Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17474
October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56
and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding
purposes subject to a government charge of breeding fee of 10% of the book value of the bulls.
Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another
period of one year. However, the Secretary of Agriculture and Natural Resources approved a
renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the
return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry
that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy
them at a value with a deduction of yearly depreciation to be approved by the Auditor General. On
19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls
could not be reduced and that they either be returned or their book value paid not later than 31
October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them. So, on
20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines
commenced an action against him praying that he be ordered to return the three bulls loaned to him
or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of
P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil
No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao,
and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and
the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the
book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to
which depreciation the Auditor General did not object, he could not return the animals nor pay their
value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three
bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the
legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18
October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed
by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside
Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the
surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix
of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the
two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in
November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on

Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of
preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6
February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion.
Hence, this appeal certified by the Court of Appeals to this Court as stated at the beginning of this
opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant,
returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station,
Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt
signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's
motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of
P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held
liable for the two bulls which already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where
the animal was kept, and that as such death was due to force majeure she is relieved from the duty
of returning the bull or paying its value to the appellee. The contention is without merit. The loan by
the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a
period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards
one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the
bulls. The appellant contends that the contract was commodatum and that, for that reason, as the
appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A
contract ofcommodatum is essentially gratuitous.1 If the breeding fee be considered a compensation,
then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would
be subject to the responsibilities of a possessor in bad faith, because she had continued possession
of the bull after the expiry of the contract. And even if the contract be commodatum, still the
appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract
of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was
renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the
bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when
lent and delivered to the deceased husband of the appellant the bulls had each an appraised book
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It
was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the
appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the
payment of its value being a money claim should be presented or filed in the intestate proceedings
of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim
that his civil personality having ceased to exist the trial court lost jurisdiction over the case against
him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon
proper notice, the legal representative of the deceased to appear and to be substituted for
the deceased, within a period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of
Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the
court promptly of such death . . . and to give the name and residence of the executory
administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had
been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having
claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied,
whether the same be due, not due, or contingent, for funeral expenses and expenses of the last
sickness of the said decedent, and judgment for monopoly against him, to file said claims with the
Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the
date of the first publication of this order, serving a copy thereof upon the aforementioned Felicidad
M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the
court and the appellee who were to be notified of the defendant's death in accordance with the
above-quoted rule, and there was no reason for such failure to notify, because the attorney who
appeared for the defendant was the same who represented the administratrix in the special
proceedings instituted for the administration and settlement of his estate. The appellee or its attorney
or representative could not be expected to know of the death of the defendant or of the
administration proceedings of his estate instituted in another court that if the attorney for the
deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant
is only liable for the sum of P859.63, the value of the bull which has not been returned to the
appellee, because it was killed while in the custody of the administratrix of his estate. This is the
amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7
January 1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V.
Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment
rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be
presented to the probate court for payment by the appellant, the administratrix appointed by the
court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to
costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Barrera, J., concurs in the result.

Footnotes
1
Article 1933 of the Civil Code.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 154878
March 16, 2007
CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.
DECISION
CORONA, J.:
Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002
resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28,
1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M.
Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order
of a certain Marilou Santiago.5 Thereafter, petitioner received from respondent every month
(specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of
US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check 9 dated June 29, 1995 in
the amount ofP500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner
received from respondent the amount of P20,000 every month on August 5, September 5, October 5
and November 5, 1995.11
According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000
and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum
of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect
the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000,
with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual
damages.12
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October
26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent
again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of
which was on November 5, 1995.14 The amount of this loan was covered by the second check. For
both loans, no promissory note was executed since petitioner and respondent were close friends at
the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates,
she failed to pay the principal amounts despite repeated demands. 16
Respondent denied that she contracted the two loans with petitioner and countered that it was
Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by
petitioner to give the crossed checks to Santiago. 17 She issued the checks for P76,000 and P20,000
not as payment of interest but to accommodate petitioners request that respondent use her own
checks instead of Santiagos.18
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a
monthly interest of 4%:20
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is
hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from
October 26, 1995 until fully paid;
2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.
3. P100,000.00 as and for attorneys fees; and
1awphi1.nt

4. P50,000.00 as and for actual damages.

For lack of merit, [respondents] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.21
On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan
between the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent]
received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00,
payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the
amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued
by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but
only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only onceto one who has an
account with the bank; (c) and the act of crossing the check serves as warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to
the payee in contemplation of law since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be
deemed as an agent of Marilou Santiago with respect to the checks because she was merely
facilitating the transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan
that existed between the parties. x x x (emphasis supplied) 22
Hence this petition.23
As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of
the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual
findings of the CA (which held that there were no contracts of loan between petitioner and
respondent) and the RTC (which held that there werecontracts of loan) are contradictory.24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the
object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon
the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor
when the checks were encashed) the debtor acquires ownership of such money or loan proceeds
and is bound to pay the creditor an equal amount. 26
It is undisputed that the checks were delivered to respondent. However, these checks were crossed
and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the
main question to be answered is: who borrowed money from petitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made payable to
Santiago.27 She maintains that it was also upon respondents instruction that both checks were
delivered to her (respondent) so that she could, in turn, deliver the same to Santiago. 28 Furthermore,
she argues that once respondent received the checks, the latter had possession and control of them
such that she had the choice to either forward them to Santiago (who was already her debtor), to
retain them or to return them to petitioner.29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within
the actual or constructive possession or control of another.30 Although respondent did not physically
receive the proceeds of the checks, these instruments were placed in her control and possession
under an arrangement whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago. 31 It was highly
improbable that petitioner would grant two loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt considering that the amounts involved
were quite big. Respondent, on the other hand, already had transactions with Santiago at that time. 32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both
parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a
higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to
make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony
should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount
of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For
the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four
months.34 According to respondent, she merely accommodated petitioners request for her to issue
her own checks to cover the interest payments since petitioner was not personally acquainted with
Santiago.35 She claimed, however, that Santiago would replace the checks with cash. 36 Her
explanation is simply incredible. It is difficult to believe that respondent would put herself in a position
where she would be compelled to pay interest, from her own funds, for loans she allegedly did not
contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence
to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in
itself such as the common experience of mankind can approve as probable under the
circumstances. We have no test of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous,
and is outside of juridical cognizance.37
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner,
who was listed as one of her (Santiagos) creditors.38
Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The
presumption is that "evidence willfully suppressed would be adverse if produced." 40 Respondent was
not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the
amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC
making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 andP500,000 loans respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article
1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly
stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.41

Hence, respondent is liable for the payment of legal interest per annum to be computed from
November 21, 1995, the date when she received petitioners demand letter.42 From the finality of the
decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period
being deemed equivalent to a forbearance of credit.43
The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted
since the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20,
2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE.
The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266
is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of
US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of
the decision. The total amount due as of the date of finality will earn interest of 12% per annum until
fully paid. The award of actual damages and attorneys fees is deleted.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
ADOLFO S. AZCUNA
Associate Justice
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1
Under Rule 45 of the Rules of Court.
2
Penned by former Associate Justice Eubulo G. Verzola (deceased) and concurred in by
Associate Justices Bernardo P. Abesamis (retired) and Josefina Guevara-Salonga of the
Third Division of the Court of Appeals;rollo, pp. 98-102.
3
Id., pp. 104-105.
4
This was Metrobank check no. 26910; id., pp. 70, 224 and 368.
5
Id., pp. 60, 100-101, 224.
6
Id., pp. 60-61. According to respondent, she originally issued four postdated checks each in
the amount ofP76,000 on the same dates mentioned but these were not encashed and
instead each check was replaced by Santiago with US$3,000 in cash given by respondent to
petitioner; id., p. 224.
7
This was the peso equivalent of US$3,000 computed at the exchange rate of P25.50 to
$1.00; id., pp. 17 and 88. These postdated checks were deposited on their respective due
dates and honored by the drawee bank; id., p. 225.
8
According to respondent, this check was replaced by Santiago with cash in the amount of
US$3,000.

This was City Trust check no. 467257; rollo, pp. 90 and 327.
Id., pp. 60, 101 and 225.
11
Id., p. 109.
12
Docketed as Civil Case No. 96-266; rollo, pp. 15, 60 and 364.
13
Id., p. 109.
14
Id., p. 110.
15
Id., p. 16.
16
Id., p. 110.
17
Id., p. 224.
18
Id.
19
Id., pp. 60-95.
20
Id., pp. 79 and 89.
21
Id., pp. 94-95.
22
Id., pp. 100-101, citation omitted.
23
The issues submitted for resolution are the following:
(A) Is actual and physical delivery of the money loaned directly from the lender to the
borrower the only way to perfect a contract of loan?
(B) Does the respondents admission that she paid interests to the petitioner on the
amounts represented by the two checks given to her by said petitioner render said
respondent in estoppel to question that there was no loan transaction between her
and the petitioner?
(C) Is respondents written manifestation in the trial court, through counsel, that she
interposes no objection to the admission of petitioners documentary exhibits for the
multiple purposes specified in the latters Formal Offer of Documentary Exhibits a
judicial admission governed by Rule 129, Section 4, Rules of Court?
(D) Is this Honorable Court bound by the conclusions of fact relied upon by the [CA]
in issuing its disputed Decision?
(E) Have the [RTCs] findings of fact on the lone issue on which respondent litigated
in the [RTC], viz.existence of privity of contract between petitioner and respondent,
been overturned or set aside by the [CA]?
(F) May the respondent validly change the theory of her case from one of privity of
contract between her and the petitioner in the [RTC], to one of not being a holder in
due course of the crossed checks payable to a third party in the [CA] and before this
Honorable Court?
(G) Is the petitioners entitlement to interest, despite absence of a written stipulation
on the payment thereof, justified?
(H) Is the deletion by the [CA] of the [RTCs] award of attorneys fees and actual
damages in favor pf the petitioner justified? Id., pp. 401-402.
24
Philippine National Bank v. Andrada Electric & Engineering Co., G.R. No. 142936, 17 April
2002, 381 SCRA 244, 253, citing Fuentes v. CA, 335 Phil. 1163, 1167-1169 (1997).
25
Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, 597.
26
Article 1953 of the Civil Code states:
A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality.
27
Rollo, p. 39.
28
Id.
9

10

Id., pp. 39-40.

Buenaflor v. Court of Appeals, G.R. No. 142021, 29 November 2000, 346 SCRA 563, 569,
citing Black's Law Dictionary, 5th ed.
31
Rollo, p. 64.
32
Id., p. 70.
33
Id., pp. 76 and 85.
34
Id., pp. 16-17, 224-225, 411.
35
Id., p. 224.
36
Id., p. 70.
37
People v. Mala, G.R. No. 152351, 18 September 2003, 411 SCRA 327, 337, citing People
v. Dayag, 155 Phil. 421, 431 (1974).
38
Rollo, pp. 88 and 94.
39
Id., p. 93.
40
Sec. 3 (e), Rule 131, Rules of Court.
41
Eusebio-Calderon v. People, G.R. No. 158495, 21 October 2004, 441 SCRA 137, 148-149,
citing Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234
SCRA 78, 95; Cabrera v. People, G.R. No. 150618, 24 July 2003, 407 SCRA 247, 261.
42
Rollo, p. 65.
43
Cabrera v. People, supra.
29
30

SECOND DIVISION
[G.R. No. L-46145, November 26, 1986]
REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), PETITIONER, VS. THE HON. COURT
OF APPEALS, HEIRS OF DOMINGO P. BALOY, REPRESENTED BY RICARDO BALOY, ET AL.,
RESPONDENTS.
DECISION
PARAS, J.:
This case originally emanated from a decision of the then Court of First Instance of Zambales in LRC Case
No. 11-0, LRC Record No. N-29355, denying respondents' application for registration. From said order of
denial the applicants, heirs of Domingo Baloy, represented by Ricardo P. Baloy, (herein private respondents)
interposed on appeal to the Court of Appeals which was docketed as CA-G.R. No. 52039-R. The appellate
court, thru its Fifth Division with the Hon. Justice Magno Gatmaitan as ponente, rendered a decision dated
February 3, 1977 reversing the decision appealed from and thus approving the application for registration.
Oppositors (petitioners herein) filed their Motion for Reconsideration alleging among other things that
applicants' possessory information title can no longer be invoked and that they were not able to prove a
registerable title over the land. Said Motion for Reconsideration was denied, hence this petition for review
on certiorari.
Applicants' claim is anchored on their possessory information title (Exhibit F which had been translated in
Exhibit F-1) coupled with their continuous, adverse and public possession over the land in question. An
examination of the possessory information title shows that the description and the area of the land stated
therein substantially coincides with the land applied for and that said possessory information title had been
regularly issued having been acquired by applicants' predecessor, Domingo Baloy, under the provisions of
the Spanish Mortgage Law. Applicants presented their tax declaration on said lands on April 8, 1965.
The Director of Lands opposed the registration alleging that this land had become public land thru the
operation of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to the executive order
of the President of the U.S., the area was declared within the U.S. Naval Reservation. Under Act 627 as
amended by Act 1138, a period was fixed within which persons affected thereby could file their application,
(that is within 6 months from July 8, 1905) otherwise "the said lands or interests therein will be conclusively
adjudged to be public lands and all claims on the part of private individuals for such lands or interests
therein not so presented will be forever barred." Petitioner argues that since Domingo Baloy failed to file his
claim within the prescribed period, the land had become irrevocably public and could not be the subject of a
valid registration for private ownership.
Considering the foregoing facts respondent Court of Appeals ruled as follows:
"x x x perhaps, the consequence was that upon failure of Domingo Baloy to have filed his application within
that period the land had become irrevocably public; but perhaps also, for the reason that that warning was
from the Clerk of the Court of Land Registration, named J.R. Wilson and there has not been presented a
formal order or decision of the said Court of Land Registration so declaring the land public because of that
failure, it can with plausibility be said that after all, there was no judicial declaration to that effect, it is true
that the U.S. Navy did occupy it apparently for some time, as a recreation area, as this Court understands
from the communication of the Department of Foreign Affairs to the U.S. Embassy exhibited in the record,
but the very tenor of the communication apparently seeks to justify the title of herein applicants, in other
words, what this Court has taken from the occupation by the U.S. Navy is that during the interim, the title of
applicants was in a state of suspended animation so to speak but it had not died either; and the fact being
that this land was really originally private from and after the issuance and inscription of the possessory
information Exh. F during the Spanish times, it would be most difficult to sustain position of Director of
Lands that it was land of no private owner; open to public disposition, and over which he has control; and

since immediately after U.S. Navy had abandoned the area, applicant came in and asserted title once again,
only to be troubled by first Crispiniano Blanco who however in due time, quitclaimed in favor of applicants,
and then by private oppositors now, apparently originally tenants of Blanco, but that entry of private
oppositors sought to be given color of ownership when they sought to and did file tax declaration in 1965,
should not prejudice the original rights of applicants thru their possessory information secured regularly so
long ago, the conclusion must have to be that after all, applicants had succeeded in bringing themselves
within the provisions of Sec. 19 of Act 496, the land should be registered in their favor;
IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment appealed from the
application is approved, and once this decision shall have become final, if ever it would be, let decree issue
in favor of applicants with the personal circumstances outlined in the application, costs against private
oppositors."
Petitioner now comes to Us with the following:
"ASSIGNMENT OF ERRORS"
1.

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

2.

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

3.

Respondent court erred in concluding that applicants have registerable title.

A cursory reading of Sec. 3, Act 627 reveals that several steps are to be followed before any affected land
can "be conclusively adjudged to be public land". Sec. 3, Act 627 reads as follows:
"SEC. 3. Immediately upon receipt of the notice from the Civil Governor in the preceeding section
mentioned it shall be the duty of the judge of the Court of Land Registration to issue a notice, stating that
the lands within the limits aforesaid have been reserved for military purposes, and announced and declared
to be military reservations, and that claims for all private lands, buildings, and interests therein, within the
limits aforesaid, must be presented for registration under the Land Registration Act within six calendar
months from the date of issuing the notice, and that all lands, buildings, and interests therein within the
limits aforesaid not so presented within the time therein limited will be conclusively adjudged to be public
lands, and all claims on the part of private individuals for such lands, buildings, or an interest therein not so
presented will be forever barred. The clerk of the Court of Land Registration shall immediately upon the
issuing of such notice by the judge cause the same to be published once a week for three successive weeks
in two newspapers, one of which newspapers shall be in the English language, and one in the Spanish
language in the city or province where the land lies, if there be no such Spanish or English newspapers
having a general circulation in the city or province wherein the land lies, then it shall be a sufficient
compliance with this section if the notice be published as herein provided, in a daily newspaper in the
Spanish language and one in the English language, in the City of Manila, having a general circulation. The
clerk shall also cause a duly attested copy of the notice in the Spanish language to be posted in conspicuous
place at each angle formed by the lines of the limits of the land reserved. The clerk shall also issue and
cause to be personally served the notice in the Spanish language upon every person living upon or in visible
possession of any part of the military reservation. If the person in possession is the head of the family living
upon the land, it shall be sufficient to serve the notice upon him, and if he is absent it shall be sufficient to
leave a copy at his usual place of residence. The clerk shall certify the manner in which the notices have
been published, posted, and served, and his certificate shall be conclusive proof of such publication, posting,
and service, but the court shall have power to cause such further notice to be given as in its opinion may be
necessary."
Clearly under said provision, private land could be deemed to have become public land only by virtue of a
judicial declaration after due notice and hearing. It runs contrary therefore to the contention of petitioners
that failure to present claims set forth under Sec. 2 of Act 627 made the land ipso facto public without any
need of judicial pronouncement. Petitioner in making such declaration relied on Sec. 4 of Act 627 alone.
But in construing a statute the entire provisions of the law must be considered in order to establish the

correct interpretation as intended by the law-making body. Act 627 by its terms is not self-executory and
requires implementation by the Court of Land Registration. Act 627, to the extent that it creates a
forfeiture, is a penal statute in derogation of private rights, so it must be strictly construed so as to
safeguard private respondents' rights. Significantly, petitioner does not even allege the existence of any
judgment of the Land Registration court with respect to the land in question. Without a judgment or order
declaring the land to be public, its private character and the possessory information title over it must be
respected. Since no such order has been rendered by the Land Registration Court it necessarily follows that
it never became public land thru the operation of Act 627. To assume otherwise is to deprive private
respondents of their property without due process of law. In fact it can be presumed that the notice required by law to be given by publication and by personal service did not include the name of Domingo Baloy
and the subject land, and hence he and his land were never brought within the operation of Act 627 as
amended. The procedure laid down in Sec. 3 is a requirement of due process. "Due process requires that
the statutes under which it is attempted to deprive a citizen of private property without or against his
consent must, as in expropriation cases, be strictly complied with, because such statutes are in derogation
of general rights". (Arriete vs. Director of Public Works, 58 Phil. 507, 508, 511).
We also find with favor private respondents' views that court judgments are not to be presumed. It would
be absurd to speak of a judgment by presumption. If it could be contended that such a judgment may be
presumed, it could equally be contended that applicants' predecessor Domingo Baloy presumably seasonably
filed a claim, in accordance with the legal presumption that a person takes ordinary care of his concerns,
and that a judgment in his favor was rendered.
The finding of respondent court that during the interim of 57 years from November 26, 1902 to December
17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or heirs were merely
suspended and not lost by prescription, is supported by Exhibit "U", a communication or letter No. 1108-63,
dated June 24, 1963, which contains an official statement of the position of the Republic of the Philippines
with regard to the status of the land in question. Said letter recognizes the fact that Domingo Baloy and/or
his heirs have been in continuous possession of said land since 1894 as attested by an "Informacion
Possessoria" Title, which was granted by the Spanish Government. Hence, the disputed property is private
land and this possession was interrupted only by the occupation of the land by the U.S. Navy in 1945 for
recreational purposes. The U.S. Navy eventually abandoned the premises. The heirs of the late Domingo P.
Baloy, are now in actual possession, and this has been so since the abandonment by the U.S. Navy. A new
recreation area is now being used by the U.S. Navy personnel and this place is remote from the land in
question.
Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of a
commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors-ininterest. One's ownership of a thing may be lost by prescription by reason of another's possession if such
possession be under claim of ownership, not where the possession is only intended to be transient, as in the
case of the U.S. Navy's occupation of the land concerned, in which case the owner is not divested of his title,
although it cannot be exercised in the meantime.
WHEREFORE, premises considered, finding no merit in the petition the appealed decision is hereby
AFFIRMED.
SO ORDERED.
Feria, (Chairman), Alampay, and Feliciano, *JJ., concur.
Gutierrez, Jr., J., concurs pro hac vice in the result.
Fernan, J., no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-46240
November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which
she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila
which ordered that the defendant return to her the three has heaters and the four electric lamps
found in the possession of the Sheriff of said city, that she call for the other furniture from the said
sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit
of the furniture be paid pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H.
del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between
the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture
described in the third paragraph of the stipulation of facts, subject to the condition that the defendant
would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria
Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of
lease. There after the plaintiff required the defendant to return all the furniture transferred to him for
them in the house where they were found. On
November 5, 1936, the defendant, through
another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor
of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff
informing her that he could not give up the three gas heaters and the four electric lamps because he
would use them until the 15th of the same month when the lease in due to expire. The plaintiff
refused to get the furniture in view of the fact that the defendant had declined to make delivery of all
of them. On
November 15th, before vacating the house, the defendant deposited with the
Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse
situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the
law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936,
when the defendant placed them at their disposal; in not ordering the defendant to pay them the
value of the furniture in case they are not delivered; in holding that they should get all the furniture
from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the
Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal
expenses or the costs; and in denying pay their respective legal expenses or the costs; and in
denying the motions for reconsideration and new trial. To dispose of the case, it is only necessary to
decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's
demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to
the costs of litigation.
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff,
upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of
the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the
lawphi1.net

plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or
house. The defendant did not comply with this obligation when he merely placed them at the
disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The
provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely
applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff
failed to comply with her obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the
latter's demand, the Court could not legally compel her to bear the expenses occasioned by the
deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the
furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture,
because the defendant wanted to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment
thereof by the defendant in case of his inability to return some of the furniture because under
paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the
correctness of the said value. Should the defendant fail to deliver some of the furniture, the value
thereof should be latter determined by the trial Court through evidence which the parties may desire
to present.
The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who
breached the contract ofcommodatum, and without any reason he refused to return and deliver all
the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that he pay
the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the
plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter,
all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which
may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the
account of the defendant. the defendant shall pay the costs in both instances. So ordered.
Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4150
February 10, 1910
FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, deceased, defendantappellant.
Matias Hilado, for appellant.
Jose Felix Martinez, for appellee.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit against Agustina Jarra, the
administratrix of the estate of Magdaleno Jimenea, alleging that in the latter part of 1901 Jimenea
borrowed and obtained from the plaintiff ten first-class carabaos, to be used at the animal-power mill
of his hacienda during the season of 1901-2, without recompense or remuneration whatever for the
use thereof, under the sole condition that they should be returned to the owner as soon as the work
at the mill was terminated; that Magdaleno Jimenea, however, did not return the carabaos,
notwithstanding the fact that the plaintiff claimed their return after the work at the mill was finished;
that Magdaleno Jimenea died on the 28th of October, 1904, and the defendant herein was appointed
by the Court of First Instance of Occidental Negros administratrix of his estate and she took over the
administration of the same and is still performing her duties as such administratrix; that the plaintiff
presented his claim to the commissioners of the estate of Jimenea, within the legal term, for the
return of the said ten carabaos, but the said commissioners rejected his claim as appears in their
report; therefore, the plaintiff prayed that judgment be entered against the defendant as
administratrix of the estate of the deceased, ordering her to return the ten first-class carabaos
loaned to the late Jimenea, or their present value, and to pay the costs.
The defendant was duly summoned, and on the 25th of September, 1906, she demurred in writing to
the complaint on the ground that it was vague; but on the 2d of October of the same year, in answer
to the complaint, she said that it was true that the late Magdaleno Jimenea asked the plaintiff to loan
him ten carabaos, but that he only obtained three second-class animals, which were afterwards
transferred by sale by the plaintiff to the said Jimenea; that she denied the allegations contained in
paragraph 3 of the complaint; for all of which she asked the court to absolve her of the complaint
with the cost against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez notified the defendant
and her counsel, Matias Hilado, that he had made an agreement with the plaintiff to the effect that
the latter would not compromise the controversy without his consent, and that as fees for his
professional services he was to receive one half of the amount allowed in the judgment if the same
were entered in favor of the plaintiff.
The case came up for trial, evidence was adduced by both parties, and either exhibits were made of
record. On the 10th of January, 1907, the court below entered judgment sentencing Agustina Jarra,
as administratrix of the estate of Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos,
the remaining six second and third class carabaos, or the value thereof at the rate of P120 each, or
a total of P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and, by a writing dated January 19,
moved for anew trial on the ground that the findings of fact were openly and manifestly contrary to
the weight of the evidence. The motion was overruled, the defendant duly excepted, and in due
course submitted the corresponding bill of exceptions, which was approved and submitted to this
court.
The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of ten carabaos
which are now claimed by the latter, as shown by two letters addressed by the said Jimenea to Felix

de los Santos; but in her answer the said defendant alleged that the late Jimenea only obtained
three second-class carabaos, which were subsequently sold to him by the owner, Santos; therefore,
in order to decide this litigation it is indispensable that proof be forthcoming that Jimenea only
received three carabaos from his son-in-law Santos, and that they were sold by the latter to him.
The record discloses that it has been fully proven from the testimony of a sufficient number of
witnesses that the plaintiff, Santos, sent in charge of various persons the ten carabaos requested by
his father-in-law, Magdaleno Jimenea, in the two letters produced at the trial by the plaintiff, and that
Jimenea received them in the presence of some of said persons, one being a brother of said
Jimenea, who saw the animals arrive at the hacienda where it was proposed to employ them. Four
died of rinderpest, and it is for this reason that the judgment appealed from only deals with six
surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-law Santos is not evidenced by
any trustworthy documents such as those of transfer, nor were the declarations of the witnesses
presented by the defendant affirming it satisfactory; for said reason it can not be considered that
Jimenea only received three carabaos on loan from his son-in-law, and that he afterwards kept them
definitely by virtue of the purchase.
By the laws in force the transfer of large cattle was and is still made by means of official documents
issued by the local authorities; these documents constitute the title of ownership of the carabao or
horse so acquired. Furthermore, not only should the purchaser be provided with a new certificate or
credential, a document which has not been produced in evidence by the defendant, nor has the loss
of the same been shown in the case, but the old documents ought to be on file in the municipality, or
they should have been delivered to the new purchaser, and in the case at bar neither did the
defendant present the old credential on which should be stated the name of the previous owner of
each of the three carabaos said to have been sold by the plaintiff.
From the foregoing it may be logically inferred that the carabaos loaned or given on commodatum to
the now deceased Magdaleno Jimenea were ten in number; that they, or at any rate the six surviving
ones, have not been returned to the owner thereof, Felix de los Santos, and that it is not true that the
latter sold to the former three carabaos that the purchaser was already using; therefore, as the said
six carabaos were not the property of the deceased nor of any of his descendants, it is the duty of
the administratrix of the estate to return them or indemnify the owner for their value.
The Civil Code, in dealing with loans in general, from which generic denomination the specific one of
commodatum is derived, establishes prescriptions in relation to the last-mentioned contract by the
following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the other, either anything
not perishable, in order that the latter may use it during a certain period and return it to the
former, in which case it is called commodatum, or money or any other perishable thing,
under the condition to return an equal amount of the same kind and quality, in which case it
is merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned. The bailee
acquires the use thereof, but not its fruits; if any compensation is involved, to be paid by the
person requiring the use, the agreement ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum pass to the heirs of
both contracting parties, unless the loan has been in consideration for the person of the
bailee, in which case his heirs shall not have the right to continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant upon demand, there is no
doubt that she is under obligation to indemnify the owner thereof by paying him their value.
Article 1101 of said code reads:

Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those
who in any manner whatsoever act in contravention of the stipulations of the same, shall be
subjected to indemnify for the losses and damages caused thereby.
The obligation of the bailee or of his successors to return either the thing loaned or its value, is
sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895, it sets out with
precision the legal doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor retains the ownership of the
thing loaned, and at the expiration of the period, or after the use for which it was loaned has
been accomplished, it is the imperative duty of the bailee to return the thing itself to its
owner, or to pay him damages if through the fault of the bailee the thing should have been
lost or injured, it is clear that where public securities are involved, the trial court, in deferring
to the claim of the bailor that the amount loaned be returned him by the bailee in bonds of
the same class as those which constituted the contract, thereby properly applies law 9 of title
11 ofpartida 5.
With regard to the third assignment of error, based on the fact that the plaintiff Santos had not
appealed from the decision of the commissioners rejecting his claim for the recovery of his carabaos,
it is sufficient to estate that we are not dealing with a claim for the payment of a certain sum, the
collection of a debt from the estate, or payment for losses and damages (sec. 119, Code of Civil
Procedure), but with the exclusion from the inventory of the property of the late Jimenea, or from his
capital, of six carabaos which did not belong to him, and which formed no part of the inheritance.
The demand for the exclusion of the said carabaos belonging to a third party and which did not form
part of the property of the deceased, must be the subject of a direct decision of the court in an
ordinary action, wherein the right of the third party to the property which he seeks to have excluded
from the inheritance and the right of the deceased has been discussed, and rendered in view of the
result of the evidence adduced by the administrator of the estate and of the claimant, since it is so
provided by the second part of section 699 and by section 703 of the Code of Civil Procedure; the
refusal of the commissioners before whom the plaintiff unnecessarily appeared can not affect nor
reduce the unquestionable right of ownership of the latter, inasmuch as there is no law nor principle
of justice authorizing the successors of the late Jimenea to enrich themselves at the cost and to the
prejudice of Felix de los Santos.
For the reasons above set forth, by which the errors assigned to the judgment appealed from have
been refuted, and considering that the same is in accordance with the law and the merits of the
case, it is our opinion that it should be affirmed and we do hereby affirm it with the costs against the
appellant. So ordered.
Arellano, C.J., Johnson, Moreland and Elliott, JJ., concur.
Carson, J., reserves his vote.

THIRD DIVISION

[G.R. No. 112485. August 9, 2001]

EMILIA MANZANO, petitioner, vs. MIGUEL PEREZ SR., LEONCIO

PEREZ, MACARIO PEREZ, FLORENCIO PEREZ, NESTOR
PEREZ, MIGUEL PEREZ JR. and GLORIA PEREZ, respondents.
DECISION
PANGANIBAN, J.:

Courts decide cases on the basis of the evidence presented by the parties. In the assessment
of the facts, reason and logic are used. In civil cases, the party that presents a preponderance of
convincing evidence wins.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the March 31, 1993 Decision of the Court of Appeals (CA) in CA-GR CV No.
32594. The dispositive part of the Decision reads:
[1]

[2]

WHEREFORE, the judgment appealed from is hereby REVERSED and another one
is entered dismissing plaintiffs complaint.
On the other hand, the Judgment reversed by the CA ruled in this wise:
[3]

WHEREFORE, premises considered, judgment is hereby rendered:

1) Declaring the two Kasulatan ng Bilihang Tuluyan (Exh. J & K) over the properties in
question void or simulated;
2) Declaring the two Kasulatan ng Bilihang Tuluyan (Exh. J & K) over the properties in
question rescinded;
3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez, Florencio Perez,
Miguel Perez, Jr., Nestor Perez and Gloria Perez to execute an Extra Judicial Partition with
transfer over the said residential lot and house, now covered and described in Tax
Declaration Nos. 1993 and 1994, respectively in the name of Nieves Manzano (Exh. Q &
P), subject matter of this case, in favor of plaintiff Emilia Manzano;
4) Ordering the defendants to pay plaintiff:

a)
b)

P25,000.00 as moral damages;

P10,000.00 as exemplary damages;

c)
d)

P15,000.00 as and for [a]ttorneys fees; and

To pay the cost of suit.
[4]

The Motion for Reconsideration filed by petitioner before the CA was denied in a
Resolution dated October 28, 1993.
[5]

The Facts
The facts of the case are summarized by the Court of Appeals as follows:

[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of a
residential house and lot, more particularly described hereunder:
A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan),
together with all the improvements thereon, situated at General Luna Street, Siniloan,
Laguna. Bounded on the North by Callejon; on the East, by [a] town river; on the
South by Constancia Adofina; and on the West by Gen. Luna Street. Containing an
area of 130 square meters more or less, covered by Tax Dec. No. 9583 and assessed at
P1,330.00.
A residential house of strong mixed materials and G.I. iron roofing, with a floor area
of 40 square meters, more or less. Also covered by Tax No. 9583.
In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of the
herein [private respondents], allegedly borrowed the aforementioned property as
collateral for a projected loan. The [petitioner] acceded to the request of her sister
upon the latters promise that she [would] return the property immediately upon
payment of her loan.
Pursuant to their understanding, the [petitioner] executed two deeds of conveyance
for the sale of the residential lot on 22 January 1979 (Exhibit J) and the sale of the
house erected thereon on 2 February 1979 (Exhibit K), both for a consideration of
P1.00 plus other valuables allegedly received by her from Nieves Manzano.
On 2 April 1979, Nieves Manzano together with her husband, [respondent] Miguel
Perez, Sr., and her son, [respondent] Macario Perez, obtained a loan from the Rural
Bank of Infanta, Inc. in the sum of P30,000.00. To secure payment of their
indebtedness, they executed a Real Estate Mortgage (Exhibit A) over the subject
property in favor of the bank.
Nieves Manzano died on 18 December 1979 leaving her husband and children as
heirs. These heirs, [respondents] herein allegedly refused to return the subject
property to the [petitioner] even after the payment of their loan with the Rural Bank
(Exhibit B).
The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and
that the unwarranted refusal of the [respondents] to return the property caused her

sleepless nights, mental shock and social humiliation. She was, likewise, allegedly
constrained to engage the services of a counsel to protect her proprietary rights.
The [petitioner] sought the annulment of the deeds of sale and execution of a deed of
transfer or reconveyance of the subject property in her favor, the award of moral
damages of not less than P50,000.00, exemplary damages of P10,000.00 attorneys
fees of P10,000.00 plus P500.00 per court appearance, and costs of suit.
In seeking the dismissal of the complaint, the [respondents] countered that they are
the owners of the property in question being the legal heirs of Nieves Manzano
Who purchased the same from the [petitioner] for value and in good faith, as shown
by the deeds of sale which contain the true agreements between the parties therein;
that except for the [petitioners] bare allegations, she failed to show any proof that the
transaction she entered into with her sister was a loan and not a sale.
By way of special and affirmative defense, the [respondents] argued that what the
parties to the [sale] agreed upon was to resell the property to the [petitioner] after the
payment of the loan with the Rural Bank. But since the [respondents] felt that the
property is the only memory left by their predecessor-in-interest, they politely
informed the [petitioner] of their refusal to sell the same. The [respondents] also
argued that the [petitioner] is now estopped from questioning their ownership after
seven (7) years from the consummation of the sale.
As a proximate result of the filing of this alleged baseless and malicious suit, the
[respondents] prayed as counterclaim the award of moral damages in the amount of
P10,000.00 each, exemplary damages in an amount as may be warranted by the
evidence on record, attorneys fees of P10,000.00 plus P500.00 per appearance in
court and costs of suit.
In ruling for the [petitioner], the court a quo considered the following:
First, the properties in question after [they have] been transferred to Nieves Manzano,
the same were mortgaged in favor of the Rural Bank of Infante, Inc. (Exh. A) to
secure payment of the loan extended to Macario Perez.
Second, the documents covering said properties which were given to the bank as
collateral of said loan, upon payment and [release] to the [private respondents], were
returned to [petitioner] by Florencio Perez, one of the [private respondents].
[These] uncontroverted facts [are] clear recognition [by private respondents] that
[petitioner] is the owner of the properties in question.
xxx xxx
xxx
Third, [respondents] pretense of ownership of the properties in question is belied by
their failure to present payment of real estate taxes [for] said properties, and it is on
[record] that [petitioner] has been paying the real estate taxes [on] the same (Exh. T,
V, V-1, V-2 & V-3).
xxx xxx
xxx

Fourth, [respondents] confirmed the fact that [petitioner] went to the house in
question and hacked the stairs. According to [petitioner] she did it for failure of the
[respondents] to return and vacate the premises. [Respondents] did not file any action
against her.
This is a clear indication also that they (respondents) recognized [petitioner] as owner
of said properties.
xxx xxx
xxx
Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and the
same was sent to her (Exh. F & G).
xxx xxx
xxx
Sixth, upon request of the [petitioner] to return said properties to her, [respondents]
did promise and prepare an Extra Judicial Partition with Sale over said properties in
question, however the same did not materialize. The other heirs of Nieves Manzano
did not sign.
xxx xxx
xxx
Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of the properties
in question is P1.00 and other things of value. [Petitioner] denies she has received any
consideration for the transfer of said properties, and the [respondents] have not presented
evidence to belie her testimony.
[6]

Ruling of the Court of Appeals

The Court of Appeals was not convinced by petitioners claim that there was a supposed oral
agreement of commodatum over the disputed house and lot. Neither was it persuaded by her
allegation that respondents predecessor-in-interest had given no consideration for the sale of the
property in the latters favor. It explained as follows:

To begin with, if the plaintiff-appellee remained as the rightful owner of the subject
property, she would not have agreed to reacquire one-half thereof for a consideration
of P10,000.00 (Exhibit U-1). This is especially true if we are to accept her assertion
that Nieves Manzano did not purchase the property for value. More importantly, if the
agreement was to merely use plaintiffs property as collateral in a mortgage loan, it
was not explained why physical possession of the house and lot had to be with the
supposed vendee and her family who even built a pigpen on the lot (p. 6, TSN, June
11, 1990). A mere execution of the document transferring title in the latters name
would suffice for the purpose.
The alleged failure of the defendants-appellants to present evidence of payment of
real estate taxes cannot prejudice their cause. Realty tax payment of property is not
conclusive evidence of ownership (Director of Lands vs. Intermediate Appellate
Court, 195 SCRA 38). Tax receipts only become strong evidence of ownership when

accompanied by proof of actual possession of the property (Tabuena vs. Court of

Appeals, 196 SCRA 650).
In this case, plaintiff-appell[ee] was not in possession of the subject property. The
defendant-appellants were the ones in actual occupation of the house and lot which as
aforestated was unnecessary if the real agreement was merely to lend the property to
be used as collateral. Moreover, the plaintiff-appellee began paying her taxes only in
1986 after the instant complaint ha[d] been instituted (Exhibits V, V-1, V-3 and
T), and are, therefore, self-serving.
Significantly, while plaintiff-appellee was still the owner of the subject property in
1979 (Exhibit I), the Certificate of Tax Declaration issued by the Office of the
Municipal Treasurer on 8 August 1990 upon the request of the plaintiff-appellee
herself (Exhibit W) named Nieves Manzano as the owner and possessor of the
property in question. Moreover, Tax Declaration No. 9589 in the name of Nieves
Manzano (Exhibits D and D-1) indicates that the transfer of the subject property
was based on the Absolute Sale executed before Notary Public Alfonso Sanvictores,
duly recorded in his notarial book as Document No. 3157, Page 157, Book No. II. Tax
Declaration No[s]. 9633 (Exhibit H), 1994 (Exhibit P), 1993 (Exhibit Q) are all
in the name of Nieves Manzano.
There is always the presumption that a written contract [is] for a valuable
consideration (Section 5 (r), Rule 131 of the Rules of Court; Gamaitan vs. Court of
Appeals, 200 SCRA 37). The execution of a deed purporting to convey ownership of
a realty is in itself prima facie evidence of the existence of a valuable consideration
and x x x the party alleging lack of consideration has the burden of proving such
allegation (Caballero, et al. vs. Caballero, et al., C.A. 45 O.G. 2536).
The consideration [for] the questioned [sale] is not the One (P1.00) Peso alone but
also the other valuable considerations. Assuming that such consideration is
suspiciously insufficient, this circumstance alone, is not sufficient to invalidate the
sale. The inadequacy of the monetary consideration does not render a conveyance
null and void, for the vendors liberality may be a sufficient cause for a valid contract
(Ong vs. Ong, 139 SCRA 133).
[7]

Hence, this Petition.

[8]

Issues
Petitioner submits the following grounds in support of her cause:

[9]

1. The Court of Appeals erred in failing to consider that:

A) The introduction of petitioners evidence is proper under the parol evidence rule.
B) The rules on admission by silence apply in the case at bar.

C) Petitioner is entitled to the reliefs prayed for.

2. The Court of Appeals erred in reversing the decision of the trial court whose factual findings
are entitled to great respect since it was able to observe and evaluate the demeanor of the
witnesses.
[10]

In sum, the main issue is whether the agreement between the parties was a commodatum or
an absolute sale.
The Courts Ruling
The Petition has no merit.
Main Issue: Sale or Commodatum
Obviously, the issue in this case is enveloped by conflict in factual perception, which is
ordinarily not reviewable in a petition under Rule 45. But the Court is constrained to resolve it,
because the factual findings of the Court of Appeals are contrary to those of the trial court.
[11]

Preliminarily, petitioner contends that the CA erred in rejecting the introduction of her parol
evidence. A reading of the assailed Decision shows, however, that an elaborate discussion of the
parol evidence rule and its exceptions was merely given as a preface by the appellate
court. Nowhere therein did it consider petitioners evidence as improper under the said rule. On
the contrary, it considered and weighed each and every piece thereof. Nonetheless, it was not
persuaded, as explained in the multitude of reasons explicitly stated in its Decision.
This Court finds no cogent reason to disturb the findings and conclusions of the Court of
Appeals. Upon close examination of the records, we find that petitioner has failed to discharge
her burden of proving her case by preponderance of evidence. This concept refers to evidence
that has greater weight or is more convincing than that which is offered in opposition; at bottom,
it means probability of truth.
[12]

In the case at bar, petitioner has presented no convincing proof of her continued ownership
of the subject property. In addition to her own oral testimony, she submitted proof of payment of
real property taxes. But that payment, which was made only after her Complaint had already
been lodged before the trial court, cannot be considered in her favor for being self-serving, as
aptly explained by the CA. Neither can we give weight to her allegation that respondents
possession of the subject property was merely by virtue of her tolerance. Bare allegations,
unsubstantiated by evidence, are not equivalent to proof under our Rules.
[13]

On the other hand, respondents presented two Deeds of Sale, which petitioner executed in
favor of the formers predecessor-in-interest. Both Deeds for the residential lot and for the
house erected thereon were each in consideration of P1.00 plus other valuable. Having been
notarized, they are presumed to have been duly executed. Also, issued in favor of respondents
predecessor-in-interest the day after the sale was Tax Declaration No. 9589, which covered the
property.

The facts alleged by petitioner in her favor are the following:

(1) she inherited the subject house and lot from her parents, with her siblings waiving in her
favor their claim over the same; (2) the property was mortgaged to secure a loan of P30,000
taken in the names of Nieves Manzano Perez and Respondent Miguel Perez; (3) upon full
payment of the loan, the documents pertaining to the house and lot were returned by Respondent
Florencio Perez to petitioner; (4) three of the respondents were signatories to a document
transferring one half of the property to Emilia Manzano in consideration of the sum of ten
thousand pesos, although the transfer did not materialize because of the refusal of the other
respondents to sign the document; and (5) petitioner hacked the stairs of the subject house, yet no
case was filed against her.
These matters are not, however, convincing indicators of petitioners ownership of the house
and lot. On the contrary, they even support the claim of respondents. Indeed, how could one of
them obtained a mortgage over the property, without having dominion over it? Why would they
execute a reconveyance of one half of it in favor of petitioner? Why would the latter have to pay
P10,000 for that portion if, as she claims, she owns the whole?
Pitted against respondents evidence, that of petitioner awfully pales. Oral testimony cannot,
as a rule, prevail over a written agreement of the parties. In order to contradict the facts
contained in a notarial document, such as the two Kasulatan ng Bilihang Tuluyan in this case,
as well as the presumption of regularity in the execution thereof, there must be clear and
convincing evidence that is more than merely preponderant. Here petitioner has failed to come
up with even a preponderance of evidence to prove her claim.
[14]

[15]

Courts are not blessed with the ability to read what goes on in the minds of people. That is
why parties to a case are given all the opportunity to present evidence to help the courts decide
on who are telling the truth and who are lying, who are entitled to their claim and who are
not. The Supreme Court cannot depart from these guidelines and decide on the basis of
compassion alone because, aside from being contrary to the rule of law and our judicial system,
this course of action would ultimately lead to anarchy.
We reiterate, the evidence offered by petitioner to prove her claim is sadly
lacking. Jurisprudence on the subject matter, when applied thereto, points to the existence of a
sale, not a commodatum over the subject house and lot.
WHEREFORE, the Petition is
AFFIRMED. Costs against petitioner.

hereby

DENIED

and

the

assailed

Decision

Melo, (Chairman), Vitug, and Gonzaga-Reyes, JJ., concur.

Sandoval-Gutierrez, J., on leave.

[1]

Rollo, pp. 74-88.

Seventeenth Division; penned by Justice Oscar M. Herrera (Division chairman) and concurred in by Justices
Salome A. Montoya and Eduardo G. Montenegro (members).
[2]

[3]

CA rollo, pp. 78-79; written by Judge Venancio M. Tarriela, Regional Trial Court of Siniloan, Laguna, Branch 33.

[4]

Ibid., pp. 98-99.

[5]

Rollo, p. 91.

[6]

Assailed Decision, pp. 2-5; rollo, pp. 75-78.

[7]

Ibid., pp. 11-13.

To eradicate its backlog of old cases, the court on February 27, 2001 resolved to redistribute long-pending cases to
justices who had no backlog, and who were thus tasked to prioritize them. Consequently, this was raffled and
assigned to the undersigned ponente for study and report.
[8]

[9]

[10]

Rollo, pp. 20-71. The Petition was signed by Atty. Mario E. Ongkiko of Ongkiko & Dizon Law Offices.
Ibid., pp. 30-31.

Manila Electric Co. v. CA, GR Nos. 108301 & 132539, July 11, 2001; Litonjua v. CA, 286 SCRA 136, February
10, 1998; Gaw v. IAC, 220 SCRA 4015 March 24, 1993.
[11]

[12]

Sison v. CA, 286 SCRA 495, February 24, 1998.

Philippine National Bank v. CA, 266 SCRA 136, January 6, 1997; Martinez v. National Labor Relations
Commission, 272 SCRA 793, May 29, 1997.
[13]

Castro v. Court of Appeals, 169 SCRA 383, January 26, 1989; Rebuldela v. IAC, 155 SCRA 520, November 11,
1987; De Leon v. Court of Appeals, 205 SCRA 612, January 30, 1992.
[14]

[15]

Calahat v. IAC, 241 SCRA 356, February 15, 1995; Jison v. CA, 286 SCRA 495, February 24, 1998.

SECOND DIVISION

[G.R. No. 115324. February 19, 2003]

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

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

[2]

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

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella

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

Subsequently, private respondent learned that Sterela was no longer holding office
in the address previously given to him. Alarmed, he and his wife went to the Bank to
verify if their money was still intact. The bank manager referred them to Mr. Rufo
Atienza, the assistant manager, who informed them that part of the money in Savings

Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00
remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by
Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account
No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized
the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account,
Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover
payment thereof, Doronilla issued three postdated checks, all of which were
dishonored. Atienza also said that Doronilla could assign or withdraw the money in
Savings Account No. 10-1567 because he was the sole proprietor of Sterela.
[5]

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

Private respondent referred the matter to a lawyer, who made a written demand
upon Doronilla for the return of his clients money. Doronilla issued another check
for P212,000.00 in private respondents favor but the check was again dishonored for
insufficiency of funds.
[7]

Private respondent instituted an action for recovery of sum of money in the Regional
Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and
petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal
actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez
passed away on March 16, 1985 while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case
No. 44485, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants

Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay
plaintiff Franklin Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at
the legal rate from the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary
damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.
[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision
dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC. It
[9]

likewise denied with finality petitioners motion for reconsideration in its Resolution
dated May 5, 1994.
[10]

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

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE

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

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT

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

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE

RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE
JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE

CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745,
UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED
BY AN EMPLOYEE IS APPLICABLE;
V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE

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

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

[13]

submit their respective memoranda. Petitioner filed its memorandum on April 16, 2001
while private respondent submitted his memorandum on March 22, 2001.
[14]

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

[16]

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

[18]

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

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

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

[22]

He likewise asserts that the trial court did not err in finding that petitioner, Atienzas
employer, is liable for the return of his money. He insists that Atienza, petitioners
assistant manager, connived with Doronilla in defrauding private respondent since it

was Atienza who facilitated the opening of Sterelas current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as
well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.
[23]

There is no merit in the petition.

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

[25]

[26]

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

By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in
which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there
are some instances where acommodatum may have for its object a consumable
thing. Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract
is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not
a mutuum.

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

[28]

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

Doronillas attempts to return to private respondent the amount of P200,000.00

which the latter deposited in Sterelas account together with an additional P12,000.00,
allegedly representing interest on the mutuum, did not convert the transaction from
a commodatum into a mutuum because such was not the intent of the parties and
because the additional P12,000.00 corresponds to the fruits of the lending of
the P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee
in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was
only proper for Doronilla to remit to private respondent the interest accruing to the
latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable
for the return of private respondents money because it was not privy to the transaction
between Doronilla and private respondent. The nature of said transaction, that is,
whether it is a mutuum or a commodatum, has no bearing on the question of petitioners
liability for the return of private respondents money because the factual circumstances
of the case clearly show that petitioner, through its employee Mr. Atienza, was partly
responsible for the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives
on behalf of Sterela for Savings Account No. 10-1567 expressly states that

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

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza,

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

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

whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had
given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been
presented. It is an accepted practice that whenever a withdrawal is made in a savings
deposit, the bank requires the presentation of the passbook. In this case, such
recognized practice was dispensed with. The transfer from the savings account to the
current account was without the submission of the passbook which Atienza had given
to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela because the original
passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly
had a hand in the execution of this certification, was aware that the contents of the
same are not true. He knew that the passbook was in the hands of Mrs. Vives for he
was the one who gave it to her. Besides, as assistant manager of the branch and the
bank official servicing the savings and current accounts in question, he also was aware
that the original passbook was never surrendered. He was also cognizant that Estrella
Dumagpi was not among those authorized to withdraw so her certification had no
effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate
that Atienzas active participation in the perpetration of the fraud and deception that
caused the loss. The records indicate that this account was opened three days later
after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that
Atienza was mindful and posted regarding the opening of the current account
considering that Doronilla was all the while in coordination with him. That it was
he who facilitated the approval of the authority to debit the savings account to cover
any overdrawings in the current account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of
this case. x x x.
[31]

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

[33]

There is no dispute that Atienza was an employee of petitioner. Furthermore,

petitioner did not deny that Atienza was acting within the scope of his authority as
Assistant Branch Manager when he assisted Doronilla in withdrawing funds from

Sterelas Savings Account No. 10-1567, in which account private respondents money
was deposited, and in transferring the money withdrawn to Sterelas Current Account
with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were
obviously done in furtherance of petitioners interests even though in the process,
Atienza violated some of petitioners rules such as those stipulated in its savings
account passbook. It was established that the transfer of funds from Sterelas savings
account to its current account could not have been accomplished by Doronilla without
the invaluable assistance of Atienza, and that it was their connivance which was the
cause of private respondents loss.
[34]

[35]

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

[1]

Justice Asaali S. Isnani, Ponente, with Justices Rodolfo A. Nocon, Presiding Justice, and Antonio M.
Martinez, concurring.

[2]

Rollo, pp. 54-55.

[3]

Id. at 37.

[4]

Ibid.

[5]

Id. at 37-38.

[6]

Id. at 38.

[7]

Id.

[8]

Id. at 63.

[9]

Id. at 35-47.

[10]

Id. at 54-55.

[11]

Id. at 18-19.

[12]

Id. at 148, 181.

[13]

Id. at 176, 199.

[14]

Id. at 227.

[15]

Id. at 21.

[16]

Id. at 22.

[17]

Id. at 24-27.

[18]

Id. at 23.

[19]

Id. at 28.

[20]

Rollo, Petitioners Memorandum, pp. 13-14.

[21]

Id. at 11-12.

[22]

Rollo, p. 75; Private respondents Memorandum, pp. 8-9.

[23]

Id. at 75-77; Id. at 12-16.

[24]

Flores v. Uy, G.R. No. 121492, October 26, 2001; Lim v. People, G.R. No. 143231, October 26, 2001.

[25]

Section 1, Rule 45, Revised Rules of Civil Procedure.

[26]

Baas, Jr. v. Court of Appeals, 325 SCRA 259 (2000); Philippine National Construction Corporation v.
Mars Construction Enterprises, Inc., 325 SCRA 624 (2000).

[27]

Tanguilig v. Court of Appeals, 266 SCRA 78, 83-84 (1997), citing Kasilag v. Rodriguez, 69 Phil. 217;
17A Am Jur 2d 27 Contracts, 5, citing Wallace Bank & Trust Co. v. First National Bank, 40 Idaho
712, 237 P 284, 50 ALR 316.

[28]

Tanguilig v. Court of Appeals, supra, p. 84.

[29]

Rollo, pp. 40-41, 60.

[30]

Exhibit B, Folder of Exhibits, p. 3, emphasis supplied.

[31]

Rollo, pp. 43-47, citing the Decision of the Regional Trial Court, pp. 5-8.

[32]

Castilex Industrial Corporation v. Vasquez, Jr., 321 SCRA 393 (1999).

[33]

18B Am Jur 2d, p. 947, Corporations 2125, citing Pittsburgh, C.C. & S.L.R. Co. v. Sullivan, 40 NE
138.

[34]

See note 31.

[35]

Exhibit B, Folder of Exhibits, p. 3.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28,
1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68,
plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount
of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used
as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by
Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived
in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc.
executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land
site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in
the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and
China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to
availability of funds, and as the construction of the factory buildings progresses, to be certified to by
an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however,
evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC,
requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers,
Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.)
sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for
P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be

substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares
in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the
members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the
aspects of this approved loan ... with special reference as to the advisability of financing this
particular project based on present conditions obtaining in the operations of jute mills, and to submit
his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as cosigner for the loan, and asked that the necessary documents be prepared in accordance with the
terms and conditions specified in Resolution No. 145. In connection with the reexamination of the
project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named
their respective committees of engineers and technical men to meet with each other and undertake
the necessary studies, although in appointing its own committee Saura, Inc. made the observation
that the same "should not be taken as an acquiescence on (its) part to novate, or accept new
conditions to, the agreement already) entered into," referring to its acceptance of the terms and
conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of
mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on
June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to
reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under
Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s.,
authorizing the re-examination of all the various aspects of the loan granted the Saura Import &
Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks
in Davao, with special reference as to the advisability of financing this particular project based on
present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura
and after extensive discussion on the subject the Board, upon recommendation of the Chairman,
RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to
P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to
time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution
No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for
China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the
loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter
dated July 2 requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted.
The request was denied by RFC, which added in its letter-reply that it was "constrained to consider
as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd.,
expressing their desire to consider the loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that
China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC
releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount
of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes
jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw
materials, the Department of Agriculture and Natural Resources shall certify to the
following:

1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for
the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22,
1954, wherein it was explained that the certification by the Department of Agriculture and Natural
Resources was required "as the intention of the original approval (of the loan) is to develop the
manufacture of sacks on the basis of locally available raw materials." This point is important, and
sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he
was building in Davao was for the manufacture of bags from local raw materials. The cover page of
its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao
Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate
a Kenafmill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies;
out of 100% local raw materials, principal kenaf." The explanatory note on page 1 of the same
brochure states that, the venture "is the first serious attempt in this country to use 100% locally
grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao
where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first
place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture
and Natural Resources as to the availability of local raw materials to provide adequately for the
requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of
January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry
"kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting
"assurances (from RFC) that my company and associates will be able to bring in sufficient jute
materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of
the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equipment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the opening of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding
the release of your loan under consideration of P500,000. As stated
in our letter of December 22, 1954, the releases of the loan, if
revived, are proposed to be made from time to time, subject to
availability of funds towards the end that the sack factory shall be
placed in actual operating status. We shall be able to act on your

request for revised purpose and manner of releases upon reappraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture
and Natural Resources certify that the raw materials needed are
available in the immediate vicinity and that there is prospect of
increased production thereof to provide adequately the requirements
of the factory, we wish to reiterate that the basis of the original
approval is to develop the manufacture of sacks on the basis of the
locally available raw materials. Your statement that you will have to
rely on the importation of jute and your request that we give you
assurance that your company will be able to bring in sufficient jute
materials as may be necessary for the operation of your factory,
would not be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed
the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of
Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage
contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and
Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to
pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay
the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request
of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as
predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan
applied for and approved, thereby preventing the plaintiff from completing or paying contractual
commitments it had entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between
the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had
been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there
was, the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the
Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of
P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short of resolving the basic claim that the defendant
failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that
the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no
serious dispute about this. It was in line with such assumption that when RFC, by Resolution No.
9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it
imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and (2) that there is prospect of
increased production thereof to provide adequately for the requirements of the factory." The
imposition of those conditions was by no means a deviation from the terms of the agreement, but
rather a step in its implementation. There was nothing in said conditions that contradicted the terms
laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of

the loan shall be utilizedexclusively for the following purposes: for construction of factory building
P250,000.00; for payment of the balance of purchase price of machinery and equipment
P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet
the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute
"will not be able in sufficient quantity this year or probably next year," and asking that out of the loan
agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation
from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as
it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had
been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously
was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan
be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on
June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance what
Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It is a concept that
derives from the principle that since mutual agreement can create a contract, mutual disagreement
by the parties can cause its extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any
alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its
request for cancellation of the mortgage carried no reservation of whatever rights it believed it might
have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan
to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years
after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action
for damages.All these circumstances demonstrate beyond doubt that the said agreement had been
extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other issues
raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs
against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
Footnotes
1 8 Manresa, p. 294.
2 2 Castan, p. 560.

SECOND DIVISION

[G.R. No. 133632. February 15, 2002]

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF

APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION,respondents.
DECISION
QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court
of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The
appellate court affirmed the judgment of the Regional Trial Court of Pasig City, Branch
151, in (a) Civil Case No. 11831, for foreclosure of mortgage by petitioner BPI
Investment Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua, consolidated with
(b) Civil Case No. 52093, for damages with prayer for the issuance of a writ of
preliminary injunction by the private respondents against said petitioner.
[1]

The trial court had held that private respondents were not in default in the payment
of their monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC
was premature and made in bad faith. It awarded private respondents the amount
of P300,000 for moral damages, P50,000 for exemplary damages, and P50,000 for
attorneys fees and expenses for litigation. It likewise dismissed the foreclosure suit for
being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC,
for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said
house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold
the house and lot to private respondents ALS and Antonio Litonjua for P850,000. They
paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with
AIDC. The latter, however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of P500,000 to be applied to Roas
debt and secured by the same property, at an interest rate of 20% per annum and
service fee of 1% per annum on the outstanding principal balance payable within ten
years in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21%
per annum per day from the date the amortization became due and payable.

Consequently, in March 1981, private respondents executed a mortgage deed

containing the above stipulations with the provision that payment of the monthly
amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC
the sum of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in
turn, was liquidated when BPIIC applied thereto the proceeds of private respondents
loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents
on the ground that they failed to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five
Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was
published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC.
They alleged, among others, that they were not in arrears in their payment, but in fact
made an overpayment as of June 30, 1984. They maintained that they should not be
made to pay amortization before the actual release of the P500,000 loan in August and
September 1982. Further, out of the P500,000 loan, only the total amount
of P464,351.77 was released to private respondents. Hence, applying the effects of
legal compensation, the balance of P35,648.23 should be applied to the initial monthly
amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831
and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and

Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77, with interest at 20% plus service charge of
1% per annum, payable on equal monthly and successive amortizations at P9,283.83
for ten (10) years or one hundred twenty (120) months. The amortization schedule
attached as Annex A to the Deed of Mortgage is correspondingly reformed as
aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when
BPI caused their publication in a newspaper of general circulation as defaulting
debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.

Costs against BPI.

SO ORDERED.
[2]

Both parties appealed to the Court of Appeals. However, private respondents

appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the
dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby

AFFIRMED in toto.
SO ORDERED.
[3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only
upon the delivery of the object of the contract. The contract of loan between BPIIC and
ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC
released the purported balance of the P500,000 loan after deducting therefrom the
value of Roas indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the stipulations in
the contract. This, despite the express agreement of the parties that payment shall
commence on May 1, 1981. From October 1982 to June 1984, the total amortization
due was only P194,960.43. Evidence showed that private respondents had an
overpayment, because as of June 1984, they already paid a total amount
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private respondents
delinquency in the payment of their loan. This fact constituted sufficient ground for
moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence
this petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN
THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS,
125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN
IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of Appeals erred in ruling that
because a simple loan is perfected upon the delivery of the object of the contract, the
loan contract in this case was perfected only on September 13, 1982. Petitioner claims
that a contract of loan is a consensual contract, and a loan contract is perfected at the
time the contract of mortgage is executed conformably with our ruling in Bonnevie v.
Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected
on March 31, 1981, the date when the mortgage deed was executed, hence, the
amortization and interests on the loan should be computed from said date.

Petitioner also argues that while the documents showed that the loan was released
only on August 1982, the loan was actually released on March 31, 1981, when BPIIC
issued a cancellation of mortgage of Frank Roas loan. This finds support in the
registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in favor of
ALS, transferring the title of the property to ALS, and ALS executing the Mortgage Deed
in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan
should be attributed to private respondents. As BPIIC only agreed to extend
a P500,000 loan, private respondents were required to reduce Frank Roas loan below
said amount. According to petitioner, private respondents were only able to do so in
August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil
Code, a simple loan is perfected upon the delivery of the object of the contract, hence
a real contract. In this case, even though the loan contract was signed on March 31,
1981, it was perfected only on September 13, 1982, when the full loan was released to
private respondents. They submit that petitioner misread Bonnevie. To give meaning to
Article 1934, according to private respondents, Bonnevie must be construed to mean
that the contract to extend the loan was perfected onMarch 31, 1981 but the contract of
loan itself was only perfected upon the delivery of the full loan to private respondents
on September 13, 1982.
[4]

Private respondents further maintain that even granting, arguendo, that the loan
contract was perfected on March 31, 1981, and their payment did not start a month
thereafter, still no default took place. According to private respondents, a perfected loan
agreement imposes reciprocal obligations, where the obligation or promise of each
party is the consideration of the other party. In this case, the consideration for BPIIC in
entering into the loan contract is the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. Therefore, private
respondents conclude, they did not incur in delay when they did not commence paying
the monthly amortization on May 1, 1981, as it was only on September 13, 1982 when
petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but
a real contract. It is perfected only upon the delivery of the object of the contract.
Petitioner misappliedBonnevie. The contract in Bonnevie declared by this Court as a
perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is
an accepted promise to deliver something by way of simple loan.
[5]

In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44
SCRA 445, petitioner applied for a loan of P500,000 with respondent bank. The latter
approved the application through a board resolution. Thereafter, the corresponding
mortgage was executed and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner instituted an action for damages.
We recognized in this case, a perfected consensual contract which under normal
circumstances could have made the bank liable for not releasing the loan. However,
since the fault was attributable to petitioner therein, the court did not award it damages.

A perfected consensual contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real contract of loan which
requires the delivery of the object of the contract for its perfection and which gives rise
to obligations only on the part of the borrower.
[6]

In the present case, the loan contract between BPI, on the one hand, and ALS and
Litonjua, on the other, was perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals, private
respondents obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract.
[7]

We also agree with private respondents that a contract of loan involves a reciprocal
obligation, wherein the obligation or promise of each party is the consideration for that
of the other. As averred by private respondents, the promise of BPIIC to extend and
deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly
amortization commencing on May 1, 1981, one month after the supposed release of the
loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if
the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. Only when a party has performed his part of the contract can he
demand that the other party also fulfills his own obligation and if the latter fails, default
sets in. Consequently, petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it complied with its
obligation under the loan contract. Therefore, in computing the amount due as of the
date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting
date is October 13, 1982 and not May 1, 1981.
[8]

[9]

Other points raised by petitioner in connection with the first issue, such as the date
of actual release of the loan and whether private respondents were the cause of the
delay in the release of the loan, are factual. Since petitioner has not shown that the
instant case is one of the exceptions to the basic rule that only questions of law can be
raised in a petition for review under Rule 45 of the Rules of Court, factual matters need
not tarry us now. On these points we are bound by the findings of the appellate and trial
courts.
[10]

On the second issue, petitioner claims that it should not be held liable for moral and
exemplary damages for it did not act maliciously when it initiated the foreclosure
proceedings. It merely exercised its right under the mortgage contract because private
respondents were irregular in their monthly amortization. It invoked our ruling in Social
Security System vs. Court of Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the
Court of Appeals the negligence of the appellant is not so gross as to warrant moral
and temperate damages, except that, said Court reduced those damages by only
P5,000.00 instead of eliminating them. Neither can we agree with the findings of both
the Trial Court and respondent Court that the SSS had acted maliciously or in bad
faith. The SSS was of the belief that it was acting in the legitimate exercise of its right
under the mortgage contract in the face of irregular payments made by private

respondents and placed reliance on the automatic acceleration clause in the contract.
The filing alone of the foreclosure application should not be a ground for an award of
moral damages in the same way that a clearly unfounded civil action is not among the
grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable
for said damages because it insisted on the payment of amortization on the loan even
before it was released. Further, it did not make the corresponding deduction in the
monthly amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private respondents failed to make
timely payment.
But as admitted by private respondents themselves, they were irregular in their
payment of monthly amortization. Conformably with our ruling in SSS, we can not
properly declare BPIIC in bad faith. Consequently, we should rule out the award of
moral and exemplary damages.
[11]

However, in our view, BPIIC was negligent in relying merely on the entries found in
the deed of mortgage, without checking and correspondingly adjusting its records on the
amount actually released to private respondents and the date when it was
released. Such negligence resulted in damage to private respondents, for which an
award of nominal damages should be given in recognition of their rights which were
violated by BPIIC. For this purpose, the amount of P25,000 is sufficient.
[12]

Lastly, as in SSS where we awarded attorneys fees because private respondents

were compelled to litigate, we sustain the award of P50,000 in favor of private
respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and
its resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the
award of damages. The award of moral and exemplary damages in favor of private
respondents is DELETED, but the award to them of attorneys fees in the amount
of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

[1]

While Antonio K. Litonjua was not included in the caption of the petition before this court, apparently, the
intention of petitioner was to include Litonjua as private respondent for he was a party in all
stages of the case both before the Regional Trial Court and the Court of Appeals and it was
clearly indicated in the petition that ALS collectively referred to as ALS Management and
Development Corporation and Antonio K. Litonjua.

[2]

RTC Records, p. 278.

[3]

Rollo, p. 32.

[4]

Art. 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.

[5]

Art. 1934, Civil Code of the Philippines; Monte de Piedad vs. Javier, et al., 36 OG 2176; A. Padilla, Civil
Code of the Philippines Annotated, Vol. VI, pp. 474-475 (1987); E. Paras, Civil Code of the
Philippines Annotated, Vol. V, p. 885 (1995).

[6]

A. Tolentino, Civil Code of the Philippines, V. 5, p. 443 (1992).

[7]

Supra, note 3 at 30.

[8]

Rose Packing Co. Inc. vs. Court of Appeals, No. L-33084, 167 SCRA 309, 318-319 (1988).

[9]

Art. 1169, Civil Code:

xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
[10]

American President Lines, Ltd. vs. Court of Appeals, G.R. No. 110853, 336 SCRA 582, 586 (2000).

[11]

Art. 2234, Civil Code: While the amount of the exemplary damages need not be proved, the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded. In case
liquidated damages have been agreed upon, although no proof of loss is necessary in order that
such liquidated damages may be recovered, nevertheless, before the court may consider the
question of granting exemplary in addition to the liquidated damages, the plaintiff must show that
he would be entitled to moral, temperate or compensatory damages were it not for the stipulation
for liquidated damages.

[12]

Art. 2221, Civil Code: Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.

SECOND DIVISION

[G.R. No. 118375. October 3, 2003]

CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and

AURORA QUEAO, respondents.
DECISION
TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision
of the Sixteenth Division of the respondent Court of Appeals promulgated on 21
December 1994 , which affirmed in toto the decision handed down by the Regional Trial
Court (RTC) of Pasay City.
[1]

[2]

The case arose when on 11 August 1981, private respondent Aurora Queao
(Queao) filed a complaint before the Pasay City RTC for cancellation of a Real Estate
Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC
rendered a decision, declaring the questioned Real Estate Mortgage void, which
Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC
decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand
Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to
Queao Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of
Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the
Corporate Resources Financing Corporation. She also issued her own Filmanbank
Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the
amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks
were to constitute the loan granted by Naguiat to Queao.
[3]

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owners duplicates of
the titles covering the mortgaged properties. On the same day, the mortgage deed was
notarized, and Queao issued to Naguiat a promissory note for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per annum,
payable on 11 September 1980. Queao also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.
[4]

[5]

Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On the following day, 12 September 1980, Queao requested

Security Bank to stop payment of her postdated check, but the bank rejected the
request pursuant to its policy not to honor such requests if the check is drawn against
insufficient funds.
[6]

On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding

settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt
(Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that she did not
receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt,
who purportedly was Naguiats agent.
[7]

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of
Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three
days before the scheduled sale, Queao filed the case before the Pasay City RTC,
seeking the annulment of the mortgage deed. The trial court eventually stopped the
auction sale.
[8]

[9]

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners
duplicates of her titles to the mortgaged lots. Naguiat appealed the decision before the
Court of Appeals, making no less than eleven assignments of error. The Court of
Appeals promulgated the decision now assailed before us that affirmed in toto the RTC
decision. Hence, the present petition.
[10]

Naguiat questions the findings of facts made by the Court of Appeals, especially on
the issue of whether Queao had actually received the loan proceeds which were
supposed to be covered by the two checks Naguiat had issued or indorsed. Naguiat
claims that being a notarial instrument or public document, the mortgage deed enjoys
the presumption that the recitals therein are true. Naguiat also questions the
admissibility of various representations and pronouncements of Ruebenfeldt, invoking
the rule on the non-binding effect of the admissions of third persons.
[11]

The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of law
may be raised as the Supreme Court is not a trier of facts. The resolution of factual
issues is the function of lower courts, whose findings on these matters are received with
respect and are in fact generally binding on the Supreme Court. A question of law
which the Court may pass upon must not involve an examination of the probative value
of the evidence presented by the litigants. There is a question of law in a given case
when the doubt or difference arises as to what the law is on a certain state of facts;
there is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.
[12]

[13]

[14]

[15]

[16]

Surely, there are established exceptions to the rule on the conclusiveness of the
findings of facts of the lower courts. But Naguiats case does not fall under any of the
exceptions. In any event, both the decisions of the appellate and trial courts are
supported by the evidence on record and the applicable laws.
[17]

Against the common finding of the courts below, Naguiat vigorously insists that
Queao received the loan proceeds. Capitalizing on the status of the mortgage deed as

a public document, she cites the rule that a public document enjoys the presumption of
validity and truthfulness of its contents. The Court of Appeals, however, is correct in
ruling that the presumption of truthfulness of the recitals in a public document was
defeated by the clear and convincing evidence in this case that pointed to the absence
of consideration. This Court has held that the presumption of truthfulness engendered
by notarized documents is rebuttable, yielding as it does to clear and convincing
evidence to the contrary, as in this case.
[18]

[19]

On the other hand, absolutely no evidence was submitted by Naguiat that the
checks she issued or endorsed were actually encashed or deposited. The mere
issuance of the checks did not result in the perfection of the contract of loan. For the
Civil Code provides that the delivery of bills of exchange and mercantile documents
such as checks shall produce the effect of payment only when they have been cashed.
It is only after the checks have produced the effect of payment that the contract of
loan may be deemed perfected. Art. 1934 of the Civil Code provides:
[20]

An accepted promise to deliver something by way of commodatum or

simple loan is binding upon the parties, but the commodatum or simple loan
itself shall not be perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected only
upon the delivery of the object of the contract. In this case, the objects of the contract
are the loan proceeds which Queao would enjoy only upon the encashment of the
checks signed or indorsed by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the corresponding documentary
evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to
Queaos account.
[21]

Naguiat questions the admissibility of the various written representations made by

Ruebenfeldt on the ground that they could not bind her following the res inter alia acta
alteri nocere non debet rule. The Court of Appeals rejected the argument, holding that
since Ruebenfeldt was an authorized representative or agent of Naguiat the situation
falls under a recognized exception to the rule. Still, Naguiat insists that Ruebenfeldt
was not her agent.
[22]

Suffice to say, however, the existence of an agency relationship between Naguiat

and Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court
of Appeals, Ruebenfeldt was not a stranger or an unauthorized person. Naguiat
instructed Ruebenfeldt to withhold from Queao the checks she issued or indorsed to
Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as
agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it
was in connection with that transaction that Queao came to know Naguiat. It was also
Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that
occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a
check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.
[23]

[24]

The Court of Appeals recognized the existence of an agency by estoppel citing

Article 1873 of the Civil Code. Apparently, it considered that at the very least, as a
consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaos impression. In that situation, the rule is clear. One who clothes
another with apparent authority as his agent, and holds him out to the public as such,
cannot be permitted to deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person in good faith, and in the
honest belief that he is what he appears to be. The Court of Appeals is correct in
invoking the said rule on agency by estoppel.
[25]

[26]

[27]

More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to
Queao were never encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that
the lender did not remit and the borrower did not receive the proceeds of the loan. That
being the case, it follows that the mortgage which is supposed to secure the loan is null
and void. The consideration of the mortgage contract is the same as that of the principal
contract from which it receives life, and without which it cannot exist as an independent
contract. A mortgage contract being a mere accessory contract, its validity would
depend on the validity of the loan secured by it.
[28]

[29]

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs
against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

[1]

Justice Corona Ibay-Somera wrote the ponencia, with Justices Asaali S. Isnani and Celia Lipana-Reyes,
concurring.

[2]

Promulgated on 8 March 1991 by Judge Manuel P. Dumatol.

[3]

According to Naguiat, she further delivered to Queao the amount of Ten Thousand Pesos
(P10,000.00), thus rounding off the amount she allegedly gave to Queao to Two Hundred
Thousand Pesos (See Petition for Certiorari, p. 3). Queao, however, claims that the amount of
Ten Thousand (P10,000.00) was deducted as the stipulated 5% interest. Records, p. 342.

[4]

Transfer Certificates of Title Nos. 28631 and 28632, issued by the Register of Deeds for District IV
(Pasay City) of Metro Manila, with a total area of Six Hundred Thirty One (631) Square
Meters. Rollo, p. 97.

[5]

Rollo, p. 98. According to Queao, the true agreement between the parties was an interest rate of 5%
per month.

[6]

Id., p. 99. Queao alleged that she made the stop payment request because she was withdrawing her
loan application as she failed to receive the loan proceeds which were supposed to be covered
by Naguiats checks that were turned not to her but to Ruby Ruebenfeldt, who purportedly was an
agent of Naguiat. Queao claimed further that Naguiat demanded additional collaterals and

instructed Ruebenfeldt to surrender the checks to Queao only upon receipt of the additional
security.
[7]

Id., p. 99. Queao claimed further that Naguiat demanded additional collaterals and instructed
Ruebenfeldt to surrender the checks to Queao only upon receipt of the additional security.

[8]

Docketed as Civil Case No. 9330-P.

[9]

Rollo, p. 5.

[10]

Id., p. 37.

[11]

Sec. 28, Rule 130. See Rule 130, Sec. 28. Section 28. Admission by third party. The rights of a
party cannot be prejudiced by an act, declaration, or omission of another, except as hereinafter
provided.

[12]

Sec. 1, Rule 45 states: A party desiring to appeal by certiorari from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified petition for review
on certiorari. The petition shall raise only questions of law which must be distinctly set forth. See
also Metro Transit Organization Inc. v. CA, G.R. No. 142133, 19 November 2002.

[13]

W-Red Construction v. CA, G.R. No. 122648, 17 August 2000.

[14]

Engreso v. De La Cruz, G.R. No. 148727, 9 April 2003.

[15]

Western Shipyard Services, Inc. v. CA, G.R. No. 110340, 28 May 2001.

[16]

Bagunu v. Piedad, G.R. No. 140975, 8 December 2000.

[17]

Exceptional circumstances that would compel the Supreme Court to review the findings of fact of the
lower courts are: (1) when the conclusion is a finding grounded entirely on speculations, surmises
or conjectures; (2) when the inference made is manifestly absurd, mistaken or impossible; (3)
when there is grave abuse of discretion in the appreciation of facts; (4) when the judgment is
premised on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (8) when the findings of fact of the Court of
Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific
evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or
where the findings of fact of the Court of Appeals are premised on absence of evidence but are
contradicted by the evidence of record. See Sacay v. Sandiganbayan, 226 Phil. 496, 510 (1986).

[18]

Rollo, p. 43.

[19]

See Gerales v. Court of Appeals, G.R. No. 85909, 218 SCRA 638, 648, 9 February 1993, and Agdeppa
vs. Ibe, G.R. No. 96770, 220 SCRA 584, 594, 30 March 1993.

[20]

Art. 1249, New Civil Code. . . . The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.

[21]

BPI Investment Corporation v. Court of Appeals, G.R. No. 133632, 377 SCRA 117, 124, 15 February
2002. The Court therein clarified the previous ruling in Bonnevie v. Court of Appeals, 210 Phil.
104, 108 (1983) which apparently suggested that a contract of loan was a consensual contract,
by noting that the contract in Bonnevie fell under the first clause of Art. 1934 of the Civil Code, it
being an accepted promise to deliver something by way of simple loan.

[22]

See Sec. 29, Rule 130. Section 29. Admission by co-partner or agent. The act or declaration of a
partner or agent of the party within the scope of his authority and during the existence of the
partnership or agency, may be given in evidence against such party after the partnership or

agency is shown by evidence other than such act or declaration. The same rule applies to the act
or declaration of a joint owner, joint debtor or other person jointly interested with the party.
[23]

Rollo, p. 49.

[24]

Security Bank & Trust Company Check No. 017399, drawn by Ruebenfeldt payable to Naguiat, and
postdated to November 15, 1980. Naguiat accepted the check, allegedly because she wanted to
be assured of repayment. However, when Naguiat deposited this new check on 15 November
1980, the same was dishonored for being drawn against a closed account. On account of the
dishonor of Ruebenfeldts check, Naguiat filed a criminal complaint for violation of B.P. Blg. 22
with the City Prosecutorss Office of Caloocan. However, the City Prosecutor dismissed the said
action on the ground that Ruebenfeldts liability was civil and not criminal. See Rollo, p. 5 to 6.

[25]

Rollo, p. 50.

[26]

Art. 1873. If a person specifically informs another or states by public advertisement that he has given a
power of attorney to a third person, the latter thereby becomes a duly authorized agent, in the
former case with respect to the person who received the special information, and in the latter
case with regard to any person.

[27]

Cuison v. Court of Appeals, G.R. No. 88531, 26 October 1993.

[28]

China Banking Corporation v. Lichauco, 46 Phil. 460 (1926).

[29]

Filipinas Marble Corp. v. Intermediate Appellate Court, 226 Phil. 109, 119 (1986).

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 123031 October 12, 1999
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, VICENTE ALEGRE, respondents.
QUISUMBING, J.:
This petition for review on certiorari assails respondent appellate court's Decision, 1 dated December
8, 1995, in CA G.R. CV No. 44085, which affirmed the ruling of the Regional Trial Court of Makati,
Branch 132. The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is hereby rendered ordering defendant [herein petitioner] to
pay plaintiff [herein private respondent]:
(1) the principal sum of P514,390.94 with legal interest thereon
computed from August 6, 1991 until fully paid; and
(2) the costs of suit.
SO ORDERED. 2
Based on the records, the following are the pertinent facts of the case:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money
market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand
(P500,000.00) pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991. The
note for five hundred sixteen thousand, two hundred thirty-eight pesos and sixty-seven centavos
(P516,238.67) covered private respondent's placement plus interest at twenty and a half (20.5%)
percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five hundred
fourteen thousand, three hundred ninety pesos and ninety-four centavos (P514,390.94) in favor of
the private respondent as proceeds of his matured investment plus interest. The CHECK was drawn
from petitioner's current account number 0011-0803-59, maintained with the Bank of the Philippine
Islands (BPI), main branch at Makati City.
On June 17, 1991, private respondent's wife deposited the CHECK with Rizal Commercial Banking
Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that
the "Check (is) Subject of an Investigation." BPI took custody of the CHECK pending an
investigation of several counterfeit checks drawn against CIFC's aforestated checking account. BPI
used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several
occasions, that he be paid in cash. CIFC refused the request, and instead instructed private
respondent to wait for its ongoing bank reconciliation with BPI. Thereafter, private respondent,
through counsel, made a formal demand for the payment of his money market placement. In turn,
CIFC promised to replace the CHECK but required an impossible condition that the original must
first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint 3 for recovery of a sum of money
against the petitioner with the Regional Trial Court of Makati (RTC-Makati), Branch 132.
On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate
civil action 4 for collection of a sum of money with the RTC-Makati, Branch 147. The collection suit
alleged that BPI unlawfully deducted from CIFC's checking account, counterfeit checks amounting to
one million, seven hundred twenty-four thousand, three hundred sixty-four pesos and fifty-eight
1wphi1.nt

centavos (P1,724,364.58). The action included the prayer to collect the amount of the CHECK paid
to Vicente Alegre but dishonored by BPI.
Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC filed a motion for
leave of court to file a third-party complaint against BPI. BPI was impleaded by CIFC to enforce a
right, for contribution and indemnity, with respect to Alegre's claim. CIFC asserted that the CHECK it
issued in favor of Alegre was genuine, valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to dismiss the thirdparty complaint on the ground of pendency of another action with RTC-Makati, Branch 147. Acting
on the motion, the trial court dismissed the third-party complaint on November 4, 1992, after finding
that the third party complaint filed by CIFC against BPI is similar to its ancillary claim against the
bank, filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993, Vito
Arieta, Bank Manager of BPI, testified that the bank, indeed, dishonored the CHECK, retained the
original copy and forwarded only a certified true copy to RCBC. When Arieta was recalled on July
20, 1993, he testified that on July 16, 1993, BPI encashed and deducted the said amount from the
account of CIFC, but the proceeds, as well as the CHECK remained in BPI's custody. The bank's
move was in accordance with the Compromise Agreement 5 it entered with CIFC to end the litigation
in RTC-Makati, Branch 147. The compromise agreement, which was submitted for the approval of
the said court, provided that:
1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of
P1,724,364.58 plus P20,000 litigation expenses as full and final
settlement of all of plaintiff's claims as contained in the Amended
Complaint dated September 10, 1992. The aforementioned amount
shall be credited to plaintiff's current account No. 0011-0803-59
maintained at defendant's Main Branch upon execution of this
Compromise Agreement.
2. Thereupon, defendant shall debit the sum of P514,390.94 from the
aforesaid current account representing payment/discharge of BPI
Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No.
92-515 arising from the alleged dishonor of BPI Check No. 513397,
plaintiff cannot go after the defendant: otherwise stated, the defendant
shall not be liable to the plaintiff. Plaintiff [CIFC] may however set-up the
defense of payment/discharge stipulated in par. 2 above. 6
On July 27, 1993, BPI filed a separate collection suit 7 against Vicente Alegre with the RTC-Makati,
Branch 62. The complaint alleged that Vicente Alegre connived with certain Lina A. Pena and Lita A.
Anda and forged several checks of BPI's client, CIFC. The total amount of counterfeit checks was
P1,724,364.58. BPI prevented the encashment of some checks amounting to two hundred ninety
five thousand, seven hundred seventy-five pesos and seven centavos (P295,775.07). BPI admitted
that the CHECK, payable to Vicente Alegre for P514,390.94, was deducted from BPI's claim, hence,
the balance of the loss incurred by BPI was nine hundred fourteen thousand, one hundred ninetyeight pesos and fifty-seven centavos (P914,198.57), plus costs of suit for twenty thousand
(P20,000.00) pesos. The records are silent on the outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the
decision of the trial court.
Hence this appeal, 8 in which petitioner interposes the following assignments of errors:
1. The Honorable Court of Appeals erred in affirming the finding of the
Honorable Trial Court holding that petitioner was not discharged from
the liability of paying the value of the subject check to private

respondent after BPI has debited the value thereof against

petitioner's current account.
2. The Honorable Court of Appeals erred in applying the provisions of
paragraph 2 of Article 1249 of the Civil Code in the instant case. The
applicable law being the Negotiable Instruments Law.
3. The Honorable Court of Appeals erred in affirming the Honorable
Trial Court's findings that the petitioner was guilty of negligence and
delay in the performance of its obligation to the private respondent.
4. The Honorable Court of Appeals erred in affirming the Honorable
Trial Court's decision ordering petitioner to pay legal interest and the
cost of suit.
5. The Honorable Court of Appeals erred in affirming the Honorable
Trial Court's dismissal of petitioner's third-party complaint against
BPI.
These issues may be synthesized into three:
1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE
APPLIES IN THE PRESENT CASE;
2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY
DISCHARGED; and
3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY
COMPLAINT OF PETITIONER AGAINST BPI BY REASON OF LIS
PENDENS WAS PROPER?
On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law (NIL)
are the pertinent laws to govern its money market transaction with private respondent, and not
paragraph 2 of Article 1249 of the Civil Code. Petitioner stresses that it had already been discharged
from the liability of paying the value of the CHECK due to the following circumstances:
1) There was "ACCEPTANCE" of the subject check by BPI, the
drawee bank, as defined under the Negotiable Instruments Law, and
therefore, BPI, the drawee bank, became primarily liable for the
payment of the check, and consequently, the drawer, herein
petitioner, was discharged from its liability thereon;
2) Moreover, BPI, the drawee bank, has not validly DISHONORED
the subject check; and,
3) The act of BPI, the drawee bank of debiting/deducting the value of the
check from petitioner's account amounted to and/or constituted a
discharge of the drawer's (petitioner's) liability under the
instrument/subject check. 9
Petitioner cites Section 137 of the Negotiable Instruments Law, which states:
Liability of drawee retaining or destroying bill Where a drawee to whom a
bill is delivered for acceptance destroys the same, or refuses within twentyfour hours after such delivery or such other period as the holder may allow, to
return the bill accepted or non-accepted to the Holder, he will be deemed to
have accepted the same.
Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the
payment of the CHECK. Consequently, when BPI offset the value of CHECK against the losses from
the forged checks allegedly committed by the private respondent, the check was deemed paid.
Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly
provides for the medium in the "payment of debts." It provides that:

The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency, which is
legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be held
in abeyance.
Considering the nature of a money market transaction, the above-quoted provision should be
applied in the present controversy. As held in Perez vs. Court of Appeals, 10 a "money market is a
market dealing in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle man or dealer in
open market. In a money market transaction, the investor is a lender who loans his money to a
borrower through a middleman or dealer. 11
In the case at bar, the money market transaction between the petitioner and the private respondent
is in the nature of a loan. The private respondent accepted the CHECK, instead of requiring payment
in money. Yet, when he presented it to RCBC for encashment, as early as June 17, 1991, the same
was dishonored by non-acceptance, with BPI's annotation: "Check (is) subject of an investigation."
These facts were testified to by BPI's manager. Under these circumstances, and after the notice of
dishonor, 12 the holder has an immediate right of recourse against the drawer, 13 and consequently
could immediately file an action for the recovery of the value of the check.
In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is
the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot
constitute valid tender of payment. In the case of Philippine Airlines, Inc. vs. Court of Appeals, 14 this
Court held:
Since a negotiable instrument is only a substitute for money and not money, the delivery
of such an instrument does not, by itself, operate as payment (citation omitted). A check,
whether a manager's check or ordinary check, is not legal tender, and an offer of a check
in payment of a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment
by commercial document is actually realized (Art. 1249, Civil Code, par. 3.) 15
Turning now to the second issue, when the bank deducted the amount of the CHECK from CIFC's
current account, this did not ipso facto operate as a discharge or payment of the instrument.
Although the value of the CHECK was deducted from the funds of CIFC, it was not delivered to the
payee, Vicente Alegre. Instead, BPI offset the amount against the losses it incurred from forgeries of
CIFC checks, allegedly committed by Alegre. The confiscation of the value of the check was agreed
upon by CIFC and BPI. The parties intended to amicably settle the collection suit filed by CIFC with
the RTC-Makati, Branch 147, by entering into a compromise agreement, which reads:
xxx xxx xxx
2. Thereupon, defendant shall debit the sum of P514,390.94 from the
aforesaid current account representing payment/discharge of BPI
Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No.
92-515 arising from the alleged dishonor of BPI Check No. 513397,
plaintiff cannot go after the defendant; otherwise stated, the defendant
shall not be liable to the plaintiff. Plaintiff however (sic) set-up the
defense of payment/discharge stipulated in par. 2
above. 16

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation
or put an end to one already commenced. 17 It is an agreement between two or more persons who,
for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner
which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the
danger of losing. 18 The compromise agreement could not bind a party who did not sign the
compromise agreement nor avail of its benefits. 19 Thus, the stipulations in the compromise
agreement is unenforceable against Vicente Alegre, not a party thereto. His money could not be the
subject of an agreement between CIFC and BPI. Although Alegre's money was in custody of the
bank, the bank's possession of it was not in the concept of an owner. BPI cannot validly appropriate
the money as its own. The codal admonition on this issue is clear:
Art. 1317
No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
A Contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party. 20
BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a
valid proceeding in court. Garnishment is an attachment by means of which the plaintiff seeks to
subject to his claim the property of the defendant in the hands of a third person or money owed to
such third person or a garnishee to the defendant.21 The garnishment procedure must be upon
proper order of RTC-Makati, Branch 62, the court who had jurisdiction over the collection suit filed by
BPI against Alegre. In effect, CIFC has not yet tendered a valid payment of its obligation to the
private respondent. Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the former's obligation and demanding
that the latter accept the same. 22 Tender of payment cannot be presumed by a mere inference from
surrounding circumstances.
With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the
following requisites must concur: (a) identity of parties or at least such as to represent the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded
on the same acts; and (c) the identity in the two cases should be such that the judgment which may
be rendered in one would, regardless of which party is successful, amount to res judicata in the
other. 23
The trial court's ruling as adopted by the respondent court states, thus:
A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International
Finance Corporation vs. Bank of the Philippine Islands now pending before Branch
147 of this Court and the Third Party Complaint in the instant case would readily
show that the parties are not only identical but also the cause of action being
asserted, which is the recovery of the value of BPI Check No. 513397 is the same. In
Civil Case No. 92-1940 and in the Third Party Complaint the rights asserted and
relief prayed for, the reliefs being founded on the facts, are identical.
xxx xxx xxx
WHEREFORE, the motion to dismiss is granted and consequently, the Third Party
Complaint is hereby ordered dismissed on ground of lis pendens. 24
We agree with the observation of the respondent court that, as between the third party claim filed by
the petitioner against BPI in Civil Case No. 92-515 and petitioner's ancillary claim against the bank in
Civil Case No. 92-1940, there is identity of parties as well as identity of rights asserted, and that any
judgment that may be rendered in one case will amount to res judicata in another.
The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff is
adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI
Check No. 513397, plaintiff (CIFC) cannot go after the defendant (BPI); otherwise stated, the

defendant shall not be liable to the plaintiff." 25Clearly, this stipulation expressed that CIFC had
already abandoned any further claim against BPI with respect to the value of BPI Check No. 513397.
To ask this Court to allow BPI to be a party in the case at bar, would amount to res judicata and
would violate terms of the compromise agreement between CIFC and BPI. The general rule is that a
compromise has upon the parties the effect and authority of res judicata, with respect to the matter
definitely stated therein, or which by implication from its terms should be deemed to have been
included therein. 26 This holds true even if the agreement has not been judicially approved. 27
WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CAG.R. CV No. 44085 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Mendoza and Buena, JJ., concur.
Bellosillo, J., on official leave.
Footnotes
1 Rollo, pp. 46-52.
2 Court of Appeals Rollo, p. 65.
3 Vicente Alegre vs. Cebu International Finance, Corporation, Civil Case No. 92-515;
Record, Regional Trial Court, pp. 1-12.
4 Cebu International Finance Corporation vs. Bank of the Philippine Islands, Civil
Case No. 92-1940; Court of Appeals, Rollo pp. 67-77.
5 Rollo, pp. 71-72.
6 Id. at 71.
7 Id. at 100-103; Bank of the Philippine Island, vs. Vicente A. Alegre, Civil Case No.
93-2550.
8 Id. at 7-43.
9 Id. at 143.
10 127 SCRA 636 (1984).
11 Sesbreo vs. Court of Appeals, 240 SCRA 606, 614 (1995).
12 Negotiable Instruments Law, Section 89.
13 Id., Section 151.
14 181 SCRA 557 (1990).
15 Id. at 568.
16 Supra, note 5.
17 Del Rosario vs. Madayag, 247 SCRA 767, 770 (1995).
18 Id., citing David vs. Court of Appeals, 214 SCRA 644, 650 (1992), citing Rovero
vs. Amparo, 91 Phil. 228, 235 (1952); Arcenas vs. Cinco, 74 SCRA 118, 123 (1976).
19 Jag and Haggar Jeans and Sportswear Corp. vs. NLRC, 241 SCRA 635, 642
(1995).
20 Civil Code of the Philippines, Article 1317.
21 Manila Remnant Co., Inc. vs. CA, 231 SCRA 281, 289 (1994).
22 Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, 191
SCRA 411, 419 (1990).
23 Ramos vs. Peralta, 203 SCRA 412, 416-417 (1991); Yu vs. CA, 232 SCRA 594, at
598 (1994).
24 Court of Appeals Rollo, p. 61.
25 Supra, note 5.
1wphi1.nt

26 Del Rosario vs. Madayag, 247 SCRA 767, 771 (1995); citing Nieves vs. Court of
Appeals, 198 SCRA 63, 69 (1991); World Machine Enterprises vs. Intermediate
Appellate Court, 192 SCRA 459, 465 (1990).
27 Id., 771; citing Mayuga vs. Court of Appeals, 154 SCRA 309
(1987) citing Meneses vs. De la Rosa, 77 Phil. 34 (1946); Vda. de Guilas vs. David,
23 SCRA 762 (1968); Cochingyan vs. Cloribel, 76 SCRA 361.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
DECISION
August 12, 1927
G.R. No. 26085
SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants,
vs.
BENITO GONZALEZ SY CHIAM, defendants-appellee.
Araneta and Zaragoza for appellants.
Eusebio Orense for appelle.
Johnson, J.:
PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL
The principal questions presented by this appeal are:
(a) Is the contract in question a pacto de retro or a mortgage?
(b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a
certain amount per month as rent, may such rent render such a contract usurious when the amount
paid as rent, computed upon the purchase price, amounts to a higher rate of interest upon said
amount than that allowed by law?
(c) May the contract in the present case may be modified by parol evidence?
ANTECEDENT FACTS
Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills,
Inc., a piece or parcel of land with the camarin located thereon, situated in the municipality of Tarlac
of the Province of Tarlac for the price of P25,000, promising to pay therefor in three installments. The
first installment of P2,000 was due on or before the 2d day of May, 1921; the second installment of
P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest
was due and payable on or about the 30th day of November, 1922. One of the conditions of that
contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to pay the balance
of said purchase price or any of the installments on the date agreed upon, the property bought would
revert to the original owner.
The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the
record shows upon the due dates. The balance of P15,000 due on said contract of purchase was paid
on or about the 1st day of December, 1922, in the manner which will be explained below. On the date

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

plaintiffs of P17,500 upon the execution and delivery of said contract. Said contracts was dated the
28th day of November, 1922, and is in the words and figures following:
Sepan todos por la presente:
Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de edad,
residentes en el Municipio de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta
Ciudad de Manila, de una parte, y de otra, Benito Gonzalez Sy Chiam, mayor de edad, casado con
Maria Santiago, comerciante y vecinos de esta Ciudad de Manila.
MANIFESTAMOS Y HACEMOS CONSTAR:
Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideracion a la cantidad de
diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra
entera satisfaccion de Don Benito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de
dicho Don Benito Gonzalez Sy Chiam, sus herederos y causahabientes, una finca que, segun el
Certificado de Transferencia de Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de
Tarlac a favor de Luzon Rice Mills Company Limited que al incorporarse se donomino y se denomina
Luzon Rice Mills Inc., y que esta corporacion nos ha transferido en venta absoluta, se describe como
sigue:
Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio de Tarlac.
Linda por el O. y N. con propiedad de Manuel Urquico; por el E. con propiedad de la Manila Railroad
Co.; y por el S. con un camino. Partiendo de un punto marcado 1 en el plano, cuyo punto se halla al N.
41 gds. 17 E.859.42 m. del mojon de localizacion No. 2 de la Oficina de Terrenos en Tarlac; y desde
dicho punto 1 N. 81 gds. 31 O., 77 m. al punto 2; desde este punto N. 4 gds. 22 E.; 54.70 m. al
punto 3; desde este punto S. 86 gds. 17 E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42 E.,
61.48 m. al punto de partida; midiendo una extension superficcial de cuatro mil doscientos diez y seis
metros cuadrados (4,216) mas o menos. Todos los puntos nombrados se hallan marcados en el plano
y sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L. S. de 20 x 20 x 70
centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.: la orientacion seguida es la verdadera,
siendo la declinacion magnetica de 0 gds. 45 E. y la fecha de la medicion, 1. de febrero de 1913.
Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el
dia 1. de diciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido
precio de diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez y Chiam
a retrovendernos la finca arriba descrita; pero si transcurre dicho plazo de cinco aos sin ejercitar el
derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable.
Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba
descrita, sujeto a condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy
Chiam y en su domicilio, era de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes.

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

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

In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature of the
conveyance of the land was pledged instead of sold. In the case of Manlagnit vs. Dy Puico, while
the vendor used to the terms sale and transfer with the right to repurchase, yet in said contract he
described himself as a debtor the purchaser as a creditor and the contract as a mortgage. In the
case of Rodriguez vs. Pamintuan and De Jesus the person who executed the instrument, purporting on
its face to be a deed of sale of certain parcels of land, had merely acted under a power of attorney
from the owner of said land, authorizing him to borrow money in such amount and upon such terms
and conditions as he might deem proper, and to secure payment of the loan by a mortgage. In the
case of Villa vs. Santiago (38 Phil., 157), although a contract purporting to be a deed of sale was
executed, the supposed vendor remained in possession of the land and invested the money he had
obtained from the supposed vendee in making improvements thereon, which fact justified the court in
holding that the transaction was a mere loan and not a sale. In the case of Cuyugan vs. Santos (39
Phil., 970), the purchaser accepted partial payments from the vendor, and such acceptance of partial
payments is absolutely incompatible with the idea of irrevocability of the title of ownership of the
purchaser at the expiration of the term stipulated in the original contract for the exercise of the right
of repurchase.
Referring again to the right of the parties to vary the terms of written contract, we quote from the
dissenting opinion of Chief Justice Cayetano S. Arellano in the case of Government of the Philippine
Islands vs. Philippine Sugar Estates Development Co., which case was appealed to the Supreme Court
of the United States and the contention of the Chief Justice in his dissenting opinion was affirmed and
the decision of the Supreme Court of the Philippine Islands was reversed. (See decision of the
Supreme Court of the United States, June 3, 1918.)1 The Chief Justice said in discussing that
question:
According to article 1282 of the Civil Code, in order to judge of the intention of the contracting parties,
consideration must chiefly be paid to those acts executed by said parties which are contemporary with
and subsequent to the contract. And according to article 1283, however general the terms of a
contract may be, they must not be held to include things and cases different from those with regard to
which the interested parties agreed to contract. The Supreme Court of the Philippine Islands held the
parol evidence was admissible in that case to vary the terms of the contract between the Government
of the Philippine Islands and the Philippine Sugar Estates Development Co. In the course of the
opinion of the Supreme Court of the United States Mr. Justice Brandeis, speaking for the court, said:
It is well settled that courts of equity will reform a written contract where, owing to mutual mistake,
the language used therein did not fully or accurately express the agreement and intention of the
parties. The fact that interpretation or construction of a contract presents a question of law and that,
therefore, the mistake was one of law is not a bar to granting relief. . . . This court is always disposed
to accept the construction which the highest court of a territory or possession has placed upon a local
statute. But that disposition may not be yielded to where the lower court has clearly erred. Here the
construction adopted was rested upon a clearly erroneous assumption as to an established rule of
equity. . . . The burden of proof resting upon the appellant cannot be satisfied by mere preponderance

of the evidence. It is settled that relief by way of reformation will not be granted unless the proof of
mutual mistake be of the clearest and most satisfactory character.
The evidence introduced by the appellant in the present case does not meet with that stringent
requirement. There is not a word, a phrase, a sentence or a paragraph in the entire record, which
justifies this court in holding that the said contract of pacto de retro is a mortgage and not a sale with
the right to repurchase. Article 1281 of the Civil Code provides: If the terms of a contract are clear
and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations
shall be followed. Article 1282 provides: in order to judge as to the intention of the contracting
parties, attention must be paid principally to their conduct at the time of making the contract and
subsequently thereto.
We cannot thereto conclude this branch of our discussion of the question involved, without quoting
from that very well reasoned decision of the late Chief Justice Arellano, one of the greatest jurists of
his time. He said, in discussing the question whether or not the contract, in the case of Lichauco vs.
Berenguer (20 Phil., 12), was a pacto de retro or a mortgage:
The public instrument, Exhibit C, in part reads as follows: Don Macarion Berenguer declares and
states that he is the proprietor in fee simple of two parcels of fallow unappropriated crown land
situated within the district of his pueblo. The first has an area of 73 quiones, 8 balitas and 8 loanes,
located in the sitio of Batasan, and its boundaries are, etc., etc. The second is in the sitio of
Panantaglay, barrio of Calumpang has as area of 73 hectares, 22 ares, and 6 centares, and is bounded
on the north, etc., etc.
In the executory part of the said instrument, it is stated:
That under condition of right to repurchase (pacto de retro) he sells the said properties to the
aforementioned Doa Cornelia Laochangco for P4,000 and upon the following conditions: First, the
sale stipulated shall be for the period of two years, counting from this date, within which time the
deponent shall be entitled to repurchase the land sold upon payment of its price; second, the lands
sold shall, during the term of the present contract, be held in lease by the undersigned who shall pay,
as rental therefor, the sum of 400 pesos per annum, or the equivalent in sugar at the option of the
vendor; third, all the fruits of the said lands shall be deposited in the sugar depository of the vendee,
situated in the district of Quiapo of this city, and the value of which shall be applied on account of the
price of this sale; fourth, the deponent acknowledges that he has received from the vendor the
purchase price of P4,000 already paid, and in legal tender currency of this country . . .; fifth, all the
taxes which may be assessed against the lands surveyed by competent authority, shall be payable by
and constitute a charge against the vendor; sixth, if, through any unusual event, such as flood,
tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly or in part, it shall
be incumbent upon the vendor to repair the damage thereto at his own expense and to put them into
a good state of cultivation, and should he fail to do so he binds himself to give to the vendee other
lands of the same area, quality and value.
xxxxxxxxx

The opponent maintained, and his theory was accepted by the trial court, that Berenguers contract
with Laochangco was not one of sale with right of repurchase, but merely one of loan secured by those
properties, and, consequently, that the ownership of the lands in questions could not have been
conveyed to Laochangco, inasmuch as it continued to be held by Berenguer, as well as their
possession, which he had not ceased to enjoy.
Such a theory is, as argued by the appellant, erroneous. The instrument executed by Macario
Berenguer, the text of which has been transcribed in this decision, is very clear. Berenguers heirs may
not go counter to the literal tenor of the obligation, the exact expression of the consent of the
contracting contained in the instrument, Exhibit C. Not because the lands may have continued in
possession of the vendor, not because the latter may have assumed the payment of the taxes on such
properties, nor yet because the same party may have bound himself to substitute by another any one
of the properties which might be destroyed, does the contract cease to be what it is, as set forth in
detail in the public instrument. The vendor continued in the possession of the lands, not as the owner
thereof as before their sale, but as the lessee which he became after its consummation, by virtue of a
contract executed in his favor by the vendee in the deed itself, Exhibit C. Right of ownership is not
implied by the circumstance of the lessees assuming the responsibility of the payment is of the taxes
on the property leased, for their payment is not peculiarly incumbent upon the owner, nor is such right
implied by the obligation to substitute the thing sold for another while in his possession under lease,
since that obligation came from him and he continues under another character in its possession-a
reason why he guarantees its integrity and obligates himself to return the thing even in a case of force
majeure. Such liability, as a general rule, is foreign to contracts of lease and, if required, is exorbitant,
but possible and lawful, if voluntarily agreed to and such agreement does not on this account involve
any sign of ownership, nor other meaning than the will to impose upon oneself scrupulous diligence in
the care of a thing belonging to another.
The purchase and sale, once consummated, is a contract which by its nature transfers the ownership
and other rights in the thing sold. A pacto de retro, or sale with right to repurchase, is nothing but a
personal right stipulated between the vendee and the vendor, to the end that the latter may again
acquire the ownership of the thing alienated.
It is true, very true indeed, that the sale with right of repurchase is employed as a method of loan; it
is likewise true that in practice many cases occur where the consummation of a pacto de retro sale
means the financial ruin of a person; it is also, unquestionable that in pacto de retro sales very
important interests often intervene, in the form of the price of the lease of the thing sold, which is
stipulated as an additional covenant. (Manresa, Civil Code, p. 274.)
But in the present case, unlike others heard by this court, there is no proof that the sale with right of
repurchase, made by Berenguer in favor of Laonchangco is rather a mortgage to secure a loan.
We come now to a discussion of the second question presented above, and that is, stating the same in
another form: May a tenant charge his landlord with a violation of the Usury Law upon the ground that
the amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of

interest? When the vendor of property under a pacto de retro rents the property and agrees to pay a
rental value for the property during the period of his right to repurchase, he thereby becomes a
tenant and in all respects stands in the same relation with the purchaser as a tenant under any
other contract of lease.
The appellant contends that the rental price paid during the period of the existence of the right to
repurchase, or the sum of P375 per month, based upon the value of the property, amounted to usury.
Usury, generally speaking, may be defined as contracting for or receiving something in excess of the
amount allowed by law for the loan or forbearance of money-the taking of more interest for the use of
money than the law allows. It seems that the taking of interest for the loan of money, at least the
taking of excessive interest has been regarded with abhorrence from the earliest times. (Dunham vs.
Gould, 16 Johnson [N. Y.], 367.) During the middle ages the people of England, and especially the
English Church, entertained the opinion, then, current in Europe, that the taking of any interest for the
loan of money was a detestable vice, hateful to man and contrary to the laws of God. (3 Cokes
Institute, 150; Tayler on Usury, 44.)
Chancellor Kent, in the case of Dunham vs. Gould, supra, said: If we look back upon history, we shall
find that there is scarcely any people, ancient or modern, that have not had usury laws. . . . The
Romans, through the greater part of their history, had the deepest abhorrence of usury. . . . It will be
deemed a little singular, that the same voice against usury should have been raised in the laws of
China, in the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, we may say, in the laws
of all nations that we know of, whether Greek or Barbarian.
The collection of a rate of interest higher than that allowed by law is condemned by the Philippine
Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner of a property to enter
into a contract with the tenant for the payment of a specific amount of rent for the use and occupation
of said property, even though the amount paid as rent, based upon the value of the property, might
exceed the rate of interest allowed by law? That question has never been decided in this jurisdiction. It
is one of first impression. No cases have been found in this jurisdiction answering that question. Act
No. 2655 is An Act fixing rates of interest upon loans and declaring the effect of receiving or taking
usurious rates.
It will be noted that said statute imposes a penalty upon a loan or forbearance of any money, goods,
chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on loans. A
contract of loan, is very different contract from that of rent. A loan, as that term is used in the
statute, signifies the giving of a sum of money, goods or credits to another, with a promise to repay,
but not a promise to return the same thing. To loan, in general parlance, is to deliver to another for
temporary use, on condition that the thing or its equivalent be returned; or to deliver for temporary
use on condition that an equivalent in kind shall be returned with a compensation for its use. The word
loan, however, as used in the statute, has a technical meaning. It never means the return of the
same thing. It means the return of an equivalent only, but never the same thing loaned. A loan has
been properly defined as an advance payment of money, goods or credits upon a contract or
stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of

the contract. Under the contract of loan, as used in said statute, the moment the contract is
completed the money, goods or chattels given cease to be the property of the former owner and
becomes the property of the obligor to be used according to his own will, unless the contract itself
expressly provides for a special or specific use of the same. At all events, the money, goods or
chattels, the moment the contract is executed, cease to be the property of the former owner and
becomes the absolute property of the obligor.
A contract of loan differs materially from a contract of rent. In a contract of rent the owner of the
property does not lose his ownership. He simply loses his control over the property rented during the
period of the contract. In a contract of loan the thing loaned becomes the property of the obligor. In
a contract of rent the thing still remains the property of the lessor. He simply loses control of the
same in a limited way during the period of the contract of rent or lease. In a contract of rent the
relation between the contractors is that of landlord and tenant. In a contract of loan of money,
goods, chattels or credits, the relation between the parties is that of obligor and obligee. Rent may
be defined as the compensation either in money, provisions, chattels, or labor, received by the owner
of the soil from the occupant thereof. It is defined as the return or compensation for the possession of
some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It
is that, which is to paid for the use of land, whether in money, labor or other thing agreed upon. A
contract of rent is a contract by which one of the parties delivers to the other some nonconsumable
thing, in order that the latter may use it during a certain period and return it to the former; whereas a
contract of loan, as that word is used in the statute, signifies the delivery of money or other
consumable things upon condition of returning an equivalent amount of the same kind or quantity, in
which cases it is called merely a loan. In the case of a contract of rent, under the civil law, it is
called a commodatum.
From the foregoing it will be seen that there is a while distinction between a contract of loan, as that
word is used in the statute, and a contract of rent even though those words are used in ordinary
parlance as interchangeable terms.
The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the
use and occupation of the property may depend upon a thousand different conditions; as for example,
farm lands of exactly equal productive capacity and of the same physical value may have a different
rental value, depending upon location, prices of commodities, proximity to the market, etc. Houses
may have a different rental value due to location, conditions of business, general prosperity or
depression, adaptability to particular purposes, even though they have exactly the same original cost.
A store on the Escolta, in the center of business, constructed exactly like a store located outside of the
business center, will have a much higher rental value than the other. Two places of business located in
different sections of the city may be constructed exactly on the same architectural plan and yet one,
due to particular location or adaptability to a particular business which the lessor desires to conduct,
may have a very much higher rental value than one not so located and not so well adapted to the
particular business. A very cheap building on the carnival ground may rent for more money, due to the
particular circumstances and surroundings, than a much more valuable property located elsewhere. It

will thus be seen that the rent to be paid for the use and occupation of property is not necessarily
fixed upon the value of the property. The amount of rent is fixed, based upon a thousand different
conditions and may or may not have any direct reference to the value of the property rented. To hold
that usury can be based upon the comparative actual rental value and the actual value of the
property, is to subject every landlord to an annoyance not contemplated by the law, and would create
a very great disturbance in every business or rural community. We cannot bring ourselves to believe
that the Legislature contemplated any such disturbance in the equilibrium of the business of the
country.
In the present case the property in question was sold. It was an absolute sale with the right only to
repurchase. During the period of redemption the purchaser was the absolute owner of the property.
During the period of redemption the vendor was not the owner of the property. During the period of
redemption the vendor was a tenant of the purchaser. During the period of redemption the relation
which existed between the vendor and the vendee was that of landlord and tenant. That relation can
only be terminated by a repurchase of the property by the vendor in accordance with the terms of the
said contract. The contract was one of rent. The contract was not a loan, as that word is used in Act
No. 2655.
As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right to make
contracts for parties. They made their own contract in the present case. There is not a word, a phrase,
a sentence or paragraph, which in the slightest way indicates that the parties to the contract in
question did not intend to sell the property in question absolutely, simply with the right to repurchase.
People who make their own beds must lie thereon.
What has been said above with reference to the right to modify contracts by parol evidence,
sufficiently answers the third questions presented above. The language of the contract is explicit,
clear, unambiguous and beyond question. It expresses the exact intention of the parties at the time it
was made. There is not a word, a phrase, a sentence or paragraph found in said contract which needs
explanation. The parties thereto entered into said contract with the full understanding of its terms and
should not now be permitted to change or modify it by parol evidence.
With reference to the improvements made upon said property by the plaintiffs during the life of the
contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separate action
the right guaranteed to them under article 361 of the Civil Code.
For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relation with
the law applicable thereto, that the judgment appealed from should be and is hereby affirmed, with
costs. So ordered.
Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
MALCOLM, J., dissenting:

I regret to have to dissent from the comprehensive majority decision. I stand squarely on the
proposition that the contract executed by the parties was merely a clever device to cover up the
payment of usurious interest. The fact that the document purports to be a true sale with right of
repurchase means nothing. The fact that the instrument includes a contract of lease on the property
whereby the lessees as vendors apparently bind themselves to pay rent at the rate of P375 per month
and whereby Default in the payment of the rent agreed for two consecutive months will terminate
this lease and will forfeit our right of repurchase, as though the term had expired naturally does
mean something, and taken together with the oral testimony is indicative of a subterfuge hiding a
usurious loan. (Usury Law, Act No. 2655, sec. 7, as amended; Padilla vs. Linsangan [1911], 19 Phil.,
65; U. S. vs. Tan Quingco Chua [1919], 39 Phil., 552; Russel vs. Southard [1851], 53 U. S., 139
Monagas vs. Albertucci y Alvarez [1914], 235 U. S., 81; 10 Manresa, Codigo Civil Espaol, 3rd ed., p.
318.) The transaction should be considered as in the nature of an equitable mortgage. My vote is for a
modification of the judgment of the trial court.
Footnotes
162 Law. ed., 1177.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146364
June 3, 2004
COLITO T. PAJUYO, petitioner,
vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 December 2000 Resolution
of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November
1996 decision3 of the Regional Trial Court of Quezon City, Branch 81, 4 affirming the 15 December
1995 decision5 of the Metropolitan Trial Court of Quezon City, Branch 31. 6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the rights
over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made
of light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed
a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house
for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra
promised that he would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City,
Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot
where the house stands because the lot is within the 150 hectares set aside by Proclamation No.
137 for socialized housing. Guevarra pointed out that from December 1985 to September 1994,
Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has
valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of
the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and
against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as
reasonable compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC
decision reads:

WHEREFORE, premises considered, the Court finds no reversible error in the decision
appealed from, being in accord with the law and evidence presented, and the same is
hereby affirmed en toto.
SO ORDERED.8
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December
1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of
Appeals, Guevarra filed with the Supreme Court a "Motion for Extension of Time to File Appeal by
Certiorari Based on Rule 42" ("motion for extension"). Guevarra theorized that his appeal raised pure
questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution 9 referring the motion
for extension to the Court of Appeals which has concurrent jurisdiction over the case. The case
presented no special and important matter for the Supreme Court to take cognizance of at the first
instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution 10 granting
the motion for extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for
review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case
No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment
case filed against defendant-appellant is without factual and legal basis.
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of
Appeals should have dismissed outright Guevarras petition for review because it was filed out of
time. Moreover, it was Guevarras counsel and not Guevarra who signed the certification against
forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for
reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.12
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and
not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by
tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made Guevarras
continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship between
Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the
house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised
National Government Center Housing Project Code of Policies and other pertinent laws. In an
ejectment suit, the RTC has no power to decide Guevarras rights under these laws. The RTC
declared that in an ejectment case, the only issue for resolution is material or physical possession,
not ownership.
The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra
illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or
title over the lot because it is public land. The assignment of rights between Perez and Pajuyo, and
the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra
are in pari delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between
Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court
of Appeals ruled that theKasunduan is not a lease contract but a commodatum because the
agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held
that Guevarra has a better right over the property under Proclamation No. 137. President Corazon
C. Aquino ("President Aquino") issued Proclamation No. 137 on 7 September 1987. At that time,
Guevarra was in physical possession of the property. Under Article VI of the Code of Policies
Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project
("the Code"), the actual occupant or caretaker of the lot shall have first priority as beneficiary of the
project. The Court of Appeals concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that
Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme
Court was stamped "13 December 1996 at 4:09 PM" by the Supreme Courts Receiving Clerk. The
Court of Appeals concluded that the motion for extension bore a date, contrary to Pajuyos claim that
the motion for extension was undated. Guevarra filed the motion for extension on time on 13
December 1996 since he filed the motion one day before the expiration of the reglementary period
on 14 December 1996. Thus, the motion for extension properly complied with the condition imposed
by the Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the
thirty-day extension to file the petition for review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the
petition for review because it was Guevarras counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his
Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal of the case after
he had extensively argued on the merits of the case. This technicality, the appellate court opined,
was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND
DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension
of thirty days to file petition for review at the time when there was no more period to
extend as the decision of the Regional Trial Court had already become final and
executory.
2) in giving due course, instead of dismissing, private respondents Petition for
Review even though the certification against forum-shopping was signed only by
counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact
a commodatum, instead of a Contract of Lease as found by the Metropolitan Trial
Court and in holding that "the ejectment case filed against defendant-appellant is
without legal and factual basis".

4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case
No. Q-96-26943 and in holding that the parties are in pari delicto being both
squatters, therefore, illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of
the National Government Center Housing Project instead of deciding the same under
the Kasunduan voluntarily executed by the parties, the terms and conditions of which
are the laws between themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive
issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for
review because the RTC decision had already become final and executory when the appellate court
acted on Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had
only one day before the expiry of his period to appeal the RTC decision. Instead of filing the petition
for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension
of 30 days to file a petition for review. This Court merely referred the motion to the Court of Appeals.
Pajuyo believes that the filing of the motion for extension with this Court did not toll the running of the
period to perfect the appeal. Hence, when the Court of Appeals received the motion, the period to
appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to
the Court of Appeals by petition for review in cases involving questions of fact or mixed questions of
fact and law.14 Decisions of the regional trial courts involving pure questions of law are appealable
directly to this Court by petition for review.15 These modes of appeal are now embodied in Section 2,
Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus
filed his motion for extension to file petition for review before this Court on 14 December 1996. On 3
January 1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras
petition for review gives the impression that the issues he raised were pure questions of law. There
is a question of law when the doubt or difference is on what the law is on a certain state of
facts.16 There is a question of fact when the doubt or difference is on the truth or falsity of the facts
alleged.17
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition
for review raised these questions: (1) Do ejectment cases pertain only to possession of a structure,
and not the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter
constitute a valid case for ejectment? (3) Should a Presidential Proclamation governing the lot on
which a squatters structure stands be considered in an ejectment suit filed by the owner of the
structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the
Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal.
However, some factual questions still have to be resolved because they have a bearing on the legal
questions raised in the petition for review. These factual matters refer to the metes and bounds of
the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review.
In Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,18 we
declared that the Court of Appeals could grant extension of time in appeals by petition for review.
In Liboro v. Court of Appeals,19 we clarified that the prohibition against granting an extension of
time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The
prohibition does not apply in a petition for review where the pleading needs verification. A petition for
review, unlike an ordinary appeal, requires preparation and research to present a persuasive

position.20 The drafting of the petition for review entails more time and effort than filing a notice of
appeal.21 Hence, the Court of Appeals may allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we held
that Liborosclarification of Lacsamana is consistent with the Revised Internal Rules of the Court of
Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions
for review with the Court of Appeals. The extension, however, should be limited to only fifteen days
save in exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment becomes a fact
on the lapse of the reglementary period to appeal if no appeal is perfected. 23 The RTC decision could
not have gained finality because the Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion
for extension. The Court of Appeals gave due course to the motion for extension because it complied
with the condition set by the appellate court in its resolution dated 28 January 1997. The resolution
stated that the Court of Appeals would only give due course to the motion for extension if filed on
time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension
are (1) the date of receipt of the judgment or final order or resolution subject of the petition, and (2)
the date of filing of the motion for extension.24 It is the date of the filing of the motion or pleading, and
not the date of execution, that determines the timeliness of the filing of that motion or pleading. Thus,
even if the motion for extension bears no date, the date of filing stamped on it is the reckoning point
for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his
motion for extension before this Court on 13 December 1996, the date stamped by this Courts
Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for extension exactly
one day before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds,
Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the petition for
review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was
only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues
against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the
merits, is estopped from attacking the jurisdiction of the court. 25 Estoppel sets in not because the
judgment of the court is a valid and conclusive adjudication, but because the practice of attacking
the courts jurisdiction after voluntarily submitting to it is against public policy.26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign
the certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the
verification, claiming that the counsels verification is insufficient since it is based only on "mere
information."
A partys failure to sign the certification against forum shopping is different from the partys failure to
sign personally the verification. The certificate of non-forum shopping must be signed by the party,
and not by counsel.27 The certification of counsel renders the petition defective. 28
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
requisite.29 It is intended simply to secure an assurance that what are alleged in the pleading are true
and correct and not the product of the imagination or a matter of speculation, and that the pleading is
filed in good faith.30 The party need not sign the verification. A partys representative, lawyer or any
person who personally knows the truth of the facts alleged in the pleading may sign the verification. 31
We agree with the Court of Appeals that the issue on the certificate against forum shopping was
merely an afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early
stage of the proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to
Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the disputed property will not divest the
inferior court of its jurisdiction over the ejectment case. 32 Even if the pleadings raise the issue of
ownership, the court may pass on such issue to determine only the question of possession,
especially if the ownership is inseparably linked with the possession. 33 The adjudication on the issue
of ownership is only provisional and will not bar an action between the same parties involving title to
the land.34 This doctrine is a necessary consequence of the nature of the two summary actions of
ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is the physical
or material possession over the real property.35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of
the contested property and that they are mere squatters. Will the defense that the parties to the
ejectment case are not the owners of the disputed lot allow the courts to renounce their jurisdiction
over the case? The Court of Appeals believed so and held that it would just leave the parties where
they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of
possession. The parties cannot present evidence to prove ownership or right to legal possession
except to prove the nature of the possession when necessary to resolve the issue of physical
possession.36 The same is true when the defendant asserts the absence of title over the property.
The absence of title over the contested lot is not a ground for the courts to withhold relief from the
parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the
physical possession of the premises, that is, to the possession de facto and not to the possession de
jure.37 It does not even matter if a partys title to the property is questionable, 38 or when both parties
intruded into public land and their applications to own the land have yet to be approved by the proper
government agency.39 Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.40 Neither is
the unlawful withholding of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner
himself.41Whatever may be the character of his possession, if he has in his favor prior possession in
time, he has the security that entitles him to remain on the property until a person with a better right
lawfully ejects him.42 To repeat, the only issue that the court has to settle in an ejectment suit is the
right to physical possession.
In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did not
authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the land.
The plaintiff had prior possession and had already introduced improvements on the public land. The
plaintiff had a pending application for the land with the Bureau of Lands when the defendant ousted
him from possession. The plaintiff filed the action of forcible entry against the defendant. The
government was not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because
while the application of the plaintiff was still pending, title remained with the government, and the
Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled
that courts have jurisdiction to entertain ejectment suits even before the resolution of the application.
The plaintiff, by priority of his application and of his entry, acquired prior physical possession over the
public land applied for as against other private claimants. That prior physical possession enjoys legal
protection against other private claimants because only a court can take away such physical
possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as squatters, strictly
speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered the
public land without the owners permission. Title to the land remained with the government because
it had not awarded to anyone ownership of the contested public land. Both the plaintiff and the
defendant were in effect squatting on government property. Yet, we upheld the courts jurisdiction to

resolve the issue of possession even if the plaintiff and the defendant in the ejectment case did not
have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the
public need to preserve the basic policy behind the summary actions of forcible entry and unlawful
detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and
criminal disorder and to compel the party out of possession to respect and resort to the law alone to
obtain what he claims is his.45 The party deprived of possession must not take the law into his own
hands.46 Ejectment proceedings are summary in nature so the authorities can settle speedily actions
to recover possession because of the overriding need to quell social disturbances. 47
We further explained in Pitargue the greater interest that is at stake in actions for recovery of
possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
possessory actions involving these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting claimants? It is one of utmost
importance, as there are public lands everywhere and there are thousands of settlers,
especially in newly opened regions. It also involves a matter of policy, as it requires the
determination of the respective authorities and functions of two coordinate branches of the
Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which
was in force in this country before the American occupation, or in the new, we have a
possessory action, the aim and purpose of which is the recovery of the physical possession
of real property, irrespective of the question as to who has the title thereto. Under the
Spanish Civil Code we had the accion interdictal, a summary proceeding which could be
brought within one year from dispossession (Roman Catholic Bishop of Cebu vs. Mangaron,
6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted the common law action
of forcible entry (section 80 of Act No. 190), the object of which has been stated by this Court
to be "to prevent breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons who, believing themselves
entitled to the possession of property, resort to force to gain possession rather than
to some appropriate action in the court to assert their claims." (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act
(Act No. 926) the action of forcible entry was already available in the courts of the country.
So the question to be resolved is, Did the Legislature intend, when it vested the power and
authority to alienate and dispose of the public lands in the Lands Department, to exclude the
courts from entertaining the possessory action of forcible entry between rival claimants or
occupants of any land before award thereof to any of the parties? Did Congress intend that
the lands applied for, or all public lands for that matter, be removed from the jurisdiction of
the judicial Branch of the Government, so that any troubles arising therefrom, or any
breaches of the peace or disorders caused by rival claimants, could be inquired into only by
the Lands Department to the exclusion of the courts? The answer to this question seems to
us evident. The Lands Department does not have the means to police public lands; neither
does it have the means to prevent disorders arising therefrom, or contain breaches of the
peace among settlers; or to pass promptly upon conflicts of possession. Then its power is
clearly limited to disposition and alienation, and while it may decide conflicts of
possession in order to make proper award, the settlement of conflicts of possession
which is recognized in the court herein has another ultimate purpose, i.e., the
protection of actual possessors and occupants with a view to the prevention of
breaches of the peace. The power to dispose and alienate could not have been
intended to include the power to prevent or settle disorders or breaches of the peace
among rival settlers or claimants prior to the final award. As to this, therefore, the

corresponding branches of the Government must continue to exercise power and jurisdiction
within the limits of their respective functions. The vesting of the Lands Department with
authority to administer, dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of the exercise of the
respective functions or powers thereon, such as the authority to stop disorders and
quell breaches of the peace by the police, the authority on the part of the courts to
take jurisdiction over possessory actions arising therefrom not involving, directly or
indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that
courts have no jurisdiction to determine the rights of claimants to public lands, and that until
the disposition of the land has passed from the control of the Federal Government, the
courts will not interfere with the administration of matters concerning the same. (50 C. J.
1093-1094.) We have no quarrel with this principle. The determination of the respective
rights of rival claimants to public lands is different from the determination of who has the
actual physical possession or occupation with a view to protecting the same and preventing
disorder and breaches of the peace. A judgment of the court ordering restitution of the
possession of a parcel of land to the actual occupant, who has been deprived thereof by
another through the use of force or in any other illegal manner, can never be "prejudicial
interference" with the disposition or alienation of public lands. On the other hand, if courts
were deprived of jurisdiction of cases involving conflicts of possession, that threat of
judicial action against breaches of the peace committed on public lands would be
eliminated, and a state of lawlessness would probably be produced between
applicants, occupants or squatters, where force or might, not right or justice, would
rule.
It must be borne in mind that the action that would be used to solve conflicts of possession
between rivals or conflicting applicants or claimants would be no other than that of forcible
entry. This action, both in England and the United States and in our jurisdiction, is a
summary and expeditious remedy whereby one in peaceful and quiet possession may
recover the possession of which he has been deprived by a stronger hand, by violence or
terror; its ultimate object being to prevent breach of the peace and criminal disorder. (Supia
and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere
possession as a fact, of physical possession, not a legal possession. (Mediran vs.
Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of
forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the
nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action
in mind, by no stretch of the imagination can conclusion be arrived at that the use of the
remedy in the courts of justice would constitute an interference with the alienation,
disposition, and control of public lands. To limit ourselves to the case at bar can it be
pretended at all that its result would in any way interfere with the manner of the alienation or
disposition of the land contested? On the contrary, it would facilitate adjudication, for the
question of priority of possession having been decided in a final manner by the courts, said
question need no longer waste the time of the land officers making the adjudication or award.
(Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto. We explained the
principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari
delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement.
It leaves the parties where it finds them.49

The application of the pari delicto principle is not absolute, as there are exceptions to its application.
One of these exceptions is where the application of the pari delicto rule would violate wellestablished public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions of forcible entry
and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that,
regardless of the actual condition of the title to the property, the party in peaceable quiet
possession shall not be turned out by strong hand, violence or terror. In affording this remedy
of restitution the object of the statute is to prevent breaches of the peace and criminal
disorder which would ensue from the withdrawal of the remedy, and the reasonable hope
such withdrawal would create that some advantage must accrue to those persons who,
believing themselves entitled to the possession of property, resort to force to gain possession
rather than to some appropriate action in the courts to assert their claims. This is the
philosophy at the foundation of all these actions of forcible entry and detainer which are
designed to compel the party out of possession to respect and resort to the law alone to
obtain what he claims is his.52
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is
fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the
latter had illegally occupied, emboldened by the knowledge that the courts would leave them where
they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior
possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery
of possession seek to prevent.53 Even the owner who has title over the disputed property cannot take
the law into his own hands to regain possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters.
The determination of priority and superiority of possession is a serious and urgent matter that cannot
be left to the squatters to decide. To do so would make squatters receive better treatment under the
law. The law restrains property owners from taking the law into their own hands. However, the
principle of pari delicto as applied by the Court of Appeals would give squatters free rein to
dispossess fellow squatters or violently retake possession of properties usurped from them. Courts
should not leave squatters to their own devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of
Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court held
that the pivotal issue in this case is who between Pajuyo and Guevarra has the "priority right as
beneficiary of the contested land under Proclamation No. 137." 54 According to the Court of Appeals,
Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code
declares that the actual occupant or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site
under Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that
it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137.
Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No.
137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim
that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the
project administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo
allowed Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation

No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the
property in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137
allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No.
137. Even when Guevarra already knew that Pajuyo was reclaiming possession of the property,
Guevarra did not take any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and
Guevarra has a pending application over the lot, courts should still assume jurisdiction and resolve
the issue of possession. However, the jurisdiction of the courts would be limited to the issue of
physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving public land to
determine the issue of physical possession. The determination of the respective rights of rival
claimants to public land is, however, distinct from the determination of who has the actual physical
possession or who has a better right of physical possession. 56 The administrative disposition and
alienation of public lands should be threshed out in the proper government agency.57
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137
was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts
should not preempt the decision of the administrative agency mandated by law to determine the
qualifications of applicants for the acquisition of public lands. Instead, courts should expeditiously
resolve the issue of physical possession in ejectment cases to prevent disorder and breaches of
peace.58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on
it. Guevarra expressly admitted the existence and due execution of the Kasunduan.
The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay
pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng
"walang bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at
lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but
Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to
vacate the premises on Pajuyos demand but Guevarra broke his promise and refused to heed
Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a
person from another of the possession of real property to which the latter is entitled after the
expiration or termination of the formers right to hold possession under a contract, express or
implied.59
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the
defendant is necessarily bound by an implied promise that he will vacate on demand, failing which,
an action for unlawful detainer will lie.60 The defendants refusal to comply with the demand makes
his continued possession of the property unlawful. 61 The status of the defendant in such a case is
similar to that of a lessee or tenant whose term of lease has expired but whose occupancy continues
by tolerance of the owner.62
This principle should apply with greater force in cases where a contract embodies the permission or
tolerance to use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did
not require Guevarra to pay any rent but only to maintain the house and lot in good condition.
Guevarra expressly vowed in theKasunduan that he would vacate the property on demand.
Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued
possession of the property unlawful.

We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so
that the latter may use the same for a certain time and return it.63 An essential feature
of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing
belonging to another is for a certain period.64 Thus, the bailor cannot demand the return of the thing
loaned until after expiration of the period stipulated, or after accomplishment of the use for which
the commodatum is constituted.65 If the bailor should have urgent need of the thing, he may demand
its return for temporary use.66 If the use of the thing is merely tolerated by the bailor, he can demand
the return of the thing at will, in which case the contractual relation is called a precarium. 67 Under the
Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to
maintain the property in good condition. The imposition of this obligation makes the Kasunduan a
contract different from a commodatum. The effects of the Kasunduan are also different from that of
a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is
akin to a landlord-tenant relationship where the withdrawal of permission would result in the
termination of the lease.69 The tenants withholding of the property would then be unlawful. This is
settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the
bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping,
or contracts of commission, administration and commodatum. 70 These contracts certainly involve the
obligation to deliver or return the thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a
squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they
illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered
into theKasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it.
The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a
right to physical possession of the contested property. The Kasunduan is the undeniable evidence of
Guevarras recognition of Pajuyos better right of physical possession. Guevarra is clearly a
possessor in bad faith. The absence of a contract would not yield a different result, as there would
still be an implied promise to vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is allowing
an absentee squatter who (sic) makes (sic) a profit out of his illegal act." 72 Guevarra bases his
argument on the preferential right given to the actual occupant or caretaker under Proclamation No.
137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property
without paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out
usurped properties to other squatters. Moreover, it is for the proper government agency to decide
who between Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are
addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.73 This is one of the distinctions
between forcible entry and unlawful detainer.74 In forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus,
he must allege and prove prior possession.75 But in unlawful detainer, the defendant unlawfully
withholds possession after the expiration or termination of his right to possess under any contract,
express or implied. In such a case, prior physical possession is not required. 76

Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient
right to possess the property ended as well. Moreover, it was Pajuyo who was in actual possession
of the property because Guevarra had to seek Pajuyos permission to temporarily hold the property
and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the property
still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the
eyes of the law does not mean that a man has to have his feet on every square meter of the ground
before he is deemed in possession.77 One may acquire possession not only by physical occupation,
but also by the fact that a thing is subject to the action of ones will.78 Actual or physical occupation is
not always necessary.79
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and intruders who
clandestinely enter into titled government property cannot, by such act, acquire any legal right to
said property."80 We made this declaration because the person who had title or who had the right to
legal possession over the disputed property was a party in the ejectment suit and that party instituted
the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case.
This case is between squatters. Had the government participated in this case, the courts could have
evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we
cannot evict on our own the parties. Such a ruling would discourage squatters from seeking the aid
of the courts in settling the issue of physical possession. Stripping both the plaintiff and the
defendant of possession just because they are squatters would have the same dangerous
implications as the application of the principle of pari delicto. Squatters would then rather settle the
issue of physical possession among themselves than seek relief from the courts if the plaintiff and
defendant in the ejectment case would both stand to lose possession of the disputed property. This
would subvert the policy underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the
property until a person who has title or a better right lawfully ejects him. Guevarra is certainly not that
person. The ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing
evidence and presenting arguments before the proper administrative agency to establish any right to
which they may be entitled under the law.81
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue
of physical possession does not affect title to the property nor constitute a binding and conclusive
adjudication on the merits on the issue of ownership. 82 The owner can still go to court to recover
lawfully the property from the person who holds the property without legal title. Our ruling here does
not diminish the power of government agencies, including local governments, to condemn, abate,
remove or demolish illegal or unauthorized structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as
part of damages are awarded only in the instances enumerated in Article 2208 of the Civil
Code.83 Thus, the award of attorneys fees is the exception rather than the rule.84 Attorneys fees are
not awarded every time a party prevails in a suit because of the policy that no premium should be
placed on the right to litigate.85 We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did
not dispute this factual finding of the two courts. We find the amount reasonable compensation to
Pajuyo. The P300 monthly rental is counted from the last demand to vacate, which was on 16
February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision
dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-

96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon
City, Branch 31 in Civil Case No. 12432, isREINSTATED with MODIFICATION. The award of
attorneys fees is deleted. No costs.
SO ORDERED.
Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes
1
Under Rule 45 of the 1997 Rules of Court.
2
Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Quirino D. Abad
Santos, Jr. and Romeo A. Brawner, concurring.
3
Penned by Judge Wenceslao I. Agnir.
4
Docketed as Civil Case No. Q-96-26943.
5
Penned by Judge Mariano M. Singzon, Jr.
6
Docketed as Civil Case No. 12432.
7
Rollo, p. 41.
8
Ibid., p. 49.
9
Ibid., p. 221.
10
Ibid., p. 224.
11
Ibid., p. 60.
12
Ibid., p. 73.
13
Rollo, p. 134.
14
Macawiwili Gold Mining and Development Co., Inc. v. Court of Appeals, 358 Phil. 245
(1998).
15
Ibid.
16
Ibid.
17
Ibid.
18
227 Phil. 606 (1986).
19
G.R. No. 101132, 29 January 1993, 218 SCRA 193.
20
Ibid.
21
Ibid.
22
Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 110003, 9 February 2001,
351 SCRA 436.
23
City of Manila v. Court of Appeals, G.R. No. 100626, 29 November 1991, 204 SCRA 362.
24
Castilex Industrial Corporation v. Vasquez, Jr., 378 Phil. 1009 (1999).
25
Refugia v. Court of Appeals, 327 Phil. 982 (1996).
26
Ibid.
27
Far Eastern Shipping Company v. Court of Appeals, 357 Phil. 703 (1998).
28
Ibid.
29
Buenaventura v. Uy, G.R. No. L-28156, 31 March 1987, 149 SCRA 220.
30
Ibid.
31
FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, VOL.I, SIXTH REV.
ED.,143.
32
Dizon v. Court of Appeals, 332 Phil. 429 (1996).
33
Ibid.

De Luna v. Court of Appeals, G.R. No. 94490, 6 August 1992, 212 SCRA 276.
Ibid.
36
Pitargue v. Sorilla, 92 Phil. 5 (1952); Dizon v. Court of Appeals, supra note 32; Section 16,
Rule 70 of the 1997 Rules of Court.
37
Ibid.; Fige v. Court of Appeals, G.R. No. 107951, 30 June 1994, 233 SCRA 586; Oblea v.
Court of Appeals, 313 Phil. 804 (1995).
38
Dizon v. Court of Appeals, supra note 32.
39
Supra note 36.
40
Drilon v. Gaurana, G.R. No. L-35482, 30 April 1987, 149 SCRA 342.
41
Rubio v. The Hon. Municipal Trial Court in Cities, 322 Phil. 179 (1996).
42
Ibid.
43
92 Phil. 5 (1952).
44
Ibid.
45
Ibid.; Reynoso v. Court of Appeals, G.R. No. 49344, 23 February 1989, 170 SCRA 546;
Aguilon v. Bohol, G.R. No. L-27169, 20 October 1977, 79 SCRA 482.
46
Ibid.
47
Ibid.
48
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall
be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his
promise.
Art.1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rule shall be observed:
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the others undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of what
has been promised to him. The other who is not at fault, may demand the
return of what he has given without any obligation to comply with his promise.
49
Top-Weld Manufacturing, Inc. v. ECED S.A., G.R. No. L-44944, 9 August 1985, 138 SCRA
118.
50
Silagan v. Intermediate Appellate Court, 274 Phil. 182 (1991).
51
Supra note 40.
52
Ibid.
53
Dizon v. Concina, 141 Phil. 589 (1969); Cine Ligaya v. Labrador, 66 Phil. 659 (1938).
54
Rollo, p. 54.
55
Supra note 43.
56
Ibid.; Aguilon v. Bohol, supra note 45; Reynoso v. Court of Appeals, supra note 45.
57
Reynoso v. Court of Appeals, supra note 45.
58
Aguilon v. Bohol, supra note 45.
59
Section 1, Rule 70 of the 1964 Rules of Court.
60
Arcal v. Court of Appeals, 348 Phil. 813 (1998).
34
35

Ibid.
Ibid.
63
Art. 1933. By the contract of loan, one of the parties delivers to another, either something
not consumable so that the latter may use the same for a certain time and return it, in which
case the contract is called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.
64
Pascual v. Mina, 20 Phil. 202 (1911).
65
Art. 1946. The bailor cannot demand the return of the thing loaned till after the expiration of
the period stipulated, or after the accomplishment of the use for which the commodatum has
been constituted. However, if in the meantime, he should have urgent need of the thing, he
may demand its return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is suspended
while the thing is in the possession of the bailor.
66
Ibid.
67
Art.1947. The bailor may demand the thing at will, and the contractual relation is called a
precarium, in the following cases:
(1) If neither the duration of the contract nor the use to which the thing loaned should
be devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by the owner.
68
ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL
CODE OF THE PHILIPPINES, Vol. V, 448.
69
Arcal v. Court of Appeals, supra note 60; Dakudao v. Consolacion, 207 Phil. 750 (1983);
Calubayan v. Pascual, 128 Phil. 160 (1967).
70
United States v. Camara, 28 Phil. 238 (1914).
71
Ibid.
72
Rollo, p. 87.
73
Benitez v. Court of Appeals, G.R. No. 104828, 16 January 1997, 266 SCRA 242.
74
Ibid.
75
Ibid.
76
Ibid.
77
Dela Rosa v. Carlos, G.R. No. 147549, 23 October 2003.
78
Benitez v. Court of Appeals, supra note 73.
79
Ibid.
80
Caballero v. Court of Appeals, G.R. No. 59888, 29 January 1993, 218 SCRA 56; Florendo,
Jr. v. Coloma, G.R. No. L-60544, 19 May 1984, 214 SCRA 268.
81
Florendo, Jr. v. Coloma, supra note 80.
82
Dizon v. Court of Appeals, supra note 32; Section 7, Rule 70 of the 1964 Rules of Court.
83
Padillo v. Court of Appeals, 442 Phil. 344 (2001).
84
Ibid.
85
Ibid.
61
62

THIRD DIVISION
[G.R. No. 173654-765, August 28, 2008]
PEOPLE OF THE PHILIPPINES, PETITIONERS, VS. TERESITA PUIG AND ROMEO PORRAS,
RESPONDENT.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the
Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders dated
30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6 th Judicial Region, Branch 68,
Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig and
Romeo Porras, and denying petitioner's Motion for Reconsideration, in Criminal Cases No. 05-3054 to 053165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutor's Office filed before Branch 68 of the RTC in
Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras
(Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan,
Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations[1] filed before the RTC were uniform and pro-forma, except for the
amounts, date and time of commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines,
and within the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating,
and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the
Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the
Bank and with intent of gain, did then and there willfully, unlawfully and feloniously take, steal and carry
away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and
prejudice of the said bank in the aforesaid amount.
After perusing the Informations in these cases, the trial court did not find the existence of probable cause
that would have necessitated the issuance of a warrant of arrest based on the following grounds:
(1)

the element of `taking without the consent of the owners' was missing on the ground that it is the depositorsclients, and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly
taken by respondents and hence, are the real parties-in-interest; and

(2)

the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the
respondents and the offended party that would have created a high degree of confidence between them
which the respondents could have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would
be violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which
states that in all criminal prosecutions, the accused shall enjoy the right to be informed of the nature and
cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of Criminal
Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of arrest against
Puig and Porras.
A Motion for Reconsideration[2] was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order[3] denying petitioner's Motion for Reconsideration was issued by the RTC, finding
as follows:
Accordingly, the prosecution's Motion for Reconsideration should be, as it hereby, DENIED. The Order dated
January 30, 2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal
issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF
TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE
OF CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006
and 9 June 2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 053054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple loans."
Corollary thereto, Article 1953 of the same Code provides that "a person who receives a loan of money or
any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality." Thus, it posits that the depositors who place their money with the
bank are considered creditors of the bank. The bank acquires ownership of the money deposited by its
clients, making the money taken by respondents as belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft,
citing that a perusal of the Informations will show that they specifically allege that the respondents were the
Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts
of money with grave abuse of confidence, and without the knowledge and consent of the bank, to the
damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a
Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable
cause for the issuance of a warrant of arrest presupposes evaluation of facts and circumstances, which is not
proper under said Rule.
Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the
principal party to file a Petition for Review on Certiorari,considering that the incident was indorsed by the
DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and,
therefore, because of this defect, there is no basis for the existence of probable cause which will justify the
issuance of the warrant of arrest. Petitioner assails the dismissal contending that the Informations for
Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of
confidence; and (b) the element of taking, with intent to gain and without the consent of the owner, which is
the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the
allegations in the Information inadequate. He ruled that the Information failed to state facts constituting the
qualifying circumstance of grave abuse of confidence and the element of taking without the consent of the
owner, since the owner of the money is not the Bank, but the depositors therein. He also citesPeople v. Koc
Song,[4] in which this Court held:
There must be allegation in the information and proof of a relation, by reason of dependence, guardianship
or vigilance, between the respondents and the offended party that has created a high degree of confidence
between them, which the respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause
simply on the insufficiency of the allegations in the Informations concerning the facts constitutive of the
elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations in the
Informations the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as
follows, viz:
ART. 310. Qualified Theft. - The crime of theft shall be punished by the penalties next higher by two degrees
than those respectively specified in the next preceding article, if committed by a domestic servant, or with
grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or
consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if
property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity,
vehicular accident or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another's property
without violence or intimidation against persons or force upon things. The elements of the crime under this
Article are:
1.

Intent to gain;

2.

Unlawful taking;

3.

Personal property belonging to another;

4.

Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:
1.

Taking of personal property;

2.

That the said property belongs to another;

3.

That the said taking be done with intent to gain;

4.

That it be done without the owner's consent;

5.

That it be accomplished without the use of violence or intimidation against persons, nor of force
upon things;

6.

That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the
information must state the acts or omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is
enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the
qualifying and aggravating circumstances must be stated in ordinary and concise language and not
necessarily in the language used in the statute but in terms sufficient to enable a person of common
understanding to know what offense is being charged as well as its qualifying and aggravating circumstances
and for the court to pronounce judgment.
It is evident that the Information need not use the exact language of the statute in alleging the acts or
omissions complained of as constituting the offense. The test is whether it enables a person of common
understanding to know the charge against him, and the court to render judgment properly.[5]
The portion of the Information relevant to this discussion reads:

[A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank x x x.
It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into
possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks,
on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not
only from the express provisions of the law, but from established jurisprudence. The relationship between
banks and depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New
Civil Code, as appropriately pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by
the Bank of the money deposits therein, and the duties being performed by its employees who have custody
of the money or have come into possession of it. The Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of confidence, to the damage and prejudice of the
Bank, without particularly referring to it as owner of the money deposits, as sufficient to make out a case of
Qualified Theft. For a graphic illustration, we cite Roque v. People,[6] where the accused teller was
convicted for Qualified Theft based on this Information:
That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of
Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused
ASUNCION GALANG ROQUE, being then employed as teller of the Basa Air Base Savings and Loan
Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such was
authorized and reposed with the responsibility to receive and collect capital contributions from its
member/contributors of said corporation, and having collected and received in her capacity as teller of the
BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with grave
abuse of confidence and without the knowledge and consent of said corporation, did then and
there willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his
Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said
amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine
currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the bank places money in the teller's possession due
to the confidence reposed on the teller, the felony of qualified theft would be committed. [7]
Also in People v. Sison,[8] the Branch Operations Officer was convicted of the crime of Qualified Theft based
on the Information as herein cited:
That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both
dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and
feloniously, with intent of gain and without the knowledge and consent of the owner thereof, take, steal and
carry away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE
COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch
Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid amount of
P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused acted with grave abuse of confidence and
unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free
access to the place where the said amount of money was kept.
The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank
(PCIB), is Qualified Theft. Appellant could not have committed the crime had he not been holding the
position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault xxx. The
management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch Operation
Officer, and it was this trust and confidence which he exploited to enrich himself to the damage and
prejudice of PCIB x x x.[9]
From another end, People v. Locson,[10] in addition to People v. Sison, described the nature of possession
by the Bank. The money in this case was in the possession of the defendant as receiving teller of the bank,
and the possession of the defendant was the possession of the Bank. The Court held therein that when the
defendant, with grave abuse of confidence, removed the money and appropriated it to his own use without
the consent of the Bank, there was taking as contemplated in the crime of Qualified Theft. [11]
Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the
respondents; that the crime was committed with grave abuse of confidence, with intent to gain and without
the knowledge and consent of the Bank, without necessarily stating the phrase being assiduously insisted
upon by respondents,"of a relation by reason of dependence, guardianship or vigilance, between
the respondents and the offended party that has created a high degree of confidence between
them, which respondents abused,"[12] and without employing the word "owner" in lieu of the "Bank"
were considered to have satisfied the test of sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is
even no reason to quibble on the allegation in the Informations that they acted with grave abuse of
confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is even more
precise, as this is exactly the requirement of the law in qualifying the crime of Theft.
In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the
Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in them,
occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential elements
constituting the crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling
in Mobilia Products, Inc. v. Hajime Umezawa[13] is instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State, the interest of the private complainant or the
offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the
trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be made
only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in
appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised, [14] and herein
petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the
records of the preliminary investigation conducted will show that, indeed, probable cause exists for the
indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall
issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution of
the prosecutor and its supporting evidence. Soliven v. Makasiar,[15] as reiterated inAllado v. Driokno,
[16]
explained that probable cause for the issuance of a warrant of arrest is the existence of such facts and
circumstances that would lead a reasonably discreet and prudent person to believe that an offense has been
committed by the person sought to be arrested.[17] The records reasonably indicate that the respondents
may have, indeed, committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may
be, to relieve the respondents from the pain of going through a trial once it is ascertained that no probable

cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is also equally
imperative upon the judge to proceed with the case upon a showing that there is a prima facie case against
the respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is herebyGRANTED. The Orders
dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 053165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against herein
respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is
directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable
dispatch. No pronouncement as to costs.
SO ORDERED.
Ynares-Santiago, (Chairperson), Austria-Martinez, Reyes, and Leonardo-De Castro,JJ., concur.

* Justice Teresita J. Leonardo-De Castro was designated to sit as additional member replacing Justice
Antonio Eduardo B. Nachura per Raffle dated 16 January 2008.
[1]

Records, pp. 1, 170-391.

[2]

Records, pp. 490-495.

[3]

Id. at 469-470.

[4]

63 Phil. 369, 371 (1936).

[5]

People v. Lab-eo, 424 Phil. 482, 495 (2002).

[6]

G.R. No. 138954, 25 November 2004, 444 SCRA 98, 100-101.

[7]

Id. at 119.

[8]

379 Phil. 363, 366-367 (2000).

[9]

Id. at 385.

[10]

57 Phil. 325 (1932).

[11]

Id.

[12]

Rollo, p. 158.

[13]

G.R. No. 149357, 4 March 2005, 452 SCRA 736, 757.

[14]

Reas v. Bonife, G.R. Nos. 54348-49, 17 October 1990, 190 SCRA 493, 501.

[15]

G.R. No. L-82585, 14 November 1988, 167 SCRA 394.

[16]

G.R. No. 113630, 5 May 1994, 32 SCRA 192, 201.

[17]

Id.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174269
May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the
second to the last day of the tour. As the group had arrived late in the city, they failed to engage in
any sight-seeing. Instead, it was agreed upon that they would start early the next day to see the
entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The group
was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond
polishing that lasted for around ten minutes.1 Afterwards, the group was led to the stores showroom
to allow them to select items for purchase. Mrs. Pantaleon had already planned to purchase even
before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in
approximation that she decided to buy.2 Mrs. Pantaleon also selected for purchase a pendant and a
chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour
group was slated to depart from the store. The sales clerk took the cards imprint, and asked
Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondents Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved.
His son, who had already boarded the tour bus, soon returned to Coster and informed the other
members of the Pantaleon family that the entire tour group was waiting for them. As it was already
9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon
asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more
minutes. After 15 minutes, the store manager informed Pantaleon that respondent had demanded
bank references. Pantaleon supplied the names of his depositary banks, then instructed his
daughter to return to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the
items even without respondents approval of the purchase. The spouses Pantaleon returned to the
bus. It is alleged that their offers of apology were met by their tourmates with stony silence. 4 The tour
groups visible irritation was aggravated when the tour guide announced that the city tour of
Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry
at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while her husband had to take a
tranquilizer to calm his nerves.
It later emerged that Pantaleons purchase was first transmitted for approval to respondents
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at 9:33
a.m, then finally approved at 10:19 a.m., Amsterdam time. 6 The Approval Code was transmitted to
respondents Amsterdam office at 10:38 a.m., several minutes after petitioner had already left

Coster, and 78 minutes from the time the purchases were electronically transmitted by the jewelry
store to respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use
his AmEx card, several times without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money
instead from a friend, after more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase childrens shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by
respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and
his family thereby suffered" for respondents refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992, 9 stating
among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase
pattern established."10 Since respondent refused to accede to Pantaleons demand for an apology,
the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of
Makati City, Branch 145.11 Pantaleon prayed that he be awarded P2,000,000.00, as moral
damages; P500,000.00, as exemplary damages; P100,000.00, as attorneys fees; and P50,000.00
as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding
him P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as
attorneys fees, and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while
Pantaleon moved for partial reconsideration, praying that the trial court award the increased amount
of moral and exemplary damages he had prayed for.14The RTC denied Pantaleons motion for partial
reconsideration, and thereafter gave due course to respondents Notice of Appeal. 15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages in
favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this
petition.
The key question is whether respondent, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it still remained liable for
damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and respondents
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of
seconds." Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on the
part of respondent in approving the purchases. However, it made two critical conclusions in favor of
respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had
established for himself, as exemplified by the fact that at Coster, he was "making his very first single
charge purchase of US$13,826," and "the record of [petitioner]s past spending with [respondent] at
the time does not favorably support his ability to pay for such purchase." 17
On the premise that there was an obligation on the part of respondent "to approve or disapprove with
dispatch the charge purchase," petitioner argues that the failure to timely approve or disapprove the
purchase constituted mora solvendi on the part of respondent in the performance of its obligation.
For its part, respondent characterizes the depiction by petitioner of its obligation to him as "to
approve purchases instantaneously or in a matter of seconds."

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that
the obligation is demandable and liquidated; the debtor delays performance; and the creditor
judicially or extrajudicially requires the debtors performance.18 Petitioner asserts that the Court of
Appeals had wrongly applied the principle of mora accipiendi, which relates to delay on the part of
the obligee in accepting the performance of the obligation by the obligor. The requisites of mora
accipiendi are: an offer of performance by the debtor who has the required capacity; the offer must
be to comply with the prestation as it should be performed; and the creditor refuses the performance
without just cause.19 The error of the appellate court, argues petitioner, is in relying on the invocation
by respondent of "just cause" for the delay, since while just cause is determinative of mora
accipiendi, it is not so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor,20 with the
card company as the creditor extending loans and credit to the card holder, who as debtor is obliged
to repay the creditor. This relationship already takes exception to the general rule that as between a
bank and its depositors, the bank is deemed as the debtor while the depositor is considered as the
creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and again see the credit
card company as the debtor/obligor, insofar as it has the obligation to the customer as
creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent
as the creditor in the context of this cause of action. If there was delay on the part of respondent in
its normal role as creditor to the cardholder, such delay would not have been in the acceptance of
the performance of the debtors obligation (i.e., the repayment of the debt), but it would be delay in
the extension of the credit in the first place. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on credit, has already
been constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry) had
not yet been perfected, as it remained pending the approval or consent of the respondent credit card
company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioners
purchases with "timely dispatch," or for the purposes of this case, within a period significantly less
than the one hour it apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioners purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customers purchase request, whether such action
be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was a matter
of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the three
charge purchases subject of this case, approvals of his charge purchases were always obtained in a
matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal approval time for charges would
be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval of plaintiffs charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of
seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the
time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the Credit
Authorization System (CAS) record of defendant at Phoenix Amex shows that defendants
Amsterdam office received the request to approve plaintiffs charge purchase at 9:20 a.m.,

Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at
10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese [sic] "Positive
Identification of Card holder necessary further charges require bank information due to high
exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic successive queries of
Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how
long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times
Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase
referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix
time from 01:20 when the charge purchased was referred for authorization, defendants own record
shows:
01:22 the authorization is referred to Manila Amexco
01:32 Netherlands gives information that the identification of the cardmember has been
presented and he is buying jewelries worth US $13,826.
01:33 Netherlands asks "How long will this take?"
02:08 Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act
on his use of the card abroad "with special handling." 22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within seconds," there
really is no strict, legally determinative point of demarcation on how long must it take for a credit card
company to approve or disapprove a customers purchase, much less one specifically contracted
upon by the parties. Yet this is one of those instances when "youd know it when youd see it," and
one hour appears to be an awfully long, patently unreasonable length of time to approve or
disapprove a credit card purchase. It is long enough time for the customer to walk to a bank a
kilometer away, withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase
"in timely dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly,
had respondent disapproved petitioners purchase "within seconds" or within a timely manner, this
particular action would have never seen the light of day. Petitioner and his family would have
returned to the bus without delay internally humiliated perhaps over the rejection of his card yet
spared the shame of being held accountable by newly-made friends for making them miss the
chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and
that the cardholder is within his means to make such transaction. The culpable failure of respondent
herein is not the failure to timely approve petitioners purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even assuming that respondents credit
authorizers did not have sufficient basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way, petitioner would have had informed
basis on whether or not to pursue the transaction at Coster, given the attending circumstances.
Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land and
soon forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad
faith, and the court should find that under the circumstances, such damages are due. The findings of

the trial court are ample in establishing the bad faith and unjustified neglect of respondent,
attributable in particular to the "dilly-dallying" of respondents Manila credit authorizer, Edgardo
Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the
amount of time it should take defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires "special handling", meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or travellers checks, which can be
delivered and accepted quickly. Such right was not accorded to plaintiff in the instances complained
off for reasons known only to defendant at that time. This, to the Courts mind, amounts to a wanton
and deliberate refusal to comply with its contractual obligations, or at least abuse of its rights, under
the contract.24
xxx
The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it
alleges to have consumed more than one hour to simply go over plaintiffs past credit history with
defendant, his payment record and his credit and bank references, when all such data are already
stored and readily available from its computer. This Court also takes note of the fact that there is
nothing in plaintiffs billing history that would warrant the imprudent suspension of action by
defendant in processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs account. 25
It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to
the particular injuries under Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster that
there was a deadline for the completion of that purchase by petitioner before any delay would
redound to the injury of his several traveling companions gave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as
concluded by the RTC.27Those circumstances are fairly unusual, and should not give rise to a
general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-andfast rule in determining what would be a fair and reasonable amount of moral damages, since each
case must be governed by its own peculiar facts, however, it must be commensurate to the loss or
injury suffered.28 Petitioners original prayer for P5,000,000.00 for moral damages is excessive under
the circumstances, and the amount awarded by the trial court of P500,000.00 in moral damages
more seemly.
Likewise, we deem exemplary damages available under the circumstances, and the amount
of P300,000.00 appropriate. There is similarly no cause though to disturb the determined award
of P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil
Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
SO ORDERED.
1avvphi1

DANTE O. TINGA
Associate Justice

<p
WE CONCUR:
CONCHITA CARPIO MORALES*
Associate Justice
Acting Chairperson
PRESBITERO J. VELASCO, JR.
TERESITA LEONARDO DE CASTRO**
Associate Justice
Associate Justice
ARTURO D. BRION
Associate Justice
ATT E S TATI O N
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson, Second Division
C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
*
Acting Chairperson.
**
Per Special Order No. 619, Justice Teresita J. Leonardo-De Castro is hereby designated as
additional member of the Second Division in lieu of Justice Leonardo A. Quisumbing, who is
on official leave
1
Id. at 747.
2
Id. at 748-749.
3
Id. at 750.
4
Id. at 20.
5
Id. at 20-21.
6
Id. at 21-22; citing defendants Exhibit "9-G," "9-H" and "9-I."
7
Id. at 330-331.
8
Id. at 331.
9
Id. at 332-333.
10
Id. at 332.
11
Docketed as Civil Case No. 92-1665. Id. at 335-340.
12
Id. at 339.
13
Penned by Judge Francisco Donato Villanueva; id. at 92-110.
14
Id. at 348-351.
15
Id. at 360-362.
16
Decision penned by Court of Appeals Associate Justice E.J. Asuncion, , concurred by
Associate Justices J. Mendoza and A. Tayag.

Rollo, p. 80.
See, e.g., Selegna Management v. UCPB, G.R. No. 165662, 3 May 2006.
19
A. Tolentino, IV Civil Code of the Philippines (1991 ed.), at 108.
20
See, e.g., Pacific Banking Corp. v. IAC, G.R. No. 72275, 13 November 1991, 203 SCRA
496; Molino v. Security Diners International Corp., G.R. No. 136780, 16 August 2001, 358
SCRA 363.
21
See, e.g., Citibank, N.A. v. Cabamongan, G.R. No. 146918, 2 May 2006, 488 SCRA 517.
22
Rollo, pp. 97-99.
23
Id. at 101.
24
Id. at 105-106.
25
Id. at 104.
26
"Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shocks, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are
the proximate result of the defendant's wrongful act or omission."
27
See rollo, p. 107.
28
Mercury Drug v. Baking, G.R. No. 156037, May 25, 2007, 523 SCRA 184, 191.
17
18

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