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G.R. No.

L-24968 April 27, 1972


SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avanceña and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965
sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to
plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the
date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that
judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation
(RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00
for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of
the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the
strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July
1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of
the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured
by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and
equipment to be installed. Among the other terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China
Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability
of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this
Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having
otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms
laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only
to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes,
Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S.
Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares
in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of
its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved
loan ... with special reference as to the advisability of financing this particular project based on present conditions
obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the
loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified
in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied
for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men
to meet with each other and undertake the necessary studies, although in appointing its own committee Saura,
Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept
new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions
mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China
Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on
the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in
Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon
Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No.
145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination
of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for
the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of
financing this particular project based on present conditions obtaining in the operation of jute mills, and after
having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of
the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000
to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place
the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers
Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered
the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration
of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was
denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of
P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the
loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China
Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the
P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of
P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the
borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw materials, the
Department of Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its operation are
available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the requirements
of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it
was explained that the certification by the Department of Agriculture and Natural Resources was required "as the
intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally
available raw materials." This point is important, and sheds light on the subsequent actuations of the parties.
Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local
raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between
the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate
a Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100%
local raw materials, principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture
"is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is
presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and
to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources
as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc.
itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a
special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or
probably even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to
bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that
releases of the loan be made as follows:
a) For the payment of the receipt for jute mill machineries with the Prudential Bank & Trust
Company P250,000.00 (For immediate release)
b) For the purchase of materials and equip- ment per attached list to enable the jute mill to operate
182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the opening of the letter of credit for raw jute for
$25,000.00.
2) P25,000.00 to be released upon arrival of raw jute.
3) P17,586.09 to be released as soon as the mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of your loan
under consideration of P500,000. As stated in our letter of December 22, 1954, the releases
of the loan, if revived, are proposed to be made from time to time, subject to availability of
funds towards the end that the sack factory shall be placed in actual operating status. We
shall be able to act on your request for revised purpose and manner of releases upon re-
appraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural Resources
certify that the raw materials needed are available in the immediate vicinity and that there is
prospect of increased production thereof to provide adequately the requirements of the
factory, we wish to reiterate that the basis of the original approval is to develop the
manufacture of sacks on the basis of the locally available raw materials. Your statement that
you will have to rely on the importation of jute and your request that we give you assurance
that your company will be able to bring in sufficient jute materials as may be necessary for
the operation of your factory, would not be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead,
it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of
cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed
on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract
Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt
heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust
Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc.,
the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP)
to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the
plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill
project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties
and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal:
(1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that
there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms
thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code,
which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the
delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00
was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But
this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to
be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this.
It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954,
restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw
materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity;
and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the
factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but
rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in
RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be
utilized exclusively for the following purposes: for construction of factory building — P250,000.00; for payment
of the balance of purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00."
Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of
January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year,"
and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This
was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying
as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for
the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with
RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked
that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in
the nature cf mutual desistance — what Manresa terms "mutuo disenso"1 — which is a mode of extinguishing
obligations. It is a concept that derives from the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment.2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of
contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the
mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-
compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which
application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its
own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt
that the said agreement had been extinguished by mutual desistance — and that on the initiative of the plaintiff-
appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the
respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the
plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
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.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.
Concepcion J J., took no part.
De Castro, J., is on leave.
[G.R. No. 133632. February 15, 2002]
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS
MANAGEMENT & DEVELOPMENT CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals
and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887.The appellate court affirmed the
judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for
foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private
respondents ALS Management and Development Corporation and Antonio K. Litonjua,[1] consolidated
with (b) Civil Case No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction
by the private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad
faith. It awarded private respondents the amount of P300,000 for moral damages, P50,000 for
exemplary damages, and P50,000 for attorneys fees and expenses for litigation. It likewise dismissed
the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house
on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure
the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio
Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas
indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of P500,000 to be applied to Roas debt and
secured by the same property, at an interest rate of 20% per annum and service fee of 1% per annum
on the outstanding principal balance payable within ten years in equal monthly amortization
of P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization
became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall commence on May 1,
1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum
of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated
when BPIIC applied thereto the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what
was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground
that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted
to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31).
A notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged,
among others, that they were not in arrears in their payment, but in fact made an overpayment as
of June 30, 1984. They maintained that they should not be made to pay amortization before the actual
release of the P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only
the total amount of P464,351.77 was released to private respondents. Hence, applying the effects of
legal compensation, the balance of P35,648.23 should be applied to the initial monthly amortization for
the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093,
thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation and
Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount of loan granted by BPI to
ALS and Litonjua was only in the principal sum of P464,351.77, with interest at 20% plus service charge of 1%
per annum, payable on equal monthly and successive amortizations at P9,283.83 for ten (10) years or one
hundred twenty (120) months. The amortization schedule attached as Annex A to the Deed of Mortgage is
correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their
publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay ALS
and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.
Costs against BPI.
SO ORDERED.[2]
Both parties appealed to the Court of Appeals. However, private respondents appeal was
dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.
SO ORDERED.[3]
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery
of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected
only on September 13, 1982, the date when BPIIC released the purported balance of the P500,000
loan after deducting therefrom the value of Roas indebtedness. Thus, payment of the monthly
amortization should commence only a month after the said date, as can be inferred from the stipulations
in the contract. This, despite the express agreement of the parties that payment shall commence
on May 1, 1981. From October 1982 to June 1984, the total amortization due was only P194,960.43.
Evidence showed that private respondents had an overpayment, because as of June 1984, they
already paid a total amount of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially
foreclose the mortgage and cause the publication in newspapers concerning private respondents
delinquency in the payment of their loan. This fact constituted sufficient ground for moral damages in
favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition,
where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE
LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA
122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE
BY ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS.
COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple
loan is perfected upon the delivery of the object of the contract, the loan contract in this case was
perfected only on September 13, 1982. Petitioner claims that a contract of loan is a consensual contract,
and a loan contract is perfected at the time the contract of mortgage is executed conformably with our
ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was
perfected on March 31, 1981, the date when the mortgage deed was executed, hence, the amortization
and interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on August
1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage
of Frank Roas loan. This finds support in the registration on March 31, 1981 of the Deed of Absolute
Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing
the Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan
should be attributed to private respondents. As BPIIC only agreed to extend a P500,000 loan, private
respondents were required to reduce Frank Roas loan below said amount. According to petitioner,
private respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code,[4] a
simple loan is perfected upon the delivery of the object of the contract, hence a real contract. In this
case, even though the loan contract was signed on March 31, 1981, it was perfected only on September
13, 1982, when the full loan was released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private respondents, Bonnevie must
be construed to mean that the contract to extend the loan was perfected on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full loan to private respondents
on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was
perfected on March 31, 1981, and their payment did not start a month thereafter, still no default took
place. According to private respondents, a perfected loan agreement imposes reciprocal obligations,
where the obligation or promise of each party is the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did not
incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as it was
only on September 13, 1982 when petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real contract.
It is perfected only upon the delivery of the object of the contract.[5] Petitioner misapplied Bonnevie. The
contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first
clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application
through a board resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not released. Later,
petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract
which under normal circumstances could have made the bank liable for not releasing the
loan. However, since the fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery of the
object of the contract for its perfection and which gives rise to obligations only on the part of the
borrower.[6]
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the
other, was perfected only on September 13, 1982, the date of the second release of the loan. Following
the intentions of the parties on the commencement of the monthly amortization, as found by the Court
of Appeals, private respondents obligation to pay commenced only on October 13, 1982, a month after
the perfection of the contract.[7]
We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other.[8] As averred
by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration
that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic principle in reciprocal obligations that neither party incurs
in delay, if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.[9] Only when a party has performed his part of the contract can he demand that
the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization after September 13, 1982 for
it was only then when it complied with its obligation under the loan contract.Therefore, in computing the
amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the
starting date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual release
of the loan and whether private respondents were the cause of the delay in the release of the loan, are
factual. Since petitioner has not shown that the instant case is one of the exceptions to the basic rule
that only questions of law can be raised in a petition for review under Rule 45 of the Rules of
Court,[10] factual matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary
damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised
its right under the mortgage contract because private respondents were irregular in their monthly
amortization. It invoked our ruling in Social Security System vs. Court of Appeals, 120 SCRA 707,
where we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals the
negligence of the appellant is not so gross as to warrant moral and temperate damages, except that, said Court
reduced those damages by only P5,000.00 instead of eliminating them. Neither can we agree with the findings
of both the Trial Court and respondent Court that the SSS had acted maliciously or in bad faith. The SSS was of
the belief that it was acting in the legitimate exercise of its right under the mortgage contract in the face of
irregular payments made by private respondents and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a ground for an award of moral damages
in the same way that a clearly unfounded civil action is not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said
damages because it insisted on the payment of amortization on the loan even before it was
released. Further, it did not make the corresponding deduction in the monthly amortization to conform
to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in bad faith.
Consequently, we should rule out the award of moral and exemplary damages.[11]
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the amount actually released
to private respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given in recognition of their
rights which were violated by BPIIC.[12] For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled
to litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution
dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award
of moral and exemplary damages in favor of private respondents is DELETED, but the award to them
of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay
private respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
[G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA
QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth
Division of the respondent Court of Appeals promulgated on 21 December 1994[1], which affirmed in
toto the decision handed down by the Regional Trial Court (RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a
complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into
with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the
questioned Real Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court
of Appeals upheld the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated
Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos
(P95,000.00), which was earlier issued to Naguiat by the Corporate Resources Financing Corporation.
She also issued her own Filmanbank Check No. 065314, to the order of Queao, also dated 11 August
1980 and for the amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks
were to constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged
properties.[4] On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a
promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest
at 12% per annum, payable on 11 September 1980.[5] Queao also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency
of funds. On the following day, 12 September 1980, Queao requested Security Bank to stop payment
of her postdated check, but the bank rejected the request pursuant to its policy not to honor such
requests if the check is drawn against insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the
loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks
were retained by Ruebenfeldt, who purportedly was Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province,
who then scheduled the foreclosure sale on 14 August 1981.Three days before the scheduled sale,
Queao filed the case before the Pasay City RTC,[8] seeking the annulment of the mortgage deed. The
trial court eventually stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null
and void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged
lots.[10] Naguiat appealed the decision before the Court of Appeals, making no less than eleven
assignments of error. The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of
whether Queao had actually received the loan proceeds which were supposed to be covered by the
two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public
document, the mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking
the rule on the non-binding effect of the admissions of third persons.[11]
The resolution of the issues presented before this Court by Naguiat involves the determination of
facts, a function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which
governs appeal by certiorari, only questions of law may be raised[12] as the Supreme Court is not a trier
of facts.[13] The resolution of factual issues is the function of lower courts, whose findings on these
matters are received with respect and are in fact generally binding on the Supreme Court.[14] A question
of law which the Court may pass upon must not involve an examination of the probative value of the
evidence presented by the litigants.[15] 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; there is a question of fact when the
doubt or difference arises as to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts
of the lower courts.[17] But Naguiats case does not fall under any of the exceptions. In any event, both
the decisions of the appellate and trial courts are supported by the evidence on record and the
applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that Queao received
the loan proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the
rule that a public document enjoys the presumption of validity and truthfulness of its contents. The Court
of Appeals, however, is correct in ruling that the presumption of truthfulness of the recitals in a public
document was defeated by the clear and convincing evidence in this case that pointed to the absence
of consideration.[18] This Court has held that the presumption of truthfulness engendered by notarized
documents is rebuttable, yielding as it does to clear and convincing evidence to the contrary, as in this
case.[19]
On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued
or endorsed were actually encashed or deposited. The mere issuance of the checks did not result in
the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange
and mercantile documents such as checks shall produce the effect of payment only when they have
been cashed.[20] It is only after the checks have produced the effect of payment that the contract of loan
may be deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object
of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery
of the object of the contract.[21] In this case, the objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed
the checks were encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on
the ground that they could not bind her following the res inter alia acta alteri nocere non debet rule. The
Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized
representative or agent of Naguiat the situation falls under a recognized exception to the rule.[22] Still,
Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt
is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not
a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao the
checks she issued or indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction that Queao came to know Naguiat.[23] It was
also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that occasion, on her
own and without Queao asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00
payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by estoppel[25] citing Article 1873 of
the Civil Code.[26] Apparently, it considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of
Naguiat, but Naguiat did nothing to correct Queaos impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds him out to the public as such,
cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent
third parties dealing with such person in good faith, and in the honest belief that he is what he appears
to be.[27] The Court of Appeals is correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is
irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did
not remit and the borrower did not receive the proceeds of the loan. That being the case, it follows that
the mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage
contract is the same as that of the principal contract from which it receives life, and without which it
cannot exist as an independent contract.[28] A mortgage contract being a mere accessory contract, its
validity would depend on the validity of the loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.
FIRST DIVISION

CAROLYN M. GARCIA, G.R. No. 154878


Petitioner,
Present:

PUNO, C.J., Chairperson,


SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

RICA MARIE S. THIO,


Respondent. Promulgated:

March 16, 2007

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DECISION

CORONA, J.:

Assailed in this petition for review on certiorari[1] are the June 19, 2002 decision[2] and August 20,
2002 resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28,
1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia
a crossed check[4] dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou
Santiago.[5] Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26,
June 26 and July 26, all in 1995) the amount of US$3,000[6] and P76,500[7] on July 26,[8] August 26, September
26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check[9] dated June 29, 1995 in the
amount of P500,000, also payable to the order of Marilou Santiago.[10] Consequently, petitioner received from
respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.[11]

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000
and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and
damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000,
with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month
from November 5, 1995, plus attorneys fees and actual damages.[12]

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000
with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.[13] The amount
of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000
at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.[14] The amount of this
loan was covered by the second check. For both loans, no promissory note was executed since petitioner and
respondent were close friends at the time.[15]Respondent paid the stipulated monthly interest for both loans but on
their maturity dates, she failed to pay the principal amounts despite repeated demands.[16]

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed
checks to Santiago.[17] She issued the checks for P76,000 and P20,000 not as payment of interest but to
accommodate petitioners request that respondent use her own checks instead of Santiagos.[18]

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.[19] It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly
interest of 4%:[20]

WHEREFORE, finding preponderance of evidence to sustain the instant complaint,


judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the
amount of:

1. [US$100,000.00] or its peso equivalent with interest thereon


at 3% per month from October 26, 1995 until fully paid;

2. P500,000.00 with interest thereon at 4% per month


from November 5, 1995 until fully paid.

3. P100,000.00 as and for attorneys fees; and


4. P50,000.00 as and for actual damages.

For lack of merit, [respondents] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.[21]

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between
the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim
that [respondent] indeed borrowed money from her. There is nothing in the record that shows
that [respondent] received money from [petitioner]. What is evident is the fact that [respondent]
received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00,
payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in
the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were
issued by [petitioner]. The checks received by [respondent], being crossed, may not be
encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago
herself.

It must be noted that crossing a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only onceto one who has
an account with the bank; (c) and the act of crossing the check serves as warning to the holder that
the check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and
delivery to the payee in contemplation of law since the latter is not the person who could take the
checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither
could she be deemed as an agent of Marilou Santiago with respect to the checks because she was
merely facilitating the transactions between the former and [petitioner].

With the foregoing circumstances, it may be fairly inferred that there were really no
contracts of loan that existed between the parties. x x x (emphasis supplied)[22]
Hence this petition.[23]
As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA
(which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held
that there were contracts of loan) are contradictory.[24]

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of
the contract.[25] This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is


binding upon the parties, but the commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks
were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor
an equal amount.[26]
It is undisputed that the checks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to
be answered is: who borrowed money from petitioner respondent or Santiago?

Petitioner insists that it was upon respondents instruction that both checks were made payable
to Santiago.[27] She maintains that it was also upon respondents instruction that both checks were delivered to her
(respondent) so that she could, in turn, deliver the same to Santiago.[28] Furthermore, she argues that once
respondent received the checks, the latter had possession and control of them such that she had the choice to either
forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.[29]

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the
actual or constructive possession or control of another.[30] Although respondent did not physically receive the
proceeds of the checks, these instruments were placed in her control and possession under an arrangement
whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago.[31] It was highly improbable
that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or
any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on
the other hand, already had transactions with Santiago at that time.[32]
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties
list of witnesses) testified that respondents plan was for petitioner to lend her money at a monthly interest rate of
3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of
2%.[33] This explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent
has not shown any reason why Ruiz testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000
each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she
also issued her own checks in the amount of P20,000 each for four months.[34] According to respondent, she
merely accommodated petitioners request for her to issue her own checks to cover the interest payments since
petitioner was not personally acquainted with Santiago.[35] She claimed, however, that Santiago would replace the
checks with cash.[36] Her explanation is simply incredible.It is difficult to believe that respondent would put herself
in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not
contract. We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence
to be believed, it must not only proceed from the mouth of a credible witness, but must be credible
in itself such as the common experience of mankind can approve as probable under the
circumstances. We have no test of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant to these belongs to the
miraculous, and is outside of juridical cognizance.[37]

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner,
who was listed as one of her (Santiagos) creditors.[38]

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.[39] The
presumption is that evidence willfully suppressed would be adverse if produced.[40] Respondent was not able to
overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts
of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent
liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 and P500,000 loans respectively. There was no written proof of the interest payable except for
the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code
provides that [n]o interest shall be due unless it has been expressly stipulated in writing.

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article
2209 of the Civil Code. It is well-settled that:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.[41]

Hence, respondent is liable for the payment of legal interest per annum to be computed from November
21, 1995, the date when she received petitioners demand letter.[42] From the finality of the decision until it is fully
paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a
forbearance of credit.[43]
The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since the
RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002
resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February
28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with
the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at
12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the
date of finality will earn interest of 12% per annum until fully paid.The award of actual damages and attorneys
fees is deleted.

SO ORDERED.
POLO S. PANTALEON, G.R. No. 174269
Petitioner,
Present:

CARPIO MORALES, J.,*


Acting Chairperson,
- versus - TINGA,
VELASCO,
LEONARDO-DE CASTRO,** and
BRION, JJ.
AMERICAN EXPRESS
INTERNATIONAL, INC., Promulgated:
Respondent.
May 8, 2009

x---------------------------------------------------------------------------x

DECISION

TINGA, J.:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto, joined
an escorted tour of Western Europeorganized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour
group arrived in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour. As the
group had arrived late in the city, they failed to engage in any sight-seeing. Instead, it was agreed upon that they
would start early the next day to see the entire city before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster Diamond House
in Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster should end by 9:30
a.m. to allow enough time to take in a guided city tour of Amsterdam. The group was ushered into Coster shortly
before 9:00 a.m., and listened to a lecture on the art of diamond polishing that lasted for around ten
minutes.[1] Afterwards, the group was led to the stores showroom to allow them to select items for purchase. Mrs.
Pantaleon had already planned to purchase even before the tour began a 2.5 karat diamond brilliant cut, and she
found a diamond close enough in approximation that she decided to buy.[2] Mrs. Pantaleon also selected for
purchase a pendant and a chain,[3] all of which totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was
slated to depart from the store. The sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip.
The charge purchase was then referred electronically to respondents Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved. His
son, who had already boarded the tour bus, soon returned to Coster and informed the other members of the
Pantaleon family that the entire tour group was waiting for them. As it was already 9:40 a.m., and he was already
worried about further inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The store
manager though asked plaintiff to wait a few more minutes. After 15 minutes, the store manager informed
Pantaleon that respondent had demanded bank references. Pantaleon supplied the names of his depositary banks,
then instructed his daughter to return to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes
after the tour group was supposed to have left the store, Coster decided to release the items even without
respondents approval of the purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of
apology were met by their tourmates with stony silence.[4] The tour groups visible irritation was aggravated when
the tour guide announced that the city tour of Amsterdam was to be canceled due to lack of remaining time, as
they had to catch a 3:00 p.m. ferry at Calais, Belgium to London.[5]Mrs. Pantaleon ended up weeping, while her
husband had to take a tranquilizer to calm his nerves.

It later emerged that Pantaleons purchase was first transmitted for approval to respondents Amsterdam
office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at 9:33 a.m, then finally approved
at 10:19 a.m., Amsterdam time.[6] The Approval Code was transmitted to respondents Amsterdam office at 10:38
a.m., several minutes after petitioner had already left Coster, and 78 minutes from the time the purchases were
electronically transmitted by the jewelry store to respondents Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning
to Manila on 12 November 1992. While in the United States, Pantaleon continued to use his AmEx card, several
times without hassle or delay, but with two other incidents similar to the Amsterdambrouhaha. On 30 October
1991, Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his
credit card purchase and borrowed money instead from a friend, after more than 30 minutes had transpired without
the purchase having been approved. On 3 November 1991, Pantaleon used the card to purchase childrens shoes
worth $87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter[7] through counsel to the respondent,
demanding an apology for the inconvenience, humiliation and embarrassment he and his family thereby suffered
for respondents refusal to provide credit authorization for the aforementioned purchases.[8] In response,
respondent sent a letter dated 24 March 1992,[9] stating among others that the delay in authorizing the purchase
from Coster was attributable to the circumstance that the charged purchase of US $13,826.00 was out of the usual
charge purchase pattern established.[10] Since respondent refused to accede to Pantaleons demand for an apology,
the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of Makati City,
Branch 145.[11] Pantaleon prayed that he be awarded P2,000,000.00, as moral damages; P500,000.00, as
exemplary damages; P100,000.00, as attorneys fees; and P50,000.00 as litigation expenses.[12]

On 5 August 1996, the Makati City RTC rendered a decision[13] in favor of Pantaleon, awarding him P500,000.00
as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as
expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon moved for partial reconsideration,
praying that the trial court award the increased amount of moral and exemplary damages he had prayed for.[14] The
RTC denied Pantaleons motion for partial reconsideration, and thereafter gave due course to respondents Notice
of Appeal.[15]

On 18 August 2006, the Court of Appeals rendered a decision[16] reversing the award of damages in favor of
Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this petition.

The key question is whether respondent, in connection with the aforementioned transactions, had committed a
breach of its obligations to Pantaleon. In addition, Pantaleon submits that even assuming that respondent had not
been in breach of its obligations, it still remained liable for damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondents credit authorizer,
Edgardo Jaurigue, that the normal approval time for purchases was a matter of seconds. Based on that standard,
respondent had been in clear delay with respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of respondent in approving the purchases. However, it
made two critical conclusions in favor of respondent. First, the appellate court ruled that the delay was not
attended by bad faith, malice, or gross negligence. Second, it ruled that respondent had exercised diligent efforts
to effect the approval of the purchases, which were not in accordance with the charge pattern petitioner had
established for himself, as exemplified by the fact that at Coster, he was making his very first single charge
purchase of US$13,826, and the record of [petitioner]s past spending with [respondent] at the time does not
favorably support his ability to pay for such purchase.[17]

On the premise that there was an obligation on the part of respondent to approve or disapprove with dispatch the
charge purchase, petitioner argues that the failure to timely approve or disapprove the purchase constituted mora
solvendi on the part of respondent in the performance of its obligation. For its part, respondent characterizes the
depiction by petitioner of its obligation to him as to approve purchases instantaneously or in a matter of seconds.

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the
obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially or
extrajudicially requires the debtors performance.[18] Petitioner asserts that the Court of Appeals had wrongly
applied the principle of mora accipiendi, which relates to delay on the part of the obligee in accepting the
performance of the obligation by the obligor. The requisites of mora accipiendi are: an offer of performance by
the debtor who has the required capacity; the offer must be to comply with the prestation as it should be performed;
and the creditor refuses the performance without just cause.[19] The error of the appellate court, argues petitioner,
is in relying on the invocation by respondent of just cause for the delay, since while just cause is determinative
of mora accipiendi, it is not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor,[20] with the card company
as the creditor extending loans and credit to the card holder, who as debtor is obliged to repay the creditor. This
relationship already takes exception to the general rule that as between a bank and its depositors, the bank is
deemed as the debtor while the depositor is considered as the creditor.[21] Petitioner is asking us, not baselessly,
to again shift perspectives and again see the credit card company as the debtor/obligor, insofar as it has the
obligation to the customer as creditor/obligee to act promptly on its purchases on credit.

Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent as the
creditor in the context of this cause of action. If there was delay on the part of respondent in its normal role as
creditor to the cardholder, such delay would not have been in the acceptance of the performance of the debtors
obligation (i.e., the repayment of the debt), but it would be delay in the extension of the credit in the first place.
Such delay would not fall under mora accipiendi, which contemplates that the obligation of the debtor, such as
the actual purchases on credit, has already been constituted. Herein, the establishment of the debt itself (purchases
on credit of the jewelry) had not yet been perfected, as it remained pending the approval or consent of the
respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize
that there was indeed an obligation on the part of respondent to act on petitioners purchases with timely dispatch,
or for the purposes of this case, within a period significantly less than the one hour it apparently took before the
purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent
in acting on petitioners purchase at Coster did constitute culpable delay on its part in complying with its obligation
to act promptly on its customers purchase request, whether such action be favorable or unfavorable. We quote the
trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was
a matter of seconds.

Plaintiff testified that his personal experience with the use of the card was that except for
the three charge purchases subject of this case, approvals of his charge purchases were always
obtained in a matter of seconds.

Defendants credit authorizer Edgardo Jaurique likewise testified:

Q. You also testified that on normal occasions, the normal approval time for
charges would be 3 to 4 seconds?

A. Yes, Maam.

Both parties likewise presented evidence that the processing and approval of plaintiffs
charge purchase at the Coster Diamond House was way beyond the normal approval time of a
matter of seconds.

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15
a.m. and by the time he had to leave the store at 10:05 a.m., no approval had yet been received. In
fact, the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that
defendants Amsterdam office received the request to approve plaintiffs charge purchase at 9:20
a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster
at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese [sic] Positive
Identification of Card holder necessary further charges require bank information due to high
exposure. By Jack Manila.

The delay in the processing is apparent to be undue as shown from the frantic successive
queries of Amexco Amsterdam which reads: US$13,826. Cardmember buying jewels. ID seen.
Advise how long will this take? They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all
times Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge
purchase referred to it, yet it sat on its hand, unconcerned.

xxx

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction
shows how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed
in Phoenix time from 01:20 when the charge purchased was referred for authorization, defendants
own record shows:

01:22 the authorization is referred to Manila Amexco

01:32 Netherlands gives information that the identification of the cardmember


has been presented and he is buying jewelries worth US $13,826.

01:33 Netherlands asks How long will this take?

02:08 Netherlands is still asking How long will this take?

The Court is convinced that defendants delay constitute[s] breach of its contractual
obligation to act on his use of the card abroad with special handling.[22](Citations omitted)
xxx

Notwithstanding the popular notion that credit card purchases are approved within seconds, there really is no
strict, legally determinative point of demarcation on how long must it take for a credit card company to approve
or disapprove a customers purchase, much less one specifically contracted upon by the parties. Yet this is one of
those instances when youd know it when youd see it, and one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card purchase. It is long enough time for the
customer to walk to a bank a kilometer away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as to approve or disapprove the purchase in timely
dispatch, and not to approve the purchase instantaneously or within seconds. Certainly, had respondent
disapproved petitioners purchase within seconds or within a timely manner, this particular action would have
never seen the light of day. Petitioner and his family would have returned to the bus without delay internally
humiliated perhaps over the rejection of his card yet spared the shame of being held accountable by newly-made
friends for making them miss the chance to tour the city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the credit
it is extending upon on a particular purchase was indeed contracted by the cardholder, and that the cardholder is
within his means to make such transaction. The culpable failure of respondent herein is not the failure to timely
approve petitioners purchase, but the more elemental failure to timely act on the same, whether favorably or
unfavorably. Even assuming that respondents credit authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why respondent could not have promptly informed petitioner the reason for the delay,
and duly advised him that resolving the same could take some time. In that way, petitioner would have had
informed basis on whether or not to pursue the transaction at Coster, given the attending circumstances. Instead,
petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to
confront the wrath of foreign folk.

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith,
and the court should find that under the circumstances, such damages are due. The findings of the trial court are
ample in establishing the bad faith and unjustified neglect of respondent, attributable in particular to the dilly-
dallying of respondents Manila credit authorizer, Edgardo Jaurique.[23] Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is silent
as to the amount of time it should take defendant to grant authorization for a charge purchase,
defendant acknowledged that the normal time for approval should only be three to four seconds.
Specially so with cards used abroad which requires special handling, meaning with priority.
Otherwise, the object of credit or charge cards would be lost; it would be so inconvenient to use
that buyers and consumers would be better off carrying bundles of currency or travellers checks,
which can be delivered and accepted quickly. Such right was not accorded to plaintiff in the
instances complained off for reasons known only to defendant at that time. This, to the Courts
mind, amounts to a wanton and deliberate refusal to comply with its contractual obligations, or at
least abuse of its rights, under the contract.[24]

xxx
The delay committed by defendant was clearly attended by unjustified neglect and bad
faith, since it alleges to have consumed more than one hour to simply go over plaintiffs past credit
history with defendant, his payment record and his credit and bank references, when all such data
are already stored and readily available from its computer. This Court also takes note of the fact
that there is nothing in plaintiffs billing history that would warrant the imprudent suspension of
action by defendant in processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?

A. Nothing in arrears at that time.

Q. You were well aware of this fact on this very date?

A. Yes, sir.

Mr. Jaurique further testified that there were no delinquencies in plaintiffs account.[25]

It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to the
particular injuries under Article 2217 of the Civil Code for which moral damages are remunerative.[26] Moral
damages do not avail to soothe the plaints of the simply impatient, so this decision should not be cause for relief
for those who time the length of their credit card transactions with a stopwatch. The somewhat unusual attending
circumstances to the purchase at Coster that there was a deadline for the completion of that purchase by petitioner
before any delay would redound to the injury of his several traveling companions gave rise to the moral shock,
mental anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded
by the RTC.[27] Those circumstances are fairly unusual, and should not give rise to a general entitlement for
damages under a more mundane set of facts.

We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast rule
in determining what would be a fair and reasonable amount of moral damages, since each case must be governed
by its own peculiar facts, however, it must be commensurate to the loss or injury suffered.[28] Petitioners original
prayer for P5,000,000.00 for moral damages is excessive under the circumstances, and the amount awarded by
the trial court of P500,000.00 in moral damages more seemly.

Likewise, we deem exemplary damages available under the circumstances, and the amount of P300,000.00
appropriate. There is similarly no cause though to disturb the determined award of P100,000.00 as attorneys fees,
and P85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals
is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil Case
No. 92-1665 is hereby REINSTATED. Costs against respondent.

SO ORDERED.
ALEJANDRA MINA, ET AL., plaintiffs-appellants, vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.

N. Segundo for appellants.


Iñigo Bitanga for appellees.

ARELLANO, C.J.:

Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during his lifetime, on
March 12, 1874, a lot in the center of the town of Laoag, the capital of the Province of Ilocos Norte, the property
having been awarded to him through its purchase at a public auction held by the alcalde mayor of that province.
The lot has a frontage of 120 meters and a depth of 15.

Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the said lot,
embracing 14 meters of its frontage by 11 meters of its depth.

Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro Mina, et al., were
recognized without discussion as his heirs.

Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta Pascual were
recognized likes without discussion, though it is not said how, and consequently are entitled to the said building,
or rather, as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other half belonging, as it
appears, to the plaintiffs themselves, and the remaining one-seventh of the first one-half to the children of one of
the plaintiffs, Elena de Villanueva. The fact is that the plaintiffs and the defendants are virtually, to all appearance,
the owners of the warehouse; while the plaintiffs are undoubtedly, the owners of the part of the lot occupied by
that building, as well as of the remainder thereof.

This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian of her minor children, the
herein defendants, petitioned the Curt of First Instance of Ilocos Norte for authorization to sell "the six-sevenths
of the one-half of the warehouse, of 14 by 11 meters, together with its lot." The plaintiffs — that is Alejandra
Mina, et al. — opposed the petition of Ruperta Pascual for the reason that the latter had included therein the lot
occupied by the warehouse, which they claimed was their exclusive property. All this action was taken in a special
proceeding in re guardianship.

The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion, to decide the
question of the ownership of the lot before it pass upon the petition for the sale of the warehouse. But the court
before determining the matter of the ownership of the lot occupied by the warehouse, ordered the sale of this
building, saying:

While the trial continues with respect to the ownership of the lot, the court orders the sale at public auction of the
said warehouse and of the lot on which it is built, with the present boundaries of the land and condition of the
building, at a price of not less than P2,890 Philippine currency . . . .

So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the other defendant in this case,
for the price mentioned.

The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court decided it by
holding that this land belonged to the owner of the warehouse which had been built thereon thirty years before.

The plaintiffs appealed and this court reversed the judgment of the lower court and held that the appellants were
the owners of the lot in question. 1
When the judgment became final and executory, a writ of execution issued and the plaintiffs were given
possession of the lot; but soon thereafter the trial court annulled this possession for the reason that it affected Cu
Joco, who had not been a party to the suit in which that writ was served.

It was then that the plaintiffs commenced the present action for the purpose of having the sale of the said lot
declared null and void and of no force and effect.

An agreement was had ad to the facts, the ninth paragraph of which is as follows:

9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the Supreme Court which
found for them by holding that they are the owners of the lot in question, although there existed and still exists a
commodatum by virtue of which the guardianship (meaning the defendants) had and has the use, and the plaintiffs
the ownership, of the property, with no finding concerning the decree of the lower court that ordered the sale.

The obvious purport of the cause "although there existed and still exists a commodatum," etc., appears to be that
it is a part of the decision of the Supreme Court and that, while finding the plaintiffs to be the owners of the lot,
we recognized in principle the existence of a commodatum under which the defendants held the lot. Nothing
could be more inexact. Possibly, also, the meaning of that clause is that, notwithstanding the finding made by the
Supreme Court that the plaintiffs were the owners, these former and the defendants agree that there existed, and
still exists, a commodatum, etc. But such an agreement would not affect the truth of the contents of the decision
of this court, and the opinions held by the litigants in regard to this point could have no bearing whatever on the
present decision.

Nor did the decree of the lower court that ordered the sale have the least influence in our previous decision to
require our making any finding in regard thereto, for, with or without that decree, the Supreme Court had to decide
the ownership of the lot consistently with its titles and not in accordance with the judicial acts or proceedings had
prior to the setting up of the issue in respect to the ownership of the property that was the subject of the judicial
decree.

What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs have the ownership,
and they themselves only the use, of the said lot.

On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the manner in
which the sale was effected, whether judicially or extrajudicially.

He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being a transfer of the
ownership of the thing, it is evident that he who has only the mere use of the thing cannot transfer its ownership.
The sale of a thing effected by one who is not its owner is null and void. The defendants never were the owners
of the lot sold. The sale of it by them is necessarily null and void. On cannot convey to another what he has never
had himself.

The returns of the auction contain the following statements:

I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization conferred upon me on the 31st
of July, 1909, by the Court of First Instance of Ilocos Norte, proceeded with the sale at public auction of the six-
sevenths part of the one-half of the warehouse constructed of rubble stone, etc.

Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all the land and all the rights
title, interest, and ownership in the said property to Cu Joco, who was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and assigns, all the interest,
ownership and inheritance rights and others that, as the guardian of the said minors, I have and may have in the
said property, etc.

The purchaser could not acquire anything more than the interest that might be held by a person to whom realty in
possession of the vendor might be sold, for at a judicial auction nothing else is disposed of. What the minor
children of Ruperta Pascual had in their possession was the ownership of the six-sevenths part of one-half of the
warehouse and the use of the lot occupied by his building. This, and nothing more, could the Chinaman Cu Joco
acquire at that sale: not the ownership of the lot; neither the other half, nor the remaining one-seventh of the said
first half, of the warehouse. Consequently, the sale made to him of this one-seventh of one-half and the entire
other half of the building was null and void, and likewise with still more reason the sale of the lot the building
occupies.

The purchaser could and should have known what it was that was offered for sale and what it was that he
purchased. There is nothing that can justify the acquisition by the purchaser of the warehouse of the ownership
of the lot that this building occupies, since the minors represented by Ruperta Pascual never were the owners of
the said lot, nor were they ever considered to be such.

The trial court, in the judgment rendered, held that there were no grounds for the requested annulment of the sale,
and that the plaintiffs were entitled to the P600 deposited with the clerk of the court as the value of the lot in
question. The defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved from the complaint, without
express finding as to costs.

The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to accept the price set
on the lot by expert appraisers, not even though the plaintiffs be considered as coowner of the warehouse. It would
be much indeed that, on the ground of coownership, they should have to abide by and tolerate the sale of the said
building, which point this court does not decide as it is not a question submitted to us for decision, but, as regards
the sale of the lot, it is in all respects impossible to hold that the plaintiffs must abide by it and tolerate, it, and
this conclusion is based on the fact that they did not give their consent (art. 1261, Civil Code), and only the
contracting parties who have given it are obliged to comply (art. 1091, idem).

The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot; but subsequently
the plaintiffs, through motion, asked for an amendment by their complaint in the sense that the action should be
deemed to be one for the recovery of possession of a lot and for the annulment of its sale. The plaintiff's petition
was opposed by the defendant's attorney, but was allowed by the court; therefore the complaint seeks, after the
judicial annulment of the sale of the lot, to have the defendants sentenced immediately to deliver the same to the
plaintiffs.

Such a finding appears to be in harmony with the decision rendered by the Supreme Court in previous suit,
wherein it was held that the ownership of the lot lay in the plaintiffs, and for this reason steps were taken to give
possession thereof to the defendants; but, as the purchaser Cu Joco was not a party to that suit, the present action
is strictly one for recover against Cu Joco to compel him, once the sale has been annulled, to deliver the lot to its
lawful owners, the plaintiffs.

As respects this action for recovery, this Supreme Court finds:

1. That it is a fact admitted by the litigating parties, both in this and in the previous suit, that Andres Fontanilla,
the defendants' predecessor in interest, erected the warehouse on the lot, some thirty years ago, with the explicit
consent of his brother Francisco Fontanilla, the plaintiff's predecessor in interest.

2. That it also appears to be an admitted fact that the plaintiffs and the defendants are the coowners of the
warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla nor his successors paid any
consideration or price whatever for the use of the lot occupied by the said building; whence it is, perhaps, that
both parties have denominated that use a commodatum.

Upon the premise of these facts, or even merely upon that of the first of them, the sentencing of the defendants to
deliver the lot to the plaintiffs does not follow as a necessary corollary of the judicial declaration of ownership
made in the previous suit, nor of that of the nullity of the sale of the lot, made in the present case.

The defendants do not hold lawful possession of the lot in question.1awphil.net

But, although both litigating parties may have agreed in their idea of the commodatum, on account of its not
being, as indeed it is not, a question of fact but of law, yet that denomination given by them to the use of the lot
granted by Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts are not to be
interpreted in conformity with the name that the parties thereto agree to give them, but must be construed, duly
considering their constitutive elements, as they are defined and denominated by law.

By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the
latter may use it during the certain period and return it to the former, in which case it is called commodatum . . .
(art. 1740, Civil Code).

It is, therefore, an essential feature of the commodatum that the use of the thing belonging to another shall for a
certain period. Francisco Fontanilla did not fix any definite period or time during which Andres Fontanilla could
have the use of the lot whereon the latter was to erect a stone warehouse of considerable value, and so it is that
for the past thirty years of the lot has been used by both Andres and his successors in interest. The present
contention of the plaintiffs that Cu Joco, now in possession of the lot, should pay rent for it at the rate of P5 a
month, would destroy the theory of the commodatum sustained by them, since, according to the second paragraph
of the aforecited article 1740, "commodatum is essentially gratuitous," and, if what the plaintiffs themselves aver
on page 7 of their brief is to be believed, it never entered Francisco's mind to limit the period during which his
brother Andres was to have the use of the lot, because he expected that the warehouse would eventually fall into
the hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not come to pass for the
reason that Fructuoso died before his uncle Andres. With that expectation in view, it appears more likely that
Francisco intended to allow his brother Andres a surface right; but this right supposes the payment of an annual
rent, and Andres had the gratuitous use of the lot.

Hence, as the facts aforestated only show that a building was erected on another's ground, the question should be
decided in accordance with the statutes that, thirty years ago, governed accessions to real estate, and which were
Laws 41 and 42, title 28, of the third Partida, nearly identical with the provisions of articles 361 and 362 of the
Civil Code. So, then, pursuant to article 361, the owner of the land on which a building is erected in good faith
has a right to appropriate such edifice to himself, after payment of the indemnity prescribed in articles 453 and
454, or to oblige the builder to pay him the value of the land. Such, and no other, is the right to which the plaintiff
are entitled.

For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made by Ruperta Pascual,
in representation of her minor children, to Cu Joco, and to maintain the latter in the use of the lot until the plaintiffs
shall choose one or the other of the two rights granted them by article 361 of the Civil Code.1awphil.net

The judgment appealed from is reversed and the sale of the lot in question is held to be null and void and of no
force or effect. No special finding is made as to the costs of both instances.

Torres, Johnson, Carson, Moreland and Trent, JJ., concur.


MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.

Mauricio Carlos for appellants.


Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his
use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant
return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city,
that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the
Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to
the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No.
1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant,
the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the
stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's
demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these
three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred
to him for them in the house where they were found. On November 5, 1936, the defendant, through another
person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On
the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give
up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month
when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had
declined to make delivery of all of them. On November 15th, before vacating the house, the defendant
deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse
situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that
they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed
them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to
pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should
pay their respective legal expenses or the costs; and in denying pay their respective legal expenses or the costs;
and in denying the motions for reconsideration and new trial. To dispose of the case, it is only necessary to decide
whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand; whether
the latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously
granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the
defendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract,
Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the
defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff
at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them
at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The
provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial
court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation
to get the furniture when they were offered to her.

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

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

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

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

Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.


REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner,
vs.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY, represented by RICARDO BALOY,
ET AL., respondents.

Pelaez, Jalondoni, Adriano and Associates for respondents.

PARAS, J.:p

This case originally emanated from a decision of the then Court of First Instance of Zambales in LRC Case No.
11-0, LRC Record No. N-29355, denying respondents' application for registration. From said order of denial the
applicants, heirs of Domingo Baloy, represented by Ricardo P. Baloy, (herein private respondents) interposed on
appeal to the Court of Appeals which was docketed as CA-G.R. No. 52039-R. The appellate court, thru its Fifth
Division with the Hon. Justice Magno Gatmaitan as ponente, rendered a decision dated February 3, 1977 reversing
the decision appealed from and thus approving the application for registration. Oppositors (petitioners herein)
filed their Motion for Reconsideration alleging among other things that applicants' possessory information title
can no longer be invoked and that they were not able to prove a registerable title over the land. Said Motion for
Reconsideration was denied, hence this petition for review on certiorari.

Applicants' claim is anchored on their possessory information title (Exhibit F which had been translated in Exhibit
F-1) coupled with their continuous, adverse and public possession over the land in question. An examination of
the possessory information title shows that the description and the area of the land stated therein substantially
coincides with the land applied for and that said possessory information title had been regularly issued having
been acquired by applicants' predecessor, Domingo Baloy, under the provisions of the Spanish Mortgage Law.
Applicants presented their tax declaration on said lands on April 8, 1965.

The Director of Lands opposed the registration alleging that this land had become public land thru the operation
of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to the executive order of the President
of the U.S., the area was declared within the U.S. Naval Reservation. Under Act 627 as amended by Act 1138, a
period was fixed within which persons affected thereby could file their application, (that is within 6 months from
July 8, 1905) otherwise "the said lands or interest therein will be conclusively adjudged to be public lands and all
claims on the part of private individuals for such lands or interests therein not to presented will be forever barred."
Petitioner argues that since Domingo Baloy failed to file his claim within the prescribed period, the land had
become irrevocably public and could not be the subject of a valid registration for private ownership.

Considering the foregoing facts respondents Court of Appeals ruled as follows:

... perhaps, the consequence was that upon failure of Domingo Baloy to have filed his application within that
period the land had become irrevocably public; but perhaps also, for the reason that warning was from the Clerk
of the Court of Land Registration, named J.R. Wilson and there has not been presented a formal order or decision
of the said Court of Land Registration so declaring the land public because of that failure, it can with plausibility
be said that after all, there was no judicial declaration to that effect, it is true that the U.S. Navy did occupy it
apparently for some time, as a recreation area, as this Court understands from the communication of the
Department of Foreign Affairs to the U.S. Embassy exhibited in the record, but the very tenor of the
communication apparently seeks to justify the title of herein applicants, in other words, what this Court has taken
from the occupation by the U.S. Navy is that during the interim, the title of applicants was in a state of suspended
animation so to speak but it had not died either; and the fact being that this land was really originally private from
and after the issuance and inscription of the possessory information Exh. F during the Spanish times, it would be
most difficult to sustain position of Director of Lands that it was land of no private owner; open to public
disposition, and over which he has control; and since immediately after U.S. Navy had abandoned the area,
applicant came in and asserted title once again, only to be troubled by first Crispiniano Blanco who however in
due time, quitclaimed in favor of applicants, and then by private oppositors now, apparently originally tenants of
Blanco, but that entry of private oppositors sought to be given color of ownership when they sought to and did
file tax declaration in 1965, should not prejudice the original rights of applicants thru their possessory information
secured regularly so long ago, the conclusion must have to be that after all, applicants had succeeded in bringing
themselves within the provisions of Sec. 19 of Act 496, the land should be registered in their favor;

IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment appealed from the
application is approved, and once this decision shall have become final, if ever it would be, let decree issue in
favor of applicants with the personal circumstances outlined in the application, costs against private oppositors.

Petitioner now comes to Us with the following:

ASSIGNMENT OF ERRORS:

1. Respondent court erred in holding that to bar private respondents from asserting any right under their
possessory information title there is need for a court order to that effect.

2. Respondent court erred in not holding that private respondents' rights by virtue of their possessory
information title was lost by prescription.

3. Respondent court erred in concluding that applicants have registerable title.

A cursory reading of Sec. 3, Act 627 reveals that several steps are to be followed before any affected land can "be
conclusively adjudged to be public land." Sec. 3, Act 627 reads as follows:

SEC. 3. Immediately upon receipt of the notice from the civil Governor in the preceeding section mentioned it
shall be the duty of the judge of the Court of Land Registration to issue a notice, stating that the lands within the
limits aforesaid have been reserved for military purposes, and announced and declared to be military reservations,
and that claims for all private lands, buildings, and interests therein, within the limits aforesaid, must be presented
for registration under the Land Registration Act within six calendar months from the date of issuing the notice,
and that all lands, buildings, and interests therein within the limits aforesaid not so presented within the time
therein limited will be conclusively adjudged to be public lands and all claims on the part of private individuals
for such lands, buildings, or an interest therein not so presented will be forever barred. The clerk of the Court of
Land Registration shall immediately upon the issuing of such notice by the judge cause the same to be published
once a week for three successive weeks in two newspapers, one of which newspapers shall be in the English
Language, and one in the Spanish language in the city or province where the land lies, if there be no such Spanish
or English newspapers having a general circulation in the city or province wherein the land lies, then it shall be a
sufficient compliance with this section if the notice be published as herein provided, in a daily newspaper in the
Spanish language and one in the English language, in the City of Manila, having a general circulation. The clerk
shall also cause a duly attested copy of the notice in the Spanish language to be posted in conspicuous place at
each angle formed by the lines of the limits of the land reserved. The clerk shall also issue and cause to be
personally served the notice in the Spanish language upon every person living upon or in visible possession of
any part of the military reservation. If the person in possession is the head of the family living upon the hand, it
shall be sufficient to serve the notice upon him, and if he is absent it shall be sufficient to leave a copy at his usual
place of residence. The clerk shall certify the manner in which the notices have been published, posted, and
served, and his certificate shall be conclusive proof of such publication, posting, and service, but the court shall
have the power to cause such further notice to be given as in its opinion may be necessary.

Clearly under said provisions, private land could be deemed to have become public land only by virtue of a
judicial declaration after due notice and hearing. It runs contrary therefore to the contention of petitioners that
failure to present claims set forth under Sec. 2 of Act 627 made the land ipso facto public without any deed of
judicial pronouncement. Petitioner in making such declaration relied on Sec. 4 of Act 627 alone. But in construing
a statute the entire provisions of the law must be considered in order to establish the correct interpretation as
intended by the law-making body. Act 627 by its terms is not self-executory and requires implementation by the
Court of Land Registration. Act 627, to the extent that it creates a forfeiture, is a penal statute in derogation of
private rights, so it must be strictly construed so as to safeguard private respondents' rights. Significantly,
petitioner does not even allege the existence of any judgment of the Land Registration court with respect to the
land in question. Without a judgment or order declaring the land to be public, its private character and the
possessory information title over it must be respected. Since no such order has been rendered by the Land
Registration Court it necessarily follows that it never became public land thru the operation of Act 627. To assume
otherwise is to deprive private respondents of their property without due process of law. In fact it can be presumed
that the notice required by law to be given by publication and by personal service did not include the name of
Domingo Baloy and the subject land, and hence he and his lane were never brought within the operation of Act
627 as amended. The procedure laid down in Sec. 3 is a requirement of due process. "Due process requires that
the statutes which under it is attempted to deprive a citizen of private property without or against his consent
must, as in expropriation cases, be strictly complied with, because such statutes are in derogation of general
rights." (Arriete vs. Director of Public Works, 58 Phil. 507, 508, 511).

We also find with favor private respondents' views that court judgments are not to be presumed. It would be
absurd to speak of a judgment by presumption. If it could be contended that such a judgment may be presumed,
it could equally be contended that applicants' predecessor Domingo Baloy presumably seasonably filed a claim,
in accordance with the legal presumption that a person takes ordinary care of his concerns, and that a judgment
in his favor was rendered.

The finding of respondent court that during the interim of 57 years from November 26, 1902 to December 17,
1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or heirs were merely suspended and
not lost by prescription, is supported by Exhibit "U," a communication or letter No. 1108-63, dated June 24, 1963,
which contains an official statement of the position of the Republic of the Philippines with regard to the status of
the land in question. Said letter recognizes the fact that Domingo Baloy and/or his heirs have been in continuous
possession of said land since 1894 as attested by an "Informacion Possessoria" Title, which was granted by the
Spanish Government. Hence, the disputed property is private land and this possession was interrupted only by the
occupation of the land by the U.S. Navy in 1945 for recreational purposes. The U.S. Navy eventually abandoned
the premises. The heirs of the late Domingo P. Baloy, are now in actual possession, and this has been so since the
abandonment by the U.S. Navy. A new recreation area is now being used by the U.S. Navy personnel and this
place is remote from the land in question.

Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of a
commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors-in-interest. One's
ownership of a thing may be lost by prescription by reason of another's possession if such possession be under
claim of ownership, not where the possession is only intended to be transient, as in the case of the U.S. Navy's
occupation of the land concerned, in which case the owner is not divested of his title, although it cannot be
exercised in the meantime.

WHEREFORE, premises considered, finding no merit in the petition the appealed decision is hereby AFFIRMED.

SO ORDERED.
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON.
COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated June 25, 1991 in CA-
G.R. CV No. 11791 and of its Resolution[2] dated May 5, 1994, denying the motion for reconsideration of said
decision filed by petitioner Producers Bank of the Philippines.

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to
help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and
Services (Sterela for brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount
of money in the bank account of Sterela for purposes of its incorporation. She assured private respondent that he
could withdraw his money from said account within a months time. Private respondent asked Sanchez to bring
Doronilla to their house so that they could discuss Sanchezs request.[3]

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas private
secretary, met and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and
Doronilla, private respondent issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in
favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and
Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers Bank of
the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They
had with them an authorization letter from Doronilla authorizing Sanchez and her companions, in coordination
with Mr. Rufo Atienza, to open an account for Sterela Marketing Services in the amount of P200,000.00. In
opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.[4]

Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given
to him. Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank manager
referred them to Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings
Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise
told them that Mrs. Vives could not withdraw said remaining amount because it had to answer for some postdated
checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No.
10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit Savings
Account No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-0320. In
opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover
payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor
of Sterela.[5]

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter
from Doronilla, assuring him that his money was intact and would be returned to him. On August 13, 1979,
Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private
respondent. However, upon presentment thereof by private respondent to the drawee bank, the check was
dishonored. Doronilla requested private respondent to present the same check on September 15, 1979 but when
the latter presented the check, it was again dishonored.[6]

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of
his clients money. Doronilla issued another check for P212,000.00 in private respondents favor but the check was
again dishonored for insufficiency of funds.[7]
Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig,
Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No.
44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez
passed away on March 16, 1985 while the case was pending before the trial court. On October 3, 1995, the RTC
of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila, Estrella
Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally

(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of
the complaint until the same is fully paid;

(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;

(c) the amount of P40,000.00 for attorneys fees; and

(d) the costs of the suit.

SO ORDERED.[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991, the
appellate court affirmed in toto the decision of the RTC.[9] It likewise denied with finality petitioners motion for
reconsideration in its Resolution dated May 5, 1994.[10]

On June 30, 1994, petitioner filed the present petition, arguing that

I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION


BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN
AND NOT ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK


MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING
PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER
SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE
REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS
OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN
SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR
ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;

V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER
COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE
OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT
DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00
FOR ATTORNEYS FEES AND THE COSTS OF SUIT.[11]

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25,
1995. The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was
filed only on April 21, 1997, due to petitioners delay in furnishing private respondent with copy of the reply[12]
and several substitutions of counsel on the part of private respondent.[13] On January 17, 2001, the Court resolved
to give due course to the petition and required the parties to submit their respective memoranda.[14] Petitioner
filed its memorandum on April 16, 2001 while private respondent submitted his memorandum on March 22, 2001.

Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since
all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money,
a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as
evidenced by the check issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private
respondent deposited in Sterelas bank account.[15] Moreover, the fact that private respondent sued his good friend
Sanchez for his failure to recover his money from Doronilla shows that the transaction was not merely gratuitous
but had a business angle to it. Hence, petitioner argues that it cannot be held liable for the return of private
respondents P200,000.00 because it is not privy to the transaction between the latter and Doronilla.[16]

It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla
to withdraw from the savings account of Sterela since the latter was the sole proprietor of said company. Petitioner
asserts that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these two to withdraw from said account. Hence,
the authority to withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela,
and who alone had legal title to the savings account.[17] Petitioner points out that no evidence other than the
testimonies of private respondent and Mrs. Vives was presented during trial to prove that private respondent
deposited his P200,000.00 in Sterelas account for purposes of its incorporation.[18] Hence, petitioner should not
be held liable for allowing Doronilla to withdraw from Sterelas savings account.

Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the findings of
fact therein were not accord with the evidence presented by petitioner during trial to prove that the transaction
between private respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla
to withdraw from Sterelas savings account.[19]

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual
damages suffered by private respondent, and neither may it be held liable for moral and exemplary damages as
well as attorneys fees.[20]

Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but
an accommodation,[21] since he did not actually part with the ownership of his P200,000.00 and in fact asked his
wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela
had sufficient funds for purposes of its incorporation but at the same time, he retained some degree of control
over his money through his wife who was made a signatory to the savings account and in whose possession the
savings account passbook was given.[22]

He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for the
return of his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in defrauding
private respondent since it was Atienza who facilitated the opening of Sterelas current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as well as the approval of
the authority to debit Sterelas savings account to cover any overdrawings in its current account.[23]

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with
this Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence
presented by the parties during trial.[24] The Courts jurisdiction is in principle limited to reviewing errors of law
that might have been committed by the Court of Appeals.[25] Moreover, factual findings of courts, when adopted
and confirmed by the Court of Appeals, are final and conclusive on this Court unless these findings are not
supported by the evidence on record.[26] There is no showing of any misapprehension of facts on the part of the
Court of Appeals in the case at bar that would require this Court to review and overturn the factual findings of
that court, especially since the conclusions of fact of the Court of Appeals and the trial court are not only consistent
but are also amply supported by the evidence on record.

No error was committed by the Court of Appeals when it ruled that the transaction between private respondent
and Doronilla was a commodatum and not a mutuum. A circumspect examination of the records reveals that the
transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two
kinds of loans in this wise:

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

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to
the borrower.

The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money,
the contract would be a mutuum. However, there are some instances where a commodatum may have for its object
a consumable thing. Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of
the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to
lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan
is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the
actual character of a contract.[27] In case of doubt, the contemporaneous and subsequent acts of the parties shall
be considered in such determination.[28]

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private
respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making
it appear that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be
returned within thirty (30) days.[29] Private respondent merely accommodated Doronilla by lending his money
without consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the transaction
that the money would not be removed from Sterelas savings account and would be returned to private respondent
after thirty (30) days.

Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in
Sterelas account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not
convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and
because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the
Civil Code expressly states that [t]he bailee in commodatum acquires the use of the thing loaned but not its fruits.
Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latters money
deposited with petitioner.

Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private
respondents money because it was not privy to the transaction between Doronilla and private respondent. The
nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of
petitioners liability for the return of private respondents money because the factual circumstances of the case
clearly show that petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private
respondents money and is liable for its restitution.

Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings
Account No. 10-1567 expressly states that

2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly
authenticated, and neither a deposit nor a withdrawal will be permitted except upon the production of the depositor
savings bank book in which will be entered by the Bank the amount deposited or withdrawn.[30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager
for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook (which Atienza
very well knew was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals
and the trial court found that Atienza allowed said withdrawals because he was party to Doronillas scheme of
defrauding private respondent:

XXX

But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo
Atienza, assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the
evidence indicates that Atienza had not only facilitated the commission of the fraud but he likewise helped in
devising the means by which it can be done in such manner as to make it appear that the transaction was in
accordance with banking procedure.

To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer
therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila
Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for it
will be easier for them to get a certification. In fact before he was introduced to plaintiff, Doronilla had already
prepared a letter addressed to the Buendia branch manager authorizing Angeles B. Sanchez and company to open
a savings account for Sterela in the amount of P200,000.00, as per coordination with Mr. Rufo Atienza, Assistant
Manager of the Bank x x x (Exh. 1). This is a clear manifestation that the other defendants had been in consultation
with Atienza from the inception of the scheme. Significantly, there were testimonies and admission that Atienza
is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.

Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla and Atienza,
the latter knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such
foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered
to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this
account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that
it is the usual banking procedure that withdrawals of savings deposits could only be made by persons whose
authorized signatures are in the signature cards on file with the bank. He, however, said that this procedure was
not followed here because Sterela was owned by Doronilla. He explained that Doronilla had the full authority to
withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he was
all the time aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives
that they were only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a
deposit of so much amount to be sued in the incorporation of the firm. In the second place, the signature of
Doronilla was not authorized in so far as that account is concerned inasmuch as he had not signed the signature
card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had
given Doronilla the authority to withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice
that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of the passbook. In
this case, such recognized practice was dispensed with. The transfer from the savings account to the current
account was without the submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was made
to appear in a certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela because
the original passbook had been surrendered to the Makati branch in view of a loan accommodation assigning the
savings account (Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, was aware
that the contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for he was
the one who gave it to her. Besides, as assistant manager of the branch and the bank official servicing the savings
and current accounts in question, he also was aware that the original passbook was never surrendered. He was
also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no
effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate that Atienzas active
participation in the perpetration of the fraud and deception that caused the loss. The records indicate that this
account was opened three days later after the P200,000.00 was deposited. In spite of his disclaimer, the Court
believes that Atienza was mindful and posted regarding the opening of the current account considering that
Doronilla was all the while in coordination with him. That it was he who facilitated the approval of the authority
to debit the savings account to cover any overdrawings in the current account (Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.[31]

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused
by their employees acting within the scope of their assigned tasks. To hold the employer liable under this
provision, it must be shown that an employer-employee relationship exists, and that the employee was acting
within the scope of his assigned task when the act complained of was committed.[32] Case law in the United
States of America has it that a corporation that entrusts a general duty to its employee is responsible to the injured
party for damages flowing from the employees wrongful act done in the course of his general authority, even
though in doing such act, the employee may have failed in its duty to the employer and disobeyed the latters
instructions.[33]

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza
was acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in
withdrawing funds from Sterelas Savings Account No. 10-1567, in which account private respondents money
was deposited, and in transferring the money withdrawn to Sterelas Current Account with petitioner. Atienzas
acts of helping Doronilla, a customer of the petitioner, were obviously done in furtherance of petitioners
interests[34] even though in the process, Atienza violated some of petitioners rules such as those stipulated in its
savings account passbook.[35] It was established that the transfer of funds from Sterelas savings account to its
current account could not have been accomplished by Doronilla without the invaluable assistance of Atienza, and
that it was their connivance which was the cause of private respondents loss.

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

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

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.


FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, deceased, defendant-appellant.

Matias Hilado, for appellant.


Jose Felix Martinez, for appellee.

TORRES, J.:

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

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

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

The case came up for trial, evidence was adduced by both parties, and either exhibits were made of record. On
the 10th of January, 1907, the court below entered judgment sentencing Agustina Jarra, as administratrix of the
estate of Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos, the remaining six second and third
class carabaos, or the value thereof at the rate of P120 each, or a total of P720 with the costs.

Counsel for the defendant excepted to the foregoing judgment, and, by a writing dated January 19, moved for
anew trial on the ground that the findings of fact were openly and manifestly contrary to the weight of the
evidence. The motion was overruled, the defendant duly excepted, and in due course submitted the corresponding
bill of exceptions, which was approved and submitted to this court.

The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of ten carabaos which are
now claimed by the latter, as shown by two letters addressed by the said Jimenea to Felix de los Santos; but in
her answer the said defendant alleged that the late Jimenea only obtained three second-class carabaos, which were
subsequently sold to him by the owner, Santos; therefore, in order to decide this litigation it is indispensable that
proof be forthcoming that Jimenea only received three carabaos from his son-in-law Santos, and that they were
sold by the latter to him.
The record discloses that it has been fully proven from the testimony of a sufficient number of witnesses that the
plaintiff, Santos, sent in charge of various persons the ten carabaos requested by his father-in-law, Magdaleno
Jimenea, in the two letters produced at the trial by the plaintiff, and that Jimenea received them in the presence of
some of said persons, one being a brother of said Jimenea, who saw the animals arrive at the hacienda where it
was proposed to employ them. Four died of rinderpest, and it is for this reason that the judgment appealed from
only deals with six surviving carabaos.

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

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

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

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

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

Commodatum is essentially gratuitous.

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

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

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

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

Article 1101 of said code reads:


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

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

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

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

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

For the reasons above set forth, by which the errors assigned to the judgment appealed from have been refuted,
and considering that the same is in accordance with the law and the merits of the case, it is our opinion that it
should be affirmed and we do hereby affirm it with the costs against the appellant. So ordered.

Arellano, C.J., Johnson, Moreland and Elliott, JJ., concur.


Carson, J., reserves his vote.
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.

Valdez, Ereso, Polido & Associates for petitioner.

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

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

Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:

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

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

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

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

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

The facts and background of these cases as narrated by the trail court are as follows —

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

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

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

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

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

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

On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for certiorari and
mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez,
Jr. and Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.

It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case No. 3607
(419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No.
3655 (429) on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig.
Rec.).

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

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

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

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

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

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

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM


VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE
VALDEZ AND OCTAVIANO;

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


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

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS
AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT
APPLICATIONS SINCE 1906;

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST
TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL
CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;

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

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

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3


MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH
WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY
AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3

The petition is bereft of merit.

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

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.


COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:

The Case

Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000 Resolution of the
Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996 decision[3]
of the Regional Trial Court of Quezon City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the
Metropolitan Trial Court of Quezon City, Branch 31.[6]

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the rights over a 250-
square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the
lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a Kasunduan or
agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would
maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the
house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31
(MTC).

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house
stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing.
Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with
him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.

On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC
decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant,
ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under
him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for
the use of the premises starting from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and

D) pay the cost of suit.

SO ORDERED.[7]

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in
accord with the law and evidence presented, and the same is hereby affirmed en toto.

SO ORDERED.[8]

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file
his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with
the Supreme Court a Motion for Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for
extension). Guevarra theorized that his appeal raised pure questions of law. The Receiving Clerk of the Supreme
Court received the motion for extension on 13 December 1996 or one day before the right to appeal expired.

On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.

On 8 January 1997, the First Division of the Supreme Court issued a Resolution[9] referring the motion for
extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no special
and important matter for the Supreme Court to take cognizance of at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution[10] granting the motion
for extension conditioned on the timeliness of the filing of the motion.

On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On 11
April 1997, Pajuyo filed his Comment.

On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of
the decision reads:

WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943 is
REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant
is without factual and legal basis.

SO ORDERED.[11]

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should
have dismissed outright Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras
counsel and not Guevarra who signed the certification against forum-shopping.

On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The
dispositive portion of the resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.

SO ORDERED.[12]

The Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot.
Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras
refusal to vacate the house on Pajuyos demand made Guevarras continued possession of the house illegal.
The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and
Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the house on demand.

The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National
Government Center Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the RTC has
no power to decide Guevarras rights under these laws. The RTC declared that in an ejectment case, the only issue
for resolution is material or physical possession, not ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied
the contested lot which the government owned.

Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the
lot because it is public land. The assignment of rights between Perez and Pajuyo, and the Kasunduan between
Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The
court will leave them where they are.

The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and
Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that the
Kasunduan is not a lease contract but a commodatum because the agreement is not for a price certain.

Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra
has a better right over the property under Proclamation No. 137. President Corazon C. Aquino (President Aquino)
issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the
property. Under Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and
Structures in the National Housing Project (the Code), the actual occupant or caretaker of the lot shall have first
priority as beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the hierarchy of
priority.

In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed
his motion for extension beyond the period to appeal.

The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was
stamped 13 December 1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court of Appeals concluded
that the motion for extension bore a date, contrary to Pajuyos claim that the motion for extension was undated.
Guevarra filed the motion for extension on time on 13 December 1996 since he filed the motion one day before
the expiration of the reglementary period on 14 December 1996. Thus, the motion for extension properly complied
with the condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals
explained that the thirty-day extension to file the petition for review was deemed granted because of such
compliance.

The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for
review because it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping.
The Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held
that Pajuyo could not now seek the dismissal of the case after he had extensively argued on the merits of the case.
This technicality, the appellate court opined, was clearly an afterthought.

The Issues
Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file petition
for review at the time when there was no more period to extend as the decision of the Regional Trial Court had
already become final and executory.

2) in giving due course, instead of dismissing, private respondents Petition for Review even though the
certification against forum-shopping was signed only by counsel instead of by petitioner himself.

3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a
Contract of Lease as found by the Metropolitan Trial Court and in holding that the ejectment case filed against
defendant-appellant is without legal and factual basis.

4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and in
holding that the parties are in pari delicto being both squatters, therefore, illegal occupants of the contested parcel
of land.

5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government
Center Housing Project instead of deciding the same under the Kasunduan voluntarily executed by the parties,
the terms and conditions of which are the laws between themselves.[13]

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is
submitting for resolution.

Procedural Issues

Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the
RTC decision had already become final and executory when the appellate court acted on Guevarras motion for
extension to file the petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to
appeal the RTC decision. Instead of filing the petition for review with the Court of Appeals, Guevarra filed with
this Court an undated motion for extension of 30 days to file a petition for review. This Court merely referred the
motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension with this Court did not
toll the running of the period to perfect the appeal. Hence, when the Court of Appeals received the motion, the
period to appeal had already expired.

We are not persuaded.

Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of
Appeals by petition for review in cases involving questions of fact or mixed questions of fact and law.[14]
Decisions of the regional trial courts involving pure questions of law are appealable directly to this Court by
petition for review.[15] These modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil
Procedure.

Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his
motion for extension to file petition for review before this Court on 14 December 1996. On 3 January 1997,
Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for review gives the
impression that the issues he raised were pure questions of law. There is a question of law when the doubt or
difference is on what the law is on a certain state of facts.[16] There is a question of fact when the doubt or
difference is on the truth or falsity of the facts alleged.[17]

In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review
raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which
the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment?
(3) Should a Presidential Proclamation governing the lot on which a squatters structure stands be considered in
an ejectment suit filed by the owner of the structure?

These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential
Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However, some factual
questions still have to be resolved because they have a bearing on the legal questions raised in the petition for
review. These factual matters refer to the metes and bounds of the disputed property and the application of
Guevarra as beneficiary of Proclamation No. 137.

The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v.
Second Special Cases Division of the Intermediate Appellate Court,[18] we declared that the Court of Appeals
could grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified
that the prohibition against granting an extension of time applies only in a case where ordinary appeal is perfected
by a mere notice of appeal. The prohibition does not apply in a petition for review where the pleading needs
verification. A petition for review, unlike an ordinary appeal, requires preparation and research to present a
persuasive position.[20] The drafting of the petition for review entails more time and effort than filing a notice of
appeal.[21] Hence, the Court of Appeals may allow an extension of time to file a petition for review.

In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we held that Liboros
clarification of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals and Supreme
Court Circular No. 1-91. They all allow an extension of time for filing petitions for review with the Court of
Appeals. The extension, however, should be limited to only fifteen days save in exceptionally meritorious cases
where the Court of Appeals may grant a longer period.

A judgment becomes final and executory by operation of law. Finality of judgment becomes a fact on the lapse
of the reglementary period to appeal if no appeal is perfected.[23] The RTC decision could not have gained finality
because the Court of Appeals granted the 30-day extension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension.
The Court of Appeals gave due course to the motion for extension because it complied with the condition set by
the appellate court in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would
only give due course to the motion for extension if filed on time. The motion for extension met this condition.

The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the
date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing of the
motion for extension.[24] It is the date of the filing of the motion or pleading, and not the date of execution, that
determines the timeliness of the filing of that motion or pleading. Thus, even if the motion for extension bears no
date, the date of filing stamped on it is the reckoning point for determining the timeliness of its filing.

Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for
extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the motion
for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the
reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did
not ask the appellate court to deny the motion for extension and dismiss the petition for review at the earliest
opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court of Appeals
ruled in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for review.

A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is
estopped from attacking the jurisdiction of the court.[25] Estoppel sets in not because the judgment of the court
is a valid and conclusive adjudication, but because the practice of attacking the courts jurisdiction after voluntarily
submitting to it is against public policy.[26]

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the
certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification,
claiming that the counsels verification is insufficient since it is based only on mere information.

A partys failure to sign the certification against forum shopping is different from the partys failure to sign
personally the verification. The certificate of non-forum shopping must be signed by the party, and not by
counsel.[27] The certification of counsel renders the petition defective.[28]

On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite.[29]
It is intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the
product of the imagination or a matter of speculation, and that the pleading is filed in good faith.[30] The party
need not sign the verification. A partys representative, lawyer or any person who personally knows the truth of
the facts alleged in the pleading may sign the verification.[31]

We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an
afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the proceedings.
Pajuyo raised this procedural issue too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of
Possession

Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court
of its jurisdiction over the ejectment case.[32] Even if the pleadings raise the issue of ownership, the court may
pass on such issue to determine only the question of possession, especially if the ownership is inseparably linked
with the possession.[33] The adjudication on the issue of ownership is only provisional and will not bar an action
between the same parties involving title to the land.[34] This doctrine is a necessary consequence of the nature of
the two summary actions of ejectment, forcible entry and unlawful detainer, where the only issue for adjudication
is the physical or material possession over the real property.[35]

In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested
property and that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners
of the disputed lot allow the courts to renounce their jurisdiction over the case? The Court of Appeals believed so
and held that it would just leave the parties where they are since they are in pari delicto.

We do not agree with the Court of Appeals.

Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession.
The parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of
the possession when necessary to resolve the issue of physical possession.[36] The same is true when the
defendant asserts the absence of title over the property. The absence of title over the contested lot is not a ground
for the courts to withhold relief from the parties in an ejectment case.

The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical
possession of the premises, that is, to the possession de facto and not to the possession de jure.[37] It does not
even matter if a partys title to the property is questionable,[38] or when both parties intruded into public land and
their applications to own the land have yet to be approved by the proper government agency.[39] Regardless of
the actual condition of the title to the property, the party in peaceable quiet possession shall not be thrown out by
a strong hand, violence or terror.[40] Neither is the unlawful withholding of property allowed. Courts will always
uphold respect for prior possession.

Thus, a party who can prove prior possession can recover such possession even against the owner himself.[41]
Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security
that entitles him to remain on the property until a person with a better right lawfully ejects him.[42] To repeat,
the only issue that the court has to settle in an ejectment suit is the right to physical possession.

In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did not authorize either the
plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had prior possession
and had already introduced improvements on the public land. The plaintiff had a pending application for the land
with the Bureau of Lands when the defendant ousted him from possession. The plaintiff filed the action of forcible
entry against the defendant. The government was not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the
application of the plaintiff was still pending, title remained with the government, and the Bureau of Public Lands
had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain
ejectment suits even before the resolution of the application. The plaintiff, by priority of his application and of
his entry, acquired prior physical possession over the public land applied for as against other private claimants.
That prior physical possession enjoys legal protection against other private claimants because only a court can
take away such physical possession in an ejectment case.

While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters, strictly speaking, their
entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners
permission. Title to the land remained with the government because it had not awarded to anyone ownership of
the contested public land. Both the plaintiff and the defendant were in effect squatting on government property.
Yet, we upheld the courts jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in
the ejectment case did not have any title over the contested land.

Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need
to preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying
philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party
out of possession to respect and resort to the law alone to obtain what he claims is his.[45] The party deprived of
possession must not take the law into his own hands.[46] Ejectment proceedings are summary in nature so the
authorities can settle speedily actions to recover possession because of the overriding need to quell social
disturbances.[47]

We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We
made the following pronouncements in Pitargue:

The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions
involving these public lands before final award is made by the Lands Department, and before title is given any of
the conflicting claimants? It is one of utmost importance, as there are public lands everywhere and there are
thousands of settlers, especially in newly opened regions. It also involves a matter of policy, as it requires the
determination of the respective authorities and functions of two coordinate branches of the Government in
connection with public land conflicts.

Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this
country before the American occupation, or in the new, we have a possessory action, the aim and purpose of
which is the recovery of the physical possession of real property, irrespective of the question as to who has the
title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary proceeding which could be
brought within one year from dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291);
and as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the Philippine
Commission) we implanted the common law action of forcible entry (section 80 of Act No. 190), the object of
which has been stated by this Court to be to prevent breaches of the peace and criminal disorder which would
ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort
to force to gain possession rather than to some appropriate action in the court to assert their claims. (Supia and
Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No.
926) the action of forcible entry was already available in the courts of the country. So the question to be resolved
is, Did the Legislature intend, when it vested the power and authority to alienate and dispose of the public lands
in the Lands Department, to exclude the courts from entertaining the possessory action of forcible entry between
rival claimants or occupants of any land before award thereof to any of the parties? Did Congress intend that the
lands applied for, or all public lands for that matter, be removed from the jurisdiction of the judicial Branch of
the Government, so that any troubles arising therefrom, or any breaches of the peace or disorders caused by rival
claimants, could be inquired into only by the Lands Department to the exclusion of the courts? The answer to this
question seems to us evident. The Lands Department does not have the means to police public lands; neither does
it have the means to prevent disorders arising therefrom, or contain breaches of the peace among settlers; or to
pass promptly upon conflicts of possession. Then its power is clearly limited to disposition and alienation, and
while it may decide conflicts of possession in order to make proper award, the settlement of conflicts of possession
which is recognized in the court herein has another ultimate purpose, i.e., the protection of actual possessors and
occupants with a view to the prevention of breaches of the peace. The power to dispose and alienate could not
have been intended to include the power to prevent or settle disorders or breaches of the peace among rival settlers
or claimants prior to the final award. As to this, therefore, the corresponding branches of the Government must
continue to exercise power and jurisdiction within the limits of their respective functions. The vesting of the Lands
Department with authority to administer, dispose, and alienate public lands, therefore, must not be understood as
depriving the other branches of the Government of the exercise of the respective functions or powers thereon,
such as the authority to stop disorders and quell breaches of the peace by the police, the authority on the part of
the courts to take jurisdiction over possessory actions arising therefrom not involving, directly or indirectly,
alienation and disposition.

Our attention has been called to a principle enunciated in American courts to the effect that courts have no
jurisdiction to determine the rights of claimants to public lands, and that until the disposition of the land has
passed from the control of the Federal Government, the courts will not interfere with the administration of matters
concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this principle. The determination of the
respective rights of rival claimants to public lands is different from the determination of who has the actual
physical possession or occupation with a view to protecting the same and preventing disorder and breaches of the
peace. A judgment of the court ordering restitution of the possession of a parcel of land to the actual occupant,
who has been deprived thereof by another through the use of force or in any other illegal manner, can never be
prejudicial interference with the disposition or alienation of public lands. On the other hand, if courts were
deprived of jurisdiction of cases involving conflicts of possession, that threat of judicial action against breaches
of the peace committed on public lands would be eliminated, and a state of lawlessness would probably be
produced between applicants, occupants or squatters, where force or might, not right or justice, would rule.

It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or
conflicting applicants or claimants would be no other than that of forcible entry. This action, both in England and
the United States and in our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet
possession may recover the possession of which he has been deprived by a stronger hand, by violence or terror;
its ultimate object being to prevent breach of the peace and criminal disorder. (Supia and Batioco vs. Quintero
and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical possession, not a
legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an
action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the nature of
the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the
imagination can conclusion be arrived at that the use of the remedy in the courts of justice would constitute an
interference with the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can
it be pretended at all that its result would in any way interfere with the manner of the alienation or disposition of
the land contested? On the contrary, it would facilitate adjudication, for the question of priority of possession
having been decided in a final manner by the courts, said question need no longer waste the time of the land
officers making the adjudication or award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.

Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We explained the principle of
pari delicto in these words:

The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior est
conditio defedentis. The law will not aid either party to an illegal agreement. It leaves the parties where it finds
them.[49]

The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these
exceptions is where the application of the pari delicto rule would violate well-established public policy.[50]

In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of forcible entry and unlawful
detainer. We held that:

It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual
condition of the title to the property, the party in peaceable quiet possession shall not be turned out by strong
hand, violence or terror. In affording this remedy of restitution the object of the statute is to prevent breaches of
the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the reasonable hope
such withdrawal would create that some advantage must accrue to those persons who, believing themselves
entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in
the courts to assert their claims. This is the philosophy at the foundation of all these actions of forcible entry and
detainer which are designed to compel the party out of possession to respect and resort to the law alone to obtain
what he claims is his.[52]

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with
danger. To shut out relief to squatters on the ground of pari delicto would openly invite mayhem and lawlessness.
A squatter would oust another squatter from possession of the lot that the latter had illegally occupied, emboldened
by the knowledge that the courts would leave them where they are. Nothing would then stand in the way of the
ousted squatter from re-claiming his prior possession at all cost.

Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession
seek to prevent.[53] Even the owner who has title over the disputed property cannot take the law into his own
hands to regain possession of his property. The owner must go to court.

Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The
determination of priority and superiority of possession is a serious and urgent matter that cannot be left to the
squatters to decide. To do so would make squatters receive better treatment under the law. The law restrains
property owners from taking the law into their own hands. However, the principle of pari delicto as applied by
the Court of Appeals would give squatters free rein to dispossess fellow squatters or violently retake possession
of properties usurped from them. Courts should not leave squatters to their own devices in cases involving
recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to
rule on the issue of physical possession. Nevertheless, the appellate court held that the pivotal issue in this case
is who between Pajuyo and Guevarra has the priority right as beneficiary of the contested land under Proclamation
No. 137.[54] According to the Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137
because Article VI of the Code declares that the actual occupant or caretaker is the one qualified to apply for
socialized housing.

The ruling of the Court of Appeals has no factual and legal basis.

First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under
Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it declared open
for disposition to bona fide residents.

The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra
had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137. He failed to do so.

Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he is the
beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project administrator
conducted, he and not Pajuyo appeared as the actual occupant of the lot.

There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed Guevarra
to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into law on 11 March
1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September 1994.

During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly
segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even when Guevarra
already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take any step to comply
with the requirements of Proclamation No. 137.

Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a
pending application over the lot, courts should still assume jurisdiction and resolve the issue of possession.
However, the jurisdiction of the courts would be limited to the issue of physical possession only.

In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving public land to determine
the issue of physical possession. The determination of the respective rights of rival claimants to public land is,
however, distinct from the determination of who has the actual physical possession or who has a better right of
physical possession.[56] The administrative disposition and alienation of public lands should be threshed out in
the proper government agency.[57]

The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was premature.
Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the
decision of the administrative agency mandated by law to determine the qualifications of applicants for the
acquisition of public lands. Instead, courts should expeditiously resolve the issue of physical possession in
ejectment cases to prevent disorder and breaches of peace.[58]

Pajuyo is Entitled to Physical Possession of the Disputed Property


Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it. Guevarra
expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay
G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng walang bayad. Kaugnay nito,
kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.

Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was
under obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyos
demand but Guevarra broke his promise and refused to heed Pajuyos demand to vacate.

These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from
another of the possession of real property to which the latter is entitled after the expiration or termination of the
formers right to hold possession under a contract, express or implied.[59]

Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is
necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful
detainer will lie.[60] The defendants refusal to comply with the demand makes his continued possession of the
property unlawful.[61] The status of the defendant in such a case is similar to that of a lessee or tenant whose
term of lease has expired but whose occupancy continues by tolerance of the owner.[62]

This principle should apply with greater force in cases where a contract embodies the permission or tolerance to
use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not require Guevarra to
pay any rent but only to maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan
that he would vacate the property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made
Guevarras continued possession of the property unlawful.

We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.

In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter
may use the same for a certain time and return it.[63] An essential feature of commodatum is that it is gratuitous.
Another feature of commodatum is that the use of the thing belonging to another is for a certain period.[64] Thus,
the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after
accomplishment of the use for which the commodatum is constituted.[65] If the bailor should have urgent need
of the thing, he may demand its return for temporary use.[66] If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case the contractual relation is called a
precarium.[67] Under the Civil Code, precarium is a kind of commodatum.[68]

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous.
While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good
condition. The imposition of this obligation makes the Kasunduan a contract different from a commodatum. The
effects of the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated
relationship based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of
permission would result in the termination of the lease.[69] The tenants withholding of the property would then
be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee
would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver
or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration
and commodatum.[70] These contracts certainly involve the obligation to deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters,
Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that
the contract is void.

Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the
Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds
Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical
possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras recognition of
Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract
would not yield a different result, as there would still be an implied promise to vacate.

Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee
squatter who (sic) makes (sic) a profit out of his illegal act.[72] Guevarra bases his argument on the preferential
right given to the actual occupant or caretaker under Proclamation No. 137 on socialized housing.

We are not convinced.

Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying
any rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other
squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies
for socialized housing. The only issue that we are addressing is physical possession.

Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions between
forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical possession of his
land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior
possession.[75] But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or
termination of his right to possess under any contract, express or implied. In such a case, prior physical possession
is not required.[76]

Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess
the property ended as well. Moreover, it was Pajuyo who was in actual possession of the property because
Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra had to follow the
conditions set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo and this is evidence
of actual possession.

Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law
does not mean that a man has to have his feet on every square meter of the ground before he is deemed in
possession.[77] One may acquire possession not only by physical occupation, but also by the fact that a thing is
subject to the action of ones will.[78] Actual or physical occupation is not always necessary.[79]

Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared that squatters and intruders who clandestinely
enter into titled government property cannot, by such act, acquire any legal right to said property.[80] We made
this declaration because the person who had title or who had the right to legal possession over the disputed
property was a party in the ejectment suit and that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is
between squatters. Had the government participated in this case, the courts could have evicted the contending
squatters, Pajuyo and Guevarra.

Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on
our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts in settling the
issue of physical possession. Stripping both the plaintiff and the defendant of possession just because they are
squatters would have the same dangerous implications as the application of the principle of pari delicto. Squatters
would then rather settle the issue of physical possession among themselves than seek relief from the courts if the
plaintiff and defendant in the ejectment case would both stand to lose possession of the disputed property. This
would subvert the policy underlying actions for recovery of possession.

Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until
a person who has title or a better right lawfully ejects him. Guevarra is certainly not that person. The ruling in this
case, however, does not preclude Pajuyo and Guevarra from introducing evidence and presenting arguments
before the proper administrative agency to establish any right to which they may be entitled under the law.[81]

In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical
possession does not affect title to the property nor constitute a binding and conclusive adjudication on the merits
on the issue of ownership.[82] The owner can still go to court to recover lawfully the property from the person
who holds the property without legal title. Our ruling here does not diminish the power of government agencies,
including local governments, to condemn, abate, remove or demolish illegal or unauthorized structures in
accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of
damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.[83] Thus, the award of
attorneys fees is the exception rather than the rule.[84] Attorneys fees are not awarded every time a party prevails
in a suit because of the policy that no premium should be placed on the right to litigate.[85] We therefore delete
the attorneys fees awarded to Pajuyo.

We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not dispute this
factual finding of the two courts. We find the amount reasonable compensation to Pajuyo. The P300 monthly
rental is counted from the last demand to vacate, which was on 16 February 1995.

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December
2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996
of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision
dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No. 12432, is
REINSTATED with MODIFICATION. The award of attorneys fees is deleted. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-
appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.


Office of the Solicitor General for plaintiff-appellee.

PADILLA, J.:

The Court of Appeals certified this case to this Court because only questions of law are raised.

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal
Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of
P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government
charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract,
the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and
Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950
and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal
Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy them
at a value with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950
the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that
they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the
book value of the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila
the Republic of the Philippines commenced an action against him praying that he be ordered to return the three
bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the
sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No.
12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad
peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he
had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the
refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly
depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he
could not return the animals nor pay their value and prayed for the dismissal of the complaint.

After hearing, on 30 July 1956 the trial court render judgment —

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding
fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this complaint
and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October
and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on
November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this order appointing
a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas
who died on 23 October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she file a motion
alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry
and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a
Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of
preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959
she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified
by the Court of Appeals to this Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi
and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry,
Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why
in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that
another writ of execution in the sum of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas."
She cannot be held liable for the two bulls which already had been returned to and received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953
upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that
as such death was due to force majeure she is relieved from the duty of returning the bull or paying its value to
the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the
three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for
another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book
value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the
appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of
commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would
be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a
possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even
if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a
bailee in a contract of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting
the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953
when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased
husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the
Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt from liability.

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of
its value being a money claim should be presented or filed in the intestate proceedings of the defendant who died
on 23 October 1951, is not altogether without merit. However, the claim that his civil personality having ceased
to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the
Rules of Court provides that —

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal
representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days,
or within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which
provides that —
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of
such death . . . and to give the name and residence of the executory administrator, guardian, or other legal
representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue
letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly
against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due,
or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment for
monopoly against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon
City, within six (6) months from the date of the first publication of this order, serving a copy thereof upon the
aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a
notice to the court and the appellee who were to be notified of the defendant's death in accordance with the above-
quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the
defendant was the same who represented the administratrix in the special proceedings instituted for the
administration and settlement of his estate. The appellee or its attorney or representative could not be expected to
know of the death of the defendant or of the administration proceedings of his estate instituted in another court
that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required
by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable
for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed
while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its
objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ
of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having
been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the
appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for
payment by the appellant, the administratrix appointed by the court.

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal,
JJ., concur.
Barrera, J., concurs in the result.

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