G.R. No.

L-19190

November 29, 1922

THE
PEOPLE
OF
THE
PHILIPPINE
vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo
Ma.
Calvo
Attorney-General Villa-Real for appellee.

ISLANDS,

for

plaintiff-appellee,

appellant.

MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the
Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank,
between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno
y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential
in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the
discretional power of the local manager at Aparri, Cagayan, to grant loans and discount
negotiable documents to P5,000, which, in certain cases, could be increased to P10,000.
Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno
y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes,
together with the interest, were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto
Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion,
P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio
Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank
and as member of the board of directors of this bank, was charged in the Court of First
Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the
Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to imprisonment
for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of
insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference
must hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly
or indirectly, grant loans to any of the members of the board of directors of the bank nor to
agents of the branch banks." Section 49 of the same Act provides: "Any person who shall
violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand
pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment."
These two sections were in effect in 1919 when the alleged unlawful acts took place, but were
repealed by Act No. 2938, approved on January 30, 1921.
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.
Discounts are favored by bankers because of their liquid nature, growing, as they do, out of
an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of
loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is always
on double-name paper; a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and
not discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno
y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness,
because (1) interest was not deducted from the face of the notes, but was paid when the notes
fell due; and (2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially
different from the facts in the Binalbagan Estate case. Just as there it was declared that the
operations constituted a loan and not a discount, so should we here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en
C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan"
within the meaning of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an
"indirect loan." In this connection, it should be recalled that the wife of the defendant held
one-half of the capital of this partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain and give
effect to the intention of the Legislature. In this instance, the purpose of the Legislature is
plainly to erect a wall of safety against temptation for a director of the bank. The prohibition
against indirect loans is a recognition of the familiar maxim that no man may serve two
masters that where personal interest clashes with fidelity to duty the latter almost always
suffers. If, therefore, it is shown that the husband is financially interested in the success or
failure of his wife's business venture, a loan to partnership of which the wife of a director is a
member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal
partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan,
therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect
loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown
by the acknowledged fact that in this instance the defendant was tempted to mingle his
personal and family affairs with his official duties, and to permit the loan P300,000 to a
partnership of no established reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the
Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no director or officer should
borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or
indirectly violating this section he shall be punished by fine and imprisonment?" We
say to protect the stockholders, depositors and creditors of the bank, against the
temptation to which the directors and officers might be exposed, and the power which
as such they must necessarily possess in the control and management of the bank, and
the legislature unwilling to rely upon the implied understanding that in assuming this
relation they would not acquire any interest hostile or adverse to the most exact and
faithful discharge of duty, declared in express terms that they should not borrow, etc.,
of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate
decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to
himself directly. The loan was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a
violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these
portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the
information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation
to section 35 of the same Act, provides a punishment for any person who shall violate any of
the provisions of the Act. It is contended, however, by the appellant, that the repeal of these
sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal
prosecution.
This same question has been previously submitted and has received an answer adverse to
such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs.
Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States
([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must
again be the holding, that where an Act of the Legislature which penalizes an offense, such
repeals a former Act which penalized the same offense, such repeal does not have the effect
of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders
charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en
C." by Venancio Concepcion, President of the Philippine National Bank, in violation of section
35 of Act No. 2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the
bank, and since section 49 of said Act provides a punishment not on the bank when it violates
any provisions of the law, but on a personviolating any provisions of the same, and imposing
imprisonment as a part of the penalty, the prohibition contained in said section 35 is without
penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the prohibition
extends to the board of directors, and to each director separately and individually.
(People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National
Bank, in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C."
constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was because
he was misled by rulings coming from the Insular Auditor. It is furthermore stated that since
the loans made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss
has been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the
defendant has violated, criminal intent is not necessarily material. The doing of the inhibited

act, inhibited on account of public policy and public interest, constitutes the crime. And, in
this instance, as previously demonstrated, the acts of the President of the Philippine National
Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that
such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and advantage not common to
the other stockholders. The law will not allow private profit from a trust, and will not
listen to any proof of honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial court, and the
errors assigned by the appellant, and with reference to previous decisions of this court on the
same subject, we are irresistibly led to the conclusion that no reversible error was committed
in the trial of this case, and that the defendant has been proved guilty beyond a reasonable
doubt of the crime charged in the information. The penalty imposed by the trial judge falls
within the limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.
G.R. No. L-16106

December 30, 1961

REPUBLIC
OF
THE
PHILIPPINES,
plaintiff-appellant,
vs.
PHILIPPINE
NATIONAL
BANK,
ET
AL.,
defendants,
THE FIRST NATIONAL CITY BANK OF NEW YORK, defendant-appellee.
Office
of
the
Solicitor
General
Picazo, Lichauco and Agcaoili for defendant-appellee.

for

plaintiff-appellant.

BAUTISTA ANGELO, J.:

The Republic of the Philippines filed on September 25, 1957 before the Court of First Instance
of Manila a complaint for escheat of certain unclaimed bank deposits balances under the
provisions of Act No. 3936 against several banks, among them the First National City Bank
of New York. It is alleged that pursuant to Section 2 of said Act defendant banks forwarded
to the Treasurer of the Philippines a statement under oath of their respective managing
officials of all the credits and deposits held by them in favor of persons known to be dead or
who have not made further deposits or withdrawals during the period of 10 years or more.
Wherefore, it is prayed that said credits and deposits be escheated to the Republic of the
Philippines by ordering defendant banks to deposit them to its credit with the Treasurer of
the Philippines.
In its answer the First National City Bank of New York claims that, while it admits that various
savings deposits, pre-war inactive accounts, and sundry accounts contained in its report
submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totalling more than

P100,000.00, which remained dormant for 10 years or more, are subject to escheat however,
it has inadvertently included in said report certain items amounting to P18,589.89 which,
properly speaking, are not credits or deposits within the contemplation of Act No. 3936.
Hence, it prayed that said items be not included in the claim of plaintiff.
After hearing the court a quo rendered judgment holding that cashier's is or manager's checks
and demand drafts as those which defendant wants excluded from the complaint come within
the purview of Act No. 3936, but not the telegraphic transfer payment which orders are of
different category. Consequently, the complaint was dismissed with regard to the latter. But,
after a motion to reconsider was filed by defendant, the court a quo changed its view and held
that even said demand drafts do not come within the purview of said Act and so amended its
decision accordingly. Plaintiff has appealed.lawphil.net
Section 1, Act No. 3936, provides:
Section 1. "Unclaimed balances" within the meaning of this Act shall include credits or
deposits of money, bullion, security or other evidence of indebtedness of any kind, and
interest thereon with banks, as hereinafter defined, in favor of any person unheard from
for a period of ten years or more. Such unclaimed balances, together with the increase
and proceeds thereof, shall be deposited with the Insular Treasure to the credit of the
Government of the Philippine Islands to be as the Philippine Legislature may direct.
It would appear that the term "unclaimed balances" that are subject to escheat include credits
or deposits money, or other evidence of indebtedness of any kind with banks, in favor of any
person unheard from for a period of 10 years or more. And as correctly stated by the trial
court, the term "credit" in its usual meaning is a sum credited on the books of a company to
a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and
may be said to imply ability, by reason of property or estates, to make a promised payment
( In re Ford, 14 F. 2d 848, 849). It is the correlative to debt or indebtedness, and that which
is due to any person, a distinguished from that which he owes (Mountain Motor Co. vs. Solof,
124 S.E., 824, 825; Eric vs. Walsh, 61 Atl. 2d 1, 4; See also Libby vs. Hopkins, 104 U.S. 303,
309; Prudential Insurance Co. of America vs. Nelson, 101 F. 2d, 441, 443; Barnes vs. Treat, 7
Mass. 271, 274). The same is true with the term "deposits" in banks where the relationship
created between the depositor and the bank is that of creditor and debtor (Article 1980, Civil
Code; Gullas vs. National Bank, 62 Phil. 915; Gopoco Grocery, et al. vs. Pacific Coast Biscuit
Co., et al., 65 Phil. 443).
The questions that now arise are: Do demand draft and telegraphic orders come within the
meaning of the term "credits" or "deposits" employed in the law? Can their import be
considered as a sum credited on the books of the bank to a person who appears to be entitled
to it? Do they create a creditor-debtor relationship between drawee and the payee?
The answers to these questions require a digression the legal meaning of said banking
terminologies.
To begin with, we may say that a demand draft is a bill of exchange payable on demand (Arnd
vs. Aylesworth, 145 Iowa 185; Ward vs. City Trust Company, 102 N.Y.S. 50; Bank of Republic

vs. Republic State Bank, 42 S.W. 2d, 27). Considered as a bill of exchange, a draft is said to
be, like the former, an open letter of request from, and an order by, one person on another to
pay a sum of money therein mentioned to a third person, on demand or at a future time
therein specified (13 Words and Phrases, 371). As a matter of fact, the term "draft" is often
used, and is the common term, for all bills of exchange. And the words "draft" and "bill of
exchange" are used indiscriminately (Ennis vs. Coshoctan Nat. Bank, 108 S.E., 811;
Hinnemann vs. Rosenback, 39 N.Y. 98, 100, 101; Wilson vs. Bechenau, 48 Supp. 272, 275).
On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law
(Act No. 2031) does not operate as an assignment of funds in the hands of the drawee who is
not liable on the instrument until he accepts it. This is the clear import of Section 127. It says:
"A bill of exchange of itself does not operate as an assignment of the funds in the hands of the
drawee available for the payment thereon and the drawee is not liable on the bill unless and
until he accepts the same." In other words, in order that a drawee may be liable on the draft
and then become obligated to the payee it is necessary that he first accepts the same. In fact,
our law requires that with regard to drafts or bills of exchange there is need that they be
presented either for acceptance or for payment within a reasonable time after their issuance
or after their last negotiation thereof as the case may be (Section 71, Act 2031). Failure to
make such presentment will discharge the drawer from liability or to the extent of the loss
caused by the delay (Section 186, Ibid.)
Since it is admitted that the demand drafts herein involved have not been presented either
for acceptance or for payment, the inevitable consequence is that the appellee bank never had
any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the
payee concerned and as such the aforesaid drafts cannot be considered as credits subject to
escheat within the meaning of the law.
But a demand draft is very different from a cashier's or manager's cheek, contrary to
appellant's pretense, for it has been held that the latter is a primary obligation of the bank
which issues it and constitutes its written promise to pay upon demand. Thus, a cashier's
check has been clearly characterized in In Re Bank of the United States, 277 N.Y.S. 96. 100,
as follows:
A cashier's check issued by a bank, however, is not an ordinary draft. The latter is a bill
of exchange payable demand. It is an order upon a third party purporting to drawn
upon a deposit of funds. Drinkall v. Movious State Bank, 11 N.D. 10, 88 N.W. 724, 57
L.R.A. 341, 95 Am. St. Rep. 693; State v. Tyler County State Bank (Tex. Com. App.) 277
S.W. 625, 42 A.L.R. 1347. A cashier's check is of a very different character. It is the
primary obligation of the bank which issues it (Nissenbaum v. State, 38 Ga. App. 253,
S.E. 776) and constitutes its written promise to pay upon demand (Steinmetz v. Schultz,
59 S.D. 603, 241 N.W. 734)....lawphil.net
The following definitions cited by appellant also confirm this view:
A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a
bill of exchange drawn by a bank on itself and accepted in advance by the act of issuance
(10 C.J.S. 409).

A cashier's check issued on request of a depositor is the substantial equivalent of a

certified check and the deposit represented by the check passes to the credit of the
checkholder, who is thereafter a depositor to that amount (Lummus Cotton Gin Co. v.
Walker, 70 So. 754, 756, 195 Ala. 552).
A cashier's check, being merely a bill of exchange drawn by a bank on itself, and
accepted in advance by the act of issuance, is not subject to countermand by the payee
after indorsement, and has the same legal effects as a certificate deposit or a certified
check (Walker v. Sellers, 77 So. 715, 201 Ala. 189).
A demand draft is not therefore of the same category as a cashier's check which should come
within the purview of the law.
The case, however, is different with regard to telegraphic payment order. It is said that as the
transaction is for the establishment of a telegraphic or cable transfer the agreement to remit
creates a contractual obligation a has been termed a purchase and sale transaction (9 C.J.S.
368). The purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned, though insofar as the remitting bank is concerned the
contract is executory until the credit is established (Ibid.) We agree with the following
comment the Solicitor General: "This is so because the drawer bank was already paid the
value of the telegraphic transfer payment order. In the particular cases under consideration
it appears in the books of the defendant bank that the amounts represented by the telegraphic
payment orders appear in the names of the respective payees. If the latter choose to demand
payment of their telegraphic transfers at the time the same was (were) received by the
defendant bank, there could be no question that this bank would have to pay them. Now, the
question is, if the payees decide to have their money remain for sometime in the defendant
bank, can the latter maintain that the ownership of said telegraphic payment orders is now
with the drawer bank? The latter was already paid the value of the telegraphic payment orders
otherwise it would not have transmitted the same to the defendant bank. Hence, it is absurd
to say that the drawer banks are still the owners of said telegraphic payment orders."
WHEREFORE, the decision of the trial court is hereby modified in the sense that the items
specifically referred to and listed under paragraph 3 of appellee bank's answer representing
telegraphic transfer payment orders should be escheated in favor of the Republic of the
Philippines. No costs.
G.R. No. L-24968 April 27, 1972
SAURA
IMPORT
and
EXPORT
CO.,
INC.,
plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on
June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay
actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the
amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed
and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building
(for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of
the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased
by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co.,
and arrived in Davao City in July 1953; and that to secure its release without first paying the
draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the
land site thereof, and the machinery and equipment to be installed. Among the other terms
spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria
Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrowercorporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation,
subject to availability of funds, and as the construction of the factory buildings progresses, to
be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter
to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having

China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock
subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes,
Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription;
and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other comakers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating
of the members of its Board of Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan ... with special reference as to the advisability
of financing this particular project based on present conditions obtaining in the operations of
jute mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act
as co-signer for the loan, and asked that the necessary documents be prepared in accordance
with the terms and conditions specified in Resolution No. 145. In connection with the
reexamination of the project to be financed with the loan applied for, as stated in Resolution
No. 736, the parties named their respective committees of engineers and technical men to
meet with each other and undertake the necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the same "should not be taken as an
acquiescence on (its) part to novate, or accept new conditions to, the agreement already)
entered into," referring to its acceptance of the terms and conditions mentioned in Resolution
No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of
mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board
of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present,
it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989
was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under
Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736,
c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with special reference as to the advisability of financing
this particular project based on present conditions obtaining in the operation of jute mills,
and after having heard Ramon E. Saura and after extensive discussion on the subject the
Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura
Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to time to place the factory in
actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note
for China Engineers Ltd. jointly and severally with the other RFC that his company no longer
to of the loan and therefore considered the same as cancelled as far as it was concerned. A
follow-up letter dated July 2 requested RFC that the registration of the mortgage be
withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ...
from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are
concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC
that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note
if RFC releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw
materials, the Department of Agriculture and Natural Resources shall certify to
the following:
1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately
for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December
22, 1954, wherein it was explained that the certification by the Department of Agriculture and
Natural Resources was required "as the intention of the original approval (of the loan) is to
develop the manufacture of sacks on the basis of locally available raw materials." This point
is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not
deny that the factory he was building in Davao was for the manufacture of bags from local
raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint
venture by and between the Mindanao Industry Corporation and the Saura Import and
Export Co., Inc. to finance, manage and operate aKenaf mill plant, to manufacture copra and
corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials,
principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture
"is the first serious attempt in this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in theIsland of Mindanao where the
proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in
the first place, and to require, in its Resolution No. 9083, a certification from the Department
of Agriculture and Natural Resources as to the availability of local raw materials to provide

adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's
stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study
made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or
probably even next year;" (2) requesting "assurances (from RFC) that my company and
associates will be able to bring in sufficient jute materials as may be necessary for the full
operation of the jute mill;" and (3) asking that releases of the loan be made as follows:
a)
For
the
payment
of
the
machineries with the Prudential Bank &

receipt

for

jute

mill

Trust Company P250,000.00

(For immediate release)
b)
For
the
purchase
of
ment
per
attached
list
mill to operate 182,413.91

materials
to
enable

and
the

equipjute

c) For raw materials and labor 67,586.09

1)
P25,000.00
ing
of
the
for $25,000.00.

to
be
released
letter
of
credit

2)
P25,000.00
of raw jute.
3)
P17,586.09
to
mill is ready to operate.

to

be
be

on
for

released

released

as

the
raw
upon

soon

openjute
arrival

as

the

On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the
release of your loan under consideration of P500,000. As stated in
our letter of December 22, 1954, the releases of the loan, if revived,
are proposed to be made from time to time, subject to availability of
funds towards the end that the sack factory shall be placed in actual
operating status. We shall be able to act on your request for revised
purpose and manner of releases upon re-appraisal of the securities
offered for the loan.
With respect to our requirement that the Department of Agriculture
and Natural Resources certify that the raw materials needed are
available in the immediate vicinity and that there is prospect of
increased production thereof to provide adequately the requirements
of the factory, we wish to reiterate that the basis of the original

approval is to develop the manufacture of sacks on the basis of the

locally available raw materials. Your statement that you will have to
rely on the importation of jute and your request that we give you
assurance that your company will be able to bring in sufficient jute
materials as may be necessary for the operation of your factory, would
not be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the
matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955
RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura
himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage
contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank
and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year
within which to pay its obligation on the trust receipt heretofore mentioned. It appears
further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued
Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of
RFC (as predecessor of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had entered into, in connection with its
jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract
between the parties and that the defendant was guilty of breach thereof. The defendant
pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms
thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934
of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls short of resolving the basic
claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to
recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption
that the factory to be constructed would utilize locally grown raw materials, principally kenaf.

There is no serious dispute about this. It was in line with such assumption that when RFC, by
Resolution No. 9083 approved on December 17, 1954, restored the loan to the original
amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed
by the borrower-corporation to carry out its operation are available in the immediate vicinity;
and (2) that there is prospect of increased production thereof to provide adequately for the
requirements of the factory." The imposition of those conditions was by no means a deviation
from the terms of the agreement, but rather a step in its implementation. There was nothing
in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed
on January 7, 1954, namely "that the proceeds of the loan shall be utilizedexclusively for
the following purposes: for construction of factory building P250,000.00; for payment of
the balance of purchase price of machinery and equipment P240,900.00; for working
capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions
required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not
be able in sufficient quantity this year or probably next year," and asking that out of the loan
agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a
deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage
contract, implying as it did a diversion of part of the proceeds of the loan to purposes other
than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which
had been going on for the implementation of the agreement reached an impasse. Saura, Inc.
obviously was in no position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be
cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the
nature cf mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any
alleged breach of contract by RFC, or even point out that the latter's stand was legally
unjustified. Its request for cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even
applied with DBP for another loan to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at
its own request, that Saura, Inc. brought this action for damages.All these circumstances
demonstrate beyond doubt that the said agreement had been extinguished by mutual
desistance and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other
issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.
G.R. No. 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 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;
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 co-maker Alfonso Lim signed the
promissory note for that amount; that from April 28, 1967 to July 12, 1968,
plaintiff-appellant made payments to defendant-appellee on the mortgage in the
total amount of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all
his rights under the Deed of Sale with Assumption of Mortgage to his brother,
intervenor Raoul Bonnevie; that on June 10, 1968, defendant-appellee applied for
the foreclosure of the mortgage, and notice of sale was published in the Luzon
Weekly Courier on June 30, July 7, and July 14, 1968; that auction sale was
conducted on August 19, 1968, and the property was sold to defendant-appellee
for P84,387.00; and that offers from plaintiff-appellant to repurchase the
property failed, and on October 9, 1969, he caused an adverse claim to be
annotated on the title of the property. (Decision of the Court of Appeals, p. 5).
Presented for resolution in this review are the following issues:
I
Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in
refusing their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold.
They primarily attack the validity of the mortgage executed by the Lozano spouses in favor of
respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and finally,
appeal to justice and equity. In attacking the validity of the deed of mortgage, they contended
that when it was executed on December 6, 1966, there was yet no principal obligation to
secure as the loan of P75,000.00 was not received by the Lozano spouses "So much so that in
the absence of a principal obligation, there is want of consideration in the accessory contract,
which consequently impairs its validity and fatally affects its very existence." (Petitioners'
Brief, par. 1, p. 7).

This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is
clearly seen that the mortgage deed was executed for and on condition of the loan granted to
the Lozano spouses. The fact that the latter did not collect from the respondent Bank the
consideration of the mortgage on the date it was executed is immaterial. A contract of loan
being a consensual contract, the herein contract of loan was perfected at the same time the
contract of mortgage was executed. The promissory note executed on December 12, 1966 is
only an evidence of indebtedness and does not indicate lack of consideration of the mortgage
at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of
the original loan, using as security the same property which the Lozano spouses had already
sold to petitioners, rendered the mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which prohibits
the sale, disposition of, mortgage and encumbrance of the mortgaged properties, without the
written consent of the mortgagee, as well as the additional proviso that if in spite of said
stipulation, the mortgaged property is sold, the vendee shall assume the mortgage in the
terms and conditions under which it is constituted. These provisions are expressly made part
and parcel of the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with
assumption of mortgage. Coupled with the fact that the sale/assignment was not registered
so that the title remained in the name of the Lozano spouses, insofar as respondent Bank was
concerned, the Lozano spouses could rightfully and validly mortgage the property.
Respondent Bank had every right to rely on the certificate of title. It was not bound to go
behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser
for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA
430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is
that a mortgage follows the property whoever the possessor may be and subjects the
fulfillment of the obligation for whose security it was constituted. Finally, it can also be said
that petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale
with Assumption of Mortgage. They are, therefore, estopped from impugning its validity
whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following
grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) 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.
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 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-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T.
CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK,
in his capacity as statutory receiver of Island Savings Bank, petitioners,
vs.
THE
HONORABLE
COURT
OF
APPEALS
and
SULPICIO
M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court
of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated
February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and
damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as
a security for the loan, executed on the same day a real estate mortgage over his 100-hectare
land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which
mortgage was annotated on the said title the next day. The approved loan application called
for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3
years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the
Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for
P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the

contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the
P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the
partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vicepresident and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113,
rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings
Bank was suffering liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its
deposit liabilities, the Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except
investments in government securities] excluding extensions or renewals of
already approved loans, provided that such extensions or renewals shall be
subject to review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the bank's deficiency as
soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up
the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and instructed the Acting
Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered
by the promissory note, filed an application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled
the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance
of Agusan for injunction, specific performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance
of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings
Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if
said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a
temporary restraining order enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage (pp. 86-87, rec.).

On January 29, 1969, the trial court admitted the answer in intervention praying for the
dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining
order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank
the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the
restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the
Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition
for specific performance, but it ruled that Island Savings Bank can neither foreclose the real
estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the
promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real
estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations,
the obligation or promise of each party is the consideration for that of the other (Penaco vs.
Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one
party has performed or is ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the
Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M.
Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to
pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish
the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on
April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central
Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from
doing further business. Such prohibition made it legally impossible for Island Savings Bank
to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board
to take over insolvent banks for the protection of the public is recognized by Section 29 of
R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of
Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance
because said resolution merely prohibited the Bank from making new loans and investments,
and nowhere did it prohibit island Savings Bank from releasing the balance of loan

agreements previously contracted. Besides, the mere pecuniary inability to fulfill an

engagement does not discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39
Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A,
1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted
interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month
period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of
Island Savings Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00
loan was released. A person cannot be legally charged interest for a non-existing debt. Thus,
the receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right
to it, which right exist independently of his right to demand the completion of the P80,000.00
loan. The exercise of one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral
cannot exempt it from complying with its reciprocal obligation to furnish the entire
P80,000.00 loan. 'This Court previously ruled that bank officials and employees are expected
to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan,
Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees
that before they approve the loan application of their customers, they must investigate the
existence and evaluation of the properties being offered as a loan security. The recent rush of
events where collaterals for bank loans turn out to be non-existent or grossly over-valued
underscore the importance of this responsibility. The mere reliance by bank officials and
employees on their customer's representation regarding the loan collateral being offered as
loan security is a patent non-performance of this responsibility. If ever bank officials and
employees totally reIy on the representation of their customers as to the valuation of the loan
collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The
representation made by the customer is immaterial to the bank's responsibility to conduct its
own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had
enjoined petitioners from presenting proof on the alleged over-valuation because of their
failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower
court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that
"defenses and objections not pleaded either in a motion to dismiss or in the answer are
deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between
specific performance or rescission with damages in either case. But since Island Savings Bank
is now prohibited from doing further business by Monetary Board Resolution No. 967, WE
cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as
such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00.

As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and
executed a promissory note to cover it, the bank was deemed to have complied with its
reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio
M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure
to pay the overdue amortizations under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind
the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within
3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly
be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the
entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his
P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by
the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio
M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the
P17,000.00, it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely
foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the
principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract
of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of
the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration
was then in existence, as there was no debt yet because Island Savings Bank had not made
any release on the loan, does not make the real estate mortgage void for lack of consideration.
It is not necessary that any consideration should pass at the time of the execution of the
contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior
or subsequent matter. But when the consideration is subsequent to the mortgage, the
mortgage can take effect only when the debt secured by it is created as a binding contract to
pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2,
pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes
unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in
Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the
mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for

more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88,
cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan,
the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares
is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of
21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil
Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among
the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of other heirs who have not been
paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted
presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence,
the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977
IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12%
INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985
UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED
UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.
NO COSTS. SO ORDERED.

G.R. No. L-17474

October 25, 1962

REPUBLIC
OF
THE
PHILIPPINES,
plaintiff-appellee,
vs.
JOSE
V.
BAGTAS,
defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late
Jose V. Bagtas, petitioner-appellant.
D.
T.
Reyes,
Liaison
and
Associates
Office of the Solicitor General for plaintiff-appellee.

for

petitioner-appellant.

PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a
Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948
to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10%
of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower
asked for a renewal for another period of one year. However, the Secretary of Agriculture and
Natural Resources approved a renewal thereof of only one bull for another year from 8 May
1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V.
Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls.
On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the Director of
Animal Industry advised him that the book value of the three bulls could not be reduced and
that they either be returned or their book value paid not later than 31 October 1950. Jose V.
Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December
1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an
action against him praying that he be ordered to return the three bulls loaned to him or to
pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of
P199.62, both with interests, and costs; and that other just and equitable relief be granted in
(civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of
Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural
Resources and the President of the Philippines from the refusal by the Director of Animal
Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8%
from the date of acquisition, to which depreciation the Auditor General did not object, he
could not return the animals nor pay their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the
three bulls plus the breeding fees in the amount of P626.17 with interest on both sums
of (at) the legal rate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted
on 18 October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte
motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to
serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December 1958,
Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23
October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she file a
motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the
Bureau Animal of Industry and that sometime in November 1958 the third bull, the
Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal,
and praying that the writ of execution be quashed and that a writ of preliminary injunction
be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she
filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this
appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant,
returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB
Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a
memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31
January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that
another writ of execution in the sum of P859.53 be issued against the estate of defendant
deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had been
returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the
Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao,
Cagayan, where the animal was kept, and that as such death was due to force majeure she is
relieved from the duty of returning the bull or paying its value to the appellee. The contention
is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three
bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on
renewed for another year as regards one bull, was subject to the payment by the borrower of
breeding fee of 10% of the book value of the bulls. The appellant contends that the contract
was commodatum and that, for that reason, as the appellee retained ownership or title to the
bull it should suffer its loss due to force majeure. A contract ofcommodatum is essentially
gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a
lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued possession of the bull
after the expiry of the contract. And even if the contract be commodatum, still the appellant
is liable, because article 1942 of the Civil Code provides that a bailee in a contract
of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was
renewed for another period of one year to end on 8 May 1950. But the appellant kept and
used the bull until November 1953 when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had
each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and
the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous
event the late husband of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the
bull or the payment of its value being a money claim should be presented or filed in the
intestate proceedings of the defendant who died on 23 October 1951, is not altogether without
merit. However, the claim that his civil personality having ceased to exist the trial court lost
jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules
of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon
proper notice, the legal representative of the deceased to appear and to be substituted
for the deceased, within a period of thirty (30) days, or within such time as may be
granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section
16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform
the court promptly of such death . . . and to give the name and residence of the executory
administrator, guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M.
Bagtas had been issue letters of administration of the estate of the late Jose Bagtas and that
"all persons having claims for monopoly against the deceased Jose V. Bagtas, arising from
contract express or implied, whether the same be due, not due, or contingent, for funeral
expenses and expenses of the last sickness of the said decedent, and judgment for monopoly
against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54,
Quezon City, within six (6) months from the date of the first publication of this order, serving
a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of
the estate of the said deceased," is not a notice to the court and the appellee who were to be
notified of the defendant's death in accordance with the above-quoted rule, and there was no
reason for such failure to notify, because the attorney who appeared for the defendant was
the same who represented the administratrix in the special proceedings instituted for the
administration and settlement of his estate. The appellee or its attorney or representative
could not be expected to know of the death of the defendant or of the administration
proceedings of his estate instituted in another court that if the attorney for the deceased
defendant did not notify the plaintiff or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late
defendant is only liable for the sum of P859.63, the value of the bull which has not been
returned to the appellee, because it was killed while in the custody of the administratrix of his

estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to
the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose
V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money
judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution
but must be presented to the probate court for payment by the appellant, the administratrix
appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as
to costs.
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by respondent Court of
Appeals in the present two cases between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth
Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)]
and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which
affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court
of Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the
dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic
Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of Plan
Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to
the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et
al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is
hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No.
38830-R, in the two cases affirmed by the Supreme Court, touched on the ownership of lots
2 and 3 in question; that the two lots were possessed by the predecessors-in-interest of private
respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had
been in possession of the same lots as bailee in commodatum up to 1951, when petitioner
repudiated the trust and when it applied for registration in 1962; that petitioner had just been
in possession as owner for eleven years, hence there is no possibility of acquisitive
prescription which requires 10 years possession with just title and 30 years of possession
without; that the principle of res judicata on these findings by the Court of Appeals will bar a
reopening of these questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows
... The documents and records presented reveal that the whole
controversy started when the defendant Catholic Vicar Apostolic of
the Mountain Province (VICAR for brevity) filed with the Court of
First Instance of Baguio Benguet on September 5, 1962 an application
for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated
at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91,
said Lots being the sites of the Catholic Church building, convents,
high school building, school gymnasium, school dormitories, social
hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and
the Heirs of Egmidio Octaviano filed their Answer/Opposition on
Lots Nos. 2 and 3, respectively, asserting ownership and title thereto.
After trial on the merits, the land registration court promulgated its
Decision, dated November 17, 1965, confirming the registrable title of
VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655)
and the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case
No. 3607) appealed the decision of the land registration court to the
then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court
of Appeals rendered its decision, dated May 9, 1977, reversing the
decision of the land registration court and dismissing the VICAR's
application as to Lots 2 and 3, the lots claimed by the two sets of
oppositors in the land registration case (and two sets of plaintiffs in
the two cases now at bar), the first lot being presently occupied by the
convent and the second by the women's dormitory and the sister's
convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for
reconsideration praying the Court of Appeals to order the registration
of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May

17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion
for reconsideration praying that both Lots 2 and 3 be ordered
registered in the names of the Heirs of Juan Valdez and Pacita Valdez.
On August 12,1977, the Court of Appeals denied the motion for
reconsideration filed by the Heirs of Juan Valdez on the ground that
there was "no sufficient merit to justify reconsideration one way or
the other ...," and likewise denied that of the Heirs of Egmidio
Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for
review on certiorari of the decision of the Court of Appeals dismissing
his (its) application for registration of Lots 2 and 3, docketed as G.R.
No. L-46832, entitled 'Catholic Vicar Apostolic of the Mountain
Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for
reconsideration the Heirs of Juan Valdez and Pacita Valdez, on
September 8, 1977, filed with the Supreme Court a petition for review,
docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and
Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano
and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute
resolution both petitions (of VICAR on the one hand and the Heirs of
Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon
the finality of both Supreme Court resolutions in G.R. No. L-46832
and G.R. No. L- 46872, the Heirs of Octaviano filed with the then
Court of First Instance of Baguio, Branch II, a Motion For Execution
of Judgment praying that the Heirs of Octaviano be placed in
possession of Lot 3. The Court, presided over by Hon. Salvador J.
Valdez, on December 7, 1978, denied the motion on the ground that
the Court of Appeals decision in CA-G.R. No. 38870 did not grant the
Heirs of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of
Appeals a petitioner for certiorari and mandamus, docketed as CAG.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon.
Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979,
the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of
Egmidio Octaviano filed Civil Case No. 3607 (419) on July 24, 1979,
for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed
Civil Case No. 3655 (429) on September 24, 1979, likewise for
recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio
Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the
alleged ownership of the land in question (Lot 3) by their predecessor-in-interest,
Egmidio Octaviano (Exh. C ); his written demand (Exh. BB-4 ) to defendant
Vicar for the return of the land to them; and the reasonable rentals for the use of
the land at P10,000.00 per month. On the other hand, defendant Vicar presented
the Register of Deeds for the Province of Benguet, Atty. Nicanor Sison, who
testified that the land in question is not covered by any title in the name of
Egmidio Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with
the testimony of Mons.William Brasseur when the plaintiffs admitted that the
witness if called to the witness stand, would testify that defendant Vicar has been
in possession of Lot 3, for seventy-five (75) years continuously and peacefully and
has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in
dispute, submitted the case on the sole issue of whether or not the decisions of
the Court of Appeals and the Supreme Court touching on the ownership of Lot 2,
which in effect declared the plaintiffs the owners of the land constitute res
judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from
setting up the defense of ownership and/or long and continuous possession of the
two lots in question since this is barred by prior judgment of the Court of Appeals
in CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs contend
that the question of possession and ownership have already been determined by
the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by
the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court). On his part,
defendant Vicar maintains that the principle of res judicata would not prevent
them from litigating the issues of long possession and ownership because the
dispositive portion of the prior judgment in CA-G.R. No. 038830-R merely
dismissed their application for registration and titling of lots 2 and 3. Defendant
Vicar contends that only the dispositive portion of the decision, and not its body,
is the controlling pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to petitioner are as
follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3
FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER
OWNERS WERE VALDEZ AND OCTAVIANO;

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

WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT
PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT
APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY
HAD FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND
JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129
OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R.
NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON
OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND
3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR
USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD
FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED
BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and
05149, when it clearly held that it was in agreement with the findings of the trial court that
the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the
question of ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CAG.R. No. 38830-R) did not positively declare private respondents as owners of the land,
neither was it declared that they were not owners of the land, but it held that the predecessors
of private respondents were possessors of Lots 2 and 3, with claim of ownership in good faith
from 1906 to 1951. Petitioner was in possession as borrower in commodatum up to 1951, when
it repudiated the trust by declaring the properties in its name for taxation purposes. When
petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept
of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten
years, but always with just title. Extraordinary acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of Appeals
in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate
court's ruling that said findings are res judicata between the parties. They can no longer be
altered by presentation of evidence because those issues were resolved with finality a long

time ago. To ignore the principle of res judicata would be to open the door to endless
litigations by continuous determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CAG.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be
entitled to register the lands in question under its ownership, on its evaluation of evidence
and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive prescription because of the
absence of just title. The appellate court did not believe the findings of the trial court that Lot
2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from
Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary
evidence to support the same and the alleged purchases were never mentioned in the
application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano.
Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The
predecessors of private respondents, not petitioner Vicar, were in possession of the
questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but
not Lots 2 and 3, because the buildings standing thereon were only constructed after
liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951.
The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was
appointed only in 1947, the church was constructed only in 1951 and the new convent only 2
years before the trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy
the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only
in 1962.
Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they became bailors
in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter
of commodatum to the bailor did not mean adverse possession on the part of the borrower.
The bailee held in trust the property subject matter of commodatum. The adverse claim of
petitioner came only in 1951 when it declared the lots for taxation purposes. The action of
petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only
a bailee in commodatum; and that the adverse claim and repudiation of trust came only in
1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No.
38830-R. Its findings of fact have become incontestible. This Court declined to review said
decision, thereby in effect, affirming it. It has become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of
discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is
governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R.
No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that
decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of
merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent
Court of Appeals is AFFIRMED, with costs against petitioner.
SO ORDERED.
G.R. No. L-46240

November 3, 1939

MARGARITA QUINTOS
vs.
BECK, defendant-appellee.

and

Mauricio
Carlos
Felipe Buencamino, Jr. for appellee.

ANGEL

A.

ANSALDO,

for

plaintiffs-appellants,

appellants.

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which
she lent him for his use. She appealed from the judgment of the Court of First Instance of
Manila which ordered that the defendant return to her the three has heaters and the four
electric lamps found in the possession of the Sheriff of said city, that she call for the other
furniture from the said sheriff of Manila at her own expense, and that the fees which the
Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without
pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H.
del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease
between the plaintiff and the defendant, the former gratuitously granted to the latter the use
of the furniture described in the third paragraph of the stipulation of facts, subject to the
condition that the defendant would return them to the plaintiff upon the latter's demand. The
plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936,
these three notified the defendant of the conveyance, giving him sixty days to vacate the
premises under one of the clauses of the contract of lease. There after the plaintiff required
the defendant to return all the furniture transferred to him for them in the house where they
were found. On
November 5, 1936, the defendant, through another person, wrote to
the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On

the 7th of the same month, the defendant wrote another letter to the plaintiff informing her
that he could not give up the three gas heaters and the four electric lamps because he would
use them until the 15th of the same month when the lease in due to expire. The plaintiff
refused to get the furniture in view of the fact that the defendant had declined to make
delivery of all of them. On
November 15th, before vacating the house, the defendant
deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on
deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied
the law: in holding that they violated the contract by not calling for all the furniture on
November 5, 1936, when the defendant placed them at their disposal; in not ordering the
defendant to pay them the value of the furniture in case they are not delivered; in holding that
they should get all the furniture from the Sheriff at their expenses; in ordering them to payhalf of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both
parties should pay their respective legal expenses or the costs; and in denying pay their
respective legal expenses or the costs; and in denying the motions for reconsideration and
new trial. To dispose of the case, it is only necessary to decide whether the defendant complied
with his obligation to return the furniture upon the plaintiff's demand; whether the latter is
bound to bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself
the ownership thereof; by this contract the defendant bound himself to return the furniture
to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740,
paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant
to return the furniture upon the plaintiff's demand, means that he should return all of them
to the plaintiff at the latter's residence or house. The defendant did not comply with this
obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit
the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil
Code cited by counsel for the parties are not squarely applicable. The trial court, therefore,
erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon
the latter's demand, the Court could not legally compel her to bear the expenses occasioned
by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled
to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to
return the furniture, because the defendant wanted to retain the three gas heaters and the
four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment
thereof by the defendant in case of his inability to return some of the furniture because under
paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the
correctness of the said value. Should the defendant fail to deliver some of the furniture, the
value thereof should be latter determined by the trial Court through evidence which the
parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who
breached the contract of commodatum, and without any reason he refused to return and
deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and
equitable that he pay the legal expenses and other judicial costs which the plaintiff would not
have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the
plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of
the latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The
expenses which may be occasioned by the delivery to and deposit of the furniture with the
Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both
instances. So ordered.
G.R. No. L-20240

December 31, 1965

REPUBLIC
OF
THE
vs.
JOSE GRIJALDO, defendant-appellant.

PHILIPPINES,

plaintiff-appellee,

Office
of
the
Solicitor
Isabelo P. Samson for defendant-appellant.

General

plaintiff-appellee.

for

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.
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).
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 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
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-38745
LUCIA
TAN,
plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.
Alaric P. Acosta for plaintiff-appellee. Lorenzo P. de Guzman for defendants-appellants.
Castro, J.:
This appeal was certified to this Court by the Court of Appeals as involving questions purely
of law.
The decision a quo was rendered by the Court of First Instance of Misamis Occidental (Branch
I) in an action instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants
Arador Valdehueza and Rediculo Valdehueza (docketed as civil case 2574) for (a) declaration
of ownership and recovery of possession of the parcel of land described in the first cause of
action of the complaint, and (b) consolidation of ownership of two portions of another parcel
of (unregistered) land described in the second cause of action of the complaint, purportedly
sold to the plaintiff in two separate deeds of pacto de retro.
After the issues were joined, the parties submitted the following stipulation of facts:

1. That parties admit the legal capacity of plaintiff to sue; that defendants herein, Arador,
Rediculo, Pacita, Concepcion and Rosario, all surnamed Valdehueza, are brothers and sisters;
that the answer filed by Arador and Rediculo stand as the answer of Pacita, Concepcion and
Rosario.
2. That the parties admit the identity of the land in the first cause of action.
3. That the parcel of land described in the first cause of action was the subject matter of the
public auction sale held on May 6, 1955 at the Capitol Building in Oroquieta, Misamis
Occidental, wherein the plaintiff was the highest bidder and as such a Certificate of Sale was
executed by MR. VICENTE D. ROA who was then the Ex-Officio Provincial Sheriff in favor of
LUCIA TAN the herein plaintiff. Due to the failure of defendant Arador Valdehueza to redeem
the said land within the period of one year as being provided by law, MR. VICENTE D. ROA
who was then the Ex-Officio Provincial Sheriff executed an ABSOLUTE DEED OF SALE in
favor of the plaintiff LUCIA TAN.
A copy of the NOTICE OF SHERIFFS SALE is hereby marked as 'Annex A', the CERTIFICATE
OF SALE is marked as 'Annex B' and the ABSOLUTE DEED OF SALE is hereby marked as
Annex C and all of which are made as integral parts of this stipulation of facts.
4. That the party-plaintiff is the same plaintiff in Civil Case No. 2002; that the parties
defendants Arador, Rediculo and Pacita, all Valdehueza were the same parties-defendants in
the same said Civil Case No. 2002; the complaint in Civil Case No. 2002 to be marked as
Exhibit 1; the answer as Exhibit 2 and the order dated May 22, 1963 as Exhibit 3, and said
exhibits are made integral part of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have executed
two documents of DEED OF PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA
TAN of two portions of a parcel of land which is described in the second cause of action with
the total amount of ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00), Philippine
Currency, copies of said documents are marked as 'Annex D' and Annex E', respectively and
made as integral parts of this stipulation of facts.
6. That from the execution of the Deed of Sale with right to repurchase mentioned in the
second cause of action, defendants Arador Valdehueza and Rediculo Valdehueza remained in
the possession of the land; that land taxes to the said land were paid by the same said
defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a complaint for injunction filed by
Tan on July 24, 1957 against the Valdehuezas, to enjoin them "from entering the above-

described parcel of land and gathering the nuts therein ...." This complaint and the
counterclaim were subsequently dismissed for failure of the parties "to seek for the immediate
trial thereof, thus evincing lack of interest on their part to proceed with the case. 1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D" (dated August
5, 1955) was not registered in the Registry of Deeds, while the Deed of Pacto de Retro referred
to as "Annex E" (dated March 15, 1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered judgment, as
follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff:
1. Declaring Lucia Tan the absolute owner of the property described in the first cause of action
of the amended complaint; and ordering the herein defendants not to encroach and molest
her in the exercise of her proprietary rights; and, from which property they must be
dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo Valdehueza jointly and
severally to pay to the plaintiff, Lucia Tan, on Annex 'E' the amount of P1,200, with legal
interest of 6% as of August 15, 1966, within 90 days to be deposited with the Office of the
Court within 90 days from the date of service of this decision, and that in default of such
payment the property shall be sold in accordance with the Rules of Court for the release of
the mortgage debt, plus costs;
3. And as regards the land covered by deed of pacto de retro annex 'D', the herein defendants
Arador Valdehueza and Rediculo Valdehueza are hereby ordered to pay the plaintiff the
amount of P300 with legal interest of 6% from August 15, 1966, the said land serving as
guaranty of the said amount of payment;
4. Sentencing the defendants Arador Valdehueza and Rediculo Valdehueza to pay jointly and
severally to the herein plaintiff Lucia Tan the amount of 1,000.00 as attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first cause of action that there exists res
judicata; and

That the lower court erred in making a finding on the second cause of action that the
transactions between the parties were simple loan, instead, it should be declared as equitable
mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides that a
dismissal for failure to prosecute "shall have the effect of an adjudication upon the merits,"
the Valdehuezas submit that the dismissal of civil case 2002 operated, upon the principle
of res judicata, as a bar to the first cause of action in civil case 2574. We rule that this
contention is untenable as the causes of action in the two cases are not identical. Case 2002
was for injunction against the entry into and the gathering of nuts from the land, while case
2574 seeks to "remove any doubt or cloud of the plaintiff's ownership ..." (Amended
complaint, Rec. on App., p. 27), with a prayer for declaration of ownership and recovery of
possession.
Applying the test of absence of inconsistency between prior and subsequent judgments, 2 we
hold that the failure of Tan, in case 2002, to secure an injunction against the Valdehuezas to
prevent them from entering the land and gathering nuts is not inconsistent with her being
adjudged, in case 2574, as owner of the land with right to recover possession thereof. Case
2002 involved only the possession of the land and the fruits thereof, while case 2574 involves
ownership of the land, with possession as a mere attribute of ownership. The judgment in the
first case could not and did not encompass the judgment in the second, although the second
judgment would encompass the first. Moreover, the new Civil Code provides that suitors in
actions to quiet title "need not be in possession of said property. 3
2. The trial court treated the registered deed of pacto de retro as an equitable mortgage but
considered the unregistered deed of pacto de retro "as a mere case of simple loan, secured by
the property thus sold under pacto de retro," on the ground that no suit lies to foreclose an
unregistered mortgage. It would appear that the trial judge had not updated himself on law
and jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil Code and
decisions of this Court circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the
validity of a mortgage even as between the parties, but under article 2125 of the new Civil
Code (in effect since August 30,1950), this is no longer so. 4
If the instrument is not recorded, the mortgage is nonetheless binding between the parties.
(Article 2125, 2nd sentence).

The Valdehuezas having remained in possession of the land and the realty taxes having been
paid by them, the contracts which purported to be pacto de retrotransactions are presumed
to be equitable mortgages, 5 whether registered or not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed that they
remained in possession of the land and gave the proceeds of the harvest to the plaintiff; it is
thus argued that they would suffer double prejudice if they are to pay legal interest on the
amounts stated in the pacto de retro contracts, as the lower court has directed, and that
therefore the court should have ordered evidence to be adduced on the harvest.
The record does not support this claim. Nowhere in the original and the amended complaints
is an allegation of delivery to the plaintiff of the harvest from the land involved in the second
cause of action. Hence, the defendants' answer had none to affirm.
In submitting their stipulation of facts, the parties prayed "for its approval and maybe made
the basis of the decision of this Honorable Court. " (emphasis supplied) This, the court did. It
cannot therefore be faulted for not receiving evidence on who profited from the harvest.
4. The imposition of legal interest on the amounts subject of the equitable mortgages, P1,200
and P300, respectively, is without legal basis, for, "No interest shall be due unless it has been
expressly stipulated in writing." (Article 1956, new Civil Code) Furthermore, the plaintiff did
not pray for such interest; her thesis was a consolidation of ownership, which was properly
rejected, the contracts being equitable mortgages.
With the definitive resolution of the rights of the parties as discussed above, we find it
needless to pass upon the plaintiffs petition for receivership. Should the circumstances so
warrant, she may address the said petition to the court a quo.
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts of
P1,200 and P300 mentioned in Annexes E and D shall bear interest at six percent per annum
from the finality of this decision; and (b) the parcel of land covered by Annex D shall be
treated in the same manner as that covered by Annex E, should the defendants fail to pay to
the plaintiff the sum of P300 within 90 days from the finality of this decision. In all other
respects the judgment is affirmed. No costs.
RADIOWEALTH FINANCE COMPANY, petitioner, vs. Spouses VICENTE and
MA. SUMILANG DEL ROSARIO, respondents.
DECISION
PANGANIBAN, J.:

When a demurrer to evidence granted by a trial court is reversed on appeal, the reviewing
court cannot remand the case for further proceedings. Rather, it should render judgment on
the basis of the evidence proffered by the plaintiff. Inasmuch as defendants in the present
case admitted the due execution of the Promissory Note both in their Answer and during the
pretrial, the appellate court should have rendered judgment on the bases of that Note and on
the other pieces of evidence adduced during the trial.
The Case

Before us is a Petition for Review on Certiorari of the December 9, 1997 Decision[1] and
the May 3, 1999 Resolution[2] of the Court of Appeals in CA-GR CV No. 47737. The assailed
Decision disposed as follows:
WHEREFORE, premises considered, the appealed order (dated November 4, 1994) of the
Regional Trial Court (Branch XIV) in the City of Manila in Civil Case No. 93-66507 is hereby
REVERSED and SET ASIDE. Let the records of this case be remanded to the court a quo for
further proceedings. No pronouncement as to costs.[3]
The assailed Resolution denied the petitioners Partial Motion for Reconsideration. [4]
The Facts

The facts of this case are undisputed. On March 2, 1991, Spouses Vicente and Maria
Sumilang del Rosario (herein respondents), jointly and severally executed, signed and
delivered in favor of Radiowealth Finance Company (herein petitioner), a Promissory
Note[5] for P138,948. Pertinent provisions of the Promissory Note read:
FOR VALUE RECEIVED, on or before the date listed below, I/We promise to pay jointly and
severally Radiowealth Finance Co. or order the sum of ONE HUNDRED THIRTY EIGHT
THOUSAND NINE HUNDRED FORTY EIGHT Pesos (P138,948.00) without need of notice
or demand, in installments as follows:
P11,579.00 payable for 12 consecutive months starting on ________ 19__ until the
amount of P11,579.00 is fully paid. Each installment shall be due every ____ day of
each month. A late payment penalty charge of two and a half (2.5%) percent per month
shall be added to each unpaid installment from due date thereof until fully paid.
xxxxxxxxx
It is hereby agreed that if default be made in the payment of any of the installments or late
payment charges thereon as and when the same becomes due and payable as specified above,
the total principal sum then remaining unpaid, together with the agreed late payment charges
thereon, shall at once become due and payable without need of notice or demand.
xxxxxxxxx

If any amount due on this Note is not paid at its maturity and this Note is placed in the hands
of an attorney or collection agency for collection, I/We jointly and severally agree to pay, in
addition to the aggregate of the principal amount and interest due, a sum equivalent to ten
(10%) per cent thereof as attorneys and/or collection fees, in case no legal action is filed,
otherwise, the sum will be equivalent to twenty-five (25%) percent of the amount due which
shall not in any case be less than FIVE HUNDRED PESOS (P500.00) plus the cost of suit and
other litigation expenses and, in addition, a further sum of ten per cent (10%) of said amount
which in no case shall be less than FIVE HUNDRED PESOS (P500.00), as and for liquidated
damages.[6]
Thereafter, respondents defaulted on the monthly installments. Despite repeated
demands, they failed to pay their obligations under their Promissory Note.
On June 7, 1993, petitioner filed a Complaint[7] for the collection of a sum of money before
the Regional Trial Court of Manila, Branch 14.[8] During the trial, Jasmer Famatico, the credit
and collection officer of petitioner, presented in evidence the respondents check payments,
the demand letter dated July 12, 1991, the customers ledger card for the respondents, another
demand letter and Metropolitan Bank dishonor slips. Famatico admitted that he did not have
personal knowledge of the transaction or the execution of any of these pieces of documentary
evidence, which had merely been endorsed to him.
On July 4, 1994, the trial court issued an Order terminating the presentation of evidence
for the petitioner.[9] Thus, the latter formally offered its evidence and exhibits and rested its
case on July 5, 1994.
Respondents filed on July 29, 1994 a Demurrer to Evidence[10] for alleged lack of cause of
action. On November 4, 1994, the trial court dismissed [11] the complaint for failure of
petitioner to substantiate its claims, the evidence it had presented being merely hearsay.
On appeal, the Court of Appeals (CA) reversed the trial court and remanded the case for
further proceedings.
Hence, this recourse.[12]
Ruling of the Court of Appeals

According to the appellate court, the judicial admissions of respondents established their
indebtedness to the petitioner, on the grounds that they admitted the due execution of the
Promissory Note, and that their only defense was the absence of an agreement on when the
installment payments were to begin. Indeed, during the pretrial, they admitted the
genuineness not only of the Promissory Note, but also of the demand letter dated July 12,
1991. Even if the petitioners witness had no personal knowledge of these documents, they
would still be admissible if the purpose for which [they are] produced is merely to establish
the fact that the statement or document was in fact made or to show its tenor[,] and such fact
or tenor is of independent relevance.
Besides, Articles 19 and 22 of the Civil Code require that every person must -- in the
exercise of rights and in the performance of duties -- act with justice, give all else their due,
and observe honesty and good faith. Further, the rules on evidence are to be liberally

construed in order to promote their objective and to assist the parties in obtaining just,
speedy and inexpensive determination of an action.
Issue

The petitioner raises this lone issue:

The Honorable Court of Appeals patently erred in ordering the remand of this case to the trial
court instead of rendering judgment on the basis of petitioners evidence. [13]
For an orderly discussion, we shall divide the issue into two parts: (a) legal effect of the
Demurrer to Evidence, and (b) the date when the obligation became due and demandable.
The Courts Ruling

The Petition has merit. While the CA correctly reversed the trial court, it erred in
remanding the case "for further proceedings."
Consequences of a Reversal, on Appeal, of a Demurrer to Evidence

Petitioner contends that if a demurrer to evidence is reversed on appeal, the defendant

should be deemed to have waived the right to present evidence, and the appellate court should
render judgment on the basis of the evidence submitted by the plaintiff. A remand to the trial
court "for further proceedings" would be an outright defiance of Rule 33, Section 1 of the 1997
Rules of Court.
On the other hand, respondents argue that the petitioner was not necessarily entitled to
its claim, simply on the ground that they lost their right to present evidence in support of
their defense when the Demurrer to Evidence was reversed on appeal. They stress that the
CA merely found them indebted to petitioner, but was silent on when their obligation became
due and demandable.
The old Rule 35 of the Rules of Court was reworded under Rule 33 of the 1997 Rules, but
the consequence on appeal of a demurrer to evidence was not changed. As amended, the
pertinent provision of Rule 33 reads as follows:
SECTION 1. Demurrer to evidence.After the plaintiff has completed the presentation of his
evidence, the defendant may move for dismissal on the ground that upon the facts and the
law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to
present evidence. If the motion is granted but on appeal the order of dismissal is reversed he
shall be deemed to have waived the right to present evidence.[14]
Explaining the consequence of a demurrer to evidence, the Court in Villanueva Transit v.
Javellana[15] pronounced:

The rationale behind the rule and doctrine is simple and logical. The defendant is permitted,
without waiving his right to offer evidence in the event that his motion is not granted, to move
for a dismissal (i.e., demur to the plaintiffs evidence) on the ground that upon the facts as
thus established and the applicable law, the plaintiff has shown no right to relief. If the trial
court denies the dismissal motion, i.e., finds that plaintiffs evidence is sufficient for an award
of judgment in the absence of contrary evidence, the case still remains before the trial court
which should then proceed to hear and receive the defendants evidence so that all the facts
and evidence of the contending parties may be properly placed before it for adjudication as
well as before the appellate courts, in case of appeal. Nothing is lost. The doctrine is but in
line with the established procedural precepts in the conduct of trials that the trial court
liberally receive all proffered evidence at the trial to enable it to render its decision with all
possibly relevant proofs in the record, thus assuring that the appellate courts upon appeal
have all the material before them necessary to make a correct judgment, and avoiding the
need of remanding the case for retrial or reception of improperly excluded evidence, with the
possibility thereafter of still another appeal, with all the concomitant delays. The rule,
however, imposes the condition by the same token that if his demurrer is granted by the trial
court, and the order of dismissal is reversed on appeal, the movant losses his right to present
evidence in his behalf and he shall have been deemed to have elected to stand on the
insufficiency of plaintiffs case and evidence. In such event, the appellate court which reverses
the order of dismissal shall proceed to render judgment on the merits on the basis of plaintiffs
evidence. (Underscoring supplied)
In other words, defendants who present a demurrer to the plaintiffs evidence retain the
right to present their own evidence, if the trial court disagrees with them; if the trial court
agrees with them, but on appeal, the appellate court disagrees with both of them and reverses
the dismissal order, the defendants lose the right to present their own evidence. [16] The
appellate court shall, in addition, resolve the case and render judgment on the merits,
inasmuch as a demurrer aims to discourage prolonged litigations.[17]
In the case at bar, the trial court, acting on respondents demurrer to evidence, dismissed
the Complaint on the ground that the plaintiff had adduced mere hearsay evidence. However,
on appeal, the appellate court reversed the trial court because the genuineness and the due
execution of the disputed pieces of evidence had in fact been admitted by defendants.
Applying Rule 33, Section 1 of the 1997 Rules of Court, the CA should have rendered
judgment on the basis of the evidence submitted by the petitioner. While the appellate court
correctly ruled that the documentary evidence submitted by the [petitioner] should have been
allowed and appreciated xxx, and that the petitioner presented quite a number of
documentary exhibits xxx enumerated in the appealed order,[18] we agree with petitioner that
the CA had sufficient evidence on record to decide the collection suit. A remand is not only
frowned upon by the Rules, it is also logically unnecessary on the basis of the facts on record.
Due and Demandable Obligation

Petitioner claims that respondents are liable for the whole amount of their debt and the
interest thereon, after they defaulted on the monthly installments.

Respondents, on the other hand, counter that the installments were not yet due and
demandable. Petitioner had allegedly allowed them to apply their promotion services for its
financing business as payment of the Promissory Note. This was supposedly evidenced by the
blank space left for the date on which the installments should have commenced. [19] In other
words, respondents theorize that the action for immediate enforcement of their obligation is
premature because its fulfillment is dependent on the sole will of the debtor. Hence, they
consider that the proper court should first fix a period for payment, pursuant to Articles 1180
and 1197 of the Civil Code.
This contention is untenable. The act of leaving blank the due date of the first installment
did not necessarily mean that the debtors were allowed to pay as and when they could. If this
was the intention of the parties, they should have so indicated in the Promissory
Note. However, it did not reflect any such intention.
On the contrary, the Note expressly stipulated that the debt should be amortized monthly
in installments of P11,579 for twelve consecutive months. While the specific date on which
each installment would be due was left blank, the Note clearly provided that each installment
should be payable each month.
Furthermore, it also provided for an acceleration clause and a late payment penalty, both
of which showed the intention of the parties that the installments should be paid at a definite
date. Had they intended that the debtors could pay as and when they could, there would have
been no need for these two clauses.
Verily, the contemporaneous and subsequent acts of the parties manifest their intention
and knowledge that the monthly installments would be due and demandable each
month.[20] In this case, the conclusion that the installments had already became due and
demandable is bolstered by the fact that respondents started paying installments on the
Promissory Note, even if the checks were dishonored by their drawee bank. We are convinced
neither by their avowals that the obligation had not yet matured nor by their claim that a
period for payment should be fixed by a court.
Convincingly, petitioner has established not only a cause of action against the
respondents, but also a due and demandable obligation. The obligation of the respondents
had matured and they clearly defaulted when their checks bounced. Per the acceleration
clause, the whole debt became due one month (April 2, 1991) after the date of the Note
because the check representing their first installment bounced.
As for the disputed documents submitted by the petitioner, the CA ruling in favor of their
admissibility, which was not challenged by the respondents, stands. A party who did not
appeal cannot obtain affirmative relief other than that granted in the appealed decision. [21]
It should be stressed that respondents do not contest the amount of the principal
obligation. Their liability as expressly stated in the Promissory Note and found by the CA
isP13[8],948.00[22] which is payable in twelve (12) installments at P11,579.00 a month for
twelve (12) consecutive months. As correctly found by the CA, the "ambiguity" in the
Promissory Note is clearly attributable to human error.[23]
Petitioner, in its Complaint, prayed for 14% interest per annum from May 6, 1993 until
fully paid. We disagree. The Note already stipulated a late payment penalty of 2.5 percent

monthly to be added to each unpaid installment until fully paid. Payment of interest was not
expressly stipulated in the Note. Thus, it should be deemed included in such penalty.
In addition, the Note also provided that the debtors would be liable for attorneys fees
equivalent to 25 percent of the amount due in case a legal action was instituted and 10 percent
of the same amount as liquidated damages. Liquidated damages, however, should no longer
be imposed for being unconscionable.[24] Such damages should also be deemed included in
the 2.5 percent monthly penalty. Furthermore, we hold that petitioner is entitled to attorneys
fees, but only in a sum equal to 10 percent of the amount due which we deem reasonable
under the proven facts.[25]
The Court deems it improper to discuss respondents' claim for moral and other
damages. Not having appealed the CA Decision, they are not entitled to affirmative relief, as
already explained earlier.[26]
WHEREFORE, the Petition is GRANTED. The appealed Decision is MODIFIED in that
the remand is SET ASIDE and respondents are ordered TO PAY P138,948, plus 2.5 percent
penalty charge per month beginning April 2, 1991 until fully paid, and 10 percent of the
amount due as attorneys fees. No costs.
SO ORDERED.
G.R. No. 107569 November 8, 1994
PHILIPPINE
NATIONAL
vs.
COURT OF APPEALS, REMEDIOS
FERNANDEZ, respondents.

BANK,
JAYME-FERNANDEZ

petitioner,
and

AMADO

Vidad, Corpus & Associates for petitioner.

Remedios Jayme-Fernandez for privaate respondents.

PUNO, J.:
Petitioner bank seeks the review of the decision, dated October 15, 1992, of the Court of
Appeals 1 in CA G.R. CV No. 27195, the dispositive portion of which reads as follows:
WHEREFORE, the judgment appealed from is hereby SET ASIDE and a new one
is entered ordering defendant-appellee PNB to re-apply the interest rate of
12% per annum to plaintiffs-appellants' (referring to herein private respondents)
indebtedness and to accordingly take the appropriate charges from plaintiffsappellants' (private respondents') payment of P81,000.00 made on December 26,
1985. Any balance on the indebtedness should, likewise, be charged interest at
the rate of 12%per annum.
SO ORDERED.

The parties do not dispute the facts as laid down by respondent court in its impugned
decision, viz.:
On April 7, 1982, (private respondents) as owners of a NACIDA-registered
enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund
(CIGLF) from the Philippine National Bank (PNB) in the amount of Fifty
Thousand (P50,000.00) Pesos, as evidenced by a Credit Agreement. Under the
Promissory Note covering the loan, the loan was to be amortized over a period of
three (3) years to end on March 29, 1985, at twelve (12%) percent interest
annually.
To secure the loan, (private respondents) executed a Real Estate Mortgage over a
1.5542-hectare parcel of unregistered agricultural land located at Cambang-ug,
Toledo City, which was appraised by the PNB at P1,062.52 and given a loan value
of P531.26 by the Bank. In addition, (private respondents) executed a Chattel
Mortgage over a thermo plastic-forming machine, which had an appraisal value
of P8,800 and a loan value of P4,400.00.
The Credit Agreement provided inter alia, that
(a) The BANK reserves the right to increase the interest rate within
the limits allowed by law at any time depending on whatever policy it
may adopt in the future; Provided, that the interest rate on this
accommodation shall be correspondingly decreased in the event that
the applicable maximum interest is reduced by law or by the
Monetary Board. In either case, the adjustment in the interest rate
agreed upon shall take effect on the effectivity date of the increase or
decrease in the maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at
any time without notice, beyond the stipulated rate of 12% but only "within the
limits allowed by law."
The Real Estate Mortgage contract likewise provided that
(k) INCREASE OF INTEREST RATE: The rate of interest charged on
the obligation secured by this mortgage as well as the interest on the
amount which may have been advanced by the MORTGAGE, in
accordance with the provision hereof, shall be subject during the life
of this contract to such an increase within the rate allowed by law, as
the Board of Directors of the MORTGAGEE may prescribe for its
debtors.
On February 17, 1983, (private respondents) were granted an additional NACIDA
loan of Fifty Thousand (P50,000.00) Pesos by the PNB, for which (private
respondents) executed another Promissory Note, which was to mature on April 1,
1985. Other than the date of maturity, the second promissory note contained the
same terms and stipulations as the previous note. The parties likewise executed a

new Credit Agreement, changing the amount of the loan from P50,000.00 to
P100,000.00, but otherwise preserving the stipulations contained in the original
agreement.
As additional security for the loan, (private respondents) constituted another real
estate mortgage over 2 parcels of registered land, with a combined area of 311
square meters, located at Guadalupe, Cebu City. The land, upon which several
buildings are standing, was appraised by the PNB to have a value of P40,000.00
and a loan value of P28,000.00.
In a letter dated August 1, 1984, the PNB informed (private respondents) "that
the interest rate of your CIGLF loan account with us is now 25% per annum plus
a penalty of 6% per annum on past dues." The PNB further increased this interest
rate to 30% on October 15, 1984; and to 42% on October 25, 1984.
The records show that as of December 1985, (private respondents) had an
outstanding principal account of P81,000.00 of which P18,523.14 was credited to
the principal, P57,488.89 to the interest, and the rest to penalty and other
charges. Thus, as of said date, the unpaid principal obligation of (private
respondent) amounted to P62,830.32.
Thereafter, (private respondents) exerted efforts to get the PNB to re-adopt the
12% interest and to condone the present interest and penalties due; but to no
avail. 2 (Citations omitted.)
On December 15, 1987, private respondents filed a suit for specific performance against
petitioner PNB and the NACIDA. It was docketed as Civil Case No. CEB-5610, and raffled to
the Regional Trial Court, 7th Judicial Region, Cebu City, Br. 7. 3 Private respondents prayed
the trial court to order:
1. The PNB and NACIDA to issue in (private respondents') favor, a release of
mortgage;
2. The PNB to pay pecuniary consequential damages for the destruction of
(private respondents') enterprise;
3. The PNB to pay moral and exemplary damages as well as the costs of suit; and
4. Granting (private respondents') such other relief as may be found just and
equitable in the premises. 4
On February 26, 1990, the trial court dismissed private respondents' complaint in Civil Case
No. CEB-5610. On October 15, 1992, the Court of Appeals reversed the dismissal with respect
to petitioner bank, and disallowed the increases in interest rates.
Petitioner bank now contends that "respondent Court of Appeals committed grave error when
it ruled (1) that the increase in interest rates are unauthorized; (2) that the Credit Agreement
and the Promissory Notes are not the law between the parties; (3) that CB Circular No. 773

and
CB
Circular
No. 905 are not applicable; and (4) that private respondents are not estopped from
questioning the increase of rate interest made by petitioner." 5
The petition is bereft of merit.
In making the unilateral increases in interest rates, petitioner bank relied on the escalation
clause contained in their credit agreement which provides, as follows:
The Bank reserves the right to increase the interest rate within the limits allowed
by law at any time depending on whatever policy it may adopt in the future
and provided, that, the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest rate
is reduced by law or by the Monetary Board. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity date of the increase or
decrease in maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.)
No. 1684 which further amended Act No. 2655 ("The Usury Law"), as amended, thus:
Section 2. The same Act is hereby amended by adding a new section after Section
7, to read as follows:
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money,
goods or credits may stipulate that the rate of interest agreed upon may be
increased in the event that the applicable maximum rate of interest is increased
by law or by the Monetary Board; Provided, That such stipulation shall be valid
only if there is also a stipulation in the agreement that the rate of interest agreed
upon shall be reduced in the event that the applicable maximum rate of interest
is reduced by law or by the Monetary Board; Provided further, That the
adjustment in the rate of interest agreed upon shall take effect on or after the
effectivity of the increase or decrease in the maximum rate of interest.
Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to prescribe
the maximum rates of interest for loans and certain forbearances. Pursuant to such authority,
the Monetary Board issued Central Bank (C.B.) Circular No. 905, series of 1982, Section 5 of
which provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial
Intermediaries) is hereby amended to read as follows:
Sec. 1303. Interest and Other Charges. The rate of interest,
including commissions, premiums, fees and other charges, on any
loan, or forbearance of any money, goods or credits, regardless of
maturity and whether secured or unsecured, shall not be subject to
any ceiling prescribed under or pursuant to the Usury Law, as
amended.

P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated. However, contrary to the stubborn insistence
of petitioner bank, the said law and circular did not authorize either party to unilaterally raise
the interest rate without the other's consent.
It is basic that there can be no contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. If this assent is wanting on the part of the one
who contracts, his act has no more efficacy than if it had been done under duress or by a
person of unsound mind. 6
Similarly, contract changes must be made with the consent of the contracting parties. The
minds of all the parties must meet as to the proposed modification, especially when it affects
an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that
the rate of interest is always a vital component, for it can make or break a capital venture.
Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives
it unbridled right tounilaterally upwardly adjust the interest on private respondents' loan.
That would completely take away from private respondents the right to assent to an
important modification in their agreement, and would negate the element of mutuality in
contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545
(1991) we held
. . . The unilateral action of the PNB in increasing the interest rate on the private
respondent's loan violated the mutuality of contracts ordained in Article 1308 of
the Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force or law between
the parties, there must be mutuality between the parties based on their essential
equality. A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void . .
.
.
Hence,
even
assuming
that
the . . . loan agreement between the PNB and the private respondent gave the PNB
a license (although in fact there was none) to increase the interest rate at will
during the term of the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract of adhesion, where
the parties do not bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or leave it" . . . . Such a
contract is a veritable trap for the weaker party whom the courts of justice must
protect against abuse and imposition. (Citation omitted.)

Private respondents are not also estopped from assailing the unilateral increases in interest
rate made by petitioner bank. No one receiving a proposal to change a contract to which he is
a party, is obliged to answer the proposal, and his silence per se cannot be construed as an
acceptance. 7 In the case at bench, the circumstances do not show that private respondents
implicitly agreed to the proposed increases in interest rate which by any standard were too
sudden and too stiff.
IN VIEW THEREOF, the instant petition is DENIED for lack of merit, and the decision of the
Court of Appeals in CA-G.R. CV No. 27195, dated October 15, 1992, is AFFIRMED. Costs
against petitioner.
SO ORDERED.
G.R. No. 97412 July 12, 1994
EASTERN
SHIPPING
LINES,
INC.,
petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained
on a shipment of goods can be a solidary, or joint and several, liability of the common carrier,
the arrastre operator and the customs broker; (b) whether the payment of legal interest on an
award for loss or damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable rate of interest,
referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant
Eastern
Shipping
Lines
under
Bill
of
Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged
unto the custody of defendant Metro Port Service, Inc. The latter excepted to one
drum, said to be in bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and without
seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of the shipment to the consignee's warehouse. The latter excepted to
one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants who failed and refused to
pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that it
became subrogated to all the rights of action of said consignee against defendants
(per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and
O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate
court said:
Defendants filed their respective answers, traversing the material allegations of
the complaint contending that: As for defendant Eastern Shipping it alleged that
the shipment was discharged in good order from the vessel unto the custody of
Metro Port Service so that any damage/losses incurred after the shipment was
incurred after the shipment was turned over to the latter, is no longer its liability
(p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p. 11,
Record); Allied Brokerage alleged that plaintiff has no cause of action against it,
not having negligent or at fault for the shipment was already in damage and bad
order condition when received by it, but nonetheless, it still exercised extra
ordinary care and diligence in the handling/delivery of the cargo to consignee in
the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the
custody of defendants (in whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the

losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's
pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and
condition, as clearly shown by the Bill of Lading and Commercial
Invoice which do not indicate any damages drum that was shipped
(Exhs. B and C). But when on December 12, 1981 the shipment was
delivered to defendant Metro Port Service, Inc., it excepted to one
drum in bad order.
Correspondingly, as to the second issue, it follows that the
losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier (Eastern),
arrastre operator (Metro Port) and broker (Allied Brokerage). This
becomes evident when the Marine Cargo Survey Report (Exh. G), with
its "Additional Survey Notes", are considered. In the latter notes, it is
stated that when the shipment was "landed on vessel" to dock of Pier
# 15, South Harbor, Manila on December 12, 1981, it was observed
that "one (1) fiber drum (was) in damaged condition, covered by the
vessel's Agent's Bad Order Tally Sheet No. 86427." The report further
states that when defendant Allied Brokerage withdrew the shipment
from defendant arrastre operator's custody on January 7, 1982, one
drum was found opened without seal, cello bag partly torn but
contents
intact.
Net
unrecovered
spillages
was
15 kgs. The report went on to state that when the drums reached the
consignee, one drum was found with adulterated/faked contents. It is
obvious, therefore, that these losses/damages occurred before the
shipment reached the consignee while under the successive custodies
of defendants. Under Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary diligence in the vigilance of
goods remains in full force and effect even if the goods are temporarily
unloaded and stored in transit in the warehouse of the carrier at the
place of destination, until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the goods (Art. 1738,
NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over
Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of

12% per annum from October 1, 1982, the date of filing of this
complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of
the loss, whichever is lesser, while the liability of defendant Metro
Port Service, Inc. shall be to the extent of the actual invoice value of
each package, crate box or container in no case to exceed P5,000.00
each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion
drawn therefrom is correct. As there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants, and therefore
they are liable to the appellee, as subrogee for the amount it paid to the consignee.
(pp. 87-89, Rollo.)
The Court
a quo.

of

Appeals

thus

affirmed

in

toto

the

judgment

of

the

court

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave
abuse of discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH
THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF
PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF
THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL
COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are
not all that novel. Indeed, we do have a fairly good number of previous decisions this Court
can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738,
Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines,
52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need
not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine
National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals,
131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not
observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one
of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of
properly delivering the goods to the consignee has, too, been passed upon by the Court.
In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in
holding the carrier and the arrastre operator liable in solidum,thus:
The legal relationship between the consignee and the arrastre operator is akin to
that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA
5 [1967]. The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator (Northern Motors, Inc.
v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE
to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER.
Both the ARRASTRE and the CARRIER are therefore charged with the obligation
to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier,
or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant
petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not
having been able to rebut the presumption of fault, is, in any event, to be held liable in this
particular case. A factual finding of both the court a quo and the appellate court, we take note,
is that "there is sufficient evidence that the shipment sustained damage while in the
successive possession of appellants" (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable
regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than
just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:

The
early case
of
Malayan Insurance Co.,
Inc.,
vs.
Manila Port
2
3
Service, decided on 15 May 1969, involved a suit for recovery of money arising out of short
deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in
the lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established
in its totality nor definitely ascertained. In the stipulation of facts later entered into by the
parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered
judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad
Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon
from the date the complaint was filed on 28 December 1962 until full payment thereof. The
appellants then assailed,inter alia, the award of legal interest. In sustaining the appellants,
this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date of
demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." And as was held by this Court in Rivera
vs. Perez, 4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof (Montilla c. Corporacion de
P.P.
Agustinos,
25
Phil.
447;
Lichauco
v.
Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis
supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of
Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third
party defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to
pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the value of
the insurance recovered and the amount of P10,000.00 a month as the estimated
monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time
they are actually paid or already the total sum of P370,000.00 as of June 4, 1972
with legal interest from the filing of the complaint until paid and to pay

attorney's fees of P5,000.00 with costs against defendants and third party
plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded
but sustained the trial court in adjudging legal interest from the filing of the complaint
until fully paid. When the appellate court's decision became final, the case was
remanded to the lower court for execution, and this was when the trial court issued its
assailed resolution which applied the 6% interest per annum prescribed in Article 2209
of the Civil Code. In their petition for review on certiorari, the petitioners contended
that
Central
Bank
Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
that the rate of interest for the loan, or forbearance of any money, goods, or
credits and the rate allowed in judgments, in the absence of express contract as
to such rate of interest, shall be twelve (12%) percent per annum. This Circular
shall take effect immediately. (Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations involving
loans or forbearance of any money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the said law for it is
not within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property and
does not involve any loan, much less forbearances of any money, goods or credits.
As correctly argued by the private respondents, the law applicable to the said case
is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of stipulation, the legal
interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on
28 July 1986. The case was for damages occasioned by an injury to person and loss of
property. The trial court awarded private respondent Pedro Manabat actual and
compensatory damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this
Court 8 modified the interest award from 12% to 6% interest per annum but sustained the
time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of
damages
arising
from
the
collapse
of
a
building,
ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from
the modification of the amount granted by the lower court, the Court of Appeals sustained
the trial court's decision. When taken to this Court for review, the case, on 03 October 1986,
was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering
the special and environmental circumstances of this case, we deem it reasonable
to render a decision imposing, as We do hereby impose, upon the defendant and
the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art.
1723,
Civil
Code,
Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's
fees) occasioned by the loss of the building (including interest charges and lost
rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable upon the finality of this
decision. Upon failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon aforementioned amounts from finality until paid.
Solidary costs against the defendant and third-party defendants (Except Roman
Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court 10 ruled out the applicability
of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April
1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2)
forbearance
of
any
money,
goods
or
credit;
and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving
loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines
Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260
[1985]). It is true that in the instant case, there is neither a loan or a forbearance,
but then no interest is actually imposed provided the sums referred to in the
judgment are paid upon the finality of the judgment. It is delay in the payment
of such final judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed
on the total sum, from the filing of the complaint until paid; in other words,
as part of the judgment for damages. Clearly, they are not applicable to the
instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of
the then Intermediate Appellate Court reducing the amount of moral and exemplary damages
awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution,
dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09
November 1988, this Court, while recognizing the right of the private respondent to recover
damages, held the award, however, for moral damages by the trial court, later sustained by
the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate
court and rendered a new one, "ordering the petitioner to pay private respondent the sum of
One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid.
(Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which
arose from a breach of employment contract. For having been illegally dismissed, the
petitioner was awarded by the trial court moral and exemplary damages without, however,
providing any legal interest thereon. When the decision was appealed to the Court of Appeals,
the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is affirmed in all respects, with the modification
that defendants-appellants, except defendant-appellant Merton Munn, are
ordered to pay, jointly and severally, the amounts stated in the dispositive portion
of the decision, including the sum of P1,400.00 in concept of compensatory
damages, with interest at the legal rate from the date of the filing of the
complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of execution
issued by the trial court directed that only compensatory damages should earn interest
at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of
discretion on the part of the trial judge, a petition for certiorari assailed the said order.
This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at
the legal rate"from the time of the filing of the complaint. . . Said circular [Central
Bank Circular No. 416] does not apply to actions based on a breach of employment
contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power
Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain
parcels of land. After conducting a hearing on the complaints for eminent domain, the trial

court ordered the petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest thereon . . . until fully paid."
Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money,
goods or credits but expropriation of certain parcels of land for a public purpose,
the payment of which is without stipulation regarding interest, and the interest
adjudged by the trial court is in the nature of indemnity for damages. The legal
interest required to be paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for the delay in
the payment thereof. Therefore, since the kind of interest involved in the joint
judgment of the lower court sought to be enforced in this case is interest by way
of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code
shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps
be classified into two groups according to the similarity of the issues involved and the
corresponding rulings rendered by the court. The "first group" would consist of the cases
of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v.
Ruiz
(1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.Intermediate Appellate
Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in
these cases that there has been a consistent holding that the Central Bank Circular imposing
the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits,
as well as to judgments involving such loan or forbearance of money, goods or credits, and
that the 6% interest under the Civil Code governs when the transaction involves the payment
of indemnities in the concept of damage arising from the breach or a delay in the performance
of obligations in general. Observe, too, that in these cases, a common time frame in the
computation of the 6% interest per annum has been applied, i.e., from the time the complaint
is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, 17depending on whether or not the amount involved is a loan or
forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike,
however, the "first group" which remained consistent in holding that the running of the legal
interest should be from the time of the filing of the complaint until fully paid, the "second
group" varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the
decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and
not known until definitely ascertained, assessed and determined by the courts after proof,'
then, interest 'should be from the date of the decision.'" American Express International

v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be
"computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that
12% interest per annum should be imposed from the finality of the decision until the
judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called
for different applications, guided by the rule that the courts are vested with discretion,
depending on the equities of each case, on the award of interest. Nonetheless, it may not be
unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 23 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. 26 Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
be 12% per annum from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with
the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount
due
computed
from
the
decision,
dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX

PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.
CRISMINA GARMENTS, INC., petitioner, vs. COURT OF APPEAL AND NORMA
SIAPNO, respondents.
DECISION
PANGANIBAN, J.:
Interest shall be computed in accordance with the stipulation of the parties. In the absence
of such agreement, the rate shall be twelve percent (12%) per annum when the obligation
arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six
percent (6%).
The Case

On May 5, 1997, Crismina Garments, Inc. filed a Petition for Review on

Certiorari[1] assailing the December 28, 1995 Decision[2] and March 17, 1997 Resolution[3] of
the Court of Appeals in CA-GR CV No. 28973. On September 24, 1997, this Court issued a
minute Resolution[4] denying the petition for its failure to show any reversible error on the
part of the Court of Appeals.
Petitioner then filed a Motion for Reconsideration,[5] arguing that the interest rate should
be computed at 6 percent per annum as provided under Article 2209 of the Civil Code, not 12
percent per annum as prescribed under Circular No. 416 of the Central Bank of the
Philippines. Acting on the Motion, the Court reinstated[6] the Petition, but only with respect
to the issue of which interest rate should be applied.[7]
The Facts

As the facts of the case are no longer disputed, we are reproducing hereunder the findings
of the appellate court:
During the period from February 1979 to April 1979, the [herein petitioner], which was
engaged in the export of girls denim pants, contracted the services of the [respondent], the
sole proprietress of the DWilmar Garments, for the sewing of 20,762 pieces of assorted girls[]
denims supplied by the [petitioner] under Purchase Orders Nos. 1404, dated February 15,
1979, 0430 dated February 1, 1979, 1453 dated April 30, 1979. The [petitioner] was obliged to
pay the [respondent], for her services, in the total amount of P76,410.00. The [respondent]
sew[ed] the materials and delivered the same to the [petitioner] which acknowledged the
same per Delivery Receipt Nos. 0030, dated February 9, 1979; 0032, dated February 15, 1979;
0033 dated February 21, 1979; 0034, dated February 24, 1979; 0036, dated February 20,
1979; 0038, dated March 11, 1979[;] 0039, dated March 24, 1979; 0040 dated March 27, 1979;

0041, dated March 29, 1979; 0044, dated Marc[h] 25, 1979; 0101 dated May 18, 1979[;] 0037,
dated March 10, 1979 and 0042 dated March 10, 1979, in good order condition. At first, the
[respondent] was told that the sewing of some of the pants w[as] defective. She offered to take
delivery of the defective pants. However, she was later told by [petitioner]s representative
that the goods were already good. She was told to just return for her check
of P76,410.00. However, the [petitioner] failed to pay her the aforesaid amount. This
prompted her to hire the services of counsel who, on November 12, 1979, wrote a letter to the
[petitioner] demanding payment of the aforesaid amount within ten (10) days from receipt
thereof. On February 7, 1990, the [petitioner]s [v]ice-[p]resident-[c]omptroller, wrote a letter
to [respondent]s counsel, averring, inter alia, that the pairs of jeans sewn by her, numbering
6,164 pairs, were defective and that she was liable to the [petitioner] for the amount
of P49,925.51 which was the value of the damaged pairs of denim pants and demanded refund
of the aforesaid amount.
On January 8, 1981, the [respondent] filed her complaint against the [petitioner] with the
[trial court] for the collection of the principal amount of P76,410.00. x x x
xxxxxxxxx
After due proceedings, the [trial court] rendered judgment, on February 28, 1989, in favor of
the [respondent] against the [petitioner], the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the latter to pay the former:
(1) The sum of P76,140.00 with interest thereon at 12% per annum, to be counted from
the filing of this complaint on January 8, 1981, until fully paid;
(2) The sum of P5,000 as attorney[]s fees; and
(3) The costs of this suit;
(4) Defendants counterclaim is hereby dismissed.[8]
The Court of Appeals (CA) affirmed the trial courts ruling, except for the award of
attorneys fees which was deleted.[9] Subsequently, the CA denied the Motion for
Reconsideration.[10]
Hence, this recourse to this Court.[11]
Sole Issue

In light of the Courts Resolution dated April 27, 1998, petitioner submits for our
consideration this sole issue:
Whether or not it is proper to impose interest at the rate of twelve percent (12%) per annum
for an obligation that does not involve a loan or forbearance of money in the absence of
stipulation of the parties.[12]

This Courts Ruling

We sustain petitioners contention that the interest rate should be computed at six percent
(6%) per annum.
Sole Issue: Interest Rate

The controversy revolves around petitioners payment of the price beyond the period
prescribed in a contract for a piece of work. Article 1589 of the Civil Code provides that [t]he
vendee [herein petitioner] shall owe interest for the period between the delivery of the thing
and the payment of the price x x x should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price. The only issue now is the applicable rate
of interest for the late payment.
Because the case before us is an action for the enforcement of an obligation for payment
of money arising from a contract for a piece of work, [13] petitioner submits that the interest
rate should be six percent (6%), pursuant to Article 2209 of the Civil Code, which states:
If the obligation consists in the payment of money and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum. (Emphasis supplied.)
On the other hand, private respondent maintains that the interest rate should be twelve
percent (12%) per annum, in accordance with Central Bank (CB) Circular No. 416, which
reads:
By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise
known as the Usury Law, the Monetary Board, in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of express contract as to such rate
of interest, shall be twelve per cent (12%) per annum. (Emphasis supplied.)
She argues that the circular applies, since the money sought to be recovered by her is in
the form of forbearance.[14]
We agree with the petitioner. In Reformina v. Tomol Jr.,[15] this Court stressed that the
interest rate under CB Circular No. 416 applies to (1) loans; (2) forbearance of money, goods
or credits; or (3) a judgment involving a loan or forbearance of money, goods or credits. Cases
beyond the scope of the said circular are governed by Article 2209 of the Civil Code, [16] which
considers interest a form of indemnity for the delay in the performance of an obligation.[17]
In Eastern Shipping Lines, Inc. v. Court of Appeals,[18] the Court gave the following
guidelines for the application of the proper interest rates:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions

under Title XVIII on Damages of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6%per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be xxx
the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
be 12% per annum from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.[19]
In Keng Hua Paper Products Co., Inc. v. CA,[20] we also ruled that the monetary award
shall earn interest at twelve percent (12%) per annum from the date of the finality of the
judgment until its satisfaction, regardless of whether or not the case involves a loan or
forbearance of money. The interim period is deemed to be equivalent to a forbearance of
credit.[21]
Because the amount due in this case arose from a contract for a piece of work, not from a
loan or forbearance of money, the legal interest of six percent (6%) per annum should be
applied.Furthermore, since the amount of the demand could be established with certainty
when the Complaint was filed, the six percent (6%) interest should be computed from the
filing of the said Complaint. But after the judgment becomes final and executory until the
obligation is satisfied, the interest should be reckoned at twelve percent (12%) per year.
Private respondent maintains that the twelve percent (12%) interest should be imposed,
because the obligation arose from a forbearance of money. [22] This is erroneous. In Eastern
Shipping,[23] the Court observed that a forbearance in the context of the usury law is a
contractual obligation of lender or creditor to refrain, during a given period of time, from
requiring the borrower or debtor to repay a loan or debt then due and payable. Using this

standard, the obligation in this case was obviously not a forbearance of money, goods or
credit.
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest shall be six
percent (6%) per annum, computed from the time of the filing of the Complaint in the trial
court until the finality of the judgment. If the adjudged principal and the interest (or any part
thereof) remain unpaid thereafter, the interest rate shall be twelve percent (12%) per annum
computed from the time the judgment becomes final and executory until it is fully
satisfied. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-47180 May 19, 1980
THE PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY,
INC.,
petitioner-appellant,
vs.
THE HON. JOSE P. FLORES, and CONCORDIA G. NAVALTA, respondentsappellees.

ABAD SANTOS, J.:+.wph!1

Petition to review the Order of the respondent judge dated August 24, 1977. The facts are
simple.
Private respondent was the plaintiff and the petitioner was the defendant in Civil Case No.
2414 of the Court of First Instance of La Union. On January 22, 1973, the respondent judge
rendered judgment in said case, the dispositive portion of which reads: t.hqw
IN VIEW OF THE FOREGOING, the Court hereby renders judgment and
sentences the defendant to pay Concordia Garcia Navalta the amount of
P75,000.00 with legal interest from October, 1968, Pl,000.00, as attorney's fees
am the cost of suit.
The decision was appealed by the petitioner to the Court of Appeals in CA-G.R. No. 52675-R
but was affirmed on February 7, 1977. On February 24, 1977, the petitioner paid the following
amounts to the private respondent: t.hqw
On the principal P75,000.00
Interest at 6% per annum
from Oct. 1968* to April 30,
1977 P 38,250.00
Attorney's fee P 1,000.00

Total P114,250.00
(*Art. 2209 of the Civil Code provides: "If the obligation consists in the payment
of a sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum." This appears to be the basis for awarding interest at the legal
rate from October, 1968, although the debt was judicially demanded only on July
6, 1970.)
The petitioner was advised by the respondent and her counsel that the payment was not in
fun satisfaction of the judgment because the former had to pay compound interest or an
additional sum of P10,375.77.
Upon refusal of the petitioner to pay the sum additionally claimed, the private respondent
secure a writ of execution for the same which the former sought to quash over the opposition
of the latter. In resolving the question the respondent judge issued an Order on August 24,
1977 as follows: t.hqw
After hearing and consideration of the motion of the plaintiff for the issuance of
an alias writ of execution, and the written manifestation and opposition filed by
the defendant and finding as it appears that the written schedule of interest
computation, which was submitted, is correct and in order, because compound
interest has been computed from July 6, 1970 when the claim was judicially
demanded, let an alias writ of execution issue to satisfy accordingly the unpaid
balance as demanded.
It is this Order which is the object of this petition and which raises the question as to whether
or not the petitioner is obligated to pay compound interest under the judgment.
The questioned Order cannot be sustained. The judgment which was sought to be executed
ordered the payment of simple "legal interest" only. It said nothing about the payment of
compound interest. Accordingly, when the respondent judge ordered the payment of
compound interest he went beyond the confines of his own judgment which had been
affirmed by the Court of Appeals and which had become final. Fundamental is the rule that
execution must conform to that ordained or decreed in the dispositive part of the decision.
Likewise, a court can not, except for clerical errors or omissions, amend a judgment that has
become final. (Jabon, et al. vs. Alo, et al., 91 Phil. 750 [1952]; Robles vs. Timario, et al., 107
Phil. 809 [1960]; Collector of Internal Revenue vs. Gutierrez, et al., 108 Phil. 215 [1960];
Ablaza vs. Sycip, et al., 110 Phil., 4 [1960].)
Private respondent invokes Sec. 5 of the Usury Law which reads in part as follows: "In
computing the interest on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement, or, in default thereof,
whenever the debt is judicially claimed in which last case it shall draw six per centum per
annum interest ..." as well as Art. 2212 of the Civil Code which stipulates: "Interest due shall
earn legal interest from the time it is judicially demanded, although the obligation may be

silent upon this point." Both legal provisions are in applicable for they contemplate the
presence of stipulated or conventional interest which had accrued when demand was
judicially made. (Sunico vs. Ramirez, 14 Phil. 500 [1909]; Salvador vs. Palencia, 25 Phil. 661
[1913]; Bachrach vs. Golingco, 39 Phil. 912 [1919]; Robinson vs. Sackermann 46 Phil. 539
[1924]; Philippine Engineering Co. vs. Green, 48 Phil. 466 [1925]; and Cu Unjieng vs.
Mabalacat Sugar Co., 54 Phil. 916 [1930].) In this case no interest had been stipulated by the
parties. In other words, there was no accrued conventional interest which could further earn
interest upon judicial demand.
WHEREFORE, the Order dated August 24, 1977, of the respondent judge is hereby set aside.
No special pronouncement as to costs.
SO ORDERED.
G.R. No. L-23559 October 4, 1971
AURELIO
G.
BRIONES,
vs.
PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants.

plaintiff-appellee,

Carlos J. Antiporda for plaintiff-appellee.

Manuel A. Cammayo for defendants-appellants.

DIZON, J.:
On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila
against Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover
from them, jointly and severally, the amount of P1,500.00, plus damages, attorney's fees and
costs of suit. The defendants answered the complaint with specific denials and the following
special defenses and compulsory counterclaim:
...;
By way of
SPECIAL DEFENSES
Defendants allege:
4. Defendants executed the real estate mortgage, Annex "A" of the complaint, as
security for the loan of P1,200.00 given to defendant Primitivo P. Cammayo upon
the usurious agreement that defendant pays to the plaintiff and that the plaintiff
reserve and secure, as in fact plaintiff reserved and secured himself, out of the
alleged loan of P1,500.00 as interest the sum of P300.00 for one year;

5. That although the mortgage contract, Annex "A" was executed for securing the
payment of P1,500.00 for a period of one year, without interest, the truth and the
real fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only
the sum of P1,200.00 and withheld the sum of P300.00 which was intended as
advance interest for one year;
6. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo
paid to the plaintiff during the period from October 1955 to July 1956 the total
sum of P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as
part payment of the account but as in interest of the said loan for an extension of
another term of one year;
7. That said contract of loan entered into between plaintiff and defendant
Primitivo P. Cammayo is a usurious contract and is contrary to law, morals, good
customs, public order or public policy and is, therefore, in existent and void from
the beginning (Art. 1407 Civil Code);
And as
COMPULSORY COUNTERCLAIM
Defendants replead all their allegations in the preceding paragraphs;
8. That plaintiff, by taking and receiving interest in excess of that allowed by law,
with full intention to violate the law, at the expense of the defendants, committed
a flagrant violation of Act 2655, otherwise known as the Usury Law, causing the
defendants damages and attorney's fees, the amount of which will be proven at
the trial;
9. That this is the second time this same case is filed before this court, the first
having been previously filed and docketed in this court as Civil Case No. 75845
(Branch VII) and the same was dismissed by the Court of First Instance of Manila
on July 13, 1961 in Civil Case No. 43121 (Branch XVII) and for repeatedly bringing
this case to the court, harassing and persecuting defendants in that manner,
defendants have suffered mental anguish and anxiety for which they should be
compensated for moral damages.
On September 7, 1962, Briones filed an unverified reply in which he merely denied the
allegations of the counterclaim. Thereupon the defendants moved for the rendition of a
summary judgment on the ground that, upon the record, there was no genuine issue of fact
between the parties. The Municipal Court granted the motion and rendered judgment
sentencing the defendants to pay the plaintiff the sum of P1,500.00, with interests thereon at
the legal rate from February 22, 1962, plus the sum of P150.00 as attorney's fees. From this
judgment, the defendants appealed to the Court of First Instance of Manila where, according
to the appealed decision, "defendant has asked for summary judgment and plaintiff has
agreed to the same." (Record on Appeal p. 21). Having found the motion for summary
judgment to be in order, the court then, proceeded to render judgment as follows:

Judgment is, therefore, rendered, ordering Defendant to pay plaintiff the sum of
P1,180.00 with interest thereon at the legal rate from October 16, 1962 until fully
paid. This judgment represents Defendant's debt of P1,500.00 less usurious
interest of P120.00 and the additional sum of P200.00 as attorney's fees or a total
deduction of P320.00. Plaintiff shall pay the costs.
In the present appeal defendants claim that the trial court erred in sentencing them to pay
the principal of the loan notwithstanding its finding that the same was tainted with usury,
and erred likewise in not dismissing the case.
It is not now disputed that the contract of loan in question was tainted with usury. The only
questions to be resolved, therefore, are firstly, whether the creditor is entitled to collect from
the debtor the amount representing the principal obligation; secondly, in the affirmative, if
he is entitled to collect interests thereon, and if so, at what rate.
The Usury Law penalizes any person or corporation who, for any loan or renewal thereof or
forbearance, shall collect or receive a higher rate or greater sum or value than is allowed by
law, and provides further that, in such case, the debtor may recover the whole interest,
commissions, premiums, penalties and surcharges paid or delivered, with costs and
attorney's fees, in an appropriate action against his creditor, within two (2) years after such
payment or delivery (Section 6, Act 2655, as amended by Acts 3291 and 3998).
Construing the above provision, We held in Go Chioco vs. Martinez, 45 Phil. 256 that even if
the contract of loan is declared usurious the creditor is entitled to collect the money actually
loaned and the legal interest due thereon.
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any
event, the debtor in a usurious contract of loan should pay the creditor the amount which he
justly owes him citing in support of this ruling its previous decisions in Go Chioco Supra,
Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.
In all the above cited cases it was recognized and held that under Act 2655 a usurious contract
is void; that the creditor had no right of action to recover the interest in excess of the lawful
rate; but that this did not mean that the debtor may keep the principal received by him as
loan thus unjustly enriching himself to the damage of the creditor.
Then in Lopez and Javelona vs. El Hogar Filipino, 47 249, We also held that the standing
jurisprudence of this Court on the question under consideration was clearly to the effect that
the Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from
the borrower the money actually loaned to and enjoyed by the latter. This Court went further
to say that the Usury Law did not provide for the forfeiture of the capital in favor of the debtor
in usurious contracts, and that while the forfeiture might appear to be convenient as a drastic
measure to eradicate the evil of usury, the legal question involved should not be resolved on
the basis of convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs.
Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that

when a contract is found to be tainted with usury "the only right of the respondent (creditor)
... was merely to collect the amount of the loan, plus interest due thereon."
The view has been expressed, however, that the ruling thus consistently adhered to should
now be abandoned because Article 1957 of the new Civil Code a subsequent law provides
that contracts and stipulations, under any cloak or device whatever, intended to circumvent
the laws against usury, shall be void, and that in such cases "the power may recover in
accordance with the laws on usury." From this the conclusion is drawn that the whole contract
is void and that, therefore, the creditor has no right to recover not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and
the view referred to in the preceding paragraph is adequately answered, in Angel Jose, etc.
vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor
in a usurious contract may or may not recover the principal of the loan, and, in the affirmative,
whether or not he may also recover interest thereon at the legal rate, We said the following:
... .
The court found that there remained due from defendants an unpaid principal
amount of P20,287.50; that plaintiff charged usurious interests, of which
P1,048.15 had actually been deducted in advance by plaintiff from the loan; that
said amount of P1,048.15 should therefore be deducted from the unpaid principal
of P20,287.50, leaving a balance of P19,247.35 still payable to the plaintiff. Said
court held that notwithstanding the usurious interests charged, plaintiff is not
barred from collecting the principal of the loan or its balance of P19,247.35.
Accordingly, it stated in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the defendant partnership
to pay to the plaintiff the amount of P19,247.35, with legal interest thereon from
May 29, 1964 until paid, plus an additional sum of P2,000.00 as damages for
attorney's fee; and, in case the assets of defendant partnership be insufficient to
satisfy this judgment in full, ordering the defendant David Syjueco to pay to the
plaintiff one-half () of the unsatisfied portion of this judgment.
With costs against the defendants.
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the principal of the loan? (2) Should
attorney's fees be awarded in plaintiff's favor?
Great reliance is made by appellants on Art. 1411 of the New Civil Code which
states:
ART. 1411. When the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply with
his promise.
Since, according to the appellants, a usurious loan is void due to illegality of cause
or object, the rule of pari delicto expressed in Article 1411, supra, applies, so that
neither party can bring action against each other. Said rule, however, appellants
add, is modified as to the borrower, by express provision of the law (Art. 1413,
New Civil Code), allowing the borrower to recover interest paid in excess of the
interest allowed by the Usury Law. As to the lender, no exception is made to the
rule; hence, he cannot recover on the contract. So they continue the New
Civil Code provisions must be upheld as against the Usury Law, under which a
loan with usurious interest is not totally void, because of Article 1961 of the New
Civil Code, that: "Usurious contracts shall be governed by the Usury Law and
other special laws, so far as they are not inconsistent with this Code. (Emphasis
ours.) .
We do not agree with such reasoning, Article 1411 of the New Civil Code is not
new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision
is no warrant for departing from previous interpretation that, as provided in the
Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally
void only as to the interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies
where a contract's nullity proceeds from illegality of the cause or object of said
contract.
However, appellants fail to consider that a contract of loan with usurious interest
consists of principal and accessory stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay interest thereon.
And said two stipulations are divisible in the sense that the former can still stand
without the latter. Article 1273, Civil Code, attests to this: "The renunciation of
the principal debt shall extinguish the accessory obligations; but the waiver of the
latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of
interest likewise renders a nullity the legal terms as to payments of the principal
debt. Article 1420 of the New Civil Code provides in this regard: "In case of a
divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor
to pay the principal debt, which is the cause of the contract (Article 1350, Civil
Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed void,
since it is the only one that is illegal.

Neither is there a conflict between the New Civil Code and the Usury Law. Under
the latter, in Sec. 6, any person who for a loan shall have paid a higher rate or
greater sum or value than is allowed in said law, may recover the whole interest
paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of the
interest allowed by the usury laws may be recovered by the debtor, with interest
thereon from the date of payment." Article 1413, in speaking of "interest paid in
excess of the interest allowed by the usury laws" means the whole usurious
interest; that is, in a loan of P1,000, with interest of 20% per annum or P200 for
one year, if the borrower pays said P200, the whole P200 is the usurious interest,
not just that part thereof in excess of the interest allowed by law. It is in this case
that the law does not allow division. The whole stipulation as to interest is void,
since payment of said interest is illegal. The only change effected, therefore, by
Article 1413, New Civil Code, is not to provide for the recovery of the interest paid
in excess of that allowed by law, which the Usury Law already provided for, but to
add that the same can be recovered "with interest thereon from the date of
payment."
The foregoing interpretation is reached with the philosophy of usury legislation
in mind; to discourage stipulations on usurious interest, said stipulations are
treated as wholly void, so that the loan becomes one without stipulation as to
payment of interest. It should not, however, be interpreted to mean forfeiture
even of the principal, for this would unjustly enrich the borrower at the expense
of the lender. Furthermore, penal sanctions are available against a usurious
lender, as a further deterrence to usury.
The principal debt remaining without stipulation for payment of interest can thus
be recovered by judicial action. And in case of such demand, and the debtor incurs
in delay, the debt earns interest from the date of the demand (in this case from
the filing of the complaint). Such interest is not due to stipulation, for there was
none, the same being void. Rather, it is due to the general provision of law that in
obligations to pay money, where the debtor incurs in delay, he has to pay interest
by way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err
in ordering defendants to pay the principal debt with interest thereon at the legal
rate, from the date of filing of the complaint.
In answer to the contention that the forfeiture of the principal of the usurious loan is
necessary to punish the usurer, We say this: Under the Usury Law there is already provision
for adequate punishment for the usurer namely, criminal prosecution where, if convicted, he
may be sentence to pay a fine of not less than P50 nor more than P500, or imprisonment of
not less than 30 days nor more than one year, or both, in the discretion of the court. He may
further be sentenced to return the entire sum received as interest, with subsidiary
imprisonment in case of non-payment thereof. lt is, of course, to be assumed that this last
penalty may be imposed only if the return of the entire sum received as interest had not yet
been the subject of judgment in a civil action involving the usurious contract of load.

In arriving at the above conclusion We also considered our decision in Mulet vs. The People
of the Philippines (73 Phil. p. 60), but found that the same does not apply to the present case.
The facts therein involved were as follows:
On July 25, 1929, Alejandra Rubillos and Espectacion Rubillos secured from
petitioner Miguel Mulet a loan of P550, payable within 5 years at 30 per cent
interest per annum. In the deed of mortgage executed by the Rubillos as a
security; the sum of P1,375 was made to appear as the capital of the loan. This
amount obviously represented the actual loan of P550 and the total interest of
P825 computed at 30 per cent per annum for 5 years. Within four years of
following the execution of the mortgage, the debtors made partial payments
aggregating P278.27, on account of interest. Thereafter, the debtors paid the
whole capital of P550, due to petitioner's promise to condone the unpaid interest
upon payment of such capital. But to their surprise, petitioner informed them that
they were still indebted in the sum of P546.73 which represented the balance of
the usurious interest. And in consideration of this amount, petitioner pressed
upon the debtors to execute in October, 1933, in his favor, a deed of sale
with pacto de retro of a parcel of land, in substitution of the original mortgage
which was cancelled. From the date of the execution of the new deed up to 1936,
petitioner received, as his share of the products of the land, the total sum of P480.
Prosecuted on November 18, 1936, for the violation of the Usury Law, petitioner
was convicted by the trial court, and on appeal, the judgment was affirmed by the
Court of Appeals. The instant petition for certiorari is directed at that portion of
the decision of the appellate court ordering petitioner to return to the offended
parties the sum of P373.27, representing interests received by him in excess of
that allowed by law.
It was Mulet's claim that, as the amount of P373.27 had been paid more than two years prior
to the filing of the complaint for usury against him, its return could no longer be ordered in
accordance with the prescriptive period provided therefor in Section 6 of the Usury Law. Said
amount was made up of the usurious interest amounting to P278.27 paid to Mulet, in cash,
and the sum of P480.00 paid to him in kind, from the total of which two amounts 14% interest
allowed by law amounting to P385.85 was deducted. Our decision was that Mulet should
return the amount of P480.00 which represented the value of the produce of the land sold to
him under pacto de retrowhich, with the unpaid balance of the usurious interest, was the
consideration of the transaction meaning thepacto de retro sale. This Court then said:
... . This last amount is not usurious interest on the capital of the loan but the
value of the produce of the land sold to petitioner under pacto de retro with the
unpaid balance of the usurious interest (P546.73) as the consideration of the
transaction. This consideration, because contrary to law, is illicit, and the contract
which results therefrom, null and void. (Art. 1275, Civil Code). And, under the
provisions of article 1305, in connection with article 1303, of the Civil Code, when
the nullity of a contract arises from the illegality of the consideration which in
itself constitutes a felony, the guilty party shall be subject to criminal proceeding
while the innocent party may recover whatever he has given, including the fruits
thereof. (emphasis supplied).

It is clear, therefore, that in the Mulet case, the principal of the obligation had been fully paid
by the debtor to the creditor; that the latter was not sentenced to pay it back to the former,
and that what this Court declared recoverable by the debtor were only the usurious interest
paid as well as the fruits of the property sold underpacto de retro.
IN VIEW OF THE FOREGOING, the decision, appealed from is modified in the sense that
appellee may recover from appellant the principal of the loan (P1,180.00) only, with interest
thereon at the legal rate of 6% per annum from the date of the filing of the complaint. With
costs.
G.R. No. L-32644

October 4, 1930

CU
UNJIENG
E
HIJOS,
vs.
THE
MABALACAT
SUGAR
CO.,
ET
THE MABALACAT SUGAR CO., appellant.
Romeo
Mercado
for
Araneta
and
Zaragoza
for
Duran and Lim for defendant-appellee Siuliong and Co.

plaintiff-appelle,
AL.,

defendants.

appellant.
plaintiff-appellee.

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 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.
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.
G.R. No. 72283 December 12, 1986
PILAR
DEVELOPMENT
CORPORATION,
petitioner,
vs.
INTERMEDIATE APPELLATE COURT, KINGSWOOD TRADING CO., INC., and
CONSTRUCTION
AND
DEVELOPMENT
CORPORATION
OF
THE
PHILIPPINES, respondents.
Balgos & Perez Law Office for petitioner.
Alfredo A;asco for respondent CDCP.
Miguel S. Vasquez for respondent Kingswood Trading Co., Inc.

PARAS, J.:
This is a Petition for Review to reverse and set aside the
1. Decision promulgated July 9, 1985 rendered by the respondent, Intermediate Appellate
Court, (IAC) in AC-G.R. No. 69321, and

2. Resolution dated September 16, 1985 issued in said case by respondent, IAC, denying the
motion for reconsideration filed by plaintiff-appellant (petitioner herein) for lack of merit;
on the ground that said respondent IAC committed errors of law in its failure to draw the
correct conclusion from its undisputed factual findings.
The pertinent facts giving rise to the instant petition are as follows:
Petitioner Pilar Development is a corporation engaged in the business of residential housing
and subdivision development. On October 26, 1976 petitioner flied before the Court of First
Instance of Manila, now Regional Trial Court (RTC) a complaint against private respondent
Kingswood Trading Co. Inc. (KINGSWOOD, for short) for recovery of actual and
compensatory damages in the sum of P101,921.10 alleging that KINGSWOOD delivered to
the petitioner 3,000 bags of defective cement, which caused the petitioner not only to stop
operation at its batching plant for the manufacture of concrete mix from September 3, to
September 14, 1976 but also to stop the construction of its development projects. Petitioner
had to demolish all existing constructions built or affected with the defective cement
including those cement delivered by other suppliers, resulting in the delay in the completion
of the projects of the petitioner. Respondent in its answer denied liability claiming that it is
not a manufacturer but only a dealer or distributor of cement. Respondent proceeded to file
a third-party complaint against Construction and Development Corporation of the
Philippines (CDCP) alleging that the latter was the manufacturer of the 3,000 bags of
allegedly defective cement delivered to the petitioner. Third party defendant CDCP filed its
Answer, alleging among other things that cement manufactured by it had passed rigid
standard quality control before delivery and distribution to its cement dealers and therefore
not defective.
On January 7, 1981, the trial court rendered its judgment dismissing the complaint, the thirdparty complaint and the counterclaims, with costs against the plaintiff. This decision was
appealed by the plaintiff (petitioner herein) to the Court of Appeals (now the respondent
IAC).<re||an1w> The Appellate Court affirmed the decision of the lower court with costs
against plaintiff-appellant. Petitioner filed a motion for reconsideration which was denied for
lack of merit. From this decision, petitioner now comes to Us for Review, alleging that the
respondent IAC committed errors of law in that it drew the wrong conclusions from
the undisputed facts as found by it (IAC) in its decision, (p. 9, Petition for Review, dated
November 11, 1985) (emphasis supplied), reproduced herein as follows:
The plaintiff-appellant, through its purchasing agent, the Tai-Pan Traders, Inc.,
purchased on credit from the defendant-appellant 3,000 bags of cement in bulk
with a total value of P42,000.00 to be utilized in the manufacture of concrete mix
for use by it in its residential subdivisions. The defendant-appellee delivered the
cement in bulk C.O.D. which was discharged in the silo of the plaintiff-appellant's
hatching plant at Talon, Las Pi;as, Rizal Thereafter, the cement delivered by
defendant-appellee was used in the manufacture of ready-mix concrete which was
delivered to the land development and housing projects of plaintiff-appellant at
Pilar Village Las Pi;as, Metro Manila for the construction of the roads and the
footings for the residential houses therein Upon removal of the forms twenty-four

hours later, however, the concrete-mix was still soft and cracks had developed.
Plaintiff-appellant's project engineer caused an analysis and examination of
samples of said concrete-mix in the presence of the defendant-appellee's
representative to determine the cause of delay in setting of the mix and the cracks.
He found that the defect was due to the poor quality of the cement delivered by
defendant-appellee. He then had the cement examined by an expert. The
examination conducted by the Quality Control Laboratory of the Philippine Rock
Products revealed that the cement used had low mortar strength and low S03
content. As a consequence, the construction where the defective cement was
placed had to be demolished and replaced. Accordingly, plaintiff filed an action
against defendant-appellee for damages in the total sum of P101,921.00. The
defendant-appellee in turn filed a third-party complaint against the Construction
Development Corporation of the Philippines alleging that the latter is solely
responsible for the bulk of cement delivered and sold to plaintiff-appellant; the
defendant-appellee being only a distributor and dealer of the cement produced
and manufactured by third-party defendant.
After trial on the merits, the court below found that the plaintiff was not able to
establish that the defective concrete mix used in the Pilar Village Constructions
was caused by the cement (Midland Cement) delivered by the defendant.
According to the court, since not a single witness testified that he had personal
knowledge of the use of the questioned cement in the manufacture of the concrete
mix, plaintiff's evidence falls short of the quantum of evidence required to prove
his cause of action. Moreover, the court below ruled that there was a probability
that the defective concrete mix was not caused by the questioned cement but by a
different kind of cement since at about 2:00 p.m on the same day that the cement
(Midland Cement) was delivered, another brand of cement (Island Cement), was
delivered and discharged in bulk to plaintiff's hatching plant.
As a consequence of the court a quo's decision, plaintiff appealed to this Court,
interposing the following assignment of errors:
I
THE TRIAL COURT ERRED WHEN IT FOUND THAT CEMENT-DELIVERIES
MADE BY THE DEFENDANT-APPELLEE TO APPELLANT WERE NOT
DEFECTIVE.
II
THE TRIAL COURT ERRED WHEN IT DID NOT ORDER THE REPLACEMENT
OF THE 809 BAGS OF MIDLAND CEMENT.
III
THE TRIAL COURT ERRED WHEN IT DISMISSED THE COMPLAINT WITH
COSTS AGAINST THE APPELLANT. (Appellant's Brief, p. 1)

The evidence for the plaintfff shows that the two silos of its batching plant were
empty prior to the cement deliveries made by the defendant-appellee, and that
when the deliveries were made, Midland Cement filed the two silos. Thus, the
plaintiff argued that it was not possible that such cement could have been mixed
with other cement. Likewise, the plaintiff's evidence shows that Midland Cement
was the cement brand used during the morning deliveries, and that test made on
samples of Midland Cement conducted by plaintiff and Phil. Rock Products reveal
that the same was defective in that it had a low mortar strength and low
trisulphate oxide content.
On the part of the third-party defendant, its evidence shows that it conducted its
own laboratory test on the same cement and found that it was good cement.
Furthermore, it was able to show that the unused Midland Cement-809 bags of
them, returned to it by plaintiff was resold to other customers and the latter did
not complain of the poor or defective quality of said item. It is also not disputed
that when plaintiff conducted the test on samples of Midland Cement, third-party
defendant was not duly represented. (pp. 21-22, Record, pp. 2-3, Decision of IAC)
Supported by the aforegoing findings of facts, the respondent court made the following
rulings:
We are at loss to determine which position is correct. Under the circumstances,
we are constrained to decide the issue under the rule of burden of proof.
Where the evidence on an issue of fact is in equipoise or there is any
doubt on which the evidence preponderates the party having the
burden of proof falls upon that issue, that is to say, if the evidence
touching a disputed fact is equally balanced, or if it does not produce
a just, rational belief of its existence, or if it leaves the mind in a state
of perplexity the party holding the affirmative as to such fact must fail
(23 C.J., 11-12).
When the scale should stand upon an equipose and there is nothing in the
evidence which shall incline it to one side or the other, the court will find for
defendant. (III Moran 562)
The burden of proof in the present case, in so far as plaintiff's cause of action is
concerned, lies on the plaintfff just as it also is on the defendant, in so far as the
latter's counterclaim is concerned. The alleged defect of the cement delivered to
plaintiff must be shown by preponderance of evidence. Taking into consideration
the evidence submitted by the parties, we hold that no such preponderance has
been established by plaintiff.
With respect to the contention of the plaintiff that 809 bags of Midland Cement
should be returned to it, we note that the trial court ordered the return of the sum
of P11,326.00, the invoice value thereof. Under the circumstances, we find this

the most equitable remedy considering that it was plaintiff which actually
returned the 809 bags to the defendant-appellee.
WHEREFORE, premises considered, the decision of the lower court is hereby
AFFIRMED, with costs against plaintiff-appellant.
SO
(p. 4, Decision of IAC)

ORDERED.

The main issue before Us is whether or not we should consider as a question of law the issue
raised in the petition.
By its own admission, petitioner accepts the factual findings of the respondent Appellate
Court as correct and undisputed (p. 5, Petition dated November 11, 1985). It has been held
that:
When the facts are undisputed, the question of whether or not the conclusion
drawn therefrom by the Court of Appeals is correct, is a question of law cognizable
by the Supreme Court (Comments on the Rules of Court, Moran 1979 Edition,
Vol. II, p. 474 citing the case of Commissioner of Immigration vs. Garcia, L28082, June 28, 1974).
However, all doubts as to the correctness of such conclusions will be resolved in favor of the
Court of Appeals (Id.), citing the case of Luna v. Linatoc, 74 Phil. 15.
Furthermore, it can be seen from the records of the case that petitioner's contention raises
more of a question of fact than a question of law. The criterion is this: "There is a question of
law in a given case when the doubt or difference arises as to what the law is on a certain state
of facts and there is a question of fact when the doubt or difference arises as to the truth or
the falsehood of alleged facts" (Comments on the Rules of Court, Moran 1979 Edition, Vol. II,
p. 473 citing the case of Ramos v. Pepsi-Cola Bottling Co. of the Phil., 19 SCRA 289,
292).<re||an1w> The law creating the Court of Appeals is intended mainly to take away
from the Supreme Court the work of examining the evidence, and confine its task to the
determination of questions which do not call for the reading and study of transcripts,
containing the testimony of witnesses. (Id., citing the case of Sta. Ana v. Hernandez, 18 SCRA
973, 978).
After a thorough consideration of the evidence and records of the case, We find no compelling
reason to disagree with the findings and conclusions of the respondent court.
WHEREFORE, PREMISES CONSIDERED, the Petition for Review is denied for lack of merit,
but the private respondent is hereby ordered to return the invoice value (P11,326) of the 809
bags of cement which were returned to it by the petitioner.
SO ORDERED.

[G.R. No. 135046. August 17, 1999]

SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners, vs. PILAR

DEVELOPMENT CORPORATION, respondent.
DECISION
PUNO, J.:
This petition for review seeks to reverse and set aside the Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 51363[1] which reversed the Decision of the Regional Trial
Court, Makati, Branch 138 in Civil Case No. 17702.[2]
The following facts are uncontroverted.
In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in
Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained from
the Apex Mortgage & Loan Corporation (Apex) a loan in the amount of P100,180.00. They
executed a promissory note on December 22, 1978 obligating themselves, jointly and
severally, to pay the "principal sum of P100,180.00 with interest rate of 12% and service
charge of 3%" for a period of 240 months, or twenty years, from date, in monthly installments
of P1,378.83.[3] Late payments were to be charged a penalty of one and one-half per cent (1
1/2%) of the amount due. In the same promissory note, petitioners authorized Apex to
"increase the rate of interest and/or service charges" without notice to them in the event that
a law, Presidential Decree or any Central Bank regulation should be enacted increasing the
lawful rate of interest and service charges on the loan.[4] Payment of the promissory note was
secured by a second mortgage on the house and lot purchased by petitioners. [5]
Petitioner spouses failed to pay several installments. On September 20, 1982, they
executed another promissory note in favor of Apex. This note was in the amount of
P142,326.43 at the increased interest rate of twenty-one per cent (21%) per annum with no
provision for service charge but with penalty charge of 1 1/2% for late payments. Payment
was to be made for a period of 196 months or 16.33 years in monthly installments of
P2,576.68, inclusive of principal and interest. Petitioner spouses also authorized Apex to
"increase/decrease the rate of interest and/or service charges" on the note in the event any
law or Central Bank regulation shall be passed increasing or decreasing the same. [6]
In November 1983, petitioner spouses again failed to pay the installments. On June 6,
1984, Apex assigned the second promissory note to respondent Pilar Development
Corporation without notice to petitioners.
On August 31, 1987, respondent corporation, as successor-in-interest of Apex, instituted
against petitioner spouses Civil Case No. 17702 before the Regional Trial Court, Makati,
Branch 138. Respondent corporation sought to collect from petitioners the amount of
P140,515.11 representing the unpaid balance of the principal debt from November 23, 1983,
including interest at the rate of twenty-one per cent (21%) under the second promissory note,
and 25% and 36% per annum in accordance with Central Bank Circular No. 905, series of
1982. Respondent also sought payment of ten per cent (10%) of the amount due as attorney's
fees.[7]
In their answer, petitioner spouses mainly contended that the terms of the second
promissory note increasing the interest rate to 21% and the escalation clauses authorizing

Apex to increase interest rates pursuant to any law or Central Bank regulation are null and
void in the absence of a de-escalation clause in the same note.[8]
After pre-trial, both parties submitted the case for decision on the sole issue of the interest
rate.
The trial court rendered judgment on September 22, 1995. It ordered petitioner spouses
to pay respondent corporation the sum of P140,515.11, with interest at the rate of 12% per
annum, plus service charge, viz:
"WHEREFORE, judgment is hereby rendered as follows:
(a) Plaintiff is entitled to collect from the defendants the amount of P140,515.11 with interest
at the rate of 12% per annum from November 23, 1983 until the amount is fully paid plus the
stipulated service charge;
(b) Ordering defendants as joint and several obligors to pay plaintiff the amount stated in
paragraph (a) hereof;
(c) Counterclaim is hereby dismissed.
No pronouncement as to costs.
SO ORDERED."[9]
Both parties appealed to the Court of Appeals. In a Decision dated May 14, 1998, the
appellate court reversed the trial court by applying the interest rate of 21% per annum, and
adding attorney's fees of 10%. Thus:
"IN VIEW OF ALL THE FOREGOING, the appealed judgment is hereby REVERSED and SET
ASIDE and a new one entered ordering the defendants to pay the plaintiffs the amount of
P142,326.43, as principal with interest at the rate of 21% from November 23, 1983 until the
amount is fully paid; the sum equivalent to 10% of the amount due as attorney's fees and the
costs of this suit.
SO ORDERED." [10]
Petitioner spouses moved for reconsideration. In a Resolution dated August 18, 1998, the
Court of Appeals denied the motion but reduced the principal amount of the obligation from
P142,326.42 to P140,515.11.[11]
Hence this recourse.
Petitioner spouses claim that the Court of Appeals erred:
I
IN RULING THAT THE TWO (2) PROMISSORY NOTES EXECUTED BY THE PARTIES
ARE INDEPENDENT OF EACH OTHER.

CONVERSELY, IN NOT RULING THAT THE SAID PROMISSORY NOTES CONSTITUTE A

SINGLE-LOAN TRANSACTION.
II
IN RULING THAT THE APPLICABLE RATE OF INTEREST IS 21% PER ANNUM AS
STIPULATED IN THE SECOND PROMISSORY NOTE.
CONVERSELY, IN NOT RULING THAT THE ESCALATION OF INTEREST RATE FROM
12% PER ANNUM (1ST PROMISSORY NOTE) TO 21% PER ANNUM (2ND PROMISSORY
NOTE) IS UNLAWFUL.
III
IN RULING THAT 10% OF THE AMOUNT DUE IS AWARDABLE AS ATTORNEY'S FEES.
CONVERSELY, IN NOT RULING THAT THE AWARD OF 10% ATTORNEY'S FEES IS NOT
PROPER UNDER THE CIRCUMSTANCES.
IV
IN RULING THAT NOTICE OF ASSIGNMENT OF CREDIT IS "POINTLESS AND
UNSUSTAINABLE."
CONVERSELY, IN NOT RULING THAT NOTICE TO THE DEBTOR IS REQUIRED WHEN
CREDIT IS ASSIGNED.
V
IN NOT RULING THAT UNDER THE CIRCUMSTANCES PETITIONERS ARE ENTITLED
TO MORAL AND EXEMPLARY DAMAGES.[12]
The controversy in this petition involves the rate of interest respondent creditor is entitled
to collect on petitioners' loan: whether it be 12% under the promissory note of December 22,
1978, or 21% under the promissory note of September 20, 1982.
Petitioners claim that the interest rate of 12% per annum should be adjudged inasmuch
as the two promissory notes constitute one transaction. Allegedly, the first note defined the
terms and conditions of the loan while the second note is merely an extension of and derives
its existence from the former. Hence, the second note is governed by the stipulations in the
first note.[13]
The two promissory notes are identically entitled "Promissory Note with Authority to
Assign Credit." The notes were prepared by Apex in standard form and consist of two (2)
pages each.Except for one or two stipulations, they contain the same provisions and the same
blanks for the amount of the loan and other pertinent data subject of each note. However, on
the upper right portion of the second note, there appears a typewritten entry which reads:
"This cancels PN # A-387-78 dated December 22, 1978."[14]

Correspondingly, on the face of each page of the first promissory note, i.e., PN No. A-387-78
dated December 22, 1978, the word "Cancelled" is boldly stamped twice with the date
"September 16, 1982" and a signature written in a space inside the letters of the word.[15]
The first promissory note was cancelled by the express terms of the second promissory
note. To cancel is to strike out, to revoke, rescind or abandon, to terminate.[16] In fine, the first
note was revoked and terminated. Simply put, it was novated. The extinguishment of an
obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first is a novation.[17] Novation is made either by changing the
object or principal conditions, referred to as an objective or real novation; or by substituting
the person of the debtor or subrogating a third person to the rights of the creditor, which is
known as subjective or personal novation.[18] In both objective and subjective novation, a dual
purpose is achieved-- an obligation is extinguished and a new one is created in lieu
thereof.[19] Novation may either be express, when the new obligation declares in unequivocal
terms that the old obligation is extinguished; or implied, when the new obligation is on every
point incompatible with the old one.[20] Express novation takes place when the contracting
parties expressly disclose that their object in making the new contract is to extinguish the old
contract, otherwise the old contract remains in force and the new contract is merely added to
it, and each gives rise to an obligation still in force.[21]
Novation has four (4) essential requisites: (1) the existence of a previous valid obligation;
(2) the agreement of all parties to the new contract; (3) the extinguishment of the old contract;
and (4) the validity of the new one.[22] In the instant case, all four requisites have been
complied with. The first promissory note was a valid and subsisting contract when petitioner
spouses and Apex executed the second promissory note. The second promissory note
absorbed the unpaid principal and interest of P142,326.43 in the first note which amount
became the principal debt therein, payable at a higher interest rate of 21% per annum. Thus,
the terms of the second promissory note provided for a higher principal, a higher interest
rate, and a higher monthly amortization, all to be paid within a shorter period of 16.33
years. These changes are substantial and constitute the principal conditions of the
obligation.[23] Both parties voluntarily accepted the terms of the second note; and also in the
same note, they unequivocally stipulated to extinguish the first note. Clearly, there
was animus novandi, an express intention to novate.[24] The first promissory note was
cancelled and replaced by the second note. This second note became the new contract
governing the parties' obligations.
In their second assigned error, petitioners contend that in the second promissory note,
the escalation of the interest rate from 12% to 21% per annum is unlawful and cannot be
imposed for failure of the escalation provisions to include valid de-escalation clauses. In the
absence of de-escalation clauses, the Court of Appeals allegedly erred in applying Central
Bank Circulars Nos. 705, 712 and 905 issued by the Monetary Board of the Central Bank of
the Philippines.[25]
At the time the parties executed the first promissory note in 1978, the interest of 12% was
the maximum rate fixed by the Usury Law for loans secured by a mortgage upon registered
real estate.[26] On December 1, 1979, the Monetary Board of the Central Bank of the
Philippines[27] issued Circular No. 705 which fixed the effective rate of interest on loan
transactions with maturities of more than 730 days to twenty-one per cent (21%) per annum
for both secured and unsecured loans.[28] On January 28, 1980, The Monetary Board issued

Circular No. 712 reiterating the effective interest rate of 21% on said loan transactions.[29] On
January 1, 1983, CB Circular No. 905, series of 1982, took effect. This Circular declared that
the rate of interest on any loan or forbearance of any money, goods or credits, regardless of
maturity and whether secured or unsecured, "shall not be subject to any ceiling prescribed
under or pursuant to the Usury Law, as amended."[30] In short, Circular No. 905 removed the
ceiling on interest rates for secured and unsecured loans, regardless of maturity. [31]
When the second promissory note was executed on September 20, 1982, Central Bank
Circulars Nos. 705 and 712 were already in effect. These Circulars fixed the effective interest
rate for secured loan transactions with maturities of more than 730 days, i.e, two (2) years, at
21% per annum. The interest rate of 21% provided in the second promissory note was
therefore authorized under these Circulars.
The question of whether the escalation clauses in the second promissory note are valid is
irrelevant. Respondent corporation has signified that it is collecting petitioners' debt only at
the fixed interest rate of 21% per annum, as expressly agreed upon in the second promissory
note, not at the escalated rates authorized under the escalation clauses.[32] The Court of
Appeals therefore did not err in applying the interest rate of 21% to petitioner's loan under
the second promissory note.
Neither did the Court of Appeals err in imposing attorney's fees of ten per cent (10%) on
the amount due. The award of attorney's fees is expressly stipulated in the fourth paragraph
of the promissory note itself, viz:
"In case of non-payment of the amount of this note or any portion of it on demand when given
due, or any other amount/s due on account of this note, the entire obligation shall become
due and demandable, and if for the enforcement of the payment thereof, APEX MORTGAGE
AND LOANS CORP. is constrained to entrust the case to its attorneys, I/We, jointly and
severally, bind myself/ourselves to pay TEN (10%) per cent on the amount due on the note as
attorney's fees, such amount in no case to be less than FIVE HUNDRED (P500.00) PESOS
in addition to the legal fees and other incidental expenses."[33]
Petitioners' lack of bad faith in resisting imposition of the increased interest rate cannot
serve to mitigate their liability for liquidated damages. Petitioner Florante Bautista is a lawyer
and he should have been aware of the effects of the stipulations in the second promissory note
and the pertinent CB Circulars on his obligation. At the same time, there is no showing that
the amount of liquidated damages is iniquitous and unconscionable for this court to equitably
reduce the same.[34]
Finally, the fact that petitioners were not notified of the assignment of their credit by Apex
to herein respondent corporation is not material. In the eighth paragraph of the second
promissory note, petitioners expressly waived notice to any assignment of credit, viz:
"It is understood that APEX MORTGAGE AND LOANS CORPORATION has the right to
assign this promissory note, or make use of it as collateral in favor of any third person
whomsoever and this will constitute as an authority therefore waiver of notice of such action
taken [sic]."[35]

The purpose of the notice is only to inform the debtor that from the date of the assignment,
payment should be made to the assignee and not to the original creditor. [36]
IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 51363 are affirmed.
SO ORDERED.
G.R. No. L-30771 May 28, 1984
LIAM
LAW,
plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.
Felizardo S.M. de Guzman for plaintiff-appellee.
Mariano M. de Joya for defendants-appellants.

MELENCIO-HERRERA, J.:
This is an appeal by defendants from a Decision rendered by the then Court of First Instance
of Bulacan. The appeal was originally taken to the then Court of Appeals, which endorsed it
to this instance stating that the issue involved was one of law.
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without interest,
to defendant partnership and defendant Elino Lee Chi, as the managing partner. The loan
became ultimately due on January 31, 1960, but was not paid on that date, with the debtors
asking for an extension of three months, or up to April 30, 1960.
On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00
was extended to April 30, 1960, but the obligation was increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall
form part of the principal obligation to answer for attorney's fees, legal interest,
and other cost incident thereto to be paid unto the creditor and his successors in
interest upon the termination of this agreement.
Defendants again failed to pay their obligation by April 30, 1960 and, on September 23, 1960,
plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal
obligation, but claimed that the additional P6,000.00 constituted usurious interest.
Upon application of plaintiff, the Trial Court issued, on the same date of September 23, 1960,
a writ of Attachment on real and personal properties of defendants located at Karanglan,
Nueva Ecija. After the Writ of Attachment was implemented, proceedings before the Trial
Court versed principally in regards to the attachment.

On January 18, 1961, an Order was issued by the Trial Court stating that "after considering
the manifestation of both counsel in Chambers, the Court hereby allows both parties to
simultaneously submit a Motion for Summary Judgment. 1 The plaintiff filed his Motion for
Summary Judgment on January 31, 1961, while defendants filed theirs on February 2, 196l. 2
On June 26, 1961, the Trial Court rendered decision ordering defendants to pay plaintiff "the
amount of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . .
with legal rate of interest on both amounts from April 30, 1960." It is from this judgment that
defendants have appealed.
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the
P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor proves the
contrary". No evidentiary hearing having been held, it has to be concluded that defendants
had not proven that the P6,000.00 obligation was illegal. Confirming the Trial Court's
finding, we view the P6,000.00 obligation as liquidated damages suffered by plaintiff, as of
March 17, 1960, representing loss of interest income, attorney's fees and incidentals.
The main thrust of defendants' appeal is the allegation in their Answer that the P6,000.00
constituted usurious interest. They insist the claim of usury should have been deemed
admitted by plaintiff as it was "not denied specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation sued shall file its answer in writing under oath
to any complaint brought or filed against said person or corporation before a
competent court to recover the money or other personal or real property, seeds
or agricultural products, charged or received in violation of the provisions of this
Act. The lack of taking an oath to an answer to a complaint will mean the
admission of the facts contained in the latter.
The foregoing provision envisages a complaint filed against an entity which has committed
usury, for the recovery of the usurious interest paid. In that case, if the entity sued shall not
file its answer under oath denying the allegation of usury, the defendant shall be deemed to
have admitted the usury. The provision does not apply to a case, as in the present, where it is
the defendant, not the plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been legally non-existent. Interest can now be
charged as lender and borrower may agree upon. 4 The Rules of Court in regards to allegations
of usury, procedural in nature, should be considered repealed with retroactive effect.
Statutes regulating the procedure of the courts will be construed as applicable to
actions pending and undetermined at the time of their passage. Procedural laws
are retrospective in that sense and to that extent. 5

... Section 24(d), Republic Act No. 876, known as the Arbitration Law, which took
effect on 19 December 1953, and may be retroactively applied to the case at bar
because it is procedural in nature. ... 6
WHEREFORE, the appealed judgment is hereby affirmed, without pronouncement as to
costs.
SO ORDERED.
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the
decision of the Insurance Commissioner which dismissed the petitioners' complaint against
respondent Philippine American Life Insurance Company for the recovery of the proceeds
from their late father's policy. The facts of the case as found by the Court of Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner dismissing
herein petitioners' complaint against respondent Philippine American Life
Insurance Company for the recovery of the proceeds of Policy No. 1082467 in the
amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for
life insurance in the amount of P 80,000.00 with respondent company. Said
application was approved and Policy No. 1082467 was issued effective November
6,1973, with petitioners the beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then
filed with respondent company their claim for the proceeds of the life insurance
policy. However, in a letter dated September 11, 1975, respondent company
denied petitioners' claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts made by the deceased Tan
Lee Siong in his application for insurance (Exhibit 3). The premiums paid on the
policy were thereupon refunded .

Alleging that respondent company's refusal to pay them the proceeds of the policy
was unjustified and unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's
decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the
right to rescind the policy contract when insured is already dead is not in
accordance with existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be
allowed to avoid the policy on grounds of concealment by the deceased assured,
is contrary to the provisions of the policy contract itself, as well as, of applicable
legal provisions and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled in
issuing the policy are manifestly mistaken and contrary to admitted evidence.
(Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind the
contract of insurance as rescission must allegedly be done during the lifetime of the insured
within two years and prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised previous to
the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the fraudulent concealment
or misrepresentation of the insured or his agent.

According to the petitioners, the Insurance Law was amended and the second paragraph of
Section 48 added to prevent the insurance company from exercising a right to rescind after
the death of the insured.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's
lifetime. The phrase "during the lifetime" found in Section 48 simply means that the policy is
no longer considered in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on April 26,1975.
The policy was thus in force for a period of only one year and five months.
Considering that the insured died before the two-year period had lapsed,
respondent company is not, therefore, barred from proving that the policy is
void ab initio by reason of the insured's fraudulent concealment or
misrepresentation. Moreover, respondent company rescinded the contract of
insurance and refunded the premiums paid on September 11, 1975, previous to
the commencement of this action on November 27,1975. (Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or misrepresentation by
their late father because Tan Lee Siong did not have to buy insurance. He was only pressured
by insistent salesmen to do so. The petitioners state:
Here then is a case of an assured whose application was submitted because of
repeated visits and solicitations by the insurer's agent. Assured did not knock at
the door of the insurer to buy insurance. He was the object of solicitations and
visits.
Assured was a man of means. He could have obtained a bigger insurance, not just
P 80,000.00. If his purpose were to misrepresent and to conceal his ailments in
anticipation of death during the two-year period, he certainly could have gotten a
bigger insurance. He did not.
Insurer Philamlife could have presented as witness its Medical Examiner Dr.
Urbano Guinto. It was he who accomplished the application, Part II, medical.
Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and
practice indulged in by agents in selling insurance. At one time or another most
of us have been subjected to that pressure, that practice. This court took judicial
cognizance of the whirlwind pressure of insurance selling-especially of the agent's
practice of 'supplying the information, preparing and answering the
application, submitting the application to their companies, concluding the
transactions and otherwisesmoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil.
201; at page 205:
It is of common knowledge that the selling of insurance today is subjected to the
whirlwind pressureof modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit and
procure applications.
These agents are to be found all over the length and breadth of the land. They are
stimulated to more active efforts by contests and by the keen competition offered
by the other rival insurance companies.
They supply all the information, prepare and answer the applications, submit
the applications to their companies, conclude the transactions, and otherwise
smooth out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure of
insurance salesmanship was not overwhelming as it is now; when the population
of this country was less than one-fourth of what it is now; when the insurance
companies competing with one another could be counted by the fingers. (pp. 140142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected to the
whirlwind pressure of insurance salesmanship this Court itself has long
denounced, the assured who dies within the two-year period, should stand
charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability
clause" added by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within
such period. After two years, the defenses of concealment or misrepresentation, no matter
how patent or well founded, no longer lie. Congress felt this was a sufficient answer to the
various tactics employed by insurance companies to avoid liability. The petitioners'

interpretation would give rise to the incongruous situation where the beneficiaries of an
insured who dies right after taking out and paying for a life insurance policy, would be allowed
to collect on the policy even if the insured fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that the medical terms were
explained in a layman's language to the insured. They state that the insurer should have
presented its two medical field examiners as witnesses. Moreover, the petitioners allege that
the policy intends that the medical examination must be conducted before its issuance
otherwise the insurer "waives whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by
respondent company to show that the questions appearing in Part II of the
application for insurance were asked, explained to and understood by the
deceased so as to prove concealment on his part. The same is not well taken. The
deceased, by affixing his signature on the application form, affirmed the
correctness of all the entries and answers appearing therein. It is but to be
expected that he, a businessman, would not have affixed his signature on the
application form unless he clearly understood its significance. For, the
presumption is that a person intends the ordinary consequence of his voluntary
act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of
Court].
The evidence for respondent company shows that on September 19,1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of progressive
weight loss and abdominal pain and was diagnosed to be suffering from
hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr.
Wenceslao Vitug, testified that the deceased came to see him on December 14,
1973 for consolation and claimed to have been diabetic for five years. (t.s.n., Aug.
23,1976, p. 5; Exhibit 6) Because of the concealment made by the deceased of his
consultations and treatments for hypertension, diabetes and liver disorders,
respondent company was thus misled into accepting the risk and approving his
application as medically standard (Exhibit 5- C) and dispensing with further
medical investigation and examination (Exhibit 5-A). For as long as no adverse
medical history is revealed in the application form, an applicant for insurance is
presumed to be healthy and physically fit and no further medical investigation or
examination is conducted by respondent company. (t.s.n., April 8,1976, pp. 6-8).
(Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion"
rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts of money are collected
from ignorant persons by companies and associations which adopt high sounding
titles and print the amount of benefits they agree to pay in large black-faced type,

following such undertakings by fine print conditions which destroy the substance
of the promise. All provisions, conditions, or exceptions which in any way tend to
work a forfeiture of the policy should be construed most strongly against those
for whose benefit they are inserted, and most favorably toward those against
whom they are meant to operate. (Trinidad v. Orient Protective Assurance Assn.,
67 Phil. 184)
There is no showing that the questions in the application form for insurance regarding the
insured's medical history are in smaller print than the rest of the printed form or that they
are designed in such a way as to conceal from the applicant their importance. If a warning in
bold red letters or a boxed warning similar to that required for cigarette advertisements by
the Surgeon General of the United States is necessary, that is for Congress or the Insurance
Commission to provide as protection against high pressure insurance salesmanship. We are
limited in this petition to ascertaining whether or not the respondent Court of Appeals
committed reversible error. It is the petitioners' burden to show that the factual findings of
the respondent court are not based on substantial evidence or that its conclusions are
contrary to applicable law and jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of
the Court of Appeals is AFFIRMED.
SO ORDERED.

[G.R. No. 113926. October 23, 1996]

SECURITY BANK AND TRUST COMPANY, petitioner, vs. REGIONAL TRIAL

COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA
VENTURA, respondents.
DECISION
HERMOSISIMA, JR., J.:
Questions of law which are the first impression are sought to be resolved in this
case: Should the rate of interest on a loan or forbearance of money, goods or credits, as
stipulated in a contract, far in excess of the ceiling prescribed under or pursuant to the Usury
Law, prevail over Section 2 of Central Bank Circular No. 905 which prescribes that the rate of
interest thereof shall continue to be 12% per annum? Do the Courts have the discretion to
arbitrarily override stipulated interest rates of promissory notes and stipulated interest rates
of promissory notes and thereby impose a 12% interest on the loans, in the absence of
evidence justifying the impositions of a higher rate?
This is a petition for review on certiorari for the purpose of assailing the decision of
Honorable Judge Fernando V. Gorospe of the Regional Trial Court of Makati, Branch 61,
dated March 30, 1993, which found private respondent Eusebio liable to petitioner for a sum

of money. Interest was lowered by the court a quo from 23% per annum as agreed upon by
the parties to 12% per annum.
The undisputed facts are as follows:
On April 27, 1983, private respondent Magtanggol Eusebio executed Promissory Note No.
TL/74/178/83 in favor of petitioner Security Bank and Trust Co. (SBTC) in the total amount
of One Hundred Thousand Pesos (P100,000.00) payable in six monthly installments with a
stipulated interest of 23% per annum up to the fifth installments.[1]
On July 28, 1983, respondent Eusebio again executed Promissory note No
TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to pay the sum of One
Hundred Thousand Pesos (P100.000.00) in six (6) monthly installments plus 23% interest
per annum.[2]
Finally, another Promissory Note No. TL74/1491/83 was executed on August 31, 1983 in
the amount of Sixty Five Thousand Pesos (P65,000.00). Respondent agreed to pay this note
in six (6) monthly installments plus interest at the rate of 23% per annum.[3]
On all the abovementioned notes, private respondents Leila Ventura had signed as comaker.[4]
Upon maturity which fell on the different dates below, the principal balance remaining on
the notes stood at:
1) PN No. TL/74/748/83 P16,665.00 as of September 1983.
2) PN No. TL/74/1296/83 P83,333.00 as of August 1983
3) PN No. TL/74/1991/83 P65,000.00 as of August 1983.
Upon the failure and refusal of respondent Eusebio to pay the aforestated balance payable,
a collectible case was filed in court by petitioner SBTC.[5] On March 30, 1993, the court a
quo rendered a judgment in favor of petitioner SBTC, the dispositive portion which reads:
WHEREFORE, premises above-considered, and plaintiffs claim having been duly proven,
judgment is hereby rendered in favor of plaintiff and as against defendant Eusebio who is
hereby ordered to:
1. Pay the sum of P16,665.00, plus interest of 12% per annum starting 27 September 1983,
until fully paid;
2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28 August 1983, until
fully paid;
3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31 August 1983, until
fully paid;
4. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as and by
way of attorneys fees; and to

5. Pay the cost of this suit.

SO ORDERED.[6]
On August 6, 1993, a motion for partial reconsideration was filed by petitioner SBTC
contending that:
(1) the interest rate agreed upon by the parties during the signing of the promissory
notes was 23% per annum;
(2) the interests awarded should be compounded quarterly from due date as provided
in three (3) promissory notes;
(3) defendant Leila Ventura should likewise be held liable to pay the balance on the
promissory notes since she has signed as co-maker and as such, is liable jointly and
severally with defendant Eusebio without a need for demand upon her.[7]
Consequently, an Order was issued by the court a quo denying the motion to grant the
rates of interest beyond 12% per annum; and holding defendant Leila Ventura jointly and
severally liable with co-defendant Eusebio.
Hence, this petition.
The sole issue to be settled in this petition is whether or not the 23% rate of interest per
annum agreed upon by petitioner bank and respondents is allowable and not against the
Usury Law.
We find merit in this petition.
From the examination of the records, it appears that indeed the agreed rate of interest as
stipulated on the three (3) promissory notes is 23% per annum.[8] The applicable provision of
law is the Central Bank Circular No. 905 which took effect on December 22, 1982, particularly
Sections 1 and 2 which state:[9]
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a
loan or forbearance of any money, goods or credits, regardless of maturity and whether
secured or unsecured, that may be charged or collected by any person, whether natural or
judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended.
Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest, shall
continue to be twelve per cent (12%) per annum.
CB Circular 905 was issued by the Central Banks Monetary Board pursuant to P.D. 1684
empowering them to prescribe the maximum rates of interest for loans and certain
forbearances, to wit:
SECTION 1. Section 1-a of Act No. 2655, as amended, is hereby amended to read as follows:
SEC. 1-a The Monetary Board is hereby authorized to prescribed the maximum rate or rates
of interest for the loan or renewal thereof or the forbearance of any money, goods or credits,

and to change such rate or rates whenever warranted by prevailing economic and social
conditions: Provided, That changes in such rates or rates may be effected gradually on
scheduled dates announced in advance.
In the exercise of the authority herein granted, the Monetary Board may prescribed higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well
as such loans made by pawnshops, finance companies and other similar credit institutions
although the rates prescribed for these institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribed different maximum rate or rates for different
types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries.[10]
This court has ruled in the case of Philippine National Bank v. Court of Appeals[11] that:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated.
All the promissory notes were signed in 1983 and, therefore, were already covered by CB
Circular No. 905. Contrary to the claim of respondent court, this circular did not repeal nor
in anyway amend the Usury Law but simply suspended the latters effectivity.
Basic is the rule of statutory construction that when the law is clear and unambiguous, the
court is left with no alternative but to apply the same according to its clear language. As we
have held in the case of Quijano v. Development Bank of the Philippines:[12]
xxx We cannot see any room for interpretation or construction in the clear and unambiguous
language of the above-quoted provision of law. This Court had steadfastly adhered to the
doctrine that its first and fundamental duty is the application of the law according to its
express terms, interpretation being called for only when such literal application is
impossible. No process of interpretation or construction need be resorted to where a
provision of law peremptorily calls for application. Where a requirement or condition is made
in explicit and unambiguous terms, no discretion is left to the judiciary. It must see to it that
its mandate is obeyed.
The rate of interest was agreed upon by the parties freely. Significantly, respondent did
not question that rate. It is not for respondent court a quo to change the stipulations in the
contract where it is not illegal. Furthermore, Article 1306 of the New Civil code provides that
contracting parties may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy. We find no valid reason for the respondent court a quo to impose a 12% rate
of interest on the principal balance owing to petitioner by respondent in the presence of a
valid stipulation. In a loan or forbearance of money, the interest due should be that stipulated
in writing, and in the absence thereof, the rate shall be 12% per annum.[13] Hence, only in the
absence of a stipulation can the court impose the 12% rate of interest.

The promissory notes were signed by both parties voluntarily. Therefore, stipulations
therein are binding between them. Respondent Eusebio, likewise, did not question any of the
stipulations therein. In fact, in the Comment file by respondent Eusebio to this court, he chose
not to question the decision and instead expressed his desire to negotiate with the petitioner
bank for terms within which to settle his obligation.[14]
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo, is hereby
AFFIRMED with the MODIFICATION that the rate of interest that should be imposed be
23% per annum.
SO ORDERED.

[G.R. No. 131622. November 27, 1998]

LETICIA
Y.
MEDEL
DR.
RAFAEL
MEDEL
and
SERVANDO
FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R.
GONZALES and DANILO G. GONZALES, JR., doing lending business under
the
trade
name
and
style
"GONZALES
CREDIT
ENTERPRISES", respondents.
DECISION
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of the
Revised Rules of Court, seeking to set aside the decision of the Court of Appeals, [1] and its
resolution denying reconsideration,[2] the dispositive portion of which decision reads as
follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 23, 1986, until the entire amount is fully paid.
"The award to the plaintiff of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
SO ORDERED."[3]
The Court required the respondents to comment on the petition, [4] which was filed on
April 3, 1998,[5] and the petitioners to reply thereto, which was filed on May 29, 1998. [6] We
now resolve to give due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are considered
binding and conclusive on the parties herein, as the appeal is limited to questions of law, are
as follows:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and
Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in
the money lending business under the name "Gonzales Credit Enterprises", in the amount
of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the
borrowers, as she retained P3,000.00, as advance interest for one month at 6% per
month. Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan,
payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on January 19, 1986. They received
only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the
amount of P300,000.00, maturing in one month, secured by a real estate mortgage over a
property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney
in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia
executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a
month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them out of
the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing their indebtedness to a total
of P500,000.00, payable on August 23, 1986. The executed a promissory note, reading as
follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of
VERONICA R. GONZALES doing business in the business style of GONZALES
CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of
Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND .....
(P500,000.00)
Philippine
Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% servic
e charge per annum from date hereof until fully paid according to the amortization
schedule contained herein. (Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due, all the other
installments together with all interest accrued shall immediately be due and payable
and
I/WE
hereby
agree
to
pay
an additional amount equivalent to one per cent (1%) per month of the amount due a

nd demandable as penalty charges in the form of liquidated damages until fully paid;
and the further sum of TWENTY FIVE PER CENT (25%) thereon in full, without
deductions as Attorney's Fee whether actually incurred or not, of the total amount due
and demandable, exclusive of costs and judicial or extra judicial
expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is increased
by law or the Central Bank of the Philippines, the holder shall have the option to apply
and collect the increased interest charges without notice although the original interest
have already been collected wholly or partially unless the contrary is required by law.
"It is also a special condition of this contract that the parties herein agree that the
amount of peso-obligation under this agreement is based on the present value of peso,
and if there be any change in the value thereof, due to extraordinary inflation or
deflation, or any other cause or reason, then the peso-obligation herein contracted
shall be adjusted in accordance with the value of the peso then prevailing at the time
of the complete fulfillment of obligation.
"Demand and notice of dishonor waived. Holder may accept partial payments and
grant renewals of this note or extension of payments, reserving rights against each and
all indorsers and all parties to this note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors
waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised
Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00,
plus interests and penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales,
filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint
for collection of the full amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant
Servando alleged that he did not obtain any loan from the plaintiffs; that it was defendants
Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and
actually received the amount and benefited therefrom; that the loan was secured by a real
estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel
alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in
favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the
interest rate is excessive at 5.5% per month with additional service charge of 2% per annum,
and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% ofthe
amount due is unconscionable, illegal and excessive, and that substantial payments made
were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the
four promissory notes had been duly proved, and ruled that although the Usury Law had been
repealed, the interest charged by the plaintiffs on the loans was unconscionable and

"revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil]
Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12%
per annum."[7]
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive
portion of which reads as follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay
plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7, 1985
and 1% per month as penalty, until the entire amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and
severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per month
as penalty from November 19,1985 until the whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount
of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11, 1986,
until the whole amount is fully paid;
"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00
as attorney's fees;
"5. All counterclaims are hereby dismissed.
"With costs against the defendants."[8]
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated
all the unpaid loans of the defendants, is the law that governs the parties. They further argued
that Circular No. 416 of the Central Bank prescribing the rate of interest for loans or
forbearance of money, goods or credit at 12% per annum, applies only in the absence of a
stipulation on interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the
Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in
1982 of Circular No. 905, the lender and borrower could agree on any interest that may be
charged on the loan".[9] The Court of Appeals further held that "the imposition of 'an
additional amount equivalent to 1% per month of the amount due and demandable as penalty
charges in the form of liquidated damages until fully paid' was allowed by law". [10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing
that of the Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective July

23, 1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 24, 1986, until the entire amount is fully paid.
"The award to the plaintiffs of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
"SO OREDERED."[11]
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said
decision. By resolution dated November 25, 1997, the Court of Appeals denied the motion. [12]
Hence, defendants interposed the present recourse
on certiorari.[13]

via petition for review

We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the
question presented is whether or not the stipulated rate of interest at 5.5% per month on the
loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In
other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular
No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as
amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.13 However, we
can not consider the rate "usurious" because this Court has consistently held that Circulr No.
905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest
ceilings prescribed by the Usury Law[14] and that the Usury Law is now "legally inexistent".[15]
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61[16] the
Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular
can not repeal a law. Only a law can repeal another law."[17] In the recent case of Florendo vs.
Court of Appeals[18], the Court reiterated the ruling that "by virtue of CB Circular 905, the
Usury Law has been rendered ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon."[19]
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon
by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to
morals ("contra bonos mores"), if not against the law.[20] The stipulation is void.[21] The courts
shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if
they are iniquitous or unconscionable.[22]
Consequently, the Court of Appeals erred in upholding the stipulation of the
parties. Rather, we agree with the trial court that, under the circumstances, interest at 12%
per annum, and an additional 1% a month penalty charge as liquidated damages may be more
reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court
of Appeals promulgated on March 21, 1997, and its resolution dated November 25,
1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated
December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in
Civil Case No. 134-M-90, involving the same parties.

No pronouncement as to costs in this instance

SO ORDERED.
G.R. No. L-48349 December 29, 1986
FRANCISCO
HERRERA,
vs.
PETROPHIL CORPORATION, defendant-appellee.

plaintiff-appellant,

Paterno R. Canlas Law Offices for plaintiff-appellant.

CRUZ, J.:
This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of First
Instance of Rizal on a pure question of law. 1
The judgment appealed from was rendered on the pleadings, the parties having agreed during
the pretrial conference on the factual antecedents.
The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard
Eastern. Inc., (later substituted by Petrophil Corporation) entered into a "Lease Agreement"
whereby the former leased to the latter a portion of his property for a period of twenty (20)
years from said date, subject inter alia to the following conditions:
3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400
sqm. and are to be expropriated later on (sic) or P560 per month and Fl.40 per sqm.
per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month
2,093 sqm. more or less, payable yearly in advance within the 1st twenty days of each
year; provided, a financial aid in the sum of P15,000 to clear the leased premises of
existing improvements thereon is paid in this manner; P10,000 upon execution of this
lease and P5,000 upon delivery of leased premises free and clear of improvements
thereon within 30 days from the date of execution of this agreement. The portion on
the side of the leased premises with an area of 365 sqrm. more or less, will be occupied
by LESSEE without rental during the lifetime of this lease. PROVIDED FINALLY, that
the Lessor is paid 8 years advance rental based on P2,930.70 per month discounted at
12% interest per annum or a total net amount of P130,288.47 before registration of
lease. Leased premises shall be delivered within 30 days after 1st partial payment of
financial aid. 2
On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the
plaintfff-appellant advance rentals for the first eight years, subtracting therefrom the amount
of P101,010.73, the amount it computed as constituting the interest or discount for the first
eight years, in the total sum P180,288.47. On August 20, 1970, the defendant-appellee,
explaining that there had been a mistake in computation, paid to the appellant the additional
sum of P2,182.70, thereby reducing the deducted amount to only P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of
P98,828.03, with interest, claiming this had been illegally deducted from him in violation of
the Usury Law. 4 He also prayed for moral damages and attorney's fees. In its answer, the
defendant-appellee admitted the factual allegations of the complaint but argued that the
amount deducted was not usurious interest but a given to it for paying the rentals in advance
for eight years. 5Judgment on the pleadings was rendered for the defendant. 6
Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court
erred in the computation of the interest collected out of the rentals paid for the first eight
years; that such interest was excessive and violative of the Usury Law; and that he had neither
agreed to nor accepted the defendant-appellant's computation of the total amount to be
deducted for the eight years advance rentals. 7
The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint,
which read:
6. The interest collected by defendant out of the rentals for the first eight years was
excessive and beyond that allowable by law, because the total interest on the said
amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the
interest should be computed excluding the first year rental because at the time the
amount of P281, 199.20 was paid it was already due under the lease contract hence no
interest should be collected from the rental for the first year, the amount of P29,536.42
only as the total interest should have been deducted by defendant from the sum of
P281,299.20.
The defendant maintains that the correct amount of the discount is P98,828.03 and that the
same is not excessive and above that allowed by law.
As its title plainly indicates, the contract between the parties is one of lease and not of loan.
It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any
showing that the parties intended a loan rather than a lease. The provision for the payment
of rentals in advance cannot be construed as a repayment of a loan because there was no grant
or forbearance of money as to constitute an indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging its obligation in advance by paying the eight
years rentals, and it was for this advance payment that it was getting a rebate or discount.
The provision for a discount is not unusual in lease contracts. As to its validity, it is settled
that the parties may establish such stipulations, clauses, terms and condition as they may
want to include; and as long as such agreements are not contrary to law, morals, good
customs, public policy or public order, they shall have the force of law between them. 8
There is no usury in this case because no money was given by the defendant-appellee to the
plaintiff-appellant, nor did it allow him to use its money already in his possession. 9 There
was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed
the defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor

had the right to determine, and any reduction thereof, by any amount, would not contravene
the Usury Law.
The difference between a discount and a loan or forbearance is that the former does not have
to be repaid. The loan or forbearance is subject to repayment and is therefore governed by
the laws on usury. 10
To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to interest
allowed by law." 11
It has been held that the elements of usury are (1) a loan, express or implied; (2) an
understanding between the parties that the money lent shall or may be returned; that for such
loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the
case may be; and (4) a corrupt intent to take more than the legal rate for the use of money
loaned. Unless these four things concur in every transaction, it is safe to affirm that no case
of usury can be declared. 12
Concerning the computation of the deductible discount, the trial court declared:
As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant)
shag pay the lessor (plaintiff) eight (8) years in advance rentals based on P2,930.20 per
month discounted at 12% interest per annum. Thus, the total rental for one-year period
is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom is
P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the
first eight (8) years should be only P33,755.90 (P4,129.4880 multiplied by eight (8)
years and not P98,828.03 as the defendant claimed it to be.
The afore-quoted manner of computation made by plaintiff is patently erroneous. It is
most seriously misleading. He just computed the annual discount to be at P4,129.4880
and then simply multiplied it by eight (8) years. He did not take into consideration the
naked fact that the rentals due on the eight year were paid in advance by seven (7) years,
the rentals due on the seventh year were paid in advance by six (6) years, those due on
the sixth year by five (5) years, those due on the fifth year by four (4) years, those due
on the fourth year by three (3) years, those due on the third year by two (2) years, and
those due on the second year by one (1) year, so much so that the total number of years
by which the annual rental of P4,129.4880 was paid in advance is twenty-eight (28),
resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as the
discount. However, defendant was most fair to plaintiff. It did not simply multiply the
annual rental discount by 28 years. It computed the total discount with the principal
diminishing month to month as shown by Annex 'A' of its memorandum. This is why
the total discount amount to only P 8,828.03.
The allegation of plaintiff that defendant made the computation in a compounded
manner is erroneous. Also after making its own computations and after examining
closely defendant's Annex 'A' of its memorandum, the court finds that defendant did

not charge 12% discount on the rentals due for the first year so much so that the
computation conforms with the provision of the Lease Agreement to the effect that the
rentals shall be 'payable yearly in advance within the 1st 20 days of each year. '
We do not agree. The above computation appears to be too much technical mumbo-jumbo
and could not have been the intention of the parties to the transaction. Had it been so, then
it should have been clearly stipulated in the contract. Contracts should be interpreted
according to their literal meaning and should not be interpreted beyond their obvious
intendment. 13
The plaintfff-appellant simply understood that for every year of advance payment there would
be a deduction of 12% and this amount would be the same for each of the eight years. There
is no showing that the intricate computation applied by the trial court was explained to him
by the defendant-appellee or that he knowingly accepted it.
The lower court, following the defendant-appellee's formula, declared that the plaintiffappellant had actually agreed to a 12% reduction for advance rentals for all of twenty
eight years. That is absurd. It is not normal for a person to agree to a reduction corresponding
to twenty eight years advance rentals when all he is receiving in advance rentals is for only
eight years.
The deduction shall be for only eight years because that was plainly what the parties intended
at the time they signed the lease agreement. "Simplistic" it may be, as the Solicitor General
describes it, but that is how the lessor understood the arrangement. In fact, the Court will
reject his subsequent modification that the interest should be limited to only seven years
because the first year rental was not being paid in advance. The agreement was for
auniform deduction for the advance rentals for each of the eight years, and neither of the
parties can deviate from it now.
On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight
years, the total rental was P281,347.20 from which was deducted the total discount of
P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum of
P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.
The above computation is based on the more reasonable interpretation of the contract as a
whole rather on the single stipulation invoked by the respondent for the flat reduction of
P130,288.47.
WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee
Petrophil Corporation is ordered to pay plaintiff-appellant the amount of Sixty Five Thousand
One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legal
rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against
the defendant-appellee.
SO ORDERED.
G.R. No. L-18208

February 14, 1922

THE
UNITED
STATES,
plaintiff-appellee,
vs.
VICENTE DIAZ CONDE and APOLINARIA R. DE CONDE, defendants-appellants.
Araneta
&
Zaragoza
Attorney-General Villareal for appellee.

for

appellants.

JOHNSON, J.:
It appears from the record that on the 6th day of May, 1921, a complaint was presented in the
Court of First Instance of the city of Manila, charging the defendants with a violation of the
Usury Law (Act No. 2655). Upon said complaint they were each arrested, arraigned, and
pleaded not guilty. The cause was finally brought on for trial on the 1st day of September,
1921. At the close of the trial, and after a consideration of the evidence adduced, the
Honorable M. V. del Rosario, judge, found that the defendants were guilty of the crime
charged in the complaint and sentenced each of them to pay a fine of P120 and, in case of
insolvency, to suffer subsidiary imprisonment in accordance with the provisions of the law.
From that sentence each of the defendants appealed to this court.
The appellants now contend: (a) That the contract upon which the alleged usurious interest
was collected was executed before Act No. 2655 was adopted; (b) that at the time said contract
was made (December 30, 1915), there was no usury law in force in the Philippine Islands; (c)
that said Act No. 2655 did not become effective until the 1st day of May, 1916, or four months
and a half after the contract in question was executed; (d) that said law could have no
retroactive effect or operation, and (e) that said law impairs the obligation of a contract, and
that for all of said reasons the judgment imposed by the lower court should be revoked; that
the complaint should be dismissed, and that they should each be discharged from the custody
of the law.
The essential facts constituting the basis of the criminal action are not in dispute, and may be
stated as follows: (1) That on the 30th day of December, 1915, the alleged offended persons
Bartolome Oliveros and Engracia Lianco executed and delivered to the defendants a contract
(Exhibit B) evidencing the fact that the former had borrowed from the latter the sum of P300,
and (2) that, by virtue of the terms of said contract, the said Bartolome Oliveros and Engracia
Lianco obligated themselves to pay to the defendants interest at the rate of five per cent (5%)
per month, payable within the first ten days of each and every month, the first payment to be
made on the 10th day of January, 1916. There were other terms in the contract which,
however, are not important for the decision in the present case.
The lower court, in the course of its opinion, stated that at the time of the execution and
delivery of said contract (Exhibit B), there was no law in force in the Philippine Islands
punishing usury; but, inasmuch as the defendants had collected a usurious rate of interest
after the adoption of the Usury Law in the Philippine Islands (Act No. 2655), they were guilty
of a violation of that law and should be punished in accordance with its provisions.
The law, we think, is well established that when a contract contains an obligation to pay
interest upon the principal, the interest thereby becomes part of the principal and is included

within the promise to pay. In other words, the obligation to pay interest on money due under
a contract, be it express or implied, is a part of the obligation of the contract. Laws adopted
after the execution of a contract, changing or altering the rate of interest, cannot be made to
apply to such contract without violating the provisions of the constitution which prohibit the
adoption of a law "impairing the obligation of contract." (8 Cyc., 996; 12 Corpus Juris, 10581059.)
The obligation of the contract is the law which binds the parties to perform their agreement
if it is not contrary to the law of the land, morals or public order. That law must govern and
control the contract in every aspect in which it is intended to bear upon it, whether it affect
its validity, construction, or discharge. Any law which enlarges, abridges, or in any manner
changes the intention of the parties, necessarily impairs the contract itself. If a law impairs
the obligation of a contract, it is prohibited by the Jones Law, and is null and void. The laws
in force in the Philippine Islands prior to any legislation by the American sovereignty,
prohibited the Legislature from giving to any penal law a retroactive effect unless such law
was favorable to the person accused. (Articles 21 and 22, Penal Code.)
A law imposing a new penalty, or a new liability or disability, or giving a new right of action,
must not be construed as having a retroactive effect. It is an elementary rule of contract that
the laws in force at the time the contract was made must govern its interpretation and
application. Laws must be construed prospectively and not retrospectively. If a contract is
legal at its inception, it cannot be rendered illegal by any subsequent legislation. If that were
permitted then the obligations of a contract might be impaired, which is prohibited by the
organic law of the Philippine Islands. (U.S. vs. Constantino Tan Quingco Chua, 39 Phil., 552;
Aguilar vs. Rubiato and Gonzales Vila, 40 Phil., 570.)
Ex post facto laws, unless they are favorable to the defendant, are prohibited in this
jurisdiction. Every law that makes an action, done before the passage of the law, and which
was innocent when done, criminal, and punishes such action, is an ex post facto law. In the
present case Act No. 2655 made an act which had been done before the law was adopted, a
criminal act, and to make said Act applicable to the act complained of would be to give it an
ex post facto operation. The Legislature is prohibited from adopting a law which will make an
act done before its adoption a crime. A law may be given a retroactive effect in civil action,
providing it is curative in character, but ex post facto laws are absolutely prohibited unless its
retroactive effect is favorable to the defendant.
For the reason, therefore, that the acts complained of in the present case were legal at the
time of their occurrence, they cannot be made criminal by any subsequent or ex post facto
legislation. What the courts may say, considering the provisions of article 1255 of the Civil
Code, when a civil action is brought upon said contract, cannot now be determined. A contract
may be annulled by the courts when it is shown that it is against morals or public order.
For all of the foregoing reasons, we are of the opinion, and so decide, that the acts complained
of by the defendants did not constitute a crime at the time they were committed, and therefore
the sentence of the lower court should be, and is hereby, revoked; and it is hereby ordered
and decreed that the complaint be dismissed, and that the defendants be discharged from the
custody of the law, with costs de oficio. So ordered.

G.R. No. L-1927

May 31, 1949

CRISTOBAL
ROO,
vs.
JOSE L. GOMEZ, ET AL., respondents.
Alfonso
Farcon
Capistrano & Azores for respondents.

petitioner,

for

petitioner.

BENGZON, J.:
This petition to review a decision of the Court of Appeals was admitted mainly because it
involves one phase of the vital contemporary question: the repayment of loans given in
Japanese fiat currency during the last war of the Pacific.
On October 5, 1944, Cristobal Roo received as a loan four thousand pesos in Japanese fiat
money from Jose L. Gomez. He informed the later that he would use the money to purchase
a jitney; and he agreed to pay that debt one year after date in the currency then prevailing.
He signed a promissory note of the following tenor:
For value received, I promise to pay one year after date the sum of four thousand pesos
(4,000) to Jose L. Gomez. It is agreed that this will not earn any interest and the
payment It is agreed that this will not earn any interest and the payment prevailing by
the end of the stipulated period of one year.
In consideration of this generous loan, I renounce any right that may come to me by
reason of any postwar arrangement, of privilege that may come to me by legislation
wherein this sum may be devalued. I renounce flatly and absolutely any condition, term
right or privilege which in any way will prejudice the right engendered by this
agreement wherein Atty. Jose L. Gomez will receive by right his money in the amount
of P4,000. I affirm the legal tender, currency or any medium of exchange, or money in
this sum of P4,000 will be paid by me to Jose L. Gomez one year after this date, October
5, 1944.
On October 15, 1945, i.e., after the liberation, Roo was sued for payment in the Laguna Court
of First Instance. His main defense was his liability should not exceed the equivalent of 4,000
pesos "mickey mouse" money and could not be 4,000 pesos Philippine currency, because
the contract would be void as contrary to law, public order and good morals.
After the corresponding hearing, the Honorable Felix Bautista Angelo, Judge, ordered the
defendant Roo to pay four thousand pesos in Philippine currency with legal interest from
the presentation of the complaint plus costs.
On appeal the Court of Appeals in a decision written by Mr. Justice Jugo, affirmed the
judgment with costs. It declared being a mechanic who knew English was not deceived into
signing the promissory note, and that the contents of the same had not been misrepresented
to him. It pronounced the contract valid and enforceable according to its terms and
conditions.

One basic principle of the law on contracts of the Civil Code is that "the contracting parties
may establish any pacts, clauses and conditions they may deem advisable, provided they are
not contrary to law, morals or public order." (Article 1255.) Another principle is that
"obligations arising from contracts shall have the force of law between the contracting parties
and must be performed in accordance with their stipulations" (Article 1091).
Invoking the above proviso, Roo asserts this contract is contrary to the Usury law, because
on the basis of calculations by Government experts he only received the equivalent of one
hundred Philippine pesos and now he is required to disgorge four thousand pesos or interest
greatly in excess of the lawful rates.
But he is not paying interest. Precisely the contract says that the money received "will not
earn any interest." Furthermore, he received four thousand pesos; and he is required to
pay four thousand pesos exactly. The increased intrinsic value and purchasing power of the
current money is consequence of an event (change of currency) which at the time of the
contract neither party knew would certainly happen within the period of one year. They both
elected to subject their rights and obligations to that contingency. If within one year another
kind of currency became legal tender, Gomez would probably get more for his money. If the
same Japanese currency continued, he would get less, the value of Japanese money being
then on the downgrade.
Our legislation has a word for these contracts: aleatory. The Civil Code recognizes their
validity (see art. 1790 and Manresa's comment thereon) on a par with insurance policies and
life annuities.
The eventual gain of Gomez in this transaction is not interest within the meaning of Usury
Laws. Interest is some additional money to be paid in any event, which is not the case herein,
because Gomez might have gotten less if the Japanese occupation had extended to the end of
1945 or if the liberation forces had chosen to permit the circulation of the Japanese notes.
Moreover, Roo argues, the deal was immoral because taking advantage of his superior
knowledge of war developments Gomez imposed on him this onerous obligation. In the first
place, the Court of Appeals found that he voluntary agreed to sign and signed the document
without having been misled as to its contents and "in so far as knowledge of war events was
concerned" both parties were on "equal footing". In the second place although on October 5,
1944 it was possible to surmise the impending American invasion, the date of victory or
liberation was anybody's guess. In the third place there was the possibility that upon-reoccupation the Philippine Government would not invalidate the Japanese currency, which
after all had been forced upon the people in exchange for valuable goods and property. The
odds were about even when Roo and Gomez played their bargaining game. There was no
overreaching, nor unfair advantage.
Again Roo alleges it is immoral and against public order for a man to obtain four thousand
pesos in return for an investment of forty pesos (his estimate of the value of the Japanese
money he borrowed). According to his line of reasoning it would be immoral for the
homeowner to recover ten thousand pesos (P10,000, when his house is burned, because he
invested only about one hundred pesos for the insurance policy. And when the holder of a

sweepstakes ticket who paid only four pesos luckily obtains the first prize of one hundred
thousand pesos or over, the whole business is immoral or against public order.
In this connection we should explain that this decision does not cover situations where
borrowers of Japanese fiat currency promised to repay "the same amount" or promised to
return the same number of pesos "in Philippines currency" or "in the currency prevailing after
the war." There may be room for argument when those litigations come up for adjudication.
All we say here and now is that the contract in question is legal and obligatory.
A minor point concerns the personality of the plaintiff, the wife of Jose L. Gomez. We opine
with the Court of Appeals that the matter involve a defect in procedure which does not
amount to prejudicial error.
Wherefore, the appealed judgment will be affirmed with costs. So ordered.

[G.R. No. 137934. August 10, 2001]

BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., DOLORES A.

POTENCIANO, MAX JOSEPH A. POTENCIANO, MERCEDELIN A.
POTENCIANO, and DELFIN C. YORRO, petitioners, vs. BENJAMIN M.
BITANGA, RENATO L. LEVERIZA, LAUREANO A. SIY, JAMES A.
OLAYVAR, EDUARDO A. AZUCENA, MONINA GRACE S. LIM, and GEMMA
M. SANTOS, respondents.

[G.R. No. 137936. August 10, 2001]

DANILO L. CONCEPCION, FE ELOISA GLORIA and EDIJER A. MARTINEZ, in

their capacities as ASSOCIATE COMMISSIONERS OF THE SECURITIES
AND EXCHANGE COMMISSION, BATANGAS LAGUNA TAYABAS BUS
COMPANY, INC., MICHAEL A. POTENCIANO, CANDIDIO A.
POTENCIANO, HENRY JOHN A. POTENCIANO, REYNALDO MAGTIBAY,
LORNA NAVARRO and RESTITUTO BAYLON,petitioners, vs. THE COURT
OF APPEALS, BATANGAS LAGUNA TAYABAS BUS COMPANY, INC.,
BENJAMIN M. BITANGA, RENATO L. LEVERIZA, LAUREANO A. SIY,
JAMES A. OLAYVAR, EDUARDO A. AZUCENA, MONINA GRACE S. LIM,
and GEMMA M. SANTOS,respondents.
DECISION
YNARES-SANTIAGO, J.:

These cases involve the Batangas Laguna Tayabas Bus Company, Inc., which has been
owned by four generations of the Potenciano family. Immediately prior to the events leading
to this controversy, the Potencianos owned 87.5% of the outstanding capital stock of BLTB. [1]
On October 28, 1997, Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A.
Potenciano, Delfin C. Yorro, and Maya Industries, Inc., entered into a Sale and Purchase
Agreement,[2] whereby they sold to BMB Property Holdings, Inc., represented by its
President, Benjamin Bitanga, their 21,071,114 shares of stock in BLTB. The said shares
represented 47.98% of the total outstanding capital stock of BLTB.
The purchase price for the shares of stock was P72,076,425.00, the downpayment of
which, in the sum of P44,354,723.00, was made payable upon signing of Agreement, while
the balance of P27,721,702.00 was payable on November 26, 1997. The contracting parties
stipulated that the downpayment was conditioned upon receipt by the buyer of certain
documents upon signing of the Agreement, namely, the Secretarys Certificate stating that the
Board of Directors of Maya Industries, Inc. authorized the sale of its shares in BLTB and the
execution of the Agreement, and designating Dolores A. Potenciano as its Attorney-in-Fact;
the Special Power of Attorney executed by each of the sellers in favor of Dolores A. Potenciano
for purposes of the Agreement; the undated written resignation letters of the Directors of
BLTB, except Henry John A. Potenciano, Michael A. Potenciano and Candido A. Potenciano);
a revocable proxy to vote the subject shares made by the sellers in favor of the buyer; a
Declaration of Trust made by the sellers in favor of the buyer acknowledging that the subject
shares shall be held in trust by the sellers for the buyer pending their transfer to the latters
name; and the duly executed capital gains tax return forms covering the sale, indicating no
taxable gain on the same.[3]
Furthermore, the buyer guaranteed that it shall take over the management and operations
of BLTB but shall immediately surrender the same to the sellers in case it fails to pay the
balance of the purchase price on November 26, 1997.[4]
Barely a month after the Agreement was executed, on November 21, 1997, at a meeting of
the stockholders of BLTB, Benjamin Bitanga and Monina Grace Lim were elected as directors
of the corporation, replacing Dolores and Max Joseph Potenciano. Subsequently, on
November 28, 1997, another stockholders meeting was held, wherein Laureano A. Siy and
Renato L. Leveriza were elected as directors, replacing Candido Potenciano and Delfin Yorro
who had both resigned as such. At the same meeting, the Board of Directors of BLTB elected
the following officers: Benjamin Bitanga as Chairman of the Board, President and Chief
Executive Officer; Monina Grace Lim as Vice President for Finance and Supply and
Treasurer; James Olayvar as Vice President for Operations and Maintenance; Eduardo
Azucena as Vice President for Administration; Evelio Custodia as Corporate Secretary; and
Gemma Santos as Assistant Corporate Secretary.[5]
During a meeting of the Board of Directors on April 14, 1998, the newly elected directors
of BLTB scheduled the annual stockholders meeting on May 19, 1998, to be held at the
principal office of BLTB in San Pablo, Laguna. Before the scheduled meeting, on May 16,
1998, Michael Potenciano wrote Benjamin Bitanga, requesting for a postponement of the
stockholders meeting due to the absence of a thirty-day advance notice. However, there was
no response from Bitanga on whether or not the request for postponement was favorably
acted upon.

On the scheduled date of the meeting, May 19, 1998, a notice of postponement of the
stockholders meeting was published in the Manila Bulletin. Inasmuch as there was no notice
of postponement prior to that, a total of two hundred eighty six stockholders, representing
87% of the shares of stock of BLTB, arrived and attended the meeting. The majority of the
stockholders present rejected the postponement and voted to proceed with the meeting. The
Potenciano group was re-elected to the Board of Directors,[6] and a new set of officers was
thereafter elected.[7]
However, the Bitanga group refused to relinquish their positions and continued to act as
directors and officers of BLTB. The conflict between the Potencianos and the Bitanga group
escalated to levels of unrest and even violence among laborers and employees of the bus
company.
On May 21, 1998, the Bitanga group filed with the Securities and Exchange Commission
a Complaint for Damages and Injunction, docketed as SEC Case No. 05-98-5973.[8] Their
prayer for the issuance of a temporary restraining order was, however, denied at the exparte summary hearing conducted by SEC Chairman Perfecto Yasay, Jr.
Likewise, the Potenciano group filed on May 25, 1998, a Complaint for Injunction and
Damages with Preliminary Injunction and Temporary Restraining Order with the SEC,
docketed as SEC Case No. 05-98-5978.[9] SEC Chairman Perfecto Yasay, Jr. issued a
temporary restraining order enjoining the Bitanga group from acting as officers and directors
of BLTB.
On June 8, 1998, the Bitanga group filed another complaint with application for a writ of
preliminary injunction and prayer for temporary restraining order, seeking to annul the May
19, 1998 stockholders meeting. The complaint was docketed as SEC Case No. 06-98-5994.
A Hearing Panel of the SEC conducted joint hearings of SEC Cases Nos. 05-98-5973 and
05-98-5978. On June 17, 1998, the SEC Hearing Panel granted the Bitanga groups application
for a writ of preliminary injunction upon the posting of a bond in the amount of
P20,000,000.00.[10] It declared that the May 19, 1998 stockholders meeting was void on the
grounds that, first, Michael Potenciano had himself asked for its postponement due to
improper notice; and, second, there was no quorum, since BMB Holdings, Inc., represented
by the Bitanga group, which then owned 50.26% of BLTBs shares having purchased the same
from the Potenciano group, was not present at the said meeting. The Hearing Panel further
held that the Bitanga Board remains the legitimate Board in a hold-over capacity.
The Potenciano group filed a petition for certiorari[11] with the SEC En Banc on June 29,
1998, seeking a writ of preliminary injunction to restrain the implementation of the Hearing
Panels assailed Order.
On July 21, 1998, the SEC En Banc set aside the June 17, 1998 Order of the Hearing Panel
and issued the writ of preliminary injunction prayed for.[12]
The Bitanga group immediately filed a petition for certiorari [13] with the Court of Appeals
on July 22, 1998, followed by a Supplemental Petition on August 10, 1998. The petition was
docketed as CA-G.R. SP No. 48374.

Meanwhile, on July 29, 1998, the SEC En Banc issued a writ of preliminary injunction
against the Bitanga group, after the Potencianos posted the required bond of
P20,000,000.00.[14]
On November 23, 1998, the Court of Appeals rendered the now assailed Decision,
reversing the assailed Orders of the SEC En Banc and reinstating the Order of the Hearing
Panel ordered dated June 17, 1998.[15] The Court of Appeals denied the Motions for
Reconsideration in a Resolution dated March 25, 1999.[16]
Petitioners Batangas Laguna Tayabas Bus Company, Inc., Dolores A. Potenciano, Max
Joseph A. Potenciano, Mercedelin A. Potenciano and Delfin C. Yorro filed the instant petition
for review, docketed as G.R. No. 137934, against respondents Benjamin M. Bitanga, Renato
L. Leveriza, Laureano A. Siy, James A. Olayvar, Eduardo A. Azucena, Monina Grace S. Lim
and Gemma M. Santos. Petitioners contend that --I
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED
WHEN IT DISREGARDED, CONTRARY TO WELL-ESTABLISHED JURISPRUDENCE,
THE FACTUAL FINDINGS OF THE SEC WHICH IS A SPECIALIZED QUASI-JUDICIAL
AGENCY, AND INVALIDATED THE PRELIMINARY INJUNCTION ISSUED BY THE
LATTER. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR BECAUSE
THERE IS NO SHOWING THAT THE SEC MADE ANY ERROR IN EITHER JURISDICTION
OR JUDGMENT.
II
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
RULING THAT RESPONDENTS WERE DEPRIVED OF THEIR RIGHT TO DUE PROCESS
BECAUSE: (1) A FULL-BLOWN HEARING WAS CONDUCTED ON 6 JULY 1998 WHERE
THE PARTIES FULLY ARGUED THEIR POSITIONS AND WERE HEARD BY THE SEC EN
BANC; (2) THE LAW DOES NOT REQUIRE A SEPARATE HEARING FOR THE FIXING OF
THE AMOUNT OF THE INJUNCTION BOND; AND (3) IN ANY CASE, THE ALLEGED
FAILURE OF THE SEC TO FIX THE AMOUNT OF THE INJUNCTION BOND IN ITS 21
JULY 1998 ORDER AND SUBSEQUENT FIXING THEREOF IN ITS 26 JULY 1998 ORDER
IS NOT A FATAL ERROR.
III
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
RULING THAT THE 21 JULY 1998 ORDER OF THE SEC RESOLVED THE MAIN CASE.
THE SEC, ACTING WITHIN THE BOUNDS OF ITS JURISDICTION, MERELY MADE A
PRELIMINARY EVALUATION TO RESOLVE THE PRAYER FOR PRELIMINARY
INJUNCTION, WHICH, BY ITS VERY NATURE, IS AN ANCILLARY REMEDY. THE MAIN
PETITION REMAINS PENDING BEFORE THE SEC FOR THE RESOLUTION OF ITS
MERITS.[17]
Another petition for review, docketed as G.R. No. 137936, was filed by petitioners Danilo
L. Concepcion, Fe Eloisa Gloria and Edijer A. Martinez, in their capacities as Associate

Commissioners of the Securities and Exchange Commission, Batangas Laguna Tayabas Bus
Company, Inc., Dolores A. Potenciano, Max Joseph A. Potenciano, Michael A. Potenciano,
Mercedelin A. Potenciano, Candido A. Potenciano, Henry John A. Potenciano, Delfin C.
Yorro, Reynaldo Magtibay, Lorna Navarro and Restituto Baylon based on the following
grounds:
I
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
HOLDING THAT THE JULY 21, 1998 ORDER OF THE SEC IN SEC EN BANC CASE NO.
611 RESOLVED THE MAIN CASE.
II
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
HOLDING THAT THE PRIVATE RESPONDENTS WERE DENIED THEIR RIGHT TO
DUE PROCESS.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE SEC
ORDER OF JULY 21, 1998 IS VALID AND IN DISREGARDING THE FACTUAL
FINDINGS OF THE SEC.[18]
The two petitions for review were consolidated.
We find that the petitions are impressed with merit. Contrary to the findings of the Court
of Appeals, the Bitanga group was not deprived of due process when the SEC En Banc issued
its Order dated July 21, 1998.
Due process, in essence, is simply an opportunity to be heard.[19] It cannot be denied that
in the case at bar, a hearing on the prayer for injunction was held on July 9, 1998. Both parties
were represented at the said hearing, and the Bitanga group presented its arguments in
opposition to the injunctive relief. This alone negates any proposition that the Bitanga group
was denied due process.
In applications for preliminary injunction, the requirement of hearing and prior notice
before injunction may issue has been relaxed to the point that not all petitions for preliminary
injunction must undergo a trial-type hearing, it being hornbook doctrine that a formal or
trial-type is not at all times and in all instances essential to due process. Due process simply
means giving every contending party the opportunity to be heard and the court to consider
every piece of evidence presented in their favor. Accordingly, this Court has recently rejected
a claim of denial of due process where such claimant was given the opportunity to be heard,
having submitted his counter-affidavit and memorandum in support of his position.[20]
Much ado has been made over the fact that the injunction order was issued with deliberate
speed even before the Bitanga group filed its Comment to the Potenciano groups
Petition.However, the said Comment is rather directed to the petition of the Potenciano
group; it is not essential to the resolution of the prayer for injunction. The Rules of Court do
not require that issues be joined before preliminary injunction may issue. Preliminary

injunction may be granted at any stage of an action or proceeding prior to the judgment or
final order, ordering a party or a court, agency or a person to refrain from a particular act or
acts. For as long as the requisites for its issuance are present in the case, the injunctive writ
was properly issued.[21]
Respondents argue that the SEC En Bancs July 21, 1998 Order amounted to a ruling on
the main case. We disagree.
A reading of the said Order readily reveals that it merely delved on the propriety of
granting a writ of preliminary injunction against the Bitanga group. The main case is far from
being disposed of as there are several issues still awaiting resolution, including, whether or
not the Bitanga group has taken funds and assets of BLTB and if so, in what amount and
consisting of what assets; and whether or not the Potenciano group is entitled to the payment
of exemplary damages, attorneys fees and costs of suit. There is no merit, therefore, in the
statement that the SEC En Bancs ruling is a prejudgment of the main case, as several matters
need yet to be addressed.
The fact that the aforesaid Order was merely provisional in character may be gleaned from
the very nature of the injunctive writ granted. Generally, injunction is a preservative remedy
for the protection of one's substantive right or interest. It is not a cause of action in itself but
merely a provisional remedy, an adjunct to a main suit.[22] Thus, it has been held that an order
granting a writ of preliminary injunction is an interlocutory order. [23] As distinguished from
a final order which disposes of the subject matter in its entirety or terminates a particular
proceeding or action, leaving nothing else to be done but to enforce by execution what has
been determined by the court, an interlocutory order does not dispose of a case completely,
but leaves something more to be adjudicated upon.[24]
In the case at bar, it cannot be said that the July 21, 1998 Order of the SEC En Banc
terminated the Potenciano groups petition in its entirety. As mentioned above, there remain
several issues which have yet to be resolved and adjudicated upon by the SEC.
The next issue --- whether or not the SEC En Banc committed error in jurisdiction as to
entitle the Bitanga group to the extraordinary remedy of certiorari --- should likewise be
resolved in the negative.
In the July 21, 1998 Order of the SEC En Banc, the validity of the BLTB stockholders
meeting held on May 19, 1998 was sustained, in light of the time-honored doctrine in
corporation law that a transfer of shares is not valid unless recorded in the books of the
corporation. The SEC En Banc went on to rule that
It is not disputed that the transfer of the shares of the group of Dolores Potenciano to the
Bitanga group has not yet been recorded in the books of the corporation. Hence, the group of
Dolores Potenciano, in whose names those shares still stand, were the ones entitled to attend
and vote at the stockholders meeting of the BLTB on 19 May 1998. This being the case, the
Hearing Panel committed grave abuse of discretion in holding otherwise and in concluding
that there was no quorum in said meeting.[25]
Based on the foregoing premises, the SEC En Banc issued a writ of preliminary injunction
against the Bitanga group. In so ruling, the SEC En Banc merely exercised its wisdom and
competence as a specialized administrative agency specifically tasked to deal with corporate

law issues. We are in full accord with the SEC En Banc on this matter. Indeed, until
registration is accomplished, the transfer, though valid between the parties, cannot be
effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in
this case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold: to
enable the transferee to exercise all the rights of a stockholder, including the right to vote and
to be voted for, and to inform the corporation of any change in share ownership so that it can
ascertain the persons entitled to the rights and subject to the liabilities of a
stockholder.[26] Until challenged in a proper proceeding, a stockholder of record has a right
to participate in any meeting;[27] his vote can be properly counted to determine whether a
stockholders resolution was approved, despite the claim of the alleged transferee. [28] On the
other hand, a person who has purchased stock, and who desires to be recognized as a
stockholder for the purpose of voting, must secure such a standing by having the transfer
recorded on the corporate books.[29] Until the transfer is registered, the transferee is not a
stockholder but an outsider.[30]
We find no error either in jurisdiction or judgment on the part of the SEC En Banc, since
its conclusions of law were anchored on established principles and jurisprudence.
Indeed, nowhere in the Bitanga groups petition for certiorari before the Court of Appeals
was it shown that the SEC En Banc committed such patent, gross and prejudicial errors of
law or fact, or a capricious disregard of settled law and jurisprudence, as to amount to a grave
abuse of discretion or lack of jurisdiction on its part. Absent such showing, neither the Court
of Appeals nor this Court should engage in a review of the facts found nor even of the law as
interpreted or applied by the SEC En Banc, for the writ of certiorari is an extraordinary
remedy, and certiorari jurisdiction is not to be equated with appellate jurisdiction. The main
thrust of a petition for certiorari under Rule 65 of the Rules of Court is only the correction of
errors of jurisdiction including the commission of grave abuse of discretion amounting to lack
or excess of jurisdiction. However, for this Court or the Court of Appeals to properly exercise
the power of judicial review over a decision of an administrative agency, such as the SEC, it
must first be shown that the tribunal, board or officer exercising judicial or quasi-judicial
functions has indeed acted without or in excess of its or his jurisdiction, and that there is no
appeal, or any plain, speedy and adequate remedy in the ordinary course of law. In the
absence of any showing of lack of jurisdiction or grave abuse tantamount to lack or excess of
jurisdiction, judicial review may not be had over an administrative agencys decision. [31] We
have gone over the records of the case at bar and we see no cogent reason to hold that the SEC
En Banc had abused its discretion.
Moreover, it is a fundamental rule that factual findings of quasi-judicial agencies like the
SEC, if supported by substantial evidence, are generally accorded not only great respect but
even finality, and are binding upon this Court, unless petitioner is able to show that it had
arbitrarily disregarded evidence before it or had misapprehended evidence to such an extent
as to compel a contrary conclusion if such evidence had been properly appreciated. This rule
is rooted in the doctrine that this Court is not a trier of facts, as well as in the respect to be
accorded the determinations made by administrative bodies in general on matters falling
within their respective fields of specialization or expertise.[32]
In light of all the foregoing, we find that the Court of Appeals erred in granting the
extraordinary remedy of certiorari to the Bitanga group. It is elementary that a special civil
action for certiorari is limited to correcting errors of jurisdiction or grave abuse of

discretion.[33] None of these have been found to obtain in the petition before the Court of
Appeals. What is more, it is also settled that the issuance of the writ of preliminary injunction
as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely
within the discretion of the court taking cognizance of the case, the only limitation being that
this discretion should be exercised based upon the grounds and in the manner provided by
law. The exercise of sound judicial discretion by the lower court in injunctive matters should
not be interfered with except in cases of manifest abuse.[34]
WHEREFORE, in view of all the foregoing, the instant petitions for review are
GRANTED. The Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP
No. 48374 and its resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC
En Banc dated July 21, 1998 and July 27, 1998 in SEC Case No. EB 611 are ordered
REINSTATED.
SO ORDERED.
G.R. No. 120262 July 17, 1997
PHILIPPINE
AIRLINES,
INC.,
vs.
COURT OF APPEALS and LEOVIGILDO A. PANTEJO, respondents.

petitioner,

REGALADO, J.:
In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) seeks to set aside the
decision of respondent Court of Appeals, 1 promulgated on December 29, 1994, which
affirmed the award for damages made by the trial court in favor of herein private respondent
Leovegildo A. Pantejo.
On October 23, 1988, private respondent Pantejo, then City Fiscal of Surigao City, boarded a
PAL plane in Manila and disembarked in Cebu City where he was supposed to take his
connecting flight to Surigao City However, due to typhoon Osang, the connecting flight to
Surigao City was cancelled.
To accommodate the needs of its stranded passengers, PAL initially gave out cash assistance
of P100.00 and, the next day, P200.00, for their expected stay of two days in Cebu.
Respondent Pantejo requested instead that he be billeted in a hotel at PAL's expense because
he did not have cash with him at that time, but PAL refused. Thus, respondent Pantejo was
forced to seek and accept the generosity of a co-passenger, an engineer named Andoni
Dumlao, and he shared a room with the latter at Sky View Hotel with the promise to pay his
share of the expenses upon reaching Surigao.
On October 25, 1988 when the flight for Surigao was resumed, respondent Pantejo came to
know that the hotel expenses of his co-passengers, one Superintendent Ernesto Gonzales and
a certain Mrs. Gloria Rocha, an auditor of the Philippine National Bank, were reimbursed by
PAL. At this point, respondent Pantejo informed Oscar Jereza, PAL's Manager for Departure
Services at Mactan Airport and who was in charge of cancelled flights, that he was going to

sue the airline for discriminating against him. It was only then that Jereza offered to pay
respondent Pantejo P300.00 which, due to the ordeal and anguish he had undergone, the
latter decline.
On March 18, 1991, the Regional Trial Court of Surigao City, Branch 30, rendered judgment
in the action for damages filed by respondent Pantejo against herein petitioner, Philippine
Airlines, Inc., ordering the latter to pay Pantejo P300.00 for actual damages, P150,000.00 as
moral damages, P100,000.00 as exemplary damages, P15,000.00 as attorney's fees, and 6%
interest from the time of the filing of the complaint until said amounts shall have been fully
paid, plus costs of suit. 2 On appeal, respondent court affirmed the decision of the court a
quo, but with the exclusion of the award of attorney's fees and litigation expenses.
The main issue posed for resolution is whether petitioner airlines acted in bad faith when it
failed and refused to provide hotel accommodations for respondent Pantejo or to reimburse
him for hotel expenses incurred by reason of the cancellation of its connecting flight to
Surigao City due to force majeure.
To begin with, it must be emphasized that a contract to transport passengers is quite different
in kind and degree from any other contractual relation, and this is because of the relation
which an air carrier sustain with the public. Its business is mainly with the travelling public.
It invites people to avail of the comforts and advantages it offers. The contract of air carriage,
therefore, generates a relation attended with a public duty. Neglect or malfeasance of the
carrier's employees naturally could give ground for an action for damages. 3
In ruling for respondent Pantejo, both the trial court and the Court of Appeals found that
herein petitioner acted in bad faith in refusing to provide hotel accommodations for
respondent Pantejo or to reimburse him for hotel expenses incurred despite and in contrast
to the fact that other passengers were so favored.
In declaring that bad faith existed, respondent court took into consideration the following
factual circumstances:
1. Contrary to petitioner's claim that cash assistance was given instead because of nonavailability of rooms in hotels where petitioner had existing tie-ups, the evidence shows that
Sky View Hotel, where respondent Pantejo was billeted, had plenty of rooms available.
2. It is not true that the P300.00 Paid to Ernesto Gonzales, a co-passenger of respondent, was
a refund for his plane ticket, the truth being that it was a reimbursement for hotel and meal
expenses.
3. It is likewise not denied that said Gonzales and herein respondent came to know about the
reimbursements only because another passenger, Mrs. Rocha, informed them that she was
able to obtain the refund for her own hotel expenses.
4. Petitioner offered to pay P300.00 to private respondent only after he had confronted the
airline's manager about the discrimination committed against him, which the latter realized
was an actionable wrong.

5. Service Voucher No. 199351, presented by petitioner to prove that it gave cash assistance
to its passengers, was based merely on the list of passengers already given cash assistance
and was purportedly prepared at around 10:00 A.M. of October 23, 1988. This was two
hours before respondent came to know of the cancellation of his flight to Surigao, hence
private respondent could not have possibly refused the same. 4
It must be stressed that these factual findings, which are supported by substantial evidence,
are binding, final and conclusive upon this Court absent any reason, and we find none, why
this settled evidential rule should not apply.
Petitioner theorizes that the hotel accommodations or cash assistance given in case a flight is
cancelled is in the nature of an amenity and is merely a privilege that may be extended at its
own discretion, but never a right that may be demanded by its passengers. Thus, when
respondent Pantejo was offered cash assistance and he refused it, petitioner cannot be held
liable for whatever befell respondent Pantejo on that fateful day, because it was merely
exercising its discretion when it opted to just give cash assistance to its passengers.
Assuming arguendo that the airline passengers have no vested right to these amenities in
case a flight is cancelled due to force majeure, what makes petitioner liable for damages in
this particular case and under the facts obtaining herein is its blatant refusal to accord the socalled amenities equally to all its stranded passengers who were bound for Surigao City. No
compelling or justifying reason was advanced for such discriminatory and prejudicial
conduct.
More importantly, it has been sufficiently established that it is petitioner's standard company
policy, whenever a flight has been cancelled, to extend to its hapless passengers cash
assistance or to provide them accommodations in hotels with which it has existing tie-ups. In
fact, petitioner's Mactan Airport Manager for departure services, Oscar Jereza, admitted that
PAL has an existing arrangement with hotels to accommodate stranded passengers, 5 and that
the hotel bills of Ernesto Gonzales were reimbursed 6 obviously pursuant to that policy.
Also, two witnesses presented by respondent, Teresita Azarcon and Nerie Bol, testified that
sometime in November, 1988, when their flight from Cebu to Surigao was cancelled, they
were billeted at Rajah Hotel for two nights and three days at the expense of PAL. 7 This was
never denied by PAL.
Further, Ernesto Gonzales, the aforementioned co-passenger of respondent on that fateful
flight, testified that based on his previous experience hotel accommodations were extended
by PAL to its stranded passengers either in Magellan or Rajah Hotels, or even in Cebu Plaza.
Thus, we view as impressed with dubiety PAL's present attempt to represent such emergency
assistance as being merely ex gratia and not ex debito.
While petitioner now insists that the passengers were duly informed that they would be
reimbursed for their hotel expenses, it miserably and significantly failed to explain why the
other passengers were given reimbursement while private respondent was not. Although
Gonzales was subsequently given a refund, this was only so because he came to know about
it by accident through Mrs. Rocha, as earlier explained.

Petitioner could only offer the strained and flimsy pretext that possibly the passengers were
not listening when the announcement was made. This is absurd because when respondent
Pantejo came to know that his flight had been cancelled, he immediately proceeded to
petitioner's office and requested for hotel accommodations. He was not only refused
accommodations, but he was not even informed that he may later on be reimbursed for his
hotel expenses. This explains why his co-passenger, Andoni Dumlao, offered to answer for
respondent's hotel bill and the latter promised to pay him when they arrive in Surigao. Had
both know that they would be reimbursed by the airline, such arrangement would not have
been necessary.
Respondent Court of Appeals thus correctly concluded that the refund of hotel expenses was
surreptitiously and discriminatorily made by herein petitioner since the same was not made
known to everyone, except through word of mouth to a handful of passengers. This is a sad
commentary on the quality of service and professionalism of an airline company, which is the
country's flag carrier at that.
On the bases of all the foregoing, the inescapable conclusion is that petitioner acted in bad
faith in disregarding its duties as a common carrier to its passengers and in discriminating
against herein respondent Pantejo. It was even oblivious to the fact that this respondent was
exposed to humiliation and embarrassment especially because of his government position
and social prominence, which altogether necessarily subjected him to ridicule, shame and
anguish. It remains uncontroverted that at the time of the incident, herein respondent was
then the City Prosecutor of Surigao City, and that he is a member of the Philippine Jaycee
Senate, past Lt. Governor of the Kiwanis Club of Surigao, a past Master of the Mount Diwata
Lodge of Free Masons of the Philippines, member of the Philippine National Red Cross,
Surigao
Chapter,
and past Chairman of the Boy Scouts of the Philippines, Surigao del Norte Chapter. 8
It is likewise claimed that the moral and exemplary damages awarded to respondent Pantejo
are excessive and unwarranted on the ground that respondent is not totally blameless because
of his refusal to accept the P100.00 cash assistance which was inceptively offered to him. It
bears emphasis that respondent Pantejo had every right to make such refusal since it
evidently could not meet his needs and that was all that PAL claimed it could offer.
His refusal to accept the P300.00 proffered as an afterthought when he threatened suit was
justified by his resentment when he belatedly found out that his co-passengers were
reimbursed for hotel expenses and he was not. Worse, he would not even have known about
it were it not for a co-passenger who verbally told him that she was reimbursed by the airline
for hotel and meal expenses. It may even be said that the amounts, the time and the
circumstances under which those amounts were offered could not salve the moral wounds
inflicted by PAL on private respondent but even approximated insult added to injury.
The discriminatory act of petitioner against respondent ineludibly makes the former liable
for moral damages under Article 21 in relation to Article 2219 (10) of the Civil Code. 9 As held
in Alitalia Airways vs. CA, et al., 10 such inattention to and lack of care by petitioner airline
for the interest of its passengers who are entitled to its utmost consideration, particularly as

to their convenience, amount to bad faith which entitles the passenger to the award of moral
damages.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the
defendant. They are awarded only to allow the former to obtain means, diversion, or
amusements that will serve to alleviate the moral suffering he has undergone due to the
defendant's culpable action and must, perforce, be proportional to the suffering
inflicted. 11 However, substantial damages do not translate into excessive damages. 12 Except
for attorney's fees and costs of suit, it will be noted that the Court of Appeals affirmed point
by point the factual findings of the lower court upon which the award of damages had been
based. 13 We, therefore, see no reason to modify the award of damages made by the trial court.
Under the peculiar circumstances of this case, we are convinced that the awards for actual,
moral and exemplary damages granted in the judgment of respondent court, for the reasons
meticulously analyzed and thoroughly explained in its decision, are just and equitable. It is
high time that the travelling public is afforded protection and that the duties of common
carriers, long detailed in our previous laws and jurisprudence and thereafter collated and
specifically catalogued in our Civil Code in 1950, be enforced through appropriate sanctions.
We agree, however, with the contention that the interest of 6% imposed by respondent court
should be computed from the date of rendition of judgment and not from the filing of the
complaint. The rule has been laid down inEastern Shipping Lines, Inc. vs. Court of Appeals,
et al. 14 that:
When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.
This is because at the time of the filing of the complaint, the amount of damages to which
plaintiff may be entitled remains unliquidated and not known, until it is definitely
ascertained, assessed and determined by the court, and only after the presentation of proof
thereon. 15
WHEREFORE, the challenged judgment of respondent Court of Appeals is hereby
AFFIRMED, subject to the MODIFICATION regarding the computation of the 6% legal rate
of interest on the monetary awards granted therein to private respondent
SO ORDERED.

[G.R. No. 157353. December 9, 2004]

FOOD TERMINAL, INC., petitioner, vs. HON. REYNALDO B. DAWAY, Presiding

Judge, Regional Trial Court, Branch 90, Quezon City and TAO
DEVELOPMENT, INC., respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review on certiorari under Rule 45
of the Rules of Court are the following issuances of the Court of Appeals in its CA-G.R. SP
No. 45589, to wit:
1. Decision dated 28 June 2002[1], affirming an earlier Order of the Regional Trial Court
at Quezon City which granted the motion for execution thereat filed by herein private
respondent against the petitioner; and
2. Resolution dated 13 February 2003, denying petitioners motion for reconsideration
of the first.
The factual milieu:
Sometime in early 1984, petitioner Food Terminal Inc. (FTI), a government-owned
corporation engaged in the business of providing warehousing and storage services to the
public for a fee, and private respondent Tao Development, Inc. (TAO), entered into a
contract of storage whereunder TAO deposited at FTIs cold storage export quality onions
consisting of 22,716 bags (approximately 567,900 kilos) of yellow granex onions and 2,853
bags (approximately 71,300 kilos) of red creole onions. Unfortunately, an ammonia leak
penetrated through FTIs storage facilities and caused damage to TAOs goods, rendering the
deposited onions unfit for export.
On November 3, 1998, in the Regional Trial Court of Quezon City, TAO instituted a
complaint for damages against FTI.
In a decision dated 16 December 1991, the trial court, finding FTI negligent in the
performance of its duties, rendered judgment in favor of TAO. Therefrom, FTI went on appeal
to the Court of Appeals. In a decision dated 28 April 1995, the appellate court affirmed with
modifications the appealed decision of the trial court, thus:
"WHEREFORE, in view of the foregoing, the decision appealed from is hereby AFFIRMED
with MODIFICATIONS. Accordingly, judgment is hereby rendered as follows:
a) Ordering the defendant Food Terminal, Inc. to pay appellee TAO Development, Inc.
the amount of P2,400,168.00 as actual damages representing the loss sustained by
the appellee;
b) Ordering said appellant to pay said appellee the amount of P1,534,005.00 as
unearned profits; and

c) Ordering said appellant to pay said appellee the amount of P100,000.00 as

attorney's fees.
The above amounts shall earn interest at the rate of 12% per annum from May 15, 1984
until fully satisfied.
No costs.
SO ORDERED.[2]
Undaunted, FTI sought further appellate recourse to this Court in G.R. No. 120097,
entitled Food Terminal, Inc. vs. Court of Appeals and Tao Development, Inc. [3] In
aResolution dated 23 September 1996, this Court affirmed with modification the
challenged decision of the Court of Appeals:
ACCORDINGLY, the appealed decision is hereby AFFIRMED with the following
modification:
a) Ordering petitioner Food Terminal, Inc. to pay private respondent TAO Development, Inc.
the amount of P2,400,168.00 as actual damages representing the loss sustained by the
private respondent;
b) Ordering petitioner to pay private respondent the amount of P1,534,005.00 as unearned
profits; and
c) Ordering petitioner to pay private respondent the amount of P100,000.00 as attorney's
fees.
These amounts shall earn interest at the rate of SIX PER CENT (6%) per annum from May
15, 1984 until fully satisfied, but before judgment becomes final. From the date of finality of
the judgment until the obligation is totally paid, A TWELVE PER CENT (12%) interest, in lieu
of the SIX PER CENT (6%) interest, shall be imposed.
SO ORDERED.[4]
It is not disputed that the aforementioned Resolution of this Court in G.R. No.
120097 became final and executory on January 6, 1997 and a corresponding Entry of
Judgment made thereon.[5]
In a letter of February 12, 1997, TAO demanded from FTI payment in satisfaction of the
judgment in G.R. No. 120097 in the amount of P7,194,453.60, broken down, as follows:
P2,400,168.00 - actual damages
1,534,005.00 - unearned profits
100,000.00 - attorneys fees
P4,034,173.00
3,063,282.03 - 6% interest from May 15, 1984 to Jan. 6, 1997
96,998.55 - 12% interest from Jan. 6, to Feb. 15, 1997
P7,194,453.60.[6]

In a reply letter of March 7, 1997,[7] FTI disagreed with TAOs foregoing computation and
informed the latter that per its (FTIs) own computation, its obligation is less by P46,019.86
than that claimed by TAO. In effect, it is FTIs posture that its liability is only
for P7,148,433.72. Percentage wise, the variance is less than one percent or .64 percent.
A new phase of legal battle between the herein parties began when, on May 5, 1997, TAO
filed with the trial court a motion for execution, praying for the issuance of a writ of execution
against FTI for the total amount of P7,440,729.48.[8]
In an Order dated 27 May 1997,[9] the trial court, noting the absence of any opposition
from FTI, granted TAOs motion and accordingly ordered the issuance of the desired writ. FTI
filed a motion for reconsideration, contending that it was denied due process because it
allegedly did not receive any notice of hearing.[10] In its subsequent Order of 12 August 1997,
the trial court denied the motion.[11]
Meanwhile, on August 22, 1997, FTI delivered to TAO a check for P7,148,433.72, which
check was admittedly encashed by TAO.
Thereafter, FTI filed with the Court of Appeals a petition for certiorari to nullify the trial
courts aforesaid orders. In its petition, docketed in said court as CA-G.R. SP NO. 45589,
FTI maintained that TAO had acceded to its computation, and presented, in support thereof,
an alleged letter dated March 13, 1997 of Alberto Malvar, president of TAO, demanding
payment for only P7,148,433.72.[12] On the basis of said letter and the fact that TAO had
encashed the FTI check for the same amount, FTI argued that it has satisfied the judgment
in G.R. No. 120097. Ergo, so it concludes, the writ of execution issued against it by the trial
court should be annulled and set aside.[13]
In the herein assailed Decision dated 28 June 2002 and Resolution dated 13
February 2003, the Court of Appeals respectively dismissed FTIs petition and denied its
motion for reconsideration, ruling, inter alia, that petitioner FTI failed to establish the
supposed accession of TAO to its computation, and holding that the letter dated March 13,
1997 of Alberto Malvar is a forgery.
Hence, FTIs present recourse on the following assigned errors:
I
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT SUSTAINED
PUBLIC RESPONDENTS HOLDING THAT THE TOTAL OBLIGATION OF PETITIONER
TO PRIVATE RESPONDENT AS PER DECISION OF THE HONORABLE SUPREME COURT
DATED SEPTEMBER 23, 1996 EXCEEDS P7,148,433.72
II
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT HOLDING THAT
THE DELAY IN THE SATISFACTION OF THE JUDGMENT AWARD WAS CAUSED
SOLELY BY PRIVATE RESPONDENTS UNJUSTIFIED REFUSAL TO ACCEPT
PETITIONERS OFFER/TENDER OF PAYMENT.
III

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT HOLDING THAT

PETITIONER IS NOT DELINQUENT IN ITS OBLIGATION AND THAT IT SHOULD BE
EXCUSED FROM PAYING THE NECESSARY INTEREST AFTER APRIL 2, 1997.
IV
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT HOLDING THAT THE
JUDGMENT AWARD SOUGHT TO BE EXECUTED AGAINST PETITIONER, OR AT
LEAST P7,148,433.72 THEREOF, HAD LONG BEEN SETTLED.[14]
We dismiss.
Petitioner maintains that the motion for execution filed by TAO before the trial court
should have been denied by said court because it has satisfied the judgment award inG.R.
No. 120097. Elaborating thereon, petitioner claims that as early as April 2, 1997, or fifteen
(15) days prior to TAOs filing of the motion, it had already informed TAO that it had computed
the judgment award to be at only P7,148,433.72, an amount deemed correct and acquiesced
in by TAO. And since the latter had already encashed the check issued by the petitioner for
the same amount, its obligation in G.R. No. 120097 had thus been complied with.
Simply put, the issue before us is whether or not petitioners payment of P7,148,433.72
had resulted into the extinguishment of its obligation to respondent under G.R. No.
120097.
Instructive on the issue thus formulated is Article 1248 of the Civil Code. It provides:
ART. 1248. Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists. Neither may
the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may
demand and the debtor may effect the payment of the former without waiting for the
liquidation of the latter.
As borne by the records, petitioner FTI knew very well that respondent TAO was
demanding the sum of P7,194,453.60 as payment for its liability under this Courts
Resolution in G.R. No. 120097. Yet, despite such knowledge, petitioner proceeded to offer
a lesser amount. Under the aforequoted provision of the Civil Code, respondent TAO is thus
justified in its initial refusal to accept petitioners offer of only P7,148,433.72. We cannot
begrudge TAO for receiving the offered amount after it had filed its motion for execution. As
it were, FTIs offer of P7,148,433.72 opened an opportunity for TAO to receive a huge portion
of FTIs obligation to it. In any event, there was no showing that respondent TAO has ever
freed FTI from its obligation after receiving the partial payment.
What is more, it is too late in the day for petitioner to raise at this stage the issue of
whether or not respondent had acceded to its own computation of liability under G.R. No.
120097. It is a factual issue which this Court will not resolve, absent any compelling reason
therefor, of which we find none in this case. In any event, settled is the rule that pure
questions of fact may not be the proper subject of an appeal by certiorari under Rule 45. [15] For

sure, even the conclusion of the Court of Appeals that the letter dated March 13, 1997 of TAOs
president, Alberto Malvar, was a forgery may no longer be reexamined by this Court.
WHEREFORE, this petition is DISMISSED and the impugned issuances of the Court of
Appeals AFFIRMED.
SO ORDERED.

[G.R. No. 119974. June 30, 1999]

RUPERTO L. VILORIA, petitioner, vs. COURT OF APPEALS, LIDA C. AQUINO,

assisted by her husband Gregorio Aquino, MANUEL V. CACANANDO, as
heirs of the late Felicitacion V. Cacanando, RODOLFO V. ANCHETA,
ESTRELLA V. ANCHETA and CARMEN A. NICOLASURA, assisted by her
husband Ramon Nicolasura, as heirs of the late Josefina V. Ancheta and
ANASTACIO L. VILORIA, respondents.
DECISION
BELLOSILLO, J.:
ASSAILED in this petition for review on certiorari is the decision of the Court of
Appeals[1] which affirmed with modification that of the Regional Trial Court, Branch 34,
Balaoan, La Union,[2] declaring petitioner and private respondents as co-owners of the 2/3
portion of the commercial lot located in Cabua-an Oeste, Balaoan, La Union, under TCT No.
T-29060 in the name of Ruperto L. Viloria as trustee, and 1/3 portion of the orchard located
in Nalasin, Balaoan, La Union, under OCT No. 0-1952 in the name of Ruperto, Nicolasa and
Rosaida, all surnamed Viloria.
Sometime in December 1980 Nicolasa Viloria passed away, followed by her sister Rosaida
in June 1989. Both died single and without issue, survived by their brothers Ruperto L.
Viloria, Anastacio L. Viloria, the heirs of their sister Felicitacion V. Cacanando, who
predeceased them, namely, Lida C. Aquino and Manuel V. Cacanando, and the heirs of their
other sister Josefina V. Ancheta, who likewise predeceased them, namely, Rodolfo V.
Ancheta, Estrella V. Ancheta and Carmen A. Nicolasura.
On 18 February 1991 the heirs of Rosaida and Nicolasa Viloria filed an action for partition
with the Regional Trial Court of Balaoan, La Union, against their co-heir Ruperto L.
Viloria. The heirs alleged that during the lifetime of Nicolasa and Rosaida they were coowners in equal shares and pro-indiviso with Ruperto L. Viloria of a commercial lot and an
orchard. After Nicolasa and Rosaida died, their heirs demanded from Ruperto L. Viloria, who
was in possession of the properties, to partition the same among them but he refused claiming
that during their lifetime Nicolasa and Rosaida sold and conveyed to him all their shares,
interests and participation over the properties in question. Ruperto alleged that Nicolasa and
Rosaida sold the commercial lot to him by virtue of a deed of sale executed on 10 August 1965
and duly registered in the Office of the Register of Deeds of La Union, while the heirs of
Josefina V. Ancheta sold and relinquished to him all their claims and ownership over the

commercial lot. As regards the orchard, Ruperto further alleged that it came to his possession
when Nicolasa sold to him her share of the land and the ancestral house standing thereon by
virtue of a private agreement written in Ilocano, referred to as Catulagan, dated 10 June 1978,
while Rosaida sold to him her share of the property by virtue of a deed of sale dated 10
September 1987.
Refuting Rupertos allegations, the heirs of Nicolasa and Rosaida maintained that the
transfer of title of the commercial lot in the name of Ruperto Viloria was only for loan
purposes and not to convey and relinquish ownership over the property, and that Ruperto
assured Nicolasa and Rosaida that they would remain as co-owners and the deed of sale
returned to them. As proof of this arrangement, the heirs asserted that Nicolasa and Rosaida
exercised acts of administration and dominion over the property and collected rentals from
the buildings standing thereon for 25 years or until they died.
Through their co-heirs Lida C. Aquino and Atty. Gerardo Viloria, private respondents also
asserted that while Rosaida Viloria executed a deed of sale conveying her share of the orchard
to Ruperto Viloria, it was without any consideration. However, upon realization of the
iniquitous nature of the document, Rosaida Viloria immediately executed a deed of
revocation of the sale.
On 6 April 1992 the trial court ruled that title over the commercial lot was not in reality
transferred in the name of Ruperto L. Viloria for the reason that the parties to the deed of sale
merely intended to create an express trust.[3] By admitting the trust and assuring his sisters
Nicolasa and Rosaida as well as private respondents that they would remain as co-owners, an
express trust had been created.[4] Petitioner Ruperto Viloria thus became only a trustee to an
express trust which incapacitated him from acquiring for his own benefit the property
committed to his custody although titled in his name. [5] Nicolasa and Rosaida remained as
co-owners of the commercial lot, which upon their demise passed on to their heirs.
The trial court likewise declared that there was no effective conveyance of the 1/3 share of
Rosaida over the orchard in Nalasin since the document of conveyance was in effect nullified
when Rosaida executed the deed of revocation.[6] Neither did the Catulagan allegedly
executed by Nicolasa convey her share of the orchard to Ruperto since she had already
disposed of the property in favor of Rodolfo Ancheta by virtue of a deed of
donation.[7] Consequently, the trial court declared Ruperto L. Viloria and the other heirs as
co-owners of the entire portion of the commercial lot (except the northern portion titled in
the name of Rodolfo, Aurora and Estrella Ancheta) and the entire orchard, and ordered a
partition of the properties such that the commercial lot and the orchard would be divided into
four (4) equal parts each, 1/4 for Ruperto Viloria and 3/4 for the other heirs.[8]
Apparently dissatisfied with the adjudication by the lower court, Ruperto L. Viloria
elevated the matter to the Court of Appeals which affirmed the findings of the court a quo with
the modification that petitioner and private respondents should be declared co-owners of the
commercial lot only to the extent of 2/3 of the property and co-owners of 1/3 of the
orchard.[9] Indeed, the trial court erred in ordering that the entire commercial lot be divided
into four (4) equal parts since petitioner Ruperto Viloria already owned 1/3 as co-owner
thereof. Therefore, with regard to the commercial lot, what should be divided into four (4)
equal parts should only be the 2/3 share of Nicolasa and Rosaida Viloria. The appellate court
further held that the deed of revocation executed by Rosaida did not rescind the 1987 deed of

sale over the orchard since it was duly notarized and hence enjoyed the presumption of
validity which could only be annulled through proper judicial action. In the absence thereof,
the 1987 deed of sale remained valid. Hence, only the 1/3 share of Rosaida Viloria in the
orchard should be divided among petitioner and private respondents.
Petitioner now impugns the decision of the Court of Appeals as he contends that the
appellate court committed serious errors when it affirmed the findings of the lower court that
(a) the 1965 deed of sale of the commercial lot was an express trust and not a true conveyance
of real property, and (b) that prescription did not run against private respondents.
Petitioner argues that the existence of an express trust cannot be deduced from the
collection of rentals by Nicolasa and Rosaida since what they collected were merely rentals
for the use of the buildings and improvements on the property as differentiated from rentals
for the use of the land itself.[10] Neither can the existence of an express trust be inferred from
the consent and conformity to the waiver of rights issued by Nicolasa and Rosaida since they
were not signatories to the actual document, petitioner being the sole signatory thereto. [11]
These issues would call for the examination of the probative value of the evidence
presented by the parties before the trial court. As we have ruled in a litany of cases, resort to
judicial review of the decisions of the Court of Appeals under Rule 45 is confined only to errors
of law. The findings of fact by the lower court are conclusive absent any palpable error or
arbitrariness.After carefully examining the records, we find no reason to depart from this
principle. The lower courts are in a much better position to properly evaluate the evidence
and hence we find no other recourse but to leave it untouched and proceed with the
determination of the other issues raised.
Petitioner further contends that the appellate court committed a grave error in law when
it assumed jurisdiction over the validity of the 1965 deed of sale since it was never raised as
an issue in Civil Case No. 417 where plaintiffs, private respondents herein, merely asked for
partition without praying for the annulment of the document, [12] hence, according to
petitioner, public respondent overstepped the boundaries of its jurisdiction when it classified
the 1965 sale as merely one of express trust and not a true conveyance.
The contention is without merit. In the action for partition private respondents claimed
that they were co-owners of the property subject thereof hence entitled to their share, while
petitioner denied their claim by asserting that their rights were supplanted by his by virtue of
the deed of absolute sale. As a result, the issue of co-ownership and the legality of the 1965
sale have to be resolved in the partition case. As enunciated in Catapusan v. CA,[13] until and
unless the issue of ownership is definitely resolved, it would be premature to effect a partition
of the properties.Thus, the appellate court did not exceed the limits of its jurisdiction when it
ruled on the validity of the 1965 sale.
Petitioner still further asserts that the 1965 deed of sale should not have been declared as
an express trust in the absence of a court declaration annulling and declaring it as such,
pursuant to Art. 1390 of New Civil Code.[14] Likewise, petitioner points out that the 1965 deed
of sale should have enjoyed the presumption of validity since it was duly notarized. [15]
Article 1390 of the New Civil Code has no bearing in the instant case. The provision alludes
to contracts which could be voided by reason of absence or infirmity of consent and not to
simulated contracts. The parties in the instant case freely gave their consent to the 1965 deed

of sale but intended it to be merely a trust agreement and not a relinquishment of rights. It is
therefore the nature of the contract that is in issue and not the character of the consent
given. Moreover, a separate declaration of nullity is no longer necessary since the trial court
already assumed jurisdiction over the validity of the 1965 deed of sale in determining whether
co-ownership in fact existed and whether partition was proper.
The fact that a deed of sale is notarized does not necessarily justify the conclusion that the
sale is a true conveyance to which the parties thereto are irrevocably and undeniably
bound.[16]Although the notarization of the deed of sale vests in its favor the presumption of
regularity, it does not validate nor make binding an instrument never intended, in the first
place, to have any binding legal effect upon the parties thereto.[17]
Petitioner argues that the determination of the preceding issue is contrary to the principle
laid down in Dino v. CA[18] where it was held that under the Torrens system registration is the
operative act that gives validity to the transfer or creates a lien upon the land. The deed of
sale being duly registered in the Office of the Register of Deeds of La Union in 1965 and a
certificate of title issued in his name, thereby conferring upon him valid and legal title to the
property, cannot thereafter be declared as merely an express trust.[19]
Petitioner cannot rely on the registration of the land subject of the 1965 sale and the
corresponding issuance of a certificate of title in his name as vesting ownership on him
because the trial court found the deed of sale to be in fact an express trust. It has been held
that a trustee who obtains a Torrens title over property held in trust by him for another cannot
repudiate the trust by relying on the registration.[20]
Finally, petitioner claims that the ruling that the heirs are entitled to the property in
question is contrary to the law on succession.[21] Citing Locsin v. CA,[22] petitioner postulates
that property transferred or conveyed by one person to another during the lifetime of the
former no longer forms part of his estate at the time of his death to which his heirs may lay
claim. Since the shares of Nicolasa and Rosaida in the commercial lot were already sold to
Ruperto Viloria by virtue of the 1965 deed of sale the heirs had nothing more to inherit.
The contention is without merit. The claim that the ruling of the appellate court is contrary
to the law on succession and jurisprudence proceeds from the assumption that the deed of
sale was a true conveyance. However, the Court finds that the 1965 deed of sale was in fact an
express trust and hence no actual conveyance took place. The owners Nicolasa and Rosaida
did not relinquish their claim of ownership over the commercial lot but continued to exercise
acts of administration and dominion over it, hence, it continued to form part of their estate
and devolved upon their demise on their heirs.
As regards prescription invoked by petitioner, it is contended that prescription has
already run against co-owners Nicolasa and Rosaida Viloria since Ruperto Viloria openly,
publicly and continuously owned and possessed the properties for a period of more than 25
years, or from 1965 up to the filing of the case in 1991, with good and just title [23] pursuant to
Arts. 1117,[24] 1127[25]and 1134[26] of the New Civil Code.
We disagree. Prescriptive period for an action of reconveyance of real property based on
implied or constructive trust which is counted from the date of registration of property
applies when the plaintiff is not in possession of the contested property. [27] Moreover, an
action to compel the trustee to convey property registered in his name for the benefit of

the cestui que trust does not prescribe unless the trustee repudiates the trust.[28] Nicolasa and
Rosaida were in possession of the land and were exercising acts of ownership and
administration over the property consistent with their responsibility as co-owners. At no time
did Ruperto openly repudiate the claims of his co-owners but continued to assure them of
their rights regarding the property. Hence, prescriptive period did not commence to run
against private respondents.
WHEREFORE, the decision of the Court of Appeals declaring petitioner and private
respondents as co-owners of the 2/3 portion of the commercial lot located in Cabua-an Oeste
(Poblacion), Balaoan, La Union, under TCT No. T-29060 in the name of Ruperto Viloria as
trustee, and 1/3 portion of the orchard located in Nalasin, Balaoan, La Union, under OCT No.
O-1952 in the name of Ruperto, Nicolasa and Rosaida, all surnamed Viloria,
is AFFIRMED. The properties in Cabua-an Oeste and Nalasin, Balaoan, La Union, shall be
divided into 4 equal parts: 1/4 for petitioner, and 3/4 for private respondents Anastacio L.
Viloria; Lida C. Aquino, assisted by her husband Gregorio Aquino, and Manuel V. Cacanando,
as heirs of the late Felicitacion V. Cacanando; and Rodolfo V. Ancheta, Estrella V. Ancheta
and Carmen A. Nicolasura, assisted by her husband Ramon Nicolasura, as heirs of the late
Josefina V. Ancheta.
SO ORDERED.