G.R. No.

L-46240 November 3, 1939

MARGARITA QUINTOS an ANG!L A. ANSAL"O, plaintifs-appellants,
vs.
#!$%, defendant-appellee.
The plaintif brought this action to compel the defendant to return her certain furniture which
she lent him for his use. She appealed from the judgment of the Court of First Instance of anila which
ordered that the defendant return to her the three has heaters and the four electric lamps found in the
possession of the Sherif of said cit!, that she call for the other furniture from the said sherif of anila
at her own e"pense, and that the fees which the Sherif ma! charge for the deposit of the furniture be
paid pro rata b! both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintif and as such occupied the latter#s house on . $. del
%ilar street, &o. ''(). *n +anuar! ',, '-./, upon the novation of the contract of lease between the
plaintif and the defendant, the former gratuitousl! granted to the latter the use of the furniture
described in the third paragraph of the stipulation of facts, subject to the condition that the defendant
would return them to the plaintif upon the latter#s demand. The plaintif sold the propert! to aria
0ope1 and 2osario 0ope1 and on September ',, '-./, these three noti3ed the defendant of the
conve!ance, giving him si"t! da!s to vacate the premises under one of the clauses of the contract of
lease. There after the plaintif re4uired the defendant to return all the furniture transferred to him for
them in the house where the! were found. *n &ovember ), '-./, the defendant, through
another person, wrote to the plaintif reiterating that she ma! call for the furniture in the ground 5oor of
the house. *n the (th of the same month, the defendant wrote another letter to the plaintif informing
her that he could not give up the three gas heaters and the four electric lamps because he would use
them until the ')th of the same month when the lease in due to e"pire. The plaintif refused to get the
furniture in view of the fact that the defendant had declined to ma6e deliver! of all of them. *n
&ovember ')th, before vacating the house, the defendant deposited with the Sherif all the furniture
belonging to the plaintif and the! are now on deposit in the warehouse situated at &o. ')7', 2i1al
8venue, in the custod! of the said sherif.
In their seven assigned errors the plaintifs contend that the trial court incorrectl! applied the
law9 in holding that the! violated the contract b! not calling for all the furniture on &ovember ), '-./,
when the defendant placed them at their disposal: in not ordering the defendant to pa! them the value
of the furniture in case the! are not delivered: in holding that the! should get all the furniture from the
Sherif at their e"penses: in ordering them to pa!-half of the e"penses claimed b! the Sherif for the
deposit of the furniture: in ruling that both parties should pa! their respective legal e"penses or the
costs: and in den!ing pa! their respective legal e"penses or the costs: and in den!ing the motions for
reconsideration and new trial. To dispose of the case, it is onl! necessar! to decide whether the
defendant complied with his obligation to return the furniture upon the plaintif#s demand: whether the
latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the
plaintif gratuitousl! granted the use of the furniture to the defendant, reserving for herself the
ownership thereof: b! this contract the defendant bound himself to return the furniture to the plaintif,
upon the latters demand ;clause ( of the contract, <"hibit 8: articles '(,=, paragraph ', and '(,' of
the Civil Code>. The obligation voluntaril! assumed b! the defendant to return the furniture upon the
plaintif#s demand, means that he should return all of them to the plaintif at the latter#s residence or
house. The defendant did not compl! with this obligation when he merel! placed them at the disposal
of the plaintif, retaining for his bene3t the three gas heaters and the four eletric lamps. The provisions
of article ''/- of the Civil Code cited b! counsel for the parties are not s4uarel! applicable. The trial
court, therefore, erred when it came to the legal conclusion that the plaintif failed to compl! with her
obligation to get the furniture when the! were ofered to her.
8s the defendant had voluntaril! underta6en to return all the furniture to the plaintif, upon the
latter#s demand, the Court could not legall! compel her to bear the e"penses occasioned b! the deposit
of the furniture at the defendant#s behest. The latter, as bailee, was not entitled to place the furniture
on deposit: nor was the plaintif under a dut! to accept the ofer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.
8s to the value of the furniture, we do not believe that the plaintif is entitled to the pa!ment
thereof b! the defendant in case of his inabilit! to return some of the furniture because under
paragraph / of the stipulation of facts, the defendant has neither agreed to nor admitted the
correctness of the said value. Should the defendant fail to deliver some of the furniture, the value
thereof should be latter determined b! the trial Court through evidence which the parties ma! desire to
present.
The costs in both instances should be borne b! the defendant because the plaintif is the
prevailing part! ;section ,?( of the Code of Civil %rocedure>. The defendant was the one who breached
the contract ofcommodatum, and without an! reason he refused to return and deliver all the furniture
upon the plaintif#s demand. In these circumstances, it is just and e4uitable that he pa! the legal
e"penses and other judicial costs which the plaintif would not have otherwise defra!ed.
The appealed judgment is modi3ed and the defendant is ordered to return and deliver to the
plaintif, in the residence to return and deliver to the plaintif, in the residence or house of the latter, all
the furniture described in paragraph . of the stipulation of facts <"hibit 8. The e"penses which ma! be
occasioned b! the deliver! to and deposit of the furniture with the Sherif shall be for the account of the
defendant. the defendant shall pa! the costs in both instances. So ordered.
G.R. No. &0294-9' Se()ember 21, 19&&
$AT*OLI$ +I$AR A,OSTOLI$ O- T*! MOUNTAIN ,RO+IN$!, petitioner,
vs.
$OURT O- A,,!ALS, *!IRS O- !GMI"IO O$TA+IANO AN" .UAN +AL"!/, respondents.
The principal issue in this case is whether or not a decision of the Court of 8ppeals promulgated a long
time ago can properl! be considered res judicata b! respondent Court of 8ppeals in the present two
cases between petitioner and two private respondents.
%etitioner 4uestions as allegedl! erroneous the @ecision dated 8ugust .', '-?( of the &inth @ivision of
2espondent Court of 8ppeals
1
in C8-A.2. &o. =)',? BCivil Case &o. ./=( ;,'->C and C8-A.2. &o. =)',-
BCivil Case &o. ./)) ;,7->C, both for 2ecover! of %ossession, which aDrmed the @ecision of the
$onorable &icodemo T. Ferrer, +udge of the 2egional Trial Court of Eaguio and Eenguet in Civil Case &o.
./=( ;,'-> and Civil Case &o. ./)) ;,7->, with the dispositive portion as follows9
F$<2<F*2<, +udgment is hereb! rendered ordering the defendant, Catholic Gicar
8postolic of the ountain %rovince to return and surrender 0ot 7 of %lan %su-'-,.)(
to the plaintifs. $eirs of +uan Galde1, and 0ot . of the same %lan to the other set of
plaintifs, the $eirs of <gmidio *ctaviano ;0eonardo Galde1, et al.>. For lac6 or
insuDcienc! of evidence, the plaintifs# claim or damages is hereb! denied. Said
defendant is ordered to pa! costs. ;p. ./, 2ollo>
2espondent Court of 8ppeals, in aDrming the trial court#s decision, sustained the trial court#s
conclusions that the @ecision of the Court of 8ppeals, dated a! ,,'-(( in C8-A.2. &o. .??.=-2, in the
two cases aDrmed b! the Supreme Court, touched on the ownership of lots 7 and . in 4uestion: that
the two lots were possessed b! the predecessors-in-interest of private respondents under claim of
ownership in good faith from '-=/ to '-)': that petitioner had been in possession of the same lots as
bailee in commodatum up to '-)', when petitioner repudiated the trust and when it applied for
registration in '-/7: that petitioner had just been in possession as owner for eleven !ears, hence there
is no possibilit! of ac4uisitive prescription which re4uires '= !ears possession with just title and .=
!ears of possession without: that the principle of res judicata on these 3ndings b! the Court of 8ppeals
will bar a reopening of these 4uestions of facts: and that those facts ma! no longer be altered.
%etitioner#s motion for reconsideation of the respondent appellate court#s @ecision in the two
aforementioned cases ;C8 A.2. &o. CG-=),'? and =),'-> was denied.
The facts and bac6ground of these cases as narrated b! the trail court are as follows H
... The documents and records presented reveal that the whole
controvers! started when the defendant Catholic Gicar 8postolic of
the ountain %rovince ;GIC82 for brevit!> 3led with the Court of
First Instance of Eaguio Eenguet on September ), '-/7 an
application for registration of title over 0ots ', 7, ., and , in %su-
'-,.)(, situated at %oblacion Central, 0a Trinidad, Eenguet,
doc6eted as 02C &--', said 0ots being the sites of the Catholic
Church building, convents, high school building, school g!mnasium,
school dormitories, social hall, stonewalls, etc. *n arch 77, '-/.
the $eirs of +uan Galde1 and the $eirs of <gmidio *ctaviano 3led
their 8nswerI*pposition on 0ots &os. 7 and ., respectivel!,
asserting ownership and title thereto. 8fter trial on the merits, the
land registration court promulgated its @ecision, dated &ovember
'(, '-/), con3rming the registrable title of GIC82 to 0ots ', 7, .,
and ,.
The $eirs of +uan Galde1 ;plaintifs in the herein Civil Case &o. ./))>
and the $eirs of <gmidio *ctaviano ;plaintifs in the herein Civil
Case &o. ./=(> appealed the decision of the land registration court
to the then Court of 8ppeals, doc6eted as C8-A.2. &o. .??.=-2. The
Court of 8ppeals rendered its decision, dated a! -, '-((,
reversing the decision of the land registration court and dismissing
the GIC82#s application as to 0ots 7 and ., the lots claimed b! the
two sets of oppositors in the land registration case ;and two sets of
plaintifs in the two cases now at bar>, the 3rst lot being presentl!
occupied b! the convent and the second b! the women#s dormitor!
and the sister#s convent.
*n a! -, '-((, the $eirs of *ctaviano 3led a motion for
reconsideration pra!ing the Court of 8ppeals to order the
registration of 0ot . in the names of the $eirs of <gmidio *ctaviano,
and on a! '(, '-((, the $eirs of +uan Galde1 and %acita Galde1
3led their motion for reconsideration pra!ing that both 0ots 7 and .
be ordered registered in the names of the $eirs of +uan Galde1 and
%acita Galde1. *n 8ugust '7,'-((, the Court of 8ppeals denied the
motion for reconsideration 3led b! the $eirs of +uan Galde1 on the
ground that there was Jno suDcient merit to justif! reconsideration
one wa! or the other ...,J and li6ewise denied that of the $eirs of
<gmidio *ctaviano.
Thereupon, the GIC82 3led with the Supreme Court a petition for
review on certiorari of the decision of the Court of 8ppeals
dismissing his ;its> application for registration of 0ots 7 and .,
doc6eted as A.2. &o. 0-,/?.7, entitled #Catholic Gicar 8postolic of
the ountain %rovince vs. Court of 8ppeals and $eirs of <gmidio
*ctaviano.#
From the denial b! the Court of 8ppeals of their motion for
reconsideration the $eirs of +uan Galde1 and %acita Galde1, on
September ?, '-((, 3led with the Supreme Court a petition for
review, doc6eted as A.2. &o. 0-,/?(7, entitled, Heirs of Juan Valdez
and Pacita Valdez vs. Court of Appeals, Gicar, $eirs of <gmidio
*ctaviano and 8nnable *. Galde1.
*n +anuar! '., '-(?, the Supreme Court denied in a minute
resolution both petitions ;of GIC82 on the one hand and the $eirs of
+uan Galde1 and %acita Galde1 on the other> for lac6 of merit. Kpon
the 3nalit! of both Supreme Court resolutions in A.2. &o. 0-,/?.7
and A.2. &o. 0- ,/?(7, the $eirs of *ctaviano 3led with the then
Court of First Instance of Eaguio, Eranch II, a otion For <"ecution
of +udgment pra!ing that the $eirs of *ctaviano be placed in
possession of 0ot .. The Court, presided over b! $on. Salvador +.
Galde1, on @ecember (, '-(?, denied the motion on the ground
that the Court of 8ppeals decision in C8-A.2. &o. .??(= did not
grant the $eirs of *ctaviano an! aDrmative relief.
*n Februar! (, '-(-, the $eirs of *ctaviano 3led with the Court of
8ppeals a petitioner for certiorari and mandamus, doc6eted as C8-
A.2. &o. =??-=-2, entitled Heirs of Egmidio ctaviano vs. Hon.
!alvador J. Valdez" Jr. and Vicar. In its decision dated a! '/, '-(-,
the Court of 8ppeals dismissed the petition.
It was at that stage that the instant cases were 3led. The $eirs of
<gmidio *ctaviano 3led Civil Case &o. ./=( ;,'-> on +ul! 7,, '-(-,
for recover! of possession of 0ot .: and the $eirs of +uan Galde1
3led Civil Case &o. ./)) ;,7-> on September 7,, '-(-, li6ewise for
recover! of possession of 0ot 7 ;@ecision, pp. '---7=', *rig. 2ec.>.
In Civil Case &o. ./=( ;,'-> trial was held. The plaintifs $eirs of <gmidio *ctaviano
presented one ;'> witness, Fructuoso Galde1, who testi3ed on the alleged ownership
of the land in 4uestion ;0ot .> b! their predecessor-in-interest, <gmidio *ctaviano
;<"h. C >: his written demand ;<"h. EHE-, > to defendant Gicar for the return of the
land to them: and the reasonable rentals for the use of the land at %'=,===.== per
month. *n the other hand, defendant Gicar presented the 2egister of @eeds for the
%rovince of Eenguet, 8tt!. &icanor Sison, who testi3ed that the land in 4uestion is not
covered b! an! title in the name of <gmidio *ctaviano or an! of the plaintifs ;<"h. ?>.
The defendant dispensed with the testimon! of ons.Filliam Erasseur when the
plaintifs admitted that the witness if called to the witness stand, would testif! that
defendant Gicar has been in possession of 0ot ., for sevent!-3ve ;()> !ears
continuousl! and peacefull! and has constructed permanent structures thereon.
In Civil Case &o. ./)), the parties admitting that the material facts are not in dispute,
submitted the case on the sole issue of whether or not the decisions of the Court of
8ppeals and the Supreme Court touching on the ownership of 0ot 7, which in efect
declared the plaintifs the owners of the land constitute res judicata.
In these two cases , the plaintifs ar4ue that the defendant Gicar is barred from
setting up the defense of ownership andIor long and continuous possession of the two
lots in 4uestion since this is barred b! prior judgment of the Court of 8ppeals in C8-
A.2. &o. =.??.=-2 under the principle of res judicata. %laintifs contend that the
4uestion of possession and ownership have alread! been determined b! the Court of
8ppeals ;<"h. C, @ecision, C8-A.2. &o. =.??.=-2> and aDrmed b! the Supreme Court
;<"h. ', inute 2esolution of the Supreme Court>. *n his part, defendant Gicar
maintains that the principle of res judicata would not prevent them from litigating the
issues of long possession and ownership because the dispositive portion of the prior
judgment in C8-A.2. &o. =.??.=-2 merel! dismissed their application for registration
and titling of lots 7 and .. @efendant Gicar contends that onl! the dispositive portion
of the decision, and not its bod!, is the controlling pronouncement of the Court of
8ppeals.
2
The alleged errors committed b! respondent Court of 8ppeals according to petitioner are as follows9
'. <22*2 I& 8%%0LI&A 08F *F T$< C8S< 8&@ #E! J$%&CA'A:
7. <22*2 I& FI&@I&A T$8T T$< T2I80 C*K2T 2K0<@ T$8T 0*TS 7 8&@ . F<2< 8CMKI2<@ EL
%K2C$8S< EKT FIT$*KT @*CK<&T82L <GI@<&C< %2<S<&T<@:
.. <22*2 I& FI&@I&A T$8T %<TITI*&<2S# C08I IT %K2C$8S<@ 0*TS 7 8&@ . F2* G80@<N 8&@
*CT8GI8&* F8S 8& I%0I<@ 8@ISSI*& T$8T T$< F*2<2 *F&<2S F<2< G80@<N 8&@ *CT8GI8&*:
,. <22*2 I& FI&@I&A T$8T IT F8S %2<@<C<SS*2S *F %2IG8T< 2<S%*&@<&TS F$* F<2< I&
%*SS<SSI*& *F 0*TS 7 8&@ . 8T 0<8ST F2* '-=/, 8&@ &*T %<TITI*&<2:
). <22*2 I& FI&@I&A T$8T G80@<N 8&@ *CT8GI8&* $8@ F2<< %8T<&T 8%%0IC8TI*&S 8&@ T$<
%2<@<C<SS*2S *F %2IG8T< 2<S%*&@<&TS 802<8@L $8@ F2<< %8T<&T 8%%0IC8TI*&S SI&C< '-=/:
/. <22*2 I& FI&@I&A T$8T %<TITI*&<2 @<C082<@ 0*TS 7 8&@ . *&0L I& '-)' 8&@ +KST TIT0< IS 8
%2I< &<C<SSITL K&@<2 82TIC0< ''., I& 2<08TI*& T* 82T. ''7- *F T$< CIGI0 C*@< F*2 *2@I&82L
8CMKISITIG< %2<SC2I%TI*& *F '= L<82S:
(. <22*2 I& FI&@I&A T$8T T$< @<CISI*& *F T$< C*K2T *F 8%%<80S I& C8 A.2. &*. =.??.= F8S
8FFI2<@ EL T$< SK%2<< C*K2T:
?. <22*2 I& FI&@I&A T$8T T$< @<CISI*& I& C8 A.2. &*. =.??.= T*KC$<@ *& *F&<2S$I% *F 0*TS 7
8&@ . 8&@ T$8T %2IG8T< 2<S%*&@<&TS 8&@ T$<I2 %2<@<C<SS*2S F<2< I& %*SS<SSI*& *F 0*TS 7
8&@ . K&@<2 8 C08I *F *F&<2S$I% I& A**@ F8IT$ F2* '-=/ T* '-)':
-. <22*2 I& FI&@I&A T$8T %<TITI*&<2 $8@ E<<& I& %*SS<SSI*& *F 0*TS 7 8&@ . <2<0L 8S E8I0<<
E*2 2*F<2> I& C**@8TK, 8 A28TKIT*KS 0*8& F*2 KS<:
'=. <22*2 I& FI&@I&A T$8T %<TITI*&<2 IS 8 %*SS<SS*2 8&@ EKI0@<2 I& A**@ F8IT$ FIT$*KT
2IA$TS *F 2<T<&TI*& 8&@ 2<IEK2S<<&T 8&@ IS E822<@ EL T$< FI&80ITL 8&@ C*&C0KSIG<&<SS
*F T$< @<CISI*& I& C8 A.2. &*. =.??.=.
3
The petition is bereft of merit.
%etitioner 4uestions the ruling of respondent Court of 8ppeals in C8-A.2. &os. =)',? and =)',-, when
it clearl! held that it was in agreement with the 3ndings of the trial court that the @ecision of the Court
of 8ppeals dated a! ,,'-(( in C8-A.2. &o. .??.=-2, on the 4uestion of ownership of 0ots 7 and .,
declared that the said Court of 8ppeals @ecision C8-A.2. &o. .??.=-2> did not positivel! declare private
respondents as owners of the land, neither was it declared that the! were not owners of the land, but it
held that the predecessors of private respondents were possessors of 0ots 7 and ., with claim of
ownership in good faith from '-=/ to '-)'. %etitioner was in possession as borrower in commodatum
up to '-)', when it repudiated the trust b! declaring the properties in its name for ta"ation purposes.
Fhen petitioner applied for registration of 0ots 7 and . in '-/7, it had been in possession in concept of
owner onl! for eleven !ears. *rdinar! ac4uisitive prescription re4uires possession for ten !ears, but
alwa!s with just title. <"traordinar! ac4uisitive prescription re4uires .= !ears.
4
*n the above 3ndings of facts supported b! evidence and evaluated b! the Court of 8ppeals in C8-A.2.
&o. .??.=-2, aDrmed b! this Court, Fe see no error in respondent appellate court#s ruling that said
3ndings are res judicata between the parties. The! can no longer be altered b! presentation of
evidence because those issues were resolved with 3nalit! a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations b! continuous determination of issues without
end.
8n e"amination of the Court of 8ppeals @ecision dated a! ,, '-((, First @ivision
'
in C8-A.2. &o.
.??.=-2, shows that it reversed the trial court#s @ecision
6
3nding petitioner to be entitled to register
the lands in 4uestion under its ownership, on its evaluation of evidence and conclusion of facts.
The Court of 8ppeals found that petitioner did not meet the re4uirement of .= !ears possession for
ac4uisitive prescription over 0ots 7 and .. &either did it satisf! the re4uirement of '= !ears possession
for ordinar! ac4uisitive prescription because of the absence of just title. The appellate court did not
believe the 3ndings of the trial court that 0ot 7 was ac4uired from +uan Galde1 b! purchase and 0ot .
was ac4uired also b! purchase from <gmidio *ctaviano b! petitioner Gicar because there was
absolutel! no documentar! evidence to support the same and the alleged purchases were never
mentioned in the application for registration.
E! the ver! admission of petitioner Gicar, 0ots 7 and . were owned b! Galde1 and *ctaviano. Eoth
Galde1 and *ctaviano had Free %atent 8pplication for those lots since '-=/. The predecessors of private
respondents, not petitioner Gicar, were in possession of the 4uestioned lots since '-=/.
There is evidence that petitioner Gicar occupied 0ots ' and ,, which are not in 4uestion, but not 0ots 7
and ., because the buildings standing thereon were onl! constructed after liberation in '-,). %etitioner
Gicar onl! declared 0ots 7 and . for ta"ation purposes in '-)'. The improvements oil 0ots ', 7, ., ,
were paid for b! the Eishop but said Eishop was appointed onl! in '-,(, the church was constructed
onl! in '-)' and the new convent onl! 7 !ears before the trial in '-/..
Fhen petitioner Gicar was noti3ed of the oppositor#s claims, the parish priest ofered to bu! the lot from
Fructuoso Galde1. 0ots 7 and . were surve!ed b! re4uest of petitioner Gicar onl! in '-/7.
%rivate respondents were able to prove that their predecessors# house was borrowed b! petitioner Gicar
after the church and the convent were destro!ed. The! never as6ed for the return of the house, but
when the! allowed its free use, the! became bailors in commodatum and the petitioner the bailee. The
bailees# failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the propert! subject matter of
commodatum. The adverse claim of petitioner came onl! in '-)' when it declared the lots for ta"ation
purposes. The action of petitioner Gicar b! such adverse claim could not ripen into title b! wa! of
ordinar! ac4uisitive prescription because of the absence of just title.
The Court of 8ppeals found that the predecessors-in-interest and private respondents were possessors
under claim of ownership in good faith from '-=/: that petitioner Gicar was onl! a bailee
in commodatum: and that the adverse claim and repudiation of trust came onl! in '-)'.
Fe 3nd no reason to disregard or reverse the ruling of the Court of 8ppeals in C8-A.2. &o. .??.=-2. Its
3ndings of fact have become incontestible. This Court declined to review said decision, thereb! in
efect, aDrming it. It has become 3nal and e"ecutor! a long time ago.
2espondent appellate court did not commit an! reversible error, much less grave abuse of discretion,
when it held that the @ecision of the Court of 8ppeals in C8-A.2. &o. .??.=-2 is governing, under the
principle of res judicata, hence the rule, in the present cases C8-A.2. &o. =)',? and C8-A.2. &o. =)',-.
The facts as supported b! evidence established in that decision ma! no longer be altered.
F$<2<F*2< 8&@ EL 2<8S*& *F T$< F*2<A*I&A, this petition is @<&I<@ for lac6 of merit, the
@ecision dated 8ug. .', '-?( in C8-A.2. &os. =)',? and =)',-, b! respondent Court of 8ppeals is
8FFI2<@, with costs against petitioner.
S* *2@<2<@.
G.R. No. L-41'0 -ebr0ar1 10, 1910
-!LI2 "! LOS SANTOS, plaintif-appelle,
vs.
AGUSTINA .ARRA, am3n34)ra)r35 o6 )7e e4)a)e o6 Ma8a9eno .3menea, e:ea4e, defendant-
appellant.
*n the 'st of September, '-=/, Feli" de los Santos brought suit against 8gustina +arra, the
administratri" of the estate of agdaleno +imenea, alleging that in the latter part of '-=' +imenea
borrowed and obtained from the plaintif ten 3rst-class carabaos, to be used at the animal-power mill of
his hacienda during the season of '-='-7, without recompense or remuneration whatever for the use
thereof, under the sole condition that the! should be returned to the owner as soon as the wor6 at the
mill was terminated: that agdaleno +imenea, however, did not return the carabaos, notwithstanding
the fact that the plaintif claimed their return after the wor6 at the mill was 3nished: that agdaleno
+imenea died on the 7?th of *ctober, '-=,, and the defendant herein was appointed b! the Court of
First Instance of *ccidental &egros administratri" of his estate and she too6 over the administration of
the same and is still performing her duties as such administratri": that the plaintif presented his claim
to the commissioners of the estate of +imenea, within the legal term, for the return of the said ten
carabaos, but the said commissioners rejected his claim as appears in their report: therefore, the
plaintif pra!ed that judgment be entered against the defendant as administratri" of the estate of the
deceased, ordering her to return the ten 3rst-class carabaos loaned to the late +imenea, or their present
value, and to pa! the costs.
The defendant was dul! summoned, and on the 7)th of September, '-=/, she demurred in writing to
the complaint on the ground that it was vague: but on the 7d of *ctober of the same !ear, in answer to
the complaint, she said that it was true that the late agdaleno +imenea as6ed the plaintif to loan him
ten carabaos, but that he onl! obtained three second-class animals, which were afterwards transferred
b! sale b! the plaintif to the said +imenea: that she denied the allegations contained in paragraph . of
the complaint: for all of which she as6ed the court to absolve her of the complaint with the cost against
the plaintif.
E! a writing dated the ''th of @ecember, '-=/, 8ttorne! +ose Feli" artine1 noti3ed the defendant and
her counsel, atias $ilado, that he had made an agreement with the plaintif to the efect that the
latter would not compromise the controvers! without his consent, and that as fees for his professional
services he was to receive one half of the amount allowed in the judgment if the same were entered in
favor of the plaintif.
The case came up for trial, evidence was adduced b! both parties, and either e"hibits were made of
record. *n the '=th of +anuar!, '-=(, the court below entered judgment sentencing 8gustina +arra, as
administratri" of the estate of agdaleno +imenea, to return to the plaintif, Feli" de los Santos, the
remaining si" second and third class carabaos, or the value thereof at the rate of %'7= each, or a total
of %(7= with the costs.
Counsel for the defendant e"cepted to the foregoing judgment, and, b! a writing dated +anuar! '-,
moved for anew trial on the ground that the 3ndings of fact were openl! and manifestl! contrar! to the
weight of the evidence. The motion was overruled, the defendant dul! e"cepted, and in due course
submitted the corresponding bill of e"ceptions, which was approved and submitted to this court.
The defendant has admitted that agdaleno +imenea as6ed the plaintif for the loan of ten carabaos
which are now claimed b! the latter, as shown b! two letters addressed b! the said +imenea to Feli" de
los Santos: but in her answer the said defendant alleged that the late +imenea onl! obtained three
second-class carabaos, which were subse4uentl! sold to him b! the owner, Santos: therefore, in order
to decide this litigation it is indispensable that proof be forthcoming that +imenea onl! received three
carabaos from his son-in-law Santos, and that the! were sold b! the latter to him.
The record discloses that it has been full! proven from the testimon! of a suDcient number of
witnesses that the plaintif, Santos, sent in charge of various persons the ten carabaos re4uested b! his
father-in-law, agdaleno +imenea, in the two letters produced at the trial b! the plaintif, and that
+imenea received them in the presence of some of said persons, one being a brother of said +imenea,
who saw the animals arrive at the hacienda where it was proposed to emplo! them. Four died of
rinderpest, and it is for this reason that the judgment appealed from onl! deals with si" surviving
carabaos.
The alleged purchase of three carabaos b! +imenea from his son-in-law Santos is not evidenced b! an!
trustworth! documents such as those of transfer, nor were the declarations of the witnesses presented
b! the defendant aDrming it satisfactor!: for said reason it can not be considered that +imenea onl!
received three carabaos on loan from his son-in-law, and that he afterwards 6ept them de3nitel! b!
virtue of the purchase.
E! the laws in force the transfer of large cattle was and is still made b! means of oDcial documents
issued b! the local authorities: these documents constitute the title of ownership of the carabao or
horse so ac4uired. Furthermore, not onl! should the purchaser be provided with a new certi3cate or
credential, a document which has not been produced in evidence b! the defendant, nor has the loss of
the same been shown in the case, but the old documents ought to be on 3le in the municipalit!, or the!
should have been delivered to the new purchaser, and in the case at bar neither did the defendant
present the old credential on which should be stated the name of the previous owner of each of the
three carabaos said to have been sold b! the plaintif.
From the foregoing it ma! be logicall! inferred that the carabaos loaned or given on commodatum to
the now deceased agdaleno +imenea were ten in number: that the!, or at an! rate the si" surviving
ones, have not been returned to the owner thereof, Feli" de los Santos, and that it is not true that the
latter sold to the former three carabaos that the purchaser was alread! using: therefore, as the said si"
carabaos were not the propert! of the deceased nor of an! of his descendants, it is the dut! of the
administratri" of the estate to return them or indemnif! the owner for their value.
The Civil Code, in dealing with loans in general, from which generic denomination the speci3c one of
commodatum is derived, establishes prescriptions in relation to the last-mentioned contract b! the
following articles9
82T. '(,=. E! the contract of loan, one of the parties delivers to the other, either an!thing not
perishable, in order that the latter ma! use it during a certain period and return it to the
former, in which case it is called commodatum, or mone! or an! other perishable thing, under
the condition to return an e4ual amount of the same 6ind and 4ualit!, in which case it is
merel! called a loan.
Commodatum is essentiall! gratuitous.
8 simple loan ma! be gratuitous, or made under a stipulation to pa! interest.
82T. '(,'. The bailee ac4uires retains the ownership of the thing loaned. The bailee ac4uires
the use thereof, but not its fruits: if an! compensation is involved, to be paid b! the person
re4uiring the use, the agreement ceases to be a commodatum.
82T. '(,7. The obligations and rights which arise from the commodatum pass to the heirs of
both contracting parties, unless the loan has been in consideration for the person of the
bailee, in which case his heirs shall not have the right to continue using the thing loaned.
The carabaos delivered to be used not being returned b! the defendant upon demand, there is no
doubt that she is under obligation to indemnif! the owner thereof b! pa!ing him their value.
8rticle ''=' of said code reads9
Those who in ful3lling their obligations are guilt! of fraud, negligence, or dela!, and those who
in an! manner whatsoever act in contravention of the stipulations of the same, shall be
subjected to indemnif! for the losses and damages caused thereb!.
The obligation of the bailee or of his successors to return either the thing loaned or its value, is
sustained b! the supreme tribunal of Sapin. In its decision of arch 7', '?-), it sets out with precision
the legal doctrine touching commodatum as follows9
8lthough it is true that in a contract of commodatum the bailor retains the ownership of the
thing loaned, and at the e"piration of the period, or after the use for which it was loaned has
been accomplished, it is the imperative dut! of the bailee to return the thing itself to its
owner, or to pa! him damages if through the fault of the bailee the thing should have been
lost or injured, it is clear that where public securities are involved, the trial court, in deferring
to the claim of the bailor that the amount loaned be returned him b! the bailee in bonds of the
same class as those which constituted the contract, thereb! properl! applies law - of title ''
ofpartida ).
Fith regard to the third assignment of error, based on the fact that the plaintif Santos had not
appealed from the decision of the commissioners rejecting his claim for the recover! of his carabaos, it
is suDcient to estate that we are not dealing with a claim for the pa!ment of a certain sum, the
collection of a debt from the estate, or pa!ment for losses and damages ;sec. ''-, Code of Civil
%rocedure>, but with the e"clusion from the inventor! of the propert! of the late +imenea, or from his
capital, of si" carabaos which did not belong to him, and which formed no part of the inheritance.
The demand for the e"clusion of the said carabaos belonging to a third part! and which did not form
part of the propert! of the deceased, must be the subject of a direct decision of the court in an ordinar!
action, wherein the right of the third part! to the propert! which he see6s to have e"cluded from the
inheritance and the right of the deceased has been discussed, and rendered in view of the result of the
evidence adduced b! the administrator of the estate and of the claimant, since it is so provided b! the
second part of section /-- and b! section (=. of the Code of Civil %rocedure: the refusal of the
commissioners before whom the plaintif unnecessaril! appeared can not afect nor reduce the
un4uestionable right of ownership of the latter, inasmuch as there is no law nor principle of justice
authori1ing the successors of the late +imenea to enrich themselves at the cost and to the prejudice of
Feli" de los Santos.
For the reasons above set forth, b! which the errors assigned to the judgment appealed from have
been refuted, and considering that the same is in accordance with the law and the merits of the case, it
is our opinion that it should be aDrmed and we do hereb! aDrm it with the costs against the appellant.
So ordered.
G.R. No. L-'0''0-'2 O:)ober 31, 19;9
$*!! %IONG <AM, AM,ANG MA*, ANITA <AM .OS! <.$. <AM AN" RI$*AR" <AM, petitioners,
vs.
*ON. NA#"AR .. MALI%, M0n3:3(a9 .08e o6 .o9o, S090 =#ran:7 I>, T*! ,!O,L! O- T*!
,*ILI,,IN!S, ROSALIN"A AMIN, TAN $*U %AO an LT. $OL. AGOSTO SA.OR respondents.
This is a petition for certiorari, prohibition, and mandamus with preliminar! injunction. %etitioners
alleged that respondent unicipal +udge &abdar +. ali6 of +olo, Sulu, acted without jurisdiction, in
e"cess of jurisdiction and with grave abuse of discretion when9
;a> he held in the preliminar! investigation of the charges of estafa 3led b! respondents 2osalinda
8min, Tan Chu Oao and 8ugusto Sajor against petitioners that there was a prima facie case against the
latter:
;b> he issued warrants of arrest against petitioners after ma6ing the above determination: and
;c> he undertoo6 to conduct trial on the merits of the charges which were doc6eted in his court as
Criminal Cases &o. -''', -'?. and -7=?.
2espondent judge is said to have acted without jurisdiction, in e"cess of jurisdiction and with grave
abuse of discretion because the facts recited in the complaints did not constitute the crime of estafa,
and assuming the! did, the! were not within the jurisdiction of the respondent judge.
In a resolution dated a! 7., '-(-, we re4uired respondents to comment in the petition and issued a
temporar! restraining order against the respondent judge from further proceeding with Criminal Cases
&os. -''', -'?. and -7=? or from enforcing the warrants of arrest he had issued in connection with
said cases.
Comments b! the respondent judge and the private respondents pra! for the dismissal of the petition
but the Solicitor Aeneral has manifested that the %eople of the %hilippines have no objection to the
grant of the reliefs pra!ed for, e"cept the damages. Fe considered the comments as answers and gave
due course to the petition.
The position of the Solicitor Aeneral is well ta6en. Fe have to grant the petition in order to prevent
manifest injustice and the e"ercise of palpable e"cess of authorit!.
In Criminal Case &o. -''', respondent 2osalinda . 8min charges petitioners Lam Chee Oiong and
Lam Lap Oieng with estafa through misappropriation of the amount of %)=,===.==. Eut the complaint
states on its face that said petitioners received the amount from respondent 2osalinda . 8min Jas a
loan.J oreover, the complaint in Civil Case &o. &-), an independent action for the collection of the
same amount 3led b! respondent 2osalinda . 8min with the Court of First Instance of Sulu on
September '', '-(), li6ewise states that the %)=,===.== was a Jsimple business loanJ which earned
interest and was originall! demandable si" ;/> months from +ul! '7, '-(.. ;8nne" < of the petition.>
In Criminal Case &o. -'?., respondent Tan Chu Oao charges petitioners Lam Chee Oiong, +ose L.C. Lam,
8mpang ah and 8nita Lam, alias Long Ta!, with estafa through misappropriation of the amount of
%.=,===.==. 0i6ewise, the complaint states on its face that the %.=,===.== was Ja simple loan.J So does
the complaint in Civil Case &o. &-? 3led b! respondent Tan Chu Oao on 8pril /, '-(/ with the Court of
First Instance of Sulu for the collection of the same amount. ;8nne" @ of the petition.>.
In Criminal Case &o. -7=?, respondent 8ugusto Sajor charges petitioners +ose L.C. Lam, 8nita Lam alias
Long Tai ah, Chee Oiong Lam and 2ichard Lam, with estafa through misappropriation of the amount of
%7=,===.==. Knli6e the complaints in the other two cases, the complaint in Criminal Case &o. -7=?
does not state that the amount was received as loan. $owever, in a sworn statement dated September
7-, '-(/, submitted to respondent judge to support the complaint, respondent 8ugusto Sajor states
that the amount was a Jloan.J ;8nne" A of the petition.>.
Fe agree with the petitioners that the facts alleged in the three criminal complaints do not constitute
estafa through misappropriation.
<stafa through misappropriation is committed according to 8rticle .'), paragraph ', subparagraph ;b>,
of the 2evised %enal Code as follows9
8rt. .'). Swindling ;<stafa>. H 8n! person who shall defraud another b! an! of the
means mentioned herein below shall be punished b!9
""" """ """
'. Fith unfaithfulness or abuse of con3dence namel!9
""" """ """
b> E! misappropriating or converting, to the prejudice of another, mone!, goods, or
an! other personal propert! received b! the ofender in trust or on commission, or for
administration, or under an! other obligation involving the dut! to ma6e deliver! of or
to return the same, even though such obligation be totall! or partiall! guaranteed b!
a bond: or b! den!ing having received such mone!, goods, or other propert!.
In order that a person can be convicted under the above4uoted provision, it must be proven that he has
the obligation to deliver or return the same mone!, goods or personal propert! that he received.
%etitioners had no such obligation to return the same mone!, i.e., the bills or coins, which the! received
from private respondents. This is so because as clearl! stated in criminal complaints, the related civil
complaints and the supporting sworn statements, the sums of mone! that petitioners received were
loans.
The nature of simple loan is de3ned in 8rticles '-.. and '-). of the Civil Code.
8rt. '-... H E! the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter ma! use the same for a certain time and
return it, in which case the contract is called a commodatum: or mone! or other
consumable thing upon the condition that the same amount of the same 6ind and
4ualit! shall be paid, in which case the contract is simpl! called a loan or mutuum.
Commodatum is essentiall! gratuitous.
Simple loan ma! be gratuitous or with a stipulation to pa! interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple
loam ownership passes to the borrower.
8rt. '-).. H 8 person who receives a loan of mone! or an! other fungible thing
ac4uires the ownership thereof, and is bound to pa! to the creditor an e4ual amount
of the same 6ind and 4ualit!.
It can be readil! noted from the above-4uoted provisions that in simple loan ;mutuum>, as contrasted to
commodatum, the borrower ac4uires ownership of the mone!, goods or personal propert! borrowed.
Eeing the owner, the borrower can dispose of the thing borrowed ;8rticle 7,?, Civil Code> and his act
will not be considered misappropriation thereof.
In $.!. vs. &(a)ez, '- %hil. ))-, )/= ;'-''>, this Court held that it is not estafa for a person to refuse to
na! his debt or to den! its e"istence.
Fe are of the opinion and so decide that when the relation is purel! that of debtor
and creditor, the debtor can not be held liable for the crime of estafa, under said
article, b! merel! refusing to pa! or b! den!ing the indebtedness.
It appears that respondent judge failed to appreciate the distinction between the two t!pes of loan,
mutuum and commodatum, when he performed the 4uestioned acts, $e mistoo6 the transaction
between petitioners and respondents 2osalinda 8min, Tan Chu Oao and 8ugusto Sajor to be
commodatum wherein the borrower does not ac4uire ownership over the thing borrowed and has the
dut! to return the same thing to the lender.
Knder Sec. ?( of the +udiciar! 8ct, the municipal court of a provincial capital, which the unicipal Court
of +olo is, has jurisdiction over criminal cases where the penalt! provided b! law does not e"ceed
prision correccional or imprisonment for not more than si" ;/> !ears, or 3ne not e"ceeding %/,===.== or
both, The amounts allegedl! misappropriated b! petitioners range from %7=,===.== to %)=,===.==. The
penalt! for misappropriation of this magnitude e"ceeds prision correccional or / !ear imprisonment.
;8rticle .'), 2evised %enal Code>, 8ssuming then that the acts recited in the complaints constitute the
crime of estafa, the unicipal Court of +olo has no jurisdiction to tr! them on the merits. The alleged
ofenses are under the jurisdiction of the Court of First Instance.
2espondents %eople of the %hilippines being the sovereign authorit! can not be sued for damages. The!
are immune from such t!pe of suit.
Fith respect to the other respondents, this Court is not the proper forum for the consideration of the
claim for damages against them.
F$<2<F*2<, the petition is hereb! granted: the temporar! restraining order previousl! issued is
hereb! made permanent: the criminal complaints against petitioners are hereb! declared null and void:
respondent judge is hereb! ordered to dismiss said criminal cases and to recall the warrants of arrest
he had issued in connection therewith. oreover, respondent judge is hereb! rebu6ed for manifest
ignorance of elementar! law. 0et a cop! of this decision be included in his personal life. Costs against
private respondents.
S* *2@<2<@.
G.R. No. 11'324 -ebr0ar1 19, 2003
,RO"U$!RS #AN% O- T*! ,*ILI,,IN!S =no? -IRST INT!RNATIONAL #AN%>, petitioner,
vs.
*ON. $OURT O- A,,!ALS AN" -RAN%LIN +I+!S, respondents.
This is a petition for review on certiorari of the @ecision
'
of the Court of 8ppeals dated +une 7), '--' in
C8-A.2. CG &o. ''(-' and of its 2esolution
7
dated a! ), '--,, den!ing the motion for reconsideration
of said decision 3led b! petitioner %roducers Ean6 of the %hilippines.
Sometime in '-(-, private respondent Fran6lin Gives was as6ed b! his neighbor and friend 8ngeles
Sanche1 to help her friend and townmate, Col. 8rturo @oronilla, in incorporating his business, the
Sterela ar6eting and Services ;JSterelaJ for brevit!>. Speci3call!, Sanche1 as6ed private respondent to
deposit in a ban6 a certain amount of mone! in the ban6 account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his mone! from said account
within a monthPs time. %rivate respondent as6ed Sanche1 to bring @oronilla to their house so that the!
could discuss Sanche1Ps re4uest.
.
*n a! -, '-(-, private respondent, Sanche1, @oronilla and a certain <strella @umagpi, @oronillaPs
private secretar!, met and discussed the matter. Thereafter, rel!ing on the assurances and
representations of Sanche1 and @oronilla, private respondent issued a chec6 in the amount of Two
$undred Thousand %esos ;%7==,===.==> in favor of Sterela. %rivate respondent instructed his wife, rs.
Inocencia Gives, to accompan! @oronilla and Sanche1 in opening a savings account in the name of
Sterela in the Euendia, a6ati branch of %roducers Ean6 of the %hilippines. $owever, onl! Sanche1, rs.
Gives and @umagpi went to the ban6 to deposit the chec6. The! had with them an authori1ation letter
from @oronilla authori1ing Sanche1 and her companions, Jin coordination with r. 2ufo 8tien1a,J to
open an account for Sterela ar6eting Services in the amount of %7==,===.==. In opening the account,
the authori1ed signatories were Inocencia Gives andIor 8ngeles Sanche1. 8 passboo6 for Savings
8ccount &o. '=-')/( was thereafter issued to rs. Gives.
,
Subse4uentl!, private respondent learned that Sterela was no longer holding oDce in the address
previousl! given to him. 8larmed, he and his wife went to the Ean6 to verif! if their mone! was still
intact. The ban6 manager referred them to r. 2ufo 8tien1a, the assistant manager, who informed them
that part of the mone! in Savings 8ccount &o. '=-')/( had been withdrawn b! @oronilla, and that
onl! %-=,===.== remained therein. $e li6ewise told them that rs. Gives could not withdraw said
remaining amount because it had to answer for some postdated chec6s issued b! @oronilla. 8ccording
to 8tien1a, after rs. Gives and Sanche1 opened Savings 8ccount &o. '=-')/(, @oronilla opened
Current 8ccount &o. '=-=.7= for Sterela and authori1ed the Ean6 to debit Savings 8ccount &o. '=-')/(
for the amounts necessar! to cover overdrawings in Current 8ccount &o. '=-=.7=. In opening said
current account, Sterela, through @oronilla, obtained a loan of %'(),===.== from the Ean6. To cover
pa!ment thereof, @oronilla issued three postdated chec6s, all of which were dishonored. 8tien1a also
said that @oronilla could assign or withdraw the mone! in Savings 8ccount &o. '=-')/( because he was
the sole proprietor of Sterela.
)
%rivate respondent tried to get in touch with @oronilla through Sanche1. *n +une 7-, '-(-, he received
a letter from @oronilla, assuring him that his mone! was intact and would be returned to him. *n
8ugust '., '-(-, @oronilla issued a postdated chec6 for Two $undred Twelve Thousand %esos
;%7'7,===.==> in favor of private respondent. $owever, upon presentment thereof b! private
respondent to the drawee ban6, the chec6 was dishonored. @oronilla re4uested private respondent to
present the same chec6 on September '), '-(- but when the latter presented the chec6, it was again
dishonored.
/
%rivate respondent referred the matter to a law!er, who made a written demand upon @oronilla for the
return of his clientPs mone!. @oronilla issued another chec6 for %7'7,===.== in private respondentPs
favor but the chec6 was again dishonored for insuDcienc! of funds.
(
%rivate respondent instituted an action for recover! of sum of mone! in the 2egional Trial Court ;2TC> in
%asig, etro anila against @oronilla, Sanche1, @umagpi and petitioner. The case was doc6eted as Civil
Case &o. ,,,?). $e also 3led criminal actions against @oronilla, Sanche1 and @umagpi in the 2TC.
$owever, Sanche1 passed awa! on arch '/, '-?) while the case was pending before the trial court.
*n *ctober ., '--), the 2TC of %asig, Eranch ')(, promulgated its @ecision in Civil Case &o. ,,,?), the
dispositive portion of which reads9
I& GI<F *F T$< F*2<A*I&A, judgment is hereb! rendered sentencing defendants 8rturo +. @oronila,
<strella @umagpi and %roducers Ean6 of the %hilippines to pa! plaintif Fran6lin Gives jointl! and
severall! Q
;a> the amount of %7==,===.==, representing the mone! deposited, with interest at the legal
rate from the 3ling of the complaint until the same is full! paid:
;b> the sum of %)=,===.== for moral damages and a similar amount for e"emplar! damages:
;c> the amount of %,=,===.== for attorne!Ps fees: and
;d> the costs of the suit.
S* *2@<2<@.
?
%etitioner appealed the trial courtPs decision to the Court of 8ppeals. In its @ecision dated +une 7),
'--', the appellate court aDrmed in toto the decision of the 2TC.
-
It li6ewise denied with 3nalit!
petitionerPs motion for reconsideration in its 2esolution dated a! ), '--,.
'=
*n +une .=, '--,, petitioner 3led the present petition, arguing that Q
I.
T$< $*&*28E0< C*K2T *F 8%%<80S <22<@ I& K%$*0@I&A T$8T T$< T28&S8CTI*& E<TF<<& T$<
@<F<&@8&T @*2*&I008 8&@ 2<S%*&@<&T GIG<S F8S *&< *F SI%0< 0*8& 8&@ &*T
8CC**@8TI*&:
II.
T$< $*&*28E0< C*K2T *F 8%%<80S <22<@ I& K%$*0@I&A T$8T %<TITI*&<2PS E8&O 8&8A<2, 2.
2KF* 8TI<&N8, C*&&IG<@ FIT$ T$< *T$<2 @<F<&@8&TS I& @<F28K@I&A %<TITI*&<2 ;Sic. Should be
%2IG8T< 2<S%*&@<&T> 8&@ 8S 8 C*&S<MK<&C<, T$< %<TITI*&<2 S$*K0@ E< $<0@ 0I8E0< K&@<2
T$< %2I&CI%0< *F &8TK280 +KSTIC<:
III.
T$< $*&*28E0< C*K2T *F 8%%<80S <22<@ I& 8@*%TI&A T$< <&TI2< 2<C*2@S *F T$< 2<AI*&80
T2I80 C*K2T 8&@ 8FFI2I&A T$< +K@A<&T 8%%<80<@ F2*, 8S T$< FI&@I&AS *F T$< 2<AI*&80
T2I80 C*K2T F<2< E8S<@ *& 8 IS8%%2<$<&SI*& *F F8CTS:
IG.
T$< $*&*28E0< C*K2T *F 8%%<80S <22<@ I& @<C082I&A T$8T T$< CIT<@ @<CISI*& I& S80K@82<S
GS. 82TI&<N, 7- SC28 (,), K%$*0@I&A T$< 0I8EI0ITL *F 8& <%0*L<2 F*2 8CTS C*ITT<@ EL 8&
<%0*L<< IS 8%%0IC8E0<:
G.
T$< $*&*28E0< C*K2T *F 8%%<80S <22<@ I& K%$*0@I&A T$< @<CISI*& *F T$< 0*F<2 C*K2T T$8T
$<2<I& %<TITI*&<2 E8&O IS +*I&T0L 8&@ S<G<2800L 0I8E0< FIT$ T$< *T$<2 @<F<&@8&TS F*2 T$<
8*K&T *F %7==,===.== 2<%2<S<&TI&A T$< S8GI&AS 8CC*K&T @<%*SIT, %)=,===.== F*2 *280
@88A<S, %)=,===.== F*2 <R<%082L @88A<S, %,=,===.== F*2 8TT*2&<LPS F<<S 8&@ T$< C*STS
*F SKIT.
''
%rivate respondent 3led his Comment on September 7., '--,. %etitioner 3led its 2epl! thereto on
September 7), '--). The Court then re4uired private respondent to submit a rejoinder to the repl!.
$owever, said rejoinder was 3led onl! on 8pril 7', '--(, due to petitionerPs dela! in furnishing private
respondent with cop! of the repl!
'7
and several substitutions of counsel on the part of private
respondent.
'.
*n +anuar! '(, 7==', the Court resolved to give due course to the petition and re4uired
the parties to submit their respective memoranda.
',
%etitioner 3led its memorandum on 8pril '/, 7=='
while private respondent submitted his memorandum on arch 77, 7=='.
%etitioner contends that the transaction between private respondent and @oronilla is a simple loan
;mutuum> since all the elements of a mutuum are present9 3rst, what was delivered b! private
respondent to @oronilla was mone!, a consumable thing: and second, the transaction was onerous as
@oronilla was obliged to pa! interest, as evidenced b! the chec6 issued b! @oronilla in the amount
of %7'7,===.==, or %'7,=== more than what private respondent deposited in SterelaPs ban6
account.
')
oreover, the fact that private respondent sued his good friend Sanche1 for his failure to
recover his mone! from @oronilla shows that the transaction was not merel! gratuitous but Jhad a
business angleJ to it. $ence, petitioner argues that it cannot be held liable for the return of private
respondentPs %7==,===.== because it is not priv! to the transaction between the latter and @oronilla.
'/
It argues further that petitionerPs 8ssistant anager, r. 2ufo 8tien1a, could not be faulted for allowing
@oronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said
compan!. %etitioner asserts that @oronillaPs a! ?, '-(- letter addressed to the ban6, authori1ing rs.
Gives and Sanche1 to open a savings account for Sterela, did not contain an! authori1ation for these
two to withdraw from said account. $ence, the authorit! to withdraw therefrom remained e"clusivel!
with @oronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings
account.
'(
%etitioner points out that no evidence other than the testimonies of private respondent and
rs. Gives was presented during trial to prove that private respondent deposited his %7==,===.== in
SterelaPs account for purposes of its incorporation.
'?
$ence, petitioner should not be held liable for
allowing @oronilla to withdraw from SterelaPs savings account.1a*+,phi1.net
%etitioner also asserts that the Court of 8ppeals erred in aDrming the trial courtPs decision since the
3ndings of fact therein were not accord with the evidence presented b! petitioner during trial to prove
that the transaction between private respondent and @oronilla was a mutuum, and that it committed
no wrong in allowing @oronilla to withdraw from SterelaPs savings account.
'-
Finall!, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the
actual damages sufered b! private respondent, and neither ma! it be held liable for moral and
e"emplar! damages as well as attorne!Ps fees.
7=
%rivate respondent, on the other hand, argues that the transaction between him and @oronilla is not a
mutuum but an accommodation,
7'
since he did not actuall! part with the ownership of his %7==,===.==
and in fact as6ed his wife to deposit said amount in the account of Sterela so that a certi3cation can be
issued to the efect that Sterela had suDcient funds for purposes of its incorporation but at the same
time, he retained some degree of control over his mone! through his wife who was made a signator! to
the savings account and in whose possession the savings account passboo6 was given.
77
$e li6ewise asserts that the trial court did not err in 3nding that petitioner, 8tien1aPs emplo!er, is liable
for the return of his mone!. $e insists that 8tien1a, petitionerPs assistant manager, connived with
@oronilla in defrauding private respondent since it was 8tien1a who facilitated the opening of SterelaPs
current account three da!s after rs. Gives and Sanche1 opened a savings account with petitioner for
said compan!, as well as the approval of the authorit! to debit SterelaPs savings account to cover an!
overdrawings in its current account.
7.
There is no merit in the petition.
8t the outset, it must be emphasi1ed that onl! 4uestions of law ma! be raised in a petition for review
3led with this Court. The Court has repeatedl! held that it is not its function to anal!1e and weigh all
over again the evidence presented b! the parties during trial.
7,
The CourtPs jurisdiction is in principle
limited to reviewing errors of law that might have been committed b! the Court of 8ppeals.
7)
oreover,
factual 3ndings of courts, when adopted and con3rmed b! the Court of 8ppeals, are 3nal and
conclusive on this Court unless these 3ndings are not supported b! the evidence on record.
7/
There is
no showing of an! misapprehension of facts on the part of the Court of 8ppeals in the case at bar that
would re4uire this Court to review and overturn the factual 3ndings of that court, especiall! since the
conclusions of fact of the Court of 8ppeals and the trial court are not onl! consistent but are also ampl!
supported b! the evidence on record.
&o error was committed b! the Court of 8ppeals when it ruled that the transaction between private
respondent and @oronilla was a commodatum and not a mutuum. 8 circumspect e"amination of the
records reveals that the transaction between them was a commodatum. 8rticle '-.. of the Civil Code
distinguishes between the two 6inds of loans in this wise9
E! the contract of loan, one of the parties delivers to another, either something not consumable so that
the latter ma! use the same for a certain time and return it, in which case the contract is called a
commodatum: or mone! or other consumable thing, upon the condition that the same amount of the
same 6ind and 4ualit! shall be paid, in which case the contract is simpl! called a loan or mutuum.
Commodatum is essentiall! gratuitous.
Simple loan ma! be gratuitous or with a stipulation to pa! interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
The foregoing provision seems to impl! that if the subject of the contract is a consumable thing, such
as mone!, the contract would be a mutuum. $owever, there are some instances where a commodatum
ma! have for its object a consumable thing. 8rticle '-./ of the Civil Code provides9
Consumable goods ma! be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merel! for e"hibition.
Thus, if consumable goods are loaned onl! for purposes of e"hibition, or when the intention of the
parties is to lend consumable goods and to have the ver! same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.
7(
In case of doubt, the contemporaneous and
subse4uent acts of the parties shall be considered in such determination.
7?
8s correctl! pointed out b! both the Court of 8ppeals and the trial court, the evidence shows that
private respondent agreed to deposit his mone! in the savings account of Sterela speci3call! for the
purpose of ma6ing it appear Jthat said 3rm had suDcient capitali1ation for incorporation, with the
promise that the amount shall be returned within thirt! ;.=> da!s.J
7-
%rivate respondent merel!
JaccommodatedJ @oronilla b! lending his mone! without consideration, as a favor to his good friend
Sanche1. It was however clear to the parties to the transaction that the mone! would not be removed
from SterelaPs savings account and would be returned to private respondent after thirt! ;.=> da!s.
@oronillaPs attempts to return to private respondent the amount of %7==,===.== which the latter
deposited in SterelaPs account together with an additional %'7,===.==, allegedl! representing interest
on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was
not the intent of the parties and because the additional %'7,===.== corresponds to the fruits of the
lending of the %7==,===.==. 8rticle '-.) of the Civil Code e"pressl! states that JBtChe bailee in
commodatum ac4uires the use of the thing loaned but not its fruits.J $ence, it was onl! proper for
@oronilla to remit to private respondent the interest accruing to the latterPs mone! deposited with
petitioner.
&either does the Court agree with petitionerPs contention that it is not solidaril! liable for the return of
private respondentPs mone! because it was not priv! to the transaction between @oronilla and private
respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no
bearing on the 4uestion of petitionerPs liabilit! for the return of private respondentPs mone! because
the factual circumstances of the case clearl! show that petitioner, through its emplo!ee r. 8tien1a,
was partl! responsible for the loss of private respondentPs mone! and is liable for its restitution.
%etitionerPs rules for savings deposits written on the passboo6 it issued rs. Gives on behalf of Sterela
for Savings 8ccount &o. '=-')/( e"pressl! states thatH
J7. @eposits and withdrawals must be made b! the depositor personall! or upon his written authorit!
dul! authenticated, and neither a deposit nor a withdrawal will be permitted e"cept upon the
production of the depositor savings ban6 boo6 in which will be entered b! the Ean6 the amount
deposited or withdrawn.J
.=
Said rule notwithstanding, @oronilla was permitted b! petitioner, through 8tien1a, the 8ssistant Eranch
anager for the Euendia Eranch of petitioner, to withdraw therefrom even without presenting the
passboo6 ;which 8tien1a ver! well 6new was in the possession of rs. Gives>, not just once, but several
times. Eoth the Court of 8ppeals and the trial court found that 8tien1a allowed said withdrawals
because he was part! to @oronillaPs JschemeJ of defrauding private respondent9
R R R
Eut the scheme could not have been e"ecuted successfull! without the 6nowledge, help and
cooperation of 2ufo 8tien1a, assistant manager and cashier of the a6ati ;Euendia> branch of the
defendant ban6. Indeed, the evidence indicates that 8tien1a had not onl! facilitated the commission of
the fraud but he li6ewise helped in devising the means b! which it can be done in such manner as to
ma6e it appear that the transaction was in accordance with ban6ing procedure.
To begin with, the deposit was made in defendantPs Euendia branch precisel! because 8tien1a was a
6e! oDcer therein. The records show that plaintif had suggested that the %7==,===.== be deposited in
his ban6, the anila Ean6ing Corporation, but @oronilla and @umagpi insisted that it must be in
defendantPs branch in a6ati for Jit will be easier for them to get a certi3cationJ. In fact before he was
introduced to plaintif, @oronilla had alread! prepared a letter addressed to the Euendia branch
manager authori1ing 8ngeles E. Sanche1 and compan! to open a savings account for Sterela in the
amount of %7==,===.==, as Jper coordination with r. 2ufo 8tien1a, 8ssistant anager of the Ean6 " "
"J ;<"h. '>. This is a clear manifestation that the other defendants had been in consultation with
8tien1a from the inception of the scheme. Signi3cantl!, there were testimonies and admission that
8tien1a is the brother-in-law of a certain 2omeo irasol, a friend and business associate of
@oronilla.1awphi1.n-t
Then there is the matter of the ownership of the fund. Eecause of the JcoordinationJ between @oronilla
and 8tien1a, the latter 6new before hand that the mone! deposited did not belong to @oronilla nor to
Sterela. 8side from such fore6nowledge, he was e"plicitl! told b! Inocencia Gives that the mone!
belonged to her and her husband and the deposit was merel! to accommodate @oronilla. 8tien1a even
declared that the mone! came from rs. Gives.
8lthough the savings account was in the name of Sterela, the ban6 records disclose that the onl! ones
empowered to withdraw the same were Inocencia Gives and 8ngeles E. Sanche1. In the signature card
pertaining to this account ;<"h. +>, the authori1ed signatories were Inocencia Gives SIor 8ngeles E.
Sanche1. 8tien1a stated that it is the usual ban6ing procedure that withdrawals of savings deposits
could onl! be made b! persons whose authori1ed signatures are in the signature cards on 3le with the
ban6. $e, however, said that this procedure was not followed here because Sterela was owned b!
@oronilla. $e e"plained that @oronilla had the full authorit! to withdraw b! virtue of such ownership.
The Court is not inclined to agree with 8tien1a. In the 3rst place, he was all the time aware that the
mone! came from Gives and did not belong to Sterela. $e was also told b! rs. Gives that the! were
onl! accommodating @oronilla so that a certi3cation can be issued to the efect that Sterela had a
deposit of so much amount to be sued in the incorporation of the 3rm. In the second place, the
signature of @oronilla was not authori1ed in so far as that account is concerned inasmuch as he had not
signed the signature card provided b! the ban6 whenever a deposit is opened. In the third place,
neither rs. Gives nor Sanche1 had given @oronilla the authorit! to withdraw.
oreover, the transfer of fund was done without the passboo6 having been presented. It is an accepted
practice that whenever a withdrawal is made in a savings deposit, the ban6 re4uires the presentation of
the passboo6. In this case, such recogni1ed practice was dispensed with. The transfer from the savings
account to the current account was without the submission of the passboo6 which 8tien1a had given to
rs. Gives. Instead, it was made to appear in a certi3cation signed b! <strella @umagpi that a duplicate
passboo6 was issued to Sterela because the original passboo6 had been surrendered to the a6ati
branch in view of a loan accommodation assigning the savings account ;<"h. C>. 8tien1a, who
undoubtedl! had a hand in the e"ecution of this certi3cation, was aware that the contents of the same
are not true. $e 6new that the passboo6 was in the hands of rs. Gives for he was the one who gave it
to her. Eesides, as assistant manager of the branch and the ban6 oDcial servicing the savings and
current accounts in 4uestion, he also was aware that the original passboo6 was never surrendered. $e
was also cogni1ant that <strella @umagpi was not among those authori1ed to withdraw so her
certi3cation had no efect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that 8tien1aPs
active participation in the perpetration of the fraud and deception that caused the loss. The records
indicate that this account was opened three da!s later after the %7==,===.== was deposited. In spite of
his disclaimer, the Court believes that 8tien1a was mindful and posted regarding the opening of the
current account considering that @oronilla was all the while in JcoordinationJ with him. That it was he
who facilitated the approval of the authorit! to debit the savings account to cover an! overdrawings in
the current account ;<"h. 7> is not hard to comprehend.
Clearl! 8tien1a had committed wrongful acts that had resulted to the loss subject of this case. " " ".
.'
Knder 8rticle 7'?= of the Civil Code, emplo!ers shall be held primaril! and solidaril! liable for damages
caused b! their emplo!ees acting within the scope of their assigned tas6s. To hold the emplo!er liable
under this provision, it must be shown that an emplo!er-emplo!ee relationship e"ists, and that the
emplo!ee was acting within the scope of his assigned tas6 when the act complained of was
committed.
.7
Case law in the Knited States of 8merica has it that a corporation that entrusts a general
dut! to its emplo!ee is responsible to the injured part! for damages 5owing from the emplo!eePs
wrongful act done in the course of his general authorit!, even though in doing such act, the emplo!ee
ma! have failed in its dut! to the emplo!er and disobe!ed the latterPs instructions.
..
There is no dispute that 8tien1a was an emplo!ee of petitioner. Furthermore, petitioner did not den!
that 8tien1a was acting within the scope of his authorit! as 8ssistant Eranch anager when he assisted
@oronilla in withdrawing funds from SterelaPs Savings 8ccount &o. '=-')/(, in which account private
respondentPs mone! was deposited, and in transferring the mone! withdrawn to SterelaPs Current
8ccount with petitioner. 8tien1aPs acts of helping @oronilla, a customer of the petitioner, were obviousl!
done in furtherance of petitionerPs interests
.,
even though in the process, 8tien1a violated some of
petitionerPs rules such as those stipulated in its savings account passboo6.
.)
It was established that the
transfer of funds from SterelaPs savings account to its current account could not have been
accomplished b! @oronilla without the invaluable assistance of 8tien1a, and that it was their
connivance which was the cause of private respondentPs loss.
The foregoing shows that the Court of 8ppeals correctl! held that under 8rticle 7'?= of the Civil Code,
petitioner is liable for private respondentPs loss and is solidaril! liable with @oronilla and @umagpi for
the return of the%7==,===.== since it is clear that petitioner failed to prove that it e"ercised due
diligence to prevent the unauthori1ed withdrawals from SterelaPs savings account, and that it was not
negligent in the selection and supervision of 8tien1a. 8ccordingl!, no error was committed b! the
appellate court in the award of actual, moral and e"emplar! damages, attorne!Ps fees and costs of suit
to private respondent.
@*!R!-OR!, the petition is hereb! @<&I<@. The assailed @ecision and 2esolution of the Court of
8ppeals are 8FFI2<@.
S* *2@<2<@.
G.R. No. 260&' A0804) 12, 192;
S!+!RINO TOL!NTINO an ,OT!N$IANA MANIO, plaintifs-appellants,
vs.
#!NITO GON/AL!/ S< $*IAM, defendants-appellee.
%2I&CI%80 MK<STI*&S %2<S<&T<@ EL T$< 8%%<80
The principal 4uestions presented b! this appeal are9
;a> Is the contract in 4uestion a pacto de retro or a mortgageT
;(> Knder a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to
pa! a certain amount per month as rent, ma! such rent render such a contract usurious when
the amount paid as rent, computed upon the purchase price, amounts to a higher rate of
interest upon said amount than that allowed b! lawT
;c> a! the contract in the present case ma! be modi3ed b! parol evidenceT
8&T<C<@<&T F8CTS
Sometime prior to the 7?th da! of &ovember, '-77, the appellants purchased of the 0u1on 2ice ills,
Inc., a piece or parcel of land with the camarin located thereon, situated in the municipalit! of Tarlac of
the %rovince of Tarlac for the price of %7),===, promising to pa! therefor in three installments. The 3rst
installment of %7,=== was due on or before the 7d da! of a!, '-7': the second installment of %?,===
was due on or before .'st da! of a!, '-7': the balance of %'),=== at '7 per cent interest was due
and pa!able on or about the .=th da! of &ovember, '-77. *ne of the conditions of that contract of
purchase was that on failure of the purchaser ;plaintifs and appellants> to pa! the balance of said
purchase price or an! of the installments on the date agreed upon, the propert! bought would revert to
the original owner.
The pa!ments due on the 7d and .'st of a!, '-7', amounting to %'=,=== were paid so far as the
record shows upon the due dates. The balance of %'),=== due on said contract of purchase was paid on
or about the 'st da! of @ecember, '-77, in the manner which will be e"plained below. *n the date
when the balance of %'),=== with interest was paid, the vendor of said propert! had issued to the
purchasers transfer certi3cate of title to said propert!, &o. )7?. Said transfer certi3cate of title ;&o.
)7?> was transfer certi3cate of title from &o. ,=, which shows that said land was originall! registered in
the name of the vendor on the (th da! of &ovember, '-'..
%2<S<&T F8CTS
*n the (th da! of &ovember, '-77 the representative of the vendor of the propert! in 4uestion wrote a
letter to the appellant %otenciana anio ;<"hibit 8, p. )=>, notif!ing the latter that if the balance of said
indebtedness was not paid, an action would be brought for the purpose of recovering the propert!,
together with damages for non compliance with the condition of the contract of purchase. The pertinent
parts of said letter read as follows9
Sirvase notar 4ue de no estar li4uidada esta cuenta el dia .= del corriente, procederemos
judicialmente contra Gd. para reclamar la devolucion del camarin ! los daUos ! perjuicios
ocasionados a la compaUia por su incumplimiento al contrato.
Somos de Gd. atentos ! S. S.
SIT$, E<00 S C*., 0T@.
E! ;Sgd.> F. I. $IA$8
Treasurer.
Aeneral anagers
0KN*& 2IC< I00S I&C.
8ccording to <"hibits E and @, which represent the account rendered b! the vendor, there was due and
pa!able upon said contract of purchase on the .=th da! of &ovember, '-77, the sum %'/,-/).=-. Kpon
receiving the letter of the vendor of said propert! of &ovember (, '-77, the purchasers, the appellants
herein, reali1ing that the! would be unable to pa! the balance due, began to ma6e an efort to borrow
mone! with which to pa! the balance due, began to ma6e an efort to borrow mone! with which to pa!
the balance of their indebtedness on the purchase price of the propert! involved. Finall! an application
was made to the defendant for a loan for the purpose of satisf!ing their indebtedness to the vendor of
said propert!. 8fter some negotiations the defendants agreed to loan the plaintifs to loan the plaintifs
the sum of %'(,)== upon condition that the plaintifs e"ecute and deliver to him a pacto de retro of said
propert!.
In accordance with that agreement the defendant paid to the plaintifs b! means of a chec6 the sum of
%'/,-/).=-. The defendant, in addition to said amount paid b! chec6, delivered to the plaintifs the sum
of %.),.-' together with the sum of %'?= which the plaintifs paid to the attorne!s for drafting said
contract of pacto de retro, ma6ing a total paid b! the defendant to the plaintifs and for the plaintifs of
%'(,)== upon the e"ecution and deliver! of said contract. Said contracts was dated the 7?th da! of
&ovember, '-77, and is in the words and 3gures following9
!epan todos por la presente.
Mue nosotros, los con!uges !everino 'olentino / Potenciana 0anio, ambos ma!ores de edad,
residentes en el unicipio de Calumpit, %rovincia de Eulacan, propietarios ! transeuntes en
esta Ciudad de anila, de una parte" / de otra" 1enito 2onzalez !/ Chiam, ma!or de edad,
casado con aria Santiago, comerciante ! vecinos de esta Ciudad de anila.
8&IF<ST8*S L $8C<*S C*&ST829
%rimero. Mue nosotros, Severino Tolentino ! %otenciano anio, por ! en consideracion a la
cantidad de diecisiete mil 4uinientos pesos ;%'(,)==> moneda 3lipina, 4ue en este acto hemos
recibido a nuestra entera satisfaccion de @on Eenito Aon1ale1 S! Chiam, cedemos, vendemos
! traspasamos a favor de dicho @on Eenito Aon1ale1 S! Chiam, sus herederos !
causahabientes, una 3nca 4ue, segun el Certi3cado de Transferencia de Titulo &o. ,= e"pedido
por el 2egistrador de Titulos de la %rovincia de Tarlac a favor de J3uzon #ice 0ills Compan/
3imitedJ 4ue al incorporarse se donomino ! se denomina J3uzon #ice 0ills &nc.,J ! 4ue esta
corporacion nos ha transferido en venta absoluta, se describe como sigue9
$n terreno ;lote &o. '> con las mejoras e"istentes en el mismo, situado en el unicipio de
Tarlac. 0inda por el *. ! &. con propiedad de anuel Kr4uico: por el <. con propiedad de la
anila 2ailroad Co.: ! por el S. con un camino. %artiendo de un punto marcado ' en el plano,
cu!o punto se halla al &. ,' gds. '(# <.?)-.,7 m. del mojon de locali1acion &o. 7 de la *3cina
de Terrenos en Tarlac: ! desde dicho punto ' &. ?' gds. .'# *., (( m. al punto 7: desde este
punto &. , gds. 77# <.: ),.(= m. al punto .: desde este punto S. ?/ gds. '(# <.: /-.7) m. al
punto ,: desde este punto S. 7 gds. ,7# <., /'.,? m. al punto de partida: midiendo una
e"tension super3ccial de cuatro mil doscientos die1 ! seis metros cuadrados ;,,7'/> mas o
menos. Todos los puntos nombrados se hallan marcados en el plano ! sobre el terreno los
puntos ' ! 7 estan determinados por mojones de %. 0. S. de 7= " 7= " (= centimetros ! los
puntos . ! , por mojones del %. 0. S. E. 0.9 la orientacion seguida es la verdadera, siendo la
declinacion magnetica de = gds. ,)# <. ! la fecha de la medicion, '.V de febrero de '-'..
Segundo. Mue es condicion de esta venta la de 4ue si en el pla1o de cinco ;)> aUos contados
desde el dia '.V de diciembre de '-77, devolvemos al e"presado @on Eenito Aon1ale1 S!
Chiam el referido precio de diecisiete mil 4uinientos pesos ;%'(,)==> 4ueda obligado dicho Sr.
Eenito Aon1ale1 ! Chiam a retrovendernos la 3nca arriba descrita: pero si transcurre dicho
pla1o de cinco aUos sin ejercitar el derecho de retracto 4ue nos hemos reservado, entonces
4uedara esta venta absoluta e irrevocable.
Tercero. Mue durante el e"presado termino del retracto tendremos en arrendamiento la 3nca
arriba descrita, sujeto a condiciones siguientes9
;a> <l al4uiler 4ue nos obligamos a pagar por mensualidades vencidas a @on Eenito
Aon1ale1 S! Chiam ! en su domicilio, era de trescientos setenta ! cinco pesos ;%.()>
moneda 3lipina, cada mes.
;(> <l amillaramiento de la 3nca arrendada sera por cuenta de dicho @on Eenito
Aon1ale1 S! Chiam, asi como tambien la prima del seguro contra incendios, si el
conviniera al referido Sr. Eenito Aon1ale1 S! Chiam asegurar dicha 3nca.
;c> 0a falta de pago del al4uiler a4ui estipulado por dos meses consecutivos dara
lugar a la terminacion de este arrendamieno ! a la perdida del derecho de retracto
4ue nos hemos reservado, como si naturalmente hubiera e"pirado el termino para
ello, pudiendo en su virtud dicho Sr. Aon1ale1 S! Chiam tomar posesion de la 3nca !
desahuciarnos de la misma.
Cuarto. Mue !o, Eenito Aon1ale1 S! Chiam, a mi ve1 otorgo 4ue acepto esta escritura en los
precisos terminos en 4ue la dejan otorgada los con!uges Severino Tolentino ! %otenciana
anio.
<n testimonio de todo lo cual, 3rmamos la presente de nuestra mano en anila, por
cuadruplicado en anila, ho! a 7? de noviembre de '-77.
;Fdo.> S<G<2I&* T*0<&TI&*
;Fda.> %*T<&CI8&8 8&I*
;Fdo.> E<&IT* A*&N80<N SL C$I8
Firmado en presencia de9
;Fdos.> *IS<S . EK$8I&
E. S. E8&88A
8n e"amination of said contract of sale with reference to the 3rst 4uestion above, shows clearl! 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 is9
Segundo. Mue es condicion de esta venta la de 4ue si en el pla1o de cinco ;)> aUos contados
desde el dia '.V de diciembre de '-77, devolvemos al e"presado @on Eenito Aon1ales S!
Chiam el referido precio de diecisiete mil 4uinientos pesos ;%'(,)==> 4ueda obligado dicho Sr.
Eenito Aon1ales S! Chiam a retrovendornos la 3nca arriba descrita: pero si transcurre dicho
pla1o de cinco ;)> aUos sin ejercitar al derecho de retracto 4ue nos hemos reservado, entonces
4uedara esta venta absoluta e irrevocable.
0anguage cannot be clearer. The purpose of the contract is e"pressed clearl! in said 4uotation that
there can certainl! be not doubt as to the purpose of the plaintif to sell the propert! in 4uestion,
reserving the right onl! to repurchase the same. The intention to sell with the right to repurchase
cannot be more clearl! e"pressed.
It will be noted from a reading of said sale of pacto de retro, that the vendor, recogni1ing the absolute
sale of the propert!, entered into a contract with the purchaser b! virtue of which she became the
JtenantJ of the purchaser. That contract of rent appears in said 4uoted document above as follows9
Tercero. Mue durante el e"presado termino del retracto tendremos en arrendamiento la 3nca
arriba descrita, sujeto a condiciones siguientes9
;a> <l al4uiler 4ue nos obligamos a pagar por mensualidades vencidas a @on Eenito Aon1ale1
S! Chiam ! en su domicilio, sera de trescientos setenta ! cinco pesos ;%.()> moneda 3lipina,
cada mes.
;(> <l amillaramiento de la 3nca arrendada sera por cuenta de dicho @on Eenito Aon1ale1 S!
Chiam, asi como tambien la prima del seguro contra incendios, si le conviniera al referido Sr.
Eenito Aon1ale1 S! Chiam asegurar dicha 3nca.
From the foregoing, we are driven to the following conclusions9 4irst, that the contract of pacto de
retro is an absolute sale of the propert! with the right to repurchase and not a mortgage: and, second,
that b! virtue of the said contract the vendor became the tenant of the purchaser, under the conditions
mentioned in paragraph . of said contact 4uoted above.
It has been the uniform theor! of this court, due to the severit! of a contract of pacto de retro, to
declare the same to be a mortgage and not a sale whenever the interpretation of such a contract
justi3es that conclusion. There must be something, however, in the language of the contract or in the
conduct of the parties which shows clearl! and be!ond doubt that the! intended the contract to be a
JmortgageJ and not a pacto de retro. ;International Ean6ing Corporation vs. artine1, '= %hil., 7)7:
%adilla vs. 0insangan, '- %hil., /): Cumagun vs. 8linga!, '- %hil., ,'): *lino vs. edina, '. %hil., .(-:
analo vs. Aueco, ,7 %hil., -7): Gela14ue1 vs. Teodoro, ,/ %hil., ()(: Gillavs. Santiago, .? %hil., ')(.>
Fe are not unmindful of the fact that sales with pacto de retro are not favored and that the court will
not construe an instrument to one of sale with pacto de retro, with the stringent and onerous efect
which follows, unless the terms of the document and the surrounding circumstances re4uire it.
Fhile it is general rule that parol evidence is not admissible for the purpose of var!ing the terms of a
contract, but when an issue is s4uarel! presented that a contract does not e"press the intention of the
parties, courts will, when a proper foundation is laid therefor, hear evidence for the purpose of
ascertaining the true intention of the parties.
In the present case the plaintifs allege in their complaint that the contract in 4uestion is a pacto de
retro. The! admit that the! signed it. The! admit the! sold the propert! in 4uestion with the right to
repurchase it. The terms of the contract 4uoted b! the plaintifs to the defendant was a JsaleJ
with pacto de retro, and the plaintifs have shown no circumstance whatever which would justif! us in
construing said contract to be a mere JloanJ with guarant!. In ever! case in which this court has
construed a contract to be a mortgage or a loan instead of a sale with pacto de retro, it has done so,
either because the terms of such contract were incompatible or inconsistent with the theor! that said
contract was one of purchase and sale. ;*lino vs. edina, supra: %adilla vs. 0insangan,supra:
anlagnit vs. @! %uico, ., %hil., .7): 2odrigue1 vs. %amintuan and @e +esus, .( %hil., ?(/.>
In the case of %adilla vs. 0insangan the term emplo!ed in the contract to indicate the nature of the
conve!ance of the land was JpledgedJ instead of JsoldJ. In the case of anlagnit vs. @! %uico, while the
vendor used to the terms Jsale and transfer with the right to repurchase,J !et in said contract he
described himself as a JdebtorJ the purchaser as a JcreditorJ and the contract as a JmortgageJ. In the
case of #odriguez vs. Pamintuan and %e Jesusthe person who e"ecuted the instrument, purporting on
its face to be a deed of sale of certain parcels of land, had merel! acted under a power of attorne! from
the owner of said land, Jauthori1ing him to borrow mone! in such amount and upon such terms and
conditions as he might deem proper, and to secure pa!ment of the loan b! a mortgage.J In the case
of Villa vs. !antiago ;.? %hil., ')(>, although a contract purporting to be a deed of sale was e"ecuted,
the supposed vendor remained in possession of the land and invested the mone! he had obtained from
the supposed vendee in ma6ing improvements thereon, which fact justi3ed the court in holding that the
transaction was a mere loan and not a sale. In the case of Cu/ugan vs. !antos ;.- %hil., -(=>, the
purchaser accepted partial pa!ments from the vendor, and such acceptance of partial pa!ments is
absolutel! incompatible with the idea of irrevocabilit! of the title of ownership of the purchaser at the
e"piration of the term stipulated in the original contract for the e"ercise of the right of repurchase.J
2eferring again to the right of the parties to var! the terms of written contract, we 4uote from the
dissenting opinion of Chief +ustice Ca!etano S. 8rellano in the case of Aovernment of the %hilippine
Islands vs. %hilippine Sugar <states @evelopment Co., which case was appealed to the Supreme Court
of the Knited States and the contention of the Chief +ustice in his dissenting opinion was aDrmed and
the decision of the Supreme Court of the %hilippine Islands was reversed. ;See decision of the Supreme
Court of the Knited States, +une ., '-'?.>
'
The Chief +ustice said in discussing that 4uestion9
8ccording to article '7?7 of the Civil Code, in order to judge of the intention of the contracting parties,
consideration must chie5! be paid to those acts e"ecuted b! said parties which are contemporar! with
and subse4uent to the contract. 8nd according to article '7?., however general the terms of a contract
ma! be, the! must not be held to include things and cases diferent from those with regard to which the
interested parties agreed to contract. JThe Supreme Court of the %hilippine Islands held the parol
evidence was admissible in that case to var! the terms of the contract between the Aovernment of the
%hilippine Islands and the %hilippine Sugar <states @evelopment Co. In the course of the opinion of the
Supreme Court of the Knited States r. +ustice Erandeis, spea6ing for the court, said9
It is well settled that courts of e4uit! will reform a written contract where, owing to mutual
mista6e, the language used therein did not full! or accuratel! e"press the agreement and
intention of the parties. The fact that interpretation or construction of a contract presents a
4uestion of law and that, therefore, the mista6e was one of law is not a bar to granting
relief. . . . This court is alwa!s disposed to accept the construction which the highest court of a
territor! or possession has placed upon a local statute. Eut that disposition ma! not be !ielded
to where the lower court has clearl! erred. $ere the construction adopted was rested upon a
clearl! erroneous assumption as to an established rule of e4uit!. . . . The burden of proof
resting upon the appellant cannot be satis3ed b! mere preponderance of the evidence. It is
settled that relief b! wa! of reformation will not be granted unless the proof of mutual mista6e
be of the clearest and most satisfactor! character.
The evidence introduced b! the appellant in the present case does not meet with that stringent
re4uirement. There is not a word, a phrase, a sentence or a paragraph in the entire record, which
justi3es this court in holding that the said contract of pacto de retro is a mortgage and not a sale with
the right to repurchase. 8rticle '7?' of the Civil Code provides9 JIf the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be
followed.J 8rticle '7?7 provides9 Jin order to judge as to the intention of the contracting parties,
attention must be paid principall! to their conduct at the time of ma6ing the contract and subse4uentl!
thereto.J
Fe cannot thereto conclude this branch of our discussion of the 4uestion involved, without 4uoting
from that ver! well reasoned decision of the late Chief +ustice 8rellano, one of the greatest jurists of his
time. $e said, in discussing the 4uestion whether or not the contract, in the case of 3ichauco vs.
1erenguer ;7= %hil., '7>, was apacto de retro or a mortgage9
The public instrument, <"hibit C, in part reads as follows9 J@on acarion Eerenguer declares
and states that he is the proprietor in fee simple of two parcels of fallow unappropriated crown
land situated within the district of his pueblo. The 3rst has an area of (. 5ui)ones,
? (alitas and ? loanes, located in the sitio of Eatasan, and its boundaries are, etc., etc. The
second is in the sitio of %anantagla!, barrio of Calumpang has as area of (. hectares, 77 ares,
and / centares, and is bounded on the north, etc., etc.J
In the e"ecutor! part of the said instrument, it is stated9
#That under condition of right to repurchase ;pacto de retro> he sells the said
properties to the aforementioned @oUa Cornelia 0aochangco for %,,=== and upon the
following conditions9 First, the sale stipulated shall be for the period of two !ears,
counting from this date, within which time the deponent shall be entitled to
repurchase the land sold upon pa!ment of its price: second, the lands sold shall,
during the term of the present contract, be held in lease b! the undersigned who
shall pa!, as rental therefor, the sum of ,== pesos per annum, or the e4uivalent in
sugar at the option of the vendor: third, all the fruits of the said lands shall be
deposited in the sugar depositor! of the vendee, situated in the district of Muiapo of
this cit!, and the value of which shall be applied on account of the price of this sale:
fourth, the deponent ac6nowledges that he has received from the vendor the
purchase price of %,,=== alread! paid, and in legal tender currenc! of this
countr! . . .: 3fth, all the ta"es which ma! be assessed against the lands surve!ed b!
competent authorit!, shall be pa!able b! and constitute a charge against the vendor:
si"th, if, through an! unusual event, such as 5ood, tempest, etc., the properties
hereinbefore enumerated should be destro!ed, wholl! or in part, it shall be incumbent
upon the vendor to repair the damage thereto at his own e"pense and to put them
into a good state of cultivation, and should he fail to do so he binds himself to give to
the vendee other lands of the same area, 4ualit! and value.#
" " " " " " " " "
The opponent maintained, and his theor! was accepted b! the trial court, that Eerenguer#s
contract with 0aochangco was not one of sale with right of repurchase, but merel! one of loan
secured b! those properties, and, conse4uentl!, that the ownership of the lands in 4uestions
could not have been conve!ed to 0aochangco, inasmuch as it continued to be held b!
Eerenguer, as well as their possession, which he had not ceased to enjo!.
Such a theor! is, as argued b! the appellant, erroneous. The instrument e"ecuted b! acario
Eerenguer, the te"t of which has been transcribed in this decision, is ver! clear. Eerenguer#s
heirs ma! not go counter to the literal tenor of the obligation, the e"act e"pression of the
consent of the contracting contained in the instrument, <"hibit C. &ot because the lands ma!
have continued in possession of the vendor, not because the latter ma! have assumed the
pa!ment of the ta"es on such properties, nor !et because the same part! ma! have bound
himself to substitute b! another an! one of the properties which might be destro!ed, does the
contract cease to be what it is, as set forth in detail in the public instrument. The vendor
continued in the possession of the lands, not as the owner thereof as before their sale, but as
the lessee which he became after its consummation, b! virtue of a contract e"ecuted in his
favor b! the vendee in the deed itself, <"hibit C. 2ight of ownership is not implied b! the
circumstance of the lessee#s assuming the responsibilit! of the pa!ment is of the ta"es on the
propert! leased, for their pa!ment is not peculiarl! incumbent upon the owner, nor is such
right implied b! the obligation to substitute the thing sold for another while in his possession
under lease, since that obligation came from him and he continues under another character in
its possessionHa reason wh! he guarantees its integrit! and obligates himself to return the
thing even in a case of force majeure. Such liabilit!, as a general rule, is foreign to contracts of
lease and, if re4uired, is e"orbitant, but possible and lawful, if voluntaril! agreed to and such
agreement does not on this account involve an! sign of ownership, nor other meaning than
the will to impose upon oneself scrupulous diligence in the care of a thing belonging to
another.
The purchase and sale, once consummated, is a contract which b! its nature transfers the
ownership and other rights in the thing sold. 8 pacto de retro, or sale with right to repurchase,
is nothing but a personal right stipulated between the vendee and the vendor, to the end that
the latter ma! again ac4uire the ownership of the thing alienated.
It is true, ver! true indeed, that the sale with right of repurchase is emplo!ed as a method of
loan: it is li6ewise true that in practice man! cases occur where the consummation of a pacto
de retro sale means the 3nancial ruin of a person: it is also, un4uestionable that in pacto de
retro sales ver! important interests often intervene, in the form of the price of the lease of the
thing sold, which is stipulated as an additional covenant. ;anresa, Civil Code, p. 7(,.>
Eut in the present case, unli6e others heard b! this court, there is no proof that the sale with
right of repurchase, made b! Eerenguer in favor of 0aonchangco is rather a mortgage to
secure a loan.
Fe come now to a discussion of the second 4uestion presented above, and that is, stating the same in
another form9 a! a tenant charge his landlord with a violation of the Ksur! 0aw upon the ground that
the amount of rent he pa!s, based upon the real value of the propert!, amounts to a usurious rate of
interestT Fhen the vendor of propert! under a pacto de retro rents the propert! and agrees to pa! a
rental value for the propert! during the period of his right to repurchase, he thereb! becomes a
JtenantJ and in all respects stands in the same relation with the purchaser as a tenant under an! other
contract of lease.
The appellant contends that the rental price paid during the period of the e"istence of the right to
repurchase, or the sum of %.() per month, based upon the value of the propert!, amounted to usur!.
Ksur!, generall! spea6ing, ma! be de3ned as contracting for or receiving something in e"cess of the
amount allowed b! law for the loan or forbearance of mone!Hthe ta6ing of more interest for the use of
mone! than the law allows. It seems that the ta6ing of interest for the loan of mone!, at least the
ta6ing of e"cessive interest has been regarded with abhorrence from the earliest times.
;@unham vs. Aould, '/ +ohnson B&. L.C, ./(.> @uring the middle ages the people of <ngland, and
especiall! the <nglish Church, entertained the opinion, then, current in <urope, that the ta6ing of an!
interest for the loan of mone! was a detestable vice, hateful to man and contrar! to the laws of Aod. ;.
Co6e#s Institute, ')=: Ta!ler on Ksur!, ,,.>
Chancellor Oent, in the case of %unham vs. 2ould, supra, said9 JIf we loo6 bac6 upon histor!, we shall
3nd that there is scarcel! an! people, ancient or modern, that have not had usur! laws. . . . The
2omans, through the greater part of their histor!, had the deepest abhorrence of usur!. . . . It will be
deemed a little singular, that the same voice against usur! should have been raised in the laws of
China, in the $indu institutes of enu, in the Ooran of ahomet, and perhaps, we ma! sa!, in the laws
of all nations that we 6now of, whether Aree6 or Earbarian.J
The collection of a rate of interest higher than that allowed b! law is condemned b! the %hilippine
0egislature ;8cts &os. 7/)), 7//7 and 7--7>. Eut is it unlawful for the owner of a propert! to enter into
a contract with the tenant for the pa!ment of a speci3c amount of rent for the use and occupation of
said propert!, even though the amount paid as Jrent,J based upon the value of the propert!, might
e"ceed the rate of interest allowed b! lawT That 4uestion has never been decided in this jurisdiction. It
is one of 3rst impression. &o cases have been found in this jurisdiction answering that 4uestion. 8ct &o.
7/)) is J8n 8ct 3"ing rates of interest upon #loans# and declaring the efect of receiving or ta6ing
usurious rates.J
It will be noted that said statute imposes a penalt! upon a JloanJ or forbearance of an! mone!, goods,
chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on Jloans.J 8
contract of Jloan,J is ver! diferent contract from that of JrentJ. 8 Jloan,J as that term is used in the
statute, signi3es the giving of a sum of mone!, goods or credits to another, with a promise to repa!,
but not a promise to return the same thing. To Jloan,J in general parlance, is to deliver to another for
temporar! use, on condition that the thing or its e4uivalent be returned: or to deliver for temporar! use
on condition that an e4uivalent in 6ind shall be returned with a compensation for its use. The word
Jloan,J however, as used in the statute, has a technical meaning. It never means the return of the same
thing. It means the return of an e4uivalent onl!, but never the same thing loaned. 8 JloanJ has been
properl! de3ned as an advance pa!ment of mone!, goods or credits upon a contract or stipulation to
repa!, not to return, the thing loaned at some future da! in accordance with the terms of the contract.
Knder the contract of Jloan,J as used in said statute, the moment the contract is completed the mone!,
goods or chattels given cease to be the propert! of the former owner and becomes the propert! of the
obligor to be used according to his own will, unless the contract itself e"pressl! provides for a special or
speci3c use of the same. 8t all events, the mone!, goods or chattels, the moment the contract is
e"ecuted, cease to be the propert! of the former owner and becomes the absolute propert! of the
obligor.
8 contract of JloanJ difers materiall! from a contract of Jrent.J In a contract of JrentJ the owner of the
propert! does not lose his ownership. $e simpl! loses his control over the propert! rented during the
period of the contract. In a contract of JloanJ the thing loaned becomes the propert! of the obligor. In a
contract of JrentJ the thing still remains the propert! of the lessor. $e simpl! loses control of the same
in a limited wa! during the period of the contract of JrentJ or lease. In a contract of JrentJ the relation
between the contractors is that of landlord and tenant. In a contract of JloanJ of mone!, goods, chattels
or credits, the relation between the parties is that of obligor and obligee. J2entJ ma! be de3ned as the
compensation either in mone!, provisions, chattels, or labor, received b! the owner of the soil from the
occupant thereof. It is de3ned as the return or compensation for the possession of some corporeal
inheritance, and is a pro3t issuing out of lands or tenements, in return for their use. It is that, which is
to paid for the use of land, whether in mone!, labor or other thing agreed upon. 8 contract of JrentJ is a
contract b! which one of the parties delivers to the other some nonconsumable thing, in order that the
latter ma! use it during a certain period and return it to the former: whereas a contract of JloanJ, as
that word is used in the statute, signi3es the deliver! of mone! or other consumable things upon
condition of returning an e4uivalent amount of the same 6ind or 4uantit!, in which cases it is called
merel! a Jloan.J In the case of a contract of Jrent,J under the civil law, it is called a Jcommodatum.J
From the foregoing it will be seen that there is a while distinction between a contract of Jloan,J as that
word is used in the statute, and a contract of JrentJ even though those words are used in ordinar!
parlance as interchangeable terms.
The value of mone!, goods or credits is easil! ascertained while the amount of rent to be paid for the
use and occupation of the propert! ma! depend upon a thousand diferent conditions: as for e"ample,
farm lands of e"actl! e4ual productive capacit! and of the same ph!sical value ma! have a diferent
rental value, depending upon location, prices of commodities, pro"imit! to the mar6et, etc. $ouses ma!
have a diferent rental value due to location, conditions of business, general prosperit! or depression,
adaptabilit! to particular purposes, even though the! have e"actl! the same original cost. 8 store on
the <scolta, in the center of business, constructed e"actl! li6e a store located outside of the business
center, will have a much higher rental value than the other. Two places of business located in diferent
sections of the cit! ma! be constructed e"actl! on the same architectural plan and !et one, due to
particular location or adaptabilit! to a particular business which the lessor desires to conduct, ma!
have a ver! much higher rental value than one not so located and not so well adapted to the particular
business. 8 ver! cheap building on the carnival ground ma! rent for more mone!, due to the particular
circumstances and surroundings, than a much more valuable propert! located elsewhere. It will thus be
seen that the rent to be paid for the use and occupation of propert! is not necessaril! 3"ed upon the
value of the propert!. The amount of rent is 3"ed, based upon a thousand diferent conditions and ma!
or ma! not have an! direct reference to the value of the propert! rented. To hold that Jusur!J can be
based upon the comparative actual rental value and the actual value of the propert!, is to subject
ever! landlord to an anno!ance not contemplated b! the law, and would create a ver! great
disturbance in ever! business or rural communit!. Fe cannot bring ourselves to believe that the
0egislature contemplated an! such disturbance in the e4uilibrium of the business of the countr!.
In the present case the propert! in 4uestion was sold. It was an absolute sale with the right onl! to
repurchase. @uring the period of redemption the purchaser was the absolute owner of the propert!.
@uring the period of redemption the vendor was not the owner of the propert!. @uring the period of
redemption the vendor was a tenant of the purchaser. @uring the period of redemption the relation
which e"isted between the vendor and the vendee was that of landlord and tenant. That relation can
onl! be terminated b! a repurchase of the propert! b! the vendor in accordance with the terms of the
said contract. The contract was one of rent. The contract was not a loan, as that word is used in 8ct &o.
7/)).
8s obno"ious as contracts of pacto de retro are, !et nevertheless, the courts have no right to ma6e
contracts for parties. The! made their own contract in the present case. There is not a word, a phrase,
a sentence or paragraph, which in the slightest wa! indicates that the parties to the contract in
4uestion did not intend to sell the propert! in 4uestion absolutel!, simpl! with the right to repurchase.
%eople who ma6e their own beds must lie thereon.
Fhat has been said above with reference to the right to modif! contracts b! parol evidence, suDcientl!
answers the third 4uestions presented above. The language of the contract is e"plicit, clear,
unambiguous and be!ond 4uestion. It e"presses the e"act intention of the parties at the time it was
made. There is not a word, a phrase, a sentence or paragraph found in said contract which needs
e"planation. The parties thereto entered into said contract with the full understanding of its terms and
should not now be permitted to change or modif! it b! parol evidence.
Fith reference to the improvements made upon said propert! b! the plaintifs during the life of the
contract, <"hibit C, there is hereb! reserved to the plaintifs the right to e"ercise in a separate action
the right guaranteed to them under article ./' of the Civil Code.
For all of the foregoing reasons, we are full! persuaded from the facts of the record, in relation with the
law applicable thereto, that the judgment appealed from should be and is hereb! aDrmed, with costs.
So ordered.
Avance)a" C. J." !treet" Villamor" #omualdez and Villa6#eal" JJ." concur.
T$I2@ @IGISI*&
AG.R. No. 11439&. O:)ober 24, 199;B
$ARM!N LI@ANAG, petitioner, vs. T*! *ON. $OURT O- A,,!ALS an T*! ,!O,L! O- T*!
,*ILI,,IN!S, re(re4en)e b1 )7e So93:3)or Genera9, respondents.
%etitioner was charged with the crime of estafa before the 2egional Trial Court ;2TC>, Eranch -.,
Mue1on Cit!, in an information which reads as follows9
WThat on or between the month of a! '-, '-?? and 8ugust, '-?? in Mue1on Cit!, %hilippines and
within the jurisdiction of this $onorable Court, the said accused, with intent of gain, with unfaithfulness,
and abuse of con3dence, did then and there, willfull!, unlawfull! and feloniousl! defraud one ISI@*28
2*S80<S, in the following manner, to wit9 on the date and in the place aforementioned, said
accused received in trust from the ofended part! cash mone! amounting to % )./,/)=.==, %hilippine
Currenc!, with the e"press obligation involving the dut! to act as complainantPs agent in purchasing
local cigarettes ;%hilip orris and arlboro cigarettes>, to resell them to several stores, to give her
commission corresponding to ,=X of the pro3ts: and to return the aforesaid amount of ofended part!,
but said accused, far from compl!ing her aforesaid obligation, and once in possession thereof,
misapplied, misappropriated and converted the same to her personal use and bene3t, despite repeated
demands made upon her, accused failed and refused and still fails and refuses to deliver andIor return
the same to the damage and prejudice of the said ISI@*28 2*S80<S, in the aforementioned amount
and in such other amount as ma! be awarded under the provision of the Civil Code.
C*&T282L T* 08F.Y
The antecedent facts are as follows9
%etitioner Carmen 0iwanag ;0iwanag> and a certain Thelma Tabligan went to the house of
complainant Isidora 2osales ;2osales> and as6ed her to join them in the business of bu!ing and selling
cigarettes. Convinced of the feasibilit! of the venture, 2osales readil! agreed. Knder their agreement,
2osales would give the mone! needed to bu! the cigarettes while 0iwanag and Tabligan would act as
her agents, with a corresponding ,=X commission to her if the goods are sold: otherwise the mone!
would be returned to 2osales. Conse4uentl!, 2osales gave several cash advances to 0iwanag and
Tabligan amounting to %/..,/)=.==.
@uring the 3rst two months, 0iwanag and Tabligan made periodic visits to 2osales to report on the
progress of the transactions. The visits, however, suddenl! stopped, and all eforts b! 2osales to obtain
information regarding their business proved futile.
8larmed b! this development and believing that the amounts she advanced were being
misappropriated, 2osales 3led a case of estafa against 0iwanag.
8fter trial on the merits, the trial court rendered a decision dated +anuar! -, '--', 3nding 0iwanag
guilt! as charged. The dispositive portion of the decision reads thus9
WF$<2<F*2<, the Court holds, that the prosecution has established the guilt of the accused, be!ond
reasonable doubt, and therefore, imposes upon the accused, Carmen 0iwanag, an Indeterminate
%enalt! of SIR ;/> L<82S, <IA$T ;?> *&T$S 8&@ TF<&TL *&< ;7'> @8LS *F %2ISI*& C*22<CCI*&80
T* F*K2T<<& ;',> L<82S 8&@ <IA$T ;?> *&T$S *F %2ISI*& 8L*2 8S 8RIK, 8&@ T* %8L T$<
C*STS.
The accused is li6ewise ordered to reimburse the private complainant the sum of %)7/,/)=.==, without
subsidiar! imprisonment, in case of insolvenc!.
S* *2@<2<@.Y
Said decision was aDrmed with modi3cation b! the Court of 8ppeals in a decision dated
&ovember 7-, '--., the decretal portion of which reads9
WF$<2<F*2<, in view of the foregoing, the judgment appealed from is hereb! aDrmed with the
correction of the nomenclature of the penalt! which should be9 SIR ;/> L<82S, <IA$T ;?> *&T$S and
TF<&TL *&< ;7'> @8LS of prision ma!or, as minimum, to F*K2T<<& ;',> L<82S and <IA$T ;?>
*&T$S of reclusion temporal" as ma"imum. In all other respects, the decision is 8FFI2<@.
S* *2@<2<@.Y
$er motion for reconsideration having been denied in the resolution of arch '/, '--,, 0iwanag
3led the instant petition, submitting the following assignment of errors9
W'. 2<S%*&@<&T 8%%<008T< C*K2T A28G<0L <22<@ I& 8FFI2I&A T$< C*&GICTI*& *F T$<
8CCKS<@-%<TITI*&<2 F*2 T$< C2I< *F <ST8F8, F$<& C0<820L T$< C*&T28CT T$8T <RIST ;sic>
E<TF<<& T$< 8CCKS<@-%<TITI*&<2 8&@ C*%08I&8&T IS <IT$<2 T$8T *F 8 SI%0< 0*8& *2 T$8T
*F 8 %82T&<2S$I% *2 +*I&T G<&TK2< $<&C< T$< &*& 2<TK2& *F T$< *&<L *F T$< C*%08I&8&T
IS %K2<0L CIGI0 I& &8TK2< 8&@ &*T C2II&80.
7. 2<S%*&@<&T 8%%<008T< C*K2T A28G<0L <22<@ I& &*T 8CMKITTI&A T$< 8CCKS<@-%<TITI*&<2
*& A2*K&@S *F 2<8S*&8E0< @*KET EL 8%%0LI&A T$< Z<MKI%*IS< 2K0<P.Y
0iwanag advances the theor! that the intention of the parties was to enter into a contract of
partnership, wherein 2osales would contribute the funds while she would bu! and sell the cigarettes,
and later divide the pro3ts between them.
B'C
She also argues that the transaction can also be
interpreted as a simple loan, with 2osales lending to her the amount stated on an installment basis.
B7C
The Court of 8ppeals correctl! rejected these pretenses.
Fhile factual 3ndings of the Court of 8ppeals are conclusive on the parties and not reviewable b!
the Supreme Court, and carr! more weight when these aDrm the factual 3ndings of the trial court,
B.C
we
deem it more e"pedient to resolve the instant petition on its merits.
<stafa is a crime committed b! a person who defrauds another causing him to sufer damages, b!
means of unfaithfulness or abuse of con3dence, or of false pretenses of fraudulent acts.
B,C
From the foregoing, the elements of estafa are present, as follows9 ;'> that the accused defrauded
another b! abuse of con3dence or deceit: and ;7> that damage or prejudice capable of pecuniar!
estimation is caused to the ofended part! or third part!,
B)C
and it is essential that there be a 3duciar!
relation between them either in the form of a trust, commission or administration.
B/C
The receipt signed b! 0iwanag states thus9
Wa! '-, '-?? Mue1on Cit!
2eceived from rs. Isidora %. 2osales the sum of FIG< $K&@2<@ TF<&TL SIR T$*KS8&@ 8&@ SIR
$K&@2<@ FIFTL %<S*S ;%)7/,/)=.==> %hilippine Currenc!, to purchase cigarrets ;sic> ;%hilip S
arlboro> to be sold to customers. In the event the said cigarrets ;sic> are not sold, the proceeds of the
sale or the said products ;shall> be returned to said rs. Isidora %. 2osales the said amount
of %)7/,/)=.== or the said items on or before 8ugust .=, '-??.
;SA@ S Thumbedmar6ed> ;sic>
C82<& 0IF8&8A
7/ $. Oalira!a St.
Mue1on Cit!
Signed in the presence of9
;Sgd> Illegible ;Sgd> @oming N. EaligadY
The language of the receipt could not be an! clearer. It indicates that the mone! delivered to
0iwanag was for a speci3c purpose, that is, for the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the mone! must be returned to 2osales.
Thus, even assuming that a contract of partnership was indeed entered into b! and between the
parties, we have ruled that when mone! or propert! have been received b! a partner for a speci3c
purpose ;such as that obtaining in the instant case> and he later misappropriated it, such partner is
guilt! of estafa.
B(C
&either can the transaction be considered a loan, since in a contract of loan once the mone! is
received b! the debtor, ownership over the same is transferred.
B?C
Eeing the owner, the borrower can
dispose of it for whatever purpose he ma! deem proper.
In the instant petition, however, it is evident that 0iwanag could not dispose of the mone! as she
pleased because it was onl! delivered to her for a single purpose, namel!, for the purchase of
cigarettes, and if this was not possible then to return the mone! to 2osales. Since in this case there
was no transfer of ownership of the mone! delivered, 0iwanag is liable for conversion under 8rt. .'),
par. ';b> of the 2evised %enal Code.
@*!R!-OR!, in view of the foregoing, the appealed decision of the Court of 8ppeals dated
&ovember 7-, '--., is 8FFI2<@. Costs against petitioner.
S* *2@<2<@.
G.R. No. L-2496& A(r39 2;, 19;2
SAURA IM,ORT an !2,ORT $O., IN$., plaintif-appellee,
vs.
"!+!LO,M!NT #AN% O- T*! ,*ILI,,IN!S, defendant-appellant.
In Civil Case &o. ))-=? of the Court of First Instance of anila, judgment was rendered on +une 7?,
'-/) sentencing defendant @evelopment Ean6 of the %hilippines ;@E%> to pa! actual and conse4uential
damages to plaintif Saura Import and <"port Co., Inc. in the amount of %.?.,.,../?, plus interest at
the legal rate from the date the complaint was 3led and attorne!#s fees in the amount of %),===.==.
The present appeal is from that judgment.
In +ul! '-). the plaintif ;hereinafter referred to as Saura, Inc.> applied to the 2ehabilitation Finance
Corporation ;2FC>, before its conversion into @E%, for an industrial loan of %)==,===.==, to be used as
follows9 %7)=,===.== for the construction of a factor! building ;for the manufacture of jute sac6s>:
%7,=,-==.== to pa! the balance of the purchase price of the jute mill machiner! and e4uipment: and
%-,'==.== as additional wor6ing capital.
%arentheticall!, it ma! be mentioned that the jute mill machiner! had alread! been purchased b! Saura
on the strength of a letter of credit e"tended b! the %rudential Ean6 and Trust Co., and arrived in @avao
Cit! in +ul! '-).: and that to secure its release without 3rst pa!ing the draft, Saura, Inc. e"ecuted a
trust receipt in favor of the said ban6.
*n +anuar! (, '-), 2FC passed 2esolution &o. ',) approving the loan application for %)==,===.==, to
be secured b! a 3rst mortgage on the factor! building to be constructed, the land site thereof, and the
machiner! and e4uipment to be installed. 8mong the other terms spelled out in the resolution were the
following9
'. That the proceeds of the loan shall be utili1ed e"clusivel! for the following
purposes9
For construction of factor! building %7)=,===.==
For pa!ment of the balance of purchase
price of machiner! and e4uipment 7,=,-==.==
For wor6ing capital -,'==.==
T * T 8 0 %)==,===.==
,. That r. S rs. 2amon <. Saura, Inocencia 8rellano, 8niceto Caolbo! and Aregoria <stabillo and
China <ngineers, 0td. shall sign the promissor! notes jointl! with the borrower-corporation:
). That release shall be made at the discretion of the 2ehabilitation Finance Corporation, subject to
availabilit! of funds, and as the construction of the factor! buildings progresses, to be certi3ed to b! an
appraiser of this Corporation:J
Saura, Inc. was oDciall! noti3ed of the resolution on +anuar! -, '-),. The da! before, however,
evidentl! having otherwise been informed of its approval, Saura, Inc. wrote a letter to 2FC, re4uesting a
modi3cation of the terms laid down b! it, namel!9 that in lieu of having China <ngineers, 0td. ;which
was willing to assume liabilit! onl! to the e"tent of its stoc6 subscription with Saura, Inc.> sign as co-
ma6er on the corresponding promissor! notes, Saura, Inc. would put up a bond for %'7.,)==.==, an
amount e4uivalent to such subscription: and that aria S. 2oca would be substituted for Inocencia
8rellano as one of the other co-ma6ers, having ac4uired the latter#s shares in Saura, Inc.
In view of such re4uest 2FC approved 2esolution &o. (./ on Februar! ,, '-),, designating of the
members of its Eoard of Aovernors, for certain reasons stated in the resolution, Jto ree"amine all the
aspects of this approved loan ... with special reference as to the advisabilit! of 3nancing this particular
project based on present conditions obtaining in the operations of jute mills, and to submit his 3ndings
thereon at the ne"t meeting of the Eoard.J
*n arch 7,, '-), Saura, Inc. wrote 2FC that China <ngineers, 0td. had again agreed to act as co-
signer for the loan, and as6ed that the necessar! documents be prepared in accordance with the terms
and conditions speci3ed in 2esolution &o. ',). In connection with the ree"amination of the project to
be 3nanced with the loan applied for, as stated in 2esolution &o. (./, the parties named their
respective committees of engineers and technical men to meet with each other and underta6e the
necessar! studies, although in appointing its own committee Saura, Inc. made the observation that the
same Jshould not be ta6en as an ac4uiescence on ;its> part to novate, or accept new conditions to, the
agreement alread!> entered into,J referring to its acceptance of the terms and conditions mentioned in
2esolution &o. ',).
*n 8pril '., '-), the loan documents were e"ecuted9 the promissor! note, with F.2. $alling,
representing China <ngineers, 0td., as one of the co-signers: and the corresponding deed of mortgage,
which was dul! registered on the following 8pril '(.
It appears, however, that despite the formal e"ecution of the loan agreement the ree"amination
contemplated in 2esolution &o. (./ proceeded. In a meeting of the 2FC Eoard of Aovernors on +une '=,
'-),, at which 2amon Saura, %resident of Saura, Inc., was present, it was decided to reduce the loan
from %)==,===.== to %.==,===.==. 2esolution &o. .-?- was approved as follows9
2<S*0KTI*& &o. .-?-. 2educing the 0oan Aranted Saura Import S <"port Co., Inc. under 2esolution &o.
',), C.S., from %)==,===.== to %.==,===.==. %ursuant to Ed. 2es. &o. (./, c.s., authori1ing the re-
e"amination of all the various aspects of the loan granted the Saura Import S <"port Co. under
2esolution &o. ',), c.s., for the purpose of 3nancing the manufacture of jute sac6s in @avao, with
special reference as to the advisabilit! of 3nancing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard 2amon <. Saura and after e"tensive
discussion on the subject the Eoard, upon recommendation of the Chairman, 2<S*0G<@ that the loan
granted the Saura Import S <"port Co. be 2<@KC<@ from %)==,=== to %.==,=== and that releases up to
%'==,=== ma! be authori1ed as ma! be necessar! from time to time to place the factor! in actual
operation9 %2*GI@<@ that all terms and conditions of 2esolution &o. ',), c.s., not inconsistent
herewith, shall remain in full force and efect.J
*n +une '-, '-), another hitch developed. F.2. $alling, who had signed the promissor! note for China
<ngineers 0td. jointl! and severall! with the other 2FC that his compan! no longer to of the loan and
therefore considered the same as cancelled as far as it was concerned. 8 follow-up letter dated +ul! 7
re4uested 2FC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written 2FC re4uesting that the loan of %)==,===.== be granted. The
re4uest was denied b! 2FC, which added in its letter-repl! that it was Jconstrained to consider as
cancelled the loan of %.==,===.== ... in view of a noti3cation ... from the China <ngineers 0td.,
e"pressing their desire to consider the loan insofar as the! are concerned.J
*n +ul! 7,, '-), Saura, Inc. too6 e"ception to the cancellation of the loan and informed 2FC that China
<ngineers, 0td. Jwill at an! time reinstate their signature as co-signer of the note if 2FC releases to us
the %)==,===.== originall! approved b! !ou.J.
*n @ecember '(, '-), 2FC passed 2esolution &o. -=?., restoring the loan to the original amount of
%)==,===.==, Jit appearing that China <ngineers, 0td. is now willing to sign the promissor! notes jointl!
with the borrower-corporation,J but with the following proviso9
That in view of observations made of the shortage and high cost of imported raw
materials, the @epartment of 8griculture and &atural 2esources shall certif! to the
following9
'. That the raw materials needed b! the borrower-corporation to carr! out its
operation are available in the immediate vicinit!: and
7. That there is prospect of increased production thereof to provide ade4uatel! for the
re4uirements of the factor!.J
The action thus ta6en was communicated to Saura, Inc. in a letter of 2FC dated @ecember 77, '-),,
wherein it was e"plained that the certi3cation b! the @epartment of 8griculture and &atural 2esources
was re4uired Jas the intention of the original approval ;of the loan> is to develop the manufacture of
sac6s on the basis of locall! available raw materials.J This point is important, and sheds light on the
subse4uent actuations of the parties. Saura, Inc. does not den! that the factor! he was building in
@avao was for the manufacture of bags from local raw materials. The cover page of its brochure ;<"h.
> describes the project as a J+oint venture b! and between the indanao Industr! Corporation and the
Saura Import and <"port Co., Inc. to 3nance, manage and operate a 7enafmill plant, to manufacture
copra and corn bags, runners, 5oor mattings, carpets, draperies: out of '==X local raw materials,
principal 8enaf.J The e"planator! note on page ' of the same brochure states that, the venture Jis the
3rst serious attempt in this countr! to use '==X locall! grown raw materials notabl! 8enaf which is
presentl! grown commerciall! in theIsland of indanao where the proposed jutemill is located ...J
This fact, according to defendant @E%, is what moved 2FC to approve the loan application in the 3rst
place, and to re4uire, in its 2esolution &o. -=?., a certi3cation from the @epartment of 8griculture and
&atural 2esources as to the availabilit! of local raw materials to provide ade4uatel! for the
re4uirements of the factor!. Saura, Inc. itself con3rmed the defendant#s stand impliedl! in its letter of
+anuar! 7', '-))9 ;'> stating that according to a special stud! made b! the Eureau of Forestr!
J8enaf will not be available in suDcient 4uantit! this !ear or probabl! even ne"t !ear:J ;7> re4uesting
Jassurances ;from 2FC> that m! compan! and associates will be able to bring in suDcient jute
materials as ma! be necessar! for the full operation of the jute mill:J and ;.> as6ing that releases of the
loan be made as follows9
a> For the pa!ment of the receipt for jute mill
machineries with the %rudential Ean6 S
Trust Compan! %7)=,===.==
;For immediate release>
b> For the purchase of materials and e4uip-
ment per attached list to enable the jute
mill to operate '?7,,'..-'
c> For raw materials and labor /(,)?/.=-
'> %7),===.== to be released on the open-
ing of the letter of credit for raw jute
for [7),===.==.
7> %7),===.== to be released upon arrival
of raw jute.
.> %'(,)?/.=- to be released as soon as the
mill is read! to operate.
*n +anuar! 7), '-)) 2FC sent to Saura, Inc. the following repl!9
@ear Sirs9
This is with reference to !our letter of +anuar! 7', '-)), regarding
the release of !our loan under consideration of %)==,===. 8s stated
in our letter of @ecember 77, '-),, the releases of the loan, if
revived, are proposed to be made from time to time, subject to
availabilit! of funds towards the end that the sac6 factor! shall be
placed in actual operating status. Fe shall be able to act on !our
re4uest for revised purpose and manner of releases upon re-
appraisal of the securities ofered for the loan.
Fith respect to our re4uirement that the @epartment of 8griculture
and &atural 2esources certif! that the raw materials needed are
available in the immediate vicinit! and that there is prospect of
increased production thereof to provide ade4uatel! the
re4uirements of the factor!, we wish to reiterate that the basis of
the original approval is to develop the manufacture of sac6s on the
basis of the locall! available raw materials. Lour statement that !ou
will have to rel! on the importation of jute and !our re4uest that we
give !ou assurance that !our compan! will be able to bring in
suDcient jute materials as ma! be necessar! for the operation of
!our factor!, would not be in line with our principle in approving the
loan.
Fith the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it re4uested 2FC to cancel the mortgage, and so, on +une '(, '-)) 2FC e"ecuted the
corresponding deed of cancellation and delivered it to 2amon F. Saura himself as president of Saura,
Inc.
It appears that the cancellation was re4uested to ma6e wa! for the registration of a mortgage contract,
e"ecuted on 8ugust /, '-),, over the same propert! in favor of the %rudential Ean6 and Trust Co.,
under which contract Saura, Inc. had up to @ecember .' of the same !ear within which to pa! its
obligation on the trust receipt heretofore mentioned. It appears further that for failure to pa! the said
obligation the %rudential Ean6 and Trust Co. sued Saura, Inc. on a! '), '-)).
*n +anuar! -, '-/,, ahnost - !ears after the mortgage in favor of 2FC was cancelled at the re4uest of
Saura, Inc., the latter commenced the present suit for damages, alleging failure of 2FC ;as predecessor
of the defendant @E%> to compl! with its obligation to release the proceeds of the loan applied for and
approved, thereb! preventing the plaintif from completing or pa!ing contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintif, ruling that there was a perfected contract between
the parties and that the defendant was guilt! of breach thereof. The defendant pleaded below, and
reiterates in this appeal9 ;'> that the plaintif#s cause of action had prescribed, or that its claim had
been waived or abandoned: ;7> that there was no perfected contract: and ;.> that assuming there was,
the plaintif itself did not compl! with the terms thereof.
Fe hold that there was indeed a perfected consensual contract, as recogni1ed in 8rticle '-., of the
Civil Code, which provides9
82T. '-),. 8n accepted promise to deliver something, b! wa! of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the deliver! of the object of the contract.
There was undoubtedl! ofer and acceptance in this case9 the application of Saura, Inc. for a loan of
%)==,===.== was approved b! resolution of the defendant, and the corresponding mortgage was
e"ecuted and registered. Eut this fact alone falls short of resolving the basic claim that the defendant
failed to ful3ll its obligation and the plaintif is therefore entitled to recover damages.
It should be noted that 2FC entertained the loan application of Saura, Inc. on the assumption that the
factor! to be constructed would utili1e locall! grown raw materials, principall! 8enaf. There is no
serious dispute about this. It was in line with such assumption that when 2FC, b! 2esolution &o. -=?.
approved on @ecember '(, '-),, restored the loan to the original amount of %)==,===.==. it imposed
two conditions, to wit9 J;'> that the raw materials needed b! the borrower-corporation to carr! out its
operation are available in the immediate vicinit!: and ;7> that there is prospect of increased production
thereof to provide ade4uatel! for the re4uirements of the factor!.J The imposition of those conditions
was b! no means a deviation from the terms of the agreement, but rather a step in its implementation.
There was nothing in said conditions that contradicted the terms laid down in 2FC 2esolution &o. ',),
passed on +anuar! (, '-),, namel! H Jthat the proceeds of the loan shall be utili1ede9clusivel/ for the
following purposes9 for construction of factor! building H %7)=,===.==: for pa!ment of the balance of
purchase price of machiner! and e4uipment H %7,=,-==.==: for wor6ing capital H %-,'==.==.J
<videntl! Saura, Inc. reali1ed that it could not meet the conditions re4uired b! 2FC, and so wrote its
letter of +anuar! 7', '-)), stating that local jute Jwill not be able in suDcient 4uantit! this !ear or
probabl! ne"t !ear,J and as6ing that out of the loan agreed upon the sum of %/(,)?/.=- be released
Jfor raw materials and labor.J This was a deviation from the terms laid down in 2esolution &o. ',) and
embodied in the mortgage contract, impl!ing as it did a diversion of part of the proceeds of the loan to
purposes other than those agreed upon.
Fhen 2FC turned down the re4uest in its letter of +anuar! 7), '-)) the negotiations which had been
going on for the implementation of the agreement reached an impasse. Saura, Inc. obviousl! was in no
position to compl! with 2FC#s conditions. So instead of doing so and insisting that the loan be released
as agreed upon, Saura, Inc. as6ed that the mortgage be cancelled, which was done on +une '), '-)).
The action thus ta6en b! both parties was in the nature cf mutual desistance H what anresa terms
Jmutuo disensoJ
1
H which is a mode of e"tinguishing obligations. It is a concept that derives from the
principle that since mutual agreement can create a contract, mutual disagreement b! the parties can
cause its e"tinguishment.
2
The subse4uent conduct of Saura, Inc. con3rms this desistance. It did not protest against an! alleged
breach of contract b! 2FC, or even point out that the latter#s stand was legall! unjusti3ed. Its re4uest
for cancellation of the mortgage carried no reservation of whatever rights it believed it might have
against 2FC for the latter#s non-compliance. In '-/7 it even applied with @E% for another loan to
3nance a rice and corn project, which application was disapproved. It was onl! in '-/,, nine !ears after
the loan agreement had been cancelled at its own re4uest, that Saura, Inc. brought this action for
damages.8ll these circumstances demonstrate be!ond doubt that the said agreement had been
e"tinguished b! mutual desistance H and that on the initiative of the plaintif-appellee itself.
Fith this view we ta6e of the case, we 3nd it unnecessar! to consider and resolve the other issues
raised in the respective briefs of the parties.
F$<2<F*2<, the judgment appealed from is reversed and the complaint dismissed, with costs against
the plaintif-appellee.
G.R. No. L-192; Ma1 31, 1949
$RISTO#AL ROCO, petitioner,
vs.
.OS! L. GOM!/, !T AL., respondents.
This petition to review a decision of the Court of 8ppeals was admitted mainl! because it involves one
phase of the vital contemporar! 4uestion9 the repa!ment of loans given in +apanese 3at currenc!
during the last war of the %aci3c.
*n *ctober ), '-,,, Cristobal 2oUo received as a loan four thousand pesos in +apanese 3at mone! from
+ose 0. Aome1. $e informed the later that he would use the mone! to purchase a jitne!: and he agreed
to pa! that debt one !ear after date in the currenc! then prevailing. $e signed a promissor! note of the
following tenor9
For value received, I promise to pa! one !ear after date the sum of four thousand pesos
;,,===> to +ose 0. Aome1. It is agreed that this will not earn an! interest and the pa!ment It is
agreed that this will not earn an! interest and the pa!ment prevailing b! the end of the
stipulated period of one !ear.
In consideration of this generous loan, I renounce an! right that ma! come to me b! reason of
an! postwar arrangement, of privilege that ma! come to me b! legislation wherein this sum
ma! be devalued. I renounce 5atl! and absolutel! an! condition, term right or privilege which
in an! wa! will prejudice the right engendered b! this agreement wherein 8tt!. +ose 0. Aome1
will receive b! right his mone! in the amount of %,,===. I aDrm the legal tender, currenc! or
an! medium of e"change, or mone! in this sum of %,,=== will be paid b! me to +ose 0. Aome1
one !ear after this date, *ctober ), '-,,.
*n *ctober '), '-,), i.e., after the liberation, 2oUo was sued for pa!ment in the 0aguna Court of First
Instance. $is main defense was his liabilit! should not e"ceed the e4uivalent of ,,=== pesos Jmic6e!
mouseJ mone! H and could not be ,,=== pesos %hilippine currenc!, because the contract would be
void as contrar! to law, public order and good morals.
8fter the corresponding hearing, the $onorable Feli" Eautista 8ngelo, +udge, ordered the defendant
2oUo to pa! four thousand pesos in %hilippine currenc! with legal interest from the presentation of the
complaint plus costs.
*n appeal the Court of 8ppeals in a decision written b! r. +ustice +ugo, aDrmed the judgment with
costs. It declared being a mechanic who 6new <nglish was not deceived into signing the promissor!
note, and that the contents of the same had not been misrepresented to him. It pronounced the
contract valid and enforceable according to its terms and conditions.
*ne basic principle of the law on contracts of the Civil Code is that Jthe contracting parties ma!
establish an! pacts, clauses and conditions the! ma! deem advisable, provided the! are not contrar! to
law, morals or public order.J ;8rticle '7)).> 8nother principle is that Jobligations arising from contracts
shall have the force of law between the contracting parties and must be performed in accordance with
their stipulationsJ ;8rticle '=-'>.
Invo6ing the above proviso, 2oUo asserts this contract is contrar! to the Ksur! law, because on the
basis of calculations b! Aovernment e"perts he onl! received the e4uivalent of one hundred %hilippine
pesos and now he is re4uired to disgorge four thousand pesos or interest greatl! in e"cess of the lawful
rates.
Eut he is not pa!ing interest. %recisel! the contract sa!s that the mone! received Jwill not earn an!
interest.J Furthermore, he received four thousand pesos: and he is re4uired to pa! four thousand pesos
e9actl/. The increased intrinsic value and purchasing power of the current mone! is conse4uence of an
event ;change of currenc!> which at the time of the contract neither part! 6new would certainl! happen
within the period of one !ear. The! both elected to subject their rights and obligations to that
contingenc!. If within one !ear another 6ind of currenc! became legal tender, Aome1 would probabl!
get more for his mone!. If the same +apanese currenc! continued, he would get less, the value of
+apanese mone! being then on the downgrade.
*ur legislation has a word for these contracts9 aleator!. The Civil Code recogni1es their validit! ;see art.
'(-= and anresa#s comment thereon> on a par with insurance policies and life annuities.
The eventual gain of Aome1 in this transaction is not interest within the meaning of Ksur! 0aws.
Interest is some additional mone! to be paid in an! event, which is not the case herein, because Aome1
might have gotten less if the +apanese occupation had e"tended to the end of '-,) or if the liberation
forces had chosen to permit the circulation of the +apanese notes.
oreover, 2oUo argues, the deal was immoral because ta6ing advantage of his superior 6nowledge of
war developments Aome1 imposed on him this onerous obligation. In the 3rst place, the Court of
8ppeals found that he voluntar! agreed to sign and signed the document without having been misled
as to its contents and Jin so far as 6nowledge of war events was concernedJ both parties were on
Je4ual footingJ. In the second place although on *ctober ), '-,, it was possible to surmise the
impending 8merican invasion, the date of victor! or liberation was an!bod!#s guess. In the third place
there was the possibilit! that upon-re-occupation the %hilippine Aovernment would not invalidate the
+apanese currenc!, which after all had been forced upon the people in e"change for valuable goods and
propert!. The odds were about even when 2oUo and Aome1 pla!ed their bargaining game. There was
no overreaching, nor unfair advantage.
8gain 2oUo alleges it is immoral and against public order for a man to obtain four thousand pesos in
return for an investment of fort! pesos ;his estimate of the value of the +apanese mone! he borrowed>.
8ccording to his line of reasoning it would be immoral for the homeowner to recover ten thousand
pesos ;%'=,===, when his house is burned, because he invested onl! about one hundred pesos for the
insurance polic!. 8nd when the holder of a sweepsta6es tic6et who paid onl! four pesos luc6il! obtains
the 3rst pri1e of one hundred thousand pesos or over, the whole business is immoral or against public
order.
In this connection we should e"plain that this decision does not cover situations where borrowers of
+apanese 3at currenc! promised to repa! Jthe same amountJ or promised to return the same number of
pesos Jin %hilippines currenc!J or Jin the currenc! prevailing after the war.J There ma! be room for
argument when those litigations come up for adjudication. 8ll we sa! here and now is that the contract
in 4uestion is legal and obligator!.
8 minor point concerns the personalit! of the plaintif, the wife of +ose 0. Aome1. Fe opine with the
Court of 8ppeals that the matter involve a defect in procedure which does not amount to prejudicial
error.
Fherefore, the appealed judgment will be aDrmed with costs. So ordered.
0oran" C.J." zaeta" 'uason" 0ontema/or and #e/es" JJ." concur.
G.R. No. L-132& Se()ember 9, 1949
MARIANO N!,OMU$!NO an AGU!"A G. "! N!,OMU$!NO, plaintifs-appellants,
vs.
!"IL#!RTO A. NAR$ISO an MAURA SUAR!/, defendants-appellees.
*n &ovember ',, '-.?, appellant ariano &epomuceno e"ecuted a mortgage in favor of the appellees
on a parcel of land situated in the municipalit! of 8ngeles, %rovince of %ampanga, to secure the
pa!ment within the period of seven !ears from the date of the mortgage of the sum of %7,,===
together with interest thereon at the rate of ? per cent per annum.
*n September .=, '-,., that is to sa!, more than two !ears before the maturit! of said mortgage, the
parties e"ecuted a notarial document entitled J%artial &ovation of ContractJ whereb! the! modi3ed the
terms of said mortgage as follows9
;'> From @ecember ?, '-,', to +anuar! ', '-,,, the interest on the mortgage shall be at / per
cent per annum, unpaid interest also pa!ing interest also pa!ing interest at the same rate.
;7> From +anuar! ', '-,,, up to the end of the war, the mortgage debt shall li6ewise bear
interest at / per cent. Knpaid interest during this period shall however not bear an! interest.
;.> 8t the end of the war the interest shall again become ? per cent in accordance with the
original contract of mortgage.
;,> Fhile the war goes on, the mortgagor, his administrators or assigns, cannot redeem the
propert! mortgaged.
;)> Fhen the mortgage lapses on &ovember ',, '-,), the mortgage ma! continue for another
ten !ears if the mortgagor so chooses, but during this period he ma! pa! onl! one half of the
capital.
*n +ul! 7', '-,,, the mortgagor ariano &epomuceno and his wife 8gueda A. de &epomuceno 3led
their complaint in this case against the mortgagees, which complaint, as amended on September (,
'-,,, alleged the e"ecution of the contract of mortgage and its principal novation as above indicated,
and
(. That as per 8nne" E, &o. ,, it is provided that the mortgagor cannot redeem the propert!
mortgaged while the war goes on: and that notwithstanding the said provision the herein
plaintifs-mortgagors are now willing to pa! the amount of the indebtedness together with the
corresponding interest due thereon:
?. That on +ul! '-, '-,,, the mortgagors-plaintifs went to the house of the mortgagees-
defendants to tender pa!ment of the balance of the mortgage debt with their corresponding
interest, but said spouses defendants refuse and still refuse to accept pa!ment:
-. That because of this refusal of the defendants to accept tender of pa!ment on the mortgage
consideration, the plaintifs sufered and still sufer damages in the amount of %),===:
'=. That the plaintifs are now and have deposited with the Cler6 of Court of First Instance of
%ampanga the amount of %77,.)/ for the pa!ment of the mortgage debt and the interest due
thereon:
Fherefore, it is more respectfull! pra!ed that this $onorable Court will issue an order in the
following tenor9
;a> *rdering the defendants to accept tender of pa!ment from the plaintifs:
;(> *rdering defendants to e"ecute the corresponding deed of release of mortgage:
;c> *rdering defendants to pa! damages in the amount of %),===: and
;d> *rdering defendants to pa! the amount of %.,=== as attorne!#s fee and the costs of suit
and an! other remed! just and e4uitable in the premises.
8fter the trial the court sustained the defense that the complaint had been prematurel! presented and
dismissed it with costs.
8ppellants contend that the stipulation in the contract of September .=, '-,., that Jwhile the war goes
on the mortgagor, his administrators or assigns cannot redeem the propert! mortgaged,J is against
public polic! and therefore null and void. The! cite and rel! on article '7)) of the Civil Code, which
provides9
82T. '7)). H The contracting parties ma! establish an! pacts, clauses, and conditions the!
ma! deem advisable, provided the! are not contrar! to law, morals, or public order.
The! argue that Jit would certainl! be against public polic! and a restraint on the freedom of commerce
to compel a debtor not to release his propert! from a lien H even if he wanted to b! the pa!ment of the
indebtedness H while the war goes on, which was undoubtedl! of a ver! uncertain duration.J
The 3rst two paragraphs of article ''7) of the Civil Code provide9
82T. ''7). H *bligation for the performance of which a da! certain has been 3"ed shall be
demandable onl! when the da! arrives.
8 da! certain is understood to be one which must necessaril! arrive, even though its date be
un6nown.
8rticle ''7( sa!s9
82T. ''7(. Fhenever a term for the performance of an obligation is 3"ed, it is presumed to
have been established for the bene3t of the creditor and that of the debtor, unless from its
tenor or from other circumstances it should appear that the term was established for the
bene3t of one or the other.
It will be noted that the original contract of mortgage provided for interest at ? per cent per annum and
that the principal together with the interest was pa!able within the period of seven !ears from
&ovember ',, '-.?. Eut b! mutual agreement of the parties that term was modi3ed on September .=,
'-,., b! reducing the interest to / per cent per annum from @ecember ?, '-,', until the end of the
war and b! stipulating that the mortgagor shall not pa! of the mortgage while the war went on.
Fe 3nd nothing immoral or violative of public order in that stipulation. The mortgagees apparentl! did
not want to have their prewar credit paid with +apanese militar! notes, and the mortgagor voluntaril!
agreed not to do so in consideration of the reduction of the rate of interest.
It was a perfectl! e4uitable and valid transaction, in conformit! with the provision of the Civil Code
hereinabove 4uoted.
8ppellants were bound b! said contract and appellees were not obligated to receive the pa!ment
before it was due. $ence the latter had reason not to accept the tender of pa!ment made to them b!
the former.
The judgment is aDrmed, with costs against the appellants.

-IRST "I+ISION

!QUITA#L! ,$I #AN%,
D
A.2. &o. '('),)
AIM!! <U an #!.AN
LION!L A,AS,
,e)3)3oner4, +S

NG S*!UNG NGOR
DD
o3n8
b043ne44 0ner )7e name
an 4)19e E%!N MAR%!TING,F %romulgated9
%!N A,,LIAN$! "I+ISION,
IN$. an #!N.AMIN !. GO,
Re4(onen)4. "e:ember 19, 200;
This petition for review on certiorari
B'C
see6s to set aside the decision
B7C
of the Court of 8ppeals
;C8> in C8-A.2. S% &o. ?.''7 and its resolution
B.C
den!ing reconsideration.
*n *ctober (, 7==', respondents &g Sheung &gor,
B,C
Oen 8ppliance @ivision, Inc. and Eenjamin
<. Ao 3led an action for annulment andIor reformation of documents and contracts
B)C
against petitioner
<4uitable %CI Ean6 ;<4uitable> and its emplo!ees, 8imee Lu and Eejan 0ionel 8pas, in the 2egional Trial
Court ;2TC>, Eranch '/ of Cebu Cit!.
B/C
The! claimed that <4uitable induced them to avail of its peso
and dollar credit facilities b! ofering low interest rates
B(C
so the! accepted <4uitable#s proposal and
signed the ban6#s pre-printed promissor! notes on various dates beginning '--/. The!, however, were
unaware that the documents contained identical escalation clauses granting <4uitable authorit! to
increase interest rates without their consent.
B?C
<4uitable, in its answer, asserted that respondents 6nowingl! accepted all the terms and
conditions contained in the promissor! notes.
B-C
In fact, the! continuousl! availed of and bene3ted from
<4uitable#s credit facilities for 3ve !ears.
B'=C
8fter trial, the 2TC upheld the validit! of the promissor! notes. It found that, in 7==' alone,
<4uitable restructured respondents# loans amounting to KS[77?,7== and %',===,===.
B''C
The trial court,
however, invalidated the escalation clause contained therein because it violated the principle of
mutualit! of contracts.
B'7C
&evertheless, it too6 judicial notice of the steep depreciation of the peso
during the intervening period
B'.C
and declared the e"istence of e"traordinar! de5ation.
B',C
Conse4uentl!,
the 2TC ordered the use of the '--/ dollar e"change rate in computing respondents# dollar-
denominated loans.
B')C
0astl!, because the business reputation of respondents was ;allegedl!> severel!
damaged when <4uitable fro1e their accounts,
B'/C
the trial court awarded moral and e"emplar! damages
to them.
B'(C
The dispositive portion of the Februar! ), 7==, 2TC decision
B'?C
provided9
@*!R!-OR!, premises considered, judgment is hereb! rendered
8> *rdering B<4uitableC to reinstate and return the amount of Brespondents#C
deposit placed on hold status:
E> *rdering B<4uitableC to pa! BrespondentsC the sum of %'7 BmCillion BpCesos
as moral damages:
C> *rdering B<4uitableC to pa! BrespondentsC the sum of %'= BmCillion BpCesos
as e"emplar! damages:
@> *rdering defendants 8imee Lu and Eejan B0ionelC 8pas to pa! BrespondentsC,
jointl! and severall!, the sum of BtCwo BmCillion BpCesos as moral and
e"emplar! damages:
<> *rdering B<4uitable, 8imee Lu and Eejan 0ionel 8pasC, jointl! and severall!,
to pa! Brespondents#C attorne!#s fees in the sum of %.==,===: litigation
e"penses in the sum of %)=,=== and the cost of suit:
F> @irecting plaintifs &g Sheung &gor and Oen ar6eting to pa! B<4uitableC
the unpaid principal obligation for the peso loan as well as the unpaid
obligation for the dollar denominated loan:
A> @irecting plaintif &g Sheung &gor and Oen ar6eting to pa! B<4uitableC
interest as follows9
'> '7X per annum for the peso loans:
7> ?X per annum for the dollar loans. The basis for the pa!ment of the
dollar obligation is the conversion rate of %7/.)= per dollar availed of at
the time of incurring of the obligation in accordance with 8rticle '7)= of
the Civil Code of the %hilippines:
$> @ismissing B<4uitable#sC counterclaim e"cept the pa!ment of the aforestated
unpaid principal loan obligations and interest.

SO OR"!R!".
B'-C

<4uitable and respondents 3led their respective notices of appeal.
B7=C
In the arch ', 7==, order of the 2TC, both notices were denied due course because <4uitable
and respondents Wfailed to submit proof that the! paid their respective appeal fees.Y
B7'C

@*!R!-OR!, premises considered, the appeal interposed b! defendants
from the @ecision in the above-entitled case is "!NI!" due course. A4 o6 -ebr0ar1
2;, 2004, )7e "e:343on a)e -ebr0ar1 ', 2004, 34 :on43ere Gna9 an
e5e:0)or1 3n 4o 6ar a4 B!H03)ab9e, A3mee <0 an #eIan L3one9 A(a4C are
:on:erne.
B77C
;emphasis supplied>
<4uitable moved for the reconsideration of the arch ', 7==, order of the 2TC
B7.C
on the ground
that it did in fact pa! the appeal fees. 2espondents, on the other hand, pra!ed for the issuance of a
writ of e"ecution.
B7,C

*n arch 7,, 7==,, the 2TC issued an omnibus order den!ing <4uitable#s motion for
reconsideration for lac6 of merit
B7)C
and ordered the issuance of a writ of e"ecution in favor of
respondents.
B7/C
8ccording to the 2TC, because respondents did not move for the reconsideration of the
previous order ;den!ing due course to the partiesP notices of appeal>,
B7(C
the Februar! ), 7==, decision
became 3nal and e"ecutor! as to both parties and a writ of e"ecution against <4uitable was in order.
B7?C

8 writ of e"ecution was thereafter issued
B7-C
and three real properties of <4uitable were levied
upon.
B.=C

*n arch 7/, 7==,, <4uitable 3led a petition for relief in the 2TC from the arch ', 7==, order.
B.'C
It, however, withdrew that petition on arch .=, 7==,
B.7C
and instead 3led a petition for certiorari
with an application for an injunction in the C8 to enjoin the implementation and e"ecution of the arch
7,, 7==, omnibus order.
B..C

*n +une '/, 7==,, the C8 granted <4uitable#s application for injunction. 8 writ of preliminar!
injunction was correspondingl! issued.
B.,C
&otwithstanding the writ of injunction, the properties of <4uitable previousl! levied upon were
sold in a public auction on +ul! ', 7==,. 2espondents were the highest bidders and certi3cates of sale
were issued to them.
B.)C

*n 8ugust '=, 7==,, <4uitable moved to annul the +ul! ', 7==, auction sale and to cite the
sherifs who conducted the sale in contempt for proceeding with the auction despite the injunction
order of the C8.
B./C

*n *ctober 7?, 7==), the C8 dismissed the petition for certiorari.
B.(C
It found <4uitable guilt! of
forum shopping because the ban6 3led its petition for certiorari in the C8 several hours before
withdrawing its petition for relief in the 2TC.
B.?C
oreover, <4uitable failed to disclose, both in the
statement of material dates and certi3cate of non-forum shopping ;attached to its petition for certiorari
in the C8>, that it had a pending petition for relief in the 2TC.
B.-C

<4uitable moved for reconsideration
B,=C
but it was denied.
B,'C
Thus, this petition.
<4uitable asserts that it was not guilt! of forum shopping because the petition for relief was
withdrawn on the same da/ the petition for certiorari was 3led.
B,7C
It li6ewise avers that its petition for
certiorari was meritorious because the 2TC committed grave abuse of discretion in issuing the arch
7,, 7==, omnibus order which was based on an erroneous assumption. The arch ', 7==, order
den!ing its notice of appeal for non pa!ment of appeal fees was erroneous because it had in fact paid
the re4uired fees.
B,.C
Thus, the 2TC, b! issuing its arch 7,, 7==, omnibus order, efectivel! prevented
<4uitable from appealing the patentl! wrongFebruar! ), 7==, decision.
B,,C
This petition is meritorious.
!QUITA#L! @AS NOT GUILT< O-
-ORUM S*O,,ING
Forum shopping e"ists when two or more actions involving the same transactions, essential facts
and circumstances are 3led and those actions raise identical issues, subject matter and causes of
action.
B,)C
The test is whether, in two or more pending cases, there is identit! of parties, rights or causes
of actions and reliefs.
B,/C

<4uitable#s petition for relief in the 2TC and its petition for certiorari in the C8 did not have
identical causes of action. The petition for relief from the denial of its notice of appeal was based on the
2TCPs judgment or 3nal order preventing it from ta6ing an appeal b! Wfraud, accident, mista6e or
e"cusable negligence.Y
B,(C
*n the other hand, its petition for certiorari in the C8, a special civil action,
sought to correct the grave abuse of discretion amounting to lac6 of jurisdiction committed b! the 2TC.
B,?C

In a petition for relief, the judgment or 3nal order is rendered b! a court with competent
jurisdiction. In a petition for certiorari, the order is rendered b! a court without or in e"cess of its
jurisdiction.
oreover, <4uitable substantiall! complied with the rule on non-forum shopping when it moved
to withdraw its petition for relief in the 2TC on the same da! ;in fact just four hours and fort! minutes
after> it 3led the petition for certiorari in the C8. <ven if <4uitable failed to disclose that it had a
pending petition for relief in the 2TC, it recti3ed what was doubtlessl! a careless oversight b!
withdrawing the petition for relief just a few hours after it 3led its petition for certiorari in the C8 \ a
clear indication that it had no intention of maintaining the two actions at the same time.

T*! TRIAL $OURT $OMMITT!"
GRA+! A#US! O- "IS$R!TION IN
ISSUING ITS MAR$* 1, 2004 AN"
MAR$* 24, 2004 OR"!R
Section ', 2ule /) of the 2ules of Court provides9
Section '. Petition for Certiorari. Fhen an1 )r3b0na9, boar or oJ:er e5er:343n8
I03:3a9 or H0a43-I03:3a9 60n:)3on 7a4 a:)e ?3)7o0) or 3n e5:e44 o6 3)4 or 734
I0r343:)3on, or ?3)7 8rave ab04e o6 34:re)3on amo0n)3n8 )o 9a:K or e5:e44
o6 I0r343:)3on, and )7ere 34 no a((ea9, nor an1 (9a3n, 4(ee1 or aeH0a)e
reme1 3n )7e or3nar1 :o0r4e o6 9a?, a person aggrieved thereb! ma! 3le a
veri3ed petition in the proper court, alleging the facts with certaint! and pra!ing that
judgment be rendered annulling or modif!ing the proceedings of such tribunal, board
or oDcer, and granting such incidental reliefs as law and justice ma! re4uire.
The petition shall be accompanied b! a certi3ed true cop! of the judgment,
order or resolution subject thereof, copies of all pleadings and documents relevant
and pertinent thereto, and a sworn certi3cate of non-forum shopping as provided in
the third paragraph of Section ., 2ule ,/.
There are two substantial re4uirements in a petition for certiorari. These are9
'. that the tribunal, board or oDcer e"ercising judicial or 4uasi-judicial
functions acted without or in e"cess of his or its jurisdiction or with grave
abuse of discretion amounting to lac6 or e"cess of jurisdiction: and
7. that there is no appeal or an! plain, speed! and ade4uate remed! in the
ordinar! course of law.

For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must
show that the public respondent patentl! and grossl! abused his discretion and that abuse amounted to
an evasion of positive dut! or a virtual refusal to perform a dut! enjoined b! law or to act at all in
contemplation of law, as where the power was e"ercised in an arbitrar! and despotic manner b! reason
of passion or hostilit!.
B,-C

The arch ', 7==, order denied due course to the notices of appeal of both <4uitable and
respondents. $owever, it declared that the Februar! ), 7==, decision was Gna9 an e5e:0)or1 on91
?3)7 re4(e:) )o !H03)ab9e.
B)=C
8s e"pected, the arch 7,, 7==, omnibus order denied <4uitable#s
motion for reconsideration and granted respondents# motion for the issuance of a writ of e"ecution.
B)'C

The arch ', 7==, and arch 7,, 7==, orders of the 2TC were obviousl! intended to prevent
<4uitable, et al. from appealing the Februar! ), 7==, decision. &ot onl! that. The e"ecution of the
decision was underta6en with indecent haste, efectivel! obviating or defeating <4uitable#s right to
avail of possible legal remedies. &o matter how we loo6 at it, the 2TC committed grave abuse of
discretion in rendering those orders.
Fith regard to whether <4uitable had a plain, speed! and ade4uate remed! in the ordinar!
course of law, we hold that there was none. The 2TC denied due course to its notice of appeal in the
arch ', 7==, order. It aDrmed that denial in the arch 7,, 7==, omnibus order. $ence, there was no
wa! <4uitable could have possibl! appealed the Februar! ), 7==, decision.
B)7C

8lthough <4uitable 3led a petition for relief from the arch 7,, 7==, order, that petition was not
a plain, speed! and ade4uate remed! in the ordinar! course of law.
B).C
8 petition for relief under 2ule
.? is an e4uitable remed! allowed onl! in e"ceptional circumstances or where there is no other
available or ade4uate remed!.
B),C
Thus, we grant <4uitable#s petition for certiorari and conse4uentl! give due course to its appeal.
!QUITA#L! RAIS!" ,UR! QU!STIONS O- LA@ IN ITS ,!TITION -OR R!+I!@
The jurisdiction of this Court in 2ule ,) petitions is limited to 4uestions of law.
B))C
There is a
4uestion of law Wwhen the doubt or controvers! concerns the correct application of law or jurisprudence
to a certain set of facts: or when the issue does not call for the probative value of the evidence
presented, the truth or falsehood of facts being admitted.Y
B)/C

<4uitable does not assail the factual 3ndings of the trial court. Its arguments essentiall! focus on
the nullit! of the 2TCPs Februar! ), 7==, decision. <4uitable points out that that decision was patentl!
erroneous, 4(e:3a991 )7e e5orb3)an) a?ar o6 ama8e4, as it was inconsistent with e"isting law and
jurisprudence.
B)(C

T*! ,ROMISSOR< NOT!S @!R! +ALI"
The 2TC upheld the validit! of the promissor! notes despite respondentsP assertion that those
documents were contracts of adhesion.
8 contract of adhesion is a contract whereb! almost all of its provisions are drafted b! one part!.
B)?C
The participation of the other part! is limited to aD"ing his signature or his WadhesionY to the
contract.
B)-C
For this reason, contracts of adhesion are strictl! construed against the part! who drafted
it.
B/=C
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. The! are, on
the contrar!, as binding as ordinar! contracts. 8 part! is in realit! free to accept or reject it. 8 contract
of adhesion becomes void onl! when the dominant part! ta6es advantage of the wea6ness of the other
part!, completel! depriving the latter of the opportunit! to bargain on e4ual footing.
B/'C
That was not the case here. 8s the trial court noted, if the terms and conditions ofered b!
<4uitable had been trul! prejudicial to respondents, the! would have wal6ed out and negotiated with
another ban6 at the 3rst available instance. Eut the! did not. Instead, the! continuousl! availed of
<4uitable#s credit facilities for 3ve long !ears.
Fhile the 2TC categoricall! found that respondents had outstanding dollar- and peso-
denominated loans with <4uitable, it, however, failed to ascertain the total amount due ;principal,
interest and penalties, if an!> as of +ul! -, 7=='. The trial court did not e"plain how it arrived at the
amounts of KS[77?,7== and %',===,===.
B/7C
In 0etro 0anila 'ransit Corporation v. %.0. Consunji"
B/.C
we
reiterated that this Court is not a trier of facts and it shall pass upon them onl! for compelling reasons
which unfortunatel! are not present in this case.
B/,C
$ence, we ordered the partial remand of the case
for the sole purpose of determining the amount of actual damages.
B/)C


!S$ALATION $LAUS! +IOLAT!" T*! ,RIN$I,L! O-
MUTUALIT< O- $ONTRA$TS
<scalation clauses are not void per se. $owever, one Wwhich grants the creditor an unbridled
right to adjust the interest independentl! and upwardl!, completel! depriving the debtor of the right to
assent to an important modi3cation in the agreementY is void. Clauses of that nature violate the
principle of mutualit! of contracts.
B//C
8rticle '.=?
B/(C
of the Civil Code holds that a contract must bind
both contracting parties: its validit! or compliance cannot be left to the will of one of them.
B/?C

For this reason, we have consistentl! held that a valid escalation clause provides9
'. that the rate of interest will onl! be increased if the applicable ma"imum
rate of interest is increased b! law or b! the onetar! Eoard: and
7. that the stipulated rate of interest will be reduced if the applicable
ma"imum rate of interest is reduced b! law or b! the onetar! Eoard ;de-
escalation clause>.
B/-C

The 2TC found that <4uitable#s promissor! notes uniforml! stated.
If subject promissor! note is e"tended, the interest for subse4uent e"tensions shall
be at such rate as shall be determined b! the ban6.
B(=C

<4uitable dictated the interest rates if the term ;or period for repa!ment> of the loan was
e"tended. 2espondents had no choice but to accept them. This was a violation of 8rticle '.=? of the
Civil Code. Furthermore, the assailed escalation clause did not contain the necessar! provisions for
validit!, that is, it neither provided that the rate of interest would be increased onl! if allowed b! law or
the onetar! Eoard, nor allowed de-escalation. For these reasons, the escalation clause was void.
Fith regard to the proper rate of interest, in :ew !ampaguita 1uilders v. Philippine :ational
1an8
B('C
we held that, because the escalation clause was annulled, the principal amount of the loan was
subject to the original or stipulated rate of interest. Kpon maturit!, the amount due was subject to legal
interest at the rate of '7X per annum.
B(7C

Conse4uentl!, respondents should pa! <4uitable the interest rates of '7.//X p.a. for their dollar-
denominated loans and 7=X p.a. for their peso-denominated loans from +anuar! '=, 7==' to +ul! -,
7=='. Thereafter, <4uitable was entitled to legal interest of '7X p.a. on all amounts due.

T*!R! @AS NO
!2TRAOR"INAR< "!-LATION
<"traordinar! in5ation e"ists when there is an unusual decrease in the purchasing power of
currenc! ;that is, be!ond the common 5uctuation in the value of currenc!> and such decrease could not
be reasonabl! foreseen or was manifestl! be!ond the contemplation of the parties at the time of the
obligation. <"traordinar! de5ation, on the other hand, involves an inverse situation.
B(.C


8rticle '7)= of the Civil Code provides9


8rticle '7)=. In case an e"traordinar! in5ation or de5ation of the currenc!
stipulated should intervene, the value of the currenc! at the time of the
establishment of the obligation shall be the basis of pa!ment, unless there is an
agreement to the contrar!.
For e"traordinar! in5ation ;or de5ation> to afect an obligation, the following re4uisites must
be proven9
'. that there was an oDcial declaration of e"traordinar! in5ation or de5ation
from the Eang6o Sentral ng %ilipinas ;ES%>:
B(,C
7. that the obligation was contractual in nature:
B()C
and
.. that the parties e"pressl! agreed to consider the efects of the
e"traordinar! in5ation or de5ation.
B(/C

@espite the devaluation of the peso, the ES% never declared a situation of e"traordinar!
in5ation. oreover, although the obligation in this instance arose out of a contract, the parties did not
agree to recogni1e the efects of e"traordinar! in5ation ;or de5ation>.
B((C
The 2TC never mentioned that
there was a such stipulation either in the promissor! note or loan agreement. Therefore, respondents
should pa! their dollar-denominated loans at the e"change rate 3"ed b! the ES% on the date of
maturit!.
B(?C

T*! A@AR" O- MORAL AN"
!2!M,LAR< "AMAG!S
LA$%!" #ASIS
oral damages are in the categor! of an award designed to compensate the claimant for actual
injur! sufered, not to impose a penalt! to the wrongdoer.
B(-C
To be entitled to moral damages, a
claimant must prove9

'. That he or she sufered besmirched reputation, or ph!sical, mental or
ps!chological sufering sustained b! the claimant:
7. That the defendant committed a wrongful act or omission:
.. That the wrongful act or omission was the pro"imate cause of the
damages the claimant sustained:
,. The case is predicated on an! of the instances e"pressed or envisioned b!
8rticle 77'-
B?=C
and 777=
B?'C
.
B?7C
In culpa contractual or breach of contract, moral damages are recoverable onl! if the
defendant acted fraudulentl! or in bad faith or in wanton disregard of his contractual obligations.
B?.C
The
breach must be wanton, rec6less, malicious or in bad faith, and oppressive or abusive.
B?,C

The 2TC found that respondents did not pa! <4uitable the interest due on Februar! -, 7==' ;or
an! month thereafter prior to the maturit! of the loan>
B?)C
or the amount due ;principal plus interest>
due on +ul! -, 7=='.
B?/C
Conse4uentl!, <4uitable applied respondents# deposits to their loans upon
maturit!.
The relationship between a ban6 and its depositor is that of creditor and debtor.
B?(C
For this
reason, a ban6 has the right to set-of the deposits in its hands for the pa!ment of a depositor#s
indebtedness.
B??C
2espondents indeed defaulted on their obligation. For this reason, <4uitable had the option to
e"ercise its legal right to set-of or compensation. $owever, the 2TC mista6enl! ;or, as it now appears,
deliberatel!> concluded that <4uitable acted Wfraudulentl! or in bad faith or in wanton disregardY of its
contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage
respondents sustained was (0re91 )7e :on4eH0en:e o6 )7e3r 6a390re )o (a1 )7e3r 9oan4. There was
therefore absolutel! no basis for the award of moral damages to them.
&either was there reason to award e"emplar! damages. Since respondents were not entitled to
moral damages, neither should the! be awarded e"emplar! damages.
B?-C
8nd if respondents were not
entitled to moral and e"emplar! damages, neither could the! be awarded attorne!#s fees and litigation
e"penses.
B-=C
A$$OR"INGL<, the petition is hereb! GRANT!".
The *ctober 7?, 7==) decision and Februar! ., 7==/ resolution of the Court of 8ppeals in C8-A.2.
S% &o. ?.''7 are hereb!R!+!RS!" and S!T ASI"!.
The arch 7,, 7==, omnibus order of the 2egional Trial Court, Eranch '/, Cebu Cit! in Civil Case
&o. C<E-7/-?. is hereb!ANNULL!" for being rendered with grave abuse of discretion amounting to
lac6 or e"cess of jurisdiction. 8ll proceedings underta6en pursuant thereto are li6ewise declared null
and void.
The arch ', 7==, order of the 2egional Trial Court, Eranch '/ of Cebu Cit! in Civil Case &o. C<E-
7/-?. is hereb! S!T ASI"!. The appeal of petitioners <4uitable %CI Ean6, 8imee Lu and Eejan 0ionel
8pas is therefore given due course.
The Februar! ), 7==, decision of the 2egional Trial Court, Eranch '/ of Cebu Cit! in Civil Case
&o. C<E-7/-?. is accordingl! S!T ASI"!. &ew judgment is hereb! entered9

'. ordering respondents &g Sheung &gor, doing business under the name and st!le
of WOen ar6eting,Y Oen 8ppliance @ivision, Inc. and Eenjamin <. Ao to pa! petitioner
<4uitable %CI Ean6 the principal amount of their dollar- and peso-denominated loans:
7. ordering respondents &g Sheung &gor, doing business under the name and st!le
of WOen ar6eting,Y Oen 8ppliance @ivision, Inc. and Eenjamin <. Ao to pa! petitioner
<4uitable %CI Ean6 interest at9
a> '7.//X p.a. with respect to their dollar-denominated loans from +anuar!
'=, 7==' to +ul! -, 7==':
b> 7=X p.a. with respect to their peso-denominated loans from +anuar! '=,
7==' to +ul! -, 7==':
B-'C
c> pursuant to our ruling in Eastern !hipping 3ines v. Court of Appeals"
B-7C
the total amount due on +ul! -, 7==' shall earn legal interest at
'7X p.a. from the time petitioner <4uitable %CI Ean6 demanded pa!ment,
whether judiciall! or e"tra-judiciall!: and
d> after this @ecision becomes 3nal and e"ecutor!, the applicable rate shall
be '7X p.a. until full satisfaction:
.. all other claims and counterclaims are dismissed.
8s a starting point, the 2egional Trial Court, Eranch '/ of Cebu Cit! shall compute the e"act
amounts due on the respective dollar-denominated and peso-denominated loans, as of +ul! -, 7==', of
respondents &g Sheung &gor, doing business under the name and st!le of WOen ar6eting,Y Oen
8ppliance @ivision and Eenjamin <. Ao.

SO OR"!R!".

G.R. No. 1699;' Mar:7 1&, 2010
,AN ,A$I-I$ S!R+I$! $ONTRA$TORS, IN$. an RI$AR"O -. "!L ROSARIO, %etitioners,
vs.
!QUITA#L! ,$I #AN% =6ormer91 T*! ,*ILI,,IN! $OMM!R$IAL INT!RNATIONAL
#AN%>, 2espondent.
T7e $a4e
%an %aci3c Service Contractors, Inc. and 2icardo F. @el 2osario ;petitioners> 3led this %etition for
2eview
'
assailing the Court of 8ppealsP ;C8> @ecision
7
dated .= +une 7==) in C8-A.2. CG &o. /.-// as
well as the 2esolution
.
dated ) *ctober 7==) den!ing the otion for 2econsideration. In the assailed
decision, the C8 modi3ed the '7 8pril '--- @ecision
,
of the 2egional Trial Court of a6ati Cit!, Eranch
)- ;2TC> b! ordering <4uitable %CI Ean6
)
;respondent> to pa! petitioners %',)'/,=').=( with interest at
the legal rate of '7X per annum starting / a! '--, until the amount is full! paid.
T7e -a:)4
%an %aci3c Service Contractors, Inc. ;%an %aci3c> is engaged in contracting mechanical wor6s on
airconditioning s!stem. *n 7, &ovember '-?-, %an %aci3c, through its %resident, 2icardo F. @el 2osario
;@el 2osario>, entered into a contract of mechanical wor6s ;Contract> with respondent for %7=,/??,?==.
%an %aci3c and respondent also agreed on nine change orders for %7,/77,/'=..=. Thus, the total
consideration for the whole project was%7.,.'',,'=..=.
/
The Contract stipulated, among others, that
%an %aci3c shall be entitled to a price adjustment in case of increase in labor costs and prices of
materials under paragraphs (=.'
(
and (=.7
?
of the JAeneral Conditions for the Construction of %CIE
Tower II <"tensionJ ;the escalation clause>.
-
%ursuant to the contract, %an %aci3c commenced the mechanical wor6s in the project site, the %CIE
Tower II e"tension building in a6ati Cit!. The project was completed in +une '--7. 2espondent
accepted the project on - +ul! '--7.
'=
In '--=, labor costs and prices of materials escalated. *n ) 8pril '--', in accordance with the
escalation clause, %an %aci3c claimed a price adjustment of %),'/),-,).)7. 2espondentPs appointed
project engineer, TCAI <ngineers, as6ed for a reduction in the price adjustment. To show goodwill, %an
%aci3c reduced the price adjustment to %,,?)?,),?./(.
''
*n 7? 8pril '--7, TCAI <ngineers recommended to respondent that the price adjustment should be
pegged at%.,(.=,-)(.=(. TCAI <ngineers based their evaluation of the price adjustment on the
following factors9
'. 0abor Indices of the @epartment of 0abor and <mplo!ment.
7. %rice Inde" of the &ational Statistics *Dce.
%@ ')-, and its Implementing 2ules and 2egulations as amended, ') arch '--'.
Shipping @ocuments submitted b! %%SCI.
Sub-clause (=.' of the Aeneral Conditions of the Contract @ocuments.
'7
%an %aci3c contended that with this recommendation, respondent was alread! estopped from
disclaiming liabilit! of at least %.,(.=,-)(.=( in accordance with the escalation clause.
'.
@ue to the e"traordinar! increases in the costs of labor and materials, %an %aci3cPs operational capital
was becoming inade4uate for the project. $owever, respondent withheld the pa!ment of the price
adjustment under the escalation clause despite %an %aci3cPs repeated demands.
',
Instead, respondent
ofered %an %aci3c a loan of%'.? million. 8gainst its will and on the strength of respondentPs promise
that the price adjustment would be released soon, %an %aci3c, through @el 2osario, was constrained to
e"ecute a promissor! note in the amount of%'.? million as a re4uirement for the loan. %an %aci3c also
posted a suret! bond. The %'.? million was released directl! to laborers and suppliers and not a single
centavo was given to %an %aci3c.
')
%an %aci3c made several demands for pa!ment on the price adjustment but respondent merel! 6ept on
promising to release the same. eanwhile, the %'.? million loan matured and respondent demanded
pa!ment plus interest and penalt!. %an %aci3c refused to pa! the loan. %an %aci3c insisted that it would
not have incurred the loan if respondent released the price adjustment on time. %an %aci3c alleged that
the promissor! note did not e"press the true agreement of the parties. %an %aci3c maintained that
the %'.? million was to be considered as an advance pa!ment on the price adjustment. Therefore, there
was reall! no consideration for the promissor! note: hence, it is null and void from the beginning.
'/
2espondent stood 3rm that it would not release an! amount of the price adjustment to %an %aci3c but it
would ofset the price adjustment with %an %aci3cPs outstanding balance of %.,77/,'?/.=', representing
the loan, interests, penalties and collection charges.
'(
%an %aci3c refused the ofsetting but agreed to receive the reduced amount of %.,(.=,-)(.=( as
recommended b! the TCAI <ngineers for the purpose of e"trajudicial settlement, less %'.? million
and %,',,-,7 as advance pa!ments.
'?
*n / a! '--,, petitioners 3led a complaint for declaration of nullit!Iannulment of the promissor!
note, sum of mone!, and damages against the respondent with the 2TC of a6ati Cit!, Eranch )-. *n
'7 8pril '---, the 2TC rendered its decision, the dispositive portion of which reads9
F$<2<F*2<, premises considered, judgment is hereb! rendered in favor of the plaintifs and against
the defendant as follows9
'. @eclaring the promissor! note ;<"hibit JEJ> null and void:
*rdering the defendant to pa! the plaintifs the following amounts9
a. %',.?-,'''.'= representing unpaid balance of the adjustment price, with interest
thereon at the legal rate of twelve ;'7X> percent per annum starting a! /, '--,,
the date when the complaint was 3led, until the amount is full! paid:
%'==,===.== representing moral damages:
%)=,===.== representing e"emplar! damages: and
%)=,===.== as and for attorne!Ps fees.
7. @ismissing defendantPs counterclaim, for lac6 of merit: and
Fith costs against the defendant.
S* *2@<2<@.
'-
*n 7. a! '---, petitioners partiall! appealed the 2TC @ecision to the C8. *n 7/ a! '---,
respondent appealed the entire 2TC @ecision for being contrar! to law and evidence. In sum, the
appeals of the parties with the C8 are as follows9
'. Fith respect to the petitioners, whether the 2TC erred in deducting the amount
of %'7/,-=..-( from the balance of the adjusted price and in awarding onl! '7X annual
interest on the amount due, instead of the ban6 loan rate of '?X compounded annuall!
beginning September '--7.
7. Fith respect to respondent, whether the 2TC erred in declaring the promissor! note void
and in awarding moral and e"emplar! damages and attorne!Ps fees in favor of petitioners and
in dismissing its counterclaim.
In its decision dated .= +une 7==), the C8 modi3ed the 2TC decision, with respect to the principal
amount due to petitioners. The C8 removed the deduction of %'7/,-=..-( because it represented the
3nal pa!ment on the basic contract price. $ence, the C8 ordered respondent to pa! %',)'/,=').=( to
petitioners, with interest at the legal rate of '7X per annum starting / a! '--,.
7=
*n 7/ +ul! 7==), petitioners 3led a otion for %artial 2econsideration see6ing a reconsideration of the
C8Ps @ecision imposing the legal rate of '7X. %etitioners claimed that the interest rate applicable
should be the '?X ban6 lending rate. 2espondent li6ewise 3led a otion for 2econsideration of the
C8Ps decision. In a 2esolution dated ) *ctober 7==), the C8 denied both motions.
8ggrieved b! the C8Ps @ecision, petitioners elevated the case before this Court.
T7e I440e
%etitioners submit this sole issue for our consideration9 Fhether the C8, in awarding the unpaid balance
of the price adjustment, erred in 3"ing the interest rate at '7X instead of the '?X ban6 lending rate.
R093n8 o6 )7e $o0r)
Fe grant the petition.
This Court notes that respondent did not appeal the decision of the C8. $ence, there is no longer an!
issue as to the principal amount of the unpaid balance on the price adjustment, which the C8 correctl!
computed at%',)'/,=').=(. The onl! remaining issue is the interest rate applicable for respondentPs
dela! in the pa!ment of the balance of the price adjustment.
The C8 denied petitionersP claim for the application of the ban6 lending rate of '?X compounded
annuall! reasoning, to wit9
8nent the '?X interest rate compounded annuall!, while it is true that the contract provides for an
interest at the current ban6 lending rate in case of dela! in pa!ment b! the *wner, and the promissor!
note charged an interest of '?X, the said proviso does not authori1e plaintifs to unilaterall! raise the
interest rate without the other part!Ps consent. Knli6e their re4uest for price adjustment on the basic
contract price, plaintifs never informed nor sought the approval of defendant for the imposition of '?X
interest on the adjusted price. To unilaterall! increase the interest rate of the adjusted price would be
violative of the principle of mutualit! of contracts. Thus, the Court maintains the legal rate of twelve
percent per annum starting from the date of judicial demand. 8lthough the contract provides for the
period when the recommendation of the TCAI <ngineers as to the price adjustment would be binding on
the parties, it was established, however, that part of the adjusted price demanded b! plaintifs was
alread! disbursed as earl! as 7? Februar! '--7 b! defendant ban6 to their suppliers and laborers for
their account.
7'
In this appeal, petitioners allege that the contract between the parties consists of two parts, the
8greement
77
and the Aeneral Conditions,
7.
both of which provide for interest at the ban6 lending rate
on an! unpaid amount due under the contract. %etitioners further claim that there is nothing in the
contract which re4uires the consent of the respondent to be given in order that petitioners can charge
the ban6 lending rate.
7,
Speci3call!, petitioners invo6e Section 7.) of the 8greement and Section /=.'=
of the Aeneral Conditions as follows9
8greement
7.) If an! pa!ment is dela!ed, the C*&T28CT*2 ma! charge interest thereon at the current ban6
lending rates, without prejudice to *F&<2PS recourse to an! other remed! available under e"isting
law.
7)
Aeneral Conditions
/=.'= Time for pa!ment
The amount due to the Contractor under an! interim certi3cate issued b! the <ngineer pursuant to this
Clause, or to an! term of the Contract, shall, subject to clause ,(, be paid b! the *wner to the
Contractor within 7? da!s after such interim certi3cate has been delivered to the *wner, or, in the case
of the Final Certi3cate referred to in Sub-Clause /=.?, within )/ da!s, after such Final Certi3cate has
been delivered to the *wner. In the event of the failure of the *wner to ma6e pa!ment within the times
stated, the *wner shall pa! to the Contractor interest at the rate based on ban6ing loan rates
prevailing at the time of the signing of the contract upon all sums unpaid from the date b! which the
same should have been paid. The provisions of this Sub-Clause are without prejudice to the
ContractorPs entitlement under Clause /-.
7/
;<mphasis supplied>
%etitioners thus submit that it is automaticall! entitled to the ban6 lending rate of interest from the
time an amount is determined to be due thereto, which respondent should have paid. Therefore, as
petitioners have alread! proven their entitlement to the price adjustment, it necessaril! follows that the
ban6 lending interest rate of '?X shall be applied.
7(
*n the other hand, respondent insists that under the provisions of (=.' and (=.7 of the Aeneral
Conditions, it is stipulated that an! additional cost shall be determined b! the <ngineer and shall be
added to the contract price after due consultation with the *wner, herein respondent. $ence, there
being no prior consultation with the respondent regarding the additional cost to the basic contract
price, it naturall! follows that respondent was never consulted or informed of the imposition of '?X
interest rate compounded annuall! on the adjusted price.
7?
8 perusal of the assailed decision shows that the C8 made a distinction between the consent given b!
the owner of the project for the liabilit! for the price adjustments, and the consent for the imposition of
the ban6 lending rate. Thus, while the C8 held that petitioners consulted respondent for price
adjustment on the basic contract price, petitioners, nonetheless, are not entitled to the imposition of
'?X interest on the adjusted price, as petitioners never informed or sought the approval of respondent
for such imposition.
7-
Fe disagree.
It is settled that the agreement or the contract between the parties is the formal e"pression of the
partiesP rights, duties, and obligations. It is the best evidence of the intention of the parties. Thus, when
the terms of an agreement have been reduced to writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in interest, no evidence of
such terms other than the contents of the written agreement.
.=
The escalation clause of the contract provides9
C$8&A<S I& C*ST 8&@ 0<AIS08TI*&
(=.' Increase or @ecrease of Cost
There shall be added to or deducted from the Contract %rice such sums in respect of rise or fall in the
cost of labor andIor materials or an! other matters afecting the cost of the e"ecution of the For6s as
ma! be determined.
(=.7 Subse4uent 0egislation
If, after the date 7? da!s prior to the latest date of submission of tenders for the Contract there occur in
the countr! in which the For6s are being or are to be e"ecuted changes to an! &ational or State
Statute, *rdinance, @ecree or other 0aw or an! regulation or b!e-law ;sic> of an! local or other dul!
constituted authorit!, or the introduction of an! such State Statute, *rdinance, @ecree, 0aw, regulation
or b!e-law ;sic> which causes additional or reduced cost to the contractor, other than under Sub-Clause
(=.', in the e"ecution of the Contract, such additional or reduced cost shall, after due consultation with
the *wner and Contractor, be determined b! the <ngineer and shall be added to or deducted from the
Contract %rice and the <ngineer shall notif! the Contractor accordingl!, with a cop! to the *wner.
.'
In this case, the C8 alread! settled that petitioners consulted respondent on the imposition of the price
adjustment, and held respondent liable for the balance of %',)'/,=').=(. 2espondent did not appeal
from the decision of the C8: hence, respondent is estopped from contesting such fact.
$owever, the C8 went be!ond the intent of the parties b! re4uiring respondent to give its consent to
the imposition of interest before petitioners can hold respondent liable for interest at the current ban6
lending rate. This is erroneous. 8 review of Section 7./ of the 8greement and Section /=.'= of the
Aeneral Conditions shows that the consent of the respondent is not needed for the imposition of
interest at the current ban6 lending rate, which occurs upon an! dela! in pa!ment.
Fhen the terms of a contract are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs. In these cases, courts have no authorit! to alter
a contract b! construction or to ma6e a new contract for the parties. The CourtPs dut! is con3ned to the
interpretation of the contract which the parties have made for themselves without regard to its wisdom
or foll! as the court cannot suppl! material stipulations or read into the contract words which it does
not contain. It is onl! when the contract is vague and ambiguous that courts are permitted to resort to
construction of its terms and determine the intention of the parties.
.7
The escalation clause must be read in conjunction with Section 7.) of the 8greement and Section /=.'=
of the Aeneral Conditions which pertain to the time of pa!ment. *nce the parties agree on the price
adjustment after due consultation in compliance with the provisions of the escalation clause, the
agreement is in efect an amendment to the original contract, and gives rise to the liabilit! of
respondent to pa! the adjusted costs. Knder Section /=.'= of the Aeneral Conditions, the respondent
shall pa! such liabilit! to the petitioner within 7? da!s from issuance of the interim certi3cate. Kpon
respondentPs failure to pa! within the time provided ;7? da!s>, then it shall be liable to pa! the
stipulated interest.1avvphi1
This is the logical interpretation of the agreement of the parties on the imposition of interest. To provide
a contrar! interpretation, as one re4uiring a separate consent for the imposition of the stipulated
interest, would render the intentions of the parties nugator!.
8rticle '-)/ of the Civil Code, which refers to monetar! interest, speci3call! mandates that no interest
shall be due unless it has been e"pressl! stipulated in writing. Therefore, pa!ment of monetar! interest
is allowed onl! if9
;'> there was an e"press stipulation for the pa!ment of interest: and
;7> the agreement for the pa!ment of interest was reduced in writing. The concurrence of the
two conditions is re4uired for the pa!ment of monetar! interest.
..
Fe agree with petitionersP interpretation that in case of default, the consent of the respondent is not
needed in order to impose interest at the current ban6 lending rate.
Applicable Interest Rate
Knder 8rticle 77=- of the Civil Code, the appropriate measure for damages in case of dela! in
discharging an obligation consisting of the pa!ment of a sum of mone! is the pa!ment of penalt!
interest at the rate agreed upon in the contract of the parties. In the absence of a stipulation of a
particular rate of penalt! interest, pa!ment of additional interest at a rate e4ual to the regular
monetar! interest becomes due and pa!able. Finall!, if no regular interest had been agreed upon b!
the contracting parties, then the damages pa!able will consist of pa!ment of legal interest which is /X,
or in the case of loans or forbearances of mone!, '7X per annum.
.,
It is onl! when the parties to a
contract have failed to 3" the rate of interest or when such amount is unwarranted that the Court will
appl! the '7X interest per annum on a loan or forbearance of mone!.
.)
The written agreement entered into between petitioners and respondent provides for an interest at the
current ban6 lending rate in case of dela! in pa!ment and the promissor! note charged an interest of
'?X.
To prove petitionersP entitlement to the '?X ban6 lending rate of interest, petitioners presented the
promissor! note
./
prepared b! respondent ban6 itself. This promissor! note, although declared void b!
the lower courts because it did not e"press the real intention of the parties, is substantial proof that the
ban6 lending rate at the time of default was '?X per annum. 8bsent an! evidence of fraud, undue
in5uence or an! vice of consent e"ercised b! petitioners against the respondent, the interest rate
agreed upon is binding on them.
.(
F$<2<F*2<, we A28&T the petition. Fe S<T 8SI@< the @ecision and 2esolution of the Court of 8ppeals
in C8-A.2. CG &o. /.-//. Fe *2@<2 respondent to pa! petitioners %',)'/,=').=( with interest at the
ban6 lending rate of '?X per annum starting / a! '--, until the amount is full! paid.
S* *2@<2<@.
G.R. No. 16961; A(r39 4, 200;
*!IRS O- /OILO !S,IRITU AN" ,RIMITI+A !S,IRITU, %etitioners,
vs.
S,OUS!S MA2IMO LAN"RITO AN" ,A/ LAN"RITO, Re(re4en)e b1 /OILO LAN"RITO, a4 )7e3r
A))orne1-3n--a:), 2espondents.
This is a petition for 2eview on Certiorari under 2ule ,) of the 2ules of Court assailing the @ecision of
the Court of 8ppeals,
'
dated .' 8ugust 7==), reversing the @ecision rendered b! the trial court on '.
@ecember '--). The Court of 8ppeals, in its assailed @ecision, 3"ed the interest rate of the loan
between the parties at '7X per annum, and ordered the Spouses Noilo and %rimitiva <spiritu ;Spouses
<spiritu> to reconve! the subject propert! to the Spouses 0andrito conditioned upon the pa!ment of the
loan.
%etitioners @K0C<, E<&0I&@8, <@FI&, CL&T$I8, 8&@ I2I8 8&@2<8, all surnamed <S%I2ITK, are the
onl! children and legal heirs of the Spouses Noilo and %rimitiva <spiritu, who both died during the
pendenc! of the case before the $onorable Court of 8ppeals.
7
2espondents Spouses a"imo and %a1 0andrito ;Spouses 0andrito> are herein represented b! their son
and attorne!-in-fact, Noilo 0andrito.
.
*n ) September '-?/, Spouses 0andrito loaned from the Spouses <spiritu the amount of %.)=,===.==
pa!able in three months. To secure the loan, the Spouses 0andrito e"ecuted a real estate mortgage
over a 3ve hundred fort! ;),=> s4uare meter lot located in 8labang, untinlupa, covered b! Transfer
Certi3cate of Title &o. S-,?-,?, in favor of the Spouses <spiritu. From the %.)=,===.== that the
0andritos were supposed to receive, %'(,)==.== was deducted as interest for the 3rst month which was
e4uivalent to 3ve percent of the principal debt, and%(,)==.== was further deducted as service fee.
Thus, the! actuall! received a net amount of %.7),===.==. The agreement, however, provided that the
principal indebtedness earns Jinterest at the legal rate.J
,
8fter three months, when the debt became due and demandable, the Spouses 0andrito were unable to
pa! the principal, and had not been able to ma6e an! interest pa!ments other than the amount initiall!
deducted from the proceeds of the loan. *n 7- @ecember '-?/, the loan agreement was e"tended to ,
+anuar! '-?( through an 8mendment of 2eal <state ortgage. The loan was restructured in such a wa!
that the unpaid interest became part of the principal, thus increasing the principal to %.?),===. The
new loan agreement adopted all other terms and conditions contained in 3rst agreement.
)
@ue to the continued inabilit! of the Spouses 0andritos to settle their obligations with the Spouses
<spiritu, the loan agreement was renewed three more times. In all these subse4uent renewals, the
same terms and conditions found in the 3rst agreement were retained. *n 7- +ul! '-?(, the principal
was increased to %)=(,===.== inclusive of running interest. *n '' arch '-??, it was increased
to %/,(,===.==. 8nd on 7' *ctober '-??, the principal was increased to %?(,,'7).==.
/
8t the hearing
before the trial court, Noilo <spiritu testi3ed that the increase in the principal in each amendment of the
loan agreement did not correspond to the amount delivered to the Spouses 0andrito. 2ather, the
increase in the principal had been due to unpaid interest and other charges.
(
The debt remained unpaid. 8s a conse4uence, the Spouses <spiritu foreclosed the mortgaged propert!
on .' *ctober '--=. @uring the auction sale, the propert! was sold to the Spouses <spiritu as the lone
bidder. *n - +anuar! '--', the SherifPs Certi3cate of Sale was annotated on the title of the mortgaged
propert!, giving the Spouses 0andrito until ? +anuar! '--7 to redeem the propert!.
?
The Spouses 0andrito failed to redeem the subject propert! although the! alleged that the! negotiated
for the redemption of the propert! as earl! as .= *ctober '--'. Fhile the negotiated price for the land
started at%',)-),.-7.(-, it was allegedl! increased b! the Spouses <spiritu from time to time. Spouses
0andrito allegedl! tendered two managerPs chec6s and some cash, totaling %',?==,===.== to the
Spouses <spiritu on '. +anuar! '--7, but the latter refused to accept the same. The! also alleged that
the Spouses <spiritu increased the amount demanded to %7.) illion and gave them until +ul! '--7 to
pa! the said amount. $owever, upon in4uir!, the! found out that on 7, +une '--7, the Spouses <spiritu
had alread! e"ecuted an 8Ddavit of Consolidation of *wnership and registered the mortgaged propert!
in their name, and that the 2egister of @eeds of a6ati had alread! issued Transfer Certi3cate of Title
&o. '(-?=7 in the name of the Spouses <spiritu. *n - *ctober '--7, the Spouses 0andrito, represented
b! their son Noilo 0andrito, 3led an action for annulment or reconve!ance of title, with damages against
the Spouses <spiritu before Eranch ',/ of the 2egional Trial Court of a6ati.
-
8mong the allegations in
their Complaint, the! stated that the Spouses <spiritu, as creditors and mortgagees, Jimposed interest
rates that are shoc6ing to onePs moral senses.J
'=
The trial court dismissed the complaint and upheld the validit! of the foreclosure sale. The trial court
ordered in its @ecision, dated '. @ecember '--)9
''
F$<2<F*2<, all the foregoing premises considered, the herein complaint is hereb! dismissed forthwith.
Fithout pronouncements to costs.
The Spouses 0andrito appealed to the Court of 8ppeals pursuant to 2ule ,' of the '--( 2ules of Court.
In its @ecision dated .' 8ugust 7==), the Court of 8ppeals reversed the trial courtPs decision, decreeing
that the 3ve percent ;)X> interest imposed b! the Spouses <spiritu on the 3rst month and the var!ing
interest rates imposed for the succeeding months contravened the provisions of the 2eal <state
ortgage contract which provided that interest at the legal rate, i.e., '7X per annum, would be
imposed. It also ruled that although the Ksur! 0aw had been rendered inefective b! Central Ean6
Circular &o. -=), which, in efect, removed the ceiling rates prescribed for interests, thus, allowing
parties to freel! stipulate thereon, the courts ma! render void an! stipulation of interest rates which are
found ini4uitous or unconscionable. 8s a result, the Court of 8ppeals set the interest rate of the loan at
the legal rate, or '7X per annum.
'7
Furthermore, the Court of 8ppeals held that the action for reconve!ance, 3led b! the Spouses 0andrito,
is still a proper remed!. <ven if the Spouses 0andrito failed to redeem the propert! within the one-!ear
redemption period provided b! law, the action for reconve!ance remained as a remed! available to a
landowner whose propert! was wrongfull! registered in anotherPs name since the subject propert! has
not !et passed to an innocent purchaser for value.
'.
In the decretal portion of its @ecision, the Court of 8ppeals ruled
',
9
F$<2<F*2<, the instant appeal is hereb! A28&T<@. The assailed @ecision dated @ecember '., '--)
of the 2egional Trial Court of a6ati, Eranch ',/ in Civil Case &o. -7-7-7= is hereb! 2<G<2S<@ and S<T
8SI@<, and a new one is hereb! entered as follows9 ;'> The legal rate of '7X per annum is hereb!
FIR<@ to be applied as the interest of the loan: and ;7> Conditioned upon the pa!ment of the loan,
defendants-appellees spouses Noilo and %rimitiva <spiritu are hereb! ordered to reconve! Transfer
Certi3cate of Title &o. S-,?-,? to appellant spouses a"imo and %a1 0andrito.
The case is 2<8&@<@ to the Trial Court for the above determination.
$ence, the present petition. The following issues were raised9
')
I
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'?-'? T* $<2<I& 2<S%*&@<&TS, FIT$*KT 8&L F8CTK80 *2 0<A80 E8SIS T$<2<F*2.
II
T$< $*&*28E0< C*K2T *F 8%%<80S <22<@ I& FI&@I&A T$8T $<2<I& %<TITI*&<2S K&I08T<2800L
I%*S<@ *& $<2<I& 2<S%*&@<&TS T$< 800<A<@0L K&2<8S*&8E0< I&T<2<STS *& T$< *2TA8A<
0*8&S.
III
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8TT*2&<L-I&-F8CT IS &*T 82<@ FIT$ 8KT$*2ITL T* FI0< 8&@ %2*S<CKT< T$IS C8S<.
The petition is without merit.
The 2eal <state ortgage e"ecuted between the parties speci3ed that Jthe principal indebtedness shall
earn interest at the legal rate.J The agreement contained no other provision on interest or an! fees or
charges incident to the debt. In at least three contracts, all designated as 8mendment of 2eal <state
ortgage, the interest rate imposed was, li6ewise, unspeci3ed. @uring his testimon!, Noilo <spiritu
admitted that the increase in the principal in each of the 8mendments of the 2eal <state ortgage
consists of interest and charges. The Spouses <spiritu alleged that the parties had agreed on the
interest and charges imposed in connection with the loan, hereunder enumerated9
'. %'(,)==.== was the interest charged for the 3rst month and %(,)==.== was imposed as service fee.
7. %.),===.== interest and charges, or the diference between the %.)=,===.== principal in the 2eal
<state ortgage dated ) September '-?/ and the %.?),===.== principal in the 8mendment of the 2eal
<state ortgage dated 7- @ecember '-?/.
.. %'.7,===.== interest and charges, or the diference between the %.?),===.== principal in the
8mendment of the 2eal <state ortgage dated 7- @ecember '-?/ and the %)=(,===.== principal in the
8mendment of the 2eal <state ortgage dated 7- +ul! '-?(.
,. %',=,===.== interest and charges, or the diference between the %)=(,===.== principal in the
8mendment of the 2eal <state ortgage dated 7- +ul! '-?( and the %/,(,===.== principal in the
8mendment of the 2eal <state ortgage dated '' arch '-??.
). %77(,'7).== interest and charges, or the diference between the %/,(,===.== principal in the
8mendment of the 2eal <state ortgage dated '' arch '-?? and the %?(,,'7) principal in the
8mendment of the 2eal <state ortgage dated 7' *ctober '-??.
The total interest and charges amounting to %))-,'7).== on the original principal of %.)=,=== was
accumulated over onl! two !ears and one month. These charges are not found in an! written
agreement between the parties. The records fail to show an! computation on how much interest was
charged and what other fees were imposed. &ot onl! did lac6 of transparenc! characteri1e the
aforementioned agreements, the interest rates and the service charge imposed, at an average of
/..-X per month, are e"cessive.
In enacting 2epublic 8ct &o. .(/), 6nown as the JTruth in 0ending 8ct,J the State see6s to protect its
citi1ens from a lac6 of awareness of the true cost of credit b! assuring the full disclosure of such costs.
Section ,, in connection with Section .;.>
'/
of the said law, gives a detailed enumeration of the speci3c
information re4uired to be disclosed, among which are the interest and other charges incident to the
e"tension of credit. Section /
'(
of the same law imposes on an!one who willfull! violates these
provisions, sanctions which include civil liabilit!, and a 3ne andIor imprisonment.
8lthough an! action see6ing to impose either civil or criminal liabilit! had alread! prescribed, this Court
frowns upon the underhanded manner in which the Spouses <spiritu imposed interest and charges, in
connection with the loan. This is aggravated b! the fact that one of the creditors, Noilo <spiritu, a
law!er, is hardl! in a position to plead ignorance of the re4uirements of the law in connection with the
transparenc! of credit transactions. In addition, the Civil Code clearl! provides that9
8rticle '-)/. &o interest shall be due unless it has been stipulated in writing.
The omission of the Spouses <spiritu in specif!ing in the contract the interest rate which was actuall!
imposed, in contravention of the law, manifested bad faith.
In several cases, this Court has been 6nown to declare null and void stipulations on interest and
charges that were found e"cessive, ini4uitous, and unconscionable. In the case of edel v. Court of
8ppeals,
'?
the Court declared an interest rate of ).)X per month on a %)==,===.== loan to be
e"cessive, ini4uitous, unconscionable and e"orbitant. <ven if the parties themselves agreed on the
interest rate and stipulated the same in a written agreement, it nevertheless declared such stipulation
as void and ordered the imposition of a '7X !earl! interest rate. In Spouses Solangon v. Sala1ar,
'-
/X
monthl! interest on a %/=,===.== loan was li6ewise e4uitabl! reduced to a 'X monthl! interest or '7X
per annum. In 2ui1 v. Court of 8ppeals,
7=
the Court found a .X monthl! interest imposed on four
separate loans with a total of %',=)=,===.== to be e"cessive and reduced the interest to a 'X monthl!
interest or '7X per annum.
In declaring void the stipulations authori1ing e"cessive interest and charges, the Court declared that
although the Ksur! 0aw was suspended b! Central Ean6 Circular &o. -=), s. '-?7, efective on '
+anuar! '-?., and conse4uentl! parties are given a wide latitude to agree on an! interest rate, nothing
in the said Circular grants lenders carte blanche authorit! to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets.
7'
Stipulation authori1ing ini4uitous or unconscionable interests are contrar! to morals, if not against the
law. Knder 8rticle ',=- of the Civil Code, these contracts are ine"istent and void from the beginning.
The! cannot be rati3ed nor the right to set up their illegalit! as a defense be waived.
77
The nullit! of the
stipulation on the usurious interest does not, however, afect the lenderPs right to recover the principal
of the loan.
7.
&or would it afect the terms of the real estate mortgage. The right to foreclose the
mortgage remains with the creditors, and said right can be e"ercised upon the failure of the debtors to
pa! the debt due. The debt due is to be considered without the stipulation of the e"cessive interest. 8
legal interest of '7X per annum will be added in place of the e"cessive interest formerl! imposed.
Fhile the terms of the 2eal <state ortgage remain efective, the foreclosure proceedings held on .'
*cotber '--= cannot be given efect. In the &otice of SherifPs Sale
7,
dated ) *ctober '--=, and in the
Certi3cate of Sale
7)
dated .' *ctober '--=, the amount designated as mortgage indebtedness
amounted to %?(,,'7).==. 0i6ewise, in the demand letter
7/
dated '7 @ecember '-?-, Noilo <spiritu
demanded from the Spouses 0andrito the amount of %?(,,'7).== for the unpaid loan. Since the debt
due is limited to the principal of %.)=,===.== with '7X per annum as legal interest, the previous
demand for pa!ment of the amount of %?(,,'7).== cannot be considered as a valid demand for
pa!ment. For an obligation to become due, there must be a valid demand.
7(
&or can the foreclosure
proceedings be considered valid since the total amount of the indebtedness during the foreclosure
proceedings was pegged at %?(,,'7).== which included interest and which this Court now nulli3es for
being e"cessive, ini4uitous and e"orbitant. If the foreclosure proceedings were considered valid, this
would result in an ine4uitable situation wherein the Spouses 0andrito will have their land foreclosed for
failure to pa! an over-in5ated loan onl! a small part of which the! were obligated to pa!.
oreover, it is evident from the facts of the case that despite considerable efort on their part, the
Spouses 0andrito failed to redeem the mortgaged propert! because the! were unable to raise the total
amount, which was grossl! in5ated b! the e"cessive interest imposed. Their attempt to redeem the
mortgaged propert! at the in5ated amount of %',)-),.-7.(-, as earl! as .= *ctober '--', is re5ected
in a letter, which creditor-mortgagee Noilo 0andrito ac6nowledged to have received b! aD"ing his
signature herein.
7?
The! also attached in their Complaint copies of two chec6s in the amounts
of %((=,===.== and %--),=?(.==, both dated '. +anuar! '--7, which were allegedl! refused b! the
Spouses <spiritu.
7-
0astl!, the Spouses <spiritu even attached in their e"hibits a cop! of a handwritten
letter, dated 7( +anuar! '--,, written b! %a1 0andrito, addressed to the Spouses <spiritu, wherein the
former ofered to pa! the latter the sum of %7,===,===.==.
.=
In all these instances, the Spouses 0andrito
had tried, but failed, to pa! an amount wa! over the indebtedness the! were supposed to pa! Q
i.e., %.)=,===.== and '7X interest per annum. Thus, it is onl! proper that the Spouses 0andrito be
given the opportunit! to repa! the real amount of their indebtedness.
Since the Spouses 0andrito, the debtors in this case, were not given an opportunit! to settle their debt,
at the correct amount and without the ini4uitous interest imposed, no foreclosure proceedings ma! be
instituted. 8 judgment ordering a foreclosure sale is conditioned upon a 3nding on the correct amount
of the unpaid obligation and the failure of the debtor to pa! the said amount.
.'
In this case, it has not
!et been shown that the Spouses 0andrito had alread! failed to pa! the correct amount of the debt and,
therefore, a foreclosure sale cannot be conducted in order to answer for the unpaid debt. The
foreclosure sale conducted upon their failure to pa!%?(,,'7) in '--= should be nulli3ed since the
amount demanded as the outstanding loan was overstated: conse4uentl! it has not been shown that
the mortgagors Q the Spouses 0andrito, have failed to pa! their outstanding obligation. oreover, if the
proceeds of the sale together with its reasonable rates of interest were applied to the obligation, onl! a
small part of its original loans would actuall! remain outstanding, but because of the unconscionable
interest rates, the larger part corresponded to said e"cessive and ini4uitous interest.
8s a result, the subse4uent registration of the foreclosure sale cannot transfer an! rights over the
mortgaged propert! to the Spouses <spiritu. The registration of the foreclosure sale, herein declared
invalid, cannot vest title over the mortgaged propert!. The Torrens s!stem does not create or vest title
where one does not have a rightful claim over a real propert!. It onl! con3rms and records title alread!
e"isting and vested. It does not permit one to enrich oneself at the e"pense of another.
.7
Thus, the
decree of registration, even after the lapse of one ;'> !ear, cannot attain the status of indefeasibilit!.
Signi3cantl!, the records show that the propert! mortgaged was purchased b! the Spouses <spiritu and
had not been transferred to an innocent purchaser for value. This means that an action for
reconve!ance ma! still be availed of in this case.
..
2egistration of propert! b! one person in his or her name, whether b! mista6e or fraud, the real owner
being another person, impresses upon the title so ac4uired the character of a constructive trust for the
real owner, which would justif! an action for reconve!ance.
.,
This is based on 8rticle ',/) of the Civil
Code which states that9
8rt. ',/). If propert! ac4uired through mista6es or fraud, the person obtaining it is, b! force of law,
considered a trustee of an implied trust for bene3t of the person from whom the propert! comes.
The action for reconve!ance does not prescribe until after a period of ten !ears from the date of the
registration of the certi3cate of sale since the action would be based on implied trust.
.)
Thus, the action
for reconve!ance 3led on .' *ctober '--7, more than one !ear after the SherifPs Certi3cate of Sale
was registered on - +anuar! '--', was 3led within the prescription period.
It should, however, be reiterated that the provisions of the 2eal <state ortgage are not annulled and
the principal obligation stands. In addition, the interest is not completel! removed: rather, it is set b!
this Court at '7X per annum. Should the Spouses 0andrito fail to pa! the principal, with its recomputed
interest which runs from the time the loan agreement was entered into on ) September '-?/ until the
present, there is nothing in this @ecision which prevents the Spouses <spiritu from foreclosing the
mortgaged propert!.
The last issue raised b! the petitioners is whether or not Noilo 0andrito was authori1ed to 3le the action
for reconve!ance 3led before the trial court or even to 3le the appeal from the judgment of the trial
court, b! virtue of the Special %ower of 8ttorne! dated .= September '--7. The! further noted that the
trial court and the Court of 8ppeals failed to rule on this issue.
./
The Special %ower of 8ttorne!
.(
dated .= September '--7 was e"ecuted b! a"imo 0andrito, +r., with
the conformit! of %a1 0andrito, in connection with the mortgaged propert!. It authori1ed Noilo 0andrito9
7. To ma6e, sign, e"ecute and deliver corresponding pertinent contracts, documents, agreements and
other writings of whatever nature or 6ind and to sue or 3le legal action in an! court of the %hilippines,
to collect, as6 demands, encash chec6s, and recover an! and all sum of monies, proceeds, interest and
other due accruing, owning, pa!able or belonging to me as such owner of the afore-mentioned
propert!. ;<mphasis provided.>
Noilo 0andritoPs authorit! to 3le the case is clearl! set forth in the Special %ower of 8ttorne!.
Furthermore, the records of the case une4uivocall! show that Noilo 0andrito 3led the reconve!ance
case with the full authorit! of his mother, %a1 0andrito, who attended the hearings of the case, 3led in
her behalf, without ma6ing an! protest.
.?
She even testi3ed in the same case on .= 8ugust '--). From
the acts of %a1 0andrito, there is no doubt that she had authori1ed her son to 3le the action for
reconve!ance, in her behalf, before the trial court.
I& GI<F *F T$< F*2<A*I&A, the instant %etition is @<&I<@. This Court 8FFI2S the assailed @ecision
of the Court of 8ppeals, promulgated on .' 8ugust 7==), 3"ing the interest rate of the loan between
the parties at '7X per annum, and ordering the Spouses <spiritu to reconve! the subject propert! to
the Spouses 0andrito conditioned upon the pa!ment of the loan together with herein 3"ed rate of
interest. Costs against the petitioners.
S* *2@<2<@.
G.R. No. L-4;&;& .091 24, 1942
GIL .AR"!NIL, plaintif-appellant,
vs.
*!-TI SOLAS =alias *!,TI SOLAS, .!,TI SOLAS>, defendant-appellee.
Eleuterio J. 2ustilo for appellant.
This is an action for foreclosure of mortgage. The onl! 4uestion raised in this appeal is9 Is defendant-
appellee bound to pa! the stipulated interest onl! up to the date of maturit! as 3"ed in the promissor!
note, or up to the date pa!ment is efectedT This 4uestion is, in our opinion controlled b! the e"press
stipulation of the parties.
%aragraph , of the mortgage deed recites9
Mue en consideracion a dicha suma aun por pagar de @*S I0 CK8T2*CI<&T*S %<S*S
;%7,,===.==>, moneda 3lipina, 4ue el Sr. $epti Solas se compromete a pagar al Sr. +ardenil en o
antes del dia treintaiuno ;.'> de mar1o de mil novecientos treintaicuarto ;'-.,>, con los
intereses de dicha suma al tipo de doce por ciento ;'7X> anual a partir desde fecha hasta el
dia de su vencimiento o sea treintaiuno ;.'> de mar1o de mil novecientos treintaicuatro
;'-.,>, por la presente, el Sr. $epti Solas cede ! traspasa, por via de primera hipoteca, a favor
del Sr. +ardenil, sus herederos ! causahabientes, la parcela de terreno descrita en el parrafo
primero ;'.V> de esta escritura.
@efendant-appellee has, therefore, clearl! agreed to pa! interest onl! up to the date of maturit!, or
until arch .', '-.,. 8s the contract is silent as to whether after that date, in the event of non-
pa!ment, the debtor would continue to pa! interest, we cannot in law, indulge in an! presumption as to
such interest: otherwise, we would be imposing upon the debtor an obligation that the parties have not
chosen to agree upon. 8rticle '()) of the Civil Code provides that Jinterest shall be due onl! when it
has been e9pressl/ stipulated.J ;<mphasis supplied.>
8 writing must be interpreted according to the legal meaning of its language ;section 7?/, 8ct &o. '-=,
now section )?, 2ule '7.>, and onl! when the wording of the written instrument appears to be contrar!
to the evident intention of the parties that such intention must prevail. ;8rticle '7?', Civil Code.> There
is nothing in the mortgage deed to show that the terms emplo!ed b! the parties thereto are at war with
their evident intent. *n the contrar! the act of the mortgage of granting to the mortgagor on the same
date of e"ecution of the deed of mortgage, an e"tension of one !ear from the date of maturit! within
which to ma6e pa!ment, without ma6ing an! mention of an! interest which the mortgagor should pa!
during the additional period ;see <"hibit E attached to the complaint>, indicates that the true intention
of the parties was that no interest should be paid during the period of grace. Fhat reason the parties
ma! have therefor, we need not here see6 to e"plore.
&either has either of the parties shown that, b! mutual mista6e, the deed of mortgage fails to e"press
their agreement, for if such mista6e e"isted, plaintif would have undoubtedl! adduced evidence to
establish it and as6ed that the deed be reformed accordingl!, under the parcel-evidence rule.
Fe hold therefore, that as the contract is clear and unmista6able and the terms emplo!ed therein have
not been shown to belie or otherwise fail to e"press the true intention of the parties and that the deed
has not been assailed on the ground of mutual mista6e which would re4uire its reformation, same
should be given its full force and efect. Fhen a part! sues on a written contract and no attempt is
made to show an! vice therein, he cannot be allowed to la! an! claim more than what its clear
stipulations accord. $is omission, to which the law attaches a de3nite warning as an in the instant case,
cannot b! the courts be arbitraril! supplied b! what their own notions of justice or e4uit! ma! dictate.
%laintif is, therefore, entitled onl! to the stipulated interest of '7 per cent on the loan of %7, ,== from
&ovember ?, '-.7 to arch .', '-.,. 8nd it being a fact that e"tra judicial demands have been made
which we ma! assume to have been so made on the e"piration of the !ear of grace, he shall be entitled
to legal interest upon the principal and the accrued interest from 8pril ', '-.), until full pa!ment.
Thus modi3ed judgment is aDrmed, with costs against appellant.
G.R. No. 160'4' Mar:7 9, 2010
,RISMA $ONSTRU$TION L "!+!LO,M!NT $OR,ORATION an ROG!LIO S.
,ANTAL!ON, %etitioners,
vs.
ART*UR -. M!N$*A+!/, 2espondent.
Fe resolve in this @ecision the petition for review on certiorari
'
3led b! petitioners %risma Construction
S @evelopment Corporation ;%2IS8> and 2ogelio S. %antaleon ;%antaleon> ;collectivel!, petitioners>
who see6 to reverse and set aside the @ecision
7
dated a! ), 7==. and the 2esolution
.
dated *ctober
77, 7==. of the Former &inth @ivision of the Court of 8ppeals ;C8> in C8-A.2. CG &o. /-/7(. The
assailed C8 @ecision aDrmed the @ecision of the 2egional Trial Court ;2TC>, Eranch (., 8ntipolo Cit! in
Civil Case &o. -(-,))7 that held the petitioners liable for pa!ment of %.,)7/,''(.== to respondent
8rthur F. enchave1 ;respondent>, but modi3ed the interest rate from ,X per month to '7X per
annum, computed from the 3ling of the complaint to full pa!ment. The assailed C8 2esolution denied
the petitionersP otion for 2econsideration.
F8CTK80 E8COA2*K&@
The facts of the case, gathered from the records, are brie5! summari1ed below.
*n @ecember ?, '--., %antaleon, the %resident and Chairman of the Eoard of %2IS8, obtained
a%',===,===.==
,
loan from the respondent, with a monthl! interest of %,=,===.== pa!able for si"
months, or a total obligation of %',7,=,===.== to be paid within si" ;/> months,
)
under the following
schedule of pa!ments9
+anuar! ?, '--,
]]]]]]].
%,=,===.==
Februar! ?, '--,
]]]]]]...
%,=,===.==
arch ?, '--,
]]]]]]]...
%,=,===.==
8pril ?, '--,
]]]]]]]].
%,=,===.==
a! ?, '--,
]]]]]]]]..
%,=,===.==
+une ?, '--,
]]]]]]]
%',=,=,===.=
=
/
Total %',7,=,===.=
=
To secure the pa!ment of the loan, %antaleon issued a promissor! note
(
that states9
I, 2ogelio S. %antaleon, hereb! ac6nowledge the receipt of *&< I00I*& TF* $K&@2<@ F*2TL
T$*KS8&@ %<S*S ;%',7,=,===>, %hilippine Currenc!, from r. 8rthur F. enchave1, representing a si"-
month loan pa!able according to the following schedule9
+anuar! ?, '--,
]]]]]]].
%,=,===.==
Februar! ?, '--,
]]]]]]...
%,=,===.==
arch ?, '--,
]]]]]]]...
%,=,===.==
8pril ?, '--,
]]]]]]]].
%,=,===.==
a! ?, '--,
]]]]]]]]..
%,=,===.==
+une ?, '--,
]]]]]]]
%',=,=,===.
==
The chec6s corresponding to the above amounts are hereb! ac6nowledged.
?
and si" ;/> postdated chec6s corresponding to the schedule of pa!ments. %antaleon signed the
promissor! note in his personal capacit!,
-
and as dul! authori1ed b! the Eoard of @irectors of
%2IS8.
'=
The petitioners failed to completel! pa! the loan within the stipulated si" ;/>-month period.
From September ?, '--, to +anuar! ,, '--(, the petitioners paid the following amounts to the
respondent9
September ?, '--,
]]]]]]
%.7=,===.=
=
*ctober ?,
'--)]]]]]]].
%/==,===.=
=
&ovember ?,
'--)]]]]].
%')?,((7.=
=
+anuar! ,, '--(
]]]]]]].
%.=,===.==
''
8s of +anuar! ,, '--(, the petitioners had alread! paid a total of %','=?,((7.==. $owever, the
respondent found that the petitioners still had an outstanding balance of %',./,,')'.== as of +anuar! ,,
'--(, to which it applied a ,X monthl! interest.
'7
Thus, on 8ugust 7?, '--(, the respondent 3led a
complaint for sum of mone! with the 2TC to enforce the unpaid balance, plus ,X monthl!
interest, %.=,===.== in attorne!Ps fees, %',===.== per court appearance and costs of suit.
'.
In their 8nswer dated *ctober /, '--?, the petitioners admitted the loan of %',7,=,===.==, but denied
the stipulation on the ,X monthl! interest, arguing that the interest was not provided in the promissor!
note. %antaleon also denied that he made himself personall! liable and that he made representations
that the loan would be repaid within si" ;/> months.
',
T$< 2TC 2K0I&A
The 2TC rendered a @ecision on *ctober 7(, 7=== 3nding that the respondent issued a chec6
for %',===,===.== in favor of the petitioners for a loan that would earn an interest of ,X or %,=,===.==
per month, or a total of%7,=,===.== for a /-month period. It noted that the petitioners made several
pa!ments amounting to%',77?,((7.==, but the! were still indebted to the respondent for %.,)7/,''(.==
as of Februar! 11,
')
'--- after considering the ,X monthl! interest. The 2TC observed that %2IS8
was a one-man corporation of %antaleon and used this circumstance to justif! the piercing of the veil of
corporate 3ction. Thus, the 2TC ordered the petitioners to jointl! and severall! pa! the respondent the
amount of %.,)7/,''(.== plus ,X per month interest from Februar! '', '--- until full! paid.
'/
The petitioners elevated the case to the C8 via an ordinar! appeal under 2ule ,' of the 2ules of Court,
insisting that there was no e"press stipulation on the ,X monthl! interest.
T$< C8 2K0I&A
The C8 decided the appeal on a! ), 7==.. The C8 found that the parties agreed to a ,X monthl!
interest principall! based on the board resolution that authori1ed %antaleon to transact a loan with an
approved interest of not more than ,X per month. The appellate court, however, noted that the
interest of ,X per month, or ,?X per annum, was unreasonable and should be reduced to '7X per
annum. The C8 aDrmed the 2TCPs 3nding that %2IS8 was a mere instrumentalit! of %antaleon that
justi3ed the piercing of the veil of corporate 3ction. Thus, the C8 modi3ed the 2TC @ecision b! imposing
a '7X per annum interest, computed from the 3ling of the complaint until 3nalit! of judgment, and
thereafter, '7X from 3nalit! until full! paid.
'(
8fter the C8#s denial
'?
of their motion for reconsideration,
'-
the petitioners 3led the present petition for
review on certiorari under 2ule ,) of the 2ules of Court.
T$< %<TITI*&
The petitioners submit that the C8 mista6enl! relied on their board resolution to conclude that the
parties agreed to a ,X monthl! interest because the board resolution was not an evidence of a loan or
forbearance of mone!, but merel! an authori1ation for %antaleon to perform certain acts, including the
power to enter into a contract of loan. The e"pressed mandate of 8rticle '-)/ of the Civil Code is that
interest due should be stipulated in writing, and no such stipulation e"ists. <ven assuming that the loan
is subject to ,X monthl! interest, the interest covers the si" ;/>-month period onl! and cannot be
interpreted to appl! be!ond it. The petitioners also point out the glaring inconsistenc! in the C8
@ecision, which reduced the interest from ,X per month or ,?X per annum to '7X per annum, but
failed to consider that the amount of %.,)7/,''(.== that the 2TC ordered them to pa! includes the
compounded ,X monthl! interest.
T$< C8S< F*2 T$< 2<S%*&@<&T
The respondent counters that the C8 correctl! ruled that the loan is subject to a ,X monthl! interest
because the board resolution is attached to, and an integral part of, the promissor! note based on
which the petitioners obtained the loan. The respondent further contends that the petitioners are
estopped from assailing the ,X monthl! interest, since the! agreed to pa! the ,X monthl! interest on
the principal amount under the promissor! note and the board resolution.
T$< ISSK<
The core issue boils down to whether the parties agreed to the ,X monthl! interest on the loan. If so,
does the rate of interest appl! to the /-month pa!ment period onl! or until full pa!ment of the loanT
*K2 2K0I&A
Fe 3nd the petition meritorious.
Interest due should be stipulated in writing: otherwise, '7X per annum
*bligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
7=
Fhen the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its stipulations governs.
7'
In such cases,
courts have no authorit! to alter the contract b! construction or to ma6e a new contract for the parties:
a court#s dut! is con3ned to the interpretation of the contract the parties made for themselves without
regard to its wisdom or foll!, as the court cannot suppl! material stipulations or read into the contract
words the contract does not contain.
77
It is onl! when the contract is vague and ambiguous that courts
are permitted to resort to the interpretation of its terms to determine the partiesP intent.
In the present case, the respondent issued a chec6 for %',===,===.==.
7.
In turn, %antaleon, in his
personal capacit! and as authori1ed b! the Eoard, e"ecuted the promissor! note 4uoted above. Thus,
the %',===,===.== loan shall be pa!able within si" ;/> months, or from +anuar! ?, '--, up to +une ?,
'--,. @uring this period, the loan shall earn an interest of %,=,===.== per month, for a total obligation
of %',7,=,===.== for the si"-month period. @e no)e )7a) )734 a8ree 40m :an be :om(0)e a) 4M
3n)ere4) (er mon)7, b0) no 40:7 ra)e o6 3n)ere4) ?a4 4)3(09a)e 3n )7e (rom344or1 no)eN
ra)7er a G5e 40m eH03va9en) )o )734 ra)e ?a4 a8ree 0(on.
8rticle '-)/ of the Civil Code speci3call! mandates that Jno interest shall be due unless it has been
e"pressl! stipulated in writing.J Knder this provision, the pa!ment of interest in loans or forbearance of
mone! is allowed onl! if9 ;'> there was an e"press stipulation for the pa!ment of interest: and ;7> the
agreement for the pa!ment of interest was reduced in writing. The concurrence of the two conditions is
re4uired for the pa!ment of interest at a stipulated rate. Thus, we held in 'an v. Valdehueza
7,
and Ching
v. :icdao
7)
that collection of interest without an! stipulation in writing is prohibited b! law.1avvphi1
8ppl!ing this provision, we 3nd that the interest of %,=,===.== per month corresponds onl! to the si"
;/>-month period of the loan, or from +anuar! ?, '--, to +une ?, '--,, as agreed upon b! the parties in
the promissor! note. Thereafter, the interest on the loan should be at the legal interest rate of
'7X per annum, consistent with our ruling in Eastern !hipping 3ines" &nc. v. Court of Appeals9
7/
Fhen the obligation is breached, and it consists in the pa!ment of a sum of mone!, i.e., a loan or
forbearance of mone!, the interest due should be that which ma! have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judiciall! demanded. In
)7e ab4en:e o6 4)3(09a)3on, )7e ra)e o6 3n)ere4) 47a99 be 12M (er ann0m )o be :om(0)e
6rom e6a09), i.e., from judicial or e"trajudicial demand under and subject to the provisions of 8rticle
''/- of the Civil Code.J ;<mphasis supplied>
Fe reiterated this ruling in !ecurit/ 1an8 and 'rust Co. v. #'C60a8ati" 1r. ;1,
7(
!ulit v. Court of
Appeals,
7?
Crismina Aarments, Inc. v. Court of 8ppeals,
7-
<astern 8ssurance and Suret! Corporation v.
Court of 8ppeals,
.=
!ps. Catungal v. $ao,
.'
Long v. Tiu,
.7
and !ps. 1arrera v. !ps. 3orenzo.
..
Thus, the
2TC and the C8 misappreciated the facts of the case: the! erred in 3nding that the parties agreed to a
,X interest, compounded b! the application of this interest be!ond the promissor! notePs si" ;/>-month
period. The facts show that the parties agreed to the pa!ment of a 4(e:3G: 40m o6
mone1 of %,=,===.== per month for si" months, not to a ,X rate of interest pa!able within a si" ;/>-
month period.
Mee9 v. $o0r) o6 A((ea94 no) a((93:ab9e
The C8 misapplied edel v. Court of 8ppeals
.,
in 3nding that a ,X interest per month was
unconscionable.
In edel, the debtors in a %)==,===.== loan were re4uired to pa! an interest of ).)X per month, a
service charge of 7X per annum, and a penalt! charge of 'X per month, plus attorne!Ps fee e4uivalent
to 7)X of the amount due, until the loan is full! paid. Ta6en in conjunction with the stipulated service
charge and penalt!, we found the interest rate of ).)X to be e"cessive, ini4uitous, unconscionable,
e"orbitant and hence, contrar! to morals, thereb! rendering the stipulation null and void.
8ppl!ing edel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Sala1ar
.)
of
/X per month or (7X per annum interest on a %/=,===.== loan: in 2ui1 v. Court of 8ppeals,
./
of .X per
month or ./X per annum interest on a %.,===,===.== loan: in Imperial v. +aucian,
.(
of '/X per month
or '-7X per annum interest on a %.7=,===.== loan: in Arrofo v. <ui)o"
.?
of (X interest per month or
?,X per annum interest on a%'),===.== loan: in 1ulos" Jr. v. =asuma"
.-
of ,X per month or ,?X per
annum interest on a %7,)==,===.== loan: and in Chua v. 'iman,
,=
of (X and )X per month for loans
totalling %-/,,===.==. Fe note that in all these cases, the terms of the loans were open-ended: the
stipulated interest rates were applied for an inde3nite period.
edel 3nds no application in the present case where no other stipulation e"ists for the pa!ment of an!
e"tra amount e"cept a 4(e:3G: 40m o6 ,40,000.00 (er mon)7 on the principal of a loan pa!able
within si" months. 8dditionall!, no issue on the e"cessiveness of the stipulated amount of %,=,===.==
per month was ever put in issue b! the petitioners:
,'
the! onl! assailed the application of a ,X interest
rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are bound b! the stipulations,
clauses, terms and conditions the! have agreed to, which is the law between them, the onl! limitation
being that these stipulations, clauses, terms and conditions are not contrar! to law, morals, public
order or public polic!.
,7
The pa!ment of the speci3c sum of mone! of %,=,===.== per month was
voluntaril! agreed upon b! the petitioners and the respondent. There is nothing from the records and,
in fact, there is no allegation showing that petitioners were victims of fraud when the! entered into the
agreement with the respondent.
Therefore, as agreed b! the parties, the loan of %',===,===.== shall earn %,=,===.== per month for a
period of si" ;/> months, or from @ecember ?, '--. to +une ?, '--,, for a total principal and interest
amount of%',7,=,===.==. Thereafter, interest at the rate of '7X per annum shall appl!. The amounts
alread! paid b! the petitioners during the pendenc! of the suit, amounting to %',77?,((7.== as of
Februar! 12, '---,
,.
should be deducted from the total amount due, computed as indicated above. Fe
remand the case to the trial court for the actual computation of the total amount due.
"o:)r3ne o6 !4)o((e9 no) a((93:ab9e
The respondent submits that the petitioners are estopped from disputing the ,X monthl! interest
be!ond the si"-month stipulated period, since the! agreed to pa! this interest on the principal amount
under the promissor! note and the board resolution.
Fe disagree with the respondentPs contention.
Fe cannot appl! the doctrine of estoppel in the present case since the facts and circumstances, as
established b! the record, negate its application. Knder the promissor! note,
,,
what the petitioners
agreed to was the pa!ment of a 4(e:3G: 40m o6 ,40,000.00 (er mon)7 6or 435 mon)74 O no) a 4M
ra)e o6 3n)ere4) (er mon)7 6or 435 =6> mon)74 O on a 9oan ?7o4e (r3n:3(a9 34 ,1,000,000.00,
6or )7e )o)a9 amo0n) o6 ,1,240,000.00. Thus, no reason e"ists to place the petitioners in estoppel,
barring them from raising their present defenses against a ,X per month interest after the si"-month
period of the agreement. The board resolution,
,)
on the other hand, simpl! authori1es %antaleon to
contract for a loan with a monthl! interest of not more than ,X. This resolution merel! embodies the
e"tent of %antaleonPs authorit! to contract and does not create an! right or obligation e"cept as
between %antaleon and the board. 8gain, no cause e"ists to place the petitioners in estoppel.
,3er:3n8 )7e :or(ora)e ve39 0n6o0ne
Fe 3nd it unfounded and unwarranted for the lower courts to pierce the corporate veil of %2IS8.
The doctrine of piercing the corporate veil applies onl! in three ;.> basic instances, namel!9 a> when the
separate and distinct corporate personalit! defeats public convenience, as when the corporate 3ction is
used as a vehicle for the evasion of an e"isting obligation: b> in fraud cases, or when the corporate
entit! is used to justif! a wrong, protect a fraud, or defend a crime: or c> is used in alter ego cases, i.e.,
where a corporation is essentiall! a farce, since it is a mere alter ego or business conduit of a person, or
where the corporation is so organi1ed and controlled and its afairs so conducted as to ma6e it merel!
an instrumentalit!, agenc!, conduit or adjunct of another corporation.
,/
In the absence of malice, bad
faith, or a speci3c provision of law ma6ing a corporate oDcer liable, such corporate oDcer cannot be
made personall! liable for corporate liabilities.
,(
In the present case, we see no competent and convincing evidence of an! wrongful, fraudulent or
unlawful act on the part of %2IS8 to justif! piercing its corporate veil. Fhile %antaleon denied personal
liabilit! in his 8nswer, he made himself accountable in the promissor! note Jin his personal capacit/
and as authorized (/ the 1oard #esolutionJ of %2IS8.
,?
Fith this statement of personal liabilit! and in
the absence of an! representation on the part of %2IS8 that the obligation is all its own because of its
separate corporate identit!, we see no occasion to consider piercing the corporate veil as material to
the case.
@*!R!-OR!, in light of all the foregoing, we hereb! R!+!RS! and S!T ASI"! the @ecision dated
a! ), 7==. of the Court of 8ppeals in C8-A.2. CG &o. /-/7(. The petitionersP loan of %',===,===.==
shall bear interest of%,=,===.== per month for si" ;/> months from @ecember ?, '--. as indicated in
the promissor! note. 8n! portion of this loan, unpaid as of the end of the si"-month pa!ment period,
shall thereafter bear interest at '7X per annum. The total amount due and unpaid, including accrued
interests, shall bear interest at '7X per annum from the 3nalit! of this @ecision. 0et this case
be R!MAN"!" to the 2egional Trial Court, Eranch (., 8ntipolo Cit! for the proper computation of the
amount due as herein directed, with due regard to the pa!ments the petitioners have alread! remitted.
Costs against the respondent.
S* *2@<2<@.
G.R. No. 1;322; .an0ar1 20, 2009
S!#ASTIAN SIGA-AN, %etitioner,
vs.
ALI$IA +ILLANU!+A, 2espondent.
Eefore Ks is a %etition
'
for 2eview on Certiorari under 2ule ,) of the 2ules of Court see6ing to set aside
the @ecision,
7
dated '/ @ecember 7==), and 2esolution,
.
dated '- +une 7==/ of the Court of 8ppeals in
C8-A.2. CG &o. ('?',, which aDrmed in toto the @ecision,
,
dated 7/ +anuar! 7==', of the 0as %inas
Cit! 2egional Trial Court, Eranch 7)), in Civil Case &o. 0%--?-==/?.
The facts gathered from the records are as follows9
*n .= arch '--?, respondent 8licia Gillanueva 3led a complaint
)
for sum of mone! against petitioner
Sebastian Siga-an before the 0as %inas Cit! 2egional Trial Court ;2TC>, Eranch 7)), doc6eted as Civil
Case &o. 0%--?-==/?. 2espondent alleged that she was a businesswoman engaged in suppl!ing oDce
materials and e4uipments to the %hilippine &av! *Dce ;%&*> located at Fort Eonifacio, Taguig Cit!,
while petitioner was a militar! oDcer and comptroller of the %&* from '--' to '--/.
2espondent claimed that sometime in '--7, petitioner approached her inside the %&* and ofered to
loan her the amount of %),=,===.==. Since she needed capital for her business transactions with the
%&*, she accepted petitionerPs proposal. The loan agreement was not reduced in writing. 8lso, there
was no stipulation as to the pa!ment of interest for the loan.
/
*n .' 8ugust '--., respondent issued a chec6 worth %)==,===.== to petitioner as partial pa!ment of
the loan. *n .' *ctober '--., she issued another chec6 in the amount of %7==,===.== to petitioner as
pa!ment of the remaining balance of the loan. %etitioner told her that since she paid a total amount
of %(==,===.== for the%),=,===.== worth of loan, the e"cess amount of %'/=,===.== would be applied
as interest for the loan. &ot satis3ed with the amount applied as interest, petitioner pestered her to pa!
additional interest. %etitioner threatened to bloc6 or disapprove her transactions with the %&* if she
would not compl! with his demand. 8s all her transactions with the %&* were subject to the approval of
petitioner as comptroller of the %&*, and fearing that petitioner might bloc6 or undul! in5uence the
pa!ment of her vouchers in the %&*, she conceded. Thus, she paid additional amounts in cash and
chec6s as interests for the loan. She as6ed petitioner for receipt for the pa!ments but petitioner told
her that it was not necessar! as there was mutual trust and con3dence between them. 8ccording to her
computation, the total amount she paid to petitioner for the loan and interest accumulated
to%',7==,===.==.
(
Thereafter, respondent consulted a law!er regarding the propriet! of pa!ing interest on the loan
despite absence of agreement to that efect. $er law!er told her that petitioner could not validl! collect
interest on the loan because there was no agreement between her and petitioner regarding pa!ment of
interest. Since she paid petitioner a total amount of %',7==,===.== for the %),=,===.== worth of loan,
and upon being advised b! her law!er that she made overpa!ment to petitioner, she sent a demand
letter to petitioner as6ing for the return of the e"cess amount of %//=,===.==. %etitioner, despite
receipt of the demand letter, ignored her claim for reimbursement.
?
2espondent pra!ed that the 2TC render judgment ordering petitioner to pa! respondent
;'> %//=,===.== plus legal interest from the time of demand: ;7> %.==,===.== as moral damages:
;.> %)=,===.== as e"emplar! damages: and ;,> an amount e4uivalent to 7)X of %//=,===.== as
attorne!Ps fees.
-
In his answer
'=
to the complaint, petitioner denied that he ofered a loan to respondent. $e averred that
in '--7, respondent approached and as6ed him if he could grant her a loan, as she needed mone! to
3nance her business venture with the %&*. 8t 3rst, he was reluctant to deal with respondent, because
the latter had a spott! record as a supplier of the %&*. $owever, since respondent was an ac4uaintance
of his oDcemate, he agreed to grant her a loan. 2espondent paid the loan in full.
''
Subse4uentl!, respondent again as6ed him to give her a loan. 8s respondent had been able to pa! the
previous loan in full, he agreed to grant her another loan. 0ater, respondent re4uested him to
restructure the pa!ment of the loan because she could not give full pa!ment on the due date. $e
acceded to her re4uest. Thereafter, respondent pleaded for another restructuring of the pa!ment of the
loan. This time he rejected her plea. Thus, respondent proposed to e"ecute a promissor! note wherein
she would ac6nowledge her obligation to him, inclusive of interest, and that she would issue several
postdated chec6s to guarantee the pa!ment of her obligation. Kpon his approval of respondentPs
re4uest for restructuring of the loan, respondent e"ecuted a promissor! note dated '7 September '--,
wherein she admitted having borrowed an amount of %',7,=,===.==, inclusive of interest, from
petitioner and that she would pa! said amount in arch '--). 2espondent also issued to him si"
postdated chec6s amounting to %',7,=,===.== as guarantee of compliance with her obligation.
Subse4uentl!, he presented the si" chec6s for encashment but onl! one chec6 was honored. $e
demanded that respondent settle her obligation, but the latter failed to do so. $ence, he 3led criminal
cases for Giolation of the Eouncing Chec6s 0aw ;Eatas %ambansa Elg. 77> against respondent. The
cases were assigned to the etropolitan Trial Court of a6ati Cit!, Eranch /) ;eTC>.
'7
%etitioner insisted that there was no overpa!ment because respondent admitted in the latterPs
promissor! note that her monetar! obligation as of '7 September '--, amounted to %',7,=,===.==
inclusive of interests. $e argued that respondent was alread! estopped from complaining that she
should not have paid an! interest, because she was given several times to settle her obligation but
failed to do so. $e maintained that to rule in favor of respondent is tantamount to concluding that the
loan was given interest-free. Eased on the foregoing averments, he as6ed the 2TC to dismiss
respondentPs complaint.
8fter trial, the 2TC rendered a @ecision on 7/ +anuar! 7==' holding that respondent made an
overpa!ment of her loan obligation to petitioner and that the latter should refund the e"cess amount to
the former. It ratiocinated that respondentPs obligation was onl! to pa! the loaned amount
of %),=,===.==, and that the alleged interests due should not be included in the computation of
respondentPs total monetar! debt because there was no agreement between them regarding pa!ment
of interest. It concluded that since respondent made an e"cess pa!ment to petitioner in the amount
of %//=,===.== through mista6e, petitioner should return the said amount to respondent pursuant to
the principle of solutio inde(iti.
'.
The 2TC also ruled that petitioner should pa! moral damages for the sleepless nights and wounded
feelings e"perienced b! respondent. Further, petitioner should pa! e"emplar! damages b! wa! of
e"ample or correction for the public good, plus attorne!Ps fees and costs of suit.
The dispositive portion of the 2TC @ecision reads9
F$<2<F*2<, in view of the foregoing evidence and in the light of the provisions of law and
jurisprudence on the matter, judgment is hereb! rendered in favor of the plaintif and against the
defendant as follows9
;'> *rdering defendant to pa! plaintif the amount of %//=,===.== plus legal interest of '7X
per annum computed from . arch '--? until the amount is paid in full:
;7> *rdering defendant to pa! plaintif the amount of %.==,===.== as moral damages:
;.> *rdering defendant to pa! plaintif the amount of %)=,===.== as e"emplar! damages:
;,> *rdering defendant to pa! plaintif the amount e4uivalent to 7)X of %//=,===.== as
attorne!Ps fees: and
;)> *rdering defendant to pa! the costs of suit.
',
%etitioner appealed to the Court of 8ppeals. *n '/ @ecember 7==), the appellate court promulgated its
@ecision aDrming in toto the 2TC @ecision, thus9
F$<2<F*2<, the foregoing considered, the instant appeal is hereb! @<&I<@ and the assailed decision
BisC 8FFI2<@ in toto.
')
%etitioner 3led a motion for reconsideration of the appellate courtPs decision but this was
denied.
'/
$ence, petitioner lodged the instant petition before us assigning the following errors9
I.
T$< 2TC 8&@ T$< C*K2T *F 8%%<80S <22<@ I& 2K0I&A T$8T &* I&T<2<ST F8S @K< T* %<TITI*&<2:
II.
T$< 2TC 8&@ T$< C*K2T *F 8%%<80S <22<@ I& 8%%0LI&A T$< %2I&CI%0< *F !3$'& &:%E1&'&.
'(
Interest is a compensation 3"ed b! the parties for the use or forbearance of mone!. This is referred to
as monetar! interest. Interest ma! also be imposed b! law or b! courts as penalt! or indemnit! for
damages. This is called compensator! interest.
'?
The right to interest arises onl! b! virtue of a contract
or b! virtue of damages for dela! or failure to pa! the principal loan on which interest is demanded.
'-
8rticle '-)/ of the Civil Code, which refers to monetar! interest,
7=
speci3call! mandates that no
interest shall be due unless it has been e"pressl! stipulated in writing. 8s can be gleaned from the
foregoing provision, pa!ment of monetar! interest is allowed onl! if9 ;'> there was an e"press
stipulation for the pa!ment of interest: and ;7> the agreement for the pa!ment of interest was reduced
in writing. The concurrence of the two conditions is re4uired for the pa!ment of monetar! interest.
Thus, we have held that collection of interest without an! stipulation therefor in writing is prohibited b!
law.
7'
It appears that petitioner and respondent did not agree on the pa!ment of interest for the loan. &either
was there convincing proof of written agreement between the two regarding the pa!ment of interest.
2espondent testi3ed that although she accepted petitionerPs ofer of loan amounting to %),=,===.==,
there was, nonetheless, no verbal or written agreement for her to pa! interest on the loan.
77
%etitioner presented a handwritten promissor! note dated '7 September '--,
7.
wherein respondent
purportedl! admitted owing petitioner Jcapital and interest.J 2espondent, however, e"plained that it
was petitioner who made a promissor! note and she was told to cop! it in her own handwriting: that all
her transactions with the %&* were subject to the approval of petitioner as comptroller of the %&*: that
petitioner threatened to disapprove her transactions with the %&* if she would not pa! interest: that
being unaware of the law on interest and fearing that petitioner would ma6e good of his threats if she
would not obe! his instruction to cop! the promissor! note, she copied the promissor! note in her own
handwriting: and that such was the same promissor! note presented b! petitioner as alleged proof of
their written agreement on interest.
7,
%etitioner did not rebut the foregoing testimon!. It is evident that
respondent did not reall! consent to the pa!ment of interest for the loan and that she was merel!
tric6ed and coerced b! petitioner to pa! interest. $ence, it cannot be gainfull! said that such
promissor! note pertains to an e"press stipulation of interest or written agreement of interest on the
loan between petitioner and respondent.
%etitioner, nevertheless, claims that both the 2TC and the Court of 8ppeals found that he and
respondent agreed on the pa!ment of (X rate of interest on the loan: that the agreed (X rate of
interest was dul! admitted b! respondent in her testimon! in the Eatas %ambansa Elg. 77 cases he 3led
against respondent: that despite such judicial admission b! respondent, the 2TC and the Court of
8ppeals, citing 8rticle '-)/ of the Civil Code, still held that no interest was due him since the
agreement on interest was not reduced in writing: that the application of 8rticle '-)/ of the Civil Code
should not be absolute, and an e"ception to the application of such provision should be made when the
borrower admits that a speci3c rate of interest was agreed upon as in the present case: and that it
would be unfair to allow respondent to pa! onl! the loan when the latter ver! well 6new and even
admitted in the Eatas %ambansa Elg. 77 cases that there was an agreed (X rate of interest on the
loan.
7)
Fe have carefull! e"amined the 2TC @ecision and found that the 2TC did not ma6e a ruling therein that
petitioner and respondent agreed on the pa!ment of interest at the rate of (X for the loan. The 2TC
clearl! stated that although petitioner and respondent entered into a valid oral contract of loan
amounting to %),=,===.==, the!, nonetheless, never intended the pa!ment of interest thereon.
7/
Fhile
the Court of 8ppeals mentioned in its @ecision that it concurred in the 2TCPs ruling that petitioner and
respondent agreed on a certain rate of interest as regards the loan, we consider this as merel! an
inadvertence because, as earlier elucidated, both the 2TC and the Court of 8ppeals ruled that petitioner
is not entitled to the pa!ment of interest on the loan. The rule is that factual 3ndings of the trial court
deserve great weight and respect especiall! when aDrmed b! the appellate court.
7(
Fe found no
compelling reason to disturb the ruling of both courts.
%etitionerPs reliance on respondentPs alleged admission in the Eatas %ambansa Elg. 77 cases that the!
had agreed on the pa!ment of interest at the rate of (X deserves scant consideration. In the said case,
respondent merel! testi3ed that after pa!ing the total amount of loan, petitioner ordered her to pa!
interest.
7?
2espondent did not categoricall! declare in the same case that she and respondent made
an e9press stipulation in writing as regards pa!ment of interest at the rate of (X. 8s earlier discussed,
monetar! interest is due onl! if there was ane9press stipulation in writing for the pa!ment of interest.
There are instances in which an interest ma! be imposed even in the absence of e"press stipulation,
verbal or written, regarding pa!ment of interest. 8rticle 77=- of the Civil Code states that if the
obligation consists in the pa!ment of a sum of mone!, and the debtor incurs dela!, a legal interest of
'7X per annum ma! be imposed as indemnit! for damages if no stipulation on the pa!ment of interest
was agreed upon. 0i6ewise, 8rticle 77'7 of the Civil Code provides that interest due shall earn legal
interest from the time it is judiciall! demanded, although the obligation ma! be silent on this point.
8ll the same, the interest under these two instances ma! be imposed onl! as a penalt! or damages for
breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of
mone!. In other words, the two instances appl! onl! to compensator! interest and not to monetar!
interest.
7-
The case at bar involves petitionerPs claim for monetar! interest.
Further, said compensator! interest is not chargeable in the instant case because it was not dul!
proven that respondent defaulted in pa!ing the loan. 8lso, as earlier found, no interest was due on the
loan because there was no written agreement as regards pa!ment of interest.
Apropos the second assigned error, petitioner argues that the principle of solutio inde(iti does not
appl! to the instant case. Thus, he cannot be compelled to return the alleged e"cess amount paid b!
respondent as interest.
.=
Knder 8rticle '-/= of the Civil Code, if the borrower of loan pa!s interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio inde(iti shall be applied. 8rticle
7'), of the Civil Code e"plains the principle of solutio inde(iti. Said provision provides that if something
is received when there is no right to demand it, and it was undul! delivered through mista6e, the
obligation to return it arises. In such a case, a creditor-debtor relationship is created under a 4uasi-
contract whereb! the pa!or becomes the creditor who then has the right to demand the return of
pa!ment made b! mista6e, and the person who has no right to receive such pa!ment becomes
obligated to return the same. The 4uasi-contract of solutio inde(iti har6s bac6 to the ancient principle
that no one shall enrich himself unjustl! at the e"pense of another.
.'
The principle of solutio
inde(itiapplies where ;'> a pa!ment is made when there e"ists no binding relation between the pa!or,
who has no dut! to pa!, and the person who received the pa!ment: and ;7> the pa!ment is made
through mista6e, and not through liberalit! or some other cause.
.7
Fe have held that the principle
of solutio inde(iti applies in case of erroneous pa!ment of undue interest.
..
It was dul! established that respondent paid interest to petitioner. 2espondent was under no dut! to
ma6e such pa!ment because there was no e"press stipulation in writing to that efect. There was no
binding relation between petitioner and respondent as regards the pa!ment of interest. The pa!ment
was clearl! a mista6e. Since petitioner received something when there was no right to demand it, he
has an obligation to return it.
Fe shall now determine the propriet! of the monetar! award and damages imposed b! the 2TC and the
Court of 8ppeals.
2ecords show that respondent received a loan amounting to %),=,===.== from petitioner.
.,
2espondent
issued two chec6s with a total worth of %(==,===.== in favor of petitioner as pa!ment of the
loan.
.)
These chec6s were subse4uentl! encashed b! petitioner.
./
*bviousl!, there was an e"cess
of %'/=,===.== in the pa!ment for the loan. %etitioner claims that the e"cess of %'/=,===.== serves as
interest on the loan to which he was entitled. 8side from issuing the said two chec6s, respondent also
paid cash in the total amount of %'(),===.== to petitioner as interest.
.(
8lthough no receipts re5ecting
the same were presented because petitioner refused to issue such to respondent, petitioner,
nonetheless, admitted in his 2epl!-8Ddavit
.?
in the Eatas %ambansa Elg. 77 cases that respondent paid
him a total amount of %'(),===.== cash in addition to the two chec6s. Section 7/ 2ule '.= of the 2ules
of <vidence provides that the declaration of a part! as to a relevant fact ma! be given in evidence
against him. 8side from the amounts of %'/=,===.== and %'(),===.== paid as interest, no other proof
of additional pa!ment as interest was presented b! respondent. Since we have previousl! found that
petitioner is not entitled to pa!ment of interest and that the principle of solutio inde(iti applies to the
instant case, petitioner should return to respondent the e"cess amount of %'/=,===.==
and %'(),===.== or the total amount of %..),===.==. 8ccordingl!, the reimbursable amount to
respondent 3"ed b! the 2TC and the Court of 8ppeals should be reduced from%//=,===.==
to %..),===.==.
8s earlier stated, petitioner 3led 3ve ;)> criminal cases for violation of Eatas %ambansa Elg. 77 against
respondent. In the said cases, the eTC found respondent guilt! of violating Eatas %ambansa Elg. 77
for issuing 3ve dishonored chec6s to petitioner. &onetheless, respondentPs conviction therein does not
afect our ruling in the instant case. The two chec6s, subject matter of this case, totaling %(==,===.==
which respondent claimed as pa!ment of the %),=,===.== worth of loan, were not among the 3ve
chec6s found to be dishonored or bounced in the 3ve criminal cases. Further, the eTC found that
respondent made an overpa!ment of the loan b! reason of the interest which the latter paid to
petitioner.
.-
8rticle 77'( of the Civil Code provides that moral damages ma! be recovered if the part! underwent
ph!sical sufering, mental anguish, fright, serious an"iet!, besmirched reputation, wounded feelings,
moral shoc6, social humiliation and similar injur!. 2espondent testi3ed that she e"perienced sleepless
nights and wounded feelings when petitioner refused to return the amount paid as interest despite her
repeated demands. $ence, the award of moral damages is justi3ed. $owever, its corresponding amount
of %.==,===.==, as 3"ed b! the 2TC and the Court of 8ppeals, is e"orbitant and should be e4uitabl!
reduced. 8rticle 77'/ of the Civil Code instructs that assessment of damages is left to the discretion of
the court according to the circumstances of each case. This discretion is limited b! the principle that
the amount awarded should not be palpabl! e"cessive as to indicate that it was the result of prejudice
or corruption on the part of the trial court.
,=
To our mind, the amount of %')=,===.== as moral damages
is fair, reasonable, and proportionate to the injur! sufered b! respondent.
8rticle 77.7 of the Civil Code states that in a 4uasi-contract, such as solutio inde(iti, e"emplar!
damages ma! be imposed if the defendant acted in an oppressive manner. %etitioner acted
oppressivel! when he pestered respondent to pa! interest and threatened to bloc6 her transactions
with the %&* if she would not pa! interest. This forced respondent to pa! interest despite lac6 of
agreement thereto. Thus, the award of e"emplar! damages is appropriate. The amount of %)=,===.==
imposed as e"emplar! damages b! the 2TC and the Court is 3tting so as to deter petitioner and other
lenders from committing similar and other serious wrongdoings.
,'
+urisprudence instructs that in awarding attorne!Ps fees, the trial court must state the factual, legal or
e4uitable justi3cation for awarding the same.
,7
In the case under consideration, the 2TC stated in its
@ecision that the award of attorne!Ps fees e4uivalent to 7)X of the amount paid as interest b!
respondent to petitioner is reasonable and moderate considering the e"tent of wor6 rendered b!
respondentPs law!er in the instant case and the fact that it dragged on for several !ears.
,.
Further,
respondent testi3ed that she agreed to compensate her law!er handling the instant case such
amount.
,,
The award, therefore, of attorne!Ps fees and its amount e4uivalent to 7)X of the amount
paid as interest b! respondent to petitioner is proper.
Finall!, the 2TC and the Court of 8ppeals imposed a '7X rate of legal interest on the amount
refundable to respondent computed from . arch '--? until its full pa!ment. This is erroneous.
Fe held in Eastern !hipping 3ines" &nc. v. Court of Appeals"
,)
that when an obligation, not constituting a
loan or forbearance of mone! is breached, an interest on the amount of damages awarded ma! be
imposed at the rate of /X per annum. Fe further declared that when the judgment of the court
awarding a sum of mone! becomes 3nal and e"ecutor!, the rate of legal interest, whether it is a
loanIforbearance of mone! or not, shall be '7X per annum from such 3nalit! until its satisfaction,
this interim period being deemed e4uivalent to a forbearance of credit.
In the present case, petitionerPs obligation arose from a 4uasi-contract of solutio inde(iti and not from a
loan or forbearance of mone!. Thus, an interest of /X per annum should be imposed on the amount to
be refunded as well as on the damages awarded and on the attorne!Ps fees, to be computed from the
time of the e"tra-judicial demand on . arch '--?,
,/
up to the 3nalit! of this @ecision. In addition, the
interest shall become '7X per annum from the 3nalit! of this @ecision up to its satisfaction.
@*!R!-OR!, the @ecision of the Court of 8ppeals in C8-A.2. CG &o. ('?',, dated '/ @ecember 7==),
is hereb! A--IRM!" with the following MO"I-I$ATIONS9 ;'> the amount of %//=,===.== as
refundable amount of interest is reduced to T$2<< $K&@2<@ T$I2TL FIG< T$*KS8&@ %<S*S
;%..),===.==>: ;7> the amount of%.==,===.== imposed as moral damages is reduced to *&< $K&@2<@
FIFTL T$*KS8&@ %<S*S ;%')=,===.==>: ;.> an interest of /X per annum is imposed on
the %..),===.==, on the damages awarded and on the attorne!Ps fees to be computed from the time of
the e"tra-judicial demand on . arch '--? up to the 3nalit! of this @ecision: and ;,> an interest of '7X
per annum is also imposed from the 3nalit! of this @ecision up to its satisfaction. Costs against
petitioner.
SO OR"!R!".
G.R. No. 1;2231 -ebr0ar1 12, 200;
$OMMISSION!R O- INT!RNAL R!+!NU!, %etitioner,
vs.
ISA#!LA $ULTURAL $OR,ORATION, 2espondent.
%etitioner Commissioner of Internal 2evenue ;CI2> assails the September .=, 7==) @ecision
'
of the
Court of 8ppeals in C8-A.2. S% &o. (?,7/ aDrming the Februar! 7/, 7==. @ecision
7
of the Court of Ta"
8ppeals ;CT8> in CT8 Case &o. )7'', which cancelled and set aside the 8ssessment &otices for
de3cienc! income ta" and e"panded withholding ta" issued b! the Eureau of Internal 2evenue ;EI2>
against respondent Isabela Cultural Corporation ;ICC>.
The facts show that on Februar! 7., '--=, ICC, a domestic corporation, received from the EI2
8ssessment &otice &o. F8S-'-?/--=-===/?= for de3cienc! income ta" in the amount of %...,'-/.?/,
and 8ssessment &otice &o. F8S-'-?/--=-===/?' for de3cienc! e"panded withholding ta" in the amount
of %,,?-(.(-, inclusive of surcharges and interest, both for the ta"able !ear '-?/.
The de3cienc! income ta" of ,333,196.&6, arose from9
;'> The EI2Ps disallowance of ICCPs claimed e"pense deductions for professional and securit!
services billed to and paid b! ICC in '-?/, to wit9
;a> <"penses for the auditing services of SAG S Co.,
.
for the !ear ending @ecember
.', '-?):
,
;b> <"penses for the legal services Binclusive of retainer feesC of the law 3rm Eeng1on
Narraga &arciso Cudala %ecson 81cuna S Eengson for the !ears '-?, and '-?).
)
;c> <"pense for securit! services of <l Tigre Securit! S Investigation 8genc! for the
months of 8pril and a! '-?/.
/
;7> The alleged understatement of ICCPs interest income on the three promissor! notes due
from 2ealt! Investment, Inc.
The de3cienc! e"panded withholding ta" of ,4,&9;.;9 ;inclusive of interest and surcharge> was
allegedl! due to the failure of ICC to withhold 'X e"panded withholding ta" on its claimed %7,,,?-=.==
deduction for securit! services.
(
*n arch 7., '--=, ICC sought a reconsideration of the subject assessments. *n Februar! -, '--),
however, it received a 3nal notice before sei1ure demanding pa!ment of the amounts stated in the said
notices. $ence, it brought the case to the CT8 which held that the petition is premature because the
3nal notice of assessment cannot be considered as a 3nal decision appealable to the ta" court. This
was reversed b! the Court of 8ppeals holding that a demand letter of the EI2 reiterating the pa!ment
of de3cienc! ta", amounts to a 3nal decision on the protested assessment and ma! therefore be
4uestioned before the CT8. This conclusion was sustained b! this Court on +ul! ', 7==', in A.2. &o.
'.)7'=.
?
The case was thus remanded to the CT8 for further proceedings.
*n Februar! 7/, 7==., the CT8 rendered a decision canceling and setting aside the assessment notices
issued against ICC. It held that the claimed deductions for professional and securit! services were
properl! claimed b! ICC in '-?/ because it was onl! in the said !ear when the bills demanding
pa!ment were sent to ICC. $ence, even if some of these professional services were rendered to ICC in
'-?, or '-?), it could not declare the same as deduction for the said !ears as the amount thereof
could not be determined at that time.
The CT8 also held that ICC did not understate its interest income on the subject promissor! notes. It
found that it was the EI2 which made an overstatement of said income when it compounded the
interest income receivable b! ICC from the promissor! notes of 2ealt! Investment, Inc., despite the
absence of a stipulation in the contract providing for a compounded interest: nor of a circumstance, li6e
dela! in pa!ment or breach of contract, that would justif! the application of compounded interest.
0i6ewise, the CT8 found that ICC in fact withheld 'X e"panded withholding ta" on its claimed deduction
for securit! services as shown b! the various pa!ment orders and con3rmation receipts it presented as
evidence. The dispositive portion of the CT8Ps @ecision, reads9
F$<2<F*2<, in view of all the foregoing, 8ssessment &otice &o. F8S-'-?/--=-===/?= for de3cienc!
income ta" in the amount of %...,'-/.?/, and 8ssessment &otice &o. F8S-'-?/--=-===/?' for
de3cienc! e"panded withholding ta" in the amount of %,,?-(.(-, inclusive of surcharges and interest,
both for the ta"able !ear '-?/, are hereb! C8&C<00<@ and S<T 8SI@<.
S* *2@<2<@.
-
%etitioner 3led a petition for review with the Court of 8ppeals, which aDrmed the CT8
decision,
'=
holding that although the professional services ;legal and auditing services> were rendered
to ICC in '-?, and '-?), the cost of the services was not !et determinable at that time, hence, it could
be considered as deductible e"penses onl! in '-?/ when ICC received the billing statements for said
services. It further ruled that ICC did not understate its interest income from the promissor! notes of
2ealt! Investment, Inc., and that ICC properl! withheld and remitted ta"es on the pa!ments for securit!
services for the ta"able !ear '-?/.
$ence, petitioner, through the *Dce of the Solicitor Aeneral, 3led the instant petition contending that
since ICC is using the accrual method of accounting, the e"penses for the professional services that
accrued in '-?, and '-?), should have been declared as deductions from income during the said !ears
and the failure of ICC to do so bars it from claiming said e"penses as deduction for the ta"able !ear
'-?/. 8s to the alleged de3cienc! interest income and failure to withhold e"panded withholding ta"
assessment, petitioner invo6ed the presumption that the assessment notices issued b! the EI2 are
valid.
The issue for resolution is whether the Court of 8ppeals correctl!9 ;'> sustained the deduction of the
e"penses for professional and securit! services from ICCPs gross income: and ;7> held that ICC did not
understate its interest income from the promissor! notes of 2ealt! Investment, Inc: and that ICC
withheld the re4uired 'X withholding ta" from the deductions for securit! services.
The re4uisites for the deductibilit! of ordinar! and necessar! trade, business, or professional e"penses,
li6e e"penses paid for legal and auditing services, are9 ;a> the e"pense must be ordinar! and necessar!:
;b> it must have been paid or incurred during the ta"able !ear: ;c> it must have been paid or incurred in
carr!ing on the trade or business of the ta"pa!er: and ;d> it must be supported b! receipts, records or
other pertinent papers.
''
The re4uisite that it must have been paid or incurred during the ta"able !ear is further 4uali3ed b!
Section ,) of the &ational Internal 2evenue Code ;&I2C> which states that9 JBtChe deduction provided
for in this Title shall be ta6en for the ta"able !ear in which Zpaid or accruedP or Zpaid or incurredP,
dependent upon the method of accounting upon the basis of which the net income is computed " " "J.
8ccounting methods for ta" purposes comprise a set of rules for determining when and how to report
income and deductions.
'7
In the instant case, the accounting method used b! ICC is the accrual
method.
2evenue 8udit emorandum *rder &o. '-7===, provides that under the accrual method of accounting,
e"penses not being claimed as deductions b! a ta"pa!er in the current !ear when the! are incurred
cannot be claimed as deduction from income for the succeeding !ear. Thus, a ta"pa!er who is
authori1ed to deduct certain e"penses and other allowable deductions for the current !ear but failed to
do so cannot deduct the same for the ne"t !ear.
'.
The accrual method relies upon the ta"pa!erPs right to receive amounts or its obligation to pa! them, in
opposition to actual receipt or pa!ment, which characteri1es the cash method of accounting. 8mounts
of income accrue where the right to receive them become 3"ed, where there is created an enforceable
liabilit!. Similarl!, liabilities are accrued when 3"ed and determinable in amount, without regard to
indeterminac! merel! of time of pa!ment.
',
For a ta"pa!er using the accrual method, the determinative 4uestion is, when do the facts present
themselves in such a manner that the ta"pa!er must recogni1e income or e"penseT The accrual of
income and e"pense is permitted when the all-events test has been met. This test re4uires9 ;'> 3"ing of
a right to income or liabilit! to pa!: and ;7> the availabilit! of the reasonable accurate determination of
such income or liabilit!.
The all-events test re4uires the right to income or liabilit! be 3"ed, and the amount of such income or
liabilit! be determined with reasonable accurac!. $owever, the test does not demand that the amount
of income or liabilit! be 6nown absolutel!, onl! that a ta"pa!er has at his disposal the information
necessar! to compute the amount with reasonable accurac!. The all-events test is satis3ed where
computation remains uncertain, if its basis is unchangeable: the test is satis3ed where a computation
ma! be un6nown, but is not as much as un6nowable, within the ta"able !ear. T7e amo0n) o6 93ab393)1
oe4 no) 7ave )o be e)erm3ne e5a:)91N 3) m04) be e)erm3ne ?3)7 Prea4onab9e a::0ra:1.P
A::or3n891, )7e )erm Prea4onab9e a::0ra:1P 3m(93e4 4ome)73n8 9e44 )7an an e5a:) or
:om(9e)e91 a::0ra)e amo0n).A1'B
T7e (ro(r3e)1 o6 an a::r0a9 m04) be I08e b1 )7e 6a:)4 )7a) a )a5(a1er Kne?, or :o09
rea4onab91 be e5(e:)e )o 7ave Kno?n, a) )7e :9o43n8 o6 3)4 booK4 6or )7e )a5ab9e 1ear.
A16B 8ccrual method of accounting presents largel! a 4uestion of fact: such that the ta"pa!er bears the
burden of proof of establishing the accrual of an item of income or deduction.
'(
Corollaril!, it is a governing principle in ta"ation that ta" e"emptions must be construed in strictissimi
juris against the ta"pa!er and liberall! in favor of the ta"ing authorit!: and one who claims an
e"emption must be able to justif! the same b! the clearest grant of organic or statute law. 8n
e"emption from the common burden cannot be permitted to e"ist upon vague implications. 8nd since a
deduction for income ta" purposes parta6es of the nature of a ta" e"emption, then it must also be
strictl! construed.
'?
In the instant case, the e"penses for professional fees consist of e"penses for legal and auditing
services. The e"penses for legal services pertain to the '-?, and '-?) legal and retainer fees of the
law 3rm Eeng1on Narraga &arciso Cudala %ecson 81cuna S Eengson, and for reimbursement of the
e"penses of said 3rm in connection with ICCPs ta" problems for the !ear '-?,. 8s testi3ed b! the
Treasurer of ICC, the 3rm has been its counsel since the '-/=Ps.
'-
From the nature of the claimed
deductions and the span of time during which the 3rm was retained, ICC can be e"pected to have
reasonabl! 6nown the retainer fees charged b! the 3rm as well as the compensation for its legal
services. The failure to determine the e"act amount of the e"pense during the ta"able !ear when the!
could have been claimed as deductions cannot thus be attributed solel! to the dela!ed billing of these
liabilities b! the 3rm. For one, ICC, in the e"ercise of due diligence could have in4uired into the amount
of their obligation to the 3rm, especiall! so that it is using the accrual method of accounting. For
another, it could have reasonabl! determined the amount of legal and retainer fees owing to its
familiarit! with the rates charged b! their long time legal consultant.
8s previousl! stated, the accrual method presents largel! a 4uestion of fact and that the ta"pa!er
bears the burden of establishing the accrual of an e"pense or income. $owever, ICC failed to discharge
this burden. 8s to when the 3rmPs performance of its services in connection with the '-?, ta" problems
were completed, or whether ICC e"ercised reasonable diligence to in4uire about the amount of its
liabilit!, or whether it does or does not possess the information necessar! to compute the amount of
said liabilit! with reasona(le accurac!, are 4uestions of fact which ICC never established. It simpl!
relied on the defense of dela!ed billing b! the 3rm and the compan!, which under the circumstances, is
not suDcient to e"empt it from being charged with 6nowledge of the reasonable amount of the
e"penses for legal and auditing services.
In the same vein, the professional fees of SAG S Co. for auditing the 3nancial statements of ICC for the
!ear '-?) cannot be validl! claimed as e"pense deductions in '-?/. This is so because ICC failed to
present evidence showing that even with onl! Jreasonable accurac!,J as the standard to ascertain its
liabilit! to SAG S Co. in the !ear '-?), it cannot determine the professional fees which said compan!
would charge for its services.
ICC thus failed to discharge the burden of proving that the claimed e"pense deductions for the
professional services were allowable deductions for the ta"able !ear '-?/. $ence, per 2evenue 8udit
emorandum *rder &o. '-7===, the! cannot be validl! deducted from its gross income for the said
!ear and were therefore properl! disallowed b! the EI2.
8s to the e"penses for securit! services, the records show that these e"penses were incurred b! ICC in
'-?/
7=
and could therefore be properl! claimed as deductions for the said !ear.
8nent the purported understatement of interest income from the promissor! notes of 2ealt!
Investment, Inc., we sustain the 3ndings of the CT8 and the Court of 8ppeals that no such
understatement e"ists and that onl! simple interest computation and not a compounded one should
have been applied b! the EI2. There is indeed no stipulation between the latter and ICC on the
application of compounded interest.
7'
Knder 8rticle '-)- of the Civil Code, unless there is a stipulation
to the contrar!, interest due should not further earn interest.
0i6ewise, the 3ndings of the CT8 and the Court of 8ppeals that ICC trul! withheld the re4uired
withholding ta" from its claimed deductions for securit! services and remitted the same to the EI2 is
supported b! pa!ment order and con3rmation receipts.
77
$ence, the 8ssessment &otice for de3cienc!
e"panded withholding ta" was properl! cancelled and set aside.
In sum, 8ssessment &otice &o. F8S-'-?/--=-===/?= in the amount of %...,'-/.?/ for de3cienc!
income ta" should be cancelled and set aside but onl! insofar as the claimed deductions of ICC for
securit! services. Said 8ssessment is valid as to the EI2Ps disallowance of ICCPs e"penses for
professional services. The Court of 8ppealPs cancellation of 8ssessment &otice &o. F8S-'-?/--=-===/?'
in the amount of %,,?-(.(- for de3cienc! e"panded withholding ta", is sustained.
F$<2<F*2<, the petition is %82TI800L A28&T<@. The September .=, 7==) @ecision of the Court of
8ppeals in C8-A.2. S% &o. (?,7/, is 8FFI2<@ with the *@IFIC8TI*& that 8ssessment &otice &o. F8S-
'-?/--=-===/?=, which disallowed the e"pense deduction of Isabela Cultural Corporation for
professional and securit! services, is declared valid onl! insofar as the e"penses for the professional
fees of SAG S Co. and of the law 3rm, Eeng1on Narraga &arciso Cudala %ecson 81cuna S Eengson, are
concerned. The decision is aDrmed in all other respects.
The case is remanded to the EI2 for the computation of Isabela Cultural CorporationPs liabilit! under
8ssessment &otice &o. F8S-'-?/--=-===/?=.
S* *2@<2<@.
G.R. No4. 1'0;;3 L 1'3'99 Se()ember 30, 200'
S,OUS!S "A+I" #. $AR,O L an R!$*IL"A S. $AR,O, %etitioners,
vs.
!L!ANOR $*UA an !LMA "< NG, 2espondent.
Eefore this Court are two consolidated petitions for review. The 3rst, doc6eted as A.2. &o. ')=((.,
assails the%ecision
'
of the 2egional Trial Court ;2TC>, Eranch 7/ of &aga Cit! dated 7/ *ctober 7==' in
Civil Case &o. ---,.(/. 2TC +udge Filemon E. ontenegro dismissed the complaint
7
for annulment of
real estate mortgage and conse4uent foreclosure proceedings 3led b! the spouses @avid E. Carpo and
2echilda S. Carpo ;petitioners>.
The second, doc6eted as A.2. &o. ').)--, see6s to annul the Court of 8ppealsP %ecision
.
dated .= 8pril
7==7 in C8-A.2. S% &o. )(7-(. The Court of 8ppeals Third @ivision annulled and set aside the orders of
+udge Cora1on 8. Tordilla to suspend the sherifPs enforcement of the writ of possession.
The cases stemmed from a loan contracted b! petitioners. *n '? +ul! '--), the! borrowed from <leanor
Chua and <lma @! &g ;respondents> the amount of *ne $undred Sevent!-Five Thousand %esos
;%'(),===.==>, pa!able within si" ;/> months with an interest rate of si" percent ;/X> per month. To
secure the pa!ment of the loan, petitioners mortgaged their residential house and lot situated at San
Francisco, agarao, Camarines Sur, which lot is covered b! Transfer Certi3cate of Title ;TCT> &o. 7.'?=.
%etitioners failed to pa! the loan upon demand. Conse4uentl!, the real estate mortgage was
e"trajudiciall! foreclosed and the mortgaged propert! sold at a public auction on ? +ul! '--/. The
house and lot was awarded to respondents, who were the onl! bidders, for the amount of Three
$undred Si"t!-Seven Thousand Four $undred Fift!-Seven %esos and <ight! Centavos ;%./(,,)(.?=>.
Kpon failure of petitioners to e"ercise their right of redemption, a certi3cate of sale was issued on )
September '--( b! Sherif 2olando 8. Eorja. TCT &o. 7.'?= was cancelled and in its stead, TCT &o.
7-..? was issued in the name of respondents.
@espite the issuance of the TCT, petitioners continued to occup! the said house and lot, prompting
respondents to 3le a petition for writ of possession with the 2TC doc6eted as Special %roceedings ;S%>
&o. -?-'//). *n 7. arch '---, 2TC +udge <rnesto 8. iguel issued an rder
,
for the issuance of a writ
of possession.
*n 7. +ul! '---, petitioners 3led a complaint for annulment of real estate mortgage and the
conse4uent foreclosure proceedings, doc6eted as Civil Case &o. ---,.(/ of the 2TC. %etitioners
consigned the amount of Two $undred Fift!-Seven Thousand *ne $undred &inet!-Seven %esos and
Twent!-Si" Centavos ;%7)(,'-(.7/> with the 2TC.
eanwhile, in S% &o. -?-'//), a temporar! restraining order was issued upon motion on . 8ugust
'---, enjoining the enforcement of the writ of possession. In an rder
)
dated / +anuar! 7===, the 2TC
suspended the enforcement of the writ of possession pending the 3nal disposition of Civil Case &o. ---
,.(/. 8gainst this rder, respondents 3led a petition for certiorari and mandamus before the Court of
8ppeals, doc6eted as C8-A.2. S% &o. )(7-(.
@uring the pendenc! of the case before the Court of 8ppeals, 2TC +udge Filemon E. ontenegro
dismissed the complaint in Civil Case &o. ---,.(/ on the ground that it was 3led out of time and barred
b! laches. The 2TC proceeded from the premise that the complaint was one for annulment of a voidable
contract and thus barred b! the four-!ear prescriptive period. $ence, the 3rst petition for review now
under consideration was 3led with this Court, assailing the dismissal of the complaint.
The second petition for review was 3led with the Court after the Court of 8ppeals on .= 8pril 7==7
annulled and set aside the 2TC orders in S% &o. -?-'//) on the ground that it was the ministerial dut!
of the lower court to issue the writ of possession when title over the mortgaged propert! had been
consolidated in the mortgagee.
This Court ordered the consolidation of the two cases, on motion of petitioners.
In A.2. &o. ')=((., petitioners claim that following the CourtPs ruling in 0edel v. Court of Appeals
/
the
rate of interest stipulated in the principal loan agreement is clearl! null and void. Conse4uentl!, the!
also argue that the nullit! of the agreed interest rate afects the validit! of the real estate mortgage.
&otabl!, while petitioners were silent in their petition on the issues of prescription and laches on which
the 2TC grounded the dismissal of the complaint, the! belatedl! raised the matters in
their 0emorandum. &onetheless, these points warrant brief comment.
*n the other hand, petitioners argue in A.2. &o. ').)-- that the 2TC did not commit an! grave abuse
of discretion when it issued the orders dated . 8ugust '--- and / +anuar! 7===, and that these orders
could not have been Jthe proper subjects of a petition for certiorari and mandamusJ. ore accuratel!,
the justiciable issues before us are whether the Court of 8ppeals could properl! entertain the petition
for certiorari from the timeliness aspect, and whether the appellate court correctl! concluded that the
writ of possession could no longer be sta!ed.
Fe 3rst resolve the petition in A.2. &o. ')=((..
%etitioners contend that the agreed rate of interest of /X per month or (7X per annum is so e"cessive,
ini4uitous, unconscionable and e"orbitant that it should have been declared null and void. Instead of
dismissing their complaint, the! aver that the lower court should have declared them liable to
respondents for the original amount of the loan plus '7X interest per annum and 'X monthl! penalt!
charge as li4uidated damages,
(
in view of the ruling in 0edel v. Court of Appeals.
?
In 0edel" the Court found that the interest stipulated at ).)X per month or //X per annum was so
ini4uitous or unconscionable as to render the stipulation void.
&evertheless, we 3nd the interest at ).)X per month, or //X per annum, stipulated upon b! the
parties in the promissor! note ini4uitous or unconscionable, and, hence, contrar! to morals ;Jcontra
(onos moresJ>, if not against the law. The stipulation is void. The Court shall reduce e4uitabl! li4uidated
damages, whether intended as an indemnit! or a penalt! if the! are ini4uitous or unconscionable.
-
In a long line of cases, this Court has invalidated similar stipulations on interest rates for being
e"cessive, ini4uitous, unconscionable and e"orbitant. In !olangon v. !alazar,
'=
we annulled the
stipulation of /X per month or (7X per annum interest on a %/=,===.== loan. In &mperial v.
Jaucian,
''
we reduced the interest rate from '/X to '.'/(X per month or ',X per annum. In #uiz v.
Court of Appeals,
'7
we e4uitabl! reduced the agreed .X per month or ./X per annum interest to 'X
per month or '7X per annum interest. The '=X and ?X interest rates per month on a %',===,===.==
loan were reduced to '7X per annum in Cuaton v. !alud.
'.
2ecentl!, this Court, inArrofo v.
<uino,
',
reduced the (X interest per month on a %'),===.== loan amounting to ?,X interest per
annum to '?X per annum.
There is no need to unsettle the principle aDrmed in 0edel and li6e cases. From that perspective, it is
apparent that the stipulated interest in the subject loan is e"cessive, ini4uitous, unconscionable and
e"orbitant. %ursuant to the freedom of contract principle embodied in 8rticle '.=/ of the Civil Code,
contracting parties ma! establish such stipulations, clauses, terms and conditions as the! ma! deem
convenient, provided the! are not contrar! to law, morals, good customs, public order, or public polic!.
In the ordinar! course, the codal provision ma! be invo6ed to annul the e"cessive stipulated interest.
In the case at bar, the stipulated interest rate is /X per month, or (7X per annum. E! the standards
set in the above-cited cases, this stipulation is similarl! invalid. $owever, the 2TC refused to appl! the
principle cited and emplo!ed in 0edel on the ground that 0edel did not pertain to the annulment of a
real estate mortgage,
')
as it was a case for annulment of the loan contract itself. The 4uestion thus
sensibl! arises whether the invalidit! of the stipulation on interest carries with it the invalidit! of the
principal obligation.
The 4uestion is crucial to the present petition even if the subject thereof is not the annulment of the
loan contract but that of the mortgage contract. The consideration of the mortgage contract is the
same as that of the principal contract from which it receives life, and without which it cannot e"ist as
an independent contract. Eeing a mere accessor! contract, the validit! of the mortgage contract would
depend on the validit! of the loan secured b! it.
'/
&otabl! in 0edel, the Court did not invalidate the entire loan obligation despite the ine4uitabilit! of the
stipulated interest, but instead reduced the rate of interest to the more reasonable rate of '7X per
annum. The same remedial approach to the wrongful interest rates involved was emplo!ed or aDrmed
b! the Court in !olangon,&mperial, #uiz, Cuaton, and Arrofo.
The CourtPs ultimate aDrmation in the cases cited of the validit! of the principal loan obligation side b!
side with the invalidation of the interest rates thereupon is congruent with the rule that a usurious loan
transaction is not a complete nullit! but defective onl! with respect to the agreed interest.
Fe are aware that the Court of 8ppeals, on certain occasions, had ruled that a usurious loan is wholl!
null and void both as to the loan and as to the usurious interest.
'(
$owever, this Court adopted the
contrar! rule,
as comprehensivel! discussed in 1riones v. Camma/o9
'?
In Aui +ong S Co. vs. 2ivera, et al., ,) %hil. ((?, this Court li6ewise declared that, in an! event, the
debtor in a usurious contract of loan should pa! the creditor the amount which he justl! owes him,
citing in support of this ruling its previous decisions in Ao Chioco, !upra" 8guilar vs. 2ubiato, et al., ,=
%hil. )(=, and @elgado vs. @u4ue Galgona, ,, %hil. (.-.
. . . .
Then in 0ope1 and +avelona vs. <l $ogar Filipino, ,( %hil. 7,-, Fe also held that the standing
jurisprudence of this Court on the 4uestion under consideration was clearl! to the efect that the Ksur!
0aw, b! its letter and spirit, did not deprive the lender of his right to recover from the borrower the
mone! actuall! loaned to and enjo!ed b! the latter. This Court went further to sa! that the Ksur! 0aw
did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and that
while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of usur!,
the legal 4uestion involved should not be resolved on the basis of convenience.
*ther cases upholding the same principle are %alileo vs. Cosio, -( %hil. -'- and %ascua vs. %ere1, 0-
'-)),, +anuar! .', '-/,, '= SC28 '--, 7==-7=7. In the latter Fe e"pressl! held that when a contract is
found to be tainted with usur! Jthe onl! right of the respondent ;creditor> . . . was merel! to collect the
amount of the loan, plus interest due thereon.J
The view has been e"pressed, however, that the ruling thus consistentl! adhered to should now be
abandoned because 8rticle '-)( of the new Civil Code H a subse4uent law H provides that contracts
and stipulations, under an! cloa6 or device whatever, intended to circumvent the laws against usur!,
shall be void, and that in such cases Jthe borrower ma! recover in accordance with the laws on usur!.J
From this the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no
right to recover H not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearl! stated, and the view
referred to in the preceding paragraph is ade4uatel! answered, in 8ngel +ose, etc. vs. Chelda
<nterprises, et al. ;0-7)(=,, 8pril 7,, '-/?>. *n the 4uestion of whether a creditor in a usurious
contract ma! or ma! not recover the principal of the loan, and, in the aDrmative, whether or not he
ma! also recover interest thereon at the legal rate, Fe said the following9
J. . . .
8ppealing directl! to Ks, defendants raise two 4uestions of law9 ;'> In a loan with usurious interest, ma!
the creditor recover the principal of the loanT ;7> Should attorne!#s fees be awarded in plaintif#s favorTJ
Areat reliance is made b! appellants on 8rt. ','' of the &ew Civil Code . . . .
Since, according to the appellants, a usurious loan is void due to illegalit! of cause or object, the rule of
pari delicto e"pressed in 8rticle ','', supra, applies, so that neither part! can bring action against
each other. Said rule, however, appellants add, is modi3ed as to the borrower, b! e"press provision of
the law ;8rt. ','., &ew Civil Code>, allowing the borrower to recover interest paid in e"cess of the
interest allowed b! the Ksur! 0aw. 8s to the lender, no e"ception is made to the rule: hence, he cannot
recover on the contract. So H the! continue H the &ew Civil Code provisions must be upheld as against
the Ksur! 0aw, under which a loan with usurious interest is not totall! void, because of 8rticle '-/' of
the &ew Civil Code, that9 JKsurious contracts shall be governed b! the Ksur! 0aw and other special
laws, so far as the! are not inconsistent with this Code.J
Fe do not agree with such reasoning. 8rticle ','' of the &ew Civil Code is not new: it is the same as
8rticle '.=) of the *ld Civil Code. Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Ksur! 0aw ;8ct &o. 7/)), as amended>, a loan with usurious
interest is not totall! void onl! as to the interest.
. . . AaB((e99an)4 6a39 )o :on43er )7a) a :on)ra:) o6 9oan ?3)7 040r3o04 3n)ere4) :on434)4 o6
(r3n:3(a9 an a::e44or1 4)3(09a)3on4N )7e (r3n:3(a9 one 34 )o (a1 )7e eb)N )7e a::e44or1
4)3(09a)3on 34 )o (a1 3n)ere4) )7ereon.
An 4a3 )?o 4)3(09a)3on4 are 3v343b9e 3n )7e 4en4e )7a) )7e 6ormer :an 4)399 4)an ?3)7o0)
)7e 9a))er. Ar)3:9e 12;3, $3v39 $oe, a))e4)4 )o )734Q PT7e ren0n:3a)3on o6 )7e (r3n:3(a9 eb)
47a99 e5)3n80347 )7e a::e44or1 ob938a)3on4N b0) )7e ?a3ver o6 )7e 9a))er 47a99 9eave )7e
6ormer 3n 6or:e.P
T7e H0e4)3on )7ere6ore )o re4o9ve 34 ?7e)7er )7e 399e8a9 )erm4 a4 )o (a1men) o6 3n)ere4)
93Ke?34e rener4 a n0993)1 )7e 9e8a9 )erm4 a4 )o (a1men)4 o6 )7e (r3n:3(a9 eb). Ar)3:9e 1420
o6 )7e Ne? $3v39 $oe (rov3e4 3n )734 re8arQ PIn :a4e o6 a 3v343b9e :on)ra:), 36 )7e 399e8a9
)erm4 :an be 4e(ara)e 6rom )7e 9e8a9 one4, )7e 9a))er ma1 be en6or:e.P
In 43m(9e 9oan ?3)7 4)3(09a)3on o6 040r3o04 3n)ere4), )7e (re4)a)3on o6 )7e eb)or )o (a1 )7e
(r3n:3(a9 eb), ?73:7 34 )7e :a04e o6 )7e :on)ra:) =Ar)3:9e 13'0, $3v39 $oe>, 34 no) 399e8a9.
T7e 399e8a93)1 93e4 on91 a4 )o )7e (re4)a)3on )o (a1 )7e 4)3(09a)e 3n)ere4)N 7en:e, be3n8
4e(arab9e, )7e 9a))er on91 47o09 be eeme vo3, 43n:e 3) 34 )7e on91 one )7a) 34 399e8a9.
. . . .
The principal debt remaining without stipulation for pa!ment of interest can thus be recovered b!
judicial action. 8nd in case of such demand, and the debtor incurs in dela!, the debt earns interest from
the date of the demand ;in this case from the 3ling of the complaint>. Such interest is not due to
stipulation, for there was none, the same being void. 2ather, it is due to the general provision of law
that in obligations to pa! mone!, where the debtor incurs in dela!, he has to pa! interest b! wa! of
damages ;8rt. 77=-, Civil Code>. The court a 4uo therefore, did not err in ordering defendants to pa!
the principal debt with interest thereon at the legal rate, from the date of 3ling of the complaint.J
'-
The CourtPs wholehearted aDrmation of the rule that the principal obligation subsists despite the nullit!
of the stipulated interest is evinced b! its subse4uent rulings, cited above, in all of which the main
obligation was upheld and the ofending interest rate merel! corrected. $ence, it is clear and settled
that the principal loan obligation still stands and remains valid. E! the same to6en, since the mortgage
contract derives its vitalit! from the validit! of the principal obligation, the invalid stipulation on interest
rate is similarl! insuDcient to render void the ancillar! mortgage contract.
It should be noted that had the Court declared the loan and mortgage agreements void for being
contrar! to public polic!, no prescriptive period could have run.
7=
Such bene3t is obviousl! not available
to petitioners.
Let the 2TC pronounced that the complaint was barred b! the four-!ear prescriptive period provided in
8rticle '.-' of the Civil Code, which governs voidable contracts. This conclusion was derived from the
allegation in the complaint that the consent of petitioners was vitiated through undue in5uence. Fhile
the 2TC correctl! ac6nowledged the rule of prescription for voidable contracts, it erred in appl!ing the
rule in this case. Fe are hard put to conclude in this case that there was an! undue in5uence in the 3rst
place.
There is ultimatel! no showing that petitionersP consent to the loan and mortgage agreements was
vitiated b! undue in5uence. The 3nancial condition of petitioners ma! have motivated them to contract
with respondents, but undue in5uence cannot be attributed to respondents simpl! because the! had
lent mone!. 8rticle '.-', in relation to 8rticle '.-= of the Civil Code, grants the aggrieved part! the
right to obtain the annulment of contract on account of factors which vitiate consent. 8rticle '..(
de3nes the concept of undue in5uence, as follows9
There is undue in5uence when a person ta6es improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered9
the con3dential, famil!, spiritual and other relations between the parties or the fact that the person
alleged to have been undul! in5uenced was sufering from mental wea6ness, or was ignorant or in
3nancial distress.
Fhile petitioners were allegedl! 3nanciall! distressed, it must be proven that there is deprivation of
their free agenc!. In other words, for undue in5uence to be present, the in5uence e"erted must have so
overpowered or subjugated the mind of a contracting part! as to destro! his free agenc!, ma6ing him
e"press the will of another rather than his own.
7'
The alleged lingering 3nancial woes of petitioners per
se cannot be e4uated with the presence of undue in5uence.
The 2TC had li6ewise concluded that petitioners were barred b! laches from assailing the validit! of the
real estate mortgage. Fe wholeheartedl! agree. If indeed petitioners unwillingl! gave their consent to
the agreement, the! should have raised this issue as earl! as in the foreclosure proceedings. It was
onl! when the writ of possession was issued did petitioners challenge the stipulations in the loan
contract in their action for annulment of mortgage. <videntl!, petitioners slept on their rights. The
Court of 8ppeals succinctl! made the following observations9
In all these proceedings starting from the foreclosure, followed b! the issuance of a provisional
certi3cate of sale: then the de3nite certi3cate of sale: then the issuance of TCT &o. 7-..? in favor of
the defendants and 3nall! the petition for the issuance of the writ of possession in favor of the
defendants, there is no showing that plaintifs 4uestioned the validit! of these proceedings. It was onl!
after the issuance of the writ of possession in favor of the defendants, that plaintifs allegedl! tendered
to the defendants the amount of %7/=,===.== which the defendants refused. In all these proceedings,
wh! did plaintifs sleep on their rightsT
77
Clearl! then, with the absence of undue in5uence, petitioners have no cause of action. <ven assuming
undue in5uence vitiated their consent to the loan contract, their action would alread! be barred b!
prescription when the! 3led it. oreover, petitioners had clearl! slept on their rights as the! failed to
timel! assail the validit! of the mortgage agreement. The denial of the petition in A.2. &o. ')=((. is
warranted.
Fe now resolve the petition in A.2. &o. ').)--.
%etitioners claim that the assailed 2TC orders dated . 8ugust '--- and / +anuar! 7=== could no longer
be 4uestioned in a special civil action for certiorari and mandamus as the reglementar! period for such
action had alread! elapsed.
It must be noted that the rder dated . 8ugust '--- suspending the enforcement of the writ of
possession had a period of efectivit! of onl! twent! ;7=> da!s from . 8ugust '---, or until 7. 8ugust
'---. Thus, upon the e"piration of the twent! ;7=>-da! period, the said rder became functus o>cio.
Thus, there is reall! no sense in assailing the validit! of this rder, mooted as it was. For the same
reason, the validit! of the order need not have been assailed b! respondents in their special civil action
before the Court of 8ppeals.
*n the other hand, the rder dated / +anuar! 7=== is in the nature of a writ of injunction whose period
of eDcac! is inde3nite. It ma! be properl! assailed b! wa! of the special civil action for certiorari, as it
is interlocutor! in nature.
8s a rule, the special civil action for certiorari under 2ule /) must be 3led not later than si"t! ;/=> da!s
from notice of the judgment or order.
7.
%etitioners argue that the . 8ugust '--- rder could no longer
be assailed b! respondents in a special civil action for certiorari before the Court of 8ppeals, as the
petition was 3led be!ond si"t! ;/=> da!s following respondentsP receipt of the rder. Considering that
the . 8ugust '--- rder had becomefunctus o>cio in the 3rst place, this argument deserves scant
consideration.
%etitioners further claim that the / +anuar! 7=== rder could not have li6ewise been the subject of a
special civil action for certiorari, as it is according to them a 3nal order, as opposed to an interlocutor!
order. That the / +anuar! 7=== rder is interlocutor! in nature should be be!ond doubt. 8n order is
interlocutor! if its efects would onl! be provisional in character and would still leave substantial
proceedings to be further had b! the issuing court in order to put the controvers! to rest.
7,
The
injunctive relief granted b! the order is de3nitel! 3nal, but merel! provisional, its efectivit! hinging on
the ultimate outcome of the then pending action for annulment of real estate mortgage. Indeed, an
interlocutor! order hardl! puts to a close, or disposes of, a case or a disputed issue leaving nothing else
to be done b! the court in respect thereto, as is characteristic of a 3nal order.
Since the / +anuar! 7=== rder is not a 3nal order, but rather interlocutor! in nature, we cannot agree
with petitioners who insist that it ma! be assailed onl! through an appeal perfected within 3fteen ;')>
da!s from receipt thereof b! respondents. It is a"iomatic that an interlocutor! order cannot be
challenged b! an appeal,
but is susceptible to review onl! through the special civil action of certiorari.
7)
The si"t! ;/=>-da!
reglementar! period for special civil actions under 2ule /) applies, and respondentsP petition was 3led
with the Court of 8ppeals well within the period.
8ccordingl!, no error can be attributed to the Court of 8ppeals in granting the petition for certiorari and
mandamus. 8s pointed out b! respondents, the remed! of mandamus lies to compel the performance
of a ministerial dut!. The issuance of a writ of possession to a purchaser in an e"trajudicial foreclosure
is merel! a ministerial function.
7/
Thus, we also aDrm the Court of 8ppealsP ruling to set aside the 2TC orders enjoining the enforcement
of the writ of possession.
7(
The purchaser in a foreclosure sale is entitled as a matter of right to a writ of
possession, regardless of whether or not there is a pending suit for annulment of the mortgage or the
foreclosure proceedings. 8n injunction to prohibit the issuance or enforcement of the writ is entirel! out
of place.
7?
*ne 3nal note. The issue on the validit! of the stipulated interest rates, regrettabl! for petitioners, was
not raised at the earliest possible opportunit!. It should be pointed out though that since an e"cessive
stipulated interest rate ma! be void for being contrar! to public polic!, an action to annul said interest
rate does not prescribe. Such indeed is the remed!: it is not the action for annulment of the ancillar!
real estate mortgage. @espite the nullit! of the stipulated interest rate, the principal loan obligation
subsists, and along with it the mortgage that serves as collateral securit! for it.
F$<2<F*2<, in view of all the foregoing, the petitions are @<&I<@. Costs against petitioners.
S* *2@<2<@.
G.R. No. L-'24&2 -ebr0ar1 23, 1990
S!NTIN!L INSURAN$! $O., IN$., petitioner,
vs.
T*! *ONORA#L! $OURT O- A,,!ALS, *ON. -LOR!LIANA $ASTRO-#ARTOLOM!, ,re433n8
.08e, $o0r) o6 -3r4) In4)an:e o6 R3Ra9, Seven)7 .03:3a9 "34)r3:), #ran:7 2+, T*! ,RO+IN$IAL
S*!RI-- O- RI/AL, an ROS! IN"USTRI!S, IN$., respondents.
Eefore us is a petition see6ing the amendment and modi3cation of the dispositive portion of respondent
court#s decision in C8-A.2. &o. S%-=-..',
1
allegedl! to ma6e it conform with the 3ndings, arguments
and observations embodied in said decision which relief was denied b! respondent court in its
resolution, dated +anuar! '), '-?=,
2
rejecting petitioner#s e" parte motion 3led for that purpose.
3
Fhile not involving the main issues in the case threshed out in the court a 5uo" the judgment in which
had alread! become 3nal and e"ecutor!, the factual bac6drop of the present petition is summari1ed b!
respondent court as follows9
%etitioner Sentinel Insurance Co., Inc., was the suret! in a contract of suret!ship
entered into on &ovember '), '-(, with &emesio 81cueta, Sr., who is doing business
under the name and st!le of #ala!an Trading as re5ected in SIC* Eond &o.
A;'/>==7(? where both of them bound themselves, #jointl! and severall!, to full! and
religiousl! guarantee the compliance with the terms and stipulations of the credit line
granted b! private respondent 2ose Industries, Inc., in favor of &emesio 81cueta, Sr.,
in the amount of %'?=,==.==.# Eetween &ovember 7. to @ecember 7., '-(,, 81cueta
made various purchases of tires, batteries and tire tubes from the private respondent
but failed to pa! therefor, prompting the latter to demand pa!ment but because
81cueta failed to settle his accounts, the case was referred to the Insurance
Commissioner who invited the attention of the petitioner on the matter and the latter
cancelled the Suret!ship 8greement on a! '., '-() with due notice to the private
respondent. eanwhile, private respondent 3led with the respondent court of a6ati
a complaint for collection of sum of mone! against herein petitioner and 81cueta,
doc6eted as Civil Case &o. 7'7,? alleging the foregoing antecedents and pra!ing that
said defendants be ordered to pa! jointl! and severall! unto the plaintif.
a> The amount of %'-?,/=7.,' as its principal obligation, including
interest and damage dues as of 8pril 7-, '-():
b> 'o pa/ interest at 1?@ per annum and damage dues at the rate
of A@ ever/ ?B da/s commencing from April CD" 1EFB up to the
time the full amount is full/ paid.
""" """ """
8fter petitioner 3led its answer with counterclaim, the case, upon agreement of the
parties, was submitted for summar! judgment and on @ecember 7-, '-(),
respondent court rendered its decision with the following dispositive portion9
""" """ """
a> To pa! interest on the principal obligation at the rate of 1?@ per
annum at the rate of A@ ever/ ?B da/s commencing from 8pril .=,
'-() until the amount is full! paid.
The decision having become 3nal and e"ecutor!, the prevailing part! moved for its
e"ecution which respondent judge granted and pursuant thereto, a notice of
attachment and lev! was served b! respondent %rovincial Sherif upon the petitioner.
*n the same da!, however, the latter 3led a motion for #clari3cation of the judgment
as to its real and true import because on its face, it would appear that aside from the
',X interest imposed on the principal obligation, an additional 7X ever! ,) da!s
corresponding to the additional penalt! has been imposed against the petitioner
which imposition would be usurious and could not have been the intention of
respondent +udge.# Eut the move did nor prosper because oil a! 77, '-(', the judge
denied the motion on the theor! that the judgment, having become 3nal and
e"ecutor!, it can no longer be amended or corrected.
4
Contending that the order was issued with grave abuse of discretion, petitioner went to respondent
court on a petition for certiorari and mandamus to compel the court below to clarif! its decision,
particularl! %aragraph l;a> of the dispositive portion thereof.
2espondent court granted tile petition in its decision dated @ecember ., '-(-, the dis4uisition and
dispositive portion whereof read9
Fhile it is an elementar! rule of procedure that after a decision, order or ruling has
become 3nal, the court loses its jurisdiction orderover the same and can no longer be
subjected to an! modi3cation or alteration, it is li6ewise well-settled that courts are
empowered even after such 3nalit!, to correct clerical errors or mista6es in the
decisions ;%otenciano vs. C8, 0-'')/-, )) *.A. 7?-)>. 8 clerical error is one that is
visible to the e!es or obvious to the understanding ;Elac6 vs. 2epublic, '=, %hil. ?,->.
That there was a mista6e in the dispositive portion of the decision cannot be denied
considering that in the complaint 3led against the petitioner, the pra!er as
speci3call! stated in paragraph ;b> was to #order the latter, to pa! interest at ',X per
annum and damage dues at the rate of 7X ever! ,) da!s commencing from 8pril .=,
'-() up to the time the amount is full! paid.# Eut this notwithstanding the respondent
court in its 4uestioned decision decreed the petitioner to pa! the interest on the
principal obligation at the rate of ',X per annum and 7X ever! ,) da!s commencing
from 8pril .=, '-() until the amount is full! paid,# so that, as petitioner correctl!
observes, it would appear that on top of the ',X per annum on the principal
obligation, another A@ interest ever/ ,) da!s commencing from 8pril .=, '-() until
the amount is full! paid has been imposed against him ;petitioner>. In other words,
./) da!s in one !ear divided b! ,) da!s e4uals ?-'I- which, multiplied b! 7X as
ordered b! respondent-judge would amount to a little more than '/X. 8dding '/X
per annum to the ',X interest imposed on the principal obligation would be .=X
which is veritabl! usurious and this cannot be countenanced, much less sanctioned
b! an! court of justice.
Fe agree with this observation and what is more, it is li6ewise a settled rule that
although a court ma! grant an! relief allowed b! law, such prerogative is delimited b!
the cardinal principle that it cannot grant an!thing more than what is pra!ed for, for
certainl!, the relief to be dispensed cannot rise above its source. ;%otenciano vs.
C8, supra.>
F$<2<F*2<, the writ of certiorari is hereb! granted and the respondent judge is
ordered to clarif! its judgment complained of in the following manner9
""" """ """
a> to pa! interest at ',X per annum on the principal obligation
and damage dues at the rate of 7X ever! ,) da!s commencing
from 8pril .=, '-() up to the time the full amount is full! paid:
'
""" """ """
8s earlier stated, petitioner 3led an e9 parte motion see6ing to amend the above-4uoted decretal
portion which respondent court denied, hence the petition at bar.
The amendment sought, ostensibl! in order that the dispositive portion of said decision would conform
with the bod! thereof, is the sole issue for resolution b! the Court. %etitioner itself cites authorities in
support of its contention that it is entitled to a correct and clear e"pression of a judgment to avoid
substantial injustice.
6
In ampli3cation of its plaint, petitioner further asseverates that respondent court
should not have made an award for Jdamage duesJ at such late stage of the proceeding since said dues
were not the subject of the award made b! the trial court.
;
Fe disagree with petitioner.
To clarif! an ambiguit! or correct a clerical error in the judgment, the court ma! resort to the pleadings
3led b! the parties, the 3ndings of fact and the conclusions of law e"pressed in the te"t or bod! of the
decision.
&
Indeed, this was what respondent court did in resolving the original petition. It e"amined the complaint
3led against the petitioner and noted that the pra!er as stated in %aragraph ;b> thereof was to Jorder
defendant to pa! interest at ', per centum and damage dues at the rate of 7X ever! ,) da!s
commencing from 8pril .=, '-() up to the time the full amount is full! paid.J
9
Insofar as the 3ndings and the dispositive portion set forth in respondent court#s decision are
concerned, there is reall! no inconsistenc! as wittingl! or unwittingl! asserted b! petitioner.
The 3ndings made b! respondent court did not actuall! nullif! the judgment of the trial court. ore
speci3call!, the statement that the imposition of 7X interest ever! ,) da!s commencing from 8pril .=,
'-() on top of the ',X per annum ;as would be the impression from a super3cial reading of the
dispositive portion of the trial court#s decision> would be usurious is a sound observation. It should,
however, be stressed that such observation was on the theoretical assumption that the rate of 7X is
being imposed as interest" not as damage dues which was the intendment of the trial court.
Certainl!, the damage dues in this case do not include and are not included in the computation of
interest as the two are of diferent categories and are distinct claims which ma! be demanded
separatel!, in the same manner that commissions, 3nes and penalties are e"cluded in the computation
of interest where the loan or forbearance is not secured in whole or in part b! real estate or an interest
therein.
10
Fhile interest forms part of the consideration of the contract itself, damage dues ;penalties, and so
forth> are usuall! made pa!able onl! in case of default or non-performance of the contract.
11
8lso,
although interest is subject to the provisions of the Ksur! 0aw,
12
there is no polic! or provision in such
law preventing the enforcement of damage dues although the efect ma! be to increase the sum
pa!able be!ond the prescribed ceiling rates.
%etitioner#s assertion that respondent court acted without authorit! in appending the award of damage
dues to the judgment of the trial court should be rejected. 8s correctl! pointed out b! private
respondent, the opening sentence of %aragraph l;a> of the dispositive portion of the lower court#s
decision e"plicitl! ordered petitioner to pa! private respondent the amount of %'-?,/=7.,' as principal
obligation including interest and damage dues, which is a clear and une4uivocal indication of the lower
court#s intent to award both interest and damage dues.
13
Signi3cantl!, it bears mention that on several occasions before petitioner moved for a clari3cator!
judgment, it ofered to settle its account with private respondent without assailing the imposition of the
aforementioned damage dues.
14
8s rami3ed b! private respondent9
7. ... the then counsel of record for the petitioner, 8tt!. %or3rio Eautista, and 8tt!.
Teodulfo 0. 2e!es, petitioner#s 8ssistant Gice- %resident for *perations, had a
conference with the undersigned attorne!s as to how petitioner will settle its account
to avoid e"ecution. @uring the conference, both parties arrived at almost the same
computation and the amount due from petitioner, which includes 7X damage dues
ever! ,) da!s from .= 8pril '-() until the amount is full! paid, under the judgment.
&o 4uestion was ever raised as regards same.
""" """ """
). The ver! face of 8nne" #@# shows that the #7X# damage dues being 4uestioned b!
the present counsel of petitioner had been mentioned no less than T<& ;'=> TI<S
and was clearl! and distinctl! de3ned b! petitioner and included in the computation
of its obligation to herein petitioner as #7X penalt! for ever! ,) da!s.#
""" """ """
%etitioner#s pretense that it was not the intent of the court to award the damage dues
of 7X ever! ,) da!s commencing .= 8pril '-() is belied b! the fact ;and this is
admitted b! petitioner> that upon agreement of the parties, the case before the lower
court was submitted for summar! judgment: in other words, the case was submitted
upon the facts as appear in the pleadings with no other evidence presented and a
fact that appears clearl! in the pleadings is that the defendants in the case before the
lower court were under contract to pa! private respondent, among others, the
damage dues of 7X ever! ,) da!s commencing on .= 8pril '-() until the obligation
is full! paid: ....
1'
2espondent court demonstrabl! did not err in ordering the clari3cation of the decision of the trial court
b! amending the 4uestioned part of its dispositive portion to include therein the phrase damage dues
to modif! the stated rate of 7X, and thereb! obviate an! misconception that it is being imposed as
interest.
8CC*2@I&A0L, certiorari is hereb! @<&I<@ and the decision of respondent Court of 8ppeals is hereb!
8FFI2<@.
S* *2@<2<@.
G.R. No4. L-4369; an L-442200 Mar:7 31, 193&
In re L3H03a)3on o6 )7e Mer:an)39e #anK o6 $73na,
GO,O$O GRO$!R< =GO,O$O>, !T AL., claimants-appellants,
vs.
,A$I-I$ $OAST #IS$UIT $O., !T AL., oppositors-appellees.
*n petition of the Ean6 Commissioner who alleged to have found, after an investigation, that the
ercantile Ean6 of China could not continue operating as such without running the ris6 of sufering
losses and prejudice its depositors and customers: and that with the re4uisite approval of the
corresponding authorities, he had ta6en charge of all the assets thereof: the Court of First Instance of
anila declared the said ban6 in li4uidation: approved all the acts theretofore e"ecuted b! the
commissioner: prohibited the oDcers and agents of the ban6 from interfering with said commissioner in
the possession of the assets thereof, its documents, deed, vouchers, boo6s of account, papers,
memorandum, notes, bond, bonds and accounts, obligations or securities and its real and personal
properties: re4uired its creditors and all those who had an! claim against it, to present the same in
writing before the commissioner within ninet! da!s: and ordered the publication, as was in fact done, of
the order containing all these provisions, for the two consecutive wee6s in two news-papers of general
circulation in the Cit! of anila, at the e"penses of the aforesaid ban6. 8fter these publications, and
within the period of ninet! da!s, the following creditors, among others, presented their presented their
claims9
Tiong Chui Aion, Aopoco Arocer!, Tan 0oc6o, Foo S 0o S Co., S! Auan $uat and 0a Eella TondeUa.
I. The claim of Tiong Chui Aion is for the sum of %'=,7?).7(. $e alleged that he deposited said
sum in the ban6 under li4uidation on current account.
II. The claim of Aopoco Arocer! ;Aopoco> is for the sum of %,,-.7.,? plus %,/=. It described its
claim as follows9
Ealance due on open
account subject to
chec6
%,,-7(.-
)
Interest on cIa ,,).
,,-.7.,?
Suret! deposit ,/=.==
III. The claim of Tan 0oc6o is for the sum of %(,/7,.7=, and he describes it in turn as follows9
Ealance due on open
account subject to
chec6 0-()-
%(,/'=.,
,
Savings account &o.
')/ ;foreign> with
ercantile Ean6 of
China 0-'/'' 8mo!
['),===,== Interest on
said Savings 8ccount
&o. ')/ ?.77
Interest on chec6ing aIc '=.),
(,/7,.7=
IG. The claim of Foo S 0o S Co. is for the sum of %/,-(7.?? and is set out in its written claim
appearing in the record on appeal as follows9
Ealance due on open
subject to chec6 0-?,)
%/,-/'.=
'
Interest on chec6ing aIc ''..(
/,-(7.?.
G. The claim of S! Auan $uat is for the sum of %/,7.7.?? and the described it as follows9
Ealance due on open
account subject to
chec6 0-('?
%/,77,..
,
Interest on chec6ing aIc ?.),
/,7.7.??
GI. The claim of 0a Eella TondeUa is for the sum of %',-'7.(-, also described as follows9
Ealance due on open
account subject to
chec6
%'-'=.)
-
Interest on account 7.7=
',-'7.(-
To better resolve not onl! these claims but also the man! others which were presented against the
ban6, the lower court, on +ul! '), '-.7, appointed Fulgencio Eorromeo as commissioner and referee to
receive the evidence which the interested parties ma! desire to present: and the commissioner and
referee thus named, after 4ualif!ing for the oDce and receiving the evidence presented to him,
resolved the aforesaid si" claims b! recommending that the same be considered as an ordinar! credit
onl!, and not as a preferred credit as the interested parties wanted, because the! were at the same
time debtors of the ban6.
The evidence adduced and the ver! admissions of the said interested parties in fact show that ;a> the
claimant Tiong Chui Aion, while he was a creditor of the ercantile Ean6 of China in the sum of
%'=,7?).7( which he deposited on current account, was also a debtor not onl! in the sum of %/...(/
but also in the sum of %//,.((, the amount of a draft which he accepted, plus interest thereon and the
protest fees paid therefor: ;b> the claimant Aopoco Arocer! ;Aopoco> had a current account in the ban6
in the sum of %),.-7.,?, but it is indebted to it, in Turn, in the sum of [7,..,.?=, the amount of certain
drafts which it had accepted: ;c> the claimant Tan 0oc6o had a deposit of %(,/7,.7=, but he owed
[',.(?.-=, the amount of a draft which he also accepted: ;d> the claimant Foo S 0o S Co. had a
deposit of %/,-(7.??, but it was indebted in the sum of [.,,/,.?,, the amount also of certain drafts
accepted b! it: ;e> the claimants S! Auan $uat and S! Oia had a deposit of %/,7.7.??, but the! owed
the sum of [.,'=(..(, for two drafts accepted b! them and alread! due: and ;f> the claimant 0a Eella
TondeUa had, in turn, a deposit of %',-'7.(-, but it was, in turn, indebted in the sum of [)/).,=
including interest and other e"penses, the amount of two drafts drawn upon and accepted b! it.
The lower court approved all the recommendations of The commissioner and referee as to claims of the
si" appellants as follows: ;'> To approve the claim of Tiong Chui Aion ;%'=,7?).7(> but onl! as an
ordinar! credit, minus the amount of the draft for %//,.((: ;7> to approve the claim of Aopoco Arocer!
;Aopoco> but also as an ordinar! credit onl! ;%),.?(.-) according to the referee>, minus its obligation
amounting to [7,..,.?= or %,,//-./=: ;.> to approve the claim of Tan 0oc6o but as an ordinar! credit
onl! ;%(,/'=.,, according to the referee>, deducting therefrom his obligation amounting to [',.(?.-=
or %7,()(.?=: to approve the claim of Foo S 0o S Co. but onl! as an ordinar! credit ;%/,-/'.='
according to the referee>. after deducting its obligation to the ban6, amounting to [.,,/,.?, or
%/,-7-./?: ;)> to approve the claim of S! Auan $uat but onl! as an ordinar! credit ;%/,77,..,
according to the referee>, after deducting his obligation amounting to [.,'=(..(> or %/,7',.(,: and,
3nall!, ;/> to approve the claim of la Eella TondeUa but also as an ordinar! credit onl! ;',-'(.)=
according to the referee>, after deducting it obligation amounting to [)/).,= or %','.=.?=: but he
e"pressl! refused to authori1e the pa!ment of the interest b! reason of impossibilit! upon the ground
set out in the decision. &ot agreeable to the decision of the lower court, each of the interested parties
appealed therefrom and thereafter 3led their respective briefs.
Tiong Chui Aion argues in his brief 3led in case in A. 2. &o. ,,77==, that the lower court erred9
'. In holding that his deposit of %'=,7?).7( in the ercantile Ean6 of China, constitutes an
ordinar! credit onl! and not a preferred credit.
7. In holding as preferred credits the drafts and chec6s issued b! the ban6 under li4uidation in
pa!ment of the drafts remitted to it for collection from merchants residing in the countr!, b!
foreign entities or ban6s: and in not holding that the deposits on current account in said ban6
should enjo! preference over said drafts and chec6s: and
.. In holding that the amount of %/...(/ ;which should be understood as %//,.((>, which the
claimant owes to the ban6 under li4uidation, be deducted from his current account deposit
therein, amounting to %'=,7?).7(, upon the distribution of the assets of the ban6 among its
various creditors, instead of holding that, after deducting the aforesaid sum of %/...(/ ;should
be %//,.((> from his aforesaid deposit, there be turned over to him the balance together with
the dividends or shares then corresponding to him, on the basis of said amount.
The other 3ve claimants, that is, Aopoco Arocer! Tan 0oc6o, Foo S 0o S Co., S! Auan $uat and 0a Eella
TondeUa, in turn argue in the brief the! jointl! 3led in case A. 2. &o. ,./-(, that the lower court erred9
'. In not 3rst deducting from their respective deposits in the ban6 under li4uidation, whose
pa!ment the! claim, their respective obligation thereto.
7. In not holding that their claims constitute a preferred credit.
.. In holding that the drafts and chec6s issued b! the ban6 under li4uidation in pa!ment of the
drafts remitted to it b! foreign entitles and ban6s for collection from the certain merchant
residing in the countr!, are preferred credits: and in not holding that the deposits made b!
each of them enjo! preference over said drafts and chec6s, and
,. In den!ing their motion for a new trial base on the proposition that the appealed decision is
not in accordance with law and is contrar! to the evidence adduced at the trial.
The 4uestions raised b! the appellant in case A. 2. &o. ,,7== and b! appellants in case A.2. ,./-(
being identical in nature, we believe it practical and proper to resolve said 4uestions jointl! in one
decision. Eefore proceeding, however, it is convenient to note that the commissioner and referee,
classif!ing the various claims presented against the ban6, placed under one group those parta6ing of
the same nature, the classi3cation having resulted in si" groups.
In the 3rst group he included all the claims for current account, savings and 3"ed deposits.
In the second group he included the claims for chec6s or drafts sold b! the ban6 under li4uidation and
not paid b! the agents or ban6s in whose favor the! had been issued.
In the third group he included the claims chec6s or drafts issued b! the ban6 under li4uidation in
pa!ment or reimbursement of the drafts or goods remitted to it for collection, from resident merchants
and entitles, b! foreign ban6s and entities.
In the fourth group he included the claims for drafts or securities to be collected from resident
merchants and entities to be collected from resident merchants and entities which were pending
collection on the date pa!ments were suspended.
In the 3fth group he included the claims of certain depositors or creditors of the ban6 who were at the
same time debtors thereof: and he considered of this class the claims of the appellants in these two
cases, and
In the si"th group he included the other claims diferent in nature from the of the aforesaid 3ve claims.
I. &ow, then, should the appellants# deposits on current account in the ban6 now under li4uidation be
considered preferred credits, and not otherwise, or should the! be considered ordinar! credits onl!T
The appellants contend that the! are preferred credits onl!T The appellants contend that the! are
preferred credits because the! are deposits in contemplation of law, and as such should be returned
with the corresponding interest thereon. In support thereof the! cite anresa ;'' anresa, Civil Code,
page //.>, and what has been insinuated in the case of #ogers vs. !mith" 1ell G Co. ;'= %hil., .'->,
citing the said commentator who maintains that, notwithstanding the provisions of articles '(/( and
'(/? and others of the aforesaid Code, from which it is inferred that the so-called irregular deposits no
longer e"ist, the fact is that said deposits still e"ist. 8nd the! contend and argue that what the! had in
the ban6 should be considered as of this character. Eut it happens that the! themselves admit that the
ban6 owes them interest which should have been paid to them before it was declared in a state of
li4uidation. This fact undoubtedl! destro!s the character which the! nulli3es their contention that the
same be considered as irregular deposits, because the pa!ment of interest onl! ta6es place in the case
of loans. *n the other hand, as we stated with respect to the claim of Tan Tiong Tic6 ;&n re 0i4uidation of
ercantile Ean6 of China, A.2. &o. ,./?7>, the provisions of the Code of Commerce, and not those of
the Civil Code, are applicable to cases of the nature of those at bar, which have to do with parties who
are both merchants. ;8rticles .=. and .=-, Code of Commerce.> Fe there said, and it is not amiss to
repeat now, that the so-called current account and savings deposits have lost their character of
deposits, properl! so-called and are convertible into simple commercial loans because, in cases of such
deposits, the ban6 has made use thereof in the ordinar! course of its transactions as an institution
engaged in the ban6ing business, not because it so wishes, but precisel! because of the authorit!
deemed to have been granted to it b! the appellants to enable them to collect the interest which the!
had been and the! are now collecting, and b! virtue further of the authorit! granted to it b! section
'7) of the Corporation 0aw ;8ct &o. ',)->, as amended b! 8cts &os. 7==. and ./'= and section - of
the Ean6ing 0aw ;8ct &o. .'),>, without considering of course the provisions of article '(/? of the Civil
Code. Fherefore, it is held that the deposits on current account of the appellants in the ban6 under
li4uidation, with the right on their right on their part to collect interest, have not created and could not
create a juridical relation between them e"cept that of creditors and debtor, the! being the creditors
and the ban6 the debtor.
Fhat has so far been said resolves adversel! the contention of the appellants, the 4uestion raised in
the 3rst and second assigned errors Tiong Chui Aion in case A. 2. &o. ,,7==, and the appellants#
second and third assigned errors in case A. 2. &o. ,./-(.
II. 8s to the third and 3rst errors attributed to lower court b! Tiong Chui Aion in his case, and b! the
other appellants in theirs, respectivel!, it should be stated that the 4uestion of set-of raised b! them
cannot be resolved a li6e 4uestion in the said case, A. 2. &o. ,./?7, entitled J&n re 0i4uidation of
ercantile Ean6 of China. Tan Tiong Tic6, claimant.J It is proper that set-ofs be made, inasmuch as the
appellants and the ban6 being reciprocall! debtors and creditors, the same is onl! just and according to
law ;art. ''-), Civil Code>, particularl! as none of the appellants falls within the e"ceptions mentioned
in section )? of the Insolvenc! 0aw ;8ct &o. '-)/>, reading9
S<C. )?. In all cases of mutual debts and mutual credits between the parties, the account between
them shall be stated, and one debt set of against the other, and the balance onl! shall be allowed and
paid. Eut no set-of or counterclaim shall be allowed of a claim in its nature not provable against the
estate9 %rovided, That no set-of on counterclaim shall be allowed in favor of an! debtor to the insolvent
of a claim purchased b! or transferred to such debtor within thirt! da!s immediatel! preceding the
3ling, or after the 3ling of the petition b! or against the insolvent.
It has been said with much basis b! orse, in his wor6 on Ean6 and Ean6ing ;/th ed., vol. ', pages ((/
and (?,> that9
The rules of law as to the right of set-of between the ban6 and its depositors are not diferent from
those applicable to other parties. ;%age ((/.>
Fhere the ban6 itself stops pa!ment and becomes insolvent, the customer ma! avail himself in set-of
against his indebtedness to the ban6 of an! indebtedness of the ban6 to himself, as, for e"ample, the
balance due him on his deposit account. ;%age (?,.>
Eut if set-ofs are proper in these cases, when and how should the! be made, considering that the
appellants as6 for the pa!ment of interestT 8re the! b! an! chance entitled to interestT If the! are,
when and until what time should the! be paid the sameT
The 4uestion of whether the! are entitled to interest should be resolved in the same wa! that we
resolved the case of the claimant Tan Tiong Tic6 in the said case, A. 2. &o. ,./?7. The circumstances in
these two cases are certainl! the same as those in the said case with reference to the said 4uestion.
The ercantile Ean6 of China owes to each of the appellants the interest claimed b! them,
corresponding to the !ear ending @ecember ,, '-.', the date it was declared in a state of li4uidation,
but not which the appellants claim should be earned b! their deposits after said date and until the full
amounts thereof are paid to them. 8nd with respect to the 4uestion of set-of, this should be deemed
made, of course, as of the date when the ercantile Ean6 of China was declared in a state of
li4uidation, that is, on @ecember ,, '-.', for then there was alread! a reciprocal concurrence of debts,
with respect to said ban6 and the appellants. ;8rts. ''-) and ''-/ of the Civil Code: ? anresa, ,th
ed., p. ./'.>
III. Fith respect to the fourth assigned error of the appellants in case A. 2. &o. ,./-(, we hold, in view
of the considerations set out in resolving the other assignments of errors, that the lower court properl!
denied the motion for new trial of said appellants.
In view of the foregoing, we modif! the appealed judgments b! holding that the deposits claimed b!
the appellants, and declared b! the lower court to be ordinar! credits are for the following amounts9
%'=,7?).7( of Tiong Chui Aion: %),.?(.-) of Aopoco Arocer! ;Aopoco>: %(,/'=.,, of Tan 0oc6o:
%/-/'.=' of Foo S 0o S Co.: %/,77,.., of S! Auan $uat: and %',-'(.)= of 0a Eella TondeUa, plus their
corresponding interest up to @ecember ,, '-.': that their obligations to the ban6 under li4uidation
which should be set of against said deposits, are respectivel! for the following amounts9 %//,.(( of
Tiong Chui Aion: %,,//-./= of Aopoco Arocer! ;Aopoco>: %7,()(.?= of Tan 0oc6o: %/,-7-./? of Foo S
0o S Co.: %/,7',.(, of S! $uat: and %','.=.?= of 0a Eella TodeUa: and we order that the set-ofs in
4uestion be made in the manner stated in this decision, that is, as of the date alread! indicated,
@ecember ,, '-.'. In all other respects, we aDrm the aforesaid judgments, without special
pronouncement as to costs. So ordered.
G.R. No. L-3&42; Mar:7 12, 19;'
$!NTRAL #AN% O- T*! ,*ILI,,IN!S a4 L3H03a)or o6 )7e -I"!LIT< SA+INGS #AN%, petitioner,
vs.
*ONORA#L! .U"G! .!SUS ,. MOR-!, a4 ,re433n8 .08e o6 #ran:7 2III, $o0r) o6 -3r4)
In4)an:e o6 Man39a, S(o04e4 AUGUSTO an A"!LAI"A ,A"ILLA an S(o04e4 MAR$!LA an
.O# !LI/!S,respondents.
This case involves the 4uestion of whether a 3nal judgment for the pa!ment of a time deposit in a
savings ban6 which judgment was obtained after the ban6 was declared insolvent, is a preferred claim
against the ban6. The 4uestion arises under the following facts9
*n Februar! '?,'-/- the onetar! Eoard found the Fidelit! Savings Ean6 to be insolvent. The Eoard
directed the Superintendent of Ean6s to ta6e charge of its assets, forbade it to do business and
instructed the Central Ean6 0egal Counsel to ta6e legal actions ;2esolution &o. .)=>.
*n @ecember -, '-/- the Eoard involved to see6 the court#s assistant and supervision in the li4uidation
of the ban The resolution implemented onl! on +anuar! 7), '-(7, when his Central Ean6 of the
%hilippines 3led the corresponding petition for assistance and supervision in the Court of First Instance
of anila ;Civil Case &o. ?/==) assigned to Eranch RIII>.
%rior to the institution of the li4uidation proceeding but after the declaration of insolvenc!, or,
speci3call!, sometime in 0arch" 1EF1, the spouses +ob <li1es and arcela %. <li1es 3led a complaint in
the Court of First Instance of anila against the Fidelit! Savings Ean6 for the recover! of the sum of
%)=, )?, as the balance of their time deposits ;Civil Case &o. ?7)7= assigned to Eranch I>.
In the judgment rendered in that case on @ecember '., '-(7 the Fidelit! Savings Ean6 was ordered to
pa! the <li1es spouses the sum of %)=,)?, plus accumulated interest.
In another case, assigned to Eranch RRR of the Court of First Instance of anila, the spouses 8ugusta 8.
%adilla and 8delaida %adilla secured on 8pril ',, '-(7 a judgment against the Fidelit! Savings Ean6 for
the sums of %?=,=== as the balance of their time deposits, plus interests, %(=,=== as moral and
e"emplar! damages and %-,/== as attorne!#s fees ;Civil Case &o. ?,7== where the action was 3led on
September /, '-('>.
In its orders of 8ugust 7=, '-(. and Februar! 7), '-(,, the lower court ;Eranch RIII having cogni1ance
of the li4uidation proceeding>, upon motions of the <li1es and %adilla spouses and over the opposition
of the Central Ean6, directed the latter as li4uidator, to pa! their time deposits as preferred judgments"
evidenced (/ Hnal judgments" within the meaning of article 77,,;',>;b> of the Civil Code, if there are
enough funds in the li4uidator#s custod! in e"cess of the credits more preferred under section .= of the
Central Ean6 0aw in relation to articles 77,, and 77)' of the Civil Code.
From the said order, the Central Ean6 appealed to this Court b! certiorari. It contends that the 3nal
judgments secured b! the <li1es and %adilla spouses do not enjo! an! preference because ;a> the!
were rendered after the Fidelit! Savings Ean6 was declared insolvent and ;b> under the charter of the
Central Ean6 and the Aeneral Ean6ing 0aw, no 3nal judgment can be validl! obtained against an
insolvent ban6.
2epublic 8ct &o. 7/) provides9tI).JKh5wLJ
S<C. 7-. Proceeding upon insolvenc/.HFhenever upon e"amination b! the
Superintendent or his e"aminers or agents into the condition of an! ban6ing
institution, it shall be disclosed that the condition of the same is one of insolvenc!, or
that its continuance in business would involve probable loss to its depositors or
creditors, it shall be the dut! of the Superintendent forthwith, in writing to inform the
onetar! Eoard of the facts, and the Eoard, upon 3nding the statements of the
Superintendent to be true, shall forthwith forbid the institution to do business in the
%hilippines and shall ta6e charge of its assets and proceeds according to law.
The onetar! Eoard shall thereupon determine within thirt! da!s whether the
institution ma! be reorgani1ed or otherwise placed in such a condition so that it ma!
be permitted to resume business with safet! to its creditors and shall prescribe the
conditions under which such resumption of business shall ta6e place. In such case the
e"penses and fees in the administration of the institution shall be determined b! the
Eoard and shall be paid to the Central Ean6 out of the assets of such ban6ing
institution.
8t an! time within ten da!s after the onetar! Eoard has ta6en charge of the assets
of an! ban6ing institution, such institution ma! appl! to the Court of First Instance for
an order re4uiring the onetar! Eoard to show cause wh! it should not be enjoined
from continuing such charge of its assets, and the court ma! direct the Eoard to
refrain from further proceedings and to surrender charge of its assets.
If the onetar! Eoard shall determine that the ban6ing institution cannot resume
business with safet! to its creditors, it shall, b! the *Dce of the Solicitor Aeneral, 3le
a petition in the Court of First Instance reciting the proceedings which have been
ta6en and pra!ing the assistance and supervision of the court in the li4uidation of the
afairs of the same. The Superintendent shall thereafter, upon order of the onetar!
Eoard and under the supervision of the court and with all convenient speed, convert
the assets of the ban6ing institution to mone!.
S<C. .=. %istri(ution of assets.HIn case of li4uidation of a ban6ing institution, after
pa!ment of the costs of the proceedings, including reasonable e"penses and fees of
the Central Ean6 to be allowed b! the court, the Central Ean6 shall pa! the debts of
such institution, under the order of the court, in accordance with their legal priorit!.
The Aeneral Ean6ing 8ct, 2epublic 8ct &o. ..(, provides9tI).JKh5wLJ
S<C. ?). 8n! director or oDcer of an! ban6ing institution who receives or permits or
causes to be received in said ban6 an! deposit, or who pa!s out or permits or causes
to be paid out an! funds of said ban6, or who transfers or permits or causes to be
transferred an! securities or propert! of said ban6, after said ban6 becomes
insolvent, shall be punished b! 3ne of not less than one thousand nor more than ten
thousand pesos and b! imprisonment for not less than two nor more than ten !ears.
The Civil Code provides9tI).JKh5wLJ
82T. 77.(. Insolvenc! shall be governed b! special laws insofar as the! are not
inconsistent with this Code. ;n>
82T. 77,,. Fith reference to other propert!, real and personal, of the debtor, the
following claims or credits shall be preferred in the order named9
""" """ """
;',> Credits which, without special privilege, appear in ;a> a public instrument: or ;b>
in a 3nal judgment, if the! have been the subject of litigation. These credits shall
have preference among themselves in the order of priorit! of the dates of the
instruments and of the judgments, respectivel!. ;'-7,a>
82T. 77)'. Those credits which do not enjo! an! preference with respect to speci3c
propert!, and those which enjo! preference, as to the amount not paid, shall be
satis3ed according to the following rules9
;'> In the order established in article 77,,:
;7> Common credits referred to in article 77,) shall be paid pro rata regardless of
dates. ;'-7-a>
The trial court or, to be e"act, the li4uidation court noted that there is no provision in the charter of the
Central Ean6 in the Aeneral Ean6ing 0aw ;2epublic 8cts &os. 7/) and ..(, respectivel!> which
suspends or abates civil actions against an insolvent ban6 pending in courts other than the li4uidation
court. It reasoned out that, because such actions are not suspended, judgments against insolvent
ban6s could be considered as preferred credits under article 77,,;',>;b> of the Civil Code. It further
noted that, in contrast with the Central 8ct, section '? of the Insolvenc! 0aw provides that upon the
issuance b! the court of an order declaring a person insolvent Jall civil proceedings against the said
insolvent shall be sta!ed.J
The li4uidation court directed the Central Ean6 to honor the writs of e"ecution issued b! Eranches I and
RRR for the enforcement of the judgments obtained b! the <li1es and %adilla spouses. It suggested
that, after satisfaction of the judgment the Central Ean6, as li4uidator, should include said judgments in
the list of preferred credits contained in the J%roject of @istributionJ Jwith the notation Jalread! paidJ J
*n the other hand, the Central Ean6 argues that after the onetar! Eoard has declared that a ban6 is
insolvent and has ordered it to cease operations, the Eoard becomes the trustee of its assets Jfor the
e4ual bene3t of all the creditors, including the depositorsJ. The Central Ean6 cites the ruling that Jthe
assets of an insolvent ban6ing institution are held in trust for the e4ual bene3t of all creditors, and after
its insolvenc!, one cannot obtain an advantage or a preference over another b! an attachment,
e"ecution or otherwiseJ ;2ohr vs. Stanton Trust S Savings Ean6, (/ ont. 7,?, 7,) %ac. -,(>.
The stand of the Central Ean6 is that all depositors and creditors of the insolvent ban6 should 3le their
actions with the li4uidation court. In support of that view it cites the provision that the Insolvenc! 0aw
does not appl! to ban6s ;last sentence, sec. )7 of 8ct &o. '-)/>.
It also invo6es the provision penali1ing a director oDcer of a ban6 who disburses, or allows
disbursement, of the funds of the ban6 after it becomes insolvent ;Sec. ?), Aeneral Ean6ing 8ct,
2epublic 8ct &o. ..(>. It cites the ruling that Ja creditor of an insolvent state ban6 in the hands of a
li4uidator who recovered a judgment against it is not entitled to a preference for ;b!> the mere fact that
he is a judgment creditorJ ;Thomas $. Eriggs S Sons, Inc. vs. 8llen, 7=( &. Carolina '=, '() S. <. ?.?,
Eraver 0i4uidation of Financial Institutions, p. -77>.
It should be noted that 3"ed, savings, and current deposits of mone! in ban6s and similar institutions
are not true deposits. The! are considered simple loans and, as such, are not preferred credits ;8rt.
'-?=, Civil Code: In re 0i4uidation of ercantile Ean6 of China9 Tan Tiong Tic6 vs. 8merican
8pothecaries Co., /) %hil. ,',: %aci3c Coast Eiscuit Co. vs. Chinese Arocers 8ssociation, /) %hil. .():
Fletcher 8merican &ational Ean6 vs. 8ng Cheng 0ian, /) %hil. .?): %aci3c Commercial Co. vs. 8merican
8pothecaries Co., /) %hil. ,7-: Aopoco Arocer! vs. %aci3c Coast Eiscuit Co., /) %hil. ,,.>.
The afore4uoted section 7- of the Central Ean6#s charter e"plicitl! provides that when a ban6 is found
to be insolvent, the onetar! Eoard shall forbid it to do business and shall ta6e charge of its assets. The
Eoard in its 2esolution &o. .)= dated Februar! '?,'-/- banned the Fidelit! Savings Ean6 from doing
business. It too6 charge of the ban6#s assets. <videntl!, one purpose in prohibiting the insolvent ban6
from doing business is to prevent some depositors from having an undue or fraudulent preference over
other creditors and depositors.
That purpose would be nulli3ed if, as in this case, after the ban6 is declared insolvent, suits b! some
depositors could be maintained and judgments would be rendered for the pa!ment of their deposits
and then such judgments would be considered preferred credits under article 77,, ;',> ;b> of the Civil
Code.
Fe are of the opinion that such judgments cannot be considered preferred and that article 77,,;',>;b>
does not appl! to judgments for the pa!ment of the deposits in an insolvent savings ban6 which were
obtained after the declaration of insolvenc!.
8 contrar! rule or practice would be productive of injustice, mischief and confusion. To recogni1e such
judgments as entitled to priorit! would mean that depositors in insolvent ban6s, after learning that the
ban6 is insolvent as shown b! the fact that it can no longer pa! withdrawals or that it has closed its
doors or has been enjoined b! the onetar! Eoard from doing business, would rush to the courts to
secure judgments for the pa!ment of their deposits.
In such an eventualit!, the courts would be swamped with suits of that character. Some of the
judgments would be default judgments. @epositors armed with such judgments would pester the
li4uidation court with claims for preference on the basis of article 77,,;',>;b>. 0ess alert depositors
would be prejudiced. That ine4uitable situation could not have been contemplated b! the framers of
section 7-.
The #ohr case ;supra> supplies some illumination on the disposition of the instant case. It appears in
that case that the Stanton Trust S Savings Ean6 of Areat Falls closed its doors to business on +ul! -,
'-7.. *n &ovember (,'-7, the ban6 ;then alread! under li4uidation> issued to Filliam 2ohr a
certi3cate stating that he was entitled to claim from the ban6 [','-'.(7 and that he was entitled to
dividends thereon. 0ater, 2ohr sued the ban6 for the pa!ment of his claim. The ban6 demurred to the
complaint. The trial court sustained the demurrer. 2ohr appealed. In aDrming the order sustaining the
demurrer, the Supreme Court of ontana said9tI).JKh5wLJ
The general principle of e4uit! that the assets of an insolvent are to he distributed
ratabl! among general creditors applies with full force to the distribution of the assets
of a ban6. 8 general depositor of a ban6 is merel! a general creditor, and, as such, is
not entitled to an! preference or priorit! over other general creditors.
The assets of a ban6 in process of li4uidation are held in trust for the e4ual bene3t of
all creditors, and one cannot be permitted to obtain an advantage or preference over
another b! an attachment, e"ecution or otherwise. 8 disputed claim of a creditor ma!
be adjudicated, but those whose claims are recogni1ed and admitted ma! not
successfull! maintain action thereon. So to permit would defeat the ver! purpose of
the li4uidation of a ban6 whether being voluntaril! accomplished or through the
intervention of a receiver.
""" """ """
The available assets of such a ban6 are held in trust, and so conserved that each
depositor or other creditor shall receive pa!ment or dividend according to the amount
of his debt, and that none of e4ual class shall receive an! advantage or preference
over another.
8nd with respect to a national ban6 under voluntar! li4uidation, the court noted in the #ohr case that
the assets of such a ban6 Jbecome a trust fund, to be administered for the bene3t of all creditors pro
rata and, while the ban6 retains its corporate e"istence, and ma! be sued, the efect of a judgment
obtained against it b! a creditor is onl! to H9 the amount of de(t. He can ac5uire no lien which will give
him an/ preference or advantage over other general creditors. ;7,) %ac. 7,->. D
Considering that the deposits in 4uestion, in their inception, were not preferred credits, it does not
seem logical and just that the! should be raised to the categor! of preferred credits simpl! because the
depositors, ta6ing advantage of the long interval between the declaration of insolvenc! and the 3ling of
the petition for judicial assistance and supervision, were able to secure judgments for the pa!ment of
their time deposits.
The judicial declaration that the said deposits were pa!able to the depositors, as indisputabl! the! were
due, could not have given the <li1es and %adilla spouses a priorit! over the other depositors whose
deposits were li6ewise indisputabl! due and owing from the insolvent ban6 but who did not want to
incur litigation e"penses in securing a judgment for the pa!ment of the deposits.
The circumstance that the Fidelit! Savings Ean6, having stopped operations since Februar! '-, '-/-,
was forbidden to do business ;and that ban would include the pa!ment of time deposits> implies that
suits for the pa!ment of such deposits were prohibited. Fhat was directl! prohibited should not be
encompassed indirectl!. ;See aurello vs. Eroadwa! Ean6 S Trust Co. of %aterson '(/ 8tl. .-', '',
&.+.0. '/(>.
It is noteworth! that in the trial court#s order of *ctober ., '-(7, which contains the Ean6 0i4uidation
2ules and 2egulations, it indicated in step III the procedure for processing the claims against the
insolvent ban6. In Step IG, the court directed the Central Ean6, as li4uidator, to submit a %roject of
@istribution which should include Ja list of the preferred credits to be paid in full in the order of
priorities established in 8rticles 77,', 77,7, 77,., 77,/ and 77,(J of the Civil Code ;note that article
77,, was not mentioned>. There is no cogent reason wh! the <li1es and %adilla spouses should not
adhere to the procedure outlined in the said rules and regulations.
F$<2<F*2<, the lower court#s orders of 8ugust 7=, '-(. and Februar! 7), '-(, are reversed and set
aside. &o costs.
S* *2@<2<@.
G.R. No. L-30'11 -ebr0ar1 14, 19&0
MANU!L M. S!RRANO, petitioner,
vs.
$!NTRAL #AN% O- T*! ,*ILI,,IN!SN O+!RS!AS #AN% O- MANILAN !M!RITO M. RAMOS,
SUSANA #. RAMOS, !M!RITO #. RAMOS, .R., .OS!-A RAMOS "!LA RAMA, *ORA$IO "!LA
RAMA, ANTONIO #. RAMOS, -ILOM!NA RAMOS L!"!SMA, RO"OL-O L!"!SMA, +I$TORIA
RAMOS TAN.UAT$O, an T!O-ILO TAN.UAT$O, respondents.
%etition for mandamus and prohibition, with preliminar! injunction, that see6s the establishment of joint
and solidar! liabilit! to the amount of Three $undred Fift! Thousand %esos, with interest, against
respondent Central Ean6 of the %hilippines and *verseas Ean6 of anila and its stoc6holders, on the
alleged failure of the *verseas Ean6 of anila to return the time deposits made b! petitioner and
assigned to him, on the ground that respondent Central Ean6 failed in its dut! to e"ercise strict
supervision over respondent *verseas Ean6 of anila to protect depositors and the general
public.
1
%etitioner also pra!s that both respondent ban6s be ordered to e"ecute the proper and
necessar! documents to constitute all properties 3sted in 8nne" J(J of the 8nswer of respondent
Central Ean6 of the %hilippines in A.2. &o. 0-7-.)7, entitled MEmerita 0. #amos" et al vs. Central 1an8
of the Philippines"M into a trust fund in favor of petitioner and all other depositors of respondent
*verseas Ean6 of anila. It is also pra!ed that the respondents be prohibited permanentl! from
honoring, implementing, or doing an! act predicated upon the validit! or eDcac! of the deeds of
mortgage, assignment. andIor conve!ance or transfer of whatever nature of the properties listed in
8nne" J(J of the 8nswer of respondent Central Ean6 in A.2. &o. 7-.)7.
2
8 sought for e"-parte preliminar! injunction against both respondent ban6s was not given b! this Court.
Kndisputed pertinent facts are9
*n *ctober '., '-// and @ecember '7, '-//, petitioner made a time deposit, for one !ear with /X
interest, of *ne $undred Fift! Thousand %esos ;%')=,===.==> with the respondent *verseas Ean6 of
anila.
3
Concepcion aneja also made a time deposit, for one !ear with /-^X interest, on arch /,
'-/(, of Two $undred Thousand %esos ;%7==,===.==> with the same respondent *verseas Ean6 of
anila.
4
*n 8ugust .', '-/?, Concepcion aneja, married to Feli"berto . Serrano, assigned and conve!ed to
petitioner anuel . Serrano, her time deposit of %7==,===.== with respondent *verseas Ean6 of
anila.
'
&otwithstanding series of demands for encashment of the aforementioned time deposits from the
respondent *verseas Ean6 of anila, dating from @ecember /, '-/( up to arch ,, '-/?, not a single
one of the time deposit certi3cates was honored b! respondent *verseas Ean6 of anila.
6
2espondent Central Ean6 admits that it is charged with the dut! of administering the ban6ing s!stem of
the 2epublic and it e"ercises supervision over all doing business in the %hilippines, but denies the
petitioner#s allegation that the Central Ean6 has the dut! to e"ercise a most rigid and stringent
supervision of ban6s, impl!ing that respondent Central Ean6 has to watch ever! move or activit! of all
ban6s, including respondent *verseas Ean6 of anila. 2espondent Central Ean6 claims that as of arch
'7, '-/), the *verseas Ean6 of anila, while operating, was onl! on a limited degree of ban6ing
operations since the onetar! Eoard decided in its 2esolution &o. .77, dated arch '7, '-/), to
prohibit the *verseas Ean6 of anila from ma6ing new loans and investments in view of its chronic
reserve de3ciencies against its deposit liabilities. This limited operation of respondent *verseas Ean6 of
anila continued up to '-/?.
;
2espondent Central Ean6 also denied that it is guarantor of the permanent solvenc! of an! ban6ing
institution as claimed b! petitioner. It claims that neither the law nor sound ban6ing supervision
re4uires respondent Central Ean6 to advertise or represent to the public an! remedial measures it ma!
impose upon chronic delin4uent ban6s as such action ma! inevitabl! result to panic or ban6 JrunsJ. In
the !ears '-//-'-/(, there were no 3ndings to declare the respondent *verseas Ean6 of anila as
insolvent.
&
2espondent Central Ean6 li6ewise denied that a constructive trust was created in favor of petitioner
and his predecessor in interest Concepcion aneja when their time deposits were made in '-// and
'-/( with the respondent *verseas Ean6 of anila as during that time the latter was not an insolvent
ban6 and its operation as a ban6ing institution was being salvaged b! the respondent Central Ean6.
9
2espondent Central Ean6 avers no 6nowledge of petitioner#s claim that the properties given b!
respondent *verseas Ean6 of anila as additional collaterals to respondent Central Ean6 of the
%hilippines for the former#s overdrafts and emergenc! loans were ac4uired through the use of
depositors# mone!, including that of the petitioner and Concepcion aneja.
10
In A.2. &o. 0-7-./7, entitled MEmerita 0. #amos" et al. vs. Central 1an8 of the Philippines"M a case was
3led b! the petitioner 2amos, wherein respondent *verseas Ean6 of anila sought to prevent
respondent Central Ean6 from closing, declaring the former insolvent, and li4uidating its assets.
%etitioner anuel Serrano in this case, 3led on September /, '-/?, a motion to intervene in A.2. &o. 0-
7-.)7, on the ground that Serrano had a real and legal interest as depositor of the *verseas Ean6 of
anila in the matter in litigation in that case. 2espondent Central Ean6 in A.2. &o. 0-7-.)7 opposed
petitioner anuel Serrano#s motion to intervene in that case, on the ground that his claim as depositor
of the *verseas Ean6 of anila should properl! be ventilated in the Court of First Instance, and if this
Court were to allow Serrano to intervene as depositor in A.2. &o. 0-7-.)7, thousands of other
depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated
*ctober ,, '-/?, this Court denied Serrano#s, motion to intervene. The contents of said motion to
intervene are substantiall! the same as those of the present petition.
11
This Court rendered decision in A.2. &o. 0-7-.)7 on *ctober ,, '-(', which became 3nal and e"ecutor!
on arch ., '-(7, favorable to the respondent *verseas Ean6 of anila, with the dispositive portion to
wit9
F$<2<F*2<, the writs pra!ed for in the petition are hereb! granted and respondent
Central Ean6#s resolution &os. '7/., '7-= and '... ;that prohibit the *verseas Ean6
of anila to participate in clearing, direct the suspension of its operation, and
ordering the li4uidation of said ban6> are hereb! annulled and set aside: and said
respondent Central Ean6 of the %hilippines is directed to compl! with its obligations
under the Goting Trust 8greement, and to desist from ta6ing action in violation
therefor. Costs against respondent Central Ean6 of the %hilippines.
12
Eecause of the above decision, petitioner in this case 3led a motion for judgment in this case, pra!ing
for a decision on the merits, adjudging respondent Central Ean6 jointl! and severall! liable with
respondent *verseas Ean6 of anila to the petitioner for the %.)=,=== time deposit made with the
latter ban6, with all interests due therein: and declaring all assets assigned or mortgaged b! the
respondents *verseas Ean6 of anila and the 2amos groups in favor of the Central Ean6 as trust funds
for the bene3t of petitioner and other depositors.
13
E! the ver! nature of the claims and causes of action against respondents, the! in realit! are recover!
of time deposits plus interest from respondent *verseas Ean6 of anila, and recover! of damages
against respondent Central Ean6 for its alleged failure to strictl! supervise the acts of the other
respondent Ean6 and protect the interests of its depositors b! virtue of the constructive trust created
when respondent Central Ean6 re4uired the other respondent to increase its collaterals for its
overdrafts said emergenc! loans, said collaterals allegedl! ac4uired through the use of depositors
mone!. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as Fe
alread! pointed out when this Court denied petitioner#s motion to intervene in A.2. &o. 0-7-.)7. Claims
of these nature are not proper in actions for mandamus and prohibition as there is no shown clear
abuse of discretion b! the Central Ean6 in its e"ercise of supervision over the other respondent
*verseas Ean6 of anila, and if there was, petitioner here is not the proper part! to raise that 4uestion,
but rather the *verseas Ean6 of anila, as it did in A.2. &o. 0-7-.)7. &either is there an!thing to
prohibit in this case, since the 4uestioned acts of the respondent Central Ean6 ;the acts of dissolving
and li4uidating the *verseas Ean6 of anila>, which petitioner here intends to use as his basis for
claims of damages against respondent Central Ean6, had been accomplished a long time ago.
Furthermore, both parties overloo6ed one fundamental principle in the nature of ban6 deposits when
the petitioner claimed that there should be created a constructive trust in his favor when the
respondent *verseas Ean6 of anila increased its collaterals in favor of respondent Central Ean6 for
the former#s overdrafts and emergenc! loans, since these collaterals were ac4uired b! the use of
depositors# mone!.
Ean6 deposits are in the nature of irregular deposits. The! are reall! loans because the! earn interest.
8ll 6inds of ban6 deposits, whether 3"ed, savings, or current are to be treated as loans and are to be
covered b! the law on loans.
14
Current and savings deposit are loans to a ban6 because it can use the
same. The petitioner here in ma6ing time deposits that earn interests with respondent *verseas Ean6
of anila was in realit! a creditor of the respondent Ean6 and not a depositor. The respondent Ean6
was in turn a debtor of petitioner. Failure of he respondent Ean6 to honor the time deposit is failure to
pa! s obligation as a debtor and not a breach of trust arising from depositar!#s failure to return the
subject matter of the deposit
F$<2<F*2<, the petition is dismissed for lac6 of merit, with costs against petitioner.
S* *2@<2<@.
G.R. No. L-60033 A(r39 4, 19&4
T!O-ISTO GUINGONA, .R., ANTONIO I. MARTIN, an T!R!SITA SANTOS, petitioners,
vs.
T*! $IT< -IS$AL O- MANILA, *ON. .OS! #. -LAMINIANO, ASST. $IT< -IS$AL -!LI/AR"O N.
LOTA an $L!M!NT "A+I", respondents.
This is a petition for prohibition and injunction with a pra!er for the immediate issuance of restraining
order andIor writ of preliminar! injunction 3led b! petitioners on arch 7/, '-?7.
*n arch .', '-?7, b! virtue of a court resolution issued b! this Court on the same date, a temporar!
restraining order was dul! issued ordering the respondents, their oDcers, agents, representatives
andIor person or persons acting upon their ;respondents#> orders or in their place or stead to refrain
from proceeding with the preliminar! investigation in Case &o. ?'.'-.? of the *Dce of the Cit! Fiscal
of anila ;pp. ,(-,?, rec.>. *n +anuar! 7,, '-?., private respondent Clement @avid 3led a motion to lift
restraining order which was denied in the resolution of this Court dated a! '?, '-?..
8s can be gleaned from the above, the instant petition see6s to prohibit public respondents from
proceeding with the preliminar! investigation of I.S. &o. ?'-.'-.?, in which petitioners were charged b!
private respondent Clement @avid, with estafa and violation of Central Ean6 Circular &o. ./, and
related regulations regarding foreign e"change transactions principall!, on the ground of lac6 of
jurisdiction in that the allegations of the charged, as well as the testimon! of private respondent#s
principal witness and the evidence through said witness, showed that petitioners# obligation is civil in
nature.
For purposes of brevit!, Fe hereb! adopt the antecedent facts narrated b! the Solicitor Aeneral in its
Comment dated +une 7?,'-?7, as follows9tI).JKh5wLJ
*n @ecember 7.,'-?', private respondent @avid 3led I.S. &o. ?'-.'-.? in the *Dce
of the Cit! Fiscal of anila, which case was assigned to respondent 0ota for
preliminar! investigation ;%etition, p. ?>.
In I.S. &o. ?'-.'-.?, @avid charged petitioners ;together with one 2obert arshall
and the following directors of the &ation Savings and 0oan 8ssociation, Inc., namel!
$omero Aon1ales, +uan erino, Flavio acasaet, Gictor Aome1, +r., %erfecto analac,
+aime G. %a1, %aulino E. @ionisio, and one +ohn @oe> with estafa and violation of
Central Ean6 Circular &o. ./, and related Central Ean6 regulations on foreign
e"change transactions, allegedl! committed as follows ;%etition, 8nne" J8J>9tI).
JKh5wLJ
JFrom arch 7=, '-(- to arch, '-?', @avid invested with the
&ation Savings and 0oan 8ssociation, ;hereinafter called &S08> the
sum of %',',),),/.7= on nine deposits, %'.,).'.-, on savings
account deposits ;jointl! with his sister, @enise Ouhne>,
KS['=,===.== on time deposit, KS['),===.== under a receipt and
guarantee of pa!ment and KS[)=,===.== under a receipt dated
+une ?, '-?= ;au jointl! with @enise Ouhne>, that @avid was induced
into ma6ing the aforestated investments b! 2obert arshall an
8ustralian national who was allegedl! a close associate of petitioner
Auingona +r., then &S08 %resident, petitioner artin, then &S08
<"ecutive Gice-%resident of &S08 and petitioner Santos, then &S08
Aeneral anager: that on arch 7', '-?' & 08 was placed under
receivership b! the Central Ean6, so that @avid 3led claims
therewith for his investments and those of his sister: that on +ul!
77, '-?' @avid received a report from the Central Ean6 that onl!
%.=),?7'.-7 of those investments were entered in the records of
&S08: that, therefore, the respondents in I.S. &o. ?'-.'-.?
misappropriated the balance of the investments, at the same time
violating Central Ean6 Circular &o. ./, and related Central Ean6
regulations on foreign e"change transactions: that after demands,
petitioner Auingona +r. paid onl! %7==,===.==, thereb! reducing the
amounts misappropriated to %-)-,=(?.', and KS[(),===.==.J
%etitioners, artin and Santos, 3led a joint counter-aDdavit ;%etition, 8nne"# E#> in
which the! stated the following.tI).JKh5wLJ
JThat artin became %resident of &S08 in arch '-(? ;after the
resignation of Auingona, +r.> and served as such until *ctober .=,
'-?=, while Santos was Aeneral anager up to &ovember '-?=:
that because &S08 was urgentl! in need of funds and at @avid#s
insistence, his investments were treated as special- accounts with
interest above the legal rate, an recorded in separate con3dential
documents onl! a portion of which were to be reported because he
did not want the 8ustralian government to ta" his total earnings
;nor> to 6now his total investments: that all transactions with @avid
were recorded e"cept the sum of KS['),===.== which was a
personal loan of Santos: that @avid#s chec6 for KS[)=,===.== was
cleared through Auingona, +r.#s dollar account because &S08 did not
have one, that a draft of KS[.=,===.== was placed in the name of
one %a1 2oces because of a pending transaction with her: that the
%hilippine @eposit Insurance Corporation had alread! reimbursed
@avid within the legal limits: that majorit! of the stoc6holders of
&S08 had 3led Special %roceedings &o. ?7-'/-) in the Court of First
Instance to contest its ;&S08#s> closure: that after &S08 was placed
under receivership, artin e"ecuted a promissor! note in @avid#s
favor and caused the transfer to him of a nine and on behalf ;- 'I7>
carat diamond ring with a net value of %)'=,===.==: and, that the
liabilities of &S08 to @avid were civil in nature.J
%etitioner, Auingona, +r., in his counter-aDdavit ;%etition, 8nne"# C#> stated the
following9tI).JKh5wLJ
JThat he had no hand whatsoever in the transactions between
@avid and &S08 since he ;Auingona +r.> had resigned as &S08
president in arch '-(?, or prior to those transactions: that he
assumed a portion o: the liabilities of &S08 to @avid because of the
latter#s insistence that he placed his investments with &S08
because of his faith in Auingona, +r.: that in a %romissor! &ote dated
+une '(, '-?' ;%etition, 8nne" J@J> he ;Auingona, +r.> bound himself
to pa! @avid the sums of %//?..=(.=' and KS[.(,)==.== in stated
installments: that he ;Auingona, +r.> secured pa!ment of those
amounts with second mortgages over two ;7> parcels of land under
a deed of Second 2eal <state ortgage ;%etition, 8nne" J<J> in
which it was provided that the mortgage over one ;'> parcel shall
be cancelled upon pa!ment of one-half of the obligation to @avid:
that he ;Auingona, +r.> paid %7==,===.== and tendered another
%.==,===.== which @avid refused to accept, hence, he ;Auingona,
+r.> 3led Civil Case &o. M-..?/) in the Court of First Instance of 2i1al
at Mue1on Cit!, to efect the release of the mortgage over one ;'>
of the two parcels of land conve!ed to @avid under second
mortgages.J
8t the inception of the preliminar! investigation before respondent 0ota, petitioners
moved to dismiss the charges against them for lac6 of jurisdiction because @avid#s
claims allegedl! comprised a purel! civil obligation which was itself novated. Fiscal
0ota denied the motion to dismiss ;%etition, p. ?>.
Eut, after the presentation of @avid#s principal witness, petitioners 3led the instant
petition because9 ;a> the production of the %romisor! &otes, Ean6er#s 8cceptance,
Certi3cates of Time @eposits and Savings 8ccount allegedl! showed that the
transactions between @avid and &S08 were simple loans, i.e., civil obligations on the
part of &S08 which were novated when Auingona, +r. and artin assumed them: and
;b> @avid#s principal witness allegedl! testi3ed that the duplicate originals of the
aforesaid instruments of indebtedness were all on 3le with &S08, contrar! to @avid#s
claim that some of his investments were not record ;%etition, pp. ?-->.
%etitioners alleged that the! did not e"haust available administrative remedies
because to do so would be futile ;%etition, p. -> Bpp. ').-')(, rec.C.
8s correctl! pointed out b! the Solicitor Aeneral, the sole issue for resolution is whether public
respondents acted without jurisdiction when the! investigated the charges ;estafa and violation of CE
Circular &o. ./, and related regulations regarding foreign e"change transactions> subject matter of I.S.
&o. ?'-.'-.?.
There is merit in the contention of the petitioners that their liabilit! is civil in nature and therefore,
public respondents have no jurisdiction over the charge of estafa.
8 casual perusal of the @ecember 7., '-?' aDdavit. complaint 3led in the *Dce of the Cit! Fiscal of
anila b! private respondent @avid against petitioners Teopisto Auingona, +r., 8ntonio I. artin and
Teresita A. Santos, together with one 2obert arshall and the other directors of the &ation Savings and
0oan 8ssociation, will show that from arch 7=, '-(- to arch, '-?', private respondent @avid,
together with his sister, @enise Ouhne, invested with the &ation Savings and 0oan 8ssociation the sum
of %',',),),/.7= on time deposits covered b! Ean6ers 8cceptances and Certi3cates of Time @eposits
and the sum of %'.,).'.-, on savings account deposits covered b! passboo6 nos. /-/.7 and 7--(,7,
or a total of %',')-,=(?.', ;pp. ')-'/, roc.>. It appears further that private respondent @avid, together
with his sister, made investments in the aforesaid ban6 in the amount of KS[(),===.== ;p. '(, rec.>.
oreover, the records reveal that when the aforesaid ban6 was placed under receivership on arch 7',
'-?', petitioners Auingona and artin, upon the re4uest of private respondent @avid, assumed the
obligation of the ban6 to private respondent @avid b! e"ecuting on +une '(, '-?' a joint promissor!
note in favor of private respondent ac6nowledging an indebtedness of %l,../,/',.=7 and KS[(),===.==
;p. ?=, rec.>. This promissor! note was based on the statement of account as of +une .=, '-?' prepared
b! the private respondent ;p. ?', rec.>. The amount of indebtedness assumed appears to be bigger
than the original claim because of the added interest and the inclusion of other deposits of private
respondent#s sister in the amount of %''/,/'..7=.
Thereafter, or on +ul! '(, '-?', petitioners Auingona and artin agreed to divide the said
indebtedness, and petitioner Auingona e"ecuted another promissor! note antedated to +une '(, '-?'
whereb! he personall! ac6nowledged an indebtedness of %//?,.=(.=' ;'I7 of %',../,/',.=7> and
KS[.(,)==.== ;'I7 of KS[(),===.==> in favor of private respondent ;p. 7), rec.>. The aforesaid
promissor! notes were e"ecuted as a result of deposits made b! Clement @avid and @enise Ouhne with
the &ation Savings and 0oan 8ssociation.
Furthermore, the various pleadings and documents 3led b! private respondent @avid, before this Court
indisputabl! show that he has indeed invested his mone! on time and savings deposits with the &ation
Savings and 0oan 8ssociation.
It must be pointed out that when private respondent @avid invested his mone! on nine. and savings
deposits with the aforesaid ban6, the contract that was perfected was a contract of simple loan
or mutuum and not a contract of deposit. Thus, 8rticle '-?= of the &ew Civil Code provides that9tI).
JKh5wLJ
8rticle '-?=. Fi"ed, savings, and current deposits of-mone! in ban6s and similar
institutions shall be governed b! the provisions concerning simple loan.
In the case of Central 1an8 of the Philippines vs. 0orfe ;/. SC28 '',,''- B'-()C, Fe said9tI).JKh5wLJ
It should be noted that 3"ed, savings, and current deposits of mone! in ban6s and
similar institutions are hat true deposits. are considered simple loans and, as such,
are not preferred credits ;8rt. '-?= Civil Code: In re 0i4uidation of ercantile Eati6 of
China Tan Tiong Tic6 vs. 8merican 8pothecaries Co., // %hil ,',: %aci3c Coast Eiscuit
Co. vs. Chinese Arocers 8ssociation /) %hil. .(): Fletcher 8merican &ational Ean6 vs.
8ng Chong K // %F0 .?): %aci3c Commercial Co. vs. 8merican 8pothecaries Co., /)
%hi0 ,7-: Aopoco Arocer! vs. %aci3c Coast Eiscuit C*.,/) %hil. ,,.>.J
This Court also declared in the recent case of !errano vs. Central 1an8 of the Philippines ;-/ SC28 '=7
B'-?=C> that9tI).JKh5wLJ
Ean6 deposits are in the nature of irregular deposits. The! are reall! #loans because
the! earn interest. 8ll 6inds of ban6 deposits, whether 3"ed, savings, or current are to
be treated as loans and are to be covered b! the law on loans ;8rt. '-?= Civil Code
Aullas vs. %hil. &ational Ean6, /7 %hil. )'->. Current and saving deposits" are loans to
a (an8 (ecause it can use the same. The petitioner here in ma6ing time deposits that
earn interests will respondent *verseas Ean6 of anila was in realit! a creditor of the
respondent Ean6 and not a depositor. The respondent Ean6 was in turn a debtor of
petitioner. 4ailure of the respondent 1an8 to honor the time deposit is failure to pa/
its o(ligation as a de(tor and not a (reach of trust arising from a depositar/Ns failure
to return the su(ject matter of the deposit ;<mphasis supplied>.
$ence, the relationship between the private respondent and the &ation Savings and 0oan 8ssociation is
that of creditor and debtor: conse4uentl!, the ownership of the amount deposited was transmitted to
the Ean6 upon the perfection of the contract and it can ma6e use of the amount deposited for its
ban6ing operations, such as to pa! interests on deposits and to pa! withdrawals. Fhile the Ean6 has
the obligation to return the amount deposited" it has, however, no obligation to return or deliver
the same mone/ that was deposited. 8nd, the failure of the Ean6 to return the amount deposited will
not constitute estafa through misappropriation punishable under 8rticle .'), par. l;b> of the 2evised
%enal Code, but it will onl! give rise to civil liabilit! over which the public respondents have no-
jurisdiction.
F< have alread! laid down the rule that9tI).JKh5wLJ
In order that a person can be convicted under the above-4uoted provision, it must (e
proven that he has the o(ligation to deliver or return the some mone/" goods or
personal propert/ that he received%etitioners had no such obligation to return the
same mone!, i.e., the bills or coins, which the! received from private respondents.
This is so because as clearl! as stated in criminal complaints, the related civil
complaints and the supporting sworn statements, the sums of mone! that petitioners
received were loans.
The nature of simple loan is de3ned in 8rticles '-.. and '-). of the Civil Code.tI).
JKh5wLJ
J8rt. '-... H E! the contract of loan, one of the parties delivers to
another, either something not consumable so that the latter ma!
use the same for a certain time- and return it, in which case the
contract is called a commodatum: or mone! or other consuma(le
thing" upon the condition that the same amount of the same 8ind
and 5ualit/ shall he paid in which case the contract is simpl/ called
a loan or mutuum.
JCommodatum is essentiall! gratuitous.
JSimple loan ma! be gratuitous or with a stipulation to pa! interest.
JIn commodatum the bailor retains the ownership of the thing
loaned while in simple loan" ownership passes to the (orrower.
J8rt. '-).. H 8 person who receives a loan of mone! or an! other
fungible thing ac4uires the ownership thereof, and is bound to pa!
to the creditor an e4ual amount of the same 6ind and 4ualit!.J
&t can (e readil/ noted from the a(ove65uoted provisions that in simple loan
OmutuumP" as contrasted to commodatum the (orrower ac5uires ownership of the
mone/" goods or personal propert/ (orrowed 1eing the owner" the (orrower can
dispose of the thing (orrowed OArticle A?Q" Civil CodeP and his act will not (e
considered misappropriation thereofN ;Lam vs. ali6, -, SC28 .=, ., B'-(-C:
<mphasis supplied>.
Eut even granting that the failure of the ban6 to pa! the time and savings deposits of private
respondent @avid would constitute a violation of paragraph ';b> of 8rticle .') of the 2evised %enal
Code, nevertheless an! incipient criminal liabilit! was deemed avoided, because when the aforesaid
ban6 was placed under receivership b! the Central Ean6, petitioners Auingona and artin assumed the
obligation of the ban6 to private respondent @avid, thereb! resulting in the novation of the original
contractual obligation arising from deposit into a contract of loan and converting the original trust
relation between the ban6 and private respondent @avid into an ordinar! debtor-creditor relation
between the petitioners and private respondent. Conse4uentl!, the failure of the ban6 or petitioners
Auingona and artin to pa! the deposits of private respondent would not constitute a breach of trust
but would merel! be a failure to pa! the obligation as a debtor.
oreover, while it is true that novation does not e"tinguish criminal liabilit!, it ma! however, prevent
the rise of criminal liabilit! as long as it occurs prior to the 3ling of the criminal information in court.
Thus, in 2onzales vs. !errano ; 7) SC28 /,, /- B'-/?C> Fe held that9tI).JKh5wLJ
8s pointed out in People vs. :er/, novation prior to the 3ling of the criminal
information H as in the case at bar H ma! convert the relation between the parties
into an ordinar! creditor-debtor relation, and place the complainant in estoppel to
insist on the original transaction or Jcast doubt on the true natureJ thereof.
8gain, in the latest case of ng vs. Court of Appeals ;0-)?,(/, '7, SC28 )(?, )?=-)?' B'-?.C >, this
Court reiterated the ruling in People vs. :er/ ; '= SC28 7,, B'-/,C >, declaring that9tI).JKh5wLJ
The novation theor! ma! perhaps appl! prior to the 3lling of the criminal information
in court b! the state prosecutors because up to that time the original trust relation
ma! be converted b! the parties into an ordinar! creditor-debtor situation, thereb!
placing the complainant in estoppel to insist on the original trust. Eut after the justice
authorities have ta6en cogni1ance of the crime and instituted action in court, the
ofended part! ma! no longer divest the prosecution of its power to e"act the
criminal liabilit!, as distinguished from the civil. The crime being an ofense against
the state, onl! the latter can renounce it ;%eople vs. Aervacio, ), *f. Aa1. 7?-?:
%eople vs. Gelasco, ,7 %hil. (/: K.S. vs. ontanes, ? %hil. /7=>.
It ma! be observed in this regard that novation is not one of the means recogni1ed b!
the %enal Code whereb! criminal liabilit! can be e"tinguished: hence, the role of
novation ma! onl! be to either prevent the rise of criminal habiht! or to cast doubt on
the true nature of the original basic transaction, whether or not it was such that its
breach would not give rise to penal responsibilit!, as when mone! loaned is made to
appear as a deposit, or other similar disguise is resorted to ;cf. 8beto vs. %eople, -=
%hil. )?': K.S. vs. Gillareal, 7( %hil. ,?'>.
In the case at bar, there is no dispute that petitioners Auingona and artin e"ecuted a promissor! note
on +une '(, '-?' assuming the obligation of the ban6 to private respondent @avid: while the criminal
complaint for estafa was 3led on @ecember 7., '-?' with the *Dce of the Cit! Fiscal. $ence, it is clear
that novation occurred long before the 3ling of the criminal complaint with the *Dce of the Cit! Fiscal.
Conse4uentl!, as aforestated, an! incipient criminal liabilit! would be avoided but there will still be a
civil liabilit! on the part of petitioners Auingona and artin to pa! the assumed obligation.
%etitioners herein were li6ewise charged with violation of Section . of Central Ean6 Circular &o. ./, and
other related regulations regarding foreign e"change transactions b! accepting foreign currenc!
deposit in the amount of KS[(),===.== without authorit! from the Central Ean6. The! contend
however, that the KS dollars intended b! respondent @avid for deposit were all converted into
%hilippine currenc! before acceptance and deposit into &ation Savings and 0oan 8ssociation.
%etitioners# contention is worth! of behelf for the following reasons9
'. It appears from the records that when respondent @avid was about to ma6e a deposit of ban6 draft
issued in his name in the amount of KS[)=,===.== with the &ation Savings and 0oan 8ssociation, the
same had to be cleared 3rst and converted into %hilippine currenc!. 8ccordingl!, the ban6 draft was
endorsed b! respondent @avid to petitioner Auingona, who in turn deposited it to his dollar account
with the Securit! Ean6 and Trust Compan!. %etitioner Auingona merel! accommodated the re4uest of
the &ation Savings and loan 8ssociation in order to clear the ban6 draft through his dollar account
because the ban6 did not have a dollar account. Immediatel! after the ban6 draft was cleared,
petitioner Auingona authori1ed &ation Savings and 0oan 8ssociation to withdraw the same in order to
be utili1ed b! the ban6 for its operations.
7. It is safe to assume that the K.S. dollars were converted 3rst into %hilippine pesos before the! were
accepted and deposited in &ation Savings and 0oan 8ssociation, because the ban6 is presumed to have
followed the ordinar! course of the business which is to accept deposits in %hilippine currenc! onl!, and
that the transaction was regular and fair, in the absence of a clear and convincing evidence to the
contrar! ;see paragraphs p and 5"Sec. ), 2ule '.', 2ules of Court>.
.. 2espondent @avid has not denied the aforesaid contention of herein petitioners despite the fact that
it was raised. in petitioners# repl! 3led on a! (, '-?7 to private respondent#s comment and in the +ul!
7(, '-?7 repl! to public respondents# comment and reiterated in petitioners# memorandum 3led on
*ctober .=, '-?7, thereb! adding more support to the conclusion that the KS[(),===.== were reall!
converted into %hilippine currenc! before the! were accepted and deposited into &ation Savings and
0oan 8ssociation. Considering that this might adversel! afect his case, respondent @avid should have
promptl! denied petitioners# allegation.
In conclusion, considering that the liabilit! of the petitioners is purel! civil in nature and that there is no
clear showing that the! engaged in foreign e"change transactions, Fe hold that the public respondents
acted without jurisdiction when the! investigated the charges against the petitioners. Conse4uentl!,
public respondents should be restrained from further proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have appealed to the inistr! of +ustice, would wor6
great injustice to petitioners and would render meaningless the proper administration of justice.
Fhile as a rule, the prosecution in a criminal ofense cannot be the subject of prohibition and
injunction, this court has recogni1ed the resort to the e"traordinar! writs of prohibition and injunction in
e"treme cases, thus9tI).JKh5wLJ
*n the issue of whether a writ of injunction can restrain the proceedings in Criminal
Case &o. .',=, the general rule is that Jordinaril!, criminal prosecution ma! not be
bloc6ed b! court prohibition or injunction.J <"ceptions, however, are allowed in the
following instances9tI).JKh5wLJ
J'. for the orderl! administration of justice:
J7. to prevent the use of the strong arm of the law in an oppressive
and vindictive manner:
J.. to avoid multiplicit! of actions:
J,. to aford ade4uate protection to constitutional rights:
J). in proper cases, because the statute relied upon is
unconstitutional or was held invalidJ ; %rimicias vs. unicipalit! of
Krdaneta, %angasinan, -. SC28 ,/7, ,/--,(= B'-(-C: citing 2amos
vs. Torres, 7) SC28 ))( B'-/?C: and $ernande1 vs. 8lbano, '- SC28
-), -/ B'-/(C>.
0i6ewise, in 3opez vs. 'he Cit/ Judge" et al. ; '? SC28 /'/, /7'-/77 B'-//C>, Fe held that9tI).JKh5wLJ
The writs of certiorari and prohibition, as e"traordinar! legal remedies, are in the
ultimate anal!sis, intended to annul void proceedings: to prevent the unlawful and
oppressive e"ercise of legal authorit! and to provide for a fair and orderl!
administration of justice. Thus, in =u 7ong Eng vs. 'rinidad, ,( %hil. .?), Fe too6
cogni1ance of a petition for certiorari and prohibition although the accused in the
case could have appealed in due time from the order complained of, our action in the
premises being based on the public welfare polic! the advancement of public polic!.
In %ima/uga vs. 4ajardo" ,. %hil. .=,, Fe also admitted a petition to restrain the
prosecution of certain chiropractors although, if convicted, the! could have appealed.
Fe gave due course to their petition for the orderl! administration of justice and to
avoid possible oppression b! the strong arm of the law. 8nd in Arevalo vs.
:epomuceno, /. %hil. /7(, the petition for certiorari challenging the trial court#s
action admitting an amended information was sustained despite the availabilit! of
appeal at the proper time.
F$<2<F*2<, T$< %<TITI*& IS $<2<EL A28&T<@: T$< T<%*282L 2<ST28I&I&A *2@<2 %2<GI*KS0L
ISSK<@ IS 8@< %<28&<&T. C*STS 8A8I&ST T$< %2IG8T< 2<S%*&@<&T.
S* *2@<2<@.
G.R. No4. 1;36'4-;6' A0804) 2&, 200&
,!O,L! O- T*! ,*ILI,,IN!S, petitioner,
vs.
T!R!SITA ,UIG an ROM!O ,ORRAS, respondents.
This is a %etition for 2eview under 2ule ,) of the 2evised 2ules of Court with petitioner %eople of the
%hilippines, represented b! the *Dce of the Solicitor Aeneral, pra!ing for the reversal of the *rders
dated .= +anuar! 7==/ and - +une 7==/ of the 2egional Trial Court ;2TC> of the /
th
+udicial 2egion,
Eranch /?, @umangas, Iloilo, dismissing the ''7 cases of Muali3ed Theft 3led against respondents
Teresita %uig and 2omeo %orras, and den!ing petitionerPs otion for 2econsideration, in Criminal Cases
&o. =)-.=), to =)-.'/).
The following are the factual antecedents9
*n ( &ovember 7==), the Iloilo %rovincial %rosecutorPs *Dce 3led before Eranch /? of the 2TC in
@umangas, Iloilo, ''7 cases of Muali3ed Theft against respondents Teresita %uig ;%uig> and 2omeo
%orras ;%orras> who were the Cashier and Eoo66eeper, respectivel!, of private complainant 2ural Ean6
of %ototan, Inc. The cases were doc6eted as Criminal Cases &o. =)-.=), to =)-.'/).
The allegations in the Informations
'
3led before the 2TC were uniform and pro-forma, e"cept for the
amounts, date and time of commission, to wit9
IN-ORMATION
That on or about the '
st
da! of 8ugust, 7==7, in the unicipalit! of %ototan, %rovince of Iloilo,
%hilippines, and within the jurisdiction of this $onorable Court, above-named BrespondentsC,
conspiring, confederating, and helping one another, with grave abuse of confdence, being
theCashier and Bookkeeper of the 2ural Ean6 of %ototan, Inc., %ototan, Iloilo, without the
6nowledge andIor consent of the management of the Ean6 and with intent of gain, did then
and there willfull!, unlawfull! and feloniousl! ta6e, steal and carr! awa! the sum of FIFT<<&
T$*KS8&@ %<S*S ;%'),===.==>, %hilippine Currenc!, to the damage and prejudice of the said
ban6 in the aforesaid amount.
8fter perusing the Informations in these cases, the trial court did not 3nd the e"istence of probable
cause that would have necessitated the issuance of a warrant of arrest based on the following grounds9
;'> the element of Z)aK3n8 ?3)7o0) )7e :on4en) o6 )7e o?ner4P was missing on the ground
that it is the depositors-clients, and not the Ean6, which 3led the complaint in these cases,
who are the owners of the mone! allegedl! ta6en b! respondents and hence, are the real
parties-in-interest: and
;7> the Informations are bereft of the phrase alleging Je(enen:e, 80ar3an473( or
v3839an:e be)?een )7e re4(onen)4 an )7e oSene (ar)1 )7a) ?o09 7ave :rea)e
a 7387 e8ree o6 :onGen:e be)?een )7em ?73:7 )7e re4(onen)4 :o09 7ave
ab04e.J
It added that allowing the ''7 cases for Muali3ed Theft 3led against the respondents to push through
would be violative of the right of the respondents under Section ',;7>, 8rticle III of the '-?(
Constitution which states that in all criminal prosecutions, the accused shall enjo! the right to be
informed of the nature and cause of the accusation against him. Following Section /, 2ule ''7 of the
2evised 2ules of Criminal %rocedure, the 2TC dismissed the cases on .= +anuar! 7==/ and refused to
issue a warrant of arrest against %uig and %orras.
8 otion for 2econsideration
7
was 3led on '( 8pril 7==/, b! the petitioner.
*n - +une 7==/, an *rder
.
den!ing petitionerPs otion for 2econsideration was issued b! the 2TC,
3nding as follows9
8ccordingl!, the prosecutionPs otion for 2econsideration should be, as it hereb!, @<&I<@. The
*rder dated +anuar! .=, 7==/ ST8&@S in all respects.
%etitioner went directl! to this Court via %etition for 2eview on Certiorari under 2ule ,), raising the sole
legal issue of9
F$<T$<2 *2 &*T T$< ''7 I&F*28TI*&S F*2 MK80IFI<@ T$<FT SKFFICI<&T0L 800<A< T$<
<0<<&T *F T8OI&A FIT$*KT T$< C*&S<&T *F T$< *F&<2, 8&@ T$< MK80IFLI&A
CI2CKST8&C< *F A28G< 8EKS< *F C*&FI@<&C<.
%etitioner pra!s that judgment be rendered annulling and setting aside the *rders dated .= +anuar!
7==/ and - +une 7==/ issued b! the trial court, and that it be directed to proceed with Criminal Cases
&o. =)-.=), to =)-.'/).
%etitioner e"plains that under 8rticle '-?= of the &ew Civil Code, J3"ed, savings, and current deposits
of mone! in ban6s and similar institutions shall be governed b! the provisions concerning simple
loans.J Corollar! thereto, 8rticle '-). of the same Code provides that Ja person who receives a loan of
mone! or an! other fungible thing ac4uires the ownership thereof, and is bound to pa! to the creditor
an e4ual amount of the same 6ind and 4ualit!.J Thus, it posits that the depositors who place their
mone! with the ban6 are considered creditors of the ban6. The ban6 ac4uires ownership of the mone!
deposited b! its clients, ma6ing the mone! ta6en b! respondents as belonging to the ban6.
%etitioner also insists that the Informations suDcientl! allege all the elements of the crime of 4uali3ed
theft, citing that a perusal of the Informations will show that the! speci3call! allege that the
respondents were the Cashier and Eoo66eeper of the 2ural Ean6 of %ototan, Inc., respectivel!, and that
the! too6 various amounts of mone! with grave abuse of con3dence, and without the 6nowledge and
consent of the ban6, to the damage and prejudice of the ban6.
%arentheticall!, respondents raise procedural issues. The! challenge the petition on the ground that a
%etition for 2eview on Certiorari via 2ule ,) is the wrong mode of appeal because a 3nding of probable
cause for the issuance of a warrant of arrest presupposes evaluation of facts and circumstances, which
is not proper under said 2ule.
2espondents further claim that the @epartment of +ustice ;@*+>, through the Secretar! of +ustice, is the
principal part! to 3le a %etition for 2eview on Certiorari, considering that the incident was indorsed b!
the @*+.
Fe 3nd merit in the petition.
The dismissal b! the 2TC of the criminal cases was allegedl! due to insuDcienc! of the Informations
and, therefore, because of this defect, there is no basis for the e"istence of probable cause which will
justif! the issuance of the warrant of arrest. %etitioner assails the dismissal contending that the
Informations for Muali3ed Theft suDcientl! state facts which constitute ;a> the 4ualif!ing circumstance
of grave a(use of conHdenceR and O(P the element of ta8ing" with intent to gain and without the
consent of the owner, which is the Ean6.
In determining the e"istence of probable cause to issue a warrant of arrest, the 2TC judge found the
allegations in the Information inade4uate. $e ruled that the Information failed to state facts constituting
the 4ualif!ing circumstance of grave a(use of conHdence and the element of ta8ing without the
consent of the owner, since the owner of the mone! is not the Ean6, but the depositors therein. $e also
cites People v. 7oc !ong,
,
in which this Court held9
There must be allegation in the information and proof of a relation, b! reason of dependence,
guardianship or vigilance, between the respondents and the ofended part! that has created a
high degree of con3dence between them, which the respondents abused.
At this point" it needs stressing that the #'C Judge (ased his conclusion that there was no pro(a(le
cause simpl/ on the insu>cienc/ of the allegations in the &nformations concerning the facts
constitutive of the elements of the oSense charged. 'his" therefore" ma8es the issue of su>cienc/ of
the allegations in the &nformations the focal point of discussion.
Muali3ed Theft, as de3ned and punished under 8rticle .'= of the 2evised %enal Code, is committed as
follows, viz9
82T. .'=. <ualiHed 'heft. Q The crime of theft shall be punished b! the penalties ne"t higher
b! two degrees than those respectivel! speci3ed in the ne"t preceding article, if committed b!
a domestic servant, or with grave a(use of conHdence, or if the propert! stolen is motor
vehicle, mail matter or large cattle or consists of coconuts ta6en from the premises of a
plantation, 3sh ta6en from a 3shpond or 3sher! or if propert! is ta6en on the occasion of 3re,
earth4ua6e, t!phoon, volcanic eruption, or an! other calamit!, vehicular accident or civil
disturbance. ;<mphasis supplied.>
Theft, as de3ned in 8rticle .=? of the 2evised %enal Code, re4uires the ph!sical ta6ing of anotherPs
propert! without violence or intimidation against persons or force upon things. The elements of the
crime under this 8rticle are9
'. Intent to gain:
7. Knlawful ta6ing:
.. %ersonal propert! belonging to another:
,. 8bsence of violence or intimidation against persons or force upon things.
To fall under the crime of Muali3ed Theft, the following elements must concur9
'. Ta6ing of personal propert!:
7. That the said propert! belongs to another:
.. That the said ta6ing be done with intent to gain:
,. That it be done without the ownerPs consent:
). That it be accomplished without the use of violence or intimidation against persons, nor of
force upon things:
/. 'hat it (e done with grave a(use of conHdence.
*n the suDcienc! of the Information, Section /, 2ule ''= of the 2ules of Court re4uires, inter alia, that
the information must state the acts or omissions complained of as constitutive of the ofense.
*n the manner of how the Information should be worded, Section -, 2ule ''= of the 2ules of Court, is
enlightening9
Section -. Cause of the accusation. The acts or omissions complained of as constituting the
ofense and the 4ualif!ing and aggravating circumstances must be stated in ordinar! and
concise language and not necessaril! in the language used in the statute but in terms
suDcient to enable a person of common understanding to 6now what ofense is being charged
as well as its 4ualif!ing and aggravating circumstances and for the court to pronounce
judgment.
It is evident that the Information need not use the e"act language of the statute in alleging the acts or
omissions complained of as constituting the ofense. The test is whether it enables a person of common
understanding to 6now the charge against him, and the court to render judgment properl!.
)
The portion of the Information relevant to this discussion reads9
8Cbove-named BrespondentsC, conspiring, confederating, and helping one another, with grave abuse of confdence, being the Cashier and Bookkeeper of the
2ural Ean6 of %ototan, Inc., %ototan, Iloilo, without the 6nowledge andIor consent of the management of the Ean6 " " ".
It is be!ond doubt that tellers, Cashiers, Eoo66eepers and other emplo!ees of a Ean6 who come into
possession of the monies deposited therein enjo! the con3dence reposed in them b! their emplo!er.
Ean6s, on the other hand, where monies are deposited, are considered the owners thereof. This is ver!
clear not onl! from the e"press provisions of the law, but from established jurisprudence. The
relationship between ban6s and depositors has been held to be that of creditor and debtor. 8rticles
'-). and '-?= of the &ew Civil Code, as appropriatel! pointed out b! petitioner, provide as follows9
8rticle '-).. 8 person who receives a loan of mone! or an! other fungible thing ac4uires the
ownership thereof, and is bound to pa! to the creditor an e4ual amount of the same 6ind and
4ualit!.
8rticle '-?=. Fi"ed, savings, and current deposits of mone! in ban6s and similar institutions
shall be governed b! the provisions concerning loan.
In a long line of cases involving Muali3ed Theft, this Court has 3rml! established the nature of
possession b! the Ean6 of the mone! deposits therein, and the duties being performed b! its
emplo!ees who have custod! of the mone! or have come into possession of it. The Court has
consistentl! considered the allegations in the Information that such emplo!ees acted with grave abuse
of con3dence, to the damage and prejudice of the Ean6, without particularl! referring to it as owner of
the mone! deposits, as suDcient to ma6e out a case of Muali3ed Theft. For a graphic illustration, we
cite #o5ue v. People,
/
where the accused teller was convicted for Muali3ed Theft based on this
Information9
That on or about the '/th da! of &ovember, '-?-, in the municipalit! of Floridablanca,
province of %ampanga, %hilippines and within the jurisdiction of his $onorable Court, the
above-named accused 8SK&CI*& A808&A 2*MK<, being then emplo!ed as teller of the Easa
8ir Ease Savings and 0oan 8ssociation Inc. ;E8ES08> with oDce address at Easa 8ir Ease,
Floridablanca, %ampanga, and as such was authori1ed and reposed with the responsibilit! to
receive and collect capital contributions from its memberIcontributors of said corporation, and
having collected and received in her capacit! as teller of the E8ES08 the sum of T<&
T$*KS8&@ %<S*S ;%'=,===.==>, said accused, with intent of gain, with grave abuse of
confdence and without the knowledge and consent of said corporation, did then and
there willfull!, unlawfull! and feloniousl! ta6e, steal and carr! awa! the amount of %'=,===.==,
%hilippine currenc!, b! ma6ing it appear that a certain depositor b! the name of 8ntonio
Sala1ar withdrew from his Savings 8ccount &o. '.)-, when in truth and in fact said 8ntonio
Sala1ar did not withdrBaCw the said amount of%'=,===.== to the damage and prejudice of
E8ES08 in the total amount of %'=,===.==, %hilippine currenc!.
In convicting the therein appellant, the Court held that9
BSCince the teller occupies a position of con3dence, and the ban6 places mone! in the tellerPs
possession due to the con3dence reposed on the teller, the felon! of 4uali3ed theft would be
committed.
(
8lso in People v. Sison,
?
the Eranch *perations *Dcer was convicted of the crime of Muali3ed Theft
based on the Information as herein cited9
That in or about and during the period compressed between +anuar! 7,, '--7 and Februar!
'., '--7, both dates inclusive, in the Cit! of anila, %hilippines, the said accused did then and
there wilfull!, unlawfull! and feloniousl!, with intent of gain and without the 6nowledge and
consent of the owner thereof, ta6e, steal and carr! awa! the following, to wit9
Cash mone! amounting to %/,===,===.== in diferent denominations belonging to the
%$I0I%%I&< C*<2CI80 I&T<2&8TI*&80 E8&O ;%CIEan6 for brevit!>, 0uneta Eranch, anila
represented b! its Eranch anager, $<0<& K. F82A8S, to the damage and prejudice of the
said owner in the aforesaid amount of %/,===,===.==, %hilippine Currenc!.
That in the commission of the said ofense, herein accused acted with grave abuse of
con3dence and unfaithfulness, he being the 1ranch peration >cer of the said complainant
and as such he had free access to the place where the said amount of mone! was 6ept.
The judgment of conviction elaborated thus9
The crime perpetuated b! appellant against his emplo!er, the %hilippine Commercial and
Industrial Ean6 ;%CIE>, is Muali3ed Theft. 8ppellant could not have committed the crime had he
not been holding the position of 0uneta Eranch *peration *Dcer which gave him not onl! sole
access to the ban6 vault """. The management of the %CIE reposed its trust and con3dence in
the appellant as its 0uneta Eranch *peration *Dcer, and it was this trust and con3dence
which he e"ploited to enrich himself to the damage and prejudice of %CIE " " ".
-
From another end, People v. ocson,
'=
in addition to People v. Sison, described the nature of
possession b! the Ean6. The mone! in this case was in the possession of the defendant as receiving
teller of the ban6, and the possession of the defendant was the possession of the Ean6. The Court held
therein that when the defendant, with grave abuse of con3dence, removed the mone! and
appropriated it to his own use without the consent of the Ean6, there was ta6ing as contemplated in the
crime of Muali3ed Theft.
''
Conspicuousl!, in all of the foregoing cases, where the Informations merel! alleged the positions of the
respondents: that the crime was committed with grave abuse of con3dence, with intent to gain and
without the 6nowledge and consent of the Ean6, without necessaril! stating the phrase being
assiduousl! insisted upon b! respondents, Jof a relation b! reason of dependence, guardianship
or vigilance, between the respondents and the o"ended part! that has created a high
degree of confdence between the#, which respondents abused,J
'7
and without emplo!ing the
word JownerJ in lieu of the JEan6J were considered to have satis3ed the test of suDcienc! of
allegations.
8s regards the respondents who were emplo!ed as Cashier and Eoo66eeper of the Ean6 in this case,
there is even no reason to 4uibble on the allegation in the Informations that the! acted with grave
abuse of con3dence. In fact, the Information which alleged grave abuse of con3dence b! accused
herein is even more precise, as this is e"actl! the re4uirement of the law in 4ualif!ing the crime of
Theft.
In summar!, the Ean6 ac4uires ownership of the mone! deposited b! its clients: and the emplo!ees of
the Ean6, who are entrusted with the possession of mone! of the Ean6 due to the con3dence reposed
in them, occup! positions of con3dence. The Informations, therefore, suDcientl! allege all the essential
elements constituting the crime of Muali3ed Theft.
*n the theor! of the defense that the @*+ is the principal part! who ma! 3le the instant petition, the
ruling in 0o(ilia Products" &nc. v. Hajime $mezawa
'.
is instructive. The Court thus enunciated9
In a criminal case in which the ofended part! is the State, the interest of the private
complainant or the ofended part! is limited to the civil liabilit! arising therefrom. $ence, if a
criminal case is dismissed b! the trial court or if there is an ac4uittal, a reconsideration of the
order of dismissal or ac4uittal ma! be underta6en, whenever legall! feasible, insofar as the
criminal aspect thereof is concerned and ma! be made onl! b! the public prosecutor: or in the
case of an appeal, b! the State onl!, through the *SA. " " ".
*n the alleged wrong mode of appeal b! petitioner, suDce it to state that the rule is well-settled that in
appeals b! certiorari under 2ule ,) of the 2ules of Court, onl! errors of law ma! be raised,
',
and herein
petitioner certainl! raised a 4uestion of law.
8s an aside, even if we go be!ond the allegations of the Informations in these cases, a closer loo6 at
the records of the preliminar! investigation conducted will show that, indeed, probable cause e"ists for
the indictment of herein respondents. %ursuant to Section /, 2ule ''7 of the 2ules of Court, the judge
shall issue a warrant of arrest onl! upon a 3nding of probable cause after personall! evaluating the
resolution of the prosecutor and its supporting evidence. Soliven v. $akasiar,
')
as reiterated
in Allado v. %riokno,
'/
e"plained that probable cause for the issuance of a warrant of arrest is the
e"istence of such facts and circumstances that would lead a reasonabl! discreet and prudent person to
believe that an ofense has been committed b! the person sought to be arrested.
'(
The records
reasonabl! indicate that the respondents ma! have, indeed, committed the ofense charged.
Eefore closing, let it be stated that while it is trul! imperative upon the 3scal or the judge, as the case
ma! be, to relieve the respondents from the pain of going through a trial once it is ascertained that no
probable cause e"ists to form a suDcient belief as to the guilt of the respondents, conversel!, it is also
e4uall! imperative upon the judge to proceed with the case upon a showing that there is a prima
faciecase against the respondents.
@*!R!-OR!, premises considered, the %etition for 2eview on Certiorari is hereb! GRANT!". The
*rders dated .= +anuar! 7==/ and - +une 7==/ of the 2TC dismissing Criminal Cases &o. =)-.=), to =)-
.'/) are R!+!RS!" and S!T ASI"!. 0et the corresponding Farrants of 8rrest issue against herein
respondents T<2<SIT8 %KIA and 2*<* %*228S. The 2TC +udge of Eranch /?, in @umangas, Iloilo, is
directed to proceed with the trial of Criminal Cases &o. =)-.=), to =)-.'/), inclusive, with reasonable
dispatch. &o pronouncement as to costs.
SO OR"!R!".