera de Tayabas (whose stock she took over), with the exception of Froilan Lopez, the plaintiff. Ineffectual attempts by Mrs. Del Rosario to effect a compromise with Lopez first for P71,994, later raised to P72,724, and finally reduced to P17,000, were made. (Exhibits Y, 1, 3, 4, 6, 7, 8, 12.) But Lopez stubbornly contended, or, at least, his attorney contended for him, that he should receive not a centavo less than P88,595.43. (Exhibits 4, 5.) PLAINTIFF'S APPEAL Plaintiff, by means of his assignment of error, lays claim to P88,595.43 in lieu of P88,495.21 allowed by the trial court. The slight difference of P100.22 is asked for so that plaintiff can participate in the interest money which accrued on the amount received for the salvaged copra. (Exhibits EE and FF.) Defendant makes no specific denial of this claim. We think the additional sum should accrue to the plaintiff. Plaintiff's second and third assignment of error present the point that the defendant has fraudulently and even criminally refrained from paying the plaintiff, and that the plaintiff should recover interest at the rate of 12 per cent per annum. We fail to grasp plaintiff's point of view. The defendant has not sought to elude her moral and legal obligations. The controversy is merely one which unfortunately all too often arises between litigious persons. Plaintiff has exactly the rights of any litigant, equally situated, and no more. It has been the constant practice of the court to make article 1108 of the Civil Code the basis for the calculation of interest. Damages in the form of interest at the rate of 12 per cent, as claimed by the plaintiff, are too remote and speculative to be allowed. The deprivation of an opportunity for making money which might have proved beneficial or might have been ruinous is of too uncertain character to be weighed in the even balances of the law. (Civil Code, art. 1108; Gonzales Quiros vs. Palanca Tan-Guinlay [1906], 5 Phil., 675; Tin Fian vs. Tan [1909],

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14 Phil., 126; Sun Life Insurance Co. of Canada vs. Rueda Hermanos & Co. and Delgado [1918], 37 Phil., 844; Scvola, Codigo Civil, vol. 19, p. 576; 8 R. C. L., 463; 17 C. J., 864.) DEFENDANT'S APPEAL Counsel for defendant have adroitly and ingeniously attempted to avoid all liability. However, we remain unimpressed by many of these arguments.lawph!l.net Much time has been spent by counsel for both parties in discussing the question, of whether the defendant acted as the agent of the plaintiff, in taking out insurance on the contents of the bodega, or whether the defendant acted as a reinsurer of the copra. Giving a natural expression to the terms of the warehouse receipts, the first hypothesis is the correct one. The agency can be deduced from the warehouse receipts, the insurance policies, and the circumstances surrounding the transaction. After all, however, this is not so vitally important, for it might well be although we do not have to decide that under any aspect of the case, the defendant would be liable. The law is that a policy effected by bailee and covering by its terms his own property and property held in trust; inures, in the event of a loss, equally and proportionately to the benefit of all the owners of the property insured. Even if one secured insurance covering his own goods and goods stored with him, and even if the owner of the stored goods did not request or know of the insurance, and did not ratify it before the payment of the loss, yet it has been held by a reputable court that the warehouseman is liable to the owner of such stored goods for his share. (Snow vs. Carr [1878], 61 Ala., 363; 32 Am. Rep., 3; Broussard vs. South Texas Rice Co., [1910], 103 Tex., 535; Ann. Cas., 1913-A, 142, and note; Home Insurance Co. of New York vs. Baltimore Warehouse Co. [1876], 93 U. S., 527.) Moreover, it has not escaped our notice that in two documents, one the agreement for arbitration, and the other the statement of claim of Mrs. Del Rosario, against the insurance companies, she acknowledged her responsibility to the owners of the stored merchandise, against risk of loss by fire. (Exhibits B and C-3.) The award of the arbitrators covered not alone Mrs. Del Rosario's warehouse but the products stored in the warehouse by Lopez and others. Plaintiff's rights to the insurance money have not been forfeited by failure to pay the insurance provided for in the warehouse receipts. A preponderance of the proof does not demonstrate that the plaintiff ever ordered the cancellation of his insurance with the defendant. Nor is it shown that the plaintiff ever refused to pay the insurance when the bills were presented to him, and that notice of an intention to cancel the insurance was ever given the plaintiff. The record of the proceedings before the board of arbitrators, and its report and findings, were properly taken into consideration by the trial court as a basis for the determination of the amount due from the defendant to the plaintiff. In a case of contributing policies, adjustments of loss made by an expert or by a board of arbitrators may be submitted to the court not as evidence of the facts stated therein, or as obligatory, but for the purpose of assisting the court in calculating the amount of liability. (Home Insurance Co. vs. Baltimore Warehouse Co., supra.) Counsel for the defendant have dwelt at length on the phraseology of the policies of the National Insurance Company, Inc. Special emphasis has been laid upon one policy (Exhibit 9) in the name of the Compaia Coprera de Tayabas. In this connection it may be said that three

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members of the court, including the writer of this opinion, have been favorable impressed by this argument, and would have preferred at least to eliminate the policy for which premiums were paid, not by Mrs. Del Rosario on behalf of Lopez and others, but by Compaia Coprera de Tayabas. A majority of the court, however, believe that all the assets should be marshalled and that the plaintiff should receive the benefit accruing from the gross amount realized from all the policies. Consequently, no deduction for this claim can be made. The remaining contention of the defendant that the plaintiff cannot claim the benefits of the agency without sharing in the expenses, is well taken. Although the plaintiff did not expressly authorize the agreement to submit the matter to arbitration, yet on his own theory of the case, Mrs. Del Rosario was acting as his agent in securing insurance, while he benefits from the amicable adjustment of the insurance claims. As no intimation is made that the expenses were exorbitant, we necessarily accept the statement of the same appearing in Exhibits Q and 8. Of the insurance money, totalling P414,258, P382,558 was for copra and the remainder for buildings, corn, etc. The expenses for collecting the P414,258 totalled P33,600. 382,558/414,258 of 33,600 equals P31,028.85, the proportionate part of the expenses with reference to the copra. Of the expenses amounting, as we have said, to P31,028.85, plaintiff would be liable for his proportionate share or 88,595.43/382,558.00 of P31,028.85 or P7,185.875. The parties finally agree that the plaintiff at the time of the fire was indebted to the defendant for storage and insurance in the sum of P315.90. JUDGMENT In resume, the result is to sustain plaintiff's first assignment of error and to overrule his second and third assignments of error, to overrule defendant's assignment of error 1, 2, 3, and 4 in toto and to accede to defendant's assignments of error, 5, 6, and 7 in part. If our mathematics are correct, and the amounts can be figured in several different ways, plaintiff is entitled to P88,595.43 minus P7,185.88, his share of the expenses, minus P315.90, due for insurance and storage, or approximately a net amount of P81,093.65, with legal interest. This sum the defendant must disgorge. Wherefore, judgment is modified and the plaintiff shall have and recover from the defendants the sum of P81,093.65, with interest at 6 per cent per annum from May 13, 1921, until paid. Without special finding as to costs in either instance, it is so ordered.

G.R. No. L-32644

October 4, 1930

CU UNJIENG E HIJOS, plaintiff-appelle, vs. THE MABALACAT SUGAR CO., ET AL., defendants. THE MABALACAT SUGAR CO., appellant.

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Romeo Mercado for appellant. Araneta and Zaragoza for plaintiff-appellee. Duran and Lim for defendant-appellee Siuliong and Co. STREET, J.: This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for the purpose of recovering from the Mabalacat Sugar Company an indebtedness amounting to more than P163,00, with interest, and to foreclose a mortgage given by the debtor to secure the same, as well as to recover stipulated attorney's fee and the sum of P1,206, paid by the plaintiff for insurance upon the mortgaged property, with incidental relief. In the complaint Siuliong & Co., Inc., was joined as defendant, as a surety of the Mabalacat Sugar Company, and as having a third mortgage on the mortgaged property. The Philippine National Bank was also joined by reason of its interest as second mortgagee of the land covered by the mortgage to the plaintiff. After the cause had been brought to issue by the answers of the several defendants, the cause was heard and judgment rendered, the dispositive portion of the decision being as follows: Por las consideraciones expuestas, el Juzgado condena a The Mabalacat Sugar Company a pagar a la demandante la suma de P163,534.73, con sus intereses de 12 por ciento al ano, compuestos mensualmente desde el 1. de mayo de 1929. Tambien se le condena a pagar a dicha demandante la suma de P2,412 por las primas de seguros abonadas por esta, con sus intereses de 12 por ciento al ano, compuestos tambien mensualmente desde el 15 de mayo de 1928, mas la de P7,500 por honorarios de abogados y las costas del juicio. Y si esta deuda no se pagare dentro del plazo de tres meses, se ejecutaran los bienes hipotecados de acuerdo con la ley. Si del producto de la venta hubiese algun remanente, este se destinara al pago del credito del Banco Nacional, o sea de P32,704.69, con sus intereses de 9 por ciento al ano desde el 7 de junio de 1929, sin perjuicio de la orden de ejecucion que pudiera expedirse en el asundo No. 26435 del Juzgado de Primera Instancia de Manila. Se condena ademas a The Mabalacat Sugar Company al pago de la suma de P3,205.78 reclamada por Siuliong & Co., con sus intereses de 9 por ciento al ano desde el 29 de julio de 1926 hasta su completo pago, ordenandola que rinda cuentas del azucar por ella producido y pague la comision correspondiente bajo la base de 5 por ciento de su valor, descontandose, desde luego, las cantidades ya pagadas. Se absuelve de la demanda de Cu Unjieng e Hijos a Siuliong & Co., Inc.1awph!l.net From this judgment the defendant, the Mabalacat Sugar Company, appealed. The first point assigned as error has relation to the question whether the action was prematurely stated. In this connection we note that the mortgage executed by the Mabalacat Sugar Company contains, in paragraph 5, a provision to the effect that non-compliance on the part of the mortgage debtor with any of the obligations assumed in virtue of this contract will cause the entire debt to become due and give occasion for the foreclosure of the mortgage. The debtor party failed to comply with the obligation, imposed upon it in the mortgage, to pay the mortgage debt in the stipulated installments at the time specified in the contract. It results

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that the creditor was justified in treating the entire mortgage debt as having been accelerated by such failure of the debtor in paying the installments. It appears, however, that on or about October 20, 1928, the mortgage creditor, Cu Unjieng e Hijos, agreed to extend the time for payment of the mortgage indebtedness until June 30, 1929, with certain interim payments to be made upon specified dates prior to the contemplated final liquidation of the whole indebtedness. But the debtor party failed to make the interim payments due on February 25, 1929, March 25, 1929, and April 25, 1929, and failed altogether to pay the balance due, according to the terms of this extension, on June 30, 1929. Notwithstanding the failure of the debtor to comply with the terms of this extension, it is insisted for the appellant that this agreement for the extension of the time of payment had the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity of the debt by non-compliance with the terms of the mortgage. As the trial court pointed out, this contention is untenable. The agreement to extend the time of payment was voluntary and without consideration so far as the creditor is concerned; and the failure of the debtor to comply with the terms of the extension justified the creditor in treating it as of no effect. The first error is therefore without merit. The second error is directed to the propriety of the interest charges made by the plaintiff in estimating the amount of the indebtedness. In this connection we note that, under the second clause of the mortgage, interest should be calculated upon the indebtedness at the rate of 12 per cent per annum. In the same clause, but in a separate paragraph, there is another provision with respect to the payment of interest expressed in Spanish in the following words: Los intereses seran pagados mensualmente a fin de cada mes, computados teniendo en cuenta el capital del prestamo aun no pagado. Translated into English this provision reads substantially as follows: "Interest, to be computed upon the still unpaid capital of the loan, shall be paid monthly, at the end of each month." It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded; and rests for the computation of compound interest can certainly be made monthly, as well as quarterly, semiannually, or annually. But in the absence of express stipulation for the accumulation of compound interest, no interest can be collected upon interest until the debt is judicially claimed, and then the rate at which interest upon accrued interest must be computed is fixed at 6 per cent per annum. In the present case, however, the language which we have quoted above does not justify the charging of interest upon interest, so far as interest on the capital is concerned. The provision quoted merely requires the debtor to pay interest monthly at the end of each month, such interest to be computed upon the capital of the loan not already paid. Clearly this provision does not justify the charging of compound interest upon the interest accruing upon the capital monthly. It is true that in subsections (a), (b) and (c) of article IV of the mortgage, it is stipulated that the interest can be thus computed upon sums which the creditor would have to pay out (a) to maintain insurance upon the mortgaged property, (b) to pay the land tax upon the same property, and (c) upon disbursements that might be made by the mortgagee to maintain the property in good condition. But the chief thing is that interest cannot be thus accumulated on unpaid interest accruing upon the capital of the debt.

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The trial court was of the opinion that interest could be so charged, because of the Exhibit 1 of the Mabalacat Sugar Company, which the court considered as an interpretation by the parties to the contract and a recognition by the debtor of the propriety of compounding the interest earned by the capital. But the exhibit referred to is merely a receipt showing that the sum of P256.28 was, on March 19, 1928, paid by the debtor to the plaintiff as interest upon interest. But where interest is improperly charged, at an unlawful rate, the mere voluntary payment of it to the creditor by the debtor is not binding. Such payment, in the case before us, was usurious, being in excess of 12 per cent which is allowed to be charged, under section 2 of the Usury Law, when a debt is secured by mortgage upon real property. The Exhibit 1 therefore adds no support to the contention of the plaintiff that interest upon interest can be accumulated in the manner adopter by the creditor in this case. The point here ruled is in exact conformity with the decision of this court in Bachrach Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held that interest cannot be allowed in the absence of stipulation, or in default thereof, except when the debt is judicially claimed; and when the debt is judicially claimed, the interest upon the interest can only be computed at the rate of 6 per cent per annum. It results that the appellant's second assignment of error is well taken, and the compound interest must be eliminated from the judgment. With respect to the amount improperly charged, we accept the estimate submitted by the president and manager of the Mabalacat Sugar Company, who says that the amount improperly included in the computation made by the plaintiff's bookkeeper is P879.84, in addition to the amount of P256.28 covered by Exhibit 1 of the Mabalacat Sugar Company. But the plaintiff creditor had the right to charge interest, in the manner adopted by it, upon insurance premiums which it had paid out; and if any discrepancy of importance is discoverable by the plaintiff in the result here reached, it will be at liberty to submit a revised computation in this court, upon motion for reconsideration, wherein interest shall be computed in accordance with this opinion, that is to say, that no accumulation of interest will be permitted at monthly intervals, as regards the capital of the debt, but such unpaid interest shall draw interest at the rate of 6 per cent from the date of the institution of the action. In the third assignment of error the appellant complains, as excessive, of the attorney's fees allowed by the court in accordance with stipulation in the mortgage. The allowance made on the principal debt was around 4 per cent, and about the same upon the fee allowed to the bank. Under the circumstances we think the debtor has no just cause for complaint upon this score. The fourth assignment of error complains of the failure of the trial court to permit an amendment to be filed by the debtor to its answer, the application therefore having been made on the day when the cause had been set for trial, with notice that the period was nonextendible. The point was a matter in the discretion of the court, and no abuse of discretion is shown. From what has been stated, it follows that the appealed judgment must be modified by deducting the sum of P1,136.12 from the principal debt, so that the amount of said indebtedness shall be P162,398.61, with interest at 12 per cent per annum, from May 1, 1929. In other respects the judgment will be affirmed, and it is so ordered, with cost against the appellant.

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G.R. No. L-46326

February 14, 1940

C. H. HODGES, recurrente, vs. CARMEN REGALADO y MARIA GAY, recurridas. Sres. Gibbs y McDonough en representacion del recurrente. Sres. Hilado, Lorenzo y Hilado en representacion de la recurrida Carmen Regalado. DIAZ, J.: El recurrente promovio este proceso de certiorari para pedir la revision y modificacion de la sentencia dictada por el Tribunal de Apelacion, el 10 de agosto de 1938, fundandose en las razones que expresa en su alegato. Los hechos relacionados con las cuestiones que el recurrente plantea, son en sintesis como sigue: Las recurridas Carmen Regalado y Maria Gay celebraron un contrato con el recurrente, el 14 de junio de 1928 para comprar del ultimo tres parcelas, situadas dos de ellas en el municipio de Iloilo, y una en el municipio de Bago, siendo conocidas aquellas en el catastro del mencionado municipio de Iloilo, como lotes 210-B y 4280-B, y siendo a su vez conocida la ultima en el catastro de Bago, como lote 8123. El precio convenido de las tres, fue el de P17,362.80 pagadero dentro del plazo de 10 aos contados desde el otorgamiento de la escritura de compraventa (Exhibit 1), hasta el 13 de junio de 1938, mas sus intereses a razon de 1 por ciento al mes, pagaderos a su vez semestralmente, por adelantado, en la inteligencia de que si no se pagasen dichos intereses, seria exigible al momento, el pago integro del precio de compra. En la mencionada escritura de compraventa, Exhibit 1, consta que las partes que la otorgaron, estipularon, entre otras cosas, que se tenga por cierto que las recurridas pagaron en la misma fecha del otorgamiento de la escritura, por adelantado, los intereses de la expresada suma de P17,362.80, correspondientes al periodo comprendido entre el 13 del junio de 1928 y 31 de diciembre del mismo ao; "that the said vendees shall be let into immediate constructive possession of the above described properties, and shall have the right to collect rents from any occupants thereof from and after the date of this agreement; that the said vendees obligate themselves to maintain the properties above described in good condition, to make and keep in repair the buildings and improvements existing on the parcels of land above described situated in the municipality of .........................., and keep the same insured against loss by fire in a sum not less than P........................ and to pay the premiums therefor whenever same become due and payable; that they shall, likewise, pay promptly all taxes and assessments that may be now due or hereafter become due and payable on the properties described in paragraph one and two of this agreement and each of them; that time is of the essence of this agreement, and should the vendees fail to make payment of the purchase price, interest, taxes or assessments, premiums on insurance, or should they fail to comply faithfully with each and every obligation herein agreed upon in accordance with the terms of this agreement, any such failure shall constitute such a breach of this agreement as to make the entire amount of the purchase price remaining unpaid to become forthwith due and payable, and any violation whatsoever shall give the vendor the right to enforce payment of the total amount of the purchase price, together with interest and charges immediately, in which even an additional sum equal to ten per cent (10%) of the purchase price shall be added and paid to cover attorney's fees for enforcing payment; or should the vendor so determine he may rescind this agreement and be thereby relieved from all obligation or responsibility thereunder,

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and in that even all payments made on account of the purchase price, or interest, repairs or improvements, shall be retained by and be for the benefit of the vendor, and shall be considered as rents for the use of the properties by the vendees prior to the breach of this agreement, and all payments made on account of taxes or assessments, insurance premiums and the like shall also be for the benefit of the vendor, and the vendees shall have no claim for same or any part thereof; that it is expressly agreed that should the vendees fail to make any payments as herein required for taxes, assessments, repairs, insurance premiums and the like in accordance with the terms of this agreement, payment thereof may be made by the vendor, and charged to the account of the vendees and said payments shall bear interest from date hereof in the same manner and the same rate as the purchase price, it being expressly understood and agreed that payments thus made by the vendor shall in no way affect his right to enforce payment of the purchase price or to rescind the agreement as he may see fit; that should the vendor determine to rescind this agreement on account of the breach of the terms thereof by the vendees, then the latter shall deliver immediately the possession of all the properties and each of them to the vendor, and should judicial action become necessary to obtain possession of the said properties or either of them from the vendees, or any one holding under them, the sum of five hundred pesos (P500) shall be paid by the vendees to the vendor for attorney's fees in said action". (Clausulas 6, 7, 8, 9 y 10 del Exhibit 1.) Habiendo transcurrido tres aos desde la fecha del otorgamiento de la escritura Exhibit 1 sin que que las recurridas pagasen al recurrente nada a cuenta del precio de compra de los inmuebles de que se trata, ni a cuenta de los intereses que se obligaron a pagarle, dicho recurrente decidio promover contra las mismas, la causa civil No. 9794 del Juzgado de Primera Instancia de Iloilo, intitulada Hodges contra Regalado y Gay, para pedir la rescision de su contrato de compraventa Exhibit 1; la restitucion a el de la posesion de los referidos inmuebles y el pago a el, tambien, de la cantidad de P175.66 en concepto de alquiler de aquellos, desde el 14 de diciembre de 1931 mientras los mismos no le sean restituidos. Dictose sentencia en dicha causa, contra las recurridas que fueron declaradas en rebeldia, rescidiendo el contrato de compraventa, Exhibit 1, y ordenando a las mismas a restituir al recurrente la posesion de los referidos inmuebles, a pagarle en concepto de alquiler de los mismos la suma de P175.66 al mes, desde el 14 de diciembre de 1931 hasta que aquellos le sean restituidos, y a pagarle tambien la cantidad de P100 en concepto de honorarios de abogado, ademas de las costas del juicio. Esto fue en 22 de junio de 1934. Antes de esto, sin embargo, o sea el 13 de mayo de 1931, el recurrente presento a las recurridas un estado demostrativo de sus cuentas, siendo copia del mismo el Exhibit C que es de este tenor: STATEMENT OF ACCOUNT Messrs. MARIA Y GAY & CARMEN REGALADO To May 13, 1931 Balance unpaid . . . . . . . . . . . . . . . . . . . . . . P17,362.80 P3,993.49

MONEY ADVANCED ON VARIOUS ACCTS. 5/23 1929 taxes . . . . . . . . . . . . . . . . . . 5/23/30 1930 taxes . . . . . . . . . . . . . . . 13.09 389.09 3.08 45.39

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2/10/31 per statement below . . . . . . 2/10/31 per statement below . . . . . . 2/10/31 per statement below . . . . . . 5/12/31 1931 taxes . . . . . . . . . . . . . . .

862.33 .70 76.50 56.97

27.03 .02 2.40 .04

P18,761.48 P4,071.45 18,761.48 Total account 5/13/1931 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P22,832.93 17,362.80 5,470.13 Attorney's fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash advanced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on pawn tickets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on contract dated June 14, 1928 from June 13, 1931, to December 13, 1931 in advance . . . . . . . . . . . . . . Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200.00 480.00 20.00 280.15 1,014.77 7,492.05

We, the undersigned, hereby certify that the foregoing statement is true and correct and to our full satisfaction. We hereby notify the documents we signed before Notary Public Mr. Rosario R. Borromeo referring to the P7,492.05 negotiation with you we having read and understood them thoroughly before we signed them. Also the document of ......................... which I obligate myself to buy from you the properties both in ...................... to my entire satisfaction. Yo, el abajo firmante, lo certifico que el estado de cuenta arriba detallado es verdadera y correcta y a mi entera satisfaccion. El que suscribe ratifica que el documento firmado ante el Notario Publico Sr. Rosauro R. Borromeo referente a la cantidad de P7,492.05 negociado con Vd. lo he firmado despues de haber leido entendido. Asi como tambien el documento .................. por el cual me obligo a comprar de Vd., ambas propiedades estan en ............................, todas a mi entera satisfaccion.

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Conforme: (Fdas.) CARMEN REGALADO MARIA GAY Witnessed by: FIRMA ILEGIBLE FIRMA ILEGIBLE Al mismo tiempo que esto hacia el recurrente, requirio a las dos recurridas que otorgasen a su favor el pagare Exhibit A, que representa el saldo que muestra en su faz el mencionado Exhibit C. Copiado literalmente, dice el referido pagare, Exhibit A, lo siguiente: P7,492.05 ILOILO, P. I.,May 13, 1931

On or before June 13, 1938 for value received, we or either of us, jointly and severally promise to pay to C. N. Hodges or order in his office in the city of Iloilo, P. I., the sum of P7,492.05 Philippine currency with the interest at the rate of one per cent per month until paid, interest payable yearly. The makers, sureties, endorsers and grantors of this note, hereby severally waive presentment for payment, notice of one-payment, protest and notice of protest and diligence in bringing suit against any party hereto, and consent that time of payment may be extended without notice to or consent of sureties, endorsers or grantors this note. If not paid when due we severally agree to pay all costs and expenses of collection including attorney's fees of ten per cent of the principal and interests hereon. It is hereby agreed that if default be made in payment of interest when due and payable punctually on the first day of each and every month following, this note with accrued interest thereon shall at once become due and payable. It is further agreed that if default be made in the payment of principal or interest of this note as when same becomes due and payable, an additional sum equal to P700 shall be paid to the holder or holders hereof as attorney's fees and costs of collection. And, it is further agreed that if interest of this note is not paid punctually when due on the date as above stated, then the unpaid interest shall be added to the capital hereby secured and will bear interest at like rate, until paid. This note is one of a series of .............. notes, each of like amount and even date herewith for the total sum of P............... (Fdas.) CARMEN REGALADO MARIA GAY Para su mayor resguardo, el recurrente requirio tambien en la misma fecha, 13 de mayo de 1931, a la recurrida Carmen Relagado, a otorgar como en efecto ella otorgo, a su favor, una escritura de hipoteca para garantizarle el pago de la cantidad indicada en

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el pagare Exhibit A, siendo dicha escritura la que obra en autos, como Exhibit B. Entre las condiciones impuestas a dicha recurrida en esta ultima escritura, hay estas que siguen: Dicha deudora hipotecaria se convino ademas, a pagar la cantidaad especificada en el pagare arriba descrito con los intereses en el mencionados, segun las condiciones mencionadas en el mismo, y tambien pagara por su cuenta en el dia de su vencimiento todas las cargas y contribuciones que pesaren sobre dichos bienes aqui hipotecados, o los que se han de imponerse sobre dichos bienes objetos de la presente hipoteca. Conviene .......... deudor .......... hipotecaria .......... en que hara asegurar los bienes hipotecados contra el riesgo de perdida o detrimento por efectos de incendio o accidente, por el periodo de un ao a contar desde la fecha actual, en cualquier compaia o cualesquiera compaias de seguros sean aceptables al acreedor hipotecario, en una cantidad que no sea menos que el precio de compra, de dichos bienes; que vera a que se haya de pagar al acreedor hipotecario, segun pueda constar el interes de esta, cualquier indemnizacion de perdida que haya con arreglo a la poliza o polizas de seguro; y conviene ademas .......... referid .......... hipotecari .......... en que no entregarse dentro de los cinco dias subsiguientes al otorgamiento de esta hipoteca tal poliza o tales polizas de seguro endosadas a favor del acreedor hipotecario, podra este, si asi lo conviene, efectuar tal seguro por cuenta de .......... deudor .......... hipotecari .......... y que cualesquiera cantidad o cantidades desembolsadas por el acreedor hipotecario a ese efecto quedaran en seguida debidas y exigibles y se agregaran al adeudamiento principal garantizado por la presente hipoteca y devengaran intereses al mismo tipo. Queda estipulado por la presente que el acreedor hipotecario, o su representante debidamente autorizado, tendra en todo tiempo el derecho de inspeccionar los susodichos bienes, y que si se vendiesen o diesen en prenda o cediesen cualesquiera de dichos bienes, sin que a ello consintiera la acreedora hipotecaria, o si se embargasen los mismos sea preventivamente sea con arreglo a sentencia judicial o bien si dejase .......... deudor .......... hipotecari .......... de satisfacer al acreedor hipotecario en el dia de su vencimiento adeudamiento cualquiera incurrido por respuesto, equipo, o reparaciones suministrados y efectuados en relacion con los bienes hipotecados o independientes de ellos, entonces vencera .......... y quedara .......... pagadero .......... desde luego el pagare .......... arriba consignado .......... que no se hayan pagado, asi como cuantos intereses haya devengado sobre .......... mismo .......... Estipulase ademas que de no quedar satisfecha la precitada obligacion o parte cualquiera de ella, como y cuando venza la misma, podra la acreedora hipotecaria tomar inmediatamente y retener la posesion de todos los susodichos bienes .......... y proceder a hacer efectivo esta hipoteca de la manera que en derecho proceda. Las condiciones de esta obligacion son tales que si .......... deudor .......... hipotecari .......... sus herederos albaceas, administradores, a causahabientes, cumplenm bien y fielmente con las obligaciones arriba expresadas de conformidad con los terminos de las mismas, quedara nula y de ningun efecto la presente obligacion. Otorgada en Iloilo, I. F., hoy 13 de Mayo de 1931. (Fdos.) CARMEN REGALADO

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C. N. HODGES En presencia de: (Fdos.) H. COOPER P. BALAGUER, SR. Nosotros Carmen Regalado y C. N. Hodges, este ultimo C. N. Hodges, acreedor hipotecario, individualmente juramos que la anterior hipoteca esta otorgada con el fin de garantir las obligaciones especificadas en las condiciones de la misma, y no para otro fin, y que la misma es una obligacion justa y que no ha sido otorgada con el objeto de fraude. (Fdos.) CARMEN REGALADO C. N. HODGES ESTADOS UNIDOS DE AMERICA s. s. ISLAS FILIPINAS En este 20th dia de mayo de 1931, en la Provincia de Iloilo, Islas Filipinas, personalmente comparecio ante el que suscribe Carmen Regalado, without cedula being a woman, y C. N. Hodges con su cedula No. F-1440667 expedido en Iloilo el dia 6 de enero de 1931, quienes doy fe ser las mismas persona que han firmado y otorgado la hipoteca que procede y habiendo reconocido ante mi ser esto un acto de libre voluntad y otorgamiento, y que la declaracion jurada que precede fue firmada y reconocida ante mi en cuanto a su exactitud. (Fdos) ROSAURO R. BORROMEO Notario Publico Mi comision expira el dic. 31, 1932 Reg. Not. No. 28; Pag. No. 40 Libro No. VI; Serie de 1931. El 14 de marzo de 1934, el recurrente cuyo credito contra las recurridas no solamente no habia sido pagado hasta entonces, total o parcialmente, pero ni siquiera lo fueron sus intereses o algunos de los abonos que dijo haber estado haciendo por ellas, y que por dicha razon su referido credito habia ascendido, hasta entonces, a P10,235.16, puso pleito a la recurrida Carmen Regalado, en esta causa mientras se hallaba aun en el Juzgado de Primera Instancia de Iloilo para requerirla a pagarle la expresada suma mas sus intereses al 12 por ciento al ao, mas tambien la suma adicional de P700 en concepto de honorarios de abogado y gastos de cobranza, procediendo de hecho a ejecutar la hipoteca que tenia a su favor. Seguidos los tramites ordinarios del juicio, la causa fue resuelta adversamente al recurrente por el Tribunal de Apelacion al que habia recurrido para apelar contra la sentencia del Juzgado de origen, declarandole con

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derecho solamente a corbar de la demandada Carmen Regalado la cantidad de P1,871.48 mas los intereses legales de dicha suma desde la fecha de la interposicion de su demanda y nada mas. Contra esta sentencia, el recurrente promovio este proceso decertiorari. El recurrente pretendio que su alegado credito de P10,235.16 lo constituian las siguientes cantidades: P7,492.05 valor del pagare Exhibit A. 2,472.36 intereses no pagados de P7,492.05 correspondientes a los aos 1932 y 1933, segn los trminos del pagar Exhibit A y de la escritura de hipoteca Exhibit B. 235.38 impuestos por amillaramiento sobre la finca hipotecada segun el Exhibit B, abonados por el, (recurrente); y 35.27 intereses de la indicada cantidad de P235.38. Total P10,235.16 La recurrida Carmen Regalado, para defenderse, alego en su contestacion que la escritura de hipoteca Exhibit B y el pagare a que alude son nulos y de ningun valor, porque se consignan en ellos cantidades imaginarias excepto la de P480 que es el "cash advance" mencionado en el Exhibit C; y que las transacciones habidas lo mismo antes que despues del otorgamiento de dicha escritura de hipoteca Exhibit B, excepto la relacionada con la expresada cantidad de P480, son todas de caracter usurario. Las conclusiones del Tribunal de Apelacion respecto a la cuestion asi suscitada por la recurrida Carmen Regalado son que la cantidad de P7,492.05 a que el pagare Exhibit A se refiere, no representa la que real y verdaderamente habia recibido del recurrente, y que la misma no esta integrada sino por las cantidades que dicho recurrente habia estado imputandole en su cuenta, segun se data en el Exhibit C de que al principio se ha hecho mencion y aparece ademas copiado literalmente paginas atras. Habiendo pedido el recurrente la rescision de su contrato de compraventa Exhibit 1, el 24 de marzo de 1934; y habiendo obtenido una sentencia que le concede la rescicion pedida, el 22 de junio del mimo ao, parece claro que, como lo ha declarado el Tribunal de Apelacion, el recurrente no tiene derecho a cobrar, no ha los P10,235.16 que reclama en su demanda, pero ni siquiera los P7,492.05 que constituyen la cuenta inicial aludida en el pagare Exhibit A. Obro indudablemente con mucho acierto el Tribunal de Apelacion al declarar que el recurrente no tiene derecho a cobrar sino a lo sumo P1,871.48, de los cuales P1,321.48 constituyen el total de las cantidades que el recurrente habia abonado en concepto de impuestos por amillaramiento sobre las fincas mencionadas en el Exhibit 1, en virtud de los terminos de dicha escritura. Las otras cantidades son estas: P50 por honorarios de abogado, y no P200 como se data en el Exhibit C, porque si bien es verdad que el cheque Exhibit D (por P200), expresa que fue librado a favor de la recurrida Carmen Regalado para abonar lo que ella debia por honorarios de abogado, dicho cheque, inmediatamente despues de haber sido librado, fue endosado al abogado del recurrente, Sr. Borromeo, y este a su vez lo endoso a dicho recurrente, dando esto a entender que la

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mencionada cantidad no era para ningun abogado sino para el recurrente mismo. Sobre este extremo, la sentencia del Juzgado inferior, confirmada por el Tribunal de Apelacion, dice lo siguiente: "El Sr. Borromeo es el abogado del demandante, y este pago esta relacionado con la redaccion de la escritura de hipoteca (Exhibit B), base de la presente accion. Dicha escritura esta redactada bajo un formulario impreso, y el abogado Sr. Borromeo no ha hecho mas que llenar los blancos de dicho formulario y ratificar la escritura como Notario Publico. El Juzgado cree que el pago de P200 hecho, aparentemente, al abogado Sr. Borromeo, por su trabajo de redactar el Exhibit B, y su derecho como Notario de la ratificacion del mismo documento, es excesivo, y un pago de P50 seria una compensacion razonable. Por lo tanto, debe descartarse del Exhibit C la partida de P200 y sustituirla con la cantidad de P50." Esta conclusion no es arbitraria; esta fundada en las consideraciones que constan en la decision del Tribunal de Apelacion, y que se acaban de transcribir; P480 dinero en efectivo que la recurrida Carmen Regalado admitio haber recibido del recurrente; y P20 por derechos de registro que el recurrente abono por la mencionada recurrida, en relacion con la escritura de hipoteca Exhibit B. La razon por que el recurrente no tiene derecho a cobrar sino la expresada cantidad de P1,871.48 es la de que, habiendo optado por la rescision de la escritura de compraventa Exhibit 1, rescision que le fue concedida por sentencia de 22 de junio de 1934 en laa causa No. 9794, o sea 1 ao, 3 meses y 12 dias antes de obtener la sentencia para la revision de la cual promovio el presente proceso , no le esta permitido obtener a la vez las dos cosas: la rescision del contrato Exhibit 1 y la ejecucion de su hipoteca Exhibit B; no solamente porque son imaginarias las cantidades expresadeas tanto en dicho Exhibit B como en el Exhibit C, sino tambien porque segun el articulo 1295 del Codigo Civil, la rescision obliga a la devolcion de las cosas que fueron objeto del contrato con sus frutos, frutos que en el caso de autos no existen, por lo menos, no lo ha hallado asi el Tribunal de Apelacion , y del precio con sus intereses, que tampoco existe, porque, segun lo da a entender la referida decision del Tribunal de Apelacion, nada pagaron las recurridas, excepto otorgando la escritura o el contrato Exhibit 1. Por otra parte, se dice en el articulo 1255 del mismo cuerpo legal que si es verdad que la voluntad de las partes es el alma de todo contrato, tambien es verdad que no pueden establecer pactos, clausulas o condiciones que sean contrarias a las leyes, a la moral o al orden publico, como son los que el recurrente impuso a la recurrida Carmen Regalado, segun constan en los contratos Exhibits A y B, a sabiendas de que antes del otorgamiento de los mismos, ya exista el Exhibit 1. Ademas, es de inferir que el recurrente renuncio a cobrar intereses, desde el momento en que interpuso su demanda de rescision; pues, es de notar que su demanda para cobrar intereses se presento el dia 14 de marzo de 1934, y su demanda para pedir la rescision se presento 10 dias despues, o sea el 24 de marzo de 1934. Este ultimo hecho denota claramente su renuncia a cobrar intereses, o su preferencia a conseguir la rescision; de otro modo, no hubiese entablado su demanda en la causa No. 9794, sobre rescision. Lo expuesto hasta aqui demuestra cuan infundado es el primer error atribuido al Tribunal de Apelacion, pues de hecho declaro que el Exhibit A no tiene fuerza de obligar a las recurridas, por la razon de que los conceptos que expresa son en su mayor parte imaginarios, y contrarios a intereses se presento el dia 14 de marzo de 1934, y su demanda para pedir la rescision se presento 10 dias despues, o sea el 24 de marzo de 1934. Este ultimo hecho denota claramente su renuncia a cobrar intereses, o su preferencia a conseguir la rescision; de otro modo, no hubiese entablado su demanda en la causa No. 9794, sobre rescision.

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Lo expuesto hasta aqui demuestra cuan infundado es el primer error atribuido al Tribunal de Apelacion, pues de hecho declaro que el Exhibit A no tiene fuerza de obligar a las recurridas, por la razon de que los conceptos que expresa son en su mayor parte imaginarios, y contrarios a los propositos de la ley contra la usura, y porque esta anulado ademas. por su misma demanda de rescision. Debe notarse se alli se imputan intereses sobre intereses, al mismo tipo e que los primeros se han estipulado, no obstante no haber habido nunca convenio, ni expreso ni tacito, de que se cobrasen de las recurridas. Esto es contrario a la ley, porque, como dice el articulo 1109 del Codigo Civil, los interes solo han de devengar interes desde que son judicialmente reclamados. Demuestra tambien lo infundado que es el segundo error atribuido al mencionado Tribunal , porque los consideraciones aqui expuestas que son en substancia las mismas que tuvo en cuenta dicho Tribunal, prueban a las claras que el Exhibit C es un estado demonstrativo de cuentas cuyo proposito es cobrar de las recurridas mucho mas de lo que estaban y estan obligadas a pagar. Los otros errores atribuidos al Tribunal de Apelacion son consecuencia de los dos primeros que ya quedan resueltos. Tampoco tienen razon de ser porque toda su base consiste en la proposicion de que se cometierion los dos primeros errores ya mencionados. Por todo lo expuesto, confirmamos la decision y fallo del Tribunal de Apelacion, con las costas al recurrente en las tres instancias. Asi se ordena.

G.R. No. 175381

February 26, 2008

JAMES SVENDSEN, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. CARPIO MORALES, J.:
Assailed via Petition for Review on Certiorari is the Court of Appeals Decision1 of November 16, 2006 denying petitioners appeal from the December 22, 2005 Decision2 of the Regional Trial Court (RTC) of Manila, Branch 14 which affirmed the December 17, 2003 Judgment3 of the Metropolitan Trial Court (MeTC) of Manila, Branch 5, finding James Svendsen (petitioner) guilty of violation of Batas Pambansa Blg. (B.P. Blg.) 22 or the Bouncing Checks Law. In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in the amount of P200,000, to bear interest at 10% a month. After petitioner had partially paid his obligation, he failed to settle the balance thereof which had reached P380,000 inclusive of interest.4 Cristina thus filed a collection suit against petitioner, which was eventually settled when petitioner paid her P200,0005 and issued in her favor an International Exchange Bank check postdated February 2, 1999 (the check) in the amount of P160,000 representing interest.6 The check was co-signed by one Wilhelm Bolton. When the check was presented for payment on February 9, 1999, it was dishonored for having been Drawn Against Insufficient Funds (DAIF).7

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Cristina, through counsel, thus sent a letter to petitioner by registered mail informing him that the check was dishonored by the drawee bank, and demanding that he make it good within five (5) days from receipt thereof.8 No settlement having been made by petitioner, Cristina filed a complaint dated March 1, 1999 against him and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22 before the City Prosecutors Office of Manila. No counter-affidavit was submitted by petitioner and his corespondent. An Information dated April 13, 1999 for violation of B.P. Blg. No. 22 was thus filed on April 29, 1999 before the MeTC of Manila against the two, the accusatory portion of which reads: That sometime in December 1998 the said accused did then and there willfully, unlawfully, and feloniously and jointly make or draw and issue to CRISTINA C. REYES to apply on account or for value INTERNATIONAL EXCHANGE BANK check no. 0000009118 dated February 2, 1999 payable to CRISTINA REYES in the amount of P160,000.00 said accused well knowing that at the time of issue she/he/they did not have sufficient funds and/or credit with the drawee bank for payment of such check in full upon its presentment, which check after having been deposited in the City of Manila, Philippines, and upon being presented for payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for INSUFFICIENCY OF FUNDS and despite receipt of notice of such dishonor, said accused failed to pay said CRISTINA C. REYES the amount of the check or to make arrangement for full payment of the same within five (5) banking days after receiving said notice. CONTRARY TO LAW.9 Bolton having remained at large, the trial court never acquired jurisdiction over his person.10 By Judgment of December 17, 2003, Branch 5 of the Manila MeTC found petitioner guilty as charged, disposing as follows: WHEREFORE, this Court finds accused James Robert Svendson [sic] GUILTY beyond reasonable doubt of a violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and imposes upon him to pay a fine of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00), with subsidiary imprisonment in case of insolvency. Accused is also made liable to pay private complainant Cristina C. Reyes civil indemnity in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00) representing his civil obligation covered by subject check. Meantime, considering that other accused Wilhelm Bolton remains at large, let a warrant of arrest against him ISSUE. Pending his apprehension, let the case against him be sent to the ARCHIVES. (Emphasis in the original; underscoring supplied) As priorly stated, the RTC affirmed the MeTC judgment and the Court of Appeals denied petitioners appeal. Hence, the present petition for review. Petitioner argues that the appellate court erred in finding that the first element of violation of B.P. Blg. 22 the making, drawing, and issuance of any check "to apply on account or for

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value" was present, as the obligation to pay interest is void, the same not being in writing and the 10% monthly interest is unconscionable; in holding him civilly liable in the amount of P160,000 to private complainant, notwithstanding the invalidity of the interest stipulation; and in violating his right to due process when it convicted him, notwithstanding the absence of proof of receipt by him of a written notice of dishonor. The petition is impressed with merit. Section 1 of B.P. Blg. 22 or the Bouncing Checks Law reads: SECTION 1. Checks without sufficient funds. Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand pesos, or both such fine and imprisonment at the discretion of the court. The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. For petitioner to be validly convicted of the crime under B.P. Blg. 22, the following requisites must thus concur: (1) the making, drawing and issuance of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.11 Petitioner admits having issued the postdated check to Cristina. The check, however, was dishonored when deposited for payment in Banco de Oro due to DAIF. Hence, the first and the third elements obtain in the case. As for the second element, Section 2 of B.P. Blg. 22 provides that [t]he making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

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In Rico v. People of the Philippines,12 this Court held: x x x [I]f x x x notice of non-payment by the drawee bank is not sent to the maker or drawer of the bum check, or if there is no proof as to when such notice was received by the drawer, then the presumption of knowledge as provided in Section 2 of B.P. 22 cannot arise, since there would simply be no way of reckoning the crucial five-day period. x x x In recent cases, we had the occasion to emphasize that not only must there be a written notice of dishonor or demand letters actually received by the drawer of a dishonored check, but there must also be proof of receipt thereof that is properly authenticated, and not mere registered receipt and/or return receipt. Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of B.P. 22 indeed does not state that the notice of dishonor be in writing, this must be taken in conjunction with Section 3 of the law, i.e., "that where there are no sufficient funds in or credit with such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or refusal". A mere oral notice or demand to pay would appear to be insufficient for conviction under the law. In our view, both the spirit and letter of the Bouncing Checks Law require for the act to be punished thereunder not only that the accused issued a check that is dishonored, but also that the accused has actually been notified in writing of the fact of dishonor. This is consistent with the rule that penal statues must be construed strictly against the state and liberally in favor of the accused. x x x In fine, the failure of the prosecution to prove the existence and receipt by petitioner of the requisite written notice of dishonor and that he was given at least five banking days within which to settle his account constitutes sufficient ground for his acquittal.13 (Italics in the original; emphasis and underscoring supplied) The evidence for the prosecution failed to prove the second element. While the registry receipt,14 which is said to cover the letter-notice of dishonor and of demand sent to petitioner, was presented, there is no proof that he or a duly authorized agent received the same. Receipts for registered letters including return receipts do not themselves prove receipt; they must be properly authenticated to serve as proof of receipt of the letters.15 Thus in Ting v. Court of Appeals,16 this Court observed: x x x All that we have on record is an illegible signature on the registry receipt as evidence that someone received the letter. As to whether this signature is that of one of the petitioners or of their authorized agent remains a mystery. From the registry receipt alone, it is possible that petitioners or their authorized agent did receive the demand letter. Possibilities, however, cannot replace proof beyond reasonable doubt.17 For failure then to prove all the elements of violation of B.P. Blg. 22, petitioners acquittal is in order. Petitioner is civilly liable, however. For in a criminal case, the social injury is sought to be repaired through the imposition of the corresponding penalty, whereas with respect to the personal injury of the victim, it is sought to be compensated through indemnity, which is civil in nature.18

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The decision of the MeTC, which was affirmed on appeal by the RTC and the appellate court, ordering petitioner "to pay private complainant Cristina C. Reyes civil indemnity in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000) representing his civil obligation covered by subject check," deserves circumspect examination, however, given that the obligation of petitioner to pay 10% interest per month on the loan is unconscionable and against public policy. The P160,000 check petitioner issued to Cristina admittedly represented unpaid interest. By Cristinas information, the interest was computed at a fixed rate of 10% per month.19 While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing therein grants lenders carte blanche to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.20 Stipulations authorizing such interest are contra bonos mores, if not against the law. They are, under Article 140921 of the New Civil Code, inexistent and void from the beginning.22 The interest rate of 10% per month agreed upon by the parties in this case being clearly excessive, iniquitous and unconscionable cannot thus be sustained. In Macalalag v. People,23 Dio v. Jardines,24 and in Cuaton v. Salud,25 this Court, finding the 10% per month interest rate to be unconscionable, reduced it to 12% per annum. And in other cases26 where the interest rates stipulated were even less than that involved herein, the Court equitably reduced them. This Court deems it fair and reasonable then, consistent with existing jurisprudence, to adjust the civil indemnity to P16,000, the equivalent of petitioners unpaid interest on the P200,000 loan at 12% percent per annum as of February 2, 1999, the date of the check, plus 12% per annum interest to be computed from April 29, 1999, the date of judicial demand (date of the filing of the Information) up to the finality of this judgment. After the judgment becomes final and executory until the obligation is satisfied, the total amount due shall bear interest at 12% per annum.27 Respecting petitioners claim that since the promissory note incorporating the stipulated 10% interest per month was not presented, there is no written proof thereof, hence, his obligation to pay the same must be void, the same fails. As reflected above, Cristina admitted such stipulation. In any event, the presentation of the promissory note may be dispensed with in a prosecution for violation of B.P. Blg. 22 as the purpose for the issuance of such check is irrelevant in the determination of the accuseds criminal liability. It is for the purpose of determining his civil liability that the document bears significance. Notably, however, Section 24 of the Negotiable Instruments Law provides that "Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value." It was incumbent then on petitioner to prove that the check was not for a valuable consideration. This he failed to discharge.

WHEREFORE, the Court of Appeals Decision of November 16, 2006 is REVERSED and SET ASIDE.
Petitioner, James Svendsen, is acquitted of the crime charged for failure of the prosecution to prove his guilt beyond reasonable doubt.

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He is, however, ordered to pay private complainant, Cristina C. Reyes, the amount of SIXTEEN THOUSAND PESOS (P16,000) representing civil indemnity, plus 12% interest per annum computed from April 29, 1999 up to the finality of this judgment. After the judgment becomes final and executory until the obligation is satisfied, the total amount due shall earn interest at 12% per annum.

SO ORDERED.

G.R. No. 171374

April 8, 2008

TEOFILA ILAGAN-MENDOZA and ROSARIO ILAGAN URCIA, petitioners, vs. HON. COURT OF APPEALS, CALATAGAN RURAL BANK, INC., GEMINIANO T. NOCHE, as President of Calatagan Rural Bank, and REMEDIOS DE CLARO and EDMUNDO RODRIGUEZ, as Sheriffs, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -- - - x

Spouses ALBERTO URCIA and ROSARIO ILAGAN URCIA, petitioners, vs. HON. COURT OF APPEALS, CALATAGAN RURAL BANK, INC., GEMINIANO T. NOCHE, as President of Calatagan Rural Bank, and REMEDIOS DE CLARO and EDMUNDO RODRIGUEZ, as Sheriffs, respondents. CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, with petitioners praying for the reversal of the Decision1 dated 19 July 2005 of the Court of Appeals dismissing CA-G.R. CV No. 56688 and affirming the Decision2 dated 3 October 1996 of Branch 10 of the Regional Trial Court (RTC) of Batangas which, in turn, dismissed Special Civil Actions No. 1701 and 1702 for lack of merit. The following are the factual antecedents: Petitioners are Teofila Ilagan-Mendoza (Teofila) and Rosario Ilagan-Urcia (Rosario), daughters of the late Estanislao Ilagan (Estanislao); and Alberto (Alberto) Urcia, Rosarios husband. The respondent Calatagan Rural Bank, Inc. (CRBI) filed on 9 July 1986 with the Sheriffs Office two Applications for Extrajudicial Foreclosure of Real Estate Mortgages, pursuant to Act No. 3135 (as amended by Act No. 4110), for petitioners unpaid loans, to wit: (a) a Real Estate Mortgage covered by the following properties, to wit: TCT No. 11234, TCT No. 8465, TCT No. 14493, and TCT No.18772; and allegedly executed on 19 August 1974 by Teofila in favor of CRBI;3 and (b) a Real Estate Mortgage covered by property under TCT No. 31345, executed by Alberto, with Teofila as co-maker, to secure a P10,000.00 loan obtained by Alberto on 23 July 1985, maturing on 19 April 1986.4

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On 20 August 1986, siblings Teofila and Rosario instituted Special Civil Action No. 1701 before the Regional Trial Court of Balayan, Batangas, while spouses Alberto and Rosario instituted Special Civil Action No. 1702 before the same court, both for injunction and damages, with an application for Temporary Restraining Order (TRO) and preliminary injunction, against respondents CRBI, CRBI President Geminiano Noche (Noche), and Sheriffs Remedios de Claro and Edmundo Rodriguez of the Batangas RTC, assailing CRBIs Applications for Extrajudicial Foreclosure of Real Estate Mortgages referred to in the preceding paragraph, and seeking to enjoin respondents from proceeding with the auction sale of the mortgaged properties. Special Civil Action Nos. 1701 and 1702 were consolidated by the RTC. In Special Civil Action No. 1701,5 Teofila and Rosario identified three crop loans obtained by their father, the late Estanislao, from CRBI in the amounts of P85,000.00, P75,000.00 and P25,000.00.6 These loans, covered by a promissory note executed by and between Estanislao and CRBI, were secured by several Real Estate Mortgages7 over the properties registered with the Registry of Deeds Batangas and covered by Transfer Certificates of Title (TCTs) No. 11234, 8465, 14493, and 18772, with Estanislao Ilagan, married to Leocadia Mercado, as mortgagors and CRBI as mortgagee. Estanislao was required to sign and submit a Deed of Assignment of all his sugar produce in favor of CRBI, as payment for the loans.8 CRBI received the proceeds from Estanislaos sugar produce which it applied to his loans. Teofila and Rosario contend that the records of the two sugar centrals, Central Azucarera Don Pedro (CADP) and Balayan Sugar Central, Inc. (BSCI), reveal that sufficient payment had been made on the loans by Estanislao by 1979, but no document was executed to cancel the mortgages securing the same. Estanislao passed away on 23 August 1983. It is important to note that the petition also stated that Estanislao was required to sign promissory notes in blank for the renewal of the unpaid balances of the original loans, which procedure was followed after Estanislao died on August 1983, but this time thru Teofila. Thereafter, Teofila suspected overpayment of the loans and demanded an accounting from CRBI but the latter refused, constraining her and her sister Rosario to file an administrative case against the bank with the Central Bank of the Philippines. At the time of filing of the application for foreclosure of real estate mortgages, CRBI allegedly owed Teofila an outstanding amount representing the proceeds from the sugar produce for the years 1980 to 1986. On the other hand, in Special Civil Action No. 1702,9 spouses Alberto and Rosario Urcia admitted that Alberto obtained two commodity loans from CRBI, one for P10,000.00 and another for P8,200.00. Alberto stated that to cover said loans, promissory notes and trust receipts were allegedly signed by him in blank, with Teofila as co-maker. The P10,000.00 loan was covered by a promissory note dated 23 July 1985, which was to become due and payable on 19 April 1986; while the loan for P8,200.00 was covered by a promissory note dated 23 December 1985 to mature on 19 September 1986. The said loans were secured by a real estate mortgage on the house and lot of Alberto and Rosario, covered by TCT No. 31345 registered in the Registry of Deeds of Batangas. Believing that the loans had been fully paid, Alberto asked for an accounting thereof, which CRBI ignored, hence, he sought the aid of the Central Bank. The CRBI further holds sugar quedans in the name of Rosario, Albertos wife, and such sugar quedans, if negotiated, can fully answer for whatever outstanding amount they may still owe CRBI. Purportedly in retaliation to their demands for accounting and their seeking recourse with the Central Bank, CRBI filed a criminal complaint for libel and a civil action for damages against

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petitioners; an administrative charge against Alberto and Rosario; and the assailed applications for extra-judicial foreclosure of the mortgaged properties.10 The RTC issued a TRO effective until 9 September 1986. The auction sale of the mortgaged properties, originally scheduled for 25 August 1986, was cancelled. After the lapse of the TRO, without any other injunction or restraining order having been issued, the Sheriffs Office of the RTC of Balayan, Batangas, through Deputy Sheriff Edmundo M. Rodriguez, issued another Notice of Public Auction Sale setting the public auction of the mortgaged properties for 17 September 1986. The public auction proceeded as scheduled wherein the mortgaged properties were awarded to the highest bidder, CRBI,11 for the following amounts: (a) P111,806.05 for the properties of Estanislao Ilagan; and (b) P19,295.82 for the properties of Alberto Urcia. A Certificate of Sale was issued on the same day in favor of CRBI. Respondents filed on 15 December 1986 Motions to Dismiss Special Civil Actions No. 1701 and 1702.12 In an Order13 issued on 23 December 1986, jointly resolving the two cases, RTC Executive Judge Alberto Reyes found the Motions to Dismiss meritorious and dismissed Special Civil Actions No. 1701 and 1702 for being moot and academic. Aggrieved, petitioners in the two Special Civil Actions assailed the RTC Order dated 23 December 1986 via separate Petitions for Certiorari14 filed with the Court of Appeals but these petitions were subsequently dismissed.15 From the appellate courts dismissal of their petitions, petitioners sought recourse from this Court by filing Petitions for Certiorari and Prohibition16 which were granted. In a Resolution17 dated 28 October 1987, this Court directed the RTC to proceed with the hearing of Special Civil Actions No. 1701 and 1702, to determine whether there was indeed overpayment of the loan obligations of petitioners to CRBI. Hence, the proceedings before the RTC in Special Civil Actions No. 1701 and 1702 resumed. The RTC summarized the issues in Special Civil Action No. 1701 as follows: (1) whether or not the numerous withdrawals on 21 December 1983 after the death of Estanislao Ilagan were valid withdrawals; (2) whether or not the mortgaged properties were validly foreclosed on 17 September 1986; (3) whether or not deceased Estanislao Ilagan and his heirs had fully paid its [sic] obligation to respondent. In Special Civil Action No. 1702, the sole issue was whether or not Albertos loans had already been paid.

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After nine years of trial, the RTC dismissed Special Civil Actions No. 1701 and 1702 for lack of merit. In a Decision dated 3 October 1996, the RTC ruled in favor of CRBI and found that the mortgaged properties were validly foreclosed on 17 September 1986. The RTC held: WHEREFORE, petitioners instant petitions are hereby DISMISSED, for lack of merit.18 Petitioners filed a joint appeal with the Court of Appeals via Rule 45 of the Revised Rules of Court, docketed as CA-G.R. CV No. 56688. On 19 July 2005, the Court of Appeals dismissed CA-G.R. CV No. 56688 and affirmed the RTC Decision dated 3 October 1996. The Court of Appeals held: Appellants contend that there was no need for the bank to foreclose the mortgage on the Urcia spouses property since it could run after either Teofila as co-maker or Rosario whose quedan was in the banks possession and is sufficient to pay the loans. The contention is untenable. Art. 1216 of the New Civil Code gives the creditor the right to "proceed against any one of the solidary debtors or some or all of them simultaneously." The choice of the solidary debtor or against whom the solidary creditor will enforce collection is left to the latter (PNB vs. Independent Planters Association, Inc., 122 SCRA 113). Similarly, the choice of remedy to effect collection pertains to the creditor. On the other hand, the bank cannot run after Rosarios quedan because she is not indebted to it. The loan was exclusively obtained by Alberto. And Rosario did not assign her quedan to the bank as payment for Albertos obligations. xxxx x x x The death of the debtor does not extinguish his civil liability as his estate will answer for it (Art. 1078, Civil Code). Since the quedans belong to Estanislao, the proceeds thereof should be applied to his own obligation. In this sense, Estanislao can be considered a debtor of the bank, even after his death, concerning his unpaid loans. xxxx Considering the foregoing, appellants computation of Estanislaos loans from the bank is, at best, sketchy and self-serving and renders the purported overpayment implausible. Consequently, We uphold the court a quos finding that Estanislao is indebted to the bank in the amount of P67,000.00. As aptly observed by the trial court: "The Central Bank Report speaks for itself. It was adopted by the petitioners as their own evidence and was marked as Exhibits J, RRR-1 to RRR-3. There is presumption of regularity in the performance of official duties. And the Court finds the report of the Central Bank employees as regards the computation of the loans of the late Estanislao Ilagan to be correct." In fine, the lower court committed no error in its appealed decision. WHEREFORE, the appealed decision of the Regional Trial Court of Batangas (Balayan, Branch 10) is AFFIRMED in toto.

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The Court of Appeals denied the Motion for Reconsideration19 filed by petitioners in a Resolution20 dated 6 February 2006. Petitioners thus filed on 20 March 2006 this Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, raising the following issues: ISSUES FOR SPECIAL CIVIL ACTION NO. 1701 I. WHETHER OR NOT A PERSON CAN VALIDLY CONTRACTED (sic) A LOAN AFTER HIS DEATH. II. WHETHER OR NOT THE LOAN OBTAINED AFTER THE DEATH OF A PERSON WILL FORM PART OF HIS EXISTING OBLIGATION. III. WHETHER OR NOT THE REAL ESTATE MORTGAGE EXECUTED BY A DECEASED WILL COVER AN OBLIGATION INCURRED AFTER HIS DEATH. ISSUES FOR SPECIAL CIVIL ACTION NO. 1702 I. WHETHER OR NOT THE FORECLOSURE PROCEEDINGS IS VALID AFTER DETERMINING [sic] BY THE LOWER COURT THAT THERE WAS AN OVERPAYMENT OF OBLIGATION. II. WHETHER OR NOT THE RESPONDENT BANK CAN VALIDLY PROCEED WITH THE FORECLOSURE PROCEEDINGS WITHOUT FIRST APPLYING THE DEPOSITS IN ITS POSSESSION UNDER THE NAME OF THE PETITIONERS IN PAYMENT OF THE UNPAID OBLIGATIONS. Petitioners pray that a decision be rendered reversing the earlier Decision of the Court of Appeals which dismissed CA-G.R. CV No. 56688; declaring the foreclosure of the mortgaged properties in Special Civil Actions No. 1701 and 1702 as null and void; and ordering the return of the Transfer Certificates of Titles in the name of the petitioners free from all liens and encumbrances. Petitioners challenge the extra-judicial foreclosure of the real estate mortgages by CRBI for having been done with malice and bad faith. Petitioners allege that Estanislao could not have possibly entered into a loan obligation after his death. He died on 23 August 1983. This is in accordance with Article 42 of the New Civil Code which provides that "civil personality is extinguished by death." Thus, it would have been impossible for Estanislao to incur the loan obligation embodied in the promissory note dated 3 October 1984 for the sum of P44,000.00, and said promissory note should not have been included among Estanislaos obligations. Petitioners also maintain that the loan for P10,000.00, covered by promissory note dated 23 July 1985 executed by Alberto, with Teofila as co-maker, was already paid, thus, making the foreclosure of real estate mortgage securing the said loan null and void. If only CRBI submitted an accounting as petitioners requested, there would have been no more need to resort to the foreclosure proceedings since there was, in fact, an overpayment of P3,056.13 on the loan.21

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Petitioners assert that the sheriffs and the trial and appellate courts failed to look into the existence and validity of the obligations secured by the mortgage properties that could have materially affected the foreclosure proceedings. Respondents, on the other hand, contend that the real matter at issue is whether the separate loans contracted by Estanislao and Alberto still subsist as to make the foreclosure of the mortgaged properties valid; or, conversely, whether the loans were already paid, thus, making the foreclosure of the mortgaged properties null and void. They posit that these factual matters were already resolved by both the RTC and the Court of Appeals in their favor. Thus, they argue that the foreclosure of the mortgaged properties was in order and, consequently, the present Petition should be dismissed for lack of merit. Clearly, the real issue to be resolved is whether Estanislao and Alberto still had outstanding loan obligations with CRBI that would justify the foreclosure of the mortgaged properties. We rule in the affirmative, and find no reason to disturb the factual findings of the RTC and the Court of Appeals. The jurisdiction of this Court in a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law.22 There is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts or when the query necessarily solicits calibration of the whole evidence considering mostly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole and probabilities of the situation.23 A question of law has been defined as one that does not call for any examination of the probative value of the evidence presented by the parties.24 We have consistently stressed that in a petition for review on certiorari this Court does not sit as an arbiter of facts. As such, it is not our function to re-examine every appreciation of facts made by the trial and appellate courts unless the evidence on record does not support their findings or the judgment is based on a misappreciation of facts.25 As correctly observed by CRBI, the issues raised by petitioners are purely factual. It would entail a review and evaluation of the evidence that were already presented before the trial court. Factual findings of the trial court, especially when affirmed by the Court of Appeals, as in this case, are generally binding and conclusive on the Supreme Court, for it is not the function of this Court to reexamine the lower courts findings of fact. Suffice it to say that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect and will not generally be disturbed on appeal in the absence of a clear showing that the trial court overlooked certain facts or circumstances that would warrant a different disposition of the case.26 Admittedly, the above rule is not absolute, as it admits of certain exceptions, to wit: (a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was based on a misapprehension of facts; (e) when the factual findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; (g) when the Court of Appeals manifestly overlooked certain

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relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and, (h) where the findings of fact of the Court of Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or where the facts set forth by the petitioners are not disputed by the respondents, or where the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record. 27 Petitioners, however, have not shown that any of these circumstances are attendant herein for us to deviate from the general rule. A mortgage is a mere accessory contract to the loan obligation, thus, the validity of the mortgage depends on the validity of the loan it is supposed to secure. The debtor cannot escape the consequences of the mortgage contract once the validity of the loan is upheld.28 And when the principal obligation is not paid when due, the mortgagee has the right to foreclose on the mortgage, have the property seized and sold, and apply the proceeds to the balance of the loan obligation. Foreclosure is proper if the debtor is in default in the payment of his loan obligation. In the Petition at bar, there is substantial evidence to support the facts that petitioners had existing loan obligations subject of Real Estate Mortgages executed in favor of CRBI and there was default on the payment thereof.

Special Civil Action No. 1701

It has been established by evidence on record that Estanislao obtained a total of 32 loans from the bank. Estanislao used the very same properties he mortgaged to secure his first loan in 1974 as collaterals for his subsequent loans. However, no corresponding entries on the constituted mortgages were made on TCTs No. 11234, 14493, 8465 and 18772, except that of the first loan contracted in 1974. As payments for these loans, Estanislao assigned to CRBI the proceeds from his sugar produce milled at CADP and BSCI. The said proceeds were applied to the principal, interests and charges of Estanislaos loans. Per the Central Bank Report, Estanislao still had loans left unpaid: The rural bank collected from Estanislao Ilagan P678,848.24 which fully paid 30 of his 32 loan accounts thereby leaving 2 loans totaling P67,000 still unpaid (Annex II-A).29 Among the 32 loans charged against Estanislao by the CRBI is a loan in the amount of P44,000.0030 covered by a promissory note dated 3 October 1984, more than a year after Estanislaos death on 23 August 1983, and signed by Teofila, per testimony of Geminiano Noche. Teofila and Rosario urge that the said loan should be excluded from the obligations secured by Estanislaos four mortgaged properties. While it is conceded that the promissory note for P44,000.00 was signed by Teofila from CRBI on 3 October 1984, or after the death of Estanislao, the circumstances and reasons for this are adequately explained to show that said amount represent existing loans of Estanislao contracted by him prior to his death. First, during the RTC trial, the following testimony was elicited from Geminiano Noche:

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Estanislao died in August 1983. According to witness, he allowed Teofila Ilagan to sign the Promissory Note dated 3 October 1984, because the collateral on the loan is a property in the name of Estanislao Ilagan and because Teofila so requested since it would take time to settle the estate of Estanislao Ilagan and inasmuch as she would inherit the property.31 (Emphasis ours.) Secondly, Teofila and Rosario were definite in their petition in Special Civil Action No. 1701 when they were deemed to have admitted therein that Estanislao was required to sign promissory notes in blank for the renewal of the unpaid balances of the original loans, which procedure was followed after Estanislao died on August 1983, but this time thru Teofila. Based on the foregoing, it can be established that the Promissory Note dated 3 October 1984 then, although signed after the death of Estanislao on 23 August 1983, reflect an unpaid balance on the loans obtained by Estanislao from CRBI prior to his death, and secured by the same properties used as collaterals by him since he obtained the first loan in 1974. Hence, payment for said loan, upon default, can be collected by CRBI by foreclosing on the mortgaged properties. Teofila and Rosario then raised another point by contending that withdrawals were fraudulently made from Estanislaos CRBI Savings Account No. 5659 on 21 December 1983, after his death. A study of the testimony of Teofila reveals that Estanislao maintained four passbooks with CRBI, to wit: a. Savings Account No. 1382, under the name of Estanislao Ilagan and/or Teofila Ilagan; b. Savings Account No. 5659, under the name Teofila Ilagan and/or Estanislao Ilagan c. Savings Account No. 5659, under the name of Estanislao Ilagan d. Savings Account No. 5659, under the name Estanislao Ilagan and/or Teofila Ilagan Estanislaos passbook for Savings Account No. 5659 contained entries of withdrawals made on 21 December 1983, which Estanislao could no longer have made after his death. If the withdrawals are invalidated, then the fraudulently withdrawn amounts could be returned to Estanislaos account and applied against the balance of his loans, which could even result in overpayment. Julita Marasigan, a former cashier of the bank, testified on the bank procedure with respect to withdrawals made in the bank. We find that the entries in Savings Account No. 5659, in the name of Estanislao, made on 21 December 1983, after his death, were made in good faith and did not represent withdrawals made on such date, but on previous dates, when Estanislao was still alive. Julita Marasigan explained that it is the standard operating procedure of CRBI to allow withdrawals even without the client presenting the passbook. The passbook is updated only later on with the appropriate entries once it is presented to CRBI. This was further corroborated by CRBI President Germiniano Noche, who testified as follows:

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Q: It appears on this page of Exhibit B that there were several withdrawals made on December 31, 1983. Will you please tell us how could these withdrawals been made? A: These withdrawals were in accordance with the standard procedure of the bank when there is an up-dating. Q: What do you mean by "up-dating"? A: By "up-dating," before December 21 comes, the client go (sic) to the bank without the passbook. Q: What did the client do without the passbook? A: Requesting the bank in order for her to withdraw. Q: And was the withdrawal allowed? A: Because of the good relationship between the client and the bank, we allowed the withdrawal without the passbook. Q: So these withdrawals made on December 21, 1983, to which withdrawal this refers? A: This refers to withdrawal before December 21, 1983. Q: How come that the withdrawal had entered only on December 21, 1983? A: That had been entered only on December 21, 1983 because the representative of the client arrived on that date with the passbook. Q: By "client", to whom are you referring to? A: Estanislao Ilagan and Teofila Ilagan. Q: Mr. Noche, according to the petition, Mr. Estanislao Ilagan died sometime in August, 1983. Now, according to you, she went to the bank on December 21, 1983. Will you please tell us how come Mr. Estanislao Ilagan was able to go to the bank on December 21, 1983? ATTY. AGUJO: Objection, you Honor. In the previous question, your Honor Mr. witness stated that Mr. Estanislao Ilagan and Teofila Ilagan. Then the next question your Honor has a conflict because the line of questioning, it appears that it was only Ms. Ilagan by using the word "she", your Honor. COURT: What is the question? ATTY. CABAL:

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Q: My question is: How come Mr. Estanislao Ilagan was able to go to the bank on December 21, 1983 while he died in August 1983? COURT: May answer. A: If there is no Estanislao Ilagan, then there (sic) Teofila Ilagan because this is "and/or". Q: What is the meaning of "and/or"? A: We can enter transaction to the passbook either the daughter or the father.32 Witnesses for CRBI have thus sufficiently explained the circumstances behind the withdrawals entered on Estanislaos passbook even after his death. Teofila and Rosario failed to rebut the foregoing testimonies. Absent any evidence to the contrary, the Court finds that the entries made on the passbook of Estanislao were regular and speak of the correct transactions made by the parties therein.33

Special Civil Action No. 1702.

The evidence on record reveals that Alberto has two unpaid loans with CRBI, particularly: (a) loan in the amount of P10,000, covered by promissory note dated 23 July 1985, which would fall due on 19 April 1986; and (b) loan in the amount of P8,200.00, covered by promissory note dated 23 December 1985, which would fall due on 19 September 1986. The Central Bank Reports submitted establish an overpayment34 by Alberto in the amount of P3,056.13 to CRBI. However, page 2 of Central Bank Memorandum35 dated 1 October 1986 reads: (a) Alberto Urcia paid to the bank P96,054.23 which fully paid 10 of his 12 loans thereby leaving 2 loans totaling P18,200 still unpaid (Annex I-A) (b) The bank charged Mr. Urcia attorneys fees of P1,403.17 instead of P1,2221.15 or an overcharge of P182.02 (Annex I-A) (c) The rural bank made a net overcharge in interest of P2,874.11. (Annex I-A)36 Jose Galit, Central Bank Examiner, testified that in computing the overpayment of P3,056.13 by Alberto, his second loan of P8,200.00 was not yet included therein: Q: Now, I invite your attention to page two of the report which was marked as Exhibit A1 and on the findings of the Central Bank, your department Alberto Urcia, the respondent stated and I quote "the bank charged xxx" (Please see Exhibit "A-1" record). If you total this amount the sum would be P3,056.13. Now Annex "1" of that report which was marked as Exhibit "A-5" for the following findings of your Department and I quote "Between the petitioner from November 18, 1980 to December 20, 1985, complaint was xxx" (NOTE: please see Exhibit "A-4" on record). Second, date granted

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December 23, 1985, date due, September 18, 1986. Amount P8,200.00. When you computed the alleged overcharge of P3,056.13, did you consider this (sic) outstanding loans of petitioners Alberto Urcia? A: No, sir. Q: What do you mean by that? A: Because that overcharged (sic) pertains to different loans. Q: What was the status of loan of Alberto Urcia as of June 12, 1986? A: The two (2) loans were unpaid as of examination.37 A more thorough review of the Central Bank Report would disclose that the supposed overpayment refers to Albertos other loans with CRBI, leaving two loans amounting to P18,000.00 with the same bank still unpaid. The testimony of Jose Galit, taken together with the Central Bank Reports, indicate that the principal amounts pertaining to Albertos two outstanding loans, totaling P18,200.00, plus interests and other charges thereon, exceed the P3,056.13 overpayment on his other loans with CRBI. Thus, Alberto is still indebted to CRBI for the principal, interest, and other charges on the said two loans, less the overpaid amount of P3,056.13 on his other loans. Alberto further argues that while his loan matured on 19 September 1986, the mortgaged property covered by TCT No. 31345 was foreclosed two days earlier, on 17 September 1986. It must be stressed, however, that Alberto Urcia had two unpaid loans with CRBI: one, for P10,000.00, which matured on 19 April 1986; the other, for P8,200.00, which became due on 19 September 1986. Alberto insists that the real property covered by TCT No. 32345 stands as security for the two loans, implying that the obligations are indivisible. We are not persuaded. The documents show that the loans were obtained and set to mature on two different dates. They are obviously separate and distinct from each other although secured by the same property. CRBI may collect payment on the loans as each falls due. CRBI resorted to the foreclosure of the mortgaged property when Alberto failed to pay his P10,000.00 loan which became due on 19 April 1986. CRBI apparently did not yet move to collect on Albertos P8,200.00 loan which, at that time, had not matured.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. Costs against petitioners. SO ORDERED.

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G.R. No. 179901

April 14, 2008

BANCO DE ORO-EPCI, INC.,* petitioner, vs. JAPRL DEVELOPMENT CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO, respondents. CORONA, J.:
This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution3 denying reconsideration. After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,4 petitioner Banco de Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,0005 on March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRL's sureties. Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan.6 Petitioner later learned from MRM Management, JAPRL's financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment.7 The information alarmed petitioner. Citing relevant provisions of the Trust Receipt Agreement,8 it demanded immediate payment of JAPRL's outstanding obligations amounting to P194,493,388.98.9

SP Proc. No. Q-03-064

On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC).10 It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in 2002.11 Because the petition was sufficient in form and substance, a stay order12 was issued on September 28, 2003.13 However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC in an order dated May 9, 2005.14

Civil Case No. 03-991

Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003.15 Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements.16 The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it ordered the service of summons on respondents.17 Pursuant to the said order, summonses were issued against respondents and were served upon them. Respondents moved to dismiss the complaint due to an allegedly invalid service of summons.18 Because the officer's return stated that an "administrative assistant" had received

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the summons,19 JAPRL and RFC argued that Section 11, Rule 14 of the Rules of Court20 contained an exclusive list of persons on whom summons against a corporation must be served.21 An "administrative assistant" was not one of them. Arollado, on the other hand, cited Section 6, Rule 14 thereof22 which mandated personal service of summons on an individual defendant.23 The Makati RTC, in its October 10, 2005 order,24 noted that because corporate officers are often busy, summonses to corporations are usually received only by administrative assistants or secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack of merit. Respondents moved for reconsideration25 but withdrew it before the Makati RTC could resolve the matter.26

RTC SEC Case No. 68-2008-C

On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRL's petition sufficient in form and in substance, the Calamba RTC issued a stay order27 on March 13, 2006. In view of the said order, respondents hastily moved to suspend the proceedings in Civil Case No. 03-991 pending in the Makati RTC.28 On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the proceedings against him should continue.29 Respondents moved for reconsideration30 but it was denied.31 On August 11, 2006, respondents filed a petition for certiorari32 in the CA alleging that the Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and July 7, 2006 orders.33 They asserted that the court did not acquire jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could not hear the complaint for sum of money.34 In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, it granted the petition.35 Petitioner moved for reconsideration but it was denied.36 Hence, this petition. Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the payment of their obligations.37 We grant the petition. Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over their persons (i.e., whether or not the service of summons was validly made). Therefore, it was only the October 10, 2005 order of the said trial court which they in effect assailed.38 However, because they withdrew their motion for reconsideration of the said order,

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it became final. Moreover, the petition was filed 10 months and 1 day after the assailed order was issued by the Makati RTC,39 way past the 60 days allowed by the Rules of Court. For these reasons, the said petition should have been dismissed outright by the CA. More importantly, when respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntarily to the jurisdiction of the Makati RTC.40 We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or claims against the corporation seeking rehabilitation41 from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.42 The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation.43 Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the amount involved, respondents utterly disregarded the significance of a stable and efficient banking system to the national economy.44 Banks are entities engaged in the lending of funds obtained through deposits45 from the public.46 They borrow the public's excess money (i.e., deposits) and lend out the same.47 Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments. Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public.48 They plough back the bulk of said deposits into the economy in the form of loans.49 Since banks deal with the public's money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate governance.50 Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same. In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioner's exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accomodation. A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC.

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The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud. Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the General Banking Law which states: Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (emphasis supplied) Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other appropriate damages.51 Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the Trust Receipts Law.52

ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted.

SO ORDERED.

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G.R. No. 154740

April 16, 2008

HENRY DELA RAMA CO., petitioner, vs. ADMIRAL UNITED SAVINGS BANK, respondent. NACHURA, J.:
On appeal is the February 19, 2002 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 42167, setting aside the May 18, 1991 Decision2 of the Regional Trial Court (RTC) of Quezon City, Branch 100, as well as its subsequent Resolution,3 denying petitioners motion for reconsideration. On February 28, 1983, Admiral United Savings Bank (ADMIRAL) extended a loan of Five Hundred Thousand Pesos (P500,000.00) to petitioner Henry Dela Rama Co (Co), with Leocadio O. Isip (Isip) as co-maker. The loan was evidenced by Promissory Note No. A1-0414 dated February 28, 1983 and payable on or before February 23, 1984, with interest at the rate of 18% per annum and service charge of 10% per annum. The note also provided for liquidated damages at the rate of 3% per month plus incidental cost of collection and/or legal fees/cost, in the event of non-payment on due date. Co and Isip failed to pay the loan when it became due and demandable. Demands for payment were made by ADMIRAL, but these were not heeded. Consequently, ADMIRAL filed a collection case against Co and Isip with the RTC of Quezon City, docketed as Civil Case No. Q-48543. Co answered the complaint alleging that the promissory note was sham and frivolous; hence, void ab initio. He denied receiving any benefits from the loan transaction, claiming that ADMIRAL merely induced him into executing a promissory note. He also claimed that the obligations, if any, had been paid, waived or otherwise extinguished. Co allegedly ceded several vehicles to ADMIRAL, the value of which was more than enough to cover the alleged obligation. He added that there was condonation of debt and novation of the obligation. ADMIRAL was also guilty of laches in prosecuting the case. Finally, he argued that the case was prematurely filed and was not prosecuted against the real parties-in-interest.5 Pending resolution of the case, Isip died. Accordingly, he was dropped from the complaint. Co then filed a third party complaint against Metropolitan Rentals & Sales, Inc. (METRO RENT). He averred that the incorporators and officers of METRO RENT were the ones who prodded him in obtaining a loan of P500,000.00 from ADMIRAL. The proceeds of the loan were given to the directors and officers of METRO RENT, who assured him of prompt payment of the loan obligation. METRO RENT also assured him that he would be discharged from all liabilities under the promissory note, but it did not make good its promise. Co, thus, prayed that METRO RENT be adjudged liable to ADMIRAL for the payment of the obligation under the promissory note.6 Traversing the third party complaint, METRO RENT denied receiving the loan proceeds from Co. It claimed that the loan was Cos personal loan from which METRO RENT derived no benefit, thus, it cannot be held liable for the payment of the same.7

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In due course and after hearing, the RTC rendered a Decision8 on May 18, 1991, dismissing the complaint on the ground that the obligation had already been paid or otherwise extinguished. It primarily relied on the release of mortgage executed by the officers of ADMIRAL, and on Cos testimony that METRO RENT already paid the loan. The RTC also dismissed Cos third party complaint against METRO RENT, as well as his counterclaim against ADMIRAL for lack of basis. ADMIRAL appealed the dismissal of the complaint to the CA.9 On February 19, 2002, the CA rendered the assailed decision.10 Reversing the RTC, the CA found preponderance of evidence to hold Co liable for the payment of his loan obligation to ADMIRAL. It rejected Cos assertion that he merely acted as an accommodation party for METRO RENT, declaring that Cos liability under the note was apparent in his express, absolute and unconditional promise to pay the loan upon maturity. The CA further held that whatever agreement Co had with METRO RENT cannot bind ADMIRAL since there is no showing that the latter was aware of the agreement, let alone consented to it. The CA also rejected Cos alternative defense that METRO RENT already paid the loan, finding the testimonial evidence in support of the assertion as pure hearsay. The CA disposed, thus:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from must be as it hereby is, REVERSED and SET ASIDE, and a new one entered CONDEMNING [petitioner] Henry Dela Rama Co to pay [respondent] Admiral United Savings Bank: (1) the sum of FIVE HUNDRED THOUSAND (P500,000.00) PESOS, Philippine Currency, with interest at eighteen percent (18%) per annum, and charges of ten percent (10%) per annum, reckoned from 28 February 1984, until fully paid; (2) the sum equivalent to three percent (3%) per month from said due date until fully paid, by way of liquidated damages; and, (3) the sum equivalent to twenty-five percent (25%) of the total amount due in the concept of attorneys fees.
For insufficiency of evidence, the third party complaint against third party defendant Metropolitan Rental and Sales, Incorporated, is DISMISSED. Without costs.

SO ORDERED.11
Co filed a motion for reconsideration, but the CA denied the same on August 7, 2002.12 Hence, this appeal by Co faulting the CA for reversing the RTC. The appeal lacks merit. Co has not denied the authenticity and due execution of the promissory note. He, however, asserts that he is not legally bound by said document because he merely acted as an accommodation party for METRO RENT. He claimed the he signed the note only for the purpose of lending his name to METRO RENT, without receiving value therefor. The argument fails to persuade. The document, bearing Cos signature, speaks for itself. To repeat, Co has not questioned the genuineness and due execution of the note. By signing the promissory note, Co acknowledged receipt of the loan amounting to P500,000.00, and undertook to pay the same, plus interest, to

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ADMIRAL on or before February 28, 1984. Thus, he cannot validly set up the defense that he did not receive the value of the note or any consideration therefor. At any rate, Cos assertion that he merely acted as an accommodation party for METRO RENT cannot release him from liability under the note. An accommodation party who lends his name to enable the accommodated party to obtain credit or raise money is liable on the instrument to a holder for value even if he receives no part of the consideration.13 He assumes the obligation to the other party and binds himself to pay the note on its due date. By signing the note, Co thus became liable for the debt even if he had no direct personal interest in the obligation or did not receive any benefit therefrom. In Sierra v. Court of Appeals,14 we held that: A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation. Co is not unfamiliar with commercial transactions. He is a certified public accountant, who obtained his bachelors degree in accountancy from De La Salle University. Certainly, he fully understood the import and consequences of what he was doing when he signed the promissory note. He even mortgaged his own properties to secure payment of the loan. His disclaimer, therefore, does not inspire belief. Co also offered the alternative defense that the loan had already been extinguished by payment. He testified that METRO RENT paid the loan a week before April 11, 1983.15 In Alonzo v. San Juan,16 we held that the receipts of payment, although not exclusive, were deemed to be the best evidence of the fact of payment. In this case, no receipt was presented to substantiate the claim of payment. Instead, Co presented a Release of Real Estate Mortgage17 dated April 11, 1983 to prove his assertion. But a cancellation of mortgage is not conclusive proof of payment of a loan, even as it may serve as basis for an inference that payment of the principal obligation had been made. Unfortunately for Co, no such inference can be made from the deed he presented. The Release of Real Estate Mortgage reads: The ADMIRAL UNITED SAVINGS BANK, a banking institution duly organized and existing under and by virtue of the laws of the Philippines, with offices at S. Medalla Building, EDSA corner Gen. MacArthur, Cubao, Quezon City, Metro-Manila, represented in this act by its First Vice-President, MR. EMMANUEL ALMANZOR, and its Asst. Vice President, MR. ROSSINI PETER G. GAMALINDA, the mortgagee of the properties described in Transfer Certificates of Title Nos. 3478 and 95759 of the Registry of Deeds of Laguna in the MORTGAGE executed on February 24, 1983 and acknowledged on the same date before Atty. Benjamin Baens del Rosario, Notary Public for and in Quezon City, Metro Manila who entered in his notarial protocol as Doc. No. 70, Page No. 15, Book No. IV, Series of 1983, in favor of the said Bank, by HENRY DE[LA] RAMA CO, hereby RELEASES and DISCHARGES the mortgage on the

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aforesaid Transfer Certificates of Title Nos. 3478 and 95759 of the Registry of Deeds of Laguna.18 The record is bereft of any showing that the promissory note was secured by a mortgage over properties covered by TCT Nos. 3478 and 95759. Thus, it cannot be assumed that the mortgage executed on February 28, 1983, and released on April 11, 1983, was the security for the subject promissory note. In addition, TCT Nos. 3478 and 95759, the supposed collaterals for the loan, are still with the bank.19 If indeed there was payment of the principal obligation and cancellation of the mortgage in 1983, Co should have immediately demanded for the return of the TCTs. This he failed to do.20 It was only on June 11, 1987, after the filing of the complaint with the RTC, that Co demanded for the return of TCT Nos. 3478 and 95759.21 Cos inaction militates against his assertion. Jurisprudence is replete with rulings that in civil cases, the party who alleges a fact has the burden of proving it. Burden of proof is the duty of a party to present evidence on the facts in issue necessary to prove the truth of his claim or defense by the amount of evidence required by law.22 Thus, a party who pleads payment as a defense has the burden of proving that such payment had, in fact, been made. When the plaintiff alleges nonpayment, still, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.23 Verily, Co failed to discharge this burden. His bare testimonial assertion that METRO RENT paid the loan a week before April 11, 1983 or forty-five (45) days after [the] release of the loan, cannot be characterized as adequate and competent proof of payment. Accordingly, the CA rightly rejected his alternative defense of payment. Similarly, Cos protestation that the cancellation of the real estate mortgage extinguished his obligation to pay the loan cannot be sustained. We perceive it as a strained attempt to rationalize his untenable position. A real estate mortgage is but an accessory contract to secure the loan in the promissory note. Its cancellation does not automatically result in the extinguishment of the loan. Being the principal contract, the loan is unaffected by the release or cancellation of the mortgage. Certainly, a debt may subsist even without a mortgage. Thus, in the case at bench, ADMIRAL can still run after Co for the payment of the loan under the promissory note, even after the release of the mortgage on the properties, especially because there was no showing that the mortgage was constituted as a security for the loan covered by the promissory note. In sum, the CA committed no reversible error in holding Co liable for the payment of the loan. However, we find a need to modify the damages awarded in favor of ADMIRAL. The CA, in conformity with the terms of the promissory note, awarded to ADMIRAL the amount of P500,000.00 with interest at 18% per annum, and service charge at the rate of 10% per annum, computed from February 28, 1984 until fully paid. It also awarded the sum equivalent to three percent (3%) per month from said due date until fully paid, by way of liquidated damages, and the sum equivalent to twenty-five (25%) of the total amount due in the concept of attorneys fees.24

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We sustain the interest rate of 18% per annum for being fair and reasonable. However, equity dictates that we reduce the service charge, liquidated damages and attorneys fees awarded in favor of ADMIRAL. In L.M. Handicraft Manufacturing Corporation v. Court of Appeals,25 we held that a bank is only entitled to a maximum of 2% per annum service charge for amounts not over P500,000.00. We, therefore, modify the amount of service charge from 10% to 2%, or P10,000.00 per annum beginning February 28, 1984 until full payment of the loan obligation. As to the awards of liquidated damages and attorneys fees, we acknowledge that the law allows a party to recover liquidated damages and attorney's fees under a written agreement, thus: [T]he attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney's fees so provided are awarded in favor of the litigant, not his counsel. On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach. A stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of an obligation. The obligor is bound to pay the stipulated amount without need for proof on the existence and on the measure of damages caused by the breach.26 Nonetheless, courts are empowered to reduce such penalty if the same is iniquitous or unconscionable. Article 1229 of the Civil Code states: ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. This sentiment is echoed in Article 2227 of the same Code: ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. ADMIRAL is more than adequately protected from a possible breach of contract because of the stipulations on the payment of interest, service fee, liquidated damages and attorneys fees. Thus, this Court finds the award of liquidated damages and attorneys fees by the CA exorbitant. After all, liquidated damages and attorneys fees serve the same purpose, that is, as penalty for breach of contract.27 Accordingly, we reduce the liquidated damages to P150,000.00, and attorneys fees to 10% of the principal loan or P50,000.00.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals in CAG.R. CV No. 42167 is AFFIRMED with MODIFICATIONS. Petitioner Henry Dela Rama Co is ordered to pay Admiral United Savings Bank P500,000.00, with interest at 18% per annum from February 28, 1984 until the loan is fully paid. In addition, Co is adjudged liable to pay ADMIRAL a service charge equivalent to 2% of the principal loan, or P10,000.00 per year also

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from February 28, 1984 until the full payment of the loan; P150,000.00, as liquidated damages; and P50,000.00, as attorneys fees.

SO ORDERED.

G.R. No. 177886

November 27, 2008

SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA, petitioners, vs. EQUITABLE PCI BANK, INC., respondent. CARPIO MORALES, J.:
Via a contract denominated as "CREDIT LINE AND REAL ESTATE MORTGAGE AGREEMENT FOR PROPERTY LINE"1 (Credit Line Agreement) executed on March 31, 1997, Leo-Mers Commercial, Inc., as the Client, and its officers spouses Leopoldo and Mercedita Viola (petitioners) obtained a loan through a credit line facility in the maximum amount of P4,700,000.00 from the Philippine Commercial International Bank (PCI Bank), which was later merged with Equitable Bank and became known as Equitable PCI Bank, Inc. (respondent). The Credit Line Agreement stipulated that the loan would bear interest at the "prevailing PCIBank lending rate" per annum on the principal obligation and a "penalty fee of three percent (3%) per month on the outstanding amount." To secure the payment of the loan, petitioners executed also on March 31, 1997 a "Real Estate Mortgage"2 in favor of PCIBank over their two parcels of land covered by Transfer Certificates of Title No. N-113861 (consisting of 300 square meters, more or less ) and N129036 (consisting of 446 square meters, more or less) of the Registry of Deeds of Marikina. Petitioners availed of the full amount of the loan. Subsequently, they made partial payments which totaled P3,669,210.67. By respondents claim, petitioner had since November 24, 2000 made no further payments and despite demand, they failed to pay their outstanding obligation which, as of September 30, 2002, totaled P14,024,623.22, broken down as follows: (a) Principal obligation (b) Past due interest from 11/24/00 to 09/30/02 at 15% interest (c) Penalty at 3% per month from 03/31/98 to 02/23/02 P4,783,254.69 P1,345,290.38 P7,896,078.15 P14,024,623.223 (Underscoring supplied) Respondent thus extrajudicially foreclosed the mortgage before the Office of the Clerk of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court (RTC) of Marikina City. The

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mortgaged properties were sold on April 10, 2003 for P4,284,000.00 at public auction to respondent, after which a Certificate of Sale dated April 21, 20034 was issued. More than five months later or on October 8, 2003, petitioners filed a complaint5 for annulment of foreclosure sale, accounting and damages before the Marikina RTC, docketed as Civil Case No. 2003-905-MK and raffled to Branch 192. Petitioners alleged, inter alia, that they had made substantial payments of P3,669,210.67 receipts of which were issued without respondent specifying "whether the payment was for interest, penalty or the principal obligation;" that based on respondents statement of account, not a single centavo of their payments was applied to the principal obligation; that every time respondent sent them a statement of account and demand letters, they requested for a proper accounting for the purpose of determining their actual obligation, but all their requests were unjustifiably ignored on account of which they were forced to discontinue payment; that "the foreclosure proceedings and auction sale were not only irregularly and prematurely held but were null and void because the mortgage debt is only P2,224,073.31 on the principal obligation and P1,455,137.36 on the interest, or a total of only P3,679,210.67 as of April 15, 2003, but the mortgaged properties were sold to satisfy an inflated and erroneous principal obligation of P4,783,254.69, plus 3% penalty fee per month or 33% per year and 15% interest per year, which amounted to P14,024,623.22 as of September 30, 2002;" that "the parties never agreed and stipulated in the real estate mortgage contract" that the 15% interest per annum on the principal loan and the 3% penalty fee per month on the outstanding amount would be covered or secured by the mortgage; that assuming respondent could impose such interest and penalty fee, the same are "exorbitant, unreasonable, iniquitous and unconscionable, hence, must be reduced;" and that respondent is only allowed to impose the legal rate of interest of 12% per annum on the principal loan absent any stipulation thereon.6 In its Answer, respondent denied petitioners assertions, contending, inter alia, that the absence of stipulation in the mortgage contract securing the payment of 15% interest per annum on the principal loan, as well as the 3% penalty fee per month on the outstanding amount, is immaterial since the mortgage contract is "a mere accessory contract which must take its bearings from the principal Credit Line Agreement."7 During the pre-trial conference, the parties defined as sole issue in the case whether the mortgage contract also secured the payment of 15% interest per annum on the principal loan of P4,700,000.00 and the 3% penalty fee per month on the outstanding amount, which interest and penalty fee are stipulated only in the Credit Line Agreement.8 By Decision9 of September 14, 2005, the trial court sustained respondents affirmative position on the issue but found the questioned interest and penalty fee "excessive and exorbitant." Thus, it equitably reduced the interest on the principal loan from 15% to 12% per annum and the penalty fee per month on the outstanding amount from 3% to 1.5% per month. Accordingly, the court nullified the foreclosure proceedings and the Certificate of Sale subsequently issued, "without prejudice" to the holding anew of foreclosure proceedings based on the "re-computed amount" of the indebtedness, "if the circumstances so warrant." The dispositive portion of the trial courts Decision reads: WHEREFORE, judgment is hereby rendered as follows:

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1) The interest on the principal loan in the amount of Four Million Seven Hundred Thousand (P4,700,000.00) Pesos should be recomputed at 12% per annum; 2) The 3% per month penalty on delinquent account as stipulated by the parties in the Credit Line Contract dated March 31, 1997 is hereby REDUCED to 1.5% per month; 3) The foreclosure sale conducted on April 10, 2003 by the Clerk of Court and Ex-Officio Sheriff of Marikina, to satisfy the plaintiffs mortgage indebtedness, and the Certificate of Sale issued as a consequence of the said proceedings, are declared NULL and VOID, without prejudice to the conduct of another foreclosure proceedings on the basis of the re-computed amount of the plaintiffs indebtedness, if the circumstances so warrant. No pronouncement as to costs. SO ORDERED. (Underscoring supplied) Petitioners filed a Motion for Partial Reconsideration,10 contending that the penalty fee per month on the outstanding amount should have been taken out of the coverage of the mortgage contract as it was not stipulated therein. By Order dated December 6, 2005, the trial court denied the motion. On appeal by petitioners, the Court of Appeals, by Decision11 of February 21, 2007, dismissed the same for lack of merit, holding that "the Real Estate Mortgage covers not only the principal amount [of P4,700,000.00] but also the interest and bank charges, which [phrase bank charges] refers to the penalty charges stipulated in the Credit Line Agreement."12 Petitioners Motion for Reconsideration having been denied by Resolution13 of May 16, 2007, they filed the present Petition for Review on Certiorari, alleging that THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN DECIDING THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT BY RULING THAT THERE IS NO AMBIGUITY IN CONSTRUING TOGETHER THE CREDIT LINE AND MORTGAGE CONTRACTS WHICH PROVIDED CONFLICTING PROVISIONS AS TO INTEREST AND PENALTY.14 The only issue is whether the mortgage contract also secured the penalty fee per month on the outstanding amount as stipulated in the Credit Line Agreement. The Court holds not. A mortgage must "sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage.15 In the case at bar, the parties executed two separate documents on March 31, 1997 the Credit Line Agreement granting the Client a loan through a credit facility in the maximum amount of P4,700,000.00, and the Real Estate Mortgage contract securing the payment thereof. Undisputedly, both contracts were prepared by respondent and written in fine print, single space.

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The Credit Line Agreement contains the following stipulations on interest and delinquency charges: A. CREDIT FACILITY 9. INTEREST ON AVAILMENTS The CLIENT shall pay the BANK interest on each availment against the Credit Facility at the rate of: PREVAILING PCIBANK LENDING RATE for the first interest period as defined in A(10) hereof. x x x. xxxx 15. DELINQUENCY CLIENTs account shall be considered delinquent if the availments exceed the amount of the line and/or in case the Account is debited for unpaid interest and the Available Balance is insufficient to cover the amount debited. In such cases, the Available Balance shall become negative and the CLIENT shall pay the deficiency immediately in addition to collection expenses incurred by the BANK and a penalty fee of three percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment thereon. x x x x.16 (Underscoring supplied) The Real Estate Mortgage contract states its coverage, thus: That for and in consideration of certain loans, credit and other banking facilities obtained x x x from the Mortgagee, the principal amount of which is PESOS FOUR MILLION SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00) Philippine Currency, and for the purpose of securing the payment thereof, including the interest and bank charges accruing thereon, the costs of collecting the same and of taking possession of and keeping the mortgaged propert[ies], and all other expenses to which the Mortgagee may be put in connection with or as an incident to this mortgage, as well as the faithful compliance with the terms and conditions of this agreement and of the separate instruments under which the credits hereby secured were obtained, the Mortgagor does hereby constitute in favor of the Mortgagee, its successors or assigns, a mortgage on the real property particularly described, and the location of which is set forth, in the list appearing at the back hereof and/or appended hereto, of which the Mortgagor declare that he is the absolute owner and the one in possession thereof, free and clear of any liens, encumbrances and adverse claims.17 (Emphasis and underscoring supplied) The immediately-quoted provision of the mortgage contract does not specifically mention that, aside from the principal loan obligation, it also secures the payment of "a penalty fee of three percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment thereon," which penalty as the above-quoted portion of the Credit Line Agreement expressly stipulates.

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Since an action to foreclose "must be limited to the amount mentioned in the mortgage"18 and the penalty fee of 3% per month of the outstanding obligation is not mentioned in the mortgage, it must be excluded from the computation of the amount secured by the mortgage. The ruling of the Court of Appeals in its assailed Decision that the phrase "including the interest and bank charges" in the mortgage contract "refers to the penalty charges stipulated in the Credit Line Agreement" is unavailing. "Penalty fee" is entirely different from "bank charges." The phrase "bank charges" is normally understood to refer to compensation for services. A "penalty fee" is likened to a compensation for damages in case of breach of the obligation. Being penal in nature, such fee must be specific and fixed by the contracting parties, unlike in the present case which slaps a 3% penalty fee per month of the outstanding amount of the obligation. Moreover, the "penalty fee" does not belong to the species of obligation enumerated in the mortgage contract, namely: "loans, credit and other banking facilities obtained x x x from the Mortgagee, . . . including the interest and bank charges, . . . the costs of collecting the same and of taking possession of and keeping the mortgaged properties, and all other expenses to which the Mortgagee may be put in connection with or as an incident to this mortgage . . ." In Philippine Bank of Communications v. Court of Appeals19 which raised a similar issue, this Court held: The sole issue in this case is whether, in the foreclosure of a real estate mortgage, the penalties stipulated in two promissory notes secured by the mortgage may be charged against the mortgagors as part of the sums secured, although the mortgage contract does not mention the said penalties. xxxx We immediately discern that the mortgage contract does not at all mention the penalties stipulated in the promissory notes. However, the petitioner insists that the penalties are covered by the following provision of the mortgage contract: This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity, as the case may be, of all promissory notes, letters of credit, trust receipts, bills of exchange, drafts, overdrafts and all other obligations of every kind already incurred or which hereafter may be incurred . xxxx The Court is unconvinced, for the cases relied upon by the petitioner are inapplicable. x x x. xxxx The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the only participation of the other party was the affixing of his signature or "adhesion" thereto. Being a contract of adhesion, the mortgage is to be strictly construed against the petitioner, the party which prepared the agreement.

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A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields no mention of penalty charges. Construing this silence strictly against the petitioner, it can fairly be concluded that the petitioner did not intend to include the penalties on the promissory notes in the secured amount. This explains the finding by the trial court, as affirmed by the Court of Appeals, that "penalties and charges are not due for want of stipulation in the mortgage contract." Indeed, a mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. In this case, the mortgage contract provides that it secures notes and other evidences of indebtedness. Under the rule of ejusdem generis, where a description of things of a particular class or kind is "accompanied by words of a generic character, the generic words will usually be limited to things of a kindred nature with those particularly enumerated . . . " A penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the said contract cannot be understood to secure the penalty.20 (Emphasis and underscoring supplied) Respondents contention that the absence in the mortgage contract of a stipulation securing the payment of the 3% penalty fee per month on the outstanding amount is of no consequence, the deed of mortgage being merely an "accessory contract" that "must take its bearings from the principal Credit Line Agreement,"21 fails. Such absence is significant as it creates an ambiguity between the two contracts, which ambiguity must be resolved in favor of petitioners and against respondent who drafted the contracts. Again, as stressed by the Court in Philippine Bank of Communications: There is also sufficient authority to declare that any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. A mortgage and a note secured by it are deemed parts of one transaction and are construed together, thus, an ambiguity is created when the notes provide for the payment of a penalty but the mortgage contract does not. Construing the ambiguity against the petitioner, it follows that no penalty was intended to be covered by the mortgage. The mortgage contract consisted of three pages with no less than seventeen conditions in fine print; it included provisions for interest and attorneys fees similar to those in the promissory notes; and it even provided for the payment of taxes and insurance charges. Plainly, the petitioner can be as specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty in the promissory notes would be secured by the mortgage. This can then only be interpreted to mean that the petitioner had no design of including the penalty in the amount secured.22 (Emphasis and underscoring supplied)

WHEREFORE, the assailed Court of Appeals Decision of February 21, 2007 and Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No. 86412 affirming the trial courts decision are, in light of the foregoing disquisition, AFFIRMED with MODIFICATION in that the "penalty fee" per month of the outstanding obligation is excluded in the computation of the amount secured by the Real Estate Mortgage executed by petitioners in respondents favor. SO ORDERED.

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[G.R. No. 172592, July 09, 2008] SPOUSES WILFREDO N. ONG AND EDNA SHEILA PAGUIO-ONG, PETITIONERS, VS. ROBAN LENDING CORPORATION, RESPONDENT.

CARPIO MORALES, J.:

On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from Roban Lending Corporation (respondent) in the total amount of P4,000,000.00. These loans were secured by a real estate mortgage on petitioners' parcels of land located in Binauganan, Tarlac City and covered by TCT No. 297840.[1] On February 12, 2001, petitioners and respondent executed an Amendment to Amended Real Estate Mortgage[2] consolidating their loans inclusive of charges thereon which totaled P5,916,117.50. On even date, the parties executed a Dacion in Payment Agreement[3] wherein petitioners assigned the properties covered by TCT No. 297840 to respondent in settlement of their total obligation, and a Memorandum of Agreement[4] reading: That the FIRST PARTY [Roban Lending Corporation] and the SECOND PARTY [the petitioners] agreed to consolidate and restructure all aforementioned loans, which have been all past due and delinquent since April 19, 2000, and outstanding obligations totaling P5,916,117.50. The SECOND PARTY hereby sign [sic] another promissory note in the amount of P5,916,117.50 (a copy of which is hereto attached and forms xxx an integral part of this document), with a promise to pay the FIRST PARTY in full within one year from the date of the consolidation and restructuring, otherwise the SECOND PARTY agree to have their "DACION IN PAYMENT" agreement, which they have executed and signed today in favor of the FIRST PARTY be enforced[.][5] In April 2002 (the day is illegible), petitioners filed a Complaint,[6] docketed as Civil Case No. 9322, before the Regional Trial Court (RTC) of Tarlac City, for declaration of mortgage contract as abandoned, annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages, alleging that the Memorandum of Agreement and the Dacion in Payment executed are void for being pactum commissorium.[7] Petitioners alleged that the loans extended to them from July 14, 1999 to March 20, 2000 were founded on several uniform promissory notes, which provided for 3.5% monthly interest rates, 5% penalty per month on the total amount due and demandable, and a further sum of 25% attorney's fees thereon,[8] and in addition, respondent exacted certain sums denominated as "EVAT/AR."[9] Petitioners decried these additional charges as "illegal, iniquitous, unconscionable, and revolting to the conscience as they hardly allow any borrower any chance of survival in case of default."[10] Petitioners further alleged that they had previously made payments on their loan accounts, but because of the illegal exactions thereon, the total balance appears not to have moved at all, hence, accounting was in order.[11] Petitioners thus prayed for judgment: a) Declaring the Real Estate Mortgage Contract and its amendments x x x as null and void and without legal force and effect for having been renounced, abandoned, and given up;

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b) Declaring the "Memorandum of Agreement" xxx and "Dacion in Payment" x x x as null and void for being pactum commissorium; c) Declaring the interests, penalties, Evat [sic] and attorney's fees assessed and loaded into the loan accounts of the plaintiffs with defendant as unjust, iniquitous, unconscionable and illegal and therefore, stricken out or set aside; d) Ordering an accounting on plaintiffs' loan accounts to determine the true and correct balances on their obligation against legal charges only; and e) Ordering defendant to [pay] to the plaintiffs: -e.1 Moral damages in an amount not less than P100,000.00 and exemplary damages of P50,000.00; e.2 Attorney's fees in the amount of P50,000.00 plus P1,000.00 appearance fee per hearing; and e.3 The cost of suit.[12] as well as

other

just

and

equitable

reliefs.

In its Answer with Counterclaim,[13] respondent maintained the legality of its transactions with petitioners, alleging that: x x x x If the voluntary execution of the Memorandum of Agreement and Dacion in Payment Agreement novated the Real Estate Mortgage then the allegation of Pactum Commissorium has no more legal leg to stand on; The Dacion in Payment Agreement is lawful and valid as it is recognized x x x under Art. 1245 of the Civil Code as a special form of payment whereby the debtor-Plaintiffs alienates their property to the creditor-Defendant in satisfaction of their monetary obligation; The accumulated interest and other charges which were computed for more than two (2) years would stand reasonable and valid taking into consideration [that] the principal loan is P4,000,000 and if indeed it became beyond the Plaintiffs' capacity to pay then the fault is attributed to them and not the Defendant[.][14] After pre-trial, the initial hearing of the case, originally set on December 11, 2002, was reset several times due to, among other things, the parties' efforts to settle the case amicably.[15] During the scheduled initial hearing of May 7, 2003, the RTC issued the following order: Considering that the plaintiff Wilfredo Ong is not around on the ground that he is in Manila and he is attending to a very sick relative, without objection on the part of the defendant's counsel, the initial hearing of this case is reset to June 18, 2003 at 10:00 o'clock in the morning. Just in case [plaintiff's counsel] Atty. Concepcion cannot present his witness in the person of Mr. Wilfredo Ong in the next scheduled hearing, the counsel manifested that he will submit the case for summary judgment.[16] (Underscoring supplied) It appears that the June 18, 2003 setting was eventually rescheduled to February 11, 2004 at which both counsels were present[17] and the RTC issued the following order:

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The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 o'clock in the morning. However, the counsels are directed to be ready with their memorand[a] together with all the exhibits or evidence needed to support their respective positions which should be the basis for the judgment on the pleadings if the parties fail to settle the case in the next scheduled setting. x x x x[18] (Underscoring supplied) At the scheduled April 14, 2004 hearing, both counsels appeared but only the counsel of respondent filed a memorandum.[19] By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on the basis of the pleadings that there was no pactum commissorium, dismissed the complaint.[20] On appeal,[21] the Court of Appeals[22] noted that x x x [W]hile the trial court in its decision stated that it was rendering judgment on the pleadings, x x x what it actually rendered was a summary judgment. A judgment on the pleadings is proper when the answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading. However, a judgment on the pleadings would not have been proper in this case as the answer tendered an issue, i.e. the validity of the MOA and DPA. On the other hand, a summary judgment may be rendered by the court if the pleadings, supporting affidavits, and other documents show that, except as to the amount of damages, there is no genuine issue as to any material fact.[23] Nevertheless, finding the error in nomenclature "to be mere semantics with no bearing on the merits of the case",[24] the Court of Appeals upheld the RTC decision that there was no pactum commissorium.[25] Their Motion for Reconsideration[26] having been denied,[27] petitioners filed the instant Petition for Review on Certiorari,[28] faulting the Court of Appeals for having committed a clear and reversible error I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL REQUISITES WHICH WOULD WARRANT THE SETTING ASIDE OF THE SUMMARY JUDGMENT IN VIOLATION OF APPELLANTS' RIGHT TO DUE PROCESS; . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE; . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO AGREEMENT (DPA) WERE DESIGNED TO CIRCUMVENT THE LAW AGAINST PACTUM COMMISSORIUM; and . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO (DPA) ARE NULL AND VOID FOR BEING CONTRARY TO LAW AND PUBLIC POLICY.[29] petition is meritorious.

II. III.

IV.

The

Both parties admit the execution and contents of the Memorandum of Agreement and Dacion in Payment. They differ, however, on whether both contracts constitute pactum commissorium or dacion en pago.

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This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code which provides: The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void." The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings,[30] are: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.[31] In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no provisions for foreclosure proceedings nor redemption. Under the Memorandum of Agreement, the failure by the petitioners to pay their debt within the one-year period gives respondent the right to enforce the Dacion in Payment transferring to it ownership of the properties covered by TCT No. 297840. Respondent, in effect, automatically acquires ownership of the properties upon petitioners' failure to pay their debt within the stipulated period. Respondent argues that the law recognizes dacion en pago as a special form of payment whereby the debtor alienates property to the creditor in satisfaction of a monetary obligation.[32] This does not persuade. In a true dacion en pago, the assignment of the property extinguishes the monetary debt.[33] In the case at bar, the alienation of the properties was by way of security, and not by way of satisfying the debt.[34] The Dacion in Payment did not extinguish petitioners' obligation to respondent. On the contrary, under the Memorandum of Agreement executed on the same day as the Dacion in Payment, petitioners had to execute a promissory note for P5,916,117.50 which they were to pay within one year.[35] Respondent cites Solid Homes, Inc. v. Court of Appeals[36] where this Court upheld a Memorandum of Agreement/Dacion en Pago .[37] That case did not involve the issue of pactum commissorium.[38] That the questioned contracts were freely and voluntarily executed by petitioners and respondent is of no moment, pactum commissorium being void for being prohibited by law.[39] Respecting the charges on the loans, courts may reduce interest rates, penalty charges, and attorney's fees if they are iniquitous or unconscionable.[40] This Court, based on existing jurisprudence,[41] finds the monthly interest rate of 3.5%, or 42% per annum unconscionable and thus reduces it to 12% per annum. This Court finds too the penalty fee at the monthly rate of 5% (60% per annum) of the total amount due and demandable principal plus interest, with interest not paid when due added to and becoming part of the principal and likewise bearing interest at the same rate, compounded monthly [42] unconscionable and reduces it to a yearly rate of 12% of the amount due, to be computed from the time of demand.[43] This Court finds the attorney's fees of 25% of the principal, interests and interests thereon, and the penalty fees unconscionable, and thus reduces the attorney's fees to 25% of the principal amount only.[44] The prayer for accounting in petitioners' complaint requires presentation of evidence, they claiming to have made partial payments on their loans, vis a vis respondent's denial A remand of the case is thus in order. thereof.[45]

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Prescinding from the above disquisition, the trial court and the Court of Appeals erred in holding that a summary judgment is proper. A summary judgment is permitted only if there is no genuine issue as to any material fact and a moving party is entitled to a judgment as a matter of law.[46] A summary judgment is proper if, while the pleadings on their face appear to raise issues, the affidavits, depositions, and admissions presented by the moving party show that such issues are not genuine.[47] A genuine issue, as opposed to a fictitious or contrived one, is an issue of fact that requires the presentation of evidence.[48] As mentioned above, petitioners' prayer for accounting requires the presentation of evidence on the issue of partial payment. But neither is a judgment on the pleadings proper. A judgment on the pleadings may be rendered only when an answer fails to tender an issue or otherwise admits the material allegations of the adverse party's pleadings.[49] In the case at bar, respondent's Answer with Counterclaim disputed petitioners' claims that the Memorandum of Agreement and Dation in Payment are illegal and that the extra charges on the loans are unconscionable.[50] [51] Respondent disputed too petitioners' allegation of bad faith.

WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET ASIDE. The Memorandum of Agreement and the Dacion in Payment executed by petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on February 12, 2001 are declared NULL AND VOID for being pactum commissorium.
In line with the foregoing findings, the following terms of the loan contracts between the parties are MODIFIED as follows: 1. The monthly interest rate of 3.5%, or 42% per annum, is reduced to 12% per annum; 2. The monthly penalty fee of 5% of the total amount due and demandable is reduced to 12% per annum, to be computed from the time of demand; and 3. The attorney's fees are reduced to 25% of the principal amount only. Civil Case No. 9322 is REMANDED to the court of origin only for the purpose of receiving evidence on petitioners' prayer for accounting. SO ORDERED.

[G.R. No. 150931, July 16, 2008] DR. CECILIA DE LOS SANTOS, PETITIONER, VS. DR. PRISCILA BAUTISTA VIBAR, RESPONDENT. DECISION CARPIO, J.: The Case

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Before the Court is a petition for review on certiorari[1] assailing the Decision[2] dated 29 June 2001 and Resolution[3] dated 21 November 2001 of the Court of Appeals in CA-G.R. CV No. 66605.

The Facts
Petitioner Cecilia de los Santos (Cecilia) and respondent Priscila Bautista Vibar (Priscila) were former co-workers in the Medical Department of the Social Security System. They were close and trusted friends for 33 years. Sometime in 1994, Cecilia introduced Jose de Leon (de Leon) to Priscila. De Leon needed money and borrowed P100,000 from Priscila. De Leon issued a promissory note dated 2 June 1994 and bound himself to pay the loan three months from date with a monthly interest rate of Cecilia signed as a guarantor of de Leon's loan. 3%.[4] On 28 June 1995, de Leon asked Priscila for another loan. Together with Cecilia and Avelina Conte, de Leon went to Priscila's house. Priscila and her sister, Atty. Josefina Bautista (Atty. Bautista), were present in the same gathering. After some discussion, they all agreed that the outstanding P100,000 loan together with the accrued interest would be deducted from the new loan of P500,000.[5] De Leon signed a typewritten promissory note, which he brought with him, acknowledging the debt of P500,000 payable within 12 months from 28 August 1995, at a fixed monthly interest rate of 3% and a penalty of 2% per month in case of default.[6] Then, Cecilia signed as a witness under the phrase "signed in the presence of." However, Atty. Bautista brought up the need for Cecilia to sign as guarantor. Thereupon, de Leon, in his own handwriting, inserted the word "guarantor" besides Cecilia's name, as Cecilia nodded her head to what de Leon was doing. De Leon also added the phrase, "as security for this loan this TCT No. T-47375, Registry of Baguio City, is being submitted by way of mortgage." On maturity date, de Leon failed to pay any of the monthly installments. Priscila made several verbal demands on de Leon for payment but to no avail. Priscila's counsel then sent de Leon a demand letter dated 17 July 1996 asking for payment of the principal loan with interest and penalties.[7] De Leon failed to respond. On 4 September 1996, Priscila's counsel again sent a demand letter not only to de Leon as principal debtor, but also to Cecilia.[8] Cecilia was being made to answer for de Leon's debt as the latter's guarantor. Cecilia then remitted to Priscila P15,000 to pay one month's interest on the loan.[9] However, this was the only payment Cecilia made to Priscila as Cecilia claimed she had no money to pay the full amount of the loan. After several failed attempts to collect the loan, Priscila filed with the Registry of Deeds of Baguio City an adverse claim on the property registered under TCT No. T-47375. However, the Register of Deeds denied the registration of Priscila's claim on several grounds:[10] (a) the issue involved is a money claim which does not fall within Section 70 of Presidential Decree No. 1529;[11] (b) the annexes were not marked;

(c) the family names of Jose and Evangeline, registered owners, do not tally with those on the title;[12] and

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(d) there is no statement that there is no other provision in the Property Registration Decree for registering the same. On 20 November 1996, Priscila filed an action for recovery of money with the Regional Trial Court of Quezon City, Branch 100, against de Leon and Cecilia.[13] De Leon did not file an answer and the trial court declared him in default. Cecilia, on the other hand, filed an answer denying that she signed as guarantor of de Leon's loan. On 26 November 1999, the trial court ruled in favor of Cecilia and dismissed the complaint for insufficiency of evidence.[14] On 12 January 2000, Priscila filed a Motion for Reconsideration on the grounds that the trial court erred in (a) dismissing the complaint against de Leon despite his being declared in default; and (b) finding that Cecilia was not a guarantor of de Leon's loan. In an Order dated 8 February 2000,[15] the trial court modified its decision and ruled that de Leon acted fraudulently or in bad faith in refusing to pay his debt to Priscila. However, the trial court affirmed its decision dismissing the complaint against Cecilia. The trial court ruled that there was no express consent given by Cecilia binding her as guarantor. The dispositive portion of the Order provides: WHEREFORE, in view of the foregoing, the Decision of the Court dated November 26, 1999, is hereby amended as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff Dra. Priscila Vibar and against defendant Jose de Leon, and hereby orders the latter to pay the plaintiff the following amounts: (1) P500,000.00 representing the total amount of the loan extended with interest at 3% per month and penalty of 2% per month (due to default) from July 17, 1996 until the obligation is fully paid; (2) (3) (4) P30,000.00 P20,000.00 representing representing costs moral attorney's of fees; damages; and suit.

Further, the Court hereby DISMISSES the instant complaint against defendant Dra. Cecilia de los Santos for insufficiency of evidence. No pronouncement as to costs. SO ORDERED. Priscila filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 66605.

The Ruling of the Court of Appeals

On 29 June 2001, the appellate court affirmed the trial court's ruling against de Leon but modified the same with respect to Cecilia.[16] The appellate court declared Cecilia as guarantor of de Leon's loan. The relevant portions of the Decision state: x x x The conduct of defendant-appellee de los Santos during the signing, however, belies her intention to act merely as a witness. It cannot be gainsaid that she did not react when she heard Atty. Bautista's protest about her signing the promissory note in the capacity only of a witness and not as a guarantor. Neither did defendant-appellee de los Santos object when defendant-appellee de Leon got back the promissory note and wrote the word "guarantor" after her signature in full view of all those present, including defendant-appellee de los Santos. In fact, said appellee nodded, signifying approval, when defendant-appellee de Leon placed the

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word x

"guarantor"

after x

her

signature

on x

the

promissory

note. x

In this factual milieu, if defendant-appellee de los Santos intended only to sign as a witness, she should have reacted when the word "guarantor" was written on the note in her presence. She should have expressed her strong and firm objections to such imposition of liability. But defendant-appellee de los Santos kept mum. Such silence can lead to no other conclusion that she has impliedly given her consent to be the guarantor of de Leon's loan. Moreover, defendant-appellee de los Santos is estopped from claiming otherwise. Estoppel in pais arises x x x. Moreover, one can imply from defendant-appellee de los Santos' letter dated May 5, 1996 addressed to the Register of Deeds, City of Baguio that defendant-appellee de los Santos agreed to be bound as guarantor x x x. It is significant to note that she made no statement therein repudiating her having signed the same in the capacity of a guarantor, contrary to what she now claims in her defense. Her failure to correct or refute such statement reinforces the claim that indeed she guaranteed payment of the loan in question, and that writing was to her interest considering her liabilities under the note as guarantor. x x x Thus, defendant-appellee de los Santos can be compelled to pay plaintiff-appellant Vibar the judgment debt if it remains unsatisfied after execution is enforced against the properties of the principal debtor, defendant-appellee Jose de Leon. x x x Cecilia filed a Motion for Reconsideration which the appellate court denied in a Resolution dated 21 November 2001.[17] Hence, this petition.

The Issue
The main issue for resolution is whether Cecilia is liable as guarantor of de Leon's loan from Priscila. Cecilia contends that she is not liable as guarantor. Her behavior, as when she allegedly "kept mum" or "nodded her head and smiled," was not an implied consent as guarantor. She insists that the law is clear that a guaranty is not presumed and that there must be a concrete positive act of acceptance or consent to the guaranty. Thus, without such knowledge or consent, there is no estoppel in pais. Priscila, on the other hand, maintains that from the totality of Cecilia's acts, she consented to be bound as guarantor of de Leon's loan. Her nod of approval and non-objection to the insertion of the word "guarantor" at the signing of the second promissory note show that she agreed to be a guarantor, just like in the first promissory note. Even after discovering that the loan was unpaid and already overdue, Cecilia did not contest that she was a guarantor and even paid partially to Priscila. Instead, Cecilia claimed she had no money to pay the entire loan. It was only after the case was filed that Cecilia challenged the insertions in the promissory note. Hence, Priscila insists that Cecilia is estopped from denying that she is a guarantor.

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The Court's Ruling

The issue before us is a question of fact, the determination of which is beyond this Court's power of review for it is not a trier of facts.[18] However, there are instances when questions of fact may be reviewed by this Court, as when the findings of the Court of Appeals are contrary to those of the trial court.[19] In the present case, the trial court and the Court of Appeals made conflicting findings of fact. Thus, a review of such factual findings is in order. Here, the controversy centers on whether there exists a contract of guaranty to hold Cecilia liable for the loan of de Leon, the principal debtor. The trial court found that Cecilia had no knowledge of, and did not consent to, the guaranty. On the other hand, the appellate court ruled that Cecilia's conduct during the signing of the promissory note and her non-objection to the insertion of the word "guarantor" show that she acted as guarantor. Cecilia's nodding of her head upon the insertion of the word "guarantor" signified her consent to be a guarantor. We rule that Cecilia was a guarantor of de Leon's loan.

Cecilia denies that she had actual knowledge of the guaranty. However, Priscila points to the promissory note and Cecilia's actions as the best evidence to prove that Cecilia signed as guarantor. The promissory note indicates that Cecilia signed as a witness, as manifested by the typewritten format. However, the word "guarantor" as handwritten beside Cecilia's name makes Cecilia a guarantor. From the records of the case and the evidence presented, we are convinced that the insertion was made with the express consent of Cecilia. Firstly, Cecilia's act of "nodding her head" signified her assent to the insertion of the word "guarantor." The word "guarantor" could have been inserted by Cecilia herself, or by someone authorized by Cecilia. In either case, Cecilia would be bound as guarantor. In this case, Cecilia, by nodding her head, authorized de Leon, who prepared the promissory note, to insert the word "guarantor." Since de Leon made the insertion only after Atty. Bautista had raised the need for Cecilia to be a guarantor, a positive or negative reaction was expected from Cecilia, who responded by giving her nod of approval. Otherwise, Cecilia should have immediately expressed her objection to the insertion of the word "guarantor." Cecilia's act of nodding her head showed her consent to be a guarantor. Secondly, Priscila would not have extended a loan to de Leon without the representations of Cecilia. Cecilia arranged for de Leon and Priscila to meet so that de Leon could borrow money from Priscila. Cecilia vouched for de Leon's capacity to pay. As a friend and common link between the borrower and lender, Cecilia took active part in the first loan of P100,000 and even signed as guarantor. On the second promissory note, the word "guarantor" again appears, admitted by both Cecilia and Priscila as an insertion made by de Leon at the time of signing. The first loan of P100,000, which Cecilia guaranteed, was paid from the proceeds of the second loan. As shown by the intervention of Atty. Bautista in bringing up the need for Cecilia to act as guarantor, Priscila would not have granted the second bigger loan of P500,000 without the guaranty of Cecilia. It was only natural for Priscila to commit to the second bigger loan subject at least to the same guarantee as the first smaller loan. Thirdly, Cecilia claimed ignorance of the guaranty only after this case was filed. However, the records show that Cecilia had several meetings with Priscila and the latter's counsel before the demand letters were sent.[20] In these meetings, Cecilia acknowledged her liability as guarantor but simply claimed that she had no money to pay Priscila.[21] In fact, Cecilia made an initial payment of P15,000 as partial compliance of her obligation as guarantor. This only shows that

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Cecilia never denied her liability to Priscila as guarantor until this case was filed in court. Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City inquiring on the status of the property mentioned in the promissory note as a mortgage security for de Leon's loan.[22] The letter states: May 5, 1996 The Register of Deeds City of Baguio Sir: This is relative to a "Promissory Note" dated June 28, 1995 x x x. In the aforestated "Promissory Note", the undersigned appears to be a "Guarantor" and it is a condition therein that "as security for this loan this TCT No. 47375, Registry of Baguio City, is being submitted, by way of mortgage". However, information has been received that said registered owners, individually or collectively, have executed and filed with your Office an "affidavit of loss" of said duplicate owner's copy. If such information is correct, may I request for a "certification" to said effect, and possibly, a certified true copy of such document. xxxx Here, Cecilia clearly stated that she "appears to be a guarantor" in the promissory note. This serves as a written admission that Cecilia knew she was a guarantor. During the trial, Cecilia did not impugn the letter or its contents. In fact, Cecilia submitted this letter in evidence.[23] Cecilia wrote the Register of Deeds to protect her interest, hoping that the property covered by TCT No. T-47375 could answer for de Leon's loan and save her from personally paying as guarantor. This explains Cecilia's letter admitting that she appears as a guarantor in the promissory note. It is axiomatic that the written word "guarantor" prevails over the typewritten word "witness." In case of conflict, the written word prevails over the printed word. Section 15 of Rule 130 provides: Sec. 15. Written words control printed. - When an instrument consists partly of written words and partly of a printed form, and the two are inconsistent, the former controls the latter. The rationale for this rule is that the written words are the latest expression of the will of the parties. Thus, in this case, the latest expression of Cecilia's will is that she signed the promissory note as guarantor. We agree with the Court of Appeals that estoppel in pais arose in this case. Generally, estoppel is a doctrine that prevents a person from adopting an inconsistent position, attitude, or action if it will result in injury to another.[24] One who, by his acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, can no longer deny the existence of such fact as it will prejudice the latter.[25] Cecilia's conduct in the course of the negotiations and contract signing shows that she consented to be a guarantor of the loan as witnessed by everyone present. Her act of "nodding her head," and at the same time even smiling, expressed her voluntary assent to the insertion of the word "guarantor" after her signature. It is the same as saying that she agreed to the

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insertion. Also, Cecilia's acts of making the partial payment of P15,000 and writing the letter to the Register of Deeds sustain the ruling that Cecilia affirmed her obligation as de Leon's guarantor to the loan. Thus, Cecilia is now estopped from denying that she is a guarantor.

WHEREFORE, we DENY the petition. We AFFIRM the 29 June 2001 Decision and 21 November 2001 Resolution of the Court of Appeals in CA-G.R. CV No. 66605. SO ORDERED.