Republic vs.

CA 146 SCRA 15
G.R. No. L-46145 November 26, 1986 RE !"L#C $% &'E '#L# #NES ("!REA! $% LAN)S*, pe+i+io,er, vs. &'E '$N. C$!R& $% A EALS, 'E#RS $% )$-#NG$ . "AL$., represe,+e/ b0 R#CAR)$ "AL$., E& AL., respo,/e,+s. el1e2, 31lo,/o,i, A/ri1,o 1,/ Associ1+es 4or respo,/e,+s. PARAS, J.:p This case originally emanated from a decision of the then Court of First Instance of am!ales in "RC Case #o. $$%&, "RC Record #o. #%'()**, denying respondents+ application for registration. From said order of denial the applicants, heirs of ,omingo -aloy, represented !y Ricardo P. -aloy, .herein pri/ate respondents0 interposed on appeal to the Court of Appeals 1hich 1as doc2eted as CA%3.R. #o. *'&)(%R. The appellate court, thru its Fifth ,i/ision 1ith the 4on. Justice 5agno 3atmaitan as ponente, rendered a decision dated Fe!ruary ), $(66 re/ersing the decision appealed from and thus appro/ing the application for registration. 7ppositors .petitioners herein0 filed their 5otion for Reconsideration alleging among other things that applicants+ possessory information title can no longer !e in/o2ed and that they 1ere not a!le to pro/e a registera!le title o/er the land. Said 5otion for Reconsideration 1as denied, hence this petition for re/ie1 on certiorari. Applicants+ claim is anchored on their possessory information title .89hi!it F 1hich had !een translated in 89hi!it F%$0 coupled 1ith their continuous, ad/erse and pu!lic possession o/er the land in :uestion. An e9amination of the possessory information title sho1s that the description and the area of the land stated therein su!stantially coincides 1ith the land applied for and that said possessory information title had !een regularly issued ha/ing !een ac:uired !y applicants+ predecessor, ,omingo -aloy, under the pro/isions of the Spanish 5ortgage "a1. Applicants presented their ta9 declaration on said lands on April ;, $(<*. The ,irector of "ands opposed the registration alleging that this land had !ecome pu!lic land thru the operation of Act <'6 of the Philippine Commission. 7n #o/em!er '<, $(&' pursuant to the e9ecuti/e order of the President of the =.S., the area 1as declared 1ithin the =.S. #a/al Reser/ation. =nder Act <'6 as amended !y Act $$);, a period 1as fi9ed 1ithin 1hich persons affected there!y could file their application, .that is 1ithin < months from July ;, $(&*0 other1ise >the said lands or interest therein 1ill !e conclusi/ely ad?udged to !e pu!lic lands and all claims on the part of pri/ate indi/iduals for such lands or interests therein not to presented 1ill !e fore/er !arred.> Petitioner argues that since ,omingo -aloy failed to file his claim 1ithin the prescri!ed period, the land had !ecome irre/oca!ly pu!lic and could not !e the su!?ect of a /alid registration for pri/ate o1nership. Considering the foregoing facts respondents Court of Appeals ruled as follo1s: ... perhaps, the conse:uence 1as that upon failure of ,omingo -aloy to ha/e filed his application 1ithin that period the land had !ecome irre/oca!ly pu!lic@ !ut perhaps also, for the reason that 1arning 1as from the Cler2 of the Court of "and Registration, named J.R. Ailson and there has not !een presented a formal order or decision of the said Court of "and Registration so declaring the land pu!lic !ecause of that failure, it can 1ith plausi!ility !e said that after all, there 1as no ?udicial declaration to that effect, it is true that the =.S. #a/y did occupy it apparently for some time, as a recreation area, as this Court understands from the communication of the ,epartment of Foreign Affairs to the =.S. 8m!assy e9hi!ited in the record, !ut the /ery tenor of the communication apparently see2s to ?ustify the title of herein applicants, in other 1ords, 1hat this Court has ta2en from the occupation !y the =.S. #a/y is that during the interim, the title of applicants 1as in a state of suspended animation so to spea2 !ut it had not died either@ and the fact !eing that this land 1as really originally pri/ate from and after the issuance and inscription of the possessory information 89h. F during the Spanish times, it 1ould !e most difficult to sustain position of ,irector of "ands that it 1as land of no pri/ate o1ner@ open to pu!lic disposition, and o/er 1hich he has control@ and since immediately after =.S. #a/y had a!andoned the area, applicant came in and asserted title once again, only to !e trou!led !y first Crispiniano -lanco 1ho ho1e/er in due time, :uitclaimed in fa/or of applicants, and then !y pri/ate oppositors no1, apparently originally tenants of -lanco, !ut that entry of pri/ate oppositors sought to !e gi/en color of o1nership 1hen they sought to and did file ta9 declaration in $(<*, should not pre?udice the original rights of applicants thru their possessory information secured regularly so long ago, the conclusion must ha/e to !e that after all, applicants had succeeded in !ringing themsel/es 1ithin the pro/isions of Sec. $( of Act B(<, the land should !e registered in their fa/or@

I# CI8A A48R87F, this Court is constrained to re/erse, as it no1 re/erses, ?udgment appealed from the application is appro/ed, and once this decision shall ha/e !ecome final, if e/er it 1ould !e, let decree issue in fa/or of applicants 1ith the personal circumstances outlined in the application, costs against pri/ate oppositors. Petitioner no1 comes to =s 1ith the follo1ing: ASSI3#58#T 7F 8RR7RS: $. Respondent court erred in holding that to !ar pri/ate respondents from asserting any right under their possessory information title there is need for a court order to that effect. '. Respondent court erred in not holding that pri/ate respondents+ rights !y /irtue of their possessory information title 1as lost !y prescription. ). Respondent court erred in concluding that applicants ha/e registera!le title. A cursory reading of Sec. ), Act <'6 re/eals that se/eral steps are to !e follo1ed !efore any affected land can >!e conclusi/ely ad?udged to !e pu!lic land.> Sec. ), Act <'6 reads as follo1s: S8C. ). Immediately upon receipt of the notice from the ci/il 3o/ernor in the preceeding section mentioned it shall !e the duty of the ?udge of the Court of "and Registration to issue a notice, stating that the lands 1ithin the limits aforesaid ha/e !een reser/ed for military purposes, and announced and declared to !e military reser/ations, and that claims for all pri/ate lands, !uildings, and interests therein, 1ithin the limits aforesaid, must !e presented for registration under the "and Registration Act 1ithin si9 calendar months from the date of issuing the notice, and that all lands, !uildings, and interests therein 1ithin the limits aforesaid not so presented 1ithin the time therein limited 1ill !e conclusi/ely ad?udged to !e pu!lic lands and all claims on the part of pri/ate indi/iduals for such lands, !uildings, or an interest therein not so presented 1ill !e fore/er !arred. The cler2 of the Court of "and Registration shall immediately upon the issuing of such notice !y the ?udge cause the same to !e pu!lished once a 1ee2 for three successi/e 1ee2s in t1o ne1spapers, one of 1hich ne1spapers shall !e in the 8nglish "anguage, and one in the Spanish language in the city or pro/ince 1here the land lies, if there !e no such Spanish or 8nglish ne1spapers ha/ing a general circulation in the city or pro/ince 1herein the land lies, then it shall !e a sufficient compliance 1ith this section if the notice !e pu!lished as herein pro/ided, in a daily ne1spaper in the Spanish language and one in the 8nglish language, in the City of 5anila, ha/ing a general circulation. The cler2 shall also cause a duly attested copy of the notice in the Spanish language to !e posted in conspicuous place at each angle formed !y the lines of the limits of the land reser/ed. The cler2 shall also issue and cause to !e personally ser/ed the notice in the Spanish language upon e/ery person li/ing upon or in /isi!le possession of any part of the military reser/ation. If the person in possession is the head of the family li/ing upon the hand, it shall !e sufficient to ser/e the notice upon him, and if he is a!sent it shall !e sufficient to lea/e a copy at his usual place of residence. The cler2 shall certify the manner in 1hich the notices ha/e !een pu!lished, posted, and ser/ed, and his certificate shall !e conclusi/e proof of such pu!lication, posting, and ser/ice, !ut the court shall ha/e the po1er to cause such further notice to !e gi/en as in its opinion may !e necessary. Clearly under said pro/isions, pri/ate land could !e deemed to ha/e !ecome pu!lic land only !y /irtue of a ?udicial declaration after due notice and hearing. It runs contrary therefore to the contention of petitioners that failure to present claims set forth under Sec. ' of Act <'6 made the land ipso facto pu!lic 1ithout any deed of ?udicial pronouncement. Petitioner in ma2ing such declaration relied on Sec. B of Act <'6 alone. -ut in construing a statute the entire pro/isions of the la1 must !e considered in order to esta!lish the correct interpretation as intended !y the la1%ma2ing !ody. Act <'6 !y its terms is not self%e9ecutory and re:uires implementation !y the Court of "and Registration. Act <'6, to the e9tent that it creates a forfeiture, is a penal statute in derogation of pri/ate rights, so it must !e strictly construed so as to safeguard pri/ate respondents+ rights. Significantly, petitioner does not e/en allege the e9istence of any ?udgment of the "and Registration court 1ith respect to the land in :uestion. Aithout a ?udgment or order declaring the land to !e pu!lic, its pri/ate character and the possessory information title o/er it must !e respected. Since no such order has !een rendered !y the "and Registration Court it necessarily follo1s that it ne/er !ecame pu!lic land thru the operation of Act <'6. To assume other1ise is to depri/e pri/ate respondents of their property 1ithout due process of la1. In fact it can !e presumed that the notice re:uired !y la1 to !e gi/en !y pu!lication and !y personal ser/ice did not include the name of ,omingo -aloy and the su!?ect land, and hence he and his lane 1ere ne/er !rought 1ithin the operation of Act <'6 as amended. The procedure laid do1n in Sec. ) is a re:uirement of due process. >,ue process re:uires that the statutes 1hich under it is attempted to depri/e a citiDen of pri/ate property 1ithout or against his

consent must, as in e9propriation cases, !e strictly complied 1ith, !ecause such statutes are in derogation of general rights.> .Arriete /s. ,irector of Pu!lic Aor2s, *; Phil. *&6, *&;, *$$0. Ae also find 1ith fa/or pri/ate respondents+ /ie1s that court ?udgments are not to !e presumed. It 1ould !e a!surd to spea2 of a ?udgment !y presumption. If it could !e contended that such a ?udgment may !e presumed, it could e:ually !e contended that applicants+ predecessor ,omingo -aloy presuma!ly seasona!ly filed a claim, in accordance 1ith the legal presumption that a person ta2es ordinary care of his concerns, and that a ?udgment in his fa/or 1as rendered. The finding of respondent court that during the interim of *6 years from #o/em!er '<, $(&' to ,ecem!er $6, $(*( .1hen the =.S. #a/y possessed the area0 the possessory rights of -aloy or heirs 1ere merely suspended and not lost !y prescription, is supported !y 89hi!it >=,> a communication or letter #o. $$&;%<), dated June 'B, $(<), 1hich contains an official statement of the position of the Repu!lic of the Philippines 1ith regard to the status of the land in :uestion. Said letter recogniDes the fact that ,omingo -aloy andEor his heirs ha/e !een in continuous possession of said land since $;(B as attested !y an >Informacion Possessoria> Title, 1hich 1as granted !y the Spanish 3o/ernment. 4ence, the disputed property is pri/ate land and this possession 1as interrupted only !y the occupation of the land !y the =.S. #a/y in $(B* for recreational purposes. The =.S. #a/y e/entually a!andoned the premises. The heirs of the late ,omingo P. -aloy, are no1 in actual possession, and this has !een so since the a!andonment !y the =.S. #a/y. A ne1 recreation area is no1 !eing used !y the =.S. #a/y personnel and this place is remote from the land in :uestion. Clearly, the occupancy of the =.S. #a/y 1as not in the concept of o1ner. It parta2es of the character of a commodatum. It cannot therefore militate against the title of ,omingo -aloy and his successors%in%interest. 7ne+s o1nership of a thing may !e lost !y prescription !y reason of another+s possession if such possession !e under claim of o1nership, not 1here the possession is only intended to !e transient, as in the case of the =.S. #a/y+s occupation of the land concerned, in 1hich case the o1ner is not di/ested of his title, although it cannot !e e9ercised in the meantime. A48R8F7R8, premises considered, finding no merit in the petition the appealed decision is here!y AFFIR58,. S7 7R,8R8,. Feria .Chairman0, Alampay and Feliciano, F JJ., concur. 3utierreD, Jr., J., concurs in the results. Fernan J., too2 no part. Footnotes F Feliciano 1as designated in lieu of J. Fernan.

C1+5olic 6ic1r Apos+olic o4 -+. rovi,ce vs. CA 165 SCRA 515

G.R. No. 87294-95 Sep+ember 21, 1988 CA&'$L#C 6#CAR A $S&$L#C $% &'E -$!N&A#N R$6#NCE, petitioner, /s. C$!R& $% A EALS, 'E#RS $% EG-#)#$ $C&A6#AN$ AN) 3!AN 6AL)E8, respondents. GANCA.C$, J.: The principal issue in this case is 1hether or not a decision of the Court of Appeals promulgated a long time ago can properly !e considered res judicata !y respondent Court of Appeals in the present t1o cases !et1een petitioner and t1o pri/ate respondents. Petitioner :uestions as allegedly erroneous the ,ecision dated August )$, $(;6 of the #inth ,i/ision of Respondent Court of Appeals 1 in CA%3.R. #o. &*$B; GCi/il Case #o. )<&6 .B$(0H and CA%3.R. #o. &*$B( GCi/il Case #o. )<** .B'(0H, !oth for Reco/ery of Possession, 1hich affirmed the ,ecision of the 4onora!le #icodemo T. Ferrer, Judge of the Regional Trial Court of -aguio and -enguet in Ci/il Case #o. )<&6 .B$(0 and Ci/il Case #o. )<** .B'(0, 1ith the dispositi/e portion as follo1s: A48R8F7R8, Judgment is here!y rendered ordering the defendant, Catholic Cicar Apostolic of the 5ountain Pro/ince to return and surrender "ot ' of Plan Psu%$(B)*6 to the plaintiffs. 4eirs of Juan CaldeD, and "ot ) of the same Plan to the other set of plaintiffs, the 4eirs of 8gmidio 7cta/iano ."eonardo CaldeD, et al.0. For lac2 or insufficiency of e/idence, the plaintiffs+ claim or damages is here!y denied. Said defendant is ordered to pay costs. .p. )<, Rollo0 Respondent Court of Appeals, in affirming the trial court+s decision, sustained the trial court+s conclusions that the ,ecision of the Court of Appeals, dated 5ay B,$(66 in CA%3.R. #o. );;)&%R, in the t1o cases affirmed !y the Supreme Court, touched on the o1nership of lots ' and ) in :uestion@ that the t1o lots 1ere possessed !y the predecessors%in%interest of pri/ate respondents under claim of o1nership in good faith from $(&< to $(*$@ that petitioner had !een in possession of the same lots as !ailee in commodatum up to $(*$, 1hen petitioner repudiated the trust and 1hen it applied for registration in $(<'@ that petitioner had ?ust !een in possession as o1ner for ele/en years, hence there is no possi!ility of ac:uisiti/e prescription 1hich re:uires $& years possession 1ith ?ust title and )& years of possession 1ithout@ that the principle of res judicata on these findings !y the Court of Appeals 1ill !ar a reopening of these :uestions of facts@ and that those facts may no longer !e altered. Petitioner+s motion for reconsideation of the respondent appellate court+s ,ecision in the t1o aforementioned cases .CA 3.R. #o. CC%&*B$; and &*B$(0 1as denied. The facts and !ac2ground of these cases as narrated !y the trail court are as follo1s I ... The documents and records presented re/eal that the 1hole contro/ersy started 1hen the defendant Catholic Cicar Apostolic of the 5ountain Pro/ince .CICAR for !re/ity0 filed 1ith the Court of First Instance of -aguio -enguet on Septem!er *, $(<' an application for registration of title o/er "ots $, ', ), and B in Psu%$(B)*6, situated at Po!lacion Central, "a Trinidad, -enguet, doc2eted as "RC #%($, said "ots !eing the sites of the Catholic Church !uilding, con/ents, high school !uilding, school gymnasium, school dormitories, social hall, stone1alls, etc. 7n 5arch '', $(<) the 4eirs of Juan CaldeD and the 4eirs of 8gmidio 7cta/iano filed their Ans1erE7pposition on "ots #os. ' and ), respecti/ely, asserting o1nership and title thereto. After trial on the merits, the land registration court promulgated its ,ecision, dated #o/em!er $6, $(<*, confirming the registra!le title of CICAR to "ots $, ', ), and B. The 4eirs of Juan CaldeD .plaintiffs in the herein Ci/il Case #o. )<**0 and the 4eirs of 8gmidio 7cta/iano .plaintiffs in the herein Ci/il Case #o. )<&60 appealed the decision of the land registration court to the then Court of Appeals, doc2eted as CA%3.R. #o. );;)&% R. The Court of Appeals rendered its decision, dated 5ay (, $(66, re/ersing the decision of the land registration court and dismissing the CICAR+s application as to "ots ' and ), the lots claimed !y the t1o sets of oppositors in the land registration case .and t1o sets of plaintiffs in the t1o cases no1 at !ar0, the first lot !eing presently occupied !y the con/ent and the second !y the 1omen+s dormitory and the sister+s con/ent. 7n 5ay (, $(66, the 4eirs of 7cta/iano filed a motion for reconsideration praying the Court of Appeals to order the registration of "ot ) in the names of the 4eirs of 8gmidio

7cta/iano, and on 5ay $6, $(66, the 4eirs of Juan CaldeD and Pacita CaldeD filed their motion for reconsideration praying that !oth "ots ' and ) !e ordered registered in the names of the 4eirs of Juan CaldeD and Pacita CaldeD. 7n August $',$(66, the Court of Appeals denied the motion for reconsideration filed !y the 4eirs of Juan CaldeD on the ground that there 1as >no sufficient merit to ?ustify reconsideration one 1ay or the other ...,> and li2e1ise denied that of the 4eirs of 8gmidio 7cta/iano. Thereupon, the CICAR filed 1ith the Supreme Court a petition for re/ie1 on certiorari of the decision of the Court of Appeals dismissing his .its0 application for registration of "ots ' and ), doc2eted as 3.R. #o. "%B<;)', entitled +Catholic Cicar Apostolic of the 5ountain Pro/ince /s. Court of Appeals and 4eirs of 8gmidio 7cta/iano.+ From the denial !y the Court of Appeals of their motion for reconsideration the 4eirs of Juan CaldeD and Pacita CaldeD, on Septem!er ;, $(66, filed 1ith the Supreme Court a petition for re/ie1, doc2eted as 3.R. #o. "%B<;6', entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Cicar, 4eirs of 8gmidio 7cta/iano and Anna!le 7. CaldeD. 7n January $), $(6;, the Supreme Court denied in a minute resolution !oth petitions .of CICAR on the one hand and the 4eirs of Juan CaldeD and Pacita CaldeD on the other0 for lac2 of merit. =pon the finality of !oth Supreme Court resolutions in 3.R. #o. "%B<;)' and 3.R. #o. "% B<;6', the 4eirs of 7cta/iano filed 1ith the then Court of First Instance of -aguio, -ranch II, a 5otion For 89ecution of Judgment praying that the 4eirs of 7cta/iano !e placed in possession of "ot ). The Court, presided o/er !y 4on. Sal/ador J. CaldeD, on ,ecem!er 6, $(6;, denied the motion on the ground that the Court of Appeals decision in CA%3.R. #o. );;6& did not grant the 4eirs of 7cta/iano any affirmati/e relief. 7n Fe!ruary 6, $(6(, the 4eirs of 7cta/iano filed 1ith the Court of Appeals a petitioner for certiorari and mandamus, doc2eted as CA%3.R. #o. &;;(&%R, entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated 5ay $<, $(6(, the Court of Appeals dismissed the petition. It 1as at that stage that the instant cases 1ere filed. The 4eirs of 8gmidio 7cta/iano filed Ci/il Case #o. )<&6 .B$(0 on July 'B, $(6(, for reco/ery of possession of "ot )@ and the 4eirs of Juan CaldeD filed Ci/il Case #o. )<** .B'(0 on Septem!er 'B, $(6(, li2e1ise for reco/ery of possession of "ot ' .,ecision, pp. $((%'&$, 7rig. Rec.0. In Ci/il Case #o. )<&6 .B$(0 trial 1as held. The plaintiffs 4eirs of 8gmidio 7cta/iano presented one .$0 1itness, Fructuoso CaldeD, 1ho testified on the alleged o1nership of the land in :uestion ."ot )0 !y their predecessor%in%interest, 8gmidio 7cta/iano .89h. C 0@ his 1ritten demand .89h. -I-%B 0 to defendant Cicar for the return of the land to them@ and the reasona!le rentals for the use of the land at P$&,&&&.&& per month. 7n the other hand, defendant Cicar presented the Register of ,eeds for the Pro/ince of -enguet, Atty. #icanor Sison, 1ho testified that the land in :uestion is not co/ered !y any title in the name of 8gmidio 7cta/iano or any of the plaintiffs .89h. ;0. The defendant dispensed 1ith the testimony of 5ons.Ailliam -rasseur 1hen the plaintiffs admitted that the 1itness if called to the 1itness stand, 1ould testify that defendant Cicar has !een in possession of "ot ), for se/enty%fi/e .6*0 years continuously and peacefully and has constructed permanent structures thereon. In Ci/il Case #o. )<**, the parties admitting that the material facts are not in dispute, su!mitted the case on the sole issue of 1hether or not the decisions of the Court of Appeals and the Supreme Court touching on the o1nership of "ot ', 1hich in effect declared the plaintiffs the o1ners of the land constitute res judicata. In these t1o cases , the plaintiffs ar:ue that the defendant Cicar is !arred from setting up the defense of o1nership andEor long and continuous possession of the t1o lots in :uestion since this is !arred !y prior ?udgment of the Court of Appeals in CA%3.R. #o. &);;)&%R under the principle of res judicata. Plaintiffs contend that the :uestion of possession and o1nership ha/e already !een determined !y the Court of Appeals .89h. C, ,ecision, CA%3.R. #o. &);;)&%R0 and affirmed !y the Supreme Court .89h. $, 5inute Resolution of the Supreme Court0. 7n his part, defendant Cicar maintains that the principle of res judicata 1ould not pre/ent them from litigating the issues of long possession and o1nership !ecause the dispositi/e portion of the prior ?udgment in CA%3.R. #o. &);;)&%R merely dismissed their application for registration and titling of lots ' and ). ,efendant Cicar contends that only the dispositi/e portion of the decision, and not its !ody, is the controlling pronouncement of the Court of Appeals. 2

The alleged errors committed !y respondent Court of Appeals according to petitioner are as follo1s: $. 8RR7R I# APP"JI#3 "AA 7F T48 CAS8 A#, ES J!"#CA$A@ '. 8RR7R I# FI#,I#3 T4AT T48 TRIA" C7=RT R="8, T4AT "7TS ' A#, ) A8R8 ACK=IR8, -J P=RC4AS8 -=T AIT47=T ,7C=58#TARJ 8CI,8#C8 PR8S8#T8,@ ). 8RR7R I# FI#,I#3 T4AT P8TITI7#8RS+ C"AI5 IT P=RC4AS8, "7TS ' A#, ) FR75 CA",8 A#, 7CTACIA#7 AAS A# I5P"I8, A,5ISSI7# T4AT T48 F7R58R 7A#8RS A8R8 CA",8 A#, 7CTACIA#7@ B. 8RR7R I# FI#,I#3 T4AT IT AAS PR8,8C8SS7RS 7F PRICAT8 R8SP7#,8#TS A47 A8R8 I# P7SS8SSI7# 7F "7TS ' A#, ) AT "8AST FR75 $(&<, A#, #7T P8TITI7#8R@ *. 8RR7R I# FI#,I#3 T4AT CA",8 A#, 7CTACIA#7 4A, FR88 PAT8#T APP"ICATI7#S A#, T48 PR8,8C8SS7RS 7F PRICAT8 R8SP7#,8#TS A"R8A,J 4A, FR88 PAT8#T APP"ICATI7#S SI#C8 $(&<@ <. 8RR7R I# FI#,I#3 T4AT P8TITI7#8R ,8C"AR8, "7TS ' A#, ) 7#"J I# $(*$ A#, J=ST TIT"8 IS A PRI58 #8C8SSITJ =#,8R ARTIC"8 $$)B I# R8"ATI7# T7 ART. $$'( 7F T48 CICI" C7,8 F7R 7R,I#ARJ ACK=ISITIC8 PR8SCRIPTI7# 7F $& J8ARS@ 6. 8RR7R I# FI#,I#3 T4AT T48 ,8CISI7# 7F T48 C7=RT 7F APP8A"S I# CA 3.R. #7. &);;)& AAS AFFIR58, -J T48 S=PR858 C7=RT@ ;. 8RR7R I# FI#,I#3 T4AT T48 ,8CISI7# I# CA 3.R. #7. &);;)& T7=C48, 7# 7A#8RS4IP 7F "7TS ' A#, ) A#, T4AT PRICAT8 R8SP7#,8#TS A#, T48IR PR8,8C8SS7RS A8R8 I# P7SS8SSI7# 7F "7TS ' A#, ) =#,8R A C"AI5 7F 7A#8RS4IP I# 377, FAIT4 FR75 $(&< T7 $(*$@ (. 8RR7R I# FI#,I#3 T4AT P8TITI7#8R 4A, -88# I# P7SS8SSI7# 7F "7TS ' A#, ) 58R8"J AS -AI"88 -7R R7A8R0 I# C7557,AT=5, A 3RAT=IT7=S "7A# F7R =S8@ $&. 8RR7R I# FI#,I#3 T4AT P8TITI7#8R IS A P7SS8SS7R A#, -=I",8R I# 377, FAIT4 AIT47=T RI34TS 7F R8T8#TI7# A#, R8I5-=RS858#T A#, IS -ARR8, -J T48 FI#A"ITJ A#, C7#C"=SIC8#8SS 7F T48 ,8CISI7# I# CA 3.R. #7. &);;)&. 9 The petition is !ereft of merit. Petitioner :uestions the ruling of respondent Court of Appeals in CA%3.R. #os. &*$B; and &*$B(, 1hen it clearly held that it 1as in agreement 1ith the findings of the trial court that the ,ecision of the Court of Appeals dated 5ay B,$(66 in CA%3.R. #o. );;)&%R, on the :uestion of o1nership of "ots ' and ), declared that the said Court of Appeals ,ecision CA%3.R. #o. );;)&%R0 did not positi/ely declare pri/ate respondents as o1ners of the land, neither 1as it declared that they 1ere not o1ners of the land, !ut it held that the predecessors of pri/ate respondents 1ere possessors of "ots ' and ), 1ith claim of o1nership in good faith from $(&< to $(*$. Petitioner 1as in possession as !orro1er in commodatum up to $(*$, 1hen it repudiated the trust !y declaring the properties in its name for ta9ation purposes. Ahen petitioner applied for registration of "ots ' and ) in $(<', it had !een in possession in concept of o1ner only for ele/en years. 7rdinary ac:uisiti/e prescription re:uires possession for ten years, !ut al1ays 1ith ?ust title. 89traordinary ac:uisiti/e prescription re:uires )& years. 4 7n the a!o/e findings of facts supported !y e/idence and e/aluated !y the Court of Appeals in CA%3.R. #o. );;)&%R, affirmed !y this Court, Ae see no error in respondent appellate court+s ruling that said findings are res judicata !et1een the parties. They can no longer !e altered !y presentation of e/idence !ecause those issues 1ere resol/ed 1ith finality a long time ago. To ignore the principle of res judicata 1ould !e to open the door to endless litigations !y continuous determination of issues 1ithout end. An e9amination of the Court of Appeals ,ecision dated 5ay B, $(66, First ,i/ision 5 in CA%3.R. #o. );;)&%R, sho1s that it re/ersed the trial court+s ,ecision 6 finding petitioner to !e entitled to register the lands in :uestion under its o1nership, on its e/aluation of e/idence and conclusion of facts. The Court of Appeals found that petitioner did not meet the re:uirement of )& years possession for ac:uisiti/e prescription o/er "ots ' and ). #either did it satisfy the re:uirement of $& years possession for ordinary ac:uisiti/e prescription !ecause of the a!sence of ?ust title. The appellate court did not !elie/e the findings of the trial court that "ot ' 1as ac:uired from Juan CaldeD !y purchase and "ot ) 1as ac:uired also !y purchase from 8gmidio 7cta/iano !y petitioner Cicar !ecause there 1as a!solutely no documentary e/idence to support the same and the alleged purchases 1ere ne/er mentioned in the application for registration. -y the /ery admission of petitioner Cicar, "ots ' and ) 1ere o1ned !y CaldeD and 7cta/iano. -oth CaldeD and 7cta/iano had Free Patent Application for those lots since $(&<. The predecessors of pri/ate respondents, not petitioner Cicar, 1ere in possession of the :uestioned lots since $(&<. There is e/idence that petitioner Cicar occupied "ots $ and B, 1hich are not in :uestion, !ut not "ots ' and ), !ecause the !uildings standing thereon 1ere only constructed after li!eration in $(B*. Petitioner Cicar only declared "ots ' and ) for ta9ation purposes in $(*$. The impro/ements oil "ots $, ', ), B 1ere paid for !y the -ishop !ut said -ishop 1as appointed only in $(B6, the church 1as constructed only in $(*$ and the ne1 con/ent only ' years !efore the trial in $(<).

Ahen petitioner Cicar 1as notified of the oppositor+s claims, the parish priest offered to !uy the lot from Fructuoso CaldeD. "ots ' and ) 1ere sur/eyed !y re:uest of petitioner Cicar only in $(<'. Pri/ate respondents 1ere a!le to pro/e that their predecessors+ house 1as !orro1ed !y petitioner Cicar after the church and the con/ent 1ere destroyed. They ne/er as2ed for the return of the house, !ut 1hen they allo1ed its free use, they !ecame !ailors in commodatum and the petitioner the !ailee. The !ailees+ failure to return the su!?ect matter of commodatum to the !ailor did not mean ad/erse possession on the part of the !orro1er. The !ailee held in trust the property su!?ect matter of commodatum. The ad/erse claim of petitioner came only in $(*$ 1hen it declared the lots for ta9ation purposes. The action of petitioner Cicar !y such ad/erse claim could not ripen into title !y 1ay of ordinary ac:uisiti/e prescription !ecause of the a!sence of ?ust title. The Court of Appeals found that the predecessors%in%interest and pri/ate respondents 1ere possessors under claim of o1nership in good faith from $(&<@ that petitioner Cicar 1as only a !ailee in commodatum@ and that the ad/erse claim and repudiation of trust came only in $(*$. Ae find no reason to disregard or re/erse the ruling of the Court of Appeals in CA%3.R. #o. );;)&%R. Its findings of fact ha/e !ecome incontesti!le. This Court declined to re/ie1 said decision, there!y in effect, affirming it. It has !ecome final and e9ecutory a long time ago. Respondent appellate court did not commit any re/ersi!le error, much less gra/e a!use of discretion, 1hen it held that the ,ecision of the Court of Appeals in CA%3.R. #o. );;)&%R is go/erning, under the principle of res ?udicata, hence the rule, in the present cases CA%3.R. #o. &*$B; and CA%3.R. #o. &*$B(. The facts as supported !y e/idence esta!lished in that decision may no longer !e altered. A48R8F7R8 A#, -J R8AS7# 7F T48 F7R837I#3, this petition is ,8#I8, for lac2 of merit, the ,ecision dated Aug. )$, $(;6 in CA%3.R. #os. &*$B; and &*$B(, !y respondent Court of Appeals is AFFIR58,, 1ith costs against petitioner. S7 7R,8R8,. %arvasa, Cruz, &ri'o(A)uino and *edialdea, JJ., concur.

&ole,+i,o vs. Go,21les S0 C5i1, 57 5il 558

Au:us+ 12, 192; G.R. No. 26785 SE6ER#N$ &$LEN&#N$ 1,/ $&ENC#ANA -AN#$, pl1i,+i44s-1ppell1,+s, vs. "EN#&$ G$N8ALE8 S. C'#A-, /e4e,/1,+s-1ppellee. Johnson, J.: PRI#CIPA" K=8STI7#S PR8S8#T8, -J T48 APP8A" The principal :uestions presented !y this appeal are: .a0 Is the contract in :uestion a pacto de retro or a mortgageL .!0 =nder a pacto de retro, 1hen the /endor !ecomes a tenant of the purchaser and agrees to pay a certain amount per month as rent, may such rent render such a contract usurious 1hen the amount paid as rent, computed upon the purchase price, amounts to a higher rate of interest upon said amount than that allo1ed !y la1L .c0 5ay the contract in the present case may !e modified !y parol e/idenceL A#T8C8,8#T FACTS Sometime prior to the ';th day of #o/em!er, $('', the appellants purchased of the "uDon Rice 5ills, Inc., a piece or parcel of land 1ith the camarin located thereon, situated in the municipality of Tarlac of the Pro/ince of Tarlac for the price of P'*,&&&, promising to pay therefor in three installments. The first installment of P',&&& 1as due on or !efore the 'd day of 5ay, $('$@ the second installment of P;,&&& 1as due on or !efore )$st day of 5ay, $('$@ the !alance of P$*,&&& at $' per cent interest 1as due and paya!le on or a!out the )&th day of #o/em!er, $(''. 7ne of the conditions of that contract of purchase 1as that on failure of the purchaser .plaintiffs and appellants0 to pay the !alance of said purchase price or any of the installments on the date agreed upon, the property !ought 1ould re/ert to the original o1ner. The payments due on the 'd and )$st of 5ay, $('$, amounting to P$&,&&& 1ere paid so far as the record sho1s upon the due dates. The !alance of P$*,&&& due on said contract of purchase 1as paid on or a!out the $st day of ,ecem!er, $('', in the manner 1hich 1ill !e e9plained !elo1. 7n the date 1hen the !alance of P$*,&&& 1ith interest 1as paid, the /endor of said property had issued to the purchasers transfer certificate of title to said property, #o. *';. Said transfer certificate of title .#o. *';0 1as transfer certificate of title from #o. B&, 1hich sho1s that said land 1as originally registered in the name of the /endor on the 6th day of #o/em!er, $($). PR8S8#T FACTS 7n the 6th day of #o/em!er, $('' the representati/e of the /endor of the property in :uestion 1rote a letter to the appellant Potenciana 5anio .89hi!it A, p. *&0, notifying the latter that if the !alance of said inde!tedness 1as not paid, an action 1ould !e !rought for the purpose of reco/ering the property, together 1ith damages for non compliance 1ith the condition of the contract of purchase. The pertinent parts of said letter read as follo1s: Sir/ase notar :ue de no estar li:uidada esta cuenta el dia )& del corriente, procederemos ?udicialmente contra Cd. para reclamar la de/olucion del camarin y los daMos y per?uicios ocasionados a la compaMia por su incumplimiento al contrato. Somos de Cd. atentos y S. S. S5IT4, -8"" N C7., "T,. -y .Sgd.0 F. I. 4I34A5 Treasurer. 3eneral 5anagers "= 7# RIC8 5I""S I#C. According to 89hi!its - and ,, 1hich represent the account rendered !y the /endor, there 1as due and paya!le upon said contract of purchase on the )&th day of #o/em!er, $('', the sum P$<,(<*.&(. =pon recei/ing the letter of the /endor of said

property of #o/em!er 6, $('', the purchasers, the appellants herein, realiDing that they 1ould !e una!le to pay the !alance due, !egan to ma2e an effort to !orro1 money 1ith 1hich to pay the !alance due, !egan to ma2e an effort to !orro1 money 1ith 1hich to pay the !alance of their inde!tedness on the purchase price of the property in/ol/ed. Finally an application 1as made to the defendant for a loan for the purpose of satisfying their inde!tedness to the /endor of said property. After some negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P$6,*&& upon condition that the plaintiffs e9ecute and deli/er to him a pacto de retro of said property. In accordance 1ith that agreement the defendant paid to the plaintiffs !y means of a chec2 the sum of P$<,(<*.&(. The defendant, in addition to said amount paid !y chec2, deli/ered to the plaintiffs the sum of P)*B.($ together 1ith the sum of P$;& 1hich the plaintiffs paid to the attorneys for drafting said contract of pacto de retro, ma2ing a total paid !y the defendant to the plaintiffs and for the plaintiffs of P$6,*&& upon the e9ecution and deli/ery of said contract. Said contracts 1as dated the ';th day of #o/em!er, $('', and is in the 1ords and figures follo1ing: Sepan todos por la presente: Kue nosotros, los conyuges Se/erino Tolentino y Potenciana 5anio, am!os mayores de edad, residentes en el 5unicipio de Calumpit, Pro/incia de -ulacan, propietarios y transeuntes en esta Ciudad de 5anila, de una parte, y de otra, -enito 3onDaleD Sy Chiam, mayor de edad, casado con 5aria Santiago, comerciante y /ecinos de esta Ciudad de 5anila. 5A#IF8STA57S J 4AC857S C7#STAR: Primero. Kue nosotros, Se/erino Tolentino y Potenciano 5anio, por y en consideracion a la cantidad de diecisiete mil :uinientos pesos .P$6,*&&0 moneda filipina, :ue en este acto hemos reci!ido a nuestra entera satisfaccion de ,on -enito 3onDaleD Sy Chiam, cedemos, /endemos y traspasamos a fa/or de dicho ,on -enito 3onDaleD Sy Chiam, sus herederos y causaha!ientes, una finca :ue, segun el Certificado de Transferencia de Titulo #o. B& e9pedido por el Registrador de Titulos de la Pro/incia de Tarlac a fa/or de O"uDon Rice 5ills Company "imitedP :ue al incorporarse se donomino y se denomina O"uDon Rice 5ills Inc.,P y :ue esta corporacion nos ha transferido en /enta a!soluta, se descri!e como sigue: =n terreno .lote #o. $0 con las me?oras e9istentes en el mismo, situado en el 5unicipio de Tarlac. "inda por el 7. y #. con propiedad de 5anuel =r:uico@ por el 8. con propiedad de la 5anila Railroad Co.@ y por el S. con un camino. Partiendo de un punto marcado $ en el plano, cuyo punto se halla al #. B$ gds. $6Q 8.;*(.B' m. del mo?on de localiDacion #o. ' de la 7ficina de Terrenos en Tarlac@ y desde dicho punto $ #. ;$ gds. )$Q 7., 66 m. al punto '@ desde este punto #. B gds. ''Q 8.@ *B.6& m. al punto )@ desde este punto S. ;< gds. $6Q 8.@ <(.'* m. al punto B@ desde este punto S. ' gds. B'Q 8., <$.B; m. al punto de partida@ midiendo una e9tension superficcial de cuatro mil doscientos dieD y seis metros cuadrados .B,'$<0 mas o menos. Todos los puntos nom!rados se hallan marcados en el plano y so!re el terreno los puntos $ y ' estan determinados por mo?ones de P. ". S. de '& 9 '& 9 6& centimetros y los puntos ) y B por mo?ones del P. ". S. -. ".: la orientacion seguida es la /erdadera, siendo la declinacion magnetica de & gds. B*Q 8. y la fecha de la medicion, $.RSTU de fe!rero de $($). Segundo. Kue es condicion de esta /enta la de :ue si en el plaDo de cinco .*0 aMos contados desde el dia $.RSTU de diciem!re de $('', de/ol/emos al e9presado ,on -enito 3onDaleD Sy Chiam el referido precio de diecisiete mil :uinientos pesos .P$6,*&&0 :ueda o!ligado dicho Sr. -enito 3onDaleD y Chiam a retro/endernos la finca arri!a descrita@ pero si transcurre dicho plaDo de cinco aMos sin e?ercitar el derecho de retracto :ue nos hemos reser/ado, entonces :uedara esta /enta a!soluta e irre/oca!le. Tercero. Kue durante el e9presado termino del retracto tendremos en arrendamiento la finca arri!a descrita, su?eto a condiciones siguientes: .a0 8l al:uiler :ue nos o!ligamos a pagar por mensualidades /encidas a ,on -enito 3onDaleD Sy Chiam y en su domicilio, era de trescientos setenta y cinco pesos .P)6*0 moneda filipina, cada mes. .!0 8l amillaramiento de la finca arrendada sera por cuenta de dicho ,on -enito 3onDaleD Sy Chiam, asi como tam!ien la prima del seguro contra incendios, si el con/iniera al referido Sr. -enito 3onDaleD Sy Chiam asegurar dicha finca.

.c0 "a falta de pago del al:uiler a:ui estipulado por dos meses consecuti/os dara lugar a la terminacion de este arrendamieno y a la perdida del derecho de retracto :ue nos hemos reser/ado, como si naturalmente hu!iera e9pirado el termino para ello, pudiendo en su /irtud dicho Sr. 3onDaleD Sy Chiam tomar posesion de la finca y desahuciarnos de la misma. Cuarto. Kue yo, -enito 3onDaleD Sy Chiam, a mi /eD otorgo :ue acepto esta escritura en los precisos terminos en :ue la de?an otorgada los conyuges Se/erino Tolentino y Potenciana 5anio. 8n testimonio de todo lo cual, firmamos la presente de nuestra mano en 5anila, por cuadruplicado en 5anila, hoy a '; de no/iem!re de $(''. .Fdo.0 S8C8RI#7 T7"8#TI#7 .Fda.0 P7T8#CIA#A 5A#I7 .Fdo.0 -8#IT7 37# A"8 SJ C4IA5 Firmado en presencia de: .Fdos.0 57IS8S 5. -=4AI# -. S. -A#AA3 An e9amination of said contract of sale 1ith reference to the first :uestion a!o/e, sho1s clearly that it is a pacto de retro and not a mortgage. There is no pretension on the part of the appellant that said contract, standing alone, is a mortgage. The pertinent language of the contract is: Segundo. Kue es condicion de esta /enta la de :ue si en el plaDo de cinco .*0 aMos contados desde el dia $.RSTU de diciem!re de $('', de/ol/emos al e9presado ,on -enito 3onDales Sy Chiam el referido precio de diecisiete mil :uinientos pesos .P$6,*&&0 :ueda o!ligado dicho Sr. -enito 3onDales Sy Chiam a retro/endornos la finca arri!a descrita@ pero si transcurre dicho plaDo de cinco .*0 aMos sin e?ercitar al derecho de retracto :ue nos hemos reser/ado, entonces :uedara esta /enta a!soluta e irre/oca!le. "anguage cannot !e clearer. The purpose of the contract is e9pressed clearly in said :uotation that there can certainly !e not dou!t as to the purpose of the plaintiff to sell the property in :uestion, reser/ing the right only to repurchase the same. The intention to sell 1ith the right to repurchase cannot !e more clearly e9pressed. It 1ill !e noted from a reading of said sale of pacto de retro, that the /endor, recogniDing the a!solute sale of the property, entered into a contract 1ith the purchaser !y /irtue of 1hich she !ecame the OtenantP of the purchaser. That contract of rent appears in said :uoted document a!o/e as follo1s: Tercero. Kue durante el e9presado termino del retracto tendremos en arrendamiento la finca arri!a descrita, su?eto a condiciones siguientes: .a0 8l al:uiler :ue nos o!ligamos a pagar por mensualidades /encidas a ,on -enito 3onDaleD Sy Chiam y en su domicilio, sera de trescientos setenta y cinco pesos .P)6*0 moneda filipina, cada mes. .!0 8l amillaramiento de la finca arrendada sera por cuenta de dicho ,on -enito 3onDaleD Sy Chiam, asi como tam!ien la prima del seguro contra incendios, si le con/iniera al referido Sr. -enito 3onDaleD Sy Chiam asegurar dicha finca. From the foregoing, 1e are dri/en to the follo1ing conclusions: First, that the contract of pacto de retro is an a!solute sale of the property 1ith the right to repurchase and not a mortgage@ and, second, that !y /irtue of the said contract the /endor !ecame the tenant of the purchaser, under the conditions mentioned in paragraph ) of said contact :uoted a!o/e. It has !een the uniform theory of this court, due to the se/erity of a contract of pacto de retro, to declare the same to !e a mortgage and not a sale 1hene/er the interpretation of such a contract ?ustifies that conclusion. There must !e something, ho1e/er, in the language of the contract or in the conduct of the parties 1hich sho1s clearly and !eyond dou!t that they intended the contract to !e a OmortgageP and not a pacto de retro. .International -an2ing Corporation /s. 5artineD, $& Phil., '*'@ Padilla /s. "insangan, $( Phil., <*@ Cumagun /s. Alingay, $( Phil., B$*@ 7lino /s. 5edina, $) Phil., )6(@ 5analo /s. 3ueco, B' Phil., ('*@ CelaD:ueD /s. Teodoro, B< Phil., 6*6@ Cilla /s. Santiago, ); Phil., $*6.0

Ae are not unmindful of the fact that sales 1ith pacto de retro are not fa/ored and that the court 1ill not construe an instrument to one of sale 1ith pacto de retro, 1ith the stringent and onerous effect 1hich follo1s, unless the terms of the document and the surrounding circumstances re:uire it. Ahile it is general rule that parol e/idence is not admissi!le for the purpose of /arying the terms of a contract, !ut 1hen an issue is s:uarely presented that a contract does not e9press the intention of the parties, courts 1ill, 1hen a proper foundation is laid therefor, hear e/idence for the purpose of ascertaining the true intention of the parties. In the present case the plaintiffs allege in their complaint that the contract in :uestion is a pacto de retro. They admit that they signed it. They admit they sold the property in :uestion 1ith the right to repurchase it. The terms of the contract :uoted !y the plaintiffs to the defendant 1as a OsaleP 1ith pacto de retro, and the plaintiffs ha/e sho1n no circumstance 1hate/er 1hich 1ould ?ustify us in construing said contract to !e a mere OloanP 1ith guaranty. In e/ery case in 1hich this court has construed a contract to !e a mortgage or a loan instead of a sale 1ith pacto de retro, it has done so, either !ecause the terms of such contract 1ere incompati!le or inconsistent 1ith the theory that said contract 1as one of purchase and sale. .7lino /s. 5edina, supra@ Padilla /s. "insangan, supra@ 5anlagnit /s. ,y Puico, )B Phil., )'*@ RodrigueD /s. Pamintuan and ,e Jesus, )6 Phil., ;6<.0 In the case of Padilla /s. "insangan the term employed in the contract to indicate the nature of the con/eyance of the land 1as OpledgedP instead of OsoldP. In the case of 5anlagnit /s. ,y Puico, 1hile the /endor used to the terms Osale and transfer 1ith the right to repurchase,P yet in said contract he descri!ed himself as a Ode!torP the purchaser as a OcreditorP and the contract as a OmortgageP. In the case of RodrigueD /s. Pamintuan and ,e Jesus the person 1ho e9ecuted the instrument, purporting on its face to !e a deed of sale of certain parcels of land, had merely acted under a po1er of attorney from the o1ner of said land, OauthoriDing him to !orro1 money in such amount and upon such terms and conditions as he might deem proper, and to secure payment of the loan !y a mortgage.P In the case of Cilla /s. Santiago .); Phil., $*60, although a contract purporting to !e a deed of sale 1as e9ecuted, the supposed /endor remained in possession of the land and in/ested the money he had o!tained from the supposed /endee in ma2ing impro/ements thereon, 1hich fact ?ustified the court in holding that the transaction 1as a mere loan and not a sale. In the case of Cuyugan /s. Santos .)( Phil., (6&0, the purchaser accepted partial payments from the /endor, and such acceptance of partial payments is a!solutely incompati!le 1ith the idea of irre/oca!ility of the title of o1nership of the purchaser at the e9piration of the term stipulated in the original contract for the e9ercise of the right of repurchase.P Referring again to the right of the parties to /ary the terms of 1ritten contract, 1e :uote from the dissenting opinion of Chief Justice Cayetano S. Arellano in the case of 3o/ernment of the Philippine Islands /s. Philippine Sugar 8states ,e/elopment Co., 1hich case 1as appealed to the Supreme Court of the =nited States and the contention of the Chief Justice in his dissenting opinion 1as affirmed and the decision of the Supreme Court of the Philippine Islands 1as re/ersed. .See decision of the Supreme Court of the =nited States, June ), $($;.0$ The Chief Justice said in discussing that :uestion: According to article $';' of the Ci/il Code, in order to ?udge of the intention of the contracting parties, consideration must chiefly !e paid to those acts e9ecuted !y said parties 1hich are contemporary 1ith and su!se:uent to the contract. And according to article $';), ho1e/er general the terms of a contract may !e, they must not !e held to include things and cases different from those 1ith regard to 1hich the interested parties agreed to contract. OThe Supreme Court of the Philippine Islands held the parol e/idence 1as admissi!le in that case to /ary the terms of the contract !et1een the 3o/ernment of the Philippine Islands and the Philippine Sugar 8states ,e/elopment Co. In the course of the opinion of the Supreme Court of the =nited States 5r. Justice -randeis, spea2ing for the court, said: It is 1ell settled that courts of e:uity 1ill reform a 1ritten contract 1here, o1ing to mutual mista2e, the language used therein did not fully or accurately e9press the agreement and intention of the parties. The fact that interpretation or construction of a contract presents a :uestion of la1 and that, therefore, the mista2e 1as one of la1 is not a !ar to granting relief. . . . This court is al1ays disposed to accept the construction 1hich the highest court of a territory or possession has placed upon a local statute. -ut that disposition may not !e yielded to 1here the lo1er court has clearly erred. 4ere the construction adopted 1as

rested upon a clearly erroneous assumption as to an esta!lished rule of e:uity. . . . The !urden of proof resting upon the appellant cannot !e satisfied !y mere preponderance of the e/idence. It is settled that relief !y 1ay of reformation 1ill not !e granted unless the proof of mutual mista2e !e of the clearest and most satisfactory character. The e/idence introduced !y the appellant in the present case does not meet 1ith that stringent re:uirement. There is not a 1ord, a phrase, a sentence or a paragraph in the entire record, 1hich ?ustifies this court in holding that the said contract of pacto de retro is a mortgage and not a sale 1ith the right to repurchase. Article $';$ of the Ci/il Code pro/ides: OIf the terms of a contract are clear and lea/e no dou!t as to the intention of the contracting parties, the literal sense of its stipulations shall !e follo1ed.P Article $';' pro/ides: Oin order to ?udge as to the intention of the contracting parties, attention must !e paid principally to their conduct at the time of ma2ing the contract and su!se:uently thereto.P Ae cannot thereto conclude this !ranch of our discussion of the :uestion in/ol/ed, 1ithout :uoting from that /ery 1ell reasoned decision of the late Chief Justice Arellano, one of the greatest ?urists of his time. 4e said, in discussing the :uestion 1hether or not the contract, in the case of "ichauco /s. -erenguer .'& Phil., $'0, 1as a pacto de retro or a mortgage: The pu!lic instrument, 89hi!it C, in part reads as follo1s: O,on 5acarion -erenguer declares and states that he is the proprietor in fee simple of t1o parcels of fallo1 unappropriated cro1n land situated 1ithin the district of his pue!lo. The first has an area of 6) :uiMones, ; !alitas and ; loanes, located in the sitio of -atasan, and its !oundaries are, etc., etc. The second is in the sitio of Panantaglay, +arrio of Calumpang has as area of 6) hectares, '' ares, and < centares, and is !ounded on the north, etc., etc.P In the e9ecutory part of the said instrument, it is stated: VThat under condition of right to repurchase .pacto de retro0 he sells the said properties to the aforementioned ,oMa Cornelia "aochangco for PB,&&& and upon the follo1ing conditions: First, the sale stipulated shall !e for the period of t1o years, counting from this date, 1ithin 1hich time the deponent shall !e entitled to repurchase the land sold upon payment of its price@ second, the lands sold shall, during the term of the present contract, !e held in lease !y the undersigned 1ho shall pay, as rental therefor, the sum of B&& pesos per annum, or the e:ui/alent in sugar at the option of the /endor@ third, all the fruits of the said lands shall !e deposited in the sugar depository of the /endee, situated in the district of Kuiapo of this city, and the /alue of 1hich shall !e applied on account of the price of this sale@ fourth, the deponent ac2no1ledges that he has recei/ed from the /endor the purchase price of PB,&&& already paid, and in legal tender currency of this country . . .@ fifth, all the ta9es 1hich may !e assessed against the lands sur/eyed !y competent authority, shall !e paya!le !y and constitute a charge against the /endor@ si9th, if, through any unusual e/ent, such as flood, tempest, etc., the properties herein!efore enumerated should !e destroyed, 1holly or in part, it shall !e incum!ent upon the /endor to repair the damage thereto at his o1n e9pense and to put them into a good state of culti/ation, and should he fail to do so he !inds himself to gi/e to the /endee other lands of the same area, :uality and /alue.W 999999999 The opponent maintained, and his theory 1as accepted !y the trial court, that -erenguerWs contract 1ith "aochangco 1as not one of sale 1ith right of repurchase, !ut merely one of loan secured !y those properties, and, conse:uently, that the o1nership of the lands in :uestions could not ha/e !een con/eyed to "aochangco, inasmuch as it continued to !e held !y -erenguer, as 1ell as their possession, 1hich he had not ceased to en?oy. Such a theory is, as argued !y the appellant, erroneous. The instrument e9ecuted !y 5acario -erenguer, the te9t of 1hich has !een transcri!ed in this decision, is /ery clear. -erenguerWs heirs may not go counter to the literal tenor of the o!ligation, the e9act e9pression of the consent of the contracting contained in the instrument, 89hi!it C. #ot !ecause the lands may ha/e continued in possession of the /endor, not !ecause the latter may ha/e assumed the payment of the ta9es on such properties, nor yet !ecause the same party may ha/e !ound himself to su!stitute !y another any one of the properties 1hich might !e destroyed, does the contract cease to !e 1hat it is, as set forth in detail in the pu!lic instrument. The /endor continued in the possession of the lands, not as the o1ner thereof as !efore their sale, !ut as the lessee 1hich he !ecame after its consummation, !y /irtue of a contract e9ecuted in his fa/or !y the /endee in the deed itself, 89hi!it C. Right of

o1nership is not implied !y the circumstance of the lesseeWs assuming the responsi!ility of the payment is of the ta9es on the property leased, for their payment is not peculiarly incum!ent upon the o1ner, nor is such right implied !y the o!ligation to su!stitute the thing sold for another 1hile in his possession under lease, since that o!ligation came from him and he continues under another character in its possession%a reason 1hy he guarantees its integrity and o!ligates himself to return the thing e/en in a case of force ma?eure. Such lia!ility, as a general rule, is foreign to contracts of lease and, if re:uired, is e9or!itant, !ut possi!le and la1ful, if /oluntarily agreed to and such agreement does not on this account in/ol/e any sign of o1nership, nor other meaning than the 1ill to impose upon oneself scrupulous diligence in the care of a thing !elonging to another. The purchase and sale, once consummated, is a contract 1hich !y its nature transfers the o1nership and other rights in the thing sold. A pacto de retro, or sale 1ith right to repurchase, is nothing !ut a personal right stipulated !et1een the /endee and the /endor, to the end that the latter may again ac:uire the o1nership of the thing alienated. It is true, /ery true indeed, that the sale 1ith right of repurchase is employed as a method of loan@ it is li2e1ise true that in practice many cases occur 1here the consummation of a pacto de retro sale means the financial ruin of a person@ it is also, un:uestiona!le that in pacto de retro sales /ery important interests often inter/ene, in the form of the price of the lease of the thing sold, 1hich is stipulated as an additional co/enant. .5anresa, Ci/il Code, p. '6B.0 -ut in the present case, unli2e others heard !y this court, there is no proof that the sale 1ith right of repurchase, made !y -erenguer in fa/or of "aonchangco is rather a mortgage to secure a loan. Ae come no1 to a discussion of the second :uestion presented a!o/e, and that is, stating the same in another form: 5ay a tenant charge his landlord 1ith a /iolation of the =sury "a1 upon the ground that the amount of rent he pays, !ased upon the real /alue of the property, amounts to a usurious rate of interestL Ahen the /endor of property under a pacto de retro rents the property and agrees to pay a rental /alue for the property during the period of his right to repurchase, he there!y !ecomes a OtenantP and in all respects stands in the same relation 1ith the purchaser as a tenant under any other contract of lease. The appellant contends that the rental price paid during the period of the e9istence of the right to repurchase, or the sum of P)6* per month, !ased upon the /alue of the property, amounted to usury. =sury, generally spea2ing, may !e defined as contracting for or recei/ing something in e9cess of the amount allo1ed !y la1 for the loan or for!earance of money%the ta2ing of more interest for the use of money than the la1 allo1s. It seems that the ta2ing of interest for the loan of money, at least the ta2ing of e9cessi/e interest has !een regarded 1ith a!horrence from the earliest times. .,unham /s. 3ould, $< Johnson G#. J.H, )<6.0 ,uring the middle ages the people of 8ngland, and especially the 8nglish Church, entertained the opinion, then, current in 8urope, that the ta2ing of any interest for the loan of money 1as a detesta!le /ice, hateful to man and contrary to the la1s of 3od. .) Co2eWs Institute, $*&@ Tayler on =sury, BB.0 Chancellor Xent, in the case of ,unham /s. 3ould, supra, said: OIf 1e loo2 !ac2 upon history, 1e shall find that there is scarcely any people, ancient or modern, that ha/e not had usury la1s. . . . The Romans, through the greater part of their history, had the deepest a!horrence of usury. . . . It 1ill !e deemed a little singular, that the same /oice against usury should ha/e !een raised in the la1s of China, in the 4indu institutes of 5enu, in the Xoran of 5ahomet, and perhaps, 1e may say, in the la1s of all nations that 1e 2no1 of, 1hether 3ree2 or -ar!arian.P The collection of a rate of interest higher than that allo1ed !y la1 is condemned !y the Philippine "egislature .Acts #os. '<**, '<<' and '(('0. -ut is it unla1ful for the o1ner of a property to enter into a contract 1ith the tenant for the payment of a specific amount of rent for the use and occupation of said property, e/en though the amount paid as Orent,P !ased upon the /alue of the property, might e9ceed the rate of interest allo1ed !y la1L That :uestion has ne/er !een decided in this ?urisdiction. It is one of first impression. #o cases ha/e !een found in this ?urisdiction ans1ering that :uestion. Act #o. '<** is OAn Act fi9ing rates of interest upon VloansW and declaring the effect of recei/ing or ta2ing usurious rates.P It 1ill !e noted that said statute imposes a penalty upon a OloanP or for!earance of any money, goods, chattels or credits, etc. The central idea of said statute is to prohi!it a rate of interest on Oloans.P A contract of Oloan,P is /ery different contract from that of OrentP. A Oloan,P as that term is used in the statute, signifies the gi/ing of a sum of money, goods or credits to another, 1ith a promise to repay, !ut not a promise to return the same thing. To Oloan,P in general parlance, is to deli/er to another for

temporary use, on condition that the thing or its e:ui/alent !e returned@ or to deli/er for temporary use on condition that an e:ui/alent in 2ind shall !e returned 1ith a compensation for its use. The 1ord Oloan,P ho1e/er, as used in the statute, has a technical meaning. It ne/er means the return of the same thing. It means the return of an e:ui/alent only, !ut ne/er the same thing loaned. A OloanP has !een properly defined as an ad/ance payment of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance 1ith the terms of the contract. =nder the contract of Oloan,P as used in said statute, the moment the contract is completed the money, goods or chattels gi/en cease to !e the property of the former o1ner and !ecomes the property of the o!ligor to !e used according to his o1n 1ill, unless the contract itself e9pressly pro/ides for a special or specific use of the same. At all e/ents, the money, goods or chattels, the moment the contract is e9ecuted, cease to !e the property of the former o1ner and !ecomes the a!solute property of the o!ligor. A contract of OloanP differs materially from a contract of Orent.P In a contract of OrentP the o1ner of the property does not lose his o1nership. 4e simply loses his control o/er the property rented during the period of the contract. In a contract of OloanP the thing loaned !ecomes the property of the o!ligor. In a contract of OrentP the thing still remains the property of the lessor. 4e simply loses control of the same in a limited 1ay during the period of the contract of OrentP or lease. In a contract of OrentP the relation !et1een the contractors is that of landlord and tenant. In a contract of OloanP of money, goods, chattels or credits, the relation !et1een the parties is that of o!ligor and o!ligee. ORentP may !e defined as the compensation either in money, pro/isions, chattels, or la!or, recei/ed !y the o1ner of the soil from the occupant thereof. It is defined as the return or compensation for the possession of some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, 1hich is to paid for the use of land, 1hether in money, la!or or other thing agreed upon. A contract of OrentP is a contract !y 1hich one of the parties deli/ers to the other some nonconsuma!le thing, in order that the latter may use it during a certain period and return it to the former@ 1hereas a contract of OloanP, as that 1ord is used in the statute, signifies the deli/ery of money or other consuma!le things upon condition of returning an e:ui/alent amount of the same 2ind or :uantity, in 1hich cases it is called merely a Oloan.P In the case of a contract of Orent,P under the ci/il la1, it is called a Ocommodatum.P From the foregoing it 1ill !e seen that there is a 1hile distinction !et1een a contract of Oloan,P as that 1ord is used in the statute, and a contract of OrentP e/en though those 1ords are used in ordinary parlance as interchangea!le terms. The /alue of money, goods or credits is easily ascertained 1hile the amount of rent to !e paid for the use and occupation of the property may depend upon a thousand different conditions@ as for e9ample, farm lands of e9actly e:ual producti/e capacity and of the same physical /alue may ha/e a different rental /alue, depending upon location, prices of commodities, pro9imity to the mar2et, etc. 4ouses may ha/e a different rental /alue due to location, conditions of !usiness, general prosperity or depression, adapta!ility to particular purposes, e/en though they ha/e e9actly the same original cost. A store on the 8scolta, in the center of !usiness, constructed e9actly li2e a store located outside of the !usiness center, 1ill ha/e a much higher rental /alue than the other. T1o places of !usiness located in different sections of the city may !e constructed e9actly on the same architectural plan and yet one, due to particular location or adapta!ility to a particular !usiness 1hich the lessor desires to conduct, may ha/e a /ery much higher rental /alue than one not so located and not so 1ell adapted to the particular !usiness. A /ery cheap !uilding on the carni/al ground may rent for more money, due to the particular circumstances and surroundings, than a much more /alua!le property located else1here. It 1ill thus !e seen that the rent to !e paid for the use and occupation of property is not necessarily fi9ed upon the /alue of the property. The amount of rent is fi9ed, !ased upon a thousand different conditions and may or may not ha/e any direct reference to the /alue of the property rented. To hold that OusuryP can !e !ased upon the comparati/e actual rental /alue and the actual /alue of the property, is to su!?ect e/ery landlord to an annoyance not contemplated !y the la1, and 1ould create a /ery great distur!ance in e/ery !usiness or rural community. Ae cannot !ring oursel/es to !elie/e that the "egislature contemplated any such distur!ance in the e:uili!rium of the !usiness of the country. In the present case the property in :uestion 1as sold. It 1as an a!solute sale 1ith the right only to repurchase. ,uring the period of redemption the purchaser 1as the a!solute o1ner of the property. ,uring the period of redemption the /endor 1as not the o1ner of the property. ,uring the period of redemption the /endor 1as a tenant of the purchaser. ,uring the period of

redemption the relation 1hich e9isted !et1een the /endor and the /endee 1as that of landlord and tenant. That relation can only !e terminated !y a repurchase of the property !y the /endor in accordance 1ith the terms of the said contract. The contract 1as one of rent. The contract 1as not a loan, as that 1ord is used in Act #o. '<**. As o!no9ious as contracts of pacto de retro are, yet ne/ertheless, the courts ha/e no right to ma2e contracts for parties. They made their o1n contract in the present case. There is not a 1ord, a phrase, a sentence or paragraph, 1hich in the slightest 1ay indicates that the parties to the contract in :uestion did not intend to sell the property in :uestion a!solutely, simply 1ith the right to repurchase. People 1ho ma2e their o1n !eds must lie thereon. Ahat has !een said a!o/e 1ith reference to the right to modify contracts !y parol e/idence, sufficiently ans1ers the third :uestions presented a!o/e. The language of the contract is e9plicit, clear, unam!iguous and !eyond :uestion. It e9presses the e9act intention of the parties at the time it 1as made. There is not a 1ord, a phrase, a sentence or paragraph found in said contract 1hich needs e9planation. The parties thereto entered into said contract 1ith the full understanding of its terms and should not no1 !e permitted to change or modify it !y parol e/idence. Aith reference to the impro/ements made upon said property !y the plaintiffs during the life of the contract, 89hi!it C, there is here!y reser/ed to the plaintiffs the right to e9ercise in a separate action the right guaranteed to them under article )<$ of the Ci/il Code. For all of the foregoing reasons, 1e are fully persuaded from the facts of the record, in relation 1ith the la1 applica!le thereto, that the ?udgment appealed from should !e and is here!y affirmed, 1ith costs. So ordered. A/anceMa, C. J., Street, Cillamor, RomualdeD and Cilla%Real, JJ., concur. Separate 7pinions 5A"C7"5, J., dissenting: I regret to ha/e to dissent from the comprehensi/e ma?ority decision. I stand s:uarely on the proposition that the contract e9ecuted !y the parties 1as merely a cle/er de/ice to co/er up the payment of usurious interest. The fact that the document purports to !e a true sale 1ith right of repurchase means nothing. The fact that the instrument includes a contract of lease on the property 1here!y the lessees as /endors apparently !ind themsel/es to pay rent at the rate of P)6* per month and 1here!y O,efault in the payment of the rent agreed for t1o consecuti/e months 1ill terminate this lease and 1ill forfeit our right of repurchase, as though the term had e9pired naturallyP does mean something, and ta2en together 1ith the oral testimony is indicati/e of a su!terfuge hiding a usurious loan. .=sury "a1, Act #o. '<**, sec. 6, as amended@ Padilla /s. "insangan G$($$H, $( Phil., <*@ =. S. /s. Tan Kuingco Chua G$($(H, )( Phil., **'@ Russel /s. Southard G$;*$H, *) =. S., $)( 5onagas /s. Al!ertucci y Al/areD G$($BH, ')* =. S., ;$@ $& 5anresa, Codigo Ci/il 8spaMol, )rd ed., p. )$;.0 The transaction should !e considered as in the nature of an e:uita!le mortgage. 5y /ote is for a modification of the ?udgment of the trial court.

S1ur1 #mpor+-E<por+ Co. #,c. vs. )" 44 SCRA 445

G.R. No. L-24968 April 2;, 19;2 SA!RA #- $R& 1,/ E= $R& C$., #NC., plaintiff%appellee, /s. )E6EL$ -EN& "AN> $% &'E '#L# #NES, defendant%appellant. -A>AL#N&AL, J.:p In Ci/il Case #o. **(&; of the Court of First Instance of 5anila, ?udgment 1as rendered on June ';, $(<* sentencing defendant ,e/elopment -an2 of the Philippines .,-P0 to pay actual and conse:uential damages to plaintiff Saura Import and 89port Co., Inc. in the amount of P);),)B).<;, plus interest at the legal rate from the date the complaint 1as filed and attorney+s fees in the amount of P*,&&&.&&. The present appeal is from that ?udgment. In July $(*) the plaintiff .hereinafter referred to as Saura, Inc.0 applied to the Reha!ilitation Finance Corporation .RFC0, !efore its con/ersion into ,-P, for an industrial loan of P*&&,&&&.&&, to !e used as follo1s: P'*&,&&&.&& for the construction of a factory !uilding .for the manufacture of ?ute sac2s0@ P'B&,(&&.&& to pay the !alance of the purchase price of the ?ute mill machinery and e:uipment@ and P(,$&&.&& as additional 1or2ing capital. Parenthetically, it may !e mentioned that the ?ute mill machinery had already !een purchased !y Saura on the strength of a letter of credit e9tended !y the Prudential -an2 and Trust Co., and arri/ed in ,a/ao City in July $(*)@ and that to secure its release 1ithout first paying the draft, Saura, Inc. e9ecuted a trust receipt in fa/or of the said !an2. 7n January 6, $(*B RFC passed Resolution #o. $B* appro/ing the loan application for P*&&,&&&.&&, to !e secured !y a first mortgage on the factory !uilding to !e constructed, the land site thereof, and the machinery and e:uipment to !e installed. Among the other terms spelled out in the resolution 1ere the follo1ing: $. That the proceeds of the loan shall !e utiliDed e9clusi/ely for the follo1ing purposes: For construction of factory !uilding P'*&,&&&.&& For payment of the !alance of purchase price of machinery and e:uipment 'B&,(&&.&& For 1or2ing capital (,$&&.&& T 7 T A " P*&&,&&&.&& B. That 5r. N 5rs. Ramon 8. Saura, Inocencia Arellano, Aniceto Caol!oy and 3regoria 8sta!illo and China 8ngineers, "td. shall sign the promissory notes ?ointly 1ith the !orro1er%corporation@ *. That release shall !e made at the discretion of the Reha!ilitation Finance Corporation, su!?ect to a/aila!ility of funds, and as the construction of the factory !uildings progresses, to !e certified to !y an appraiser of this Corporation@> Saura, Inc. 1as officially notified of the resolution on January (, $(*B. The day !efore, ho1e/er, e/idently ha/ing other1ise !een informed of its appro/al, Saura, Inc. 1rote a letter to RFC, re:uesting a modification of the terms laid do1n !y it, namely: that in lieu of ha/ing China 8ngineers, "td. .1hich 1as 1illing to assume lia!ility only to the e9tent of its stoc2 su!scription 1ith Saura, Inc.0 sign as co%ma2er on the corresponding promissory notes, Saura, Inc. 1ould put up a !ond for P$'),*&&.&&, an amount e:ui/alent to such su!scription@ and that 5aria S. Roca 1ould !e su!stituted for Inocencia Arellano as one of the other co%ma2ers, ha/ing ac:uired the latter+s shares in Saura, Inc. In /ie1 of such re:uest RFC appro/ed Resolution #o. 6)< on Fe!ruary B, $(*B, designating of the mem!ers of its -oard of 3o/ernors, for certain reasons stated in the resolution, >to ree9amine all the aspects of this appro/ed loan ... 1ith special reference as to the ad/isa!ility of financing this particular pro?ect !ased on present conditions o!taining in the operations of ?ute mills, and to su!mit his findings thereon at the ne9t meeting of the -oard.> 7n 5arch 'B, $(*B Saura, Inc. 1rote RFC that China 8ngineers, "td. had again agreed to act as co%signer for the loan, and as2ed that the necessary documents !e prepared in accordance 1ith the terms and conditions specified in Resolution #o. $B*. In connection 1ith the ree9amination of the pro?ect to !e financed 1ith the loan applied for, as stated in Resolution #o. 6)<, the parties named their respecti/e committees of engineers and technical men to meet 1ith each other and underta2e the necessary studies, although in appointing its o1n committee Saura, Inc. made the o!ser/ation that the same >should not !e ta2en as an ac:uiescence on .its0 part to no/ate, or accept ne1 conditions to, the agreement already0 entered into,> referring to its acceptance of the terms and conditions mentioned in Resolution #o. $B*. 7n April $), $(*B the loan documents 1ere e9ecuted: the promissory note, 1ith F.R. 4alling, representing China 8ngineers, "td., as one of the co%signers@ and the corresponding deed of mortgage, 1hich 1as duly registered on the follo1ing April $6. It appears, ho1e/er, that despite the formal e9ecution of the loan agreement the ree9amination contemplated in Resolution #o. 6)< proceeded. In a meeting of the RFC -oard of 3o/ernors on June $&, $(*B, at 1hich Ramon Saura, President of

Saura, Inc., 1as present, it 1as decided to reduce the loan from P*&&,&&&.&& to P)&&,&&&.&&. Resolution #o. )(;( 1as appro/ed as follo1s: R8S7"=TI7# #o. )(;(. Reducing the "oan 3ranted Saura Import N 89port Co., Inc. under Resolution #o. $B*, C.S., from P*&&,&&&.&& to P)&&,&&&.&&. Pursuant to -d. Res. #o. 6)<, c.s., authoriDing the re%e9amination of all the /arious aspects of the loan granted the Saura Import N 89port Co. under Resolution #o. $B*, c.s., for the purpose of financing the manufacture of ?ute sac2s in ,a/ao, 1ith special reference as to the ad/isa!ility of financing this particular pro?ect !ased on present conditions o!taining in the operation of ?ute mills, and after ha/ing heard Ramon 8. Saura and after e9tensi/e discussion on the su!?ect the -oard, upon recommendation of the Chairman, R8S7"C8, that the loan granted the Saura Import N 89port Co. !e R8,=C8, from P*&&,&&& to P)&&,&&& and that releases up to P$&&,&&& may !e authoriDed as may !e necessary from time to time to place the factory in actual operation: PR7CI,8, that all terms and conditions of Resolution #o. $B*, c.s., not inconsistent here1ith, shall remain in full force and effect.> 7n June $(, $(*B another hitch de/eloped. F.R. 4alling, 1ho had signed the promissory note for China 8ngineers "td. ?ointly and se/erally 1ith the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it 1as concerned. A follo1%up letter dated July ' re:uested RFC that the registration of the mortgage !e 1ithdra1n. In the meantime Saura, Inc. had 1ritten RFC re:uesting that the loan of P*&&,&&&.&& !e granted. The re:uest 1as denied !y RFC, 1hich added in its letter%reply that it 1as >constrained to consider as cancelled the loan of P)&&,&&&.&& ... in /ie1 of a notification ... from the China 8ngineers "td., e9pressing their desire to consider the loan insofar as they are concerned.> 7n July 'B, $(*B Saura, Inc. too2 e9ception to the cancellation of the loan and informed RFC that China 8ngineers, "td. >1ill at any time reinstate their signature as co%signer of the note if RFC releases to us the P*&&,&&&.&& originally appro/ed !y you.>. 7n ,ecem!er $6, $(*B RFC passed Resolution #o. (&;), restoring the loan to the original amount of P*&&,&&&.&&, >it appearing that China 8ngineers, "td. is no1 1illing to sign the promissory notes ?ointly 1ith the !orro1er%corporation,> !ut 1ith the follo1ing pro/iso: That in /ie1 of o!ser/ations made of the shortage and high cost of imported ra1 materials, the ,epartment of Agriculture and #atural Resources shall certify to the follo1ing: $. That the ra1 materials needed !y the !orro1er%corporation to carry out its operation are a/aila!le in the immediate /icinity@ and '. That there is prospect of increased production thereof to pro/ide ade:uately for the re:uirements of the factory.> The action thus ta2en 1as communicated to Saura, Inc. in a letter of RFC dated ,ecem!er '', $(*B, 1herein it 1as e9plained that the certification !y the ,epartment of Agriculture and #atural Resources 1as re:uired >as the intention of the original appro/al .of the loan0 is to de/elop the manufacture of sac2s on the !asis of locally a/aila!le ra1 materials.> This point is important, and sheds light on the su!se:uent actuations of the parties. Saura, Inc. does not deny that the factory he 1as !uilding in ,a/ao 1as for the manufacture of !ags from local ra1 materials. The co/er page of its !rochure .89h. 50 descri!es the pro?ect as a >Joint /enture !y and !et1een the 5indanao Industry Corporation and the Saura Import and 89port Co., Inc. to finance, manage and operate a ,enafmill plant, to manufacture copra and corn !ags, runners, floor mattings, carpets, draperies@ out of $&&Y local ra1 materials, principal -enaf.> The e9planatory note on page $ of the same !rochure states that, the /enture >is the first serious attempt in this country to use $&&Y locally gro1n ra1 materials nota!ly -enaf 1hich is presently gro1n commercially in theIsland of 5indanao 1here the proposed ?utemill is located ...> This fact, according to defendant ,-P, is 1hat mo/ed RFC to appro/e the loan application in the first place, and to re:uire, in its Resolution #o. (&;), a certification from the ,epartment of Agriculture and #atural Resources as to the a/aila!ility of local ra1 materials to pro/ide ade:uately for the re:uirements of the factory. Saura, Inc. itself confirmed the defendant+s stand impliedly in its letter of January '$, $(**: .$0 stating that according to a special study made !y the -ureau of Forestry >-enaf 1ill not !e a/aila!le in sufficient :uantity this year or pro!a!ly e/en ne9t year@> .'0 re:uesting >assurances .from RFC0 that my company and associates 1ill !e a!le to !ring in sufficient ?ute materials as may !e necessary for the full operation of the ?ute mill@> and .)0 as2ing that releases of the loan !e made as follo1s: a0 For the payment of the receipt for ?ute mill machineries 1ith the Prudential -an2 N Trust Company P'*&,&&&.&& .For immediate release0 !0 For the purchase of materials and e:uip% ment per attached list to ena!le the ?ute mill to operate $;',B$).($ c0 For ra1 materials and la!or <6,*;<.&(

$0 P'*,&&&.&& to !e released on the open% ing of the letter of credit for ra1 ?ute for Z'*,&&&.&&. '0 P'*,&&&.&& to !e released upon arri/al of ra1 ?ute. )0 P$6,*;<.&( to !e released as soon as the mill is ready to operate. 7n January '*, $(** RFC sent to Saura, Inc. the follo1ing reply: ,ear Sirs: This is 1ith reference to your letter of January '$, $(**, regarding the release of your loan under consideration of P*&&,&&&. As stated in our letter of ,ecem!er '', $(*B, the releases of the loan, if re/i/ed, are proposed to !e made from time to time, su!?ect to a/aila!ility of funds to1ards the end that the sac2 factory shall !e placed in actual operating status. Ae shall !e a!le to act on your re:uest for re/ised purpose and manner of releases upon re%appraisal of the securities offered for the loan. Aith respect to our re:uirement that the ,epartment of Agriculture and #atural Resources certify that the ra1 materials needed are a/aila!le in the immediate /icinity and that there is prospect of increased production thereof to pro/ide ade:uately the re:uirements of the factory, 1e 1ish to reiterate that the !asis of the original appro/al is to de/elop the manufacture of sac2s on the !asis of the locally a/aila!le ra1 materials. Jour statement that you 1ill ha/e to rely on the importation of ?ute and your re:uest that 1e gi/e you assurance that your company 1ill !e a!le to !ring in sufficient ?ute materials as may !e necessary for the operation of your factory, 1ould not !e in line 1ith our principle in appro/ing the loan. Aith the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it re:uested RFC to cancel the mortgage, and so, on June $6, $(** RFC e9ecuted the corresponding deed of cancellation and deli/ered it to Ramon F. Saura himself as president of Saura, Inc. It appears that the cancellation 1as re:uested to ma2e 1ay for the registration of a mortgage contract, e9ecuted on August <, $(*B, o/er the same property in fa/or of the Prudential -an2 and Trust Co., under 1hich contract Saura, Inc. had up to ,ecem!er )$ of the same year 1ithin 1hich to pay its o!ligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said o!ligation the Prudential -an2 and Trust Co. sued Saura, Inc. on 5ay $*, $(**. 7n January (, $(<B, ahnost ( years after the mortgage in fa/or of RFC 1as cancelled at the re:uest of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC .as predecessor of the defendant ,-P0 to comply 1ith its o!ligation to release the proceeds of the loan applied for and appro/ed, there!y pre/enting the plaintiff from completing or paying contractual commitments it had entered into, in connection 1ith its ?ute mill pro?ect. The trial court rendered ?udgment for the plaintiff, ruling that there 1as a perfected contract !et1een the parties and that the defendant 1as guilty of !reach thereof. The defendant pleaded !elo1, and reiterates in this appeal: .$0 that the plaintiff+s cause of action had prescri!ed, or that its claim had !een 1ai/ed or a!andoned@ .'0 that there 1as no perfected contract@ and .)0 that assuming there 1as, the plaintiff itself did not comply 1ith the terms thereof. Ae hold that there 1as indeed a perfected consensual contract, as recogniDed in Article $()B of the Ci/il Code, 1hich pro/ides: ART. $(*B. An accepted promise to deli/er something, !y 1ay of commodatum or simple loan is !inding upon the parties, !ut the commodatum or simple loan itself shall not !e perferted until the deli/ery of the o!?ect of the contract. There 1as undou!tedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P*&&,&&&.&& 1as appro/ed !y resolution of the defendant, and the corresponding mortgage 1as e9ecuted and registered. -ut this fact alone falls short of resol/ing the !asic claim that the defendant failed to fulfill its o!ligation and the plaintiff is therefore entitled to reco/er damages. It should !e noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to !e constructed 1ould utiliDe locally gro1n ra1 materials, principally -enaf. There is no serious dispute a!out this. It 1as in line 1ith such assumption that 1hen RFC, !y Resolution #o. (&;) appro/ed on ,ecem!er $6, $(*B, restored the loan to the original amount of P*&&,&&&.&&. it imposed t1o conditions, to 1it: >.$0 that the ra1 materials needed !y the !orro1er% corporation to carry out its operation are a/aila!le in the immediate /icinity@ and .'0 that there is prospect of increased production thereof to pro/ide ade:uately for the re:uirements of the factory.> The imposition of those conditions 1as !y no means a de/iation from the terms of the agreement, !ut rather a step in its implementation. There 1as nothing in said

conditions that contradicted the terms laid do1n in RFC Resolution #o. $B*, passed on January 6, $(*B, namely I >that the proceeds of the loan shall !e utiliDede.clusivel/ for the follo1ing purposes: for construction of factory !uilding I P'*&,&&&.&&@ for payment of the !alance of purchase price of machinery and e:uipment I P'B&,(&&.&&@ for 1or2ing capital I P(,$&&.&&.> 8/idently Saura, Inc. realiDed that it could not meet the conditions re:uired !y RFC, and so 1rote its letter of January '$, $(**, stating that local ?ute >1ill not !e a!le in sufficient :uantity this year or pro!a!ly ne9t year,> and as2ing that out of the loan agreed upon the sum of P<6,*;<.&( !e released >for ra1 materials and la!or.> This 1as a de/iation from the terms laid do1n in Resolution #o. $B* and em!odied in the mortgage contract, implying as it did a di/ersion of part of the proceeds of the loan to purposes other than those agreed upon. Ahen RFC turned do1n the re:uest in its letter of January '*, $(** the negotiations 1hich had !een going on for the implementation of the agreement reached an impasse. Saura, Inc. o!/iously 1as in no position to comply 1ith RFC+s conditions. So instead of doing so and insisting that the loan !e released as agreed upon, Saura, Inc. as2ed that the mortgage !e cancelled, 1hich 1as done on June $*, $(**. The action thus ta2en !y !oth parties 1as in the nature cf mutual desistance I 1hat 5anresa terms >mutuo disenso> 1 I 1hich is a mode of e9tinguishing o!ligations. It is a concept that deri/es from the principle that since mutual agreement can create a contract, mutual disagreement !y the parties can cause its e9tinguishment. 2 The su!se:uent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged !reach of contract !y RFC, or e/en point out that the latter+s stand 1as legally un?ustified. Its re:uest for cancellation of the mortgage carried no reser/ation of 1hate/er rights it !elie/ed it might ha/e against RFC for the latter+s non%compliance. In $(<' it e/en applied 1ith ,-P for another loan to finance a rice and corn pro?ect, 1hich application 1as disappro/ed. It 1as only in $(<B, nine years after the loan agreement had !een cancelled at its o1n re:uest, that Saura, Inc. !rought this action for damages.All these circumstances demonstrate !eyond dou!t that the said agreement had !een e9tinguished !y mutual desistance I and that on the initiati/e of the plaintiff%appellee itself. Aith this /ie1 1e ta2e of the case, 1e find it unnecessary to consider and resol/e the other issues raised in the respecti/e !riefs of the parties. A48R8F7R8, the ?udgment appealed from is re/ersed and the complaint dismissed, 1ith costs against the plaintiff%appellee. e/es, J.0.1., Actg. C.J., 2aldivar, Castro, 3ernando, $ee4an-ee, 0arredo and Antonio, JJ., concur. *a-asiar, J., too- no part.

Li?1,1: vs. CA 281 SCRA 225

@G.R. No. 114998. $c+ober 24, 199;A CAR-EN L#BANAG, petitioner, vs. &'E '$N. C$!R& $% A represe,+e/ b0 +5e Solici+or Ge,er1l, respondents. R758R7, J.: Petitioner 1as charged 1ith the crime of estafa !efore the Regional Trial Court .RTC0, -ranch (), KueDon City, in an information 1hich reads as follo1s: OThat on or !et1een the month of 5ay $(, $(;; and August, $(;; in KueDon City, Philippines and 1ithin the ?urisdiction of this 4onora!le Court, the said accused, 1ith intent of gain, 1ith unfaithfulness, and a!use of confidence, did then and there, 1illfully, unla1fully and feloniously defraud one ISI,7RA R7SA"8S, in the follo1ing manner, to 1it: on the date and in the place aforementioned, said accused recei/ed in trust from the offended party cash money amounting to P*)<,<*&.&&, Philippine Currency, 1ith the e9press o!ligation in/ol/ing the duty to act as complainantWs agent in purchasing local cigarettes .Philip 5orris and 5arl!oro cigarettes0, to resell them to se/eral stores, to gi/e her commission corresponding to B&Y of the profits@ and to return the aforesaid amount of offended party, !ut said accused, far from complying her aforesaid o!ligation, and once in possession thereof, misapplied, misappropriated and con/erted the same to her personal use and !enefit, despite repeated demands made upon her, accused failed and refused and still fails and refuses to deli/er andEor return the same to the damage and pre?udice of the said ISI,7RA R7SA"8S, in the aforementioned amount and in such other amount as may !e a1arded under the pro/ision of the Ci/il Code. C7#TRARJ T7 "AA.P The antecedent facts are as follo1s: Petitioner Carmen "i1anag ."i1anag0 and a certain Thelma Ta!ligan 1ent to the house of complainant Isidora Rosales .Rosales0 and as2ed her to ?oin them in the !usiness of !uying and selling cigarettes. Con/inced of the feasi!ility of the /enture, Rosales readily agreed. =nder their agreement, Rosales 1ould gi/e the money needed to !uy the cigarettes 1hile "i1anag and Ta!ligan 1ould act as her agents, 1ith a corresponding B&Y commission to her if the goods are sold@ other1ise the money 1ould !e returned to Rosales. Conse:uently, Rosales ga/e se/eral cash ad/ances to "i1anag and Ta!ligan amounting to P<)),<*&.&&. ,uring the first t1o months, "i1anag and Ta!ligan made periodic /isits to Rosales to report on the progress of the transactions. The /isits, ho1e/er, suddenly stopped, and all efforts !y Rosales to o!tain information regarding their !usiness pro/ed futile. Alarmed !y this de/elopment and !elie/ing that the amounts she ad/anced 1ere !eing misappropriated, Rosales filed a case of estafa against "i1anag. After trial on the merits, the trial court rendered a decision dated January (, $(($, finding "i1anag guilty as charged. The dispositi/e portion of the decision reads thus: OA48R8F7R8, the Court holds, that the prosecution has esta!lished the guilt of the accused, !eyond reasona!le dou!t, and therefore, imposes upon the accused, Carmen "i1anag, an Indeterminate Penalty of SI[ .<0 J8ARS, 8I34T .;0 57#T4S A#, TA8#TJ 7#8 .'$0 ,AJS 7F PRISI7# C7RR8CCI7#A" T7 F7=RT88# .$B0 J8ARS A#, 8I34T .;0 57#T4S 7F PRISI7# 5AJ7R AS 5A[I5=5, A#, T7 PAJ T48 C7STS. The accused is li2e1ise ordered to reim!urse the pri/ate complainant the sum of P*'<,<*&.&&, 1ithout su!sidiary imprisonment, in case of insol/ency. S7 7R,8R8,.P EALS 1,/ &'E E$ LE $% &'E '#L# #NES,

Said decision 1as affirmed 1ith modification !y the Court of Appeals in a decision dated #o/em!er '(, $((), the decretal portion of 1hich reads: OA48R8F7R8, in /ie1 of the foregoing, the ?udgment appealed from is here!y affirmed 1ith the correction of the nomenclature of the penalty 1hich should !e: SI[ .<0 J8ARS, 8I34T .;0 57#T4S and TA8#TJ 7#8 .'$0 ,AJS of prision mayor, as minimum, to F7=RT88# .$B0 J8ARS and 8I34T .;0 57#T4S of reclusion temporal, as ma9imum. In all other respects, the decision is AFFIR58,. S7 7R,8R8,.P 4er motion for reconsideration ha/ing !een denied in the resolution of 5arch $<, $((B, "i1anag filed the instant petition, su!mitting the follo1ing assignment of errors: O$. R8SP7#,8#T APP8""AT8 C7=RT 3RAC8"J 8RR8, I# AFFIR5I#3 T48 C7#CICTI7# 7F T48 ACC=S8,% P8TITI7#8R F7R T48 CRI58 7F 8STAFA, A48# C"8AR"J T48 C7#TRACT T4AT 8[IST .sic0 -8TA88# T48 ACC=S8,%P8TITI7#8R A#, C75P"AI#A#T IS 8IT48R T4AT 7F A SI5P"8 "7A# 7R T4AT 7F A PART#8RS4IP 7R J7I#T C8#T=R8 48#C8 T48 #7# R8T=R# 7F T48 57#8J 7F T48 C75P"AI#A#T IS P=R8"J CICI" I# #AT=R8 A#, #7T CRI5I#A". '. R8SP7#,8#T APP8""AT8 C7=RT 3RAC8"J 8RR8, I# #7T ACK=ITTI#3 T48 ACC=S8,%P8TITI7#8R 7# 3R7=#,S 7F R8AS7#A-"8 ,7=-T -J APP"JI#3 T48 V8K=IP7IS8 R="8W.P "i1anag ad/ances the theory that the intention of the parties 1as to enter into a contract of partnership, 1herein Rosales 1ould contri!ute the funds 1hile she 1ould !uy and sell the cigarettes, and later di/ide the profits !et1een them.iG$H She also argues that the transaction can also !e interpreted as a simple loan, 1ith Rosales lending to her the amount stated on an installment !asis.iiG'H The Court of Appeals correctly re?ected these pretenses. Ahile factual findings of the Court of Appeals are conclusi/e on the parties and not re/ie1a!le !y the Supreme Court, and carry more 1eight 1hen these affirm the factual findings of the trial court,iiiG)H 1e deem it more e9pedient to resol/e the instant petition on its merits. 8stafa is a crime committed !y a person 1ho defrauds another causing him to suffer damages, !y means of unfaithfulness or a!use of confidence, or of false pretenses of fraudulent acts.i/GBH From the foregoing, the elements of estafa are present, as follo1s: .$0 that the accused defrauded another !y a!use of confidence or deceit@ and .'0 that damage or pre?udice capa!le of pecuniary estimation is caused to the offended party or third party,/G*H and it is essential that there !e a fiduciary relation !et1een them either in the form of a trust, commission or administration./iG<H The receipt signed !y "i1anag states thus: O5ay $(, $(;; KueDon City

Recei/ed from 5rs. Isidora P. Rosales the sum of FIC8 4=#,R8, TA8#TJ SI[ T47=SA#, A#, SI[ 4=#,R8, FIFTJ P8S7S .P*'<,<*&.&&0 Philippine Currency, to purchase cigarrets .sic0 .Philip N 5arl!oro0 to !e sold to customers. In the e/ent the said cigarrets .sic0 are not sold, the proceeds of the sale or the said products .shall0 !e returned to said 5rs. Isidora P. Rosales the said amount of P*'<,<*&.&& or the said items on or !efore August )&, $(;;. .S3, N Thum!edmar2ed0 .sic0 CAR58# "IAA#A3 '< 4. Xaliraya St. KueDon City

Signed in the presence of: .Sgd0 Illegi!le .Sgd0 ,oming . -aligadP

The language of the receipt could not !e any clearer. It indicates that the money deli/ered to "i1anag 1as for a specific purpose, that is, for the purchase of cigarettes, and in the e/ent the cigarettes cannot !e sold, the money must !e returned to Rosales. Thus, e/en assuming that a contract of partnership 1as indeed entered into !y and !et1een the parties, 1e ha/e ruled that 1hen money or property ha/e !een recei/ed !y a partner for a specific purpose .such as that o!taining in the instant case0 and he later misappropriated it, such partner is guilty of estafa. #either can the transaction !e considered a loan, since in a contract of loan once the money is recei/ed !y the de!tor, o1nership o/er the same is transferred. -eing the o1ner, the !orro1er can dispose of it for 1hate/er purpose he may deem proper. In the instant petition, ho1e/er, it is e/ident that "i1anag could not dispose of the money as she pleased !ecause it 1as only deli/ered to her for a single purpose, namely, for the purchase of cigarettes, and if this 1as not possi!le then to return the money to Rosales. Since in this case there 1as no transfer of o1nership of the money deli/ered, "i1anag is lia!le for con/ersion under Art. )$*, par. $.!0 of the Re/ised Penal Code. B'ERE%$RE, in /ie1 of the foregoing, the appealed decision of the Court of Appeals dated #o/em!er '(, $((), is AFFIR58,. Costs against petitioner. S7 7R,8R8,. 5elo, Francisco, and Pangani!an, JJ., concur. #ar/asa, C.J., .Chairman0, on lea/e.

Ermi+1Co vs. CA 976 SCRA 218

G.R. No. 12;246 April 21, 1999 S $!SES L!#S -. ER-#&AD$ 1,/ -AN!EL#&A C. ER-#&AD$, petitioners, /s. &'E C$!R& $% A EALS AN) " # E= RESS CAR) C$R ., respondents. E!#S!-"#NG, J This petition for re/ie1 under Rule B*, of the Rules of Court, see2s to set aside the decision of the Court of Appeals in C.A.%3.R. CC #o. B6;;; re/ersing the trial court+s 1 ?udgment in Ci/il Case #o. <$)*6, as 1ell as the resolution of the Court of Appeals denying petitioners+ motion for reconsideration. In dispute is the /alidity of the stipulation em!odied in the standard application form for credit cards furnished !y pri/ate respondent. The stipulation ma2es the cardholder lia!le for purchases made through his lost or stolen credit card until .a0 notice of such loss or theft has !een gi/en to pri/ate respondent and .!0 the latter has communicated such loss or theft to its mem!er%esta!lishments. The facts, as found !y the trial court, are not disputed. Petitioner "uis 8rmitaMo applied for a credit card from pri/ate respondent -PI 89press Card Corp. .-8CC0 on 7cto!er ;, $(;< 1ith his 1ife, 5anuelita, as e9tension cardholder. The spouses 1ere gi/en credit cards 1ith a credit limit of P$&,&&&.&&. They often e9ceeded this credit limit 1ithout protest from -8CC. 7n August '(, $(;(, 5anuelita+s !ag 1as snatched from her as she 1as shopping at the 3reen!elt 5all in 5a2ati, 5etro 5anila. Among the items inside the !ag 1as her -8CC credit card. That same night she informed, !y telephone, -8CC of the loss. The call 1as recei/ed !y -8CC offices through a certain 3ina -anDon. This 1as follo1ed !y a letter dated August )&, $(;(. She also surrendered "uis+ credit card and re:uested for replacement cards. In her letter, 5anuelita stated that she >shall not !e responsi!le for any and all charges incurred Gthrough the use of the lost cardH after August '(, $(;(. 2 4o1e/er, 1hen "uis recei/ed his monthly !illing statement from -8CC dated Septem!er '&, $(;(, the charges included amounts for purchases made on August )&, $(;( through 5anuelita+s lost card. T1o purchases 1ere made, one amounting to P',)*&.&* and the other, P<&6.*&. 5anuelita recei/ed a !illing statement dated 7cto!er '&, $(;( 1hich re:uired her to immediately pay the total amount of P),$(6.6& co/ering the same .unauthoriDed0 purchases. 5anuelita again 1rote -8CC disclaiming responsi!ility for those charges, 1hich 1ere made after she had ser/ed -8CC 1ith notice of the loss of her card. ,espite the spouses+ refusal to pay and the fact that they repeatedly e9ceeded their monthly credit limit, -8CC sent them a notice dated ,ecem!er '(, $(;( stating that their cards had !een rene1ed until 5arch $(($. #ot1ithstanding this, ho1e/er, -8CC continued to include in the spouses+ !illing statements those purchases made through 5anuelita+s lost card. "uis protested this !illing in his letter dated June '&, $((&. 4o1e/er, -8CC, in a letter dated July $), $((&, pointed out to "uis the follo1ing stipulation in their contract: In the e/ent the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in 1riting to -8CC . . . purchases madeEincurred arising from the use of the lostEstolen card shall !e for the e9clusi/e account of the cardholder and the cardholder continues to !e lia!le for the purchases made through the use of the lostEstolen -PI 89press Card until after such notice has !een gi/en to -8CC and the latter has communicated such lossEtheft to its mem!er esta!lishments. 9 Pursuant to this stipulation, -8CC held "uis lia!le for the amount of P),$(6.6& incurred through the use of his 1ife+s lost card, e9clusi/e of interest and penalty charges. In his reply dated July $;, $((&, "uis stressed that the contract -8CC 1as referring to 1as a contract of adhesion and 1arned that if -8CC insisted on charging him and his 1ife for the unauthoriDed purchases, they 1ill sue -8CC for damages. This 1arning not1ithstanding, -8CC continued to !ill the spouses for said purchases. 4 7n April $&, $(($, "uis used his credit card to purchase gasoline at a Calte9 station. The latter, ho1e/er, dishonored his card. In reply to "uis+ demand for an e9planation, -8CC 1rote that it transferred the !alance of his old credit card to his ne1 one, including the unauthoriDed charges. Conse:uently, his outstanding !alance e9ceeded his credit limit of P$&,&&&&&. 4e 1as informed that his credit card had not !een cancelled !ut, since he e9ceeded his credit limit, he could not a/ail of his credit pri/ileges. 7nce more, "uis pointed out that notice of the lost card 1as gi/en to -8CC !efore the purchases 1ere made. Su!se:uently, -8CC cancelled the spouses+ credit cards and ad/ised them to settle the account immediately or ris2 !eing sued for collection of said account. Constrained, petitioners sued -8CC for damages. The trial court ruled in their fa/or, stating that there 1as a 1ai/er on the part of -8CC in enforcing the spouses+ lia!ility, as indicated !y the follo1ing circumstances: .$0 Its failure to inform the spouses that the unauthoriDed charges on the lost card 1ould !e carried o/er to their replacement cards@ and .'0 Its act of un:ualifiedly replacing the lost card and "uis+ card 1hich 1ere !oth surrendered !y the spouses, e/en after the spouses une:ui/ocally denied lia!ility for the unauthoriDed purchases. The trial court further noted that the suspension of the spouses+ credit cards 1as !ased upon the >lame e9cuse> that the credit limit had !een e9ceeded, despite the fact that -8CC allo1ed the spouses pre/iously to e9ceed their credit limit, e/en for almost t1o years after the

loss of 5anuelita+s card. 5oreo/er, the credit limit 1as e9ceeded only after -8CC added the unauthoriDed purchases to the lia!ility of the spouses. -8CC continued to send the spouses separate !illing statements that included the unauthoriDed purchases, 1ith interest and penalty charges. The trial court opined that the only purpose for the suspension of the spouses+ credit pri/ileges 1as to compel them to pay for the unauthoriDed purchases. The trial court ruled that the latter portion of the condition in the parties+ contract, 1hich states that lia!ility for purchases made after a card is lost or stolen shall !e for the account of the cardholder until after notice of the loss or theft has !een gi/en to -8CC and after t4e latter 4as informed its mem+er esta+lis4ments , is /oid for !eing contrary to pu!lic policy and for !eing dependent upon the sole 1ill of the de!tor. 5 5oreo/er, the trial court o!ser/ed that the contract !et1een -8CC and the 8rmitaMos 1as a contract of adhesion, 1hose terms must !e construed strictly against -8CC, the party that prepared it. The dispositi/e portion of the trial court+s decision reads: A48R8F7R8, and I# CI8A 7F T48 A"" T48 F7R837I#3 C7#SI,8RATI7#S, ?udgment is here!y rendered in fa/or of the plaintiffs, Spouses "uis 5. 8rmitaMo and 5anuelita C. 8rmitaMo and against defendant -PI 89press Card Corporation: $. 7rdering the said defendant to pay the plaintiffs the sum of P$&&,&&&.&& as moral damages. '. 7rdering said defendant to pay the plaintiffs the sum of P*&,&&&.&& as e9emplary damages. ). 7rdering said defencant to pay the plaintiffs the sum e:ui/alent to t1enty per cent .'&Y0 of the amounts a!o/ementioned as and for attorney+s fees and e9penses of litigation, and B. 7rdering the said defendant to pay the costs of suit. S7 7R,8R8, -ut, on appeal this decision 1as re/ersed. The Court of Appeals stated that the spouses should !e !ound !y the contract, e/en though it 1as one of adhesion. It also said that "uis, !eing a la1yer, had >all the tools to dri/e a hard !argain had he 1anted to. 6 It cited the case of Serra v. Court of Appeals ; 1herein this Court ruled that contracts of adhesion are as !inding as ordinary contracts. The petitioner in Serra 1as a CPA%la1yer, >a highly educated man . . . 1ho should ha/e !een more cautious in .his0 transactions. . . 8 The Court of Appeals therefore disposed of the appeal as follo1s: T48 F7R837I#3 C7#SI,8R8,, the contested decision is R8C8RS8,. PlaintiffsEappellees are here!y directed to pay the defendantEappellant the amount of P),$(6.6& 1ith )Y interest per month and an additional )Y penalty e:ui/alent to the amount due e/ery month until full payment. Aithout cost. S7 7R,8R8,. 9 4ence, this recourse !y petitioners, in 1hich they claim that the Court of Appeals gra/ely erred in: .i0 Ruling that petitioners should !e !ound !y the stipulations contained in the credit card application I a document 1holly prepared !y pri/ate respondent itself I ta2ing into consideration the professional credentials of petitioner "uis 5. 8rmitaMo@ .ii0 Relying on the case of Serra v. Court of Appeals, ''( SCRA <&, !ecause unli2e that case, petitioners ha/e no chance at all to contest the stipulations appearing in the credit card application that 1as drafted entirely !y pri/ate respondent, thus, a clear contract of adhesion@ .iii0 Ruling that pri/ate respondent is not estopped !y its su!se:uent acts after ha/ing !een notified of the lossEtheft of the credit card issued to petitioners, and .i/0 4olding that the onerous and unconsciona!le condition in the credit card application I that the cardholder continues to !e lia!le for purchases made on lost or stolen credit cards not only after such notice has !een gi/en to appellant !ut also after the latter has communicated such lossEtheft to its mem!er esta!lishments 1ithout any specific time or period I is /alid. 17 At the outset, 1e note that the contract !et1een the parties in this case is indeed a contract of adhesion, so%called !ecause its terms are prepared !y only one party 1hile the other party merely affi9es his signature signifying his adhesion thereto. 11 Such contracts are not /oid in themsel/es. 12 They are as !inding as ordinary contracts. Parties 1ho enter into such contracts are free to re?ect the stipulations entirely. This Court, ho1e/er, 1ill not hesitate to rule out !lind adherence to such contracts if they pro/e to !e too one%sided under the attendant facts and circumstances. 19 The resolution of this petition, in our /ie1, hinges on the /alidity and fairness of the stipulation on notice re:uired !y pri/ate respondent in case of loss or theft of a -8CC%issued credit card. -ecause of the peculiar nature of contracts of adhesion, the /alidity thereof must !e determined in light of the circumstances under 1hich the stipulation is intended to apply. 14 The stipulation in :uestion reads: In the e/ent the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in citing to -8CC . . . purchases madeEincurred arising from the use of the lostEstolen card shall !e for the e9clusi/e account of the cardholder and the cardholder continues to !e lia!le for the purchases made through the use of the lostEstolen -PI 89press Card until after such notice has !een gi/en to -8CC and the latter has communicated such lossEtheft to its mem!er esta!lishments. For the cardholder to !e a!sol/ed from lia!ility for unauthoriDed purchases made through his lost or stolen card, t1o steps must !e follo1ed: .$0 the cardholder must gi/e 1ritten notice to -8CC, and .'0 -8CC must notify its mem!er esta!lishments of such loss or theft,

1hich, naturally, it may only do upon receipt of a notice from the cardholder. -oth the cardholder and -8CC, then, ha/e a responsi!ility to perform, in order to free the cardholder from any lia!ility arising from the use of a lost or stolen card. In this case, the cardholder, 5anuelita, has complied 1ith 1hat 1as re:uired of her under the contract 1ith -8CC. She immediately notified -8CC of the loss of her card on the same day it 1as lost and, the follo1ing day, she sent a 1ritten notice of the loss to -8CC. That she ga/e such notices to -8CC is admitted !y -8CC in the letter sent to "uis !y Ro!erto ". 5ani:uiD, head of -8CC+s Collection ,epartment. 15 4a/ing thus performed her part of the notification procedure, it 1as reasona!le for 5anuelita I and "uis, for that matter I to e9pect that -8CC 1ould perform its part of the procedure, 1hich is to forth1ith notify its mem!er%esta!lishments. It is not unreasona!le to assume that -8CC 1ould do this immediately, precisely to a/oid any unauthoriDed charges. Clearly, 1hat happened in this case 1as that -8CC failed to notify promptly the esta!lishment in 1hich the unauthoriDed purchases 1ere made 1ith the use of 5anuelita+s lost card. Thus, 5anuelita 1as !eing lia!le for those purchases, e/en if there is no sho1ing that 5anuelita herself had signed for said purchases, and after notice !y her concerning her card+s loss 1as already gi/en to -8CC. -8CC asserts that the period that elapsed from the time of the loss of the card to the time of its unauthoriDed use 1as too short such that >it 1ould !e ne9t to impossi!le for respondent to notify all its mem!er%esta!lishments regarding the fact of the loss. 16 #othing, ho1e/er, pre/ents said mem!er%esta!lishments from o!ser/ing /erification procedures including ascertaining the genuine signature and proper identification of the purported purchaser using the credit card. -8CC states that, >!et1een t1o persons 1ho are negligent, the one 1ho made the 1rong possi!le should !ear the loss.> Ae ta2e this to !e an admission that negligence had occurred. In effect, -8CC is saying that the company, and the mem!er%esta!lishments or the petitioners could !e negligent. 4o1e/er, according to -8CC, petitioners should !e the ones to !ear the loss since it 1as they 1ho made possi!le the commission of a 1rong. This conclusion, ho1e/er, is self%ser/ing and o!/iously untena!le. From one perspecti/e, it 1as not petitioners 1ho made possi!le the commission of the 1rong. It could !e -8CC for its failure to immediately notify its mem!ers%esta!lishments, 1ho appear lac2ing in care or instruction !y -8CC in proper procedures, regarding signatures and the identification of card users at the point of actual purchase of goods or ser/ices. For ho1 else could an unauthoriDed person succeed to use 5anuelita+s lost cardL The cardholder 1as no longer in control of the procedure after it has notified -8CC of the card+s loss or theft. It 1as already -8CC+s responsi!ility to inform its mem!er%esta!lishments of the loss or theft of the card at the soonest possi!le time. Ae note that -8CC is not a neophyte financial institution, una1are of the intricacies and ris2s of pro/iding credit pri/ileges to a large num!er of people. It should ha/e anticipated an occurrence such as the one in this case and de/ised effecti/e 1ays and means to pre/ent it, or other1ise insure itself against such ris2. Prompt notice !y the cardholder to the credit card company of the loss or theft of his card should !e enough to relie/e the former of any lia!ility occasioned !y the unauthoriDed use of his lost or stolen card. The :uestioned stipulation in this case, 1hich still re:uires the cardholder to 1ait until the credit card company has notified all its mem!er%esta!lishments, puts the cardholder at the mercy of the credit card company 1hich may delay indefinitely the notification of its mem!ers to minimiDe if not to eliminate the possi!ility of incurring any loss from unauthoriDed purchases. 7r, as in this case, the credit card company may for some reason fail to promptly notify its mem!ers through a!solutely no fault of the cardholder. To re:uire the cardholder to still pay for unauthoriDed purchases after he has gi/en prompt notice of the loss or theft of his card to the credit card company 1ould simply !e unfair and un?ust. The Court cannot gi/e its assent to such a stipulation 1hich could clearly run against pu!lic policy. 1; 7n the matter of the damages petitioners are see2ing, 1e must delete the a1ard of e9emplary damages, a!sent any clear sho1ing that -8CC acted in a 1anton, fraudulent, rec2less, oppressi/e, or male/olent manner, as re:uired !y Article '')' of the Ci/il Code. Ae li2e1ise reduce the amount of moral damages to P*&,&&&.&&, considering the circumstances of the parties to the case. A48R8F7R8, the decision of the Court of Appeals in CA%3.R. CC #o. B6;;; is here!y R8C8RS8, and the decision of the Regional Trial Court, -ranch $*6, Pasig City in Ci/il Case #o. <$)6* is R8I#STAT8,, 1ith the 57,IFICATI7# that the a1ard of e9emplary damages in the amount of P*&,&&&.&& is here!y deleted@ and the amount of moral damages is reduced to P*&,&&&.&&@ !ut pri/ate respondent is further ordered to pay P'*,&&& as attorney+s fees and litigation e9penses. Costs against pri/ate respondents. S7 7R,8R8,. 0ellosillo, Puno, *endoza and 0uena, JJ., concur.

&1i &o,: C5u1c5e vs. #,sur1,ce Commissio, 158 SCRA 966

G.R. No. L-5599; %ebru1r0 29, 1988 &A# &$NG C'!AC'E F C$., petitioner, /s. &'E #NS!RANCE C$--#SS#$N 1,/ &RA6ELLERS -!L&#-#N)E-N#&. C$R $RA&#$N, respondents. GANCA.C$, J.: This petition for re/ie1 on certiorari see2s the re/ersal of the decision of the Insurance Commission in IC Case \)<6 1dismissing the complaint 2 for reco/ery of the alleged unpaid !alance of the proceeds of the Fire Insurance Policies issued !y herein respondent insurance company in fa/or of petitioner%inter/enor. The facts of the case as found !y respondent Insurance Commission are as follo1s: Complainants ac:uired from a certain Rolando 3onDales a parcel of land and a !uilding located at San Rafael Cillage, ,a/ao City. Complainants assumed the mortgage of the !uilding in fa/or of S.S.S., 1hich !uilding 1as insured 1ith respondent S.S.S. Accredited 3roup of Insurers for P'*,&&&.&&. On April 56, 5678, Azucena Palomo o+tained a loan from $ai $ong C4uac4e #nc. in the amount of P$&&,&&&.&&. To secure the payment of the loan, a mortgage 1as e9ecuted o/er the land and the !uilding in fa/or of Tai Tong Chuache N Co. .E.4i+it 959 and 95(A90. 7n April '*, $(6*, Arsenio Chua, representative of $4ai $ong C4uac4e : Co. insured the latter+s interest 1ith Tra/ellers 5ulti%Indemnity Corporation for P$&&,&&&.&& .P6&,&&&.&& for the !uilding and P)&,&&&.&& for the contents thereof0 .89hi!it >A%a,> contents thereof0 .89hi!it >A%a>0. 7n June $$, $(6*, Pedro Palomo secured a Fire Insurance Policy #o. F% &'*&& .89hi!it >A>0, co/ering the !uilding for P*&,&&&.&& 1ith respondent enith Insurance Corporation. 7n July $<, $(6*, another Fire Insurance Policy #o. ;B*( .89hi!it >->0 1as procured from respondent Philippine -ritish Assurance Company, co/ering the same !uilding for P*&,&&&.&& and the contents thereof for P6&,&&&.&&. 7n July )$, $(6*, the !uilding and the contents 1ere totally raDed !y fire. Ad?ustment Standard Corporation su!mitted a report as follo1 999 999 999 ... Thus the apportioned share of each company is as follo1s:

Ae are sho1ing hereunder another apportionment of the loss 1hich includes the Tra/ellers 5ulti%Indemnity policy for reference purposes. Policy #o. 5IR7E F%&'*&& Company enith Insurance Corp. -uilding P*&,&&& P$$,;66.$ B Ris2 In?ures Pays

F%;B*(&

Phil. -ritish Assco. Co. I%-uilding 6&,&&& II%-uilding FFF N P8 *&,&&& 'B,($;.6( $<,<';.&&

PCC%$*$;$ SSS 3roup of Insurers F%*(( ,C Insurers 5ulti

Accredited

-uilding I%Ref II%-uilding Totals

'*,&&& )&,&&& 6&,&&& P'(*.&&&

*,();.*& $B,B<6.)$ $<,<';.&& P(&,'*6.; $

-ased on the computation of the loss, including the Tra/ellers 5ulti% Indemnity, respondents, enith Insurance, Phil. -ritish Assurance and S.S.S. Accredited 3roup of Insurers, paid their corresponding shares of the loss. Complainants 1ere paid the follo1ing: PB$,*B<.6( !y Philippine -ritish Assurance Co., P$$,;66.$B !y enith Insurance Corporation, and P*,()<.*6 !y S.S.S. 3roup of Accredited Insurers .Par. <. Amended Complaint0. ,emand 1as made from respondent Tra/ellers 5ulti%Indemnity for its share in the loss !ut the same 1as refused. 4ence, complainants demanded from the other three .)0 respondents the !alance of each share in the loss !ased on the computation of the Ad?ustment Standards Report e9cluding

Tra/ellers 5ulti%Indemnity in the amount of P)&,;(B.)$ .P*,6)'.6(% enith Insurance: P'','(B.<', Phil. -ritish: and P',;<<.(&, SSS Accredited0 !ut the same 1as refused, hence, this action. In their ans1ers, Philippine -ritish Assurance and enith Insurance Corporation admitted the material allegations in the complaint, !ut denied lia!ility on the ground that the claim of the complainants had already !een 1ai/ed, e9tinguished or paid. -oth companies set up counterclaim in the total amount of P ($,*B<.6(. Instead of filing an ans1er, SSS Accredited 3roup of Insurers informed the Commission in its letter of July '', $(66 that the herein claim of complainants for the !alance had !een paid in the amount of P *,();.*6 in full, !ased on the Ad?ustment Standards Corporation Report of Septem!er '', $(6*. Tra/ellers Insurance, on its part, admitted the issuance of the Policy %o. 866 "V and alleged as its special and affirmati/e defenses the follo1ing, to 1it: that Fire Policy %o. 866 "V, co/ering the furniture and !uilding of complainants 1as secured !y a certain Arsenio C4ua, mortgage creditor, for the purpose of protecting his mortgage credit against the complainants@ that the said policy 1as issued in the name of ADucena Palomo, only to indicate that she o1ns the insured premises@ that the policy contains an endorsement in fa/or of Arsenio Chua as his mortgage interest may appear to indicate that insured 1as Arsenio Chua and the complainants@ that the premium due on said fire policy 1as paid !y Arsenio Chua@ that respondent Tra/ellers is not lia!le to pay complainants. 7n 5ay )$, $(66, Tai Tong Chuache N Co. filed a complaint in inter/ention claiming the proceeds of the fire Insurance Policy #o. F%**( ,C, issued !y respondent Tra/ellers 5ulti%Indemnity. Tra/ellers Insurance, in ans1er to the complaint in inter/ention, alleged that the Inter/enor is not entitled to indemnity under its Fire Insurance Policy for lac2 of insura!le interest !efore the loss of the insured premises and that the complainants, spouses Pedro and ADucena Palomo, 4ad alread/ paid in full t4eir mortgage inde+tedness to t4e intervenor. 9 As ad/erted to a!o/e respondent Insurance Commission dismissed spouses Palomos+ complaint on the ground that the insurance policy su!?ect of the complaint 1as ta2en out !y Tai Tong Chuache N Company, petitioner herein, for its o1n interest only as mortgagee of the insured property and thus complainant as mortgagors of the insured property ha/e no right of action against herein respondent. It li2e1ise dismissed petitioner+s complaint in inter/ention in the follo1ing 1ords: Ae mo/e on the issue of lia!ility of respondent Tra/ellers 5ulti%Indemnity to the Inter/enor%mortgagee. The complainant testified that she 1as still inde!ted to Inter/enor in the amount of P$&&,&&&.&&. Such allegation has not ho1e/er, !een sufficiently pro/en !y documentary e/idence. The certification .89hi!it +8%e+0 issued !y the Court of First Instance of ,a/ao, -ranch $$, indicate that the complainant 1as Antonio "opeD Chua and not Tai Tong Chuache N Company. 4 From the a!o/e decision, only inter/enor Tai Tong Chuache filed a motion for reconsideration !ut it 1as li2e1ise denied hence, the present petition. It is the contention of the petitioner that respondent Insurance Commission decided an issue not raised in the pleadings of the parties in that it ruled that a certain Arsenio "opeD Chua is the one entitled to the insurance proceeds and not Tai Tong Chuache N Company. This Court cannot fault petitioner for the a!o/e erroneous interpretation of the decision appealed from considering the manner it 1as 1ritten. 5 As correctly pointed out !y respondent insurance commission in their comment, the decision did not pronounce that it 1as Arsenio "opeD Chua 1ho has insura!le interest o/er the insured property. Perusal of the decision re/eals ho1e/er that it readily a!sol/ed respondent insurance company from lia!ility on the !asis of the commissioner+s conclusion that at the time of the occurrence of the peril insured against petitioner as mortgagee had no more insura!le interest o/er the insured property. It 1as !ased on the inference that the credit secured !y the mortgaged property 1as already paid !y the Palomos !efore the said property 1as gutted do1n !y fire. The foregoing conclusion 1as arri/ed at on the !asis of the certification issued !y the then Court of First Instance of ,a/ao, -ranch II that in a certain ci/il action against the Palomos, Antonio "opeD Chua stands as the complainant and not petitioner Tai Tong Chuache N Company. Ae find the petition to !e impressed 1ith merit. It is a 1ell 2no1n postulate that the case of a party is constituted !y his o1n affirmati/e allegations. =nder Section $, Rule $)$ 6 each party must pro/e his o1n affirmati/e allegations !y the amount of e/idence re:uired !y la1 1hich in ci/il cases as in the present case is preponderance of e/idence. The party, 1hether plaintiff or defendant, 1ho asserts the affirmati/e of the issue has the !urden of presenting at the trial such amount of e/idence as re:uired !y la1 to o!tain fa/ora!le ?udgment. ; Thus, petitioner 1ho is claiming a right o/er the insurance must pro/e its case. "i2e1ise, respondent insurance company to a/oid lia!ility under the policy !y setting up an affirmati/e defense of lac2 of insura!le interest on the part of the petitioner must pro/e its o1n affirmati/e allegations. It 1ill !e recalled that respondent insurance company did not assail the /alidity of the insurance policy ta2en out !y petitioner o/er the mortgaged property. #either did it deny that the said property 1as totally raDed !y fire 1ithin the period co/ered !y the insurance. Respondent, as mentioned earlier ad/anced an affirmati/e defense of lac2 of insura!le interest on the part of

the petitioner that !efore the occurrence of the peril insured against the Palomos had already paid their credit due the petitioner. Respondent ha/ing admitted the material allegations in the complaint, has the !urden of proof to sho1 that petitioner has no insura!le interest o/er the insured property at the time the contingency too2 place. =pon that point, there is a failure of proof. Respondent, it 1ill !e noted, e9erted no effort to present any e/idence to su!stantiate its claim, 1hile petitioner did. For said respondent+s failure, the decision must !e ad/erse to it. 4o1e/er, as ad/erted to earlier, respondent Insurance Commission a!sol/ed respondent insurance company from lia!ility on the !asis of the certification issued !y the then Court of First Instance of ,a/ao, -ranch II, that in a certain ci/il action against the Palomos, Arsenio "opeD Chua stands as the complainant and not Tai Tong Chuache. From said e/idence respondent commission inferred that the credit e9tended !y herein petitioner to the Palomos secured !y the insured property must ha/e !een paid. Such is a glaring error 1hich this Court cannot sanction. Respondent Commission+s findings are !ased upon a mere inference. The record of the case sho1s that the petitioner to support its claim for the insurance proceeds offered as e/idence the contract of mortgage .89h. $0 1hich has not !een cancelled nor released. It has !een held in a long line of cases that 1hen the creditor is in possession of the document of credit, he need not pro/e non%payment for it is presumed. 8 The /alidity of the insurance policy ta2en ! petitioner 1as not assailed !y pri/ate respondent. 5oreo/er, petitioner+s claim that the loan e9tended to the Palomos has not yet !een paid 1as corro!orated !y ADucena Palomo 1ho testified that they are still inde!ted to herein petitioner. 9 Pu!lic respondent argues ho1e/er, that if the ci/il case really stemmed from the loan granted to ADucena Palomo !y petitioner the same should ha/e !een !rought !y Tai Tong Chuache or !y its representati/e in its o1n !ehalf. From the a!o/e premise respondent concluded that the o!ligation secured !y the insured property must ha/e !een paid. The premise is correct !ut the conclusion is 1rong. Citing Rule ), Sec. ' 17 respondent pointed out that the action must !e !rought in the name of the real party in interest. Ae agree. 4o1e/er, it should !e !orne in mind that petitioner !eing a partnership may sue and !e sued in its name or !y its duly authoriDed representati/e. The fact that Arsenio "opeD Chua is the representati/e of petitioner is not :uestioned. Petitioner+s declaration that Arsenio "opeD Chua acts as the managing partner of the partnership 1as corro!orated !y respondent insurance company. 11 Thus Chua as the managing partner of the partnership may e9ecute all acts of administration 12 including the right to sue de!tors of the partnership in case of their failure to pay their o!ligations 1hen it !ecame due and demanda!le. 7r at the /ery least, Chua !eing a partner of petitioner Tai Tong Chuache N Company is an agent of the partnership. -eing an agent, it is understood that he acted for and in !ehalf of the firm. 19 Pu!lic respondent+s allegation that the ci/il case flied !y Arsenio Chua 1as in his capacity as personal creditor of spouses Palomo has no !asis. The respondent insurance company ha/ing issued a policy in fa/or of herein petitioner 1hich policy 1as of legal force and effect at the time of the fire, it is !ound !y its terms and conditions. =pon its failure to pro/e the allegation of lac2 of insura!le interest on the part of the petitioner, respondent insurance company is and must !e held lia!le. I# CI8A 7F T48 F7R837I#3, the decision appealed from is here!y S8T ASI,8 and A#7T48R ?udgment is rendered order pri/ate respondent Tra/ellers 5ulti%Indemnity Corporation to pay petitioner the face /alue of Insurance Policy #o. *((% ,C in the amount of P$&&,&&&.&&. Costs against said pri/ate respondent. S7 7R,8R8,. $ee4an-ee, C.J., %arvasa, Cruz and &ri'o(A)uino, JJ., concur.

31r/e,il vs. Sol1s ;9 5il 626

G.R. No. L-4;8;8 3ul0 24, 1942 G#L 3AR)EN#L, plaintiff%appellant, /s. 'E%&# S$LAS (alias 'E &# S$LAS, 3E &# S$LAS*, defendant%appellee. -$RAN, J.G

This is an action for foreclosure of mortgage. The only :uestion raised in this appeal is: Is defendant%appellee !ound to pay the stipulated interest only up to the date of maturity as fi9ed in the promissory note, or up to the date payment is effectedL This :uestion is, in our opinion controlled !y the e9press stipulation of the parties. Paragraph B of the mortgage deed recites: Kue en consideracion a dicha suma aun por pagar de ,7S 5I" C=ATR7CI8#T7S P8S7S .P',B&&&.&&0, moneda filipina, :ue el Sr. 4epti Solas se compromete a pagar al Sr. Jardenil en o antes del dia treintaiuno .)$0 de marDo de mil no/ecientos treintaicuarto .$()B0, con los intereses de dicha suma al tipo de doce por ciento .$'Y0 anual a partir desde fecha hasta el dia de su /encimiento o sea treintaiuno .)$0 de marDo de mil no/ecientos treintaicuatro .$()B0, por la presente, el Sr. 4epti Solas cede y traspasa, por /ia de primera hipoteca, a fa/or del Sr. Jardenil, sus herederos y causaha!ientes, la parcela de terreno descrita en el parrafo primero .$.U0 de esta escritura. ,efendant%appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until 5arch )$, $()B. As the contract is silent as to 1hether after that date, in the e/ent of non%payment, the de!tor 1ould continue to pay interest, 1e cannot in la1, indulge in any presumption as to such interest@ other1ise, 1e 1ould !e imposing upon the de!tor an o!ligation that the parties ha/e not chosen to agree upon. Article $6** of the Ci/il Code pro/ides that >interest shall !e due only 1hen it has !een e.pressl/ stipulated.> .8mphasis supplied.0 A 1riting must !e interpreted according to the legal meaning of its language .section ';<, Act #o. $(&, no1 section *;, Rule $')0, and only 1hen the 1ording of the 1ritten instrument appears to !e contrary to the e/ident intention of the parties that such intention must pre/ail. .Article $';$, Ci/il Code.0 There is nothing in the mortgage deed to sho1 that the terms employed !y the parties thereto are at 1ar 1ith their e/ident intent. 7n the contrary the act of the mortgage of granting to the mortgagor on the same date of e9ecution of the deed of mortgage, an e9tension of one year from the date of maturity 1ithin 1hich to ma2e payment, 1ithout ma2ing any mention of any interest 1hich the mortgagor should pay during the additional period .see 89hi!it - attached to the complaint0, indicates that the true intention of the parties 1as that no interest should !e paid during the period of grace. Ahat reason the parties may ha/e therefor, 1e need not here see2 to e9plore. #either has either of the parties sho1n that, !y mutual mista2e, the deed of mortgage fails to e9press their agreement, for if such mista2e e9isted, plaintiff 1ould ha/e undou!tedly adduced e/idence to esta!lish it and as2ed that the deed !e reformed accordingly, under the parcel%e/idence rule. Ae hold therefore, that as the contract is clear and unmista2a!le and the terms employed therein ha/e not !een sho1n to !elie or other1ise fail to e9press the true intention of the parties and that the deed has not !een assailed on the ground of mutual mista2e 1hich 1ould re:uire its reformation, same should !e gi/en its full force and effect. Ahen a party sues on a 1ritten contract and no attempt is made to sho1 any /ice therein, he cannot !e allo1ed to lay any claim more than 1hat its clear stipulations accord. 4is omission, to 1hich the la1 attaches a definite 1arning as an in the instant case, cannot !y the courts !e ar!itrarily supplied !y 1hat their o1n notions of ?ustice or e:uity may dictate. Plaintiff is, therefore, entitled only to the stipulated interest of $' per cent on the loan of P', B&& from #o/em!er ;, $()' to 5arch )$, $()B. And it !eing a fact that e9tra ?udicial demands ha/e !een made 1hich 1e may assume to ha/e !een so made on the e9piration of the year of grace, he shall !e entitled to legal interest upon the principal and the accrued interest from April $, $()*, until full payment. Thus modified ?udgment is affirmed, 1ith costs against appellant. ;ulo, C.J., Ozaeta and 0oco+o, JJ., concur. Sep1r1+e $pi,io,s ARAS, J., dissenting: =nder the facts stated in the decision of the ma?ority, I come to the conclusion that interest at the rate of $' per cent per annum should !e paid up to the date of payment of the 1hole inde!tedness is made. Payment of such interest is e9pressly stipulated. True, it is stated in the mortgage contract that interest 1as to !e paid up to 5arch )$, $()B, !ut this date 1as inserted merely !ecause it 1as the date of maturity. The e9tension note is silent as regards interest, !ut its payment is clearly implied from the nature of the transaction 1hich is only a rene1al of the o!ligation. In my opinion, the ruling of the ma?ority is anomalous and at 1ar 1ith common practice and e/eryday !usiness usage.

S1,:r1/or vs. 61l/err1m1 168 SCRA 215

G.R. No. ;9552 November 29, 1988

E6EL.N 3. SANGRA)$R, Hoi,e/ b0 5er 5usb1,/ R$)R#G$ SANGRA)$R, SR., petitioners, /s. S $!SES %RANC#SC$ 6AL)ERRA-A 1,/ &ERES#&A -. 6AL)ERRA-A, respondents. A)#LLA, J.: This is a petition for re/ie1 on certiorari of the decision 1 of the Court of Appeals in CA%3.R. CC #o. &;;$), dated $) August $(;6, 1hich modified the decision 2 of the Regional Trial Court of Iloilo City, -ranch [[III, in Ci/il Case #o. $<'$&, entitled >8/elyn J. Sangrador, ?oined !y her hus!and, Rodrigo Sangrador, Plaintiffs, /ersus Spouses Francisco Calderrama and Teresita Calderrama, ,efendants.> The factual !ac2ground of the case is narrated in the decision of the Court of Appeals as follo1s: 7n April $$, $(;) the defendants%spouses Francisco and Teresita Calderrama o!tained a P*&&,&&& loan from 5anuel Asencio paya!le on or !efore April $', $(;B, and secured !y a real estate mortgage on their house and lot .actually ) lots0 in front of the Jaro PlaDa in Iloilo City .89h. (0. Foreseeing that they 1ould not !e a!le to pay the loan and redeem their property upon maturity of the loan, the defendants scouted around for money%lenders 1ho 1ould !e 1illing to lend them money 1ith 1hich to pay off their mortgage to Asencio. Through the help of a loan !ro2er, Ailson Jesena, they 1ere a!le to o!tain on April <, $(;B a P$,&&&,&&& loan from the plaintiff Teresita Sangrador, 1ho is an aunt of Jesena, on the security of the same property 1hich they redeemed from Asencio. The loan is e/idenced !y the follo1ing promissory note .89h. -0 dated April <, $ (;B pro/iding for the payment of P$,B&&,&&& to the creditor eight months after date+. F7R CA"=8 R8C8IC8,, 1e ?ointly and se/erally promise to pay 8C8"J# J. SA#3RA,7R, or order, at her address at #o. ' "ocsin Street, 5olo, Iloilo City, Philippines, the sum of 7#8 5I""I7# F7=R 4=#,R8, T47=SA#, P8S7S .P$,B&&,&&&.&&0 Philippine Currency, 8I34T .;0 57#T4S after date 1ithout need of demand. Should 1e default in the payment of the o!ligation or in the manner of performance thereof and it shall !ecome necessary to enforce and collect on this note !y or through an attorney, the ma2ers shall ?ointly and se/erally pay TA8#TJ .'&0 P8R C8#T=5 of the amount due, principal and interest and charges then unpaid, 1hich in no case shall !e less than P$,&&&.&&. The ma2ers here!y su!mit to the ?urisdiction of the 5unicipal Trial Court of Iloilo or the Regional Trial Court of Iloilo, Si9th Judicial Region, Iloilo City, as the case may !e, in the e/ent of litigation arising from this note. The ma2ers of this note, ?ointly and se/erally underta2e that in the e/ent that an e9traordinary inflation of the Philippine Peso should super/ene !et1een no1 and eight .;0 months after date, then the /alue of the Philippine Peso at the time of the esta!lishment of this o!ligation, shall !e the !asis of payment pursuant to Art. $'*& of the Ci/il Code of the Philippines, and for this purpose, 1e here!y ac2no1ledge the official e9change rate of the Philippine Peso to the =S ,ollar at P$B.&&' to Z$. The corresponding ad?ustment in the /alue of the Philippine Peso shall !e made in the e/ent that at the time of the maturity of this o!ligation, the rate of e9change 1ill ha/e changed as a result of the super/ening inflation. Ae further agree that the official rate of e9change as set !y the Central -an2 of the Philippines for pri/ate transactions, shall !e the !asis of this ad?ustment. This note is secured !y a Real 8state 5ortgage o/er three .)0 parcels of residential land, "ots 6&&, 6&$ and 6*&, of the Cadastral Sur/ey of Jaro, co/ered !y TCT #os. T%B$6$(, TB$6'$ and T%B$6'&, respecti/ely, of the Registry of ,eeds for the City of Iloilo, together 1ith the impro/ements thereon. In case of ?udicial e9ecution of this o!ligation or any part thereof, the de!tors 1ai/e all their rights under the pro/isions of Rule )(, Sec. $', of the Rules of Court. 8[8C=T8, in the City of Iloilo, Philippines, on this <th day of April $(;B. .S3,0 T8R8SITA 57#TI#7"A%CA",8RRA5A 5a2er .S3,0 FRA#CISC7 CA",8RRA5A 5a2er Signed in the presence of. .illegi!le0 .illegi!le0 .89h. -0

The de!tors allege that the amount actually recei/ed !y them 1as only P$,&&&,&&& the disposition of 1hich 1as itemiDed !y the !ro2er, Ailson Jesena a, on a memo pad of >Jesena Realty> as follo1s: From the des2 of: R8A"T7R AI"S7# 3. Jesena, Jr. President N 3en. 5anager 8[P8#S8S P<'*,&&&.&&I5anuel Asencio *&,&&&.&&ICommission -oy B,&&&.&&IAtty. Arguelles $),)(;.<(ITransfer feesI Register of ,eeds and -.I.R. P<(',)(;.<( P$,&&&,&&&.&& I <(',)(;.<( P)&6,<&$.B& I -alance .89h. $0 Accordingly, a Prudential -an2 Cashier+s chec2 for P<'*,&&& 1as issued !y Sangrador to Asencio to redeem the defendants+ property from him. A receipt for that chec2 1as issued !y the Calderramas to the plaintiff as follo1s: R8C8IPT ,ate April <, $(;B Recei/ed from 8C8"J# J8S8#A SA#3RA,7R the amount of SI[ 4=#,R8, TA8#TJ FIC8 T47=SA#, P8S7S .<'*,&&&.&&0 -an2 Prudential 0an- Cas4ier<s C4ec- %o. 5=6>7. The !alance of T4R88 4=#,R8, S8C8#TJ FIC8 T47=SA#, P8S7S .P)6*,&&&.&&0 is to !e paid to the undersigned after deducting all e9penses incurred in payment of real estate ta9es, attorney+s fees, commission, -ureau of Internal Re/enue fees and Register of ,eeds fees. All e9penses are to !e supported !y receipts. .S3,0 FRA#CISC7 .S3,0 T8R8SITA 57#TI#7"A% CA",8RRA5A CA",8RRA5A .89h. '0 Plaintiff 8/elyn Sangrador made a list of the e9penses chargea!le to the de!tors .89h. *0 and su!mitted it to them .'' t.s.n., 5ay 6, $(;*0. Payment of Atty. Arguelles+ attorney+s fees 1as duly ac2no1ledged !y him .89h. ;0. Jesena issued the follo1ing receipt to the defendants for his *Y commission in procuring the loan for them@ R8C8IPT Recei/ed from Spouses Francisco Calderrama and Teresita 5ontinola Calderrama the amount of FIFTJ T47=SA#, P8S7S .P*&,&&&.&&0 representing commission for my efforts and e9pertise in effecting the procurement of a loan from a financier for the amount of 7#8 5I""I7# P8S7S .P$,&&&,&&&.&&0. .S3,0 R8A"T7R AI"S7# J8S8#A, JR. R8- "icense #o. )BB$%R .89h. )0 The !alance of P)&6,<&$.B& 1as paid to the defendants !y means of another Prudential -an2 chec2 for 1hich the corresponding receipt .89h. B0 1as also signed !y the mortgagors: R8C8IPT April 6, $(;B Recei/ed from 8C8"J# J. SA#3RA,7R the amount of T4R88 4=#,R8, S8C8# T47=SA#, SI[ 4=#,R8, 7#8 P8S7S A#, F7RTJ C8#TAC7S .P)&6,<&$.B&0 representing full payment per Promissory #ote dated April <,$(;B. .S3,0 FRA#CISC7 .S3,0 T8R8SITA 57#TI#7"A% CA",8RRA5A CA",8RRA5A Paid !yIPrudential -an2 Ch2. \$BB)*;%'IApril 6, $(;B P)&6,<&$.B& cEo \&&))%&&&''%& paid !yI8/elyn J. Sangrador .89h. B0

8/elyn Sangrador admitted that the receipts .89hs. ' and B0 1ere issued to her !y the defendants .$B, '$ t.s.n., 5ay 6, $(;*0. Ahen the defendants failed to pay the sum of P$,B&&,&&& stated in the promissory note on ,ecem!er <, $(;B despite the plaintiffs+ 1ritten demands .89hs. C and ,0 a complaint for ?udicial foreclosure of the real estate mortgage 1as filed against them on ,ecem!er '$, $(;B. .89h. 30. The defendants in their ans1er denied that the loan 1as P$,B&&,&&&. They alleged that it 1as only P$,&&&,&&&.&& and that the additional PB&&,&&& represented usurious interest. At the trial, the plaintiff testified that the sum of P$,B&&,&&& 1as recei/ed !y the defendants. She alleged that !esides the e9penses of P<6,)(;.<( itemiDed in Jesena+s and her lists .89hs. $ and *0, the chec2 of P<'*,&&& for Asencio and the chec2 of P)&6,<&$.B& 1hich she issued to the defendants for the !alance of the loan, she ga/e to the defendants the amount of PB&&,&&& in cash for 1hich no receipt 1as issued !y them. 7n the other hand Francisco Calderrama testified that he thought all along that the promissory note .89h. -0 and deed of real estate mortgage .89h. A0 pro/ided for a loan of only P$ million since that 1as the amount 1hich they !orro1ed and recei/ed from the plaintiffs. 4e allegedly did not notice that !oth documents pro/ided for a loan of P$,B&&,&&&. After the trial, the court rendered ?udgment on #o/em!er 6, $(;* !inding the de!tors to the terms of the promissory note and mortgage deed. 9 The dispositi/e part of the trial court+s ?udgment reads as follo1s: A48R8F7R8, in the light of the foregoing, considerations and findings of this Court, ?udgment is here!y rendered: $0 ,irecting the foreclosure of the ,eeds of Real 8state 5ortgage .89h. +A+0@ '0 7rdering the defendants to pay the mortgage o!ligation in the amount of P$,B&&,&&&.&& plus the sum of P*<(,6$;.<$ pursuant to the escalation clause contained in paragraph $B of the ,eed of Real 8state 5ortgage@ to pay attorney+s fees e:ui/alent to t1enty .'&Y0 percentum of the total inde!tedness including costs, plus $'Y interest per annum from ,ecem!er $;,$(;B until fully paid, all of 1hich shall !e paid into Court 1ithin (& days from date of the ser/ice of the order@ )0 In default of such payment, ordering the mortgaged properties to !e sold at pu!lic auction to realiDe the mortgage de!t and costs. S7 7R,8R8,. 4 Pri/ate respondents, defendants in the trial court, appealed to the Court of Appeals, 1here the appeal 1as doc2eted as CA 3.R. CC #o. &;;$). 7n $' August $(;6, respondent Court of Appeals promulgated its decision 5modifying the decision of the trial court, the dispositi/e part of 1hich reads, as follo1s: A48R8F7R8, the appealed decision is here!y modified !y ordering the defendants, 1ithin .(&0 days from date of ser/ice of this decision, to pay to the plaintiffs the principal loan of P$,&&&,&&& 1ith $'Y interest per annum from April <,$(;B until fully paid, P*&,&&& as attorney+s fees, and the costs of this suit. In default of such payment, the mortgaged property shall !e sold at pu!lic auction to realiDe the sums due to plaintiffs under this ?udgment. S7 7R,8R8,. 6 4ence, the present petition for re/ie1 on certiorari of the decision of the Court of Appeals. Petitioners present the follo1ingI ASSI3#58#T 7F 8RR7RS $. FIRST ASSI3#8, 8RR7R: T48 47#7RA-"8 C7=RT 7F APP8A"S 8RR8, I# #=""IFJI#3 T48 8SCA"ATI7# C"A=S8 AS F7=#, -J T48 TRIA" C7=RT 7R,8RI#3 T48 PAJ58#T -J R8SP7#,8#TS 7F T48 S=5 7F P*<(,6$;.<$. '. S8C7#, ASSI3#8, 8RR7R: T48 47#7RA-"8 C7=RT 7F APP8A"S 8RR8, I# FI#,I#3 T48 PRI#CIPA" "7A# T7 -8 I# T48 S=5 7F P$,&&&,&&&.&& I#ST8A, 7F P$,B&&,&&&.&& AS F7=#, -J T48 "7A8R C7=RT. ). T4IR, ASSI3#8, 8RR7R: T48 47#7RA-"8 C7=RT 7F APP8A"S 8RR8, I# R8,=CI#3 P8TITI7#8R+S AAAR, 7F ATT7R#8J+S F88S T7 P*&,&&&.&& I#ST8A, 7F '&Y 7F T48 T7TA" I#,8-T8,#8SS AS F7=#, -J T48 TRIA" C7=RT. ;

The pi/otal issue to !e resol/ed in this case is 1hether or not the loan o!tained !y pri/ate respondents from petitioners 1as in the amount of P$,B&&,&&&.&& or P$,&&&,&&&.&& only. In resol/ing this issue, the Court of Appeals in its decision under re/ie1, held: After carefully re/ie1ing the e/idence, Ae are con/inced that the trial court erred in finding that the loan 1as P$,B&&,&&& as stated in the promissory note .89h. -0 and deed of mortgage. "i2e the trial court, Ae do not !elie/e defendant Calderrama+s allegation that he did not notice that the amount stated in the promissory note 1as P$,B&&,&&&, instead of only P$,&&&,&&&, until demands for payment 1ere sent to him !y the plaintiffs+ counsel. -ut neither do Ae !elie/e the plaintiff 8/elyn Sangrador+s allegation that !esides the sum of P$,&&&,&&& admittedly recei/ed !y the defendants and e/idenced !y chec2s and receipts, she also ga/e them PB&&,&&&.&& in cash 1ithout receipt. This is a case, therefore, 1here !oth parties pre/aricated. The documentary e/idence preponderantly pro/es that the loan 1as only P$,&&&,&&&, not P$,B&&,&&&. The chec2s and receipts and the !ro2er+s computations found in 89hi!it +l+ sho1 clearly that the loan 1as only P$,&&&,&&&. 8/en the !ro2er+s P*&,&&& commission 1as computed on the !asis of *Y of P$ million. The circumstance that the alleged payment of PB&&,&&& in cash to the de!tors is not e/idenced !y a receipt, is conclusi/e proof that it 1as not a part of the loan. The loan 1as only P$ million. 7!/iously, the PB&&,&&& that 1as added to the principal represents a hidden interest charge for the promissory note contains no e9press pro/ision fi9ing the rate of interest on the loan. 8 Petitioners assail the foregoing findings and conclusions of the Court of Appeals, contending that the amount of the loan as clearly and e9pressly stated in the ,eed of Real 8state 5ortgage 9 and the Promissory #ote, 17 is P$,B&&,&&&.&& and not P$,&&&,&&&.&& only. -ecause the findings of the trial court and the Court of Appeals differ on this crucial factual issue, 1e ha/e carefully re/ie1ed and e9amined the e/idence. The finding of the Court of Appeals that the loan is in the amount of P$,&&&,&&&.&& only is supported !y su!stantial e/idence. The Promissory #ote .89h% -0 and the ,eed of Real 8state 5ortgage .89h. A0 e9ecuted !y the respondents in fa/or of the petitioners indeed state that the loan is in the amount of P$,B&&,&&&.&&. 4o1e/er, the other documents e9ecuted !y the parties contemporaneously 1ith said Promissory #ote and ,eed of Real 8state 5ortgage clearly sho1 that the actual loan, i.e. the amount recei/ed !y respondents, 1as only P$,&&&,&&&.&&. Thus, for the payment made !y the petitioners for the account of the respondents to 5anuel Asencio, there!y releasing the mortgage on the property, so that it could in turn !e mortgaged to the petitioners, the respondents signed a receipt in fa/or of the petitioners in the amount of P<'*,&&&.&& .89h. '0. The respondents e9ecuted another receipt in fa/or of the petitioners for the amount of P)&6,<&$.B&,> representing full payment per promissory note dated < April $(;B> .89h. B0. The !ro2er 1ho arranged for the loan signed a receipt in fa/or of the respondents for the amount of P*&,&&&.&& representing his commission in effecting the loan >for the amount of P$,&&&,&&&.&&> .89h. )0.?@reAAanBC5DEF The attorney 1ho assisted in the transaction 1as paid attorney+s fees in the amount of PB,&&&.&& .89h. ;0. The petitioners su!mitted a list of e9penses chargea!le to the respondents, totalling P$),)(;.<( co/ering transfer fees, e9penses in the Register of ,eeds and payments to the -IR .89h. *0. All told, the loan of P$,&&&,&&&.&& o!tained !y the respondents from the petitioners 1as applied or used in the follo1ing manner at the time the loan 1as o!tained: P<'*,&&.&& I to pay 5anuel Asencio .first creditor0 *&,&&&.&& I to pay Ailson Jesena .for !ro2er+s commission0 B,&&&.&& I to pay Atty. 8nri:ue Arguelles .for attorney+s fees0 $),)(;.<( I to pay transfer fees and other e9penses in Register of ,eeds and -IR )&6,<&$.B& I to pay respondents as !alance of the loan P$,&&&,&&&.&( T7TA" The a!o/e itemiDation tallies 1ith the !rea2do1n of the proceeds of the loan, made !y the loan !ro2er Ailson Jesena .89h. $0. Petitioners contend that o/er and a!o/e the P$,&&&,&&&.&&, the amount of PB&&,&&&.&& 1as deli/ered !y them to the respondents in cash and that this deli/ery 1as not e/idenced !y a receipt !ecause, any1ay, said amount .PB&&,&&&.&&0 is already included in the statement of the loan amount in the promissory note and the deed of real estate mortgage, 1hich is P$,B&&,&&&.&&. Ae find this contention to !e :uite incredi!le, to say the least. It is contrary to ordinary human e9perience. #ormally, in deli/ering a hefty sum li2e PB&&,&&&.&& in cash, one 1ould re:uire some sort of receipt or ac2no1ledgment from the recipient. 5oreo/er, if petitioners 1ere careful enough to re:uire from the respondents the separate receipts a!o/e%mentioned, there 1as no reason 1hy they 1ould not re:uire another receipt from the respondents for said amount of PB&&,&&&.&&. And if, as petitioners no1 allege, they did not anymore re:uire a receipt for the PB&&,&&&.&& allegedly deli/ered !y them in cash to the respondents !ecause the loan amount stated in the promissory note and the real estate mortgage already included said amount of PB&&,&&&.&&, then, !y the same reasoning, there 1as no need for re:uiring the other separate receipts

a!o/ementionedIas the amounts they referred to 1ere already a part of the loan amount stated in the promissory note and real estate mortgageIand yet, said separate receipts 1ere re:uired !y petitioners of the respondents. In short, 1e agree 1ith the finding of the Court of Appeals that the disputed amount of PB&&,&&&.&& 1as a 4idden interest that the petitioners had re:uired the respondents to pay at the maturity of the loan, !ut said amount of PB&&,&&&.&& 1as not recei/ed !y or deli/ered to the respondents. This conclusion is strengthened !y the fact that the promissory note and the deed of real estate mortgage .89hs. - and A0, strangely enough, do not contain any e9press stipulation on interest, or rate of interest, 1hen the loan in/ol/ed therein is in the su!stantial amount of allegedly P$,B&&,&&&.&&. Petitioners may concei/a!ly argue that, granting that the disputed amount of PB&&,&&&.&& is interest on the loan of P$,&&&,&&&.&&, yet, in line 1ith this Court+s decision in 1iam 1aE vs. Oriental SaEmill Co., et al., 11 there is no longer any ceiling on interest or interest rates on loans. This may !e so in a situation 1here the parties openly and e9pressly agree on a specific rate of interest to accrue on the loan !ut, as the Court of Appeals in its decision under re/ie1 correctly pointed out, in the case at !ar, no interest rate is e9pressly stipulated in the promissory note and deed of real estate mortgage. Circular #o. (&* of the Central -an2 dated $& ,ecem!er $(;' pro/ides: Section $. $4e rate of interest, including commissions, premiums, fees and other charges on a loan or for!earance of any money, goods, or credits, regardless of maturity and 1hether secured or unsecured, t4at ma/ +e c4arged or collected +/ an/ person, 1hether natural or ?uridical, s4all not +e su+ject to an/ ceiling prescri!ed under or pursuant to the =sury la1, as amended. Section '. $4e rate of interest for the loan or for!earance of any money, goods or credits and the rate allo1ed in ?udgments, in t4e a+sence of e.press contract as to suc4 rate of interest, shall continue to !e t1el/e per cent .$ 'Y0 per annum. .8mphasis supplied0 The rate of interest for loans or for!earance of money, in the a!sence of e9press contract as to such rate of interest, shall continue therefore to !e t1el/e per cent .$'Y0 per annum. 12 Accordingly, the loan of P$,&&&,&&&.&& in the instant case should earn a t1el/e per cent .$'Y0 interest per annum computed from < April $(;B 1hen the loan 1as o!tained !y the respondents from the petitioners until paid. Petitioners also impugn the Court of Appeals in nullifying the escalation clause in the ,eed of Real 8state 5ortgage and Promissory #ote. =nder such escalation clause, sustained !y the trial court, the amount of P*<(,6$;.<$ 1as a1arded to herein petitioners !y 1ay of ad?ustment of the loan of P$,B&&,&&&.&& after the eight .;0 month period of the loan. 19 The ,eed of Real 8state 5ortgage pro/ides, among others, as follo1s: $B. $4at in t4e event t4at an e.tra(ordinar/ inflation of t4e P4ilippine peso s4ould supervene, it is here!y stipulated that the /alue of the currency at the time of the esta!lishment of the o!ligation shall !e the !asis of payment pursuant to Art. $'*& of the #e1 Ci/il Code of the Philippines. For this purpose, 57RT3A37RS here!y recogniDe the official e9change rate of the Philippine Peso to the =S dollar at $B.&&' to one. $4e corresponding adjustment in t4e value of t4e P4ilippine Peso s4all +e made s4ould at t4e time of t4e maturit/ of t4is o+ligation, t4e rate of e.c4ange Eill 4ave c4anged as a result of t4e supervening inflation. It is further agreed that the official rate of e9change as set !y the Central -an2 for pri/ate transactions shall !e the !asis of this ad?ustment. .8mphasis supplied0. A cursory reading of the afore:uoted pro/ision of the ,eed of Real 8state 5ortgage .similar stipulation is contained in the Promissory #ote0 sho1s that the escalation clause ta2es effect >in the e/ent that an e9traordinary inflation of the Philippine Peso should super/ene,> !et1een the date the loan 1as granted and the date of its maturity, in 1hich case, the /alue of the .peso0 currency at the time of the esta!lishment of the o!ligation shall !e the !asis of payment. To gi/e meaning to the >/alue of the currency at the time of the esta!lishment of the o!ligation,> the parties agreed that on < April $(;B .date of loan0, the e9change rate of the peso to the =S dollar 1as $B.&&' to one. Conse:uently, under the aforesaid escalation clause, >.t0he corresponding ad?ustment in the /alue of the Philippine Peso> at the maturity of the o!ligation crucially depends upon the super/ening of an e9traordinary inflation in the sense contemplated in Article $'*& of the Ci/il Code of the Philippines. 14 In 3ilipino Pipe and 3oundr/ Corporation vs. %ational GaterEor-s and SeEerage Aut4orit/, 15 this Court held: 89traordinary inflation e9ists 1hen +there is a decrease or increase in the purchasing po1er of the Philippine currency 1hich is unusual or !eyond the common fluctuation in the /alue of said currency, and such decrease or increase could not ha/e !een reasona!ly foreseen or 1as manifestly !eyond the contemplation of the parties at the time of the esta!lishment of the o!ligation. .Tolentino Commentaries and Jurisprudence on the Ci/il Code Col. IC, p. ';B.0 An e9ample of e9traordinary inflation is the follo1ing description of 1hat happened to the deutschmar2 in $('&: 5ore recently, in the $('&+s 3ermany e9perience a case of hyper%inflation. In early $('$, the /alue of the 3erman mar2 1as B.' to the =.S. dollar. -y 5ay of the same year, it had

stum!led to <' to the =.S. dollar. And as prices 1ent up rapidly, so that !y 7cto!er $('), it had reached B.' trillion to the =.S. dollar] .-ernardo 5. Cillegas N Cictor R. A!ola, 8conomics, An Introduction GThird 8ditionH. As reported, >prices 1ere going up e/ery 1ee2, then e/ery day, then e/ery hour. Aomen 1ere paid se/eral times a day so that they could rush out and e9change their money for something of /alue !efore 1hat little purchasing po1er 1as left dissol/ed in their hands. Some 1or2ers tried to !eat the constantly rising prices !y thro1ing their money out of the 1indo1s to their 1aiting 1i/es, 1ho 1ould rush to unload the nearly 1orthless paper. A postage stamp cost millions of mar2s and a loaf of !read, !illions,> .Sidney Rut!erg, >The 5oney -aloon> #e1 Jor2@ Simon and Schuster, $(6*, p. $(, cited in 8conomics, An Introduction !y Cillegas N A!ola, )rd 8d.0 Ahile appellant+s /oluminous records and statistics pro/ed that there has !een a decline in the purchasing po1er of the Philippine peso, this do1n1ard fall of the currency cannot !e considered >e9traordinary.> It is simply a uni/ersal trend that has not spared our country. 16 Since petitioners failed to pro/e the super/ening of e9traordinary inflation !et1een < April $(;B and 6 ,ecem!er $(;BIno proofs 1ere presented on ho1 much, for instance, the price inde9 of goods and ser/ices had risen during the inter/ening periodIan e9traordinary inflation cannot !e assumed@ conse:uently, there is no reason or !asis, legal or factual, for ad?usting the /alue of the Philippine Peso in the settlement of respondents+ o!ligation. Finally, the Court of Appeals did not commit any error in reducing the a1ard of attorney+s fees to P*&,&&&.&&. The contractual pro/ision for attorney+s fees may !e modified !y the courts in the e9ercise of their sound ?udicial discretion. 1; A48R8F7R8, the petition is ,8#I8,. The decision of the Court of Appeals dated $' August $(;6 is AFFIR58,. Aith costs against petitioners. S7 7R,8R8,. *elencio(Herrera HC4airpersonI, Paras, and egalado, JJ., concur. Sarmiento, J., too- no part.

#,+e:r1+e/ Re1l+0 Corpor1+io, vs. N" 1;4 SCRA 295

G.R. No. L-67;75 3u,e 28, 1989 #N&EGRA&E) REAL&. C$R $RA&#$N 1,/ RA!L L. SAN&$S, petitioners, /s. '#L# #NE NA&#$NAL "AN>, $6ERSEAS "AN> $% -AN#LA 1,/ &'E '$N. C$!R& $% A G.R. No. L-6797; 3u,e 28, 1989

EALS,respondents.

$6ERSEAS "AN> $% -AN#LA, petitioner, /s. C$!R& $% A EALS, #N&EGRA&E) REAL&. C$R $RA&#$N, 1,/ RA!L L. SAN&$S, respondents. REGALA)$, J.: In these petitions for re/ie1 on certiorari, Integrated Realty Corporation and Raul Santos .3.R. #o. <&6&*0, and 7/erseas -an2 of 5anila .3.R. #o. <&(&60 appeal from the decision of the Court of Appeals, 1 the decretal portion of 1hich states: A48R8F7R8, 1ith the modification that appellee 7/erseas -an2 of 5anila is ordered to pay to the appellant Raul Santos the sum of P 6&&,&&&.&& due under the time deposit certificates #os. ')&; and ')<6 1ith < $E' .sic0 interest per annum from date of issue until fully paid, the appealed decision is affirmed in all other respects. In 3.R. #o. <&6&*, petitioners Integrated Realty Corporation .hereafter, IRC and Raul ". Santos .hereafter, Santos0 see2 the dismissal of the complaint filed !y the Philippine #ational -an2 .hereafter, P#-0, or in the e/ent that they !e held lia!le thereunder, to re/i/e and affirm that portion of the decision of the trial court ordering 7/erseas -an2 of 5anila .hereafter, 7-50 to pay IRC and Santos 1hate/er amounts the latter 1ill pay to P#-, 1ith interest from the date of payment. 2 7n the other hand, in 3.R. #o. <&(&6, petitioner 7-5 challenges the decision of respondent court insofar as it holds 7-5 lia!le for interest on the time deposit 1ith it of Santos corresponding to the period of its closure !y order of the Central -an2. 9 In its assailed decision, the respondent Court of Appeals, :uoting from the decision of the lo1er court, 4 narrated the antecedents of this case in this 1ise: The facts of this case are not seriously disputed !y any of the parties. They are set forth in the decision of the trial court as follo1s: =nder date $$ January $(<6 defendant Raul ". Santos made a time deposit 1ith defendant 7-5 in the amount of P *&&,&&&.&&. .89hi!it%$& 7-50 and 1as issued a Certificate of Time ,eposit #o. ')&; .89hi!it $ Santos, 89hi!it ,0. =nder date < Fe!ruary $(<6 defendant Raul ". Santos also made a time deposit 1ith defendant 7-5 in the amount of P '&&,&&&.&& .89hi!it $$ 7-5 and 1as issued certificate of Time ,eposit #o. ')<6 .89hi!it ' Santos, 89hi!it 80. =nder date ( Fe!ruary $(<6 defendant IRC thru its President%defendant Raul ". Santos, applied for a loan andEor credit line .89hi!it A0 in the amount of P 6&&,&&&.&& 1ith plaintiff !an2. To secure the said loan, defendant Raul ". Santos e9ecuted on August $$, $(<6 a ,eed of Assignment .89hi!it C0 of the t1o time deposits .89hi!its $%Santos and ' Santos, also 89hi!its , and 80 in fa/or of plaintiff. ,efendant 7-5 ga/e its conformity to the assignment thru letter dated $$ August $(<6 .89hi!it F0. 7n the same date, defendant IRC thru its President Raul ". Santos, also e9ecuted a ,eed of Conformity to "oan Conditions .89hi!it 30. The defendant 7-5 after the due dates of the time deposit certificates, did not pay plaintiff P#-. Plaintiff demanded payment from defendants IRC and Raul ". Santos .89hi!it X0 and from defendant 7-5 .89hi!it "0. ,efendants IRC and Raul ". Santos replied that the o!ligation .loan0 of defendant IRC 1as deemed paid 1ith the irre/oca!le assignment of the time deposit certificates .89hi!its * Santos, < Santos and 6 Santos0. 7n April <, $(<( .sic0, II P#- filed a complaint to collect from IRC and Santos the loan of P 6&&,&&&.&& 1ith interest as 1ell as attomey+s fees. It impleaded 7-5 as a defendant to compel it to redeem and pay to it Santos+ time deposit certificates 1ith interest, plus e9emplary and correcti/e damages, attorney+s fees, and cost. In their ans1er to the complaint, IRC and Santos alleged that P#- has no cause of action against them !ecause their o!ligation to P#- 1as fully paid or e9tinguished upon the+ irre/oca!le+ assignment of the time deposit certificates, and that they are not ans1era!le for the insol/ency of 7-5 They filed a counterclaim for damages against P#- and a cross%claim against 7-5 alleging that 7-5 acted fraudulently in refusing to pay the time deposit certificates to P#- resulting in the filing of the suit against them !y P#-, and that, therefore, 7-5 should pay them 1hate/er amount they may !e ordered !y the court to pay P#- 1ith interest. They also as2ed that 7-5 !e ordered to pay them compensatory, moral, e9emplary and correcti/e damages. In its ans1er to the complaint, 7-5 denied 2no1ledge of the time deposit certificates !ecause the alleged time deposit of Santos +does not appear in its !oo2s of account. Ahereupon, IRC and Santos, 1ith lea/e of court, filed a third%party complaint against 8merito -. Ramos, Jr., president of 7-5 and Rodolfo R. Sunico, treasurer of said !an2, 1ho allegedly recei/ed the time deposits of Santos and issued the certificates therefor. Ans1ering the third%party complaint, Ramos and Sunico alleged that IRC and Santos ha/e no cause of action against them !ecause they recei/ed and signed the time deposit certificates as officers of 7-5 that

the time deposits are recorded in the su!sidiary ledgers of the !an2 and are +ci/il lia!ilities of the defendant 7-5 7n #o/em!er $;, $(6&, 7-5 filed an amended or supplemental ans1er to the complaint, ac2no1ledging the certificates of time deposit that it issued to Santos, and admitting its failure to pay the same due to its distressed financial situation. As affirmati/e defenses, it alleged that !y reason of its state of insol/ency its operations ha/e !een suspended !y the Central -an2 since August $, $(<;@ that the time deposits ceased to earn interest from that date@ that it may not gi/e preference to any depositor or creditor@ and that payment of the plaintiffs claim is prohi!ited. 7n January )&, $(6<, the lo1er court rendered ?udgment for the plaintiff, the dispositi/e portion of 1hich reads as foIlo1s A48R8F7R8, ?udgment is here!y rendered, ordering: $. The defendant Integrated Realty Corporation and Raul ". Santos to pay the plaintiff, ?ointly and solidarily, the total amount of P 6&&,&&&.&& plus interest at the rate of (Y per annum from maturity dates of the t1o promissory notes on January $$ and Fe!ruary <, $(<;, respecti/ely .89hi!its 5 and I0, plus $%$E 'Y additional interest effecti/e Fe!ruary ';, $(<; and additional penalty interest of $Y per annum of the Id amount of P 6&&,&&&.&& from the time of maturity of Id loan up to the time the said amount of P 6&&,&&&.&& is actually paid to the plaintiff@ '. The defendants topay l&Y of the amount of P 6&&,&&&.&& as and for attorney+s fees@ ). The defendant 7/erseas -an2 of 5anila to pay cross%plaintiffs Integrated Realty Corporation and Raul ". Santos 1hate/er amounts the latter 1ill pay to the plaintiff 1ith interest from date of payment@ B. The defendant 7/erseas -an2 of 5anila to pay cross%plaintiffs Integrated Realty Corporation and Raul ". Santos the amount of P $&,&&&.&& as and for attorney+s fees@ *. The third%party complaint and cross%claim dismissed@ <. The defendant 7/erseas -an2 of 5anila to pay the costs. S7 7R,8R8,. 5 IRC Santos and 7-5 all appealed to the respondent Court of Appeals. As stated in limine, on 5arch $<, $(;' respondent court promulgated its appealed decision, 1ith a modification and the deletion of that portion of the ?udgment of the trial court ordering 7-5 to pay IRC and Santos 1hate/er amounts they 1ill pay to P#- 1ith interest from the date of payment. Therein defendants%appellants, through separate petitions, ha/e !rought the said decision to this Court for re/ie1. $. The first issue posed !efore us for resolution is 1hether the lia!ility of IRC and Santos 1ith P#- should !e deemed to ha/e !een paid !y /irtue of the deed of assignment made !y the former in fa/or of P#-, 1hich reads: X#7A A"" 58# -J T48S8 PR8S8#TS@ I, RA=" ". SA#T7S, of legal age, Filipino, 1ith residence and postal address at <<$ Richmond St., 5andaluyong, RiDal for and in consideration of certain loans, o/erdrafts and other credit accommodations granted or those that may hereafter !e granted to meEus !y the P4I"IPPI#8 #ATI7#A" -A#X, ha/e assigned, transferred and con/eyed and !y these presents, do here!y assign, transfer and con/ey !y 1ay of security unto said P4I"IPPI#8 #ATI7#A" -A#X its successors and assigns the follo1ing Certificates of Time ,eposit issued !y the 7C8RS8AS -A#X 7F 5A#I"A, its C7#F7R5ITJ issued on August $$, $(<6, hereto enclosed as Anne9 + A+, in fa/or of RA=" ". SA#T7S andEor #7RA S. SA#T7S, in the aggregate sum of S8C8# 4=#,R8, T47=SA#, P8S7S 7#"J .P 6&&,&&&.&&0, Philippine Currency, .... 999 999 999 It is also understood that the herein AssignorEs shall remain ha!le for any outstanding !alance of hisEtheir o!ligation if the -an2 is una!le to actually recei/e or collect the a!o/e assigned sums , monies or properties resulting from any agreements, orders or decisions of the court or for any other cause 1hatsoe/er. 6 999 999 999 Respondent Court of Appeals did not consider the aforesaid assignment as payment, thus: The contention of IRC and Santos that the irre/oca!le assignment of the time deposit certificates to P#constituted payment+ of their o!ligation to the latter is not 1ell ta2en. Ahere a certificate of deposit in a !an2, paya!le at a future day, 1as handed o/er !y a de!tor to his creditor, it Eas not pa/ment, unless there 1as an e9press agreement on the part of the creditor to recei/e it as such, and the :uestion 1hether there 1as or 1as not such an agreement, 1as one of facts to !e decided !y the ?ury. .,o1ney /s. 4ic2s, ** =.S. G$B 4o1.H 'B& ". 8d. B&B@ See also 5ichie, Col. *%- -an2s and -an2ing, p. '&&0.;

Ae uphold respondent court on this score. In "opeD /s. Court of appeals, et al., 8 petitioner -enito "opeD o!tained a loan for P '&,&&&.&& from the Prudential -an2 and Trust Company. 7n the same day, he e9ecuted a promissory note in fa/or of the !an2 and, in addition, he e9ecuted a surety !ond in 1hich he, as principal, and Philippine American 3eneral Insurance Co., Inc. .Philamgen0, as surety, !ound themsel/es ?ointly and se/erally in fa/or of the !an2 for the payment of the loan. 7n the same occasion, "opeD also e9ecuted in fa/or of Philamgen an indemnity agreement 1here!y he agreed to indemnify the company against any damages 1hich the latter may sustain in conse:uence of ha/ing !ecome a surety upon the !ond. At the same time, "opeD e9ecuted a deed of assignment of his shares of stoc2 in the -aguio 5ilitary Institute, Inc. in fa/or of Philamgen. Ahen "opeD+ o!ligation matured 1ithout !eing settled, Philamgen caused the transfer of the shares of stoc2s to its name in order that it may sell the same and apply the proceeds thereof in payment of the loan to the !an2. 4o1e/er, 1hen no payment 1as still made !y the principal de!tor or surety, the !an2 filed a complaint 1hich compelled Philamgen to pay the !an2. Thereafter, Philamgen filed an action to reco/er the amount of the loan against "opeD. The trial court therein held that the o!ligation of "opeD 1as deemed paid 1hen his shares of stoc2s 1ere transferred in the name of Philamgen. 7n appeal, the Court of Appeals ruled that "opeD 1as still lia!le to Philamgen !ecause, pending payment, Philamgen 1as merely holding the stoc2 as security for the payment of "opeD+ o!ligation. In upholding the finding therein of the Court of Appeals, Ae held that: #ot1ithstanding the e9press terms of the +Stoc2 Assignment Separate from Certificate+, ho1e/er, Ae hold and rule that the transaction should not !e regarded as an a!solute con/eyance in /ie1 of the circumstances o!taining at the time of the e9ecution thereof. It should !e remem!ered that on June ', $(*(, the day "opeD o!tained a loan of P '&,&&&.&& from Prudential -an2, "opeD e9ecuted a promissory note for P '&,&&&.&&, plus interest at the rate of ten .$&Y0 per cent per annum, in fa/or of said -an2. 4e li2e1ise posted a surety !ond to secure his full and faithful performance of his o!ligation under the promissory note 1ith Philamgen as his surety. In return for the underta2ing of Philamgen under the surety !ond, "opeD e9ecuted on the same day not only an indemnity agreement !ut also a stoc2 assignment. The indemnity agreement and stoc2 assignment must !e considered together as related transactions !ecause in order to ?udge the intention of the contracting parties, their contemporaneous and su!se:uent acts shall !e principally considered. .Article $)6$, #e1 Ci/il Code0. Thus, considering that the indemnity agreement connotes a continuing o!ligation of "opeD to1ards Philamgen 1hile the stoc2 assignment indicates a complete discharge of the same o!ligation, the e9istence of the indemnity agreement 1here!y "opeD had to pay a premium of P l,&&&.&& for a period of one year and agreed at all times to indemnify Philamgen of any and all 2inds of losses 1hich the latter might sustain !y reason of it !ecoming a surety, is inconsistent 1ith the theory of an a!solute sale for and in consideration of the same underta2ing of Philamgen. There 1ould ha/e !een no necessity for the e9ecution of the indemnity agreement if the stoc2 assignment 1as really intended as an a!solute con/eyance. ... Along the same /ein, in the case at !ar it 1ould not ha/e !een necessary on the part of IRC and Santos to e9ecute promissory notes in fa/or of P#- if the assignment of the time deposits of Santos 1as really intended as an a!solute con/eyance. There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. In declaring that the deed of assignment did not operate as payment of the loan so as to e9tinguish the o!ligations of IRC and Santos 1ith P#-, the trial court ad/anced se/eral /alid !ases, to 1it: a. It is clear from the ,eed of Assignment that it 1as only !y 1ay of security@ 999 999 999 !. The promissory notes .89hi!its 4 and I0 1ere e9ecuted on August $<, $(<6. If defendants IRC and Raul ". Santos, upon e9ecuting the ,eed of Assignment on August $$, $(<6 had already paid their loan of P 6&&,&&&.&& or other1ise e9tinguished the same, 1hy 1ere the promissory notes made on August $<, $(<6 still e9ecuted !y IRC and signed !y Raul ". Santos as PresidentL c. In the application for a credit line .89hi!it A0,the time deposits 1ere offered as collateral. 9 For all intents and purposes, the deed of assignment in this case is actually a pledge. Ad/erting again to the Court+s pronouncements in "opeD, supra, 1e :uote therefrom: The character of the transaction !et1een the parties is to !e determined !y their intention, regardless of 1hat language 1as used or 1hat the form of the transfer 1as. If it 1as intended to secure the payment of money, it must !e construed as a pledge@ !ut if there 1as some other intention, it is not a pledge. 4o1e/er, e/en though a transfer, if regarded !y itself, appears to ha/e !een a!solute, its o!?ect and character might still !e :ualified and e9plained !y a contemporaneous 1riting declaring it to ha/e !een a deposit of the

property as collateral security. It has !een said that a transfer of property !y the de!tor to a creditor, e/en if sufficient on its face to ma2e an a!solute con/eyance, should !e treated as a pledge if the de!t continues in e9istence and is not discharged !y the transfer, and that accordingly, the use of the terms ordinarily importing con/eyance, of a!solute o1nership 1ill not !e gi/en that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not un:ualifiedly indicate a transfer of a!solute o1nership, in the a!sence of clear and unam!iguous language or other circumstances e9cluding an intent to pledge. 17 The facts and circumstances leading to the e9ecution of the deed of assignment, as found !y the court a )uo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the re:uirements of a contract of pledge .$0 that it !e constituted to secure the fulfillment of a principal o!ligation@ .'0 that the pledgor !e the a!solute o1ner of the thing pledged@ .)0 that the persons constituting the pledge ha/e the free disposal of their property, and in the a!sence thereof, that they !e legally authoriDed for the purpose. 11 The further re:uirement that the thing pledged !e placed in the possession of the creditor, or of a third person !y common agreement 12 1as complied 1ith !y the e9ecution of the deed of assignment in fa/or of P#-. It must also !e emphasiDed that Santos, as assignor, made an e9press underta2ing that he 1ould remain lia!le for any outstanding !alance of his o!ligation should P#- !e una!le to actually recei/e or collect the assigned sums resulting from any agreements, orders or decisions of the court or for any other cause 1hatsoe/er. The term >for any cause 1hatsoe/er> is !road enough to include the situation in/ol/ed in the present case. =nder the foregoing circumstances and considerations, the una/oida!le conclusion is that IRC and Santos should !e held lia!le to P#- for the amount of the loan 1ith the corresponding interest thereon. '. Ae find nothing illegal in the interest of one and one%half percent .$%$E'Y0 imposed !y P#- pursuant to the resolution of its -oard 1hich presuma!ly 1as done in accordance 1ith ordinary !an2ing procedures. #ot only did IRC and Santos fail to o/ercome the presumption of regularity of !usiness transactions, !ut they are li2e1ise estopped from :uestioning the /alidity thereof for the first time in this petition. There is nothing in the records to sho1 that they raised this issue during the trial !y presenting counter/ailing e/idence. Ahat 1as merely touched upon during the proceedings in the court !elo1 1as the alleged lac2 of notice to them of the !oard resolution, !ut not the /eracity or /alidity thereof. ). 7n the issue of 1hether 7-5 should !e held lia!le for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its !usiness, the ans1er is in the negati/e. Ae ha/e held in The 7/erseas -an2 of 5anila /s. Court of Appeals and Tony ,. Tapia, 19 that: It is a matter of common 2no1ledge, 1hich Ae ta2e ?udicial notice of, that 1hat ena!les a !an2 to pay stipulated interest on money deposited 1ith it is that thru the other aspects of its operation it is a!le to generate funds to co/er the payment of such interest. =nless a !an2 can lend money, engage in international transactions, ac:uire foreclosed mortgaged properties or their proceeds and generally engage in other !an2ing and financing acti/ities from 1hich it can deri/e income, it is inconcei/a!le ho1 it can carry on as a depository o!ligated to pay stipulated interest. Con/entional 1isdom dictated@ this ine9ora!le fair and ?ust conclusion. And it can !e said that all 1ho deposit money in !an2s are a1are of such a simple economic proposition petition. Conse:uently, it should !e deemed read into e/ery contract of deposit 1ith a !an2 that the o!ligation to pay interest on the deposit ceases the moment the operation of the !an2 is completely suspended !y the duly constituted authority, the Central -an2. Ae consider it of tri/ial conse:uence that the stoppage of the !an2+s operation !y the Central -an2 has !een su!se:uently declared illegal !y the Supreme Court, for !efore the Court+s order, the !an2 had no alternati/e under the la1 than to o!ey the orders of the Central -an2. Ahate/er !e the ?uridical significance of the su!se:uent action of the Supreme Court, the stu!!orn fact remained that the petitioner 1as totally crippled from then on from earning the income needed to meet its o!ligations to its depositors. If such a situation cannot, strictly spea2ing, !e legally denominated as +force ma?eure+, as maintained !y pri/ate respondent, Ae hold it is a matter of simple e:uity that it !e treated as such. The Court further ad?ured that: Parenthetically, Ae may add for the guidance of those 1ho might !e concerned, and so that unnecessary litigations !e a/oided from further clogging the doc2ets of the courts, that in the light of the considerations e9pounded in the a!o/e opinion, the same formula that e9empts petitioner from the payment of interest to its depositors during the 1hole period of factual stoppage of its operations !y orders of the Central -an2, modified in effect !y the decision as 1ell as the appro/al of a formula of reha!ilitation !y this Court, should !e, as a matter of consistency, applica!le or follo1ed in respect to all other o!ligations of petitioner 1hich could not !e paid during the period of its actual complete closure.

Ae cannot accept the holding of the respondent Court of Appeals that the a!o/e%cited decisions apply only 1here the !an2 is in a state of li:uidation. In the /ery case aforecited, this issue 1as li2e1ise raised and Ae resol/ed: Thus, 7ur tas2 is narro1ed do1n to the resolution of the legal pro!lem of 1hether or not, for purposes of the payment of the interest here in :uestion, stoppage of the operations of a !an2 !y a legal order of li:uidation may !e e:uated 1ith actual cessation of the !an2+s operation, not different, factually spea2ing, in its effects, from legal li:uidation the factual cessation ha/ing !een ordered !y the Central -an2. In the case of Chinese 3rocer+s Association, et al. /s. American Apothecaries, <* Phil. )(*, this Court held: As to the second assignment of error, this Court, in 3.R. #o. B)<;', In re "i:uidation of the 5ercantile -an2 of China, Tan Tiong Tic2, claimant and appellant /s. American Apothecaries, C., et al., claimants and appellees, through Justice Imperial, held the follo1ing: B. The court held that the appellant is not entitled to charge interest on the amounts of his claims, and this is the o!?ect of the second assignment of error, =pon this point a distinction must !e made !et1een the interest 1hich the deposits should earn from their e9istence until the !an2 ceased to operate, and that 1hich they may earn from the time the !an2+s operations 1ere stopped until the date of payment of the deposits. As to the first%class, 1e hold that it should !e paid !ecause such interest has !een earned in the ordinary course of the !an2+s !usinesses and !efore the latter has !een declared in a state of li:uidation. 5oreo/er, the !an2 !eing authoriDed !y la1 to ma2e use of the deposits 1ith the limitation stated, to in/est the same in its !usiness and other operations, it may !e presumed that it !ound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the Id claims. As to the interest 1hich may !e charged from the date the !an2 ceased to do !usiness !ecause it 1as declared in a state of li:uidation, 1e hold that the said interest should not !e paid. The Court of Appeals considered this ruling inapplica!le to the instant case, precisely !ecause, as contended !y pri/ate respondent, the said Apothecaries case had in fact in contemplation a /alid order of li:uidation of the !an2 concerned, 1hereas here, the order of the Central -an2 of August $), $(<; completely for!idding herein petitioner to do !usiness preparatory to its li:uidation 1as first restrained and then nullified !y this Supreme Court. In other 1ords, as far as pri/ate respondent is concerned, it is the legal reason for cessation of operations, not the actual cessation thereof, that matters and is decisi/e insofar as his right to the continued payment of the interest on his deposit during the period of cessation is concerned. In the light of the peculiar circumstances of this particular case, Ae disagree. It is 7ur considered /ie1, after mature deli!eration, that it is utterly unfair to a1ard pri/ate respondent his prayer for payment of interest on his deposit during the period that petitioner !an2 1as not allo1ed !y the Central -an2 to operate. B. "astly, IRC and Santos claim that 7-5 should reim!urse them for 1hate/er amounts they may !e ad?udged to pay P#- !y 1ay of compensation for damages incurred, pursuant to Articles $$6& and ''&$ of the Ci/il Code. It appears that as early as April, $(<6, the financial situation of 7-5 had already caused mounting concern in the Central -an2. 14 7n ,ecem!er *, $(<6, ne1 directors and officers drafted from the Central -an2 .C-0 itself, the Philippine #ational -an2 .P#-0 and the ,e/elopment -an2 of the Philippines .,-P0 1ere elected and installed and they too2 o/er the management and control of the 7/erseas -an2. 15 4o1e/er, it 1as only on July )$, $(<; 1hen 7-5 1as e9cluded from clearing 1ith the C- under 5onetary -oard Resolution #o. $'<). Su!se:uently, on August ', $(<;, pursuant to Resolution #o. $'(& of the C- 7-5+s operations 1ere suspended. 16 These C- resolutions 1ere e/entually annulled and set aside !y this Court on 7cto!er B, $(6$ in the decision rendered in the herein cited case of amos. Thus, 1hen P#- demanded from 7-5 payment of the amounts due on the t1o time deposits 1hich matured on January $$, $(<; and Fe!ruary <, $(<;, respecti/ely, there 1as as yet no o!stacle to the faithful compliance !y 7-5 of its lia!ilities thereunder. Conse:uently, for ha/ing incurred in delay in the performance of its o!ligation, 7-5 should !e held lia!le for damages. 1; Ahen respondent Santos in/ested his money in time deposits 1ith 7-5 they entered into a contract of simple loan or mutuum, 18 not a contract of deposit. Ahile it is true that under Article $(*< of the Ci/il Code no interest shall !e due unless it has !een e9pressly stipulated in 1riting, this applies only to interest for the use of money. It does not comprehend interest paid as damages. 19 7-5 contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had e9pired, unless the contracts are rene1ed. This is true 1ith respect to the stipulated interest, !ut the o!ligations consisting as they did in the payment of money, under Article $$&; of the Ci/il Code he has the right to reco/er damages resulting from the default of 7-5 and the measure of such damages is interest at the legal rate of si9 percent .<Y0 per annum on the amounts due and unpaid at the e9piration of the periods respecti/ely pro/ided in the contracts. In fine, 7-5 is !eing re:uired to pay such interest, not as interest income stipulated in the certificates of time

deposit, !ut as damages for failure and delay in the payment of its o!ligations 1hich there!y compelled IRC and Santos to resort to the courts. The applica!le rule is that legal interest, in the nature of damages for non%compliance 1ith an o!ligation to pay a sum of money, is reco/era!le from the date ?udicial or e9tra%?udicial demand is made, 27 Ahich latter mode of demand 1as made !y P#-, after the maturity of the certificates of time deposit, on 5arch $, $(<;. 21 The measure of such damages, there !eing no stipulation to the contrary, shall !e the payment of the interest agreed upon in the certificates of deposit 22 Ahich is si9 and onehalf percent .<%$E'Y0. Such interest due or accrued shall further earn legal interest from the time of ?udicial demand. 29 Ae re?ect the proposition of IRC and Santos that 7-5 should reim!urse them the entire amount they may !e ad?udged to pay P#-. It must !e noted that their lia!ility to pay the /arious interests of nine percent .(Y0 on the principal o!ligation, one and one%half percent .$%$E'Y0 additional interest and one percent .$Y0 penalty interest is an offshoot of their failure to pay under the terms of the t1o promissory notes e9ecuted in fa/or of P#-. 7-5 1as ne/er a party to Id promissory notes. There is, therefore, no pri/ity of contract !et1een 7-5 and P#- 1hich 1ill ?ustify the imposition of the aforesaid interests upon 7-5 1hose lia!ility should !e strictly confined to and 1ithin the pro/isions of the certificates of time deposit in/ol/ed in this case. In fact, as noted !y respondent court, 1hen 7-5 assigned as error that portion of the ?udgment of the court a :uo re:uiring 7-5 to ma2e the disputed reim!ursement, IRC and Santos did not dispute that o!?ection of 7-5 -esides, IRC and Santos are not 1ithout fault. They li2e1ise acted in !ad faith 1hen they refuse to comply 1ith their o!ligations under the promissory notes, thus incurring lia!ility for all damages reasona!ly attri!uta!le to the non%payment of said o!ligations. 24 A48R8F7R8, ?udgment is here!y rendered, ordering: $. Integrated Realty Corporation and Raul ". Santos to pay Philippine #ational -an2, ?ointly and se/erally, the total amount of se/en hundred thousand pesos .P 6&&,&&&.&&0, 1ith interest thereon at the rate of nine percent .(Y0 per annum from the maturity dates of the t1o promissory notes on January $$ and Fe!ruary <, $(<;, respecti/ely, plus one and one%half percent .$%$E'Y0 additional interest per annum effecti/e Fe!ruary ';, $(<; and additional penalty interest of one percent .$Y0 per annum of the said amount of se/en hundred thousand pesos .P 6&&,&&&.&&0 from the time of maturity of said loan up to the time the said amount of se/en hundred thousand pesos .P 6&&,&&&.&&0 is fully paid to Philippine #ational -an2. '. Integrated Realty Corporation and Raul ". Santos to pay solidarily Philippine #ational -an2 ten percent .$&Y0 of the amount of se/en hundred thousand pesos .P 6&&,&&&.&&0 as and for attorney+s fees. ). 7/erseas -an2 of 5anila to pay Integrated Realty Corporation and Raul ". Santos the sum of se/en hundred thousand pesos .P 6&&,&&&.&&0 due under Time ,eposit Certificates #os. ')&; and ')<6, 1ith interest thereon of si9 and one%half percent .<%$E'Y0 per annum from their dates of issue on January $$, $(<6 and Fe!ruary <, $(<6, respecti/ely, until the same are fully paid, e9cept that no interest shall !e paid during the entire period of actual cessation of operations !y 7/erseas -an2 of 5anila@ B. 7/erseas -an2 of 5anila to pay Integrated Realty Corporation and Raul ". Santos si9 and one%half per cent .<%$E'Y0 interest in the concept of damages on the principal amounts of said certificates of time deposit from the date of e9tra?udicial demand !y P#- on 5arch $, $(<;, plus legal interest of si9 percent .<Y0 on said interest from April <, $(<;, until fifth payment thereof, e9cept during the entire period of actual cessation of operations of said !an2. *. 7/erseas -an2 of 5anila to pay Integrated Realty Corporation and Raul ". Santos ten thousand pesos .P l&,&&&.&&0 as and for attorney+s fees. S7 7R,8R8,. *elencio(Herrera, HC4airpersonI, Paras, Padilla and Sarmiento, JJ., concur.

N" vs. CA 269 SCRA ;66

@G.R. No. 129649. $c+ober 97, 1996A '#L# #NE NA&#$NAL "AN>, petitioner, vs. C$!R& $% A %RANC#SC$, J.G EALS 1,/ )R. ERL#N)A G. #"ARR$LA, respondents.

As payments for the purchase of medicines, the Pro/ince of Isa!ela issued se/eral chec2s dra1n against its accounts 1ith petitioner Philippine #ational -an2 .P#-0 in fa/or of the seller, "yndon Pharmaceuticals "a!oratories, a !usiness operated !y pri/ate respondent I!arrola. The chec2s 1ere deli/ered to the sellerWs agentsG$H 1ho turned them o/er to I!arrola, e9cept ') chec2s amounting to P(;,<($.(&, 1hich the agents appropriated after negotiating them 1ith P#-. For her failure to recei/e the full payment for the medicines, I!arrola filed on #o/em!er <, $(6B!efore the Regional Trial Court .RTC0 an Oaction for a sum of money and damages,P doc2eted as Ci/il Case B''<%P,G'H against the Pro/ince of Isa!ela, its Treasurer, the t1o agents and P#-. In its decision dated Septem!er '(, $(;6, the trial court ordered all the defendants in said ci/il case, e9cept the treasurer 1ho died in the meantime, to O?ointly and solidarilyP pay I!arrola se/eral amounts, among 1hich is: O.$0 P(;,<($.(& Eit4 interest t4ereon at t4e legal rate from the date of the filing of the complaint until the entire amount is fully paid@PG)H .Italics supplied.0 P#-Ws appeal to the Court of Appeals .CA0GBH and later to the Supreme CourtG*H 1ere denied and dismissed, respecti/ely. All the three courts, ho1e/er, did not specify 1hether the legal rate of interest referred to in the ?udgment is <Y or $'Y. The ?udgment in Ci/il Case B''<%P !ecame final and e9ecutory on #o/em!er '<, $((). At the e9ecution stage, the sheriff computed the interest mentioned in the ?udgment at the rate of $'Y 1hich P#- opposed insisting that the rate should only !e <Y. I!arrola sought clarification from the same RTC 1hich promulgated the decision. 7n August B, $((B said court issued an order clarifying that the rate is $'Y. P#-Ws direct appeal to this court from that order 1as referred to the CA 1hich affirmed the RTC order. 4ence, this petition for re/ie1 under Rule B* 1here t1o legal issues are raised: .$0 1hether in an action for damages, the legal rate of interest is <Y as pro/ided !y Article ''&(G<H of the #e1 Ci/il Code or $'Y as pro/ided !y CCircular B$< series of $(6B,G6H and .'0 1hether such rate shall !e computed from the filing of the complaint until fully paidL The issues are not ne1. In the case of Eastern S4ipping 1ines, #nc. v. CA,G;H this Court had pro/ided a rule Oof thum! for future guidance,>G(H to 1it: OAhen an o!ligation, not constituting a loan or for+earance of mone/, is !reached, an interest on the amount of damages a1arded may !e imposed at the discretion of t4e court at the rate of <Y per annum. #o interest, ho1e/er, shall !e ad?udged on unli:uidated claims or damages e9cept 1hen or until the demand can !e esta!lished 1ith reasona!le certainty. Accordingly, E4ere t4e demand is esta+lis4ed Eit4 reasona+le certaint/, t4e interest s4all +egin to run from t4e time t4e claim is made judiciall/ or e.trajudiciall/ .Art. $$<(, Ci/il Code0 !ut 1hen such certainty cannot !e so reasona!ly esta!lished at the time the demand is made, the interest shall !egin to run only from the date the ?udgment of the court is made .at 1hich time the :uantification of damages may !e deemed to ha/e !een reasona!ly ascertained0. $4e actual +ase for t4e computation of legal interest s4all, in an/ case, +e on t4e amount finall/ adjudged.PG$&H .Italics ours.0 The case at !ench does not in/ol/e a loan. For!earance of money or ?udgment in/ol/ing a loan or for!earance of money as it arose from a contract of sale 1here!y I!arrola did not recei/e full payment for her merchandise. Ahen an o!ligation arises Ofrom a contract of purchase and sale and not from a contract of loan or mutuum,P the applica!le rate is O<Y per annum as pro/ided in Article ''&( of the #CC and not the rate of $'Y per annum as pro/ided in .C-0 Cir. #o. B$<.PG$$H Indeed, P#-Ws lia!ility is !ased only on the RTCWs ?udgment 1here it 1as held solidarily lia!le 1ith the other defendants due to its negligence 1hen it Ofailed to assure itselfP if the Pro/incial Treasurer 1as Oproperly authoriDedP !y I!arrola to Oma2e endorsementsP of said chec2s.G$'H The rate of $'Y interest referred to in Cir. B$< applies only to: OG"Hoan or for!earance of money, or to cases 1here money is transferred from one person to another and the o!ligation to return the same or a portion thereof is ad?udged. An/ ot4er monetar/ judgment E4ic4 does not involve or E4ic4 4as not4ing to do Eit4 loans or for+earance of an/ mone/, goods or credit does not fall Eit4in its coverage for such imposition is not 1ithin the am!it of the authority granted to the Central -an2. Ahen an o!ligation not constituting a loan or for!earance of money is !reached then an interest on the amount of damages a1arded may !e imposed at the discretion of the court at the rate of <Y per annum in accordance 1ith Art. ''&( of the Ci/il Code. Indeed, the monetary ?udgment in fa/or of pri/ate respondent does not in/ol/e a loan or for!earance of money, hence the proper imposa!le rate of interest is si9 .<Y0 per cent.PG$)H.Italics ours.0 Applying the afore:uoted rule, therefore , the proper rate of interest referred to in the ?udgment under e9ecution is only <Y. This interest according to Eastern S4ipping shall !e computed from the time of the filing of the complaint considering that

the amount ad?udged .P(;,<($.(&0 can !e esta!lished 1ith reasona!le certainty. Said amount !eing merely the uncollected !alance of the purchase price co/ered !y the ') chec2s encashed and appropriated !y I!arrolaWs agents. 4o1e/er, once the ?udgment !ecomes final and e9ecutory, the >interim period from the finality of ?udgment a1arding a monetary claim and until payment thereof, is deemed to !e e:ui/alent to a for!earance of credit.PG$BH Thus, in accordance 1ith the pronouncement in Eastern S4ipping the rate of $'Y p.a. should !e imposed, and to !e computed from the time the ?udgment !ecame final and e9ecutory until fully satisfied. The actual !ase for the computation of this $'Y interest after the ?udgment in this damage suit !ecame final shall !e the amount ad?udged .P(;,<($.(&0. ACC$R)#NGL., the appealed decision is R8C8RS8,. The rate of interest shall !e <Y p.a. computed from the time of the filing of the complaint until its full payment !efore finality of ?udgment. Thereafter, if the amount ad?udged remains unpaid, the interest rate shall !e $'Y p.a. computed from the time the ?udgment !ecame final and e9ecutory on #o/em!er '<, $(() until fully satisfied. S$ $R)ERE). %arvasa, C.J., HC4airmanI, "avide, Jr., *elo, and Pangani+an, JJ., concur.

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