1.
PEOPLE V CONCEPCION one year and six months, to pay a fine of P3,000, with
By telegrams and a letter of confirmation to the
manager of the Aparri branch of the Philippine National
Bank, Venancio Concepcion, President of the Philippine
National Bank, between April 10, 1919, and May 7,
1919, authorized an extension of credit in favor of
"Puno y Concepcion, S. en C." in the amount of
P300,000. This special authorization was essential in
view of the memorandum order of President
Concepcion dated May 17, 1918, limiting the
discretional power of the local manager at Aparri,
Cagayan, to grant loans and discount negotiable
documents to P5,000, which, in certain cases, could be
increased to P10,000. Pursuant to this authorization,
credit aggregating P300,000, was granted the firm of
"Puno y Concepcion, S. en C.," the only security
required consisting of six demand notes. The notes,
together with the interest, were taken up and paid by
July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership
capitalized at P100,000. Anacleto Concepcion
contributed P5,000; Clara Vda. de Concepcion, P5,000;
Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral.
Venancio Concepcion," P50,000. Member Miguel S.
Concepcion was the administrator of the company.
On the facts recounted, Venancio Concepcion, as
President of the Philippine National Bank and as
member of the board of directors of this bank, was
charged in the Court of First Instance of Cagayan with
a violation of section 35 of Act No. 2747. He was found
guilty by the Honorable Enrique V. Filamor, Judge of
First Instance, and was sentenced to imprisonment for
subsidiary imprisonment in case of insolvency, and the
costs.
Section 35 of Act No. 2747, effective on February 20,
1918, just mentioned, to which reference must
hereafter repeatedly be made, reads as follows: "The
National Bank shall not, directly or indirectly, grant
loans to any of the members of the board of directors
of the bank nor to agents of the branch banks."
Section 49 of the same Act provides: "Any person who
shall violate any of the provisions of this Act shall be
punished by a fine not to exceed ten thousand pesos,
or by imprisonment not to exceed five years, or by
both such fine and imprisonment." These two sections
were in effect in 1919 when the alleged unlawful acts
took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having
been committed by the trial court. These errors they
have argued adroitly and exhaustively in their printed
brief, and again in oral argument. Attorney-General
Villa-Real, in an exceptionally accurate and
comprehensive brief, answers the proposition of
appellant one by one.
The question presented are reduced to their simplest
elements in the opinion which follows:
I. Was the granting of a credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine
National Bank, a "loan" within the meaning of section
35 of Act No. 2747?
1
Counsel argue that the documents of record do not
prove that authority to make a loan was given, but
only show the concession of a credit. In this statement
of fact, counsel is correct, for the exhibits in question
speak of a "credito" (credit) and not of a " prestamo"
(loan).
The "credit" of an individual means his ability to
borrow money by virtue of the confidence or trust
reposed by a lender that he will pay what he may
promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery
by one party and the receipt by the other party of a
given sum of money, upon an agreement, express or
implied, to repay the sum loaned, with or without
interest. (Payne vs. Gardiner [1864], 29 N. Y., 146,
167.) The concession of a "credit" necessarily involves
the granting of "loans" up to the limit of the amount
fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C.," by
Venancio Concepcion, President of the Philippine
National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747
prohibits the granting of a "loan," it does not prohibit
what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then
President of the National Bank, inquired of the Insular
Auditor whether section 37 of Act No. 2612 was
intended to apply to discounts as well as to loans. The
ruling of the Acting Insular Auditor, dated August 11,
1916, was to the effect that said section referred to
loans alone, and placed no restriction upon discount
transactions. It becomes material, therefore, to
discover the distinction between a "loan" and a
"discount," and to ascertain if the instant transaction
comes under the first or the latter denomination.
Discounts are favored by bankers because of their
liquid nature, growing, as they do, out of an actual,
live, transaction. But in its last analysis, to discount a
paper is only a mode of loaning money, with, however,
these distinctions: (1) In a discount, interest is
deducted in advance, while in a loan, interest is taken
at the expiration of a credit; (2) a discount is always on
double-name paper; a loan is generally on single-name
paper.
Conceding, without deciding, that, as ruled by the
Insular Auditor, the law covers loans and not
discounts, yet the conclusion is inevitable that the
demand notes signed by the firm "Puno y Concepcion,
S. en C." were not discount paper but were mere
evidences of indebtedness, because (1) interest was
not deducted from the face of the notes, but was paid
when the notes fell due; and (2) they were single-
name and not double-name paper.
The facts of the instant case having relation to this
phase of the argument are not essentially different
from the facts in the Binalbagan Estate case. Just as
there it was declared that the operations constituted a
loan and not a discount, so should we here lay down
the same ruling.
III. Was the granting of a credit of P300,000 to the
copartnership, "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine
2
National Bank, an "indirect loan" within the meaning of
section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y
Concepcion, S. en C." was not an "indirect loan." In this
connection, it should be recalled that the wife of the
defendant held one-half of the capital of this
partnership.
In the interpretation and construction of statutes, the
primary rule is to ascertain and give effect to the
intention of the Legislature. In this instance, the
purpose of the Legislature is plainly to erect a wall of
safety against temptation for a director of the bank.
The prohibition against indirect loans is a recognition
of the familiar maxim that no man may serve two
masters that where personal interest clashes with
fidelity to duty the latter almost always suffers. If,
therefore, it is shown that the husband is financially
interested in the success or failure of his wife's
business venture, a loan to partnership of which the
wife of a director is a member, falls within the
prohibition.
Various provisions of the Civil serve to establish the
familiar relationship called a conjugal partnership.
(Articles 1315, 1393, 1401, 1407, 1408, and 1412 can
be specially noted.) A loan, therefore, to a partnership
of which the wife of a director of a bank is a member,
is an indirect loan to such director.
That it was the intention of the Legislature to prohibit
exactly such an occurrence is shown by the
acknowledged fact that in this instance the defendant
was tempted to mingle his personal and family affairs
with his official duties, and to permit the loan P300,000
to a partnership of no established reputation and
without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank
([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme
Court of Maryland said:
What then was the purpose of the law when it declared
that no director or officer should borrow of the bank,
and "if any director," etc., "shall be convicted," etc., "of
directly or indirectly violating this section he shall be
punished by fine and imprisonment?" We say to
protect the stockholders, depositors and creditors of
the bank, against the temptation to which the directors
and officers might be exposed, and the power which as
such they must necessarily possess in the control and
management of the bank, and the legislature unwilling
to rely upon the implied understanding that in
assuming this relation they would not acquire any
interest hostile or adverse to the most exact and
faithful discharge of duty, declared in express terms
that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y.,
373), relied upon in the Binalbagan Estate decision, it
was said:
We are of opinion the statute forbade the loan to his
copartnership firm as well as to himself directly. The
loan was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the
Philippine National Bank, be convicted of a violation of
section 35 of Act No. 2747 in relation with section 49
of the same Act, when these portions of Act No. 2747
3
were repealed by Act No. 2938, prior to the finding of
the information and the rendition of the judgment?
As noted along toward the beginning of this opinion,
section 49 of Act No. 2747, in relation to section 35 of
the same Act, provides a punishment for any person
who shall violate any of the provisions of the Act. It is
contended, however, by the appellant, that the repeal
of these sections of Act No. 2747 by Act No. 2938 has
served to take away the basis for criminal prosecution.
This same question has been previously submitted and
has received an answer adverse to such contention in
the cases of United Stated vs. Cuna ([1908], 12 Phil.,
241); People vs. Concepcion ([1922], 43 Phil., 653);
and Ong Chang Wing and Kwong Fok vs. United States
([1910], 218 U. S., 272; 40 Phil., 1046). In other words,
it has been the holding, and it must again be the
holding, that where an Act of the Legislature which
penalizes an offense, such repeals a former Act which
penalized the same offense, such repeal does not have
the effect of thereafter depriving the courts of
jurisdiction to try, convict, and sentenced offenders
charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine
National Bank, in violation of section 35 of Act No.
2747, penalized by this law?
Counsel argue that since the prohibition contained in
section 35 of Act No. 2747 is on the bank, and since
section 49 of said Act provides a punishment not on
the bank when it violates any provisions of the law, but
on a person violating any provisions of the same, and
imposing imprisonment as a part of the penalty, the
prohibition contained in said section 35 is without
penal sanction.lawph!l.net
The answer is that when the corporation itself is
forbidden to do an act, the prohibition extends to the
board of directors, and to each director separately and
individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio
Concepcion, President of the Philippine National Bank,
in extending the credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." constitute
a legal defense?
Counsel argue that if defendant committed the acts of
which he was convicted, it was because he was misled
by rulings coming from the Insular Auditor. It is
furthermore stated that since the loans made to the
copartnership "Puno y Concepcion, S. en C." have been
paid, no loss has been suffered by the Philippine
National Bank.
Neither argument, even if conceded to be true, is
conclusive. Under the statute which the defendant has
violated, criminal intent is not necessarily material.
The doing of the inhibited act, inhibited on account of
public policy and public interest, constitutes the crime.
And, in this instance, as previously demonstrated, the
acts of the President of the Philippine National Bank do
not fall within the purview of the rulings of the Insular
Auditor, even conceding that such rulings have
controlling effect.
Morse, in his work, Banks and Banking, section 125,
says:
4
It is fraud for directors to secure by means of their
trust, and advantage not common to the other
stockholders. The law will not allow private profit from
a trust, and will not listen to any proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference

to the decision of the trial court, and the errors
assigned by the appellant, and with reference to
previous decisions of this court on the same subject,
we are irresistibly led to the conclusion that no
reversible error was committed in the trial of this case,
and that the defendant has been proved guilty beyond
a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge
falls within the limits of the punitive provisions of the
law.

5
 2. DBP V GUARINA
The foreclosure of a mortgage prior to the mortgagor's
default on the principal obligation is premature, and
should be undone for being void and ineffectual. The
mortgagee who has been meanwhile given possession
of the mortgaged property by virtue of a writ of
possession issued to it as the purchaser at the
foreclosure sale may be required to restore the
possession of the property to the mortgagor and to
pay reasonable rent for the use of the property during
the intervening period.
The Case
In this appeal, Development Bank of the Philippines
(DBP) seeks the reversal of the adverse decision
promulgated on March 26, 2003 in C.A.-G.R. CV No.
59491,1 whereby the Court of Appeals (CA) upheld the
judgment rendered on January 6, 19982 by the
Regional Trial Court, Branch 25, in Iloilo City (RTC)
annulling the extra-judicial foreclosure of the real
estate and chattel mortgages at the instance of DBP
because the debtor-mortgagor, Guaria Agricultural
and Realty Development Corporation (Guaria
Corporation), had not yet defaulted on its obligations
in favor of DBP.
Antecedents
In July 1976, Guaria Corporation applied for a loan
from DBP to finance the development of its resort
complex situated in Trapiche, Oton, Iloilo. The loan, in
the amount of P3,387,000.00, was approved on August
5, 1976.3 Guaria Corporation executed a promissory
note that would be due on November 3, 1988.4 On
October 5, 1976, Guaria Corporation executed a real
estate mortgage over several real properties in favor
of DBP as security for the repayment of the loan. On
May 17, 1977, Guaria Corporation executed a chattel
mortgage over the personal properties existing at the
resort complex and those yet to be acquired out of the
proceeds of the loan, also to secure the performance
of the obligation.5 Prior to the release of the loan, DBP
required Guaria Corporation to put up a cash equity
of P1,470,951.00 for the construction of the buildings
and other improvements on the resort complex.
The loan was released in several instalments, and
Guaria Corporation used the proceeds to defray the
cost of additional improvements in the resort complex.
In all, the amount released totalled P3,003,617.49,
from which DBP withheld P148,102.98 as interest.6
Guaria Corporation demanded the release of the
balance of the loan, but DBP refused. Instead, DBP
directly paid some suppliers of Guaria Corporation
over the latter's objection. DBP found upon inspection
of the resort project, its developments and
improvements that Guaria Corporation had not
completed the construction works.7 In a letter dated
February 27, 1978,8 and a telegram dated June 9,
1978,9 DBP thus demanded that Guaria Corporation
expedite the completion of the project, and warned
that it would initiate foreclosure proceedings should
Guaria Corporation not do so.10
Unsatisfied with the non-action and objection of
Guaria Corporation, DBP initiated extrajudicial
foreclosure proceedings. A notice of foreclosure sale
was sent to Guaria Corporation. The notice was
eventually published, leading the clients and patrons
6
of Guaria Corporation to think that its business
operation had slowed down, and that its resort had
already closed.11
On January 6, 1979, Guaria Corporation sued DBP in
the RTC to demand specific performance of the latter's
obligations under the loan agreement, and to stop the
foreclosure of the mortgages (Civil Case No. 12707).12
However, DBP moved for the dismissal of the
complaint, stating that the mortgaged properties had
already been sold to satisfy the obligation of Guaria
Corporation at a public auction held on January 15,
1979 at the Costa Mario Resort Beach Resort in Oton,
Iloilo.13 Due to this, Guaria Corporation amended the
complaint on February 6, 197914 to seek the
nullification of the foreclosure proceedings and the
cancellation of the certificate of sale. DBP filed its
answer on December 17, 1979,15 and trial followed
upon the termination of the pre-trial without any
agreement being reached by the parties.16
In the meantime, DBP applied for the issuance of a writ
of possession by the RTC. At first, the RTC denied the
application but later granted it upon DBP's motion for
reconsideration. Aggrieved, Guaria Corporation
assailed the granting of the application before the CA
on certiorari (C.A.-G.R. No. 12670-SP entitled Guaria
Agricultural and Realty Development Corporation v.
Development Bank of the Philippines). After the CA
dismissed the petition for certiorari, DBP sought the
implementation of the order for the issuance of the
writ of possession. Over Guaria Corporation's
opposition, the RTC issued the writ of possession on
June 16, 1982.17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in
Civil Case No. 12707, disposing as follows:
WHEREFORE, premises considered, the court hereby
resolves that the extra-judicial sales of the mortgaged
properties of the plaintiff by the Office of the Provincial
Sheriff of Iloilo on January 15, 1979 are null and void,
so with the consequent issuance of certificates of sale
to the defendant of said properties, the registration
thereof with the Registry of Deeds and the issuance of
the transfer certificates of title involving the real
property in its name.
It is also resolved that defendant give back to the
plaintiff or its representative the actual possession and
enjoyment of all the properties foreclosed and
possessed by it. To pay the plaintiff the reasonable
rental for the use of its beach resort during the period
starting from the time it (defendant) took over its
occupation and use up to the time possession is
actually restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant
the loan it obtained as soon as it takes possession and
management of the beach resort and resume its
business operation.
Furthermore, defendant is ordered to pay plaintiff's
attorney's fee of P50,000.00.
So ORDERED.18
Decision of the CA
7
On appeal (C.A.-G.R. CV No. 59491), DBP challenged
the judgment of the RTC, and insisted that:
I THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S
THE TRIAL COURT ERRED AND COMMITTED
REVERSIBLE ERROR IN DECLARING DBP'S
FORECLOSURE OF THE MORTGAGED PROPERTIES AS
INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING
THE GROUNDS INVOKED BY DBP TO JUSTIFY
FORECLOSURE AS "NOT SUFFICIENT." ON THE
CONTRARY, THE MORTGAGE WAS FORECLOSED BY
EXPRESS AUTHORITY OF PARAGRAPH NO. 4 OF THE
MORTGAGE CONTRACT AND SECTION 2 OF P.D. 385 IN
ADDITION TO THE QUESTIONED PAR. NO. 26 PRINTED
AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE
CONRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF
THE MORTGAGED PROPERTIES TO DBP AS INVALID
UNDER ARTICLES 2113 AND 2141 OF THE CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED
[REVERSIBLE] ERROR IN ORDERING DBP TO RETURN
TO PLAINTIFF THE ACTUAL POSSESSION AND
ENJOYMENT OF ALL THE FORECLOSED PROPERTIES
AND TO PAY PLAINTIFF REASONABLE RENTAL FOR THE
USE OF THE FORECLOSED BEACH RESORT.
V
FEES AGAINST DBP WHICH MERELY EXERCISED ITS
RIGHTS UNDER THE MORTGAGE CONTRACT.19
In its decision promulgated on March 26, 2003,20
however, the CA sustained the RTC's judgment but
deleted the award of attorney's fees, decreeing:
WHEREFORE, in view of the foregoing, the Decision
dated January 6, 1998, rendered by the Regional Trial
Court of Iloilo City, Branch 25 in Civil Case No. 12707
for Specific Performance with Preliminary Injunction is
hereby AFFIRMED with MODIFICATION, in that the
award for attorney's fees is deleted.
SO ORDERED.21
DBP timely filed a motion for reconsideration, but the
CA denied its motion on October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration,
namely:
WHETHER OR NOT THE DECISION OF THE COURT OF
APPEALS DATED MARCH 26, 2003 AND ITS
RESOLUTION DATED OCTOBER 9, DENYING
PETITIONER'S MOTION FOR RECONSIDERATION WERE
ISSUED IN ACCORDANCE WITH LAW, PREVAILING
8
JURISPRUDENTIAL DECISION AND SUPPORTED BY
EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ADHERED TO THE USUAL COURSE OF
JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV NO.
59491 AND THEREFORE IN ACCORDANCE WITH THE
"LAW OF THE CASE DOCTRINE."22
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its
supervised credit financing scheme for the
development of a beach resort, and the releases of the
proceeds would be subject to conditions that included
the verification of the progress of works in the project
to forestall diversion of the loan proceeds; and that
under Stipulation No. 26 of the mortgage contract,
further loan releases would be terminated and the
account would be considered due and demandable in
the event of a deviation from the purpose of the
loan,23 including the failure to put up the required
equity and the diversion of the loan proceeds to other
purposes.24 It assails the declaration by the CA that
Guaria Corporation had not yet been in default in its
obligations despite violations of the terms of the
mortgage contract securing the promissory note.
Guaria Corporation counters that it did not violate the
terms of the promissory note and the mortgage
contracts because DBP had fully collected the interest
notwithstanding that the principal obligation did not
yet fall due and become demandable.25
The submissions of DBP lack merit and substance.
The agreement between DBP and Guaria Corporation
was a loan. Under the law, a loan requires the delivery
of money or any other consumable object by one party
to another who acquires ownership thereof, on the
condition that the same amount or quality shall be
paid.26 Loan is a reciprocal obligation, as it arises from
the same cause where one party is the creditor, and
the other the debtor.27 The obligation of one party in a
reciprocal obligation is dependent upon the obligation
of the other, and the performance should ideally be
simultaneous. This means that in a loan, the creditor
should release the full loan amount and the debtor
repays it when it becomes due and demandable.28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan
from appellant, and as security, executed real estate
and chattel mortgages. However, it was never
established that appellee was already in default.
Appellant, in a telegram to the appellee reminded the
latter to make good on its construction works,
otherwise, it would foreclose the mortgage it executed.
It did not mention that appellee was already in default.
The records show that appellant did not make any
demand for payment of the promissory note. It
9
appears that the basis of the foreclosure was not a
default on the loan but appellee's failure to complete
the project in accordance with appellant's standards.
In fact, appellant refused to release the remaining
balance of the approved loan after it found that the
improvements introduced by appellee were below
appellant's expectations.
The loan agreement between the parties is a reciprocal
obligation. Appellant in the instant case bound itself to
grant appellee the loan amount of P3,387,000.00
condition on appellee's payment of the amount when it
falls due. Furthermore, the loan was evidenced by the
promissory note which was secured by real estate
mortgage over several properties and additional
chattel mortgage. Reciprocal obligations are those
which arise from the same cause, and in which each
party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation
of the other (Areola vs. Court of Appeals, 236 SCRA
643). They are to be performed simultaneously such
that the performance of one is conditioned upon the
simultaneous fulfilment of the other (Jaime Ong vs.
Court of Appeals, 310 SCRA 1). The promise of
appellee to pay the loan upon due date as well as to
execute sufficient security for said loan by way of
mortgage gave rise to a reciprocal obligation on the
part of appellant to release the entire approved loan
amount. Thus, appellees are entitled to receive the
total loan amount as agreed upon and not an
incomplete amount.
The appellant did not release the total amount of the
approved loan. Appellant therefore could not have
made a demand for payment of the loan since it had
yet to fulfil its own obligation. Moreover, the fact that
appellee was not yet in default rendered the
foreclosure proceedings premature and improper.
The properties which stood as security for the loan
were foreclosed without any demand having been
made on the principal obligation. For an obligation to
become due, there must generally be a demand.
Default generally begins from the moment the creditor
demands the performance of the obligation. Without
such demand, judicial or extrajudicial, the effects of
default will not arise (Namarco vs. Federation of United
Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI
of Misamis Occidental, 88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed
to release the full amount of the approved loan. As a
consequence, the real estate mortgage of appellee
becomes unenforceable, as it cannot be entirely
foreclosed to satisfy appellee's total debt to appellant
(Central Bank of the Philippines vs. Court of Appeals,
139 SCRA 46).
Since the foreclosure proceedings were premature and
unenforceable, it only follows that appellee is still
entitled to possession of the foreclosed properties.
However, appellant took possession of the same by
virtue of a writ of possession issued in its favor during
the pendency of the case. Thus, the trial court
correctly ruled when it ordered appellant to return
actual possession of the subject properties to appellee
or its representative and to pay appellee reasonable
rents.
10
However, the award for attorney's fees is deleted. As a
rule, the award of attorney's fees is the exception
rather than the rule and counsel's fees are not to be
awarded every time a party wins a suit. Attorney's fees
cannot be recovered as part of damages because of
the policy that no premium should be placed on the
right to litigate (Pimentel vs. Court of Appeals, et al.,
307 SCRA 38).29
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed
the factual findings of the RTC, the Court is bound to
uphold such findings, for it is axiomatic that the trial
court's factual findings as affirmed by the CA are
binding on appeal due to the Court not being a trier of
facts.
Secondly, by its failure to release the proceeds of the
loan in their entirety, DBP had no right yet to exact on
Guaria Corporation the latter's compliance with its
own obligation under the loan. Indeed, if a party in a
reciprocal contract like a loan does not perform its
obligation, the other party cannot be obliged to
perform what is expected of it while the other's
obligation remains unfulfilled.30 In other words, the
latter party does not incur delay.31
Still, DBP called upon Guaria Corporation to make
good on the construction works pursuant to the
acceleration clause written in the mortgage contract
(i.e., Stipulation No. 26),32 or else it would foreclose
the mortgages.
DBP's actuations were legally unfounded. It is true that
loans are often secured by a mortgage constituted on
real or personal property to protect the creditor's
interest in case of the default of the debtor. By its
nature, however, a mortgage remains an accessory
contract dependent on the principal obligation,33 such
that enforcement of the mortgage contract will depend
on whether or not there has been a violation of the
principal obligation. While a creditor and a debtor
could regulate the order in which they should comply
with their reciprocal obligations, it is presupposed that
in a loan the lender should perform its obligation - the
release of the full loan amount - before it could
demand that the borrower repay the loaned amount. In
other words, Guaria Corporation would not incur in
delay before DBP fully performed its reciprocal
obligation.34
Considering that it had yet to release the entire
proceeds of the loan, DBP could not yet make an
effective demand for payment upon Guaria
Corporation to perform its obligation under the loan.
According to Development Bank of the Philippines v.
Licuanan,35 it would only be when a demand to pay
had been made and was subsequently refused that a
borrower could be considered in default, and the
lender could obtain the right to collect the debt or to
foreclose the mortgage.1wphi1 Hence, Guaria
Corporation would not be in default without the
demand.
Assuming that DBP could already exact from the latter
its compliance with the loan agreement, the letter
dated February 27, 1978 that DBP sent would still not
be regarded as a demand to render Guaria
Corporation in default under the principal contract
11
because DBP was only thereby requesting the latter
"to put up the deficiency in the value of
improvements."36
Under the circumstances, DBP's foreclosure of the
mortgage and the sale of the mortgaged properties at
its instance were premature, and, therefore, void and
ineffectual.37
Being a banking institution, DBP owed it to Guaria
Corporation to exercise the highest degree of
diligence, as well as to observe the high standards of
integrity and performance in all its transactions
because its business was imbued with public
interest.38 The high standards were also necessary to
ensure public confidence in the banking system, for,
according to Philippine National Bank v. Pike:39 "The
stability of banks largely depends on the confidence of
the people in the honesty and efficiency of banks."
Thus, DBP had to act with great care in applying the
stipulations of its agreement with Guaria Corporation,
lest it erodes such public confidence. Yet, DBP failed in
its duty to exercise the highest degree of diligence by
prematurely foreclosing the mortgages and
unwarrantedly causing the foreclosure sale of the
mortgaged properties despite Guaria Corporation not
being yet in default. DBP wrongly relied on Stipulation
No. 26 as its basis to accelerate the obligation of
Guaria Corporation, for the stipulation was relevant to
an Omnibus Agricultural Loan, to Guaria Corporation's
loan which was intended for a project other than
agricultural in nature.
Even so, Guaria Corporation did not elevate the
actionability of DBP's negligence to the CA, and did not
also appeal the CA's deletion of the award of
attorney's fees allowed by the RTC.1wphi1 With the
decision of the CA consequently becoming final and
immutable as to Guaria Corporation, we will not delve
any further on DBP's actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No.
12670-SP already constituted the law of the case.
Hence, the CA could not decide the appeal in C.A.-G.R.
CV No. 59491 differently.
Guaria Corporation counters that the ruling in C.A.-
G.R. No. 12670-SP did not constitute the law of the
case because C.A.-G.R. No. 12670-SP concerned the
issue of possession by DBP as the winning bidder in
the foreclosure sale, and had no bearing whatsoever to
the legal issues presented in C.A.-G.R. CV No. 59491.
Law of the case has been defined as the opinion
delivered on a former appeal, and means, more
specifically, that whatever is once irrevocably
established as the controlling legal rule of decision
between the same parties in the same case continues
to be the law of the case, whether correct on general
principles or not, so long as the facts on which such
decision was predicated continue to be the facts of the
case before the court.40
The concept of law of the case is well explained in
Mangold v. Bacon,41 an American case, thusly:
The general rule, nakedly and boldly put, is that legal
conclusions announced on a first appeal, whether on
12
the general law or the law as applied to the concrete
facts, not only prescribe the duty and limit the power
of the trial court to strict obedience and conformity
thereto, but they become and remain the law of the
case in all other steps below or above on subsequent
appeal. The rule is grounded on convenience,
experience, and reason. Without the rule there would
be no end to criticism, reagitation, reexamination, and
reformulation. In short, there would be endless
litigation. It would be intolerable if parties litigants
were allowed to speculate on changes in the personnel
of a court, or on the chance of our rewriting
propositions once gravely ruled on solemn argument
and handed down as the law of a given case. An itch to
reopen questions foreclosed on a first appeal would
result in the foolishness of the inquisitive youth who
pulled up his corn to see how it grew. Courts are
allowed, if they so choose, to act like ordinary sensible
persons. The administration of justice is a practical
affair. The rule is a practical and a good one of
frequent and beneficial use.
The doctrine of law of the case simply means,
therefore, that when an appellate court has once
declared the law in a case, its declaration continues to
be the law of that case even on a subsequent appeal,
notwithstanding that the rule thus laid down may have
been reversed in other cases.42 For practical
considerations, indeed, once the appellate court has
issued a pronouncement on a point that was presented
to it with full opportunity to be heard having been
accorded to the parties, the pronouncement should be
regarded as the law of the case and should not be
reopened on remand of the case to determine other
issues of the case, like damages.43 But the law of the
case, as the name implies, concerns only legal
questions or issues thereby adjudicated in the former
appeal.
The foregoing understanding of the concept of the law
of the case exposes DBP's insistence to be
unwarranted.
To start with, the ex parte proceeding on DBP's
application for the issuance of the writ of possession
was entirely independent from the judicial demand for
specific performance herein. In fact, C.A.-G.R. No.
12670-SP, being the interlocutory appeal concerning
the issuance of the writ of possession while the main
case was pending, was not at all intertwined with any
legal issue properly raised and litigated in C.A.-G.R. CV
No. 59491, which was the appeal to determine
whether or not DBP's foreclosure was valid and
effectual. And, secondly, the ruling in C.A.-G.R. No.
12670-SP did not settle any question of law involved
herein because this case for specific performance was
not a continuation of C.A.-G.R. No. 12670-SP (which
was limited to the propriety of the issuance of the writ
of possession in favor of DBP), and vice versa.
3.
Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
Having found and pronounced that the extrajudicial
foreclosure by DBP was premature, and that the
ensuing foreclosure sale was void and ineffectual, the
Court affirms the order for the restoration of
possession to Guarifia Corporation and the payment of
reasonable rentals for the use of the resort. The CA
properly held that the premature and invalid
13
foreclosure had unjustly dispossessed Guarifia
Corporation of its properties. Consequently, the
restoration of possession and the payment of
reasonable rentals were in accordance with Article 561
of the Civil Code, which expressly states that one who
recovers, according to law, possession unjustly lost
shall be deemed for all purposes which may redound
to his benefit to have enjoyed it without interruption.

WHEREFORE, the Court AFFIRMS the decision

promulgated on March 26, 2003; and ORDERS the
petitioner to pay the costs of suit.

SO ORDERED.

14
 3. DELOS SANTOS V JARRA
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.
15
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:
16
ART. 1740. By the contract of loan, one of the parties
delivers to the other, either anything not perishable, in
order that the latter may use it during a certain period
and return it to the former, in which case it is called
commodatum, or money or any other perishable thing,
under the condition to return an equal amount of the
same kind and quality, in which case it is merely called
a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a
stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership
of the thing loaned. The bailee acquires the use
thereof, but not its fruits; if any compensation is
involved, to be paid by the person requiring the use,
the agreement ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from
the commodatum pass to the heirs of both contracting
parties, unless the loan has been in consideration for
the person of the bailee, in which case his heirs shall
not have the right to continue using the thing loaned.
The carabaos delivered to be used not being returned
by the defendant upon demand, there is no doubt that
she is under obligation to indemnify the owner thereof
by paying him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of
fraud, negligence, or delay, and those who in any
manner whatsoever act in contravention of the
stipulations of the same, shall be subjected to
indemnify for the losses and damages caused thereby.
The obligation of the bailee or of his successors to
return either the thing loaned or its value, is sustained
by the supreme tribunal of Sapin. In its decision of
March 21, 1895, it sets out with precision the legal
doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum
the bailor retains the ownership of the thing loaned,
and at the expiration of the period, or after the use for
which it was loaned has been accomplished, it is the
imperative duty of the bailee to return the thing itself
to its owner, or to pay him damages if through the
fault of the bailee the thing should have been lost or
injured, it is clear that where public securities are
involved, the trial court, in deferring to the claim of the
bailor that the amount loaned be returned him by the
bailee in bonds of the same class as those which
constituted the contract, thereby properly applies law
9 of title 11 of partida 5.
With regard to the third assignment of error, based on
the fact that the plaintiff Santos had not appealed from
the decision of the commissioners rejecting his claim
for the recovery of his carabaos, it is sufficient to
estate that we are not dealing with a claim for the
payment of a certain sum, the collection of a debt from
the estate, or payment for losses and damages (sec.
119, Code of Civil Procedure), but with the exclusion
from the inventory of the property of the late Jimenea,
or from his capital, of six carabaos which did not
belong to him, and which formed no part of the
inheritance.
17
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.

18
 4. SAURA IMPORT & EXPORT CO., INC. V DBP
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
TOTAL 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
19
up a bond for P123,500.00, an amount equivalent to
such subscription; and that Maria S. Roca would be
substituted for Inocencia Arellano as one of the other
co-makers, having acquired the latter's shares in
Saura, Inc.
In view of such request RFC approved Resolution No.
736 on February 4, 1954, designating of the members
of its Board of Governors, for certain reasons stated in
the resolution, "to reexamine all the aspects of this
approved loan ... with special reference as to the
advisability of financing this particular project based
on present conditions obtaining in the operations of
jute mills, and to submit his findings thereon at the
next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China
Engineers, Ltd. had again agreed to act as co-signer
for the loan, and asked that the necessary documents
be prepared in accordance with the terms and
conditions specified in Resolution No. 145. In
connection with the reexamination of the project to be
financed with the loan applied for, as stated in
Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet
with each other and undertake the necessary studies,
although in appointing its own committee Saura, Inc.
made the observation that the same "should not be
taken as an acquiescence on (its) part to novate, or
accept new conditions to, the agreement already)
entered into," referring to its acceptance of the terms
and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed:
the promissory note, with F.R. Halling, representing
China Engineers, Ltd., as one of the co-signers; and
the corresponding deed of mortgage, which was duly
registered on the following April 17.
It appears, however, that despite the formal execution
of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a
meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc.,
was present, it was decided to reduce the loan from
P500,000.00 to P300,000.00. Resolution No. 3989 was
approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted
Saura Import & Export Co., Inc. under Resolution No.
145, C.S., from P500,000.00 to P300,000.00. Pursuant
to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan
granted the Saura Import & Export Co. under
Resolution No. 145, c.s., for the purpose of financing
the manufacture of jute sacks in Davao, with special
reference as to the advisability of financing this
particular project based on present conditions
obtaining in the operation of jute mills, and after
having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon
recommendation of the Chairman, RESOLVED that the
loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that
releases up to P100,000 may be authorized as may be
necessary from time to time to place the factory in
actual operation: PROVIDED that all terms and
conditions of Resolution No. 145, c.s., not inconsistent
herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling,
who had signed the promissory note for China
20
Engineers Ltd. jointly and severally with the other RFC
that his company no longer to of the loan and
therefore considered the same as cancelled as far as it
was concerned. A follow-up letter dated July 2
requested RFC that the registration of the mortgage be
withdrawn.
In the meantime Saura, Inc. had written RFC
requesting that the loan of P500,000.00 be granted.
The request was denied by RFC, which added in its
letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 ... in view of a
notification ... from the China Engineers Ltd.,
expressing their desire to consider the loan insofar as
they are concerned."
On July 24, 1954 Saura, Inc. took exception to the
cancellation of the loan and informed RFC that China
Engineers, Ltd. "will at any time reinstate their
signature as co-signer of the note if RFC releases to us
the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No.
9083, restoring the loan to the original amount of
P500,000.00, "it appearing that China Engineers, Ltd.
is now willing to sign the promissory notes jointly with
the borrower-corporation," but with the following
proviso:
That in view of observations made of the shortage and
high cost of imported raw materials, the Department
of Agriculture and Natural Resources shall certify to
the following:
1. That the raw materials needed by the borrower-
corporation to carry out its operation are available in
the immediate vicinity; and
2. That there is prospect of increased production
thereof to provide adequately for the requirements of
the factory."
The action thus taken was communicated to Saura,
Inc. in a letter of RFC dated December 22, 1954,
wherein it was explained that the certification by the
Department of Agriculture and Natural Resources was
required "as the intention of the original approval (of
the loan) is to develop the manufacture of sacks on the
basis of locally available raw materials." This point is
important, and sheds light on the subsequent
actuations of the parties. Saura, Inc. does not deny
that the factory he was building in Davao was for the
manufacture of bags from local raw materials. The
cover page of its brochure (Exh. M) describes the
project as a "Joint venture by and between the
Mindanao Industry Corporation and the Saura Import
and Export Co., Inc. to finance, manage and operate a
Kenaf mill plant, to manufacture copra and corn bags,
runners, floor mattings, carpets, draperies; out of
100% local raw materials, principal kenaf." The
explanatory note on page 1 of the same brochure
states that, the venture "is the first serious attempt in
this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially
in theIsland of Mindanao where the proposed jutemill is
located ..."
This fact, according to defendant DBP, is what moved
RFC to approve the loan application in the first place,
and to require, in its Resolution No. 9083, a
21
certification from the Department of Agriculture and
Natural Resources as to the availability of local raw
materials to provide adequately for the requirements
of the factory. Saura, Inc. itself confirmed the
defendant's stand impliedly in its letter of January 21,
1955: (1) stating that according to a special study
made by the Bureau of Forestry "kenaf will not be
available in sufficient quantity this year or probably
even next year;" (2) requesting "assurances (from
RFC) that my company and associates will be able to
bring in sufficient jute materials as may be necessary
for the full operation of the jute mill;" and (3) asking
that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the
following reply:
Dear Sirs:
This is with reference to your letter of January 21,
1955, regarding the release of your loan under
consideration of P500,000. As stated in our letter of
December 22, 1954, the releases of the loan, if
revived, are proposed to be made from time to time,
subject to availability of funds towards the end that
the sack factory shall be placed in actual operating
status. We shall be able to act on your request for
revised purpose and manner of releases upon re-
appraisal of the securities offered for the loan.
With respect to our requirement that the Department
of Agriculture and Natural Resources certify that the
raw materials needed are available in the immediate
vicinity and that there is prospect of increased
production thereof to provide adequately the
requirements of the factory, we wish to reiterate that
the basis of the original approval is to develop the
manufacture of sacks on the basis of the locally
available raw materials. Your statement that you will
have to rely on the importation of jute and your
request that we give you assurance that your company
will be able to bring in sufficient jute materials as may
be necessary for the operation of your factory, would
not be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a
standstill. Saura, Inc. did not pursue the matter further.
Instead, it requested RFC to cancel the mortgage, and
so, on June 17, 1955 RFC executed the corresponding
22
deed of cancellation and delivered it to Ramon F. Saura
himself as president of Saura, Inc.
It appears that the cancellation was requested to make
way for the registration of a mortgage contract,
executed on August 6, 1954, over the same property in
favor of the Prudential Bank and Trust Co., under which
contract Saura, Inc. had up to December 31 of the
same year within which to pay its obligation on the
trust receipt heretofore mentioned. It appears further
that for failure to pay the said obligation the Prudential
Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage
in favor of RFC was cancelled at the request of Saura,
Inc., the latter commenced the present suit for
damages, alleging failure of RFC (as predecessor of the
defendant DBP) to comply with its obligation to release
the proceeds of the loan applied for and approved,
thereby preventing the plaintiff from completing or
paying contractual commitments it had entered into, in
connection with its jute mill project.
The trial court rendered judgment for the plaintiff,
ruling that there was a perfected contract between the
parties and that the defendant was guilty of breach
thereof. The defendant pleaded below, and reiterates
in this appeal: (1) that the plaintiff's cause of action
had prescribed, or that its claim had been waived or
abandoned; (2) that there was no perfected contract;
and (3) that assuming there was, the plaintiff itself did
not comply with the terms thereof.
We hold that there was indeed a perfected consensual
contract, as recognized in Article 1934 of the Civil
Code, which provides:
ART. 1954. An accepted promise to deliver
something, by way of commodatum or simple loan is
binding upon the parties, but the commodatum or
simple loan itself shall not be perferted until the
delivery of the object of the contract.
There was undoubtedly offer and acceptance in this
case: the application of Saura, Inc. for a loan of
P500,000.00 was approved by resolution of the
defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short
of resolving the basic claim that the defendant failed
to fulfill its obligation and the plaintiff is therefore
entitled to recover damages.
It should be noted that RFC entertained the loan
application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown
raw materials, principally kenaf. There is no serious
dispute about this. It was in line with such assumption
that when RFC, by Resolution No. 9083 approved on
December 17, 1954, restored the loan to the original
amount of P500,000.00. it imposed two conditions, to
wit: "(1) that the raw materials needed by the
borrower-corporation to carry out its operation are
available in the immediate vicinity; and (2) that there
is prospect of increased production thereof to provide
adequately for the requirements of the factory." The
imposition of those conditions was by no means a
deviation from the terms of the agreement, but rather
a step in its implementation. There was nothing in said
conditions that contradicted the terms laid down in
RFC Resolution No. 145, passed on January 7, 1954,
namely "that the proceeds of the loan shall be
utilized exclusively for the following purposes: for
23
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.
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.

When RFC turned down the request in its letter of WHEREFORE, the judgment appealed from is reversed
January 25, 1955 the negotiations which had been and the complaint dismissed, with costs against the
going on for the implementation of the agreement plaintiff-appellee.
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

24
 5. NAGUIAT V CA
Before us is a Petition for Review on Certiorari under
Rule 45, assailing the decision of the Sixteenth Division
of the respondent Court of Appeals promulgated on 21
December 1994[1], which affirmed in toto the decision
handed down by the Regional Trial Court (RTC) of Pasay
City.[2]
The case arose when on 11 August 1981, private
respondent Aurora Queao (Queao) filed a complaint
before the Pasay City RTC for cancellation of a Real
Estate Mortgage she had entered into with petitioner
Celestina Naguiat (Naguiat). The RTC rendered a
decision, declaring the questioned Real Estate
Mortgage void, which Naguiat appealed to the Court of
Appeals. After the Court of Appeals upheld the RTC
decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of
Two Hundred Thousand Pesos (P200,000.00), which
Naguiat granted. On 11 August 1980, Naguiat indorsed
to Queao Associated Bank Check No. 090990 (dated
11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued
to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank
Check No. 065314, to the order of Queao, also dated
11 August 1980 and for the amount of Ninety Five
Thousand Pesos (P95,000.00). The proceeds of these
checks were to constitute the loan granted by Naguiat
to Queao.[3]
To secure the loan, Queao executed a Deed of Real
Estate Mortgage dated 11 August 1980 in favor of
Naguiat, and surrendered to the latter the owners
duplicates of the titles covering the mortgaged
properties.[4] On the same day, the mortgage deed
was notarized, and Queao issued to Naguiat a
promissory note for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00), with interest at 12%
per annum, payable on 11 September 1980.[5] Queao
also issued a Security Bank and Trust Company check,
postdated 11 September 1980, for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00) and
payable to the order of Naguiat.
Upon presentment on its maturity date, the Security
Bank check was dishonored for insufficiency of funds.
On the following day, 12 September 1980, Queao
requested Security Bank to stop payment of her
postdated check, but the bank rejected the request
pursuant to its policy not to honor such requests if the
check is drawn against insufficient funds.[6]
On 16 October 1980, Queao received a letter from
Naguiats lawyer, demanding settlement of the loan.
Shortly thereafter, Queao and one Ruby Ruebenfeldt
(Ruebenfeldt) met with Naguiat. At the meeting,
Queao told Naguiat that she did not receive the
proceeds of the loan, adding that the checks were
retained by Ruebenfeldt, who purportedly was
Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the
mortgage with the Sheriff of Rizal Province, who then
scheduled the foreclosure sale on 14 August 1981.
Three days before the scheduled sale, Queao filed the
case before the Pasay City RTC,[8] seeking the
25
annulment of the mortgage deed. The trial court
eventually stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment,
declaring the Deed of Real Estate Mortgage null and
void, and ordering Naguiat to return to Queao the
owners duplicates of her titles to the mortgaged lots.
[10] Naguiat appealed the decision before the Court of
Appeals, making no less than eleven assignments of
error. The Court of Appeals promulgated the decision
now assailed before us that affirmed in toto the RTC
decision. Hence, the present petition.
Naguiat questions the findings of facts made by the
Court of Appeals, especially on the issue of whether
Queao had actually received the loan proceeds which
were supposed to be covered by the two checks
Naguiat had issued or indorsed. Naguiat claims that
being a notarial instrument or public document, the
mortgage deed enjoys the presumption that the
recitals therein are true. Naguiat also questions the
admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on
the non-binding effect of the admissions of third
persons.[11]
The resolution of the issues presented before this
Court by Naguiat involves the determination of facts, a
function which this Court does not exercise in an
appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be
raised[12] as the Supreme Court is not a trier of facts.
[13] The resolution of factual issues is the function of
lower courts, whose findings on these matters are
received with respect and are in fact generally binding
on the Supreme Court.[14] A question of law which the
Court may pass upon must not involve an examination
of the probative value of the evidence presented by
the litigants.[15] There is a question of law in a given
case when the doubt or difference arises as to what
the law is on a certain state of facts; there is a
question of fact when the doubt or difference arises as
to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on
the conclusiveness of the findings of facts of the lower
courts.[17] But Naguiats case does not fall under any
of the exceptions. In any event, both the decisions of
the appellate and trial courts are supported by the
evidence on record and the applicable laws.
Against the common finding of the courts below,
Naguiat vigorously insists that Queao received the loan
proceeds. Capitalizing on the status of the mortgage
deed as a public document, she cites the rule that a
public document enjoys the presumption of validity
and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of
truthfulness of the recitals in a public document was
defeated by the clear and convincing evidence in this
case that pointed to the absence of consideration.[18]
This Court has held that the presumption of
truthfulness engendered by notarized documents is
rebuttable, yielding as it does to clear and convincing
evidence to the contrary, as in this case.[19]
On the other hand, absolutely no evidence was
submitted by Naguiat that the checks she issued or
endorsed were actually encashed or deposited. The
mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code
provides that the delivery of bills of exchange and
26
mercantile documents such as checks shall produce
the effect of payment only when they have been
cashed.[20] It is only after the checks have produced
the effect of payment that the contract of loan may be
deemed perfected. Art. 1934 of the Civil Code
provides:
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself
shall not be perfected until the delivery of the object of
the contract.
A loan contract is a real contract, not consensual, and,
as such, is perfected only upon the delivery of the
object of the contract.[21] In this case, the objects of
the contract are the loan proceeds which Queao would
enjoy only upon the encashment of the checks signed
or indorsed by Naguiat. If indeed the checks were
encashed or deposited, Naguiat would have certainly
presented the corresponding documentary evidence,
such as the returned checks and the pertinent bank
records. Since Naguiat presented no such proof, it
follows that the checks were not encashed or credited
to Queaos account.
Naguiat questions the admissibility of the various
written representations made by Ruebenfeldt on the
ground that they could not bind her following the res
inter alia acta alteri nocere non debet rule. The Court
of Appeals rejected the argument, holding that since
Ruebenfeldt was an authorized representative or agent
of Naguiat the situation falls under a recognized
exception to the rule.[22] Still, Naguiat insists that
Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency
relationship between Naguiat and Ruebenfeldt is
supported by ample evidence. As correctly pointed out
by the Court of Appeals, Ruebenfeldt was not a
stranger or an unauthorized person. Naguiat instructed
Ruebenfeldt to withhold from Queao the checks she
issued or indorsed to Queao, pending delivery by the
latter of additional collateral. Ruebenfeldt served as
agent of Naguiat on the loan application of Queaos
friend, Marilou Farralese, and it was in connection with
that transaction that Queao came to know Naguiat.
[23] It was also Ruebenfeldt who accompanied Queao
in her meeting with Naguiat and on that occasion, on
her own and without Queao asking for it, Reubenfeldt
actually drew a check for the sum of P220,000.00
payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an
agency by estoppel[25] citing Article 1873 of the Civil
Code.[26] Apparently, it considered that at the very
least, as a consequence of the interaction between
Naguiat and Ruebenfeldt, Queao got the impression
that Ruebenfeldt was the agent of Naguiat, but
Naguiat did nothing to correct Queaos impression. In
that situation, the rule is clear. One who clothes
another with apparent authority as his agent, and
holds him out to the public as such, cannot be
permitted to deny the authority of such person to act
as his agent, to the prejudice of innocent third parties
dealing with such person in good faith, and in the
honest belief that he is what he appears to be.[27] The
Court of Appeals is correct in invoking the said rule on
agency by estoppel.
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.[28] A mortgage contract
being a mere accessory contract, its validity would
depend on the validity of the loan secured by it.[29]

WHEREFORE, the petition is denied and the assailed

decision is affirmed. Costs against petitioner.

SO ORDERED.

28
 6. GARCIA V THIO
Assailed in this petition for review on certiorari[1] are
the June 19, 2002 decision[2] and August 20, 2002
resolution[3] of the Court of Appeals (CA) in CA-G.R.
CV No. 56577 which set aside the February 28, 1997
decision of the Regional Trial Court (RTC) of Makati
City, Branch 58.
Sometime in February 1995, respondent Rica Marie S.
Thio received from petitioner Carolyn M. Garcia a
crossed check[4] dated February 24, 1995 in the
amount of US$100,000 payable to the order of a
certain Marilou Santiago.[5] Thereafter, petitioner
received from respondent every month (specifically, on
March 24, April 26, June 26 and July 26, all in 1995) the
amount of US$3,000[6] and P76,500[7] on July 26,[8]
August 26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner
another crossed check[9] dated June 29, 1995 in the
amount of P500,000, also payable to the order of
Marilou Santiago.[10] Consequently, petitioner
received from respondent the amount of P20,000
every month on August 5, September 5, October 5 and
November 5, 1995.[11]
According to petitioner, respondent failed to pay the
principal amounts of the loans (US$100,000 and
P500,000) when they fell due. Thus, on February 22,
1996, petitioner filed a complaint for sum of money
and damages in the RTC of Makati City, Branch 58
against respondent, seeking to collect the sums of
US$100,000, with interest thereon at 3% a month from
October 26, 1995 and P500,000, with interest thereon
at 4% a month from November 5, 1995, plus attorneys
fees and actual damages.[12]
Petitioner alleged that on February 24, 1995,
respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per
month, which loan would mature on October 26, 1995.
[13] The amount of this loan was covered by the first
check. On June 29, 1995, respondent again borrowed
the amount of P500,000 at an agreed monthly interest
of 4%, the maturity date of which was on November 5,
1995.[14] The amount of this loan was covered by the
second check. For both loans, no promissory note was
executed since petitioner and respondent were close
friends at the time.[15] Respondent paid the stipulated
monthly interest for both loans but on their maturity
dates, she failed to pay the principal amounts despite
repeated demands.[16]
Respondent denied that she contracted the two loans
with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She
claimed she was merely asked by petitioner to give the
crossed checks to Santiago.[17] She issued the checks
for P76,000 and P20,000 not as payment of interest
but to accommodate petitioners request that
respondent use her own checks instead of Santiagos.
[18]
In a decision dated February 28, 1997, the RTC ruled in
favor of petitioner.[19] It found that respondent
borrowed from petitioner the amounts of US$100,000
with monthly interest of 3% and P500,000 at a
monthly interest of 4%:[20]
29
WHEREFORE, finding preponderance of evidence to
sustain the instant complaint, judgment is hereby
rendered in favor of [petitioner], sentencing
[respondent] to pay the former the amount of:
1. [US$100,000.00] or its
peso equivalent with interest thereon at 3% per month
from October 26, 1995 until fully paid;
2. P500,000.00 with interest
thereon at 4% per month from November 5, 1995 until
fully paid.
3. P100,000.00 as and for
attorneys fees; and
4. P50,000.00 as and for
actual damages.
For lack of merit, [respondents] counterclaim is
perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.[21]
On appeal, the CA reversed the decision of the RTC
and ruled that there was no contract of loan between
the parties:
A perusal of the record of the case shows that
[petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There
is nothing in the record that shows that [respondent]
received money from [petitioner]. What is evident is
the fact that [respondent] received a MetroBank
[crossed] check dated February 24, 1995 in the sum of
US$100,000.00, payable to the order of Marilou
Santiago and a CityTrust [crossed] check dated June
29, 1995 in the amount of P500,000.00, again payable
to the order of Marilou Santiago, both of which were
issued by [petitioner]. The checks received by
[respondent], being crossed, may not be encashed but
only deposited in the bank by the payee thereof, that
is, by Marilou Santiago herself.
It must be noted that crossing a check has the
following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be
negotiated only onceto one who has an account with
the bank; (c) and the act of crossing the check serves
as warning to the holder that the check has been
issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by
[respondent] is not the issuance and delivery to the
payee in contemplation of law since the latter is not
the person who could take the checks as a holder, i.e.,
as a payee or indorsee thereof, with intent to transfer
title thereto. Neither could she be deemed as an agent
of Marilou Santiago with respect to the checks because
she was merely facilitating the transactions between
the former and [petitioner].
With the foregoing circumstances, it may be fairly
inferred that there were really no contracts of loan that
existed between the parties. x x x (emphasis supplied)
[22]
Hence this petition.[23]
30
As a rule, only questions of law may be raised in a
petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of
the exceptions, i.e., when the factual findings of the CA
(which held that there were no contracts of loan
between petitioner and respondent) and the RTC
(which held that there were contracts of loan) are
contradictory.[24]
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such
is perfected only upon the delivery of the object of the
contract.[25] This is evident in Art. 1934 of the Civil
Code which provides:
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself
shall not be perfected until the delivery of the object of
the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in
this case the money received by the debtor when the
checks were encashed) the debtor acquires ownership
of such money or loan proceeds and is bound to pay
the creditor an equal amount.[26]
It is undisputed that the checks were delivered to
respondent. However, these checks were crossed and
payable not to the order of respondent but to the order
of a certain Marilou Santiago. Thus the main question
to be answered is: who borrowed money from
petitioner respondent or Santiago?
Petitioner insists that it was upon respondents
instruction that both checks were made payable to
Santiago.[27] She maintains that it was also upon
respondents instruction that both checks were
delivered to her (respondent) so that she could, in
turn, deliver the same to Santiago.[28] Furthermore,
she argues that once respondent received the checks,
the latter had possession and control of them such
that she had the choice to either forward them to
Santiago (who was already her debtor), to retain them
or to return them to petitioner.[29]
We agree with petitioner. Delivery is the act by which
the res or substance thereof is placed within the actual
or constructive possession or control of another.[30]
Although respondent did not physically receive the
proceeds of the checks, these instruments were placed
in her control and possession under an arrangement
whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not
personally know Santiago.[31] It was highly
improbable that petitioner would grant two loans to a
complete stranger without requiring as much as
promissory notes or any written acknowledgment of
the debt considering that the amounts involved were
quite big. Respondent, on the other hand, already had
transactions with Santiago at that time.[32]
Second, Leticia Ruiz, a friend of both petitioner and
respondent (and whose name appeared in both parties
list of witnesses) testified that respondents plan was
for petitioner to lend her money at a monthly interest
rate of 3%, after which respondent would lend the
same amount to Santiago at a higher rate of 5% and
realize a profit of 2%.[33] This explained why
respondent instructed petitioner to make the checks
31
payable to Santiago. Respondent has not shown any
reason why Ruiz testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted
issuing her own checks in the amount of P76,000 each
(peso equivalent of US$3,000) for eight months to
cover the monthly interest. For the P500,000 loan, she
also issued her own checks in the amount of P20,000
each for four months.[34] According to respondent,
she merely accommodated petitioners request for her
to issue her own checks to cover the interest
payments since petitioner was not personally
acquainted with Santiago.[35] She claimed, however,
that Santiago would replace the checks with cash.[36]
Her explanation is simply incredible. It is difficult to
believe that respondent would put herself in a position
where she would be compelled to pay interest, from
her own funds, for loans she allegedly did not contract.
We declared in one case that:
In the assessment of the testimonies of witnesses, this
Court is guided by the rule that for evidence to be
believed, it must not only proceed from the mouth of a
credible witness, but must be credible in itself such as
the common experience of mankind can approve as
probable under the circumstances. We have no test of
the truth of human testimony except its conformity to
our knowledge, observation, and experience.
Whatever is repugnant to these belongs to the
miraculous, and is outside of juridical cognizance.[37]
Fourth, in the petition for insolvency sworn to and filed
by Santiago, it was respondent, not petitioner, who
was listed as one of her (Santiagos) creditors.[38]
Last, respondent inexplicably never presented
Santiago as a witness to corroborate her story.[39] The
presumption is that evidence willfully suppressed
would be adverse if produced.[40] Respondent was not
able to overturn this presumption.
We hold that the CA committed reversible error when it
ruled that respondent did not borrow the amounts of
US$100,000 and P500,000 from petitioner. We instead
agree with the ruling of the RTC making respondent
liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for
the 3% and 4% monthly interest for the US$100,000
and P500,000 loans respectively. There was no written
proof of the interest payable except for the verbal
agreement that the loans would earn 3% and 4%
interest per month. Article 1956 of the Civil Code
provides that [n]o interest shall be due unless it has
been expressly stipulated in writing.
Be that as it may, while there can be no stipulated
interest, there can be legal interest pursuant to Article
2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.[41]
32
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.

33
 7. PANTALEON V AMEX
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.
34
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 letter7 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.14 The RTC denied
Pantaleons motion for partial reconsideration, and
thereafter gave due course to respondents Notice of
Appeal.15
On 18 August 2006, the Court of Appeals rendered a
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
35
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.
36
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
37
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
38
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
39
 though to disturb the determined award of
It should be emphasized that the reason why petitioner P100,000.00 as attorneys fees, and P85,233.01 as
is entitled to damages is not simply because expenses of litigation.
respondent incurred delay, but because the delay, for
which culpability lies under Article 1170, led to the WHEREFORE, the petition is GRANTED. The assailed
particular injuries under Article 2217 of the Civil Code Decision of the Court of Appeals is REVERSED and SET
for which moral damages are remunerative.26 Moral ASIDE. The Decision of the Regional Trial Court of
damages do not avail to soothe the plaints of the Makati, Branch 145 in Civil Case No. 92-1665 is hereby
simply impatient, so this decision should not be cause REINSTATED. Costs against respondent.
for relief for those who time the length of their credit
card transactions with a stopwatch. The somewhat SO ORDERED.
unusual attending circumstances to the purchase at
Coster that there was a deadline for the completion
of that purchase by petitioner before any delay would
redound to the injury of his several traveling
companions gave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded
by the RTC.27 Those circumstances are fairly unusual,
and should not give rise to a general entitlement for
damages under a more mundane set of facts.

We sustain the amount of moral damages awarded to

petitioner by the RTC. There is no hard-and-fast rule in
determining what would be a fair and reasonable
amount of moral damages, since each case must be
governed by its own peculiar facts, however, it must
be commensurate to the loss or injury suffered.28
Petitioners original prayer for P5,000,000.00 for moral
damages is excessive under the circumstances, and
the amount awarded by the trial court of P500,000.00
in moral damages more seemly.1avvphi1

Likewise, we deem exemplary damages available

under the circumstances, and the amount of
P300,000.00 appropriate. There is similarly no cause

40
 8. GIRONELLA V PNB
We have here a Petition for Review on Certiorari under
Rule 45 of. the Rules of Court assailing the Decision1
dated 27 August 2010 of the Court of Appeals (CA) in
CA-G.R. CV No. 83870 which reversed and set aside
the Decision2 of the Regional Trial Court (RTC), Branch
44, Dagupan City in Civil Case No. 2000-0099-D. The
RTC granted the complaint of petitioners, the Spouses
Oscar and Gina Gironella (Spouses Gironella), against
respondent Philippine National Bank (PNB) for: (1) the
proper construction of eyents between the parties
relative to the proposed Restructuring Agreement; (2)
fraud, gross negligence, and/or at the very least,
abuse of right under Article 19, 20 and 21 of the Civil
Code; and (3) corollary thereto, payment of actual and
compensatory damages, moral, attorneys fees and
litigation expenses.
First, the bare and undisputed facts.
In separate Credit Agreements respectively dated 11
November 1991 and 16 January 1992, the Spouses
Gironella obtained two (2) loans from PNB in the
amounts of Php7,500,000.00 and Php2,000,000.00 for
the construction of the Dagupan Village Hotel and
Sports Complex. The loans were co-terminus, both
payable on installments and secured by the same real
estate mortgage over a parcel of land covered by
Transfer Certificate of Title (TCT) No. 56059 in favor of
the creditor, PNB.
In May 1992, seeking to expand their hotel operations,
the Spouses Gironella again applied for another loan
with PNB in the amount of. Php5,800,000.00 for the
construction of a restaurant bar and the purchase of a
generator set.
From these front events, the dealings between the
parties turned into the present case.
The Spouses Gironella began to default in paying their
prior two (2) loans. They would aver, in their complaint
until this petition, that their default in payment is
attributable to PNB whose representatives and officers
made them believe that their Php5,800,000.00 loan
application would be approved and directed them to
proceed with their expansion plans. To that end and
with the full knowledge of the PNB's officers and
representatives, the Spouses Gironella used the
income generated by the hotel for the construction of
the restaurant bar and purchase of the generator set
while the Php5,800,000.00 loan was pending and still
being processed. In their Complaint, the Spouses
Gironella alleged:
[PNB's] officers and representatives gave their
assurance to the [Spouses Gironella] that the said loan
will be approved by [PNB] and even directed the
[Spouses Gironella] to make use of the funds being
generated by Dagupan Village Hotel for the said
purposes, which the [Spouses Gironella] did, but
seriously affected the servicing of their first loan. [The
Spouses Gironella] then proposed a restructuring of
their first loan and after a series of meetings, offers
and counter offers, the [Spouses Gironella] accepted
the offer of [PNB] to their proposed program (sic) to
restructure the loan which for all intents and purposes
was already perfected.3
41
From the period of February 1993 to 2 October 1995,
the Spouses Gironella paid a total of Php4,219,000.00
on their first two loans of Php9,500,000.00. In January
and April 1998, the Spouses Gironella likewise paid
PNB Phpl,000,000.00 and Phpl,650,000.00. They
maintain that all these payments were made to effect
the restructuring of their loans with PNB.
Meanwhile, in separate instances, on 29 May 1996 and
1 7 April 1998, while the parties were negotiating and
discussing the restructuring of the Spouses Gironella's
loans, PNB made a couple of attempts to foreclose the
mortgaged property. It filed a Petition for the Extra-
Judicial Foreclosure thereof and subsequently, a Notice
of Extra-Judicial Foreclosure Sale. However, the final
foreclosure of the mortgaged property was stalled
because of the continuing negotiations between the
parties for the restructuring of the loans.
By the year 2000, negotiations for the restructuring of
the Spouses Gironella's loans was still ongoing and
remained indefinite. On 25 January 2000, after several
exchange of correspondence, PNB wrote the Spouses .
Gironella and proposed, thus:
May we now have your written final conformity with
the proposed restructuring of your account by way of:
Capitalization of the P9,485,620.00, part of the
accrued interest as of December 14, 1999 for
consolidation with the outstanding P9,500,000.00
unpaid principal to aggregate Pl4,380,000.00;
Restructuring of this P14,380,000.00 into a
fullysecured 10 year term loan payable quarterly
under thefollowing scheme;
grace period on the payment of the principal only for
Eight (8) quarters.
amortization for the 1st to gth quarters be based on
accrued interest due.
amortization from the 9th up to the 39th quarter to be
based on a 15-year payment scheme with balloon
payment on the 40th quarter.
Restructuring of P8,120,000.00, the other part of the
accrued interest as of December 14, 2000, on clean
basis to be payable quarterly for five (5) years with
amortization from 1st to 19th quarters based on a 15-
year payment scheme and balloon payment on the
20th quarter.
Interest, net of capitalization, to be paid from
December 14, 1999 up to date of implementation,
This proposed restructuring is still subject for
evaluation and approval of higher management and
therefore tentative in nature.4
(Emphasis Supplied)
In a letter dated 7 February 2000, the Spouses
Gironella gave a qualified acceptance of PNB's
proposed restructuring, specifically referring to
specific terms in the 25 January 2000 proposal of PNB.
However, in its 8 March 2000 letter, PNB rejected
finally the counter offer of the Spouses Gironella for
the restructuring of their loan.
On 25 July 2000, PNB re-filed its Petition for Extra-
Judicial Foreclosure of the mortgaged property.
42
Forthwith, the Spouses Gironella filed the Complaint
before the RTC with prayer for issuance of a Temporary
Restraining Order (TRO) and preliminary injunction to
enjoin enforcement of the original credit agreements,
and security therefor, between the parties. Effectively,
the Spouses Gironella sought to enjoin the 'foreclosure
of the mortgaged property .
On 4 and 28 September 2000, the RTC issued the
prayed for TRO and Writ of Preliminary injunction.
Subsequently, the RTC granted the Complaint of the
Spouses Gironella ruling that there was a perfected
and binding restructured credit agreement, the terms
contained in the 25 January 2000 and 7 February 2000
written exchanges of the parties:
WHEREFORE, judgment is rendered in favor of
[petitioners] Oscar Gironella and Gina F. Gironella and
against [respondent] Philippine National Bank, as
follows:
1. On the first and third causes of action, judgment is
rendered ordering [PNB] to pay [the Spouses
Gironella], the following:
a) P5,000,000.00 and PI00,000.00 a month as actual
and compensatory damages;
b) P2,000,000.00 as moral damages;
c) PS00,000.00 as and for Attorney's fees, plus
Pl0,000.00 for every conference or hearing as
Appearance Fees; and
d) P250,000.00 as litigation expenses.
2. On the second cause of action, the [ c ]ourt declares
the restructuring of the subject loan pursuant to the
letter of [PNB] dated January 25i 2000, Exhibit U for
[the Spouses Gironella], and Exhibit 2 for [PNB], and
[the Spouses Gironella's] letter dated February 7,
2000, Exhibit V for the [Spouses Gironella],. and
Exhibit 3 for [PNB], as perfected and binding upon the
parties.
[PNB] is ordered to pay the costs of suit.5
On Motion for Partial Reconsideration and/or
Clarification filed by the Spouses Gironella, the RTC
clarified that the payment of Phpl00,000.00 a month
as actual and compensatory damages is reckoned from
the filing of the Amended Complaint on 25 September
2002. In addition, the R TC declared permanent the
writ of preliminary injunction it had previously issued,
effectively enjoining the enforcement of the original
credit agreements and the accessory contract, the real
estate mortgage over the land covered by TCT No.
56059.
Posthaste, PNB appealed to the CA questioning the
trial court's ruling. PNB argued that the exchange of
correspondence between the parties, specifically the
25 January 2000 and 7 February 2000 letters, did not
constitute a perfected and binding restructuring
agreement since there was no express acceptance by
either party of the other's counter-offer. PNB averred
that it, in fact, finally rejected the restructuring
proposal of the Spouses Gironella on 8 March 2000.
The appellate court granted the appeal of PNB and
reversed the ruling of the trial court. The CA ruled that
43
the Spouses Gironella, apart from their bare
allegations, failed to present evidence required in civil
cases, i.e. by a preponderance of evidence, to
establish their claim that PNB fraudulently and in gross
negligence and/or, in abuse of right, gave them false
hopes and assurances that their third loan would be
approved in violation of Articles 19, 20 and 21 of the
Civil Code thereby entitling them to damages. The
appellate court ruled, thus:
In civil cases, he who alleges a fact has the burden of
proving it by a preponderance of evidence. Aside from
the surmises of [the Spouses Gironella] that they were
given false hope and assurances by [PNB's] officers,
the [Spouses Gironella] in this case failed to show
proof preponderant enough to sway this [ c ]ourt in
their favor.
As compared to the other transactions and negotiation
entered into between the parties herein which were
very much documented, the [Spouses Gironella] failed
to present any documentary evidence relevant to their
claims of fraud, gross negligence, and abuse of right
against the (PNB 's] officers. The records of the instant
case are wanting of any proof that would substantiate
the [Spouses Gironella' s] claim that they were assured
by [PNB' s] officers that the additional loan application
will be approved and that it was agreed upon that the
income of the hotel will be used for the construction of
the disco-restaurant and the purchase of the generator
set for the meantime.
It must also be noted that [the Spouses Gironella]
contracted two previous loans from [PNB] even before
the additional loan subject of this case was applied
for.1wphi1 Thus, not being their first time to enter
into a loan with a bank, the [Spouses Gironella] are
already very much aware of the process being
observed in obtaining a loan from such kind of
institution. Gina Gironella even wrote in her 7 August
1992 letter to Mr. Alfredo S. Besa, Manager of the PNB
Dagupan Branch, that:
Dear Mr. Besa:
I was very much elated over the information relayed to
me by my father, thru our Resident Manager, William
Crossly, regarding the profound concern and interest
shown by your Vice-President for Northern Luzon
Branches Pedrito D. Torres towards the Dagupan
Village Hotel and Sports Center. I understand that VP
Torres was also convinced that the construction of the
additional function hall and night club would, indeed,
upgrade the revenueearning capacity of the hotel, thus
reportedly giving his assent for the immediate
commencement of the project.
In this connection, therefore, may I reiterate our
appeal manifested in our previous letters for the
approval of our additional loan application with which
to underwrite the above project which was started
almost two months ago, and the purchase of a 125 ...
generating set.
In the above letter, [petitioner] Gina Gironella appears
to be mindful that a formal approval is necessary for
their application to be considered as finally approved.
Thus, when the [Spouses Gironella] undertook to
initiate the construction of the disco-restaurant and
the purchase of the generator set even without the
formal approval of their additional loan, the [Spouses
Gironella] did it at their own risk.6
44

On the finding of the trial court that the
correspondence between the parties embodied in the
25 January 2000 and 7 February 2000 letters of PNB
and the Spouses Gironella, respectively, constituted
the restructuring agreement, the appellate court found
that there was no final agreement reached by the
parties where the offer was certain and acceptance
thereof by the other party was absolute. The appellate
court held that, in this case, a qualified acceptance
equated to a counter-offer and, at that point, there was
no absolute and unqualified acceptance which is
identical in all respects with that of the offer so as to
produce consent or meeting of the minds.
Hence, this appeal by certiorari of the Spouses
Gironella insisting on the correctness of the trial
court's ruling.
We deny the petition and affirm the appellate court's
ruling.
The Spouses Gironella claim fraud, gross negligence
and/or, at the very least, abuse of right in violation of
Articles 19, 20 and 21 of the Civil Code when PNB,
essentially, twice did not approve their loan
applications:
(1) the additional loan of Php5,800,000.00 for their
businesses' expansion plans, and (2) restructuring of
their original credit agreements, despite purported
assurances and representations of approval by PNB 's
officers and representatives. The Spouses Gironella
maintain that these actuations of PNB through its
officers and representatives constituted fraud, gross
negligence and/or abuse of right in its dealings thus
entitling the Spouses Gironella to damages, actual and
compensatory, moral, attorney's fees and litigation
expenses.
Incredibly, the RTC adopted in full the stance and
allegations of the Spouses Gironella, without a shred of
evidence or reference thereto in the ratiocination of its
ruling:
It should be noted that [PNB's] act of continuously
giving positive assurances to the [Spouses Gironella]
and giving them false hopes that the additional loan
will be approved and eventually informing them later
that the same was disapproved by the higher
management is a clear indication of fraud and gross
negligence. If it were not for [PNB 's] continuous
assurances that the loan will be approved, the
[Spouses Gironella] would not have participated in the
negotiations with PNB officers and representatives,
thus dispensing with the preparation and submission
of various documents, financial reports and other
demands. The [ c ]ourt agrees with the stand of the
[Spouses Gironella] that if it were for [PNB's] directive
to direct the use of the funds generated by the hotel to
construct [the] disco-restaurant purchase of the
generator set (sic), the servicing and/or payment of
the original loan should. not have been affected. The
records would show that [PNB] misled the [Spouses
Gironella] into believing that the additional loan of 5.8
Million Pesos would be approved. It should be stated in
this connection that the payments for the first loan
Php9,500,000.00 would have come from the funds
generated by the hotel. There is no doubt that the
[Spouses Gironella] applied for an additional loan of
P5,800,000.00 for the purpose of constructing the
disco-restaurant and purchase of generator set. The
45
hotel fund was used for the above-cited purpose and
that was the reason instead of using the same to pay
[the Spouses Gironella's] obligation relative to the
Php9,500,000.00 loan. [The Spouses Gironella's] acted
in good faith when they used the money to construct
the disco-restaurant and purchase the generator set
because of the false assurances of [PNB] that the
amount of Php5,800,000.00 loan would be approved.7
The appellate court correctly did not give imprimatur
to the foregoing ruling of the trial court given that
nowhere therein does the trial court refer to evidence
to support its conclusions.
First. As plaintiffs, the Spouses Gironella had the duty,
the burden of proof, to present evidence, required by
law, on the facts in issue necessary to establish their
claim.8 The trial court did not even name the bank
officers and representatives who gave "false hopes
and assurances" to the Spouses Gironella. The trial
court could have easily specified the representations
and statements of the bank officers and
representatives which the Spouses Gironella heavily
relied upon. The Spouses Gironella's lack of evidence is
further highlighted by the trial court's non-sequitur
statement that "[i]f it were not for [PNB' s] continuous
assurances that the loan will be approved, the
[Spouses Gironella] would not have participated in the
negotiations with PNB officers and representatives,
thus dispensing with the preparation and submission
of various documents, financial reports and other
demands."9
Second. The foregoing statement fails to take into
consideration the three (3) distinct stages of a
contract: (1) preparation or negotiation, (2) perfection,
and finally, (3) consummation.10 At th'1;t point where
the Spouses Gironella were applying for the additional
loan of Php5,800,000.00, that involved the negotiation
stage for a contract separate from the first two credit
agreements which were consolidated into one, secured
by the same real estate mortgage over TCT No. 56059,
both payable on installment and with the same term.
Necessarily, the Spouses Gironella as debtors applying
for an. additional loan, ought to participate in the
negotiations thereof and await PNB' s assessment and
processing of their additional loan application.
Discussion on the succeeding stages of a contract shall
be done anon in relation to the alleged restructuring
agreement.
Third. We find difficulty in accepting the Spouses
Gironella's insistence that PNB' s officers and
representatives repeatedly assured them that their
additional loan will be approved, apparently, without
qualification.
In approving loans, credit accommodations and
guarantees, PNB, as a bank, must still comply with
banking laws and conduct business in a safe and
sound manner. Ultimately, PNB to comply with the
General Banking Act11 as amended, the old statute
and precursor to the present General Banking Law;12
must assess compliance by the Spouses Gironella with
specific legal banking requirements such as the Single
Borrower's Limit.13 Clearly, approval of the Spouses
Gironella's additional loan is not contingent solely on
the purported representations of PNB's officers as
claimed by the former.
46
Fourth. From these very same bare allegations of the
Spouses Gironella, the trial court, in upholding their
stance, considered the assurances given by PNB's
officers that the additional loan will be approved as the
evidence itself of PNB' s supposed commission of
fraud. In short, the Spouses Gironella proffer as
evidence of fraud their own bare allegations which
regrettably, the trial court echoed.
We cannot overemphasize that the burden of proof is
upon the party who alleges bad faith or fraud.14 In this
case, the Spouses Gironella's bare allegations that
PNB' s officers assured them that their additional loan
will be approved are mere abstractions of fraud
without specifics pointing to the actual commission of
fraud.
We thus agree with the disquisition of the appellate
court thereon:
In civil cases, he who alleges a fact has the burden of
proving it by a preponderance of evidence. Aside from
the surmises of [the Spouses Gironella] that they were
given false hopes and assurances by [PNB's] officers,
the [Spouses Gironella] in this. case failed to show
proof preponderant enough to sway this [ c ]ourt in
their favor.
As compared to the other transactions and
negotiations entered into between the parties herein
which were very much documented, the [Spouses
Gironella] failed to present any documentary evidence
relevant to their claims of fraud, gross negligence, and
abuse of right against the [PNB' s] officers. The records
of the instant case are wanting of any proof that would
substantiate the [Spouses Gironella's] claim that they
were assured by [PNB's] officers that the additional
loan application will be approved and that it was
agreed upon that the income of the hotel will be used
for the construction of the disco-restaurant and the
purchase of the15 generator set for the meantime.
The Spouses Gironella next contend that the parties
already had a partially executed, if not perfected and
binding, restructuring agreement. embodied in their 7
February 2000 letter of acceptance of the offer and
proposal contained in PNB's 25 January 2000 letter. As
with their first contention on the "false hopes and
assurances" purportedly given by PNB's officers and
representatives to the Spouses Gironella, the trial
court upheld them and found that there was a
perfected and binding restructuring agreement
between the parties. Moreover, the Spouses Gironella
assert that since they have made substantial
payments in pursuance of the restructuring
agreement, or at the least under a promise of
restructuring the loan, there is effectively a partially
executed restructuring agreement.
We cannot subscribe to the contention of the Spouses
Gironella, albeit upheld by the trial court.
A contract is perfected by mere consent.16 In turn,
consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which
are to constitute the contract.17 The offer must be
certain and the acceptance seasonable and
absolute.18 If qualified, the acceptance would merely
constitute a counter-offer19 as what occurred in this
case.
47
To reach that moment of perfection, the parties must
agree on the same thing in the same sense, so that
their minds meet as to all the terms.20 They must
have a distinct intention common to both and without
doubt or difference; until all understand alike, there
can be no assent, and therefore no contract. The
minds of parties must meet at every point; nothing can
be left open for further arrangement. So long as there
is any uncertainty or indefiniteness, or future
negotiations or considerations to be had between the
parties, there is not a completed contract, and in fact,
there is no contract at all.21
The Spouses Gironella's payments under its original
loan account cannot be considered as partial execution
of the proposed restructuring loan agreement. They
were clearly made during the pendency of the
negotiations on the restructuring. Such pendency
proves, absence, not presence of an agreement ready
for execution. At the time of payments only petitioners'
obligation under the original credit agreements were in
existence. Indeed, the payment scheme under the
proposed restructuring was outlined by PNB only in the
letter of 25 January 2000.
Further on this, negotiation begins from the time the
prospective contracting parties manifest their interest
in the contract and ends at the moment of agreement
of the parties. Once there is concurrence of the offer
and acceptance of the object and cause, the stage of
negotiation is finished.22 This situation does not
obtain in the case at bar. The letter dated 25 January .
2000 of PNB was qualifiedly accepted by the Spouses
Gironella as contained in their 7 February 2000 letter
and constituted a counter-offer which PNB ultimately
rejected in its 8 March 2000 letter. The surrounding
circumstances clearly show that the parties were not
past the stage of negotiation for the terms and
conditions of the restructured loan agreements.
There was no meeting of the minds on the
restructuring of the loans. Thus, the Spouses
Gironella's original Php9,500,000.00 loan agreement
subsists.
In all, we affirm the appellate court's ruling, PNB is not
liable either for fraud, gross negligence or abuse of
right. It did not breach any agreement there having
been no restructured loan agreement at all that was
perfected.
Consequently, the PNB is not liable to pay the Spouses
Gironella any form of damages.
WHEREFORE, the petition is DENIED. The Decision of
the Court of Appeals dated 27 August 2010 in CA-G.R.
CV No. 83870 is AFFIRMED. The Decision and Order
dated 23 June 2004 and 28 September 2004 of the
Regional Trial Court, Branch 44, Dagupan City are
REVERSED and SET ASIDE. The Amended Complaint of
the petitioners, Oscar and Gina Gironella, is
DISMISSED.
SO ORDERED.
48
 9. BPI V CA
This petition for certiorari assails the decision dated
February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, in CA-G.R. CV No.
38887. The appellate court affirmed the judgment of
the Regional Trial Court of Pasig City, Branch 151, in
(a) Civil Case No. 11831, for foreclosure of mortgage
by petitioner BPI Investment Corporation (BPIIC for
brevity) against private respondents ALS Management
and Development Corporation and Antonio K. Litonjua,
[1] consolidated with (b) Civil Case No. 52093, for
damages with prayer for the issuance of a writ of
preliminary injunction by the private respondents
against said petitioner.
The trial court had held that private respondents were
not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure
conducted by BPIIC was premature and made in bad
faith. It awarded private respondents the amount of
P300,000 for moral damages, P50,000 for exemplary
damages, and P50,000 for attorneys fees and
expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16
1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of
petitioner BPIIC, for the construction of a house on his
lot in New Alabang Village, Muntinlupa. Said house and
lot were mortgaged to AIDC to secure the loan.
Sometime in 1980, Roa sold the house and lot to
private respondents ALS and Antonio Litonjua for
P850,000. They paid P350,000 in cash and assumed
the P500,000 balance of Roas indebtedness with AIDC.
The latter, however, was not willing to extend the old
interest rate to private respondents and proposed to
grant them a new loan of P500,000 to be applied to
Roas debt and secured by the same property, at an
interest rate of 20% per annum and service fee of 1%
per annum on the outstanding principal balance
payable within ten years in equal monthly amortization
of P9,996.58 and penalty interest at the rate of 21%
per annum per day from the date the amortization
became due and payable.
Consequently, in March 1981, private respondents
executed a mortgage deed containing the above
stipulations with the provision that payment of the
monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas
arrearages by paying BPIIC the sum of P190,601.35.
This reduced Roas principal balance to P457,204.90
which, in turn, was liquidated when BPIIC applied
thereto the proceeds of private respondents loan of
P500,000.
On September 13, 1982, BPIIC released to private
respondents P7,146.87, purporting to be what was left
of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings
against private respondents on the ground that they
failed to pay the mortgage indebtedness which from
May 1, 1981 to June 30, 1984, amounted to Four
Hundred Seventy Five Thousand Five Hundred Eighty
Five and 31/100 Pesos (P475,585.31). A notice of
sheriffs sale was published on August 13, 1984.
49

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,
50
despite the express agreement of the parties that
payment shall commence on May 1, 1981. From
October 1982 to June 1984, the total amortization due
was only P194,960.43. Evidence showed that private
respondents had an overpayment, because as of June
1984, they already paid a total amount of
P201,791.96. Therefore, there was no basis for BPIIC to
extrajudicially foreclose the mortgage and cause the
publication in newspapers concerning private
respondents delinquency in the payment of their loan.
This fact constituted sufficient ground for moral
damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC
was likewise denied, hence this petition, where BPIIC
submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A
CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE
LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125
SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS
FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY
ALS AND OPPOSED TO THE RULE LAID DOWN IN
SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS,
120 SCRA 707.
On the first issue, petitioner contends that the Court of
Appeals erred in ruling that because a simple loan is
perfected upon the delivery of the object of the
contract, the loan contract in this case was perfected
only on September 13, 1982. Petitioner claims that a
contract of loan is a consensual contract, and a loan
contract is perfected at the time the contract of
mortgage is executed conformably with our ruling in
Bonnevie v. Court of Appeals, 125 SCRA 122. In the
present case, the loan contract was perfected on
March 31, 1981, the date when the mortgage deed
was executed, hence, the amortization and interests
on the loan should be computed from said date.
Petitioner also argues that while the documents
showed that the loan was released only on August
1982, the loan was actually released on March 31,
1981, when BPIIC issued a cancellation of mortgage of
Frank Roas loan. This finds support in the registration
on March 31, 1981 of the Deed of Absolute Sale
executed by Roa in favor of ALS, transferring the title
of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner
claims, the delay in the release of the loan should be
attributed to private respondents. As BPIIC only agreed
to extend a P500,000 loan, private respondents were
required to reduce Frank Roas loan below said amount.
According to petitioner, private respondents were only
able to do so in August 1982.
In their comment, private respondents assert that
based on Article 1934 of the Civil Code,[4] a simple
loan is perfected upon the delivery of the object of the
contract, hence a real contract. In this case, even
though the loan contract was signed on March 31,
1981, it was perfected only on September 13, 1982,
when the full loan was released to private
respondents. They submit that petitioner misread
Bonnevie. To give meaning to Article 1934, according
to private respondents, Bonnevie must be construed to
mean that the contract to extend the loan was
perfected on March 31, 1981 but the contract of loan
51
itself was only perfected upon the delivery of the full
loan to private respondents on September 13, 1982.
Private respondents further maintain that even
granting, arguendo, that the loan contract was
perfected on March 31, 1981, and their payment did
not start a month thereafter, still no default took place.
According to private respondents, a perfected loan
agreement imposes reciprocal obligations, where the
obligation or promise of each party is the consideration
of the other party. In this case, the consideration for
BPIIC in entering into the loan contract is the promise
of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to
deliver the money. In reciprocal obligations, neither
party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is
incumbent upon him. Therefore, private respondents
conclude, they did not incur in delay when they did not
commence paying the monthly amortization on May 1,
1981, as it was only on September 13, 1982 when
petitioner fully complied with its obligation under the
loan contract.
We agree with private respondents. A loan contract is
not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the
contract.[5] Petitioner misapplied Bonnevie. The
contract in Bonnevie declared by this Court as a
perfected consensual contract falls under the first
clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development
Bank of the Philippines, 44 SCRA 445, petitioner
applied for a loan of P500,000 with respondent bank.
The latter approved the application through a board
resolution. Thereafter, the corresponding mortgage
was executed and registered. However, because of
acts attributable to petitioner, the loan was not
released. Later, petitioner instituted an action for
damages. We recognized in this case, a perfected
consensual contract which under normal
circumstances could have made the bank liable for not
releasing the loan. However, since the fault was
attributable to petitioner therein, the court did not
award it damages.
A perfected consensual contract, as shown above, can
give rise to an action for damages. However, said
contract does not constitute the real contract of loan
which requires the delivery of the object of the
contract for its perfection and which gives rise to
obligations only on the part of the borrower.[6]
In the present case, the loan contract between BPI, on
the one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of
the parties on the commencement of the monthly
amortization, as found by the Court of Appeals, private
respondents obligation to pay commenced only on
October 13, 1982, a month after the perfection of the
contract.[7]
We also agree with private respondents that a contract
of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration
for that of the other.[8] As averred by private
respondents, the promise of BPIIC to extend and
deliver the loan is upon the consideration that ALS and
Litonjua shall pay the monthly amortization
52
commencing on May 1, 1981, one month after the
supposed release of the loan. It is a basic principle in
reciprocal obligations that neither party incurs in
delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him.[9] Only when a party has performed his part
of the contract can he demand that the other party
also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization
after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract.
Therefore, in computing the amount due as of the date
when BPIIC extrajudicially caused the foreclosure of
the mortgage, the starting date is October 13, 1982
and not May 1, 1981.
Other points raised by petitioner in connection with the
first issue, such as the date of actual release of the
loan and whether private respondents were the cause
of the delay in the release of the loan, are factual.
Since petitioner has not shown that the instant case is
one of the exceptions to the basic rule that only
questions of law can be raised in a petition for review
under Rule 45 of the Rules of Court,[10] factual
matters need not tarry us now. On these points we are
bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should
not be held liable for moral and exemplary damages
for it did not act maliciously when it initiated the
foreclosure proceedings. It merely exercised its right
under the mortgage contract because private
respondents were irregular in their monthly
amortization. It invoked our ruling in Social Security
System vs. Court of Appeals, 120 SCRA 707, where we
said:
Nor can the SSS be held liable for moral and temperate
damages. As concluded by the Court of Appeals the
negligence of the appellant is not so gross as to
warrant moral and temperate damages, except that,
said Court reduced those damages by only P5,000.00
instead of eliminating them. Neither can we agree with
the findings of both the Trial Court and respondent
Court that the SSS had acted maliciously or in bad
faith. The SSS was of the belief that it was acting in the
legitimate exercise of its right under the mortgage
contract in the face of irregular payments made by
private respondents and placed reliance on the
automatic acceleration clause in the contract. The
filing alone of the foreclosure application should not be
a ground for an award of moral damages in the same
way that a clearly unfounded civil action is not among
the grounds for moral damages.
Private respondents counter that BPIIC was guilty of
bad faith and should be liable for said damages
because it insisted on the payment of amortization on
the loan even before it was released. Further, it did not
make the corresponding deduction in the monthly
amortization to conform to the actual amount of loan
released, and it immediately initiated foreclosure
proceedings when private respondents failed to make
timely payment.
But as admitted by private respondents themselves,
they were irregular in their payment of monthly
amortization. Conformably with our ruling in SSS, we
can not properly declare BPIIC in bad faith.
53
Consequently, we should rule out the award of moral
and exemplary damages.[11]

However, in our view, BPIIC was negligent in relying

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

Lastly, as in SSS where we awarded attorneys fees

because private respondents were compelled to
litigate, we sustain the award of P50,000 in favor of
private respondents as attorneys fees.

WHEREFORE, the decision dated February 28, 1997, of

the Court of Appeals and its resolution dated April 21,
1998, are AFFIRMED WITH MODIFICATION as to the
award of damages. The award of moral and exemplary
damages in favor of private respondents is DELETED,
but the award to them of attorneys fees in the amount
of P50,000 is UPHELD. Additionally, petitioner is
ORDERED to pay private respondents P25,000 as
nominal damages. Costs against petitioner.

SO ORDERED.

54
 10.PENTA V MAHINAY
Before us are two consolidated petitions for review on
certiorari under Rule 45 of the Rules of Court filed by
petitioner Pentacapital Investment Corporation. In G.R.
No. 171736, petitioner assails the Court of Appeals
(CA) Decision[1] dated December 20, 2005 and
Resolution[2] dated March 1, 2006 in CA-G.R. SP No.
74851; while in G.R. No. 181482, it assails the CA
Decision[3] dated October 4, 2007 and Resolution[4]
dated January 21, 2008 in CA-G.R. CV No. 86939.
The Facts
Petitioner filed a complaint for a sum of money against
respondent Makilito Mahinay based on two separate
loans obtained by the latter, amounting to
P1,520,000.00 and P416,800.00, or a total amount of
P1,936,800.00. These loans were evidenced by two
promissory notes[5] dated February 23, 1996. Despite
repeated demands, respondent failed to pay the loans,
hence, the complaint.[6]
In his Answer with Compulsory Counterclaim,[7]
respondent claimed that petitioner had no cause of
action because the promissory notes on which its
complaint was based were subject to a condition that
did not occur.[8] While admitting that he indeed signed
the promissory notes, he insisted that he never took
out a loan and that the notes were not intended to be
evidences of indebtedness.[9] By way of counterclaim,
respondent prayed for the payment of moral and
exemplary damages plus attorneys fees.[10]
Respondent explained that he was the counsel of
Ciudad Real Development Inc. (CRDI). In 1994,
Pentacapital Realty Corporation (Pentacapital Realty)
offered to buy parcels of land known as the Molino
Properties, owned by CRDI, located in Molino, Bacoor,
Cavite. The Molino Properties, with a total area of
127,708 square meters, were sold at P400.00 per sq
m. As the Molino Properties were the subject of a
pending case, Pentacapital Realty paid only the down
payment amounting to P12,000,000.00. CRDI allegedly
instructed Pentacapital Realty to pay the formers
creditors, including respondent who thus received a
check worth P1,715,156.90.[11] It was further agreed
that the balance would be payable upon the
submission of an Entry of Judgment showing that the
case involving the Molino Properties had been decided
in favor of CRDI.[12]
Respondent, Pentacapital Realty and CRDI allegedly
agreed that respondent had a charging lien equivalent
to 20% of the total consideration of the sale in the
amount of P10,277,040.00. Pending the submission of
the Entry of Judgment and as a sign of good faith,
respondent purportedly returned the P1,715,156.90
check to Pentacapital Realty. However, the Molino
Properties continued to be haunted by the seemingly
interminable court actions initiated by different parties
which thus prevented respondent from collecting his
commission.
On motion[13] of respondent, the Regional Trial Court
(RTC) allowed him to file a Third Party Complaint[14]
against CRDI, subject to the payment of docket fees.
[15]
Admittedly, respondent earlier instituted an action for
Specific Performance against Pentacapital Realty
before the RTC of Cebu City, Branch 57, praying for the
55
payment of his commission on the sale of the Molino
Properties.[16] In an Amended Complaint,[17]
respondent referred to the action he instituted as one
of Preliminary Mandatory Injunction instead of Specific
Performance. Acting on Pentacapital Realtys Motion to
Dismiss, the RTC dismissed the case for lack of cause
of action.[18] The dismissal became final and
executory.
With the dismissal of the aforesaid case, respondent
filed a Motion to Permit Supplemental Compulsory
Counterclaim.[19] In addition to the damages that
respondent prayed for in his compulsory counterclaim,
he sought the payment of his commission amounting
to P10,316,640.00, plus interest at the rate of 16% per
annum, as well as attorneys fees equivalent to 12% of
his principal claim.[20] Respondent claimed that
Pentacapital Realty is a 100% subsidiary of petitioner.
Thus, although petitioner did not directly participate in
the transaction between Pentacapital Realty, CRDI and
respondent, the latters claim against petitioner was
based on the doctrine of piercing the veil of corporate
fiction. Simply stated, respondent alleged that
petitioner and Pentacapital Realty are one and the
same entity belonging to the Pentacapital Group of
Companies.[21]
Over the opposition of petitioner, the RTC, in an
Order[22] dated August 22, 2002, allowed the filing of
the supplemental counterclaim. Aggrieved, petitioner
sought recourse in the CA through a special
civil action for certiorari, seeking to reverse and set
aside the RTC Order. The case was docketed as CA-G.R.
SP No. 74851. On December 20, 2005, the CA
rendered the assailed Decision dismissing the petition.
[23] The appellate court sustained the allowance of
the supplemental compulsory counterclaim based on
the allegations in respondents pleading. The CA further
concluded that there was a logical relationship
between the claims of petitioner in its complaint and
those of respondent in his supplemental compulsory
counterclaim. The CA declared that it was
inconsequential that respondent did not clearly allege
the facts required to pierce the corporate separateness
of petitioner and its subsidiary, the Pentacapital Realty.
[24]
Petitioner now comes before us in G.R. No. 171736,
raising the following issues:
A.
WHETHER RESPONDENT MAHINAY IS BARRED FROM
ASSERTING THE CLAIM CONTAINED IN HIS
SUPPLEMENTAL COMPULSORY COUNTERCLAIM ON THE
GROUNDS OF (1) RES JUDICATA, (2) WILLFUL AND
DELIBERATE FORUM SHOPPING, AND (3) FAILURE TO
INTERPOSE SUCH CLAIM ON TIME PURSUANT TO
SECTION 2 OF RULE 9 OF THE RULES OF COURT;
B.
WHETHER RESPONDENT MAHINAYS SUPPLEMENTAL
COMPULSORY COUNTERCLAIM IS ACTUALLY A THIRD-
PARTY COMPLAINT AGAINST PENTACAPITAL REALTY,
THE INTRODUCTION OF WHICH REQUIRES THE
PAYMENT OF THE NECESSARY DOCKET FEES;
C.
ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT
IT IS PROPER TO PIERCE THE CORPORATE VEIL AND TO
56
ALLOW RESPONDENT MAHINAY TO LODGE A
SUPPLEMENTAL COMPULSORY COUNTERCLAIM
AGAINST HEREIN PETITIONER PENTACAPITAL
INVESTMENT FOR AN ALLEGED OBLIGATION OF ITS
SUBSIDIARY, PENTACAPITAL REALTY, ON THE THEORY
THAT THEY ARE ONE AND THE SAME COMPANY,
WHETHER PENTACAPITAL REALTY SHOULD HAVE AT
LEAST BEEN MADE A PARTY TO THE CASE AS RULED BY
THIS HONORABLE COURT IN FILMERCO COMMERCIAL
CO., INC. VS. INTERMEDIATE APPELLATE COURT;
D.
WHETHER RESPONDENT MAHINAY SHOULD BE
ALLOWED TO PRESENT EVIDENCE ON HIS SO-CALLED
SUPPLEMENTAL COMPULSORY COUNTERCLAIM
INASMUCH AS (1) RESPONDENT MAHINAYS PLEADINGS
ARE BEREFT OF ANY ALLEGATIONS TO BUTTRESS THE
MERGING OF PENTACAPITAL REALTY AND
PENTACAPITAL INVESTMENT INTO ONE ENTITY AND
THE CONSEQUENT IMPUTATION ON THE LATTER OF
THE FORMERS SUPPOSED LIABILITY ON RESPONDENT
MAHINAYS SUPPLEMENTAL COMPULSORY
COUNTERCLAIM, AND (2) THE INCIDENTS ALLEGEDLY
PERTAINING TO, AND WHICH WOULD THEREBY
SUPPORT, THE PIERCING OF CORPORATE VEIL ARE NOT
EVIDENTIARY MATTERS MATERIAL TO THE
PROCEEDINGS BEFORE THE COURT A QUO
CONSIDERING THAT THE SAME ARE BEYOND THE
SCOPE OF THE PLEADINGS;
E.
WHETHER THE DOCTRINE OF PIERCING THE
CORPORATE VEIL MAY BE INVOKED AND APPLIED IN
ORDER TO EVADE AN OBLIGATION AND FACILITATE
PROCEDURAL WRONGDOING; AND
F.
WHETHER PETITIONER PENTACAPITAL INVESTMENT
COMMITTED FORUM SHOPPING WHEN IT FILED THE
PRESENT PETITION DURING THE PENDENCY OF THE
MOTION FOR RECONSIDERATION IT FILED BEFORE THE
COURT A QUO AND, SUBSEQUENTLY, OF THE APPEAL
BEFORE THE COURT OF APPEALS TO QUESTION THE
JUDGMENT OF THE COURT A QUO.[25]
There being no writ of injunction or Temporary
Restraining Order (TRO), the proceedings before the
RTC continued and respondent was allowed to present
his evidence on his supplemental compulsory
counterclaim. After trial on the merits, the RTC
rendered a decision[26] dated March 20, 2006, the
dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, plaintiffs
complaint is hereby ordered dismissed for lack of
merit. This court, instead, finds that defendant was
able to prove by a clear preponderance of evidence his
cause of action against plaintiff as to defendants
compulsory and supplemental counterclaims. That,
therefore, this court hereby orders the plaintiff to pay
unto defendant the following sums, to wit:
1. P1,715,156.90 representing the amount plaintiff is
obligated to pay defendant as provided for in the deed
of sale and the supplemental agreement, plus interest
at the rate of 16% per annum, to be computed from
57
September 23, 1998 until the said amount shall have
been fully paid;
2. Php 10,316,640.00 representing defendants share of
the proceeds of the sale of the Molino property
(defendants charging lien) plus interest at the rate of
16% per annum, to be computed from September 23,
1998 until the said amount shall have been fully paid;
3. Php 50,000.00 as attorneys fees based on quantum
meruit;
4. Php 50,000.00 litigation expenses, plus costs of suit.
This court finds it unnecessary to rule on the third
party complaint, the relief prayed for therein being
dependent on the possible award by this court of the
relief of plaintiffs complaint.[27]
On appeal, the CA, in CA-G.R. CV No. 86939, affirmed
in toto the above decision. The CA found no basis for
petitioner to collect the amount demanded, there
being no perfected contract of loan for lack of
consideration.[28] As to respondents supplemental
compulsory counterclaim, quoting the findings of the
RTC, the appellate court held that respondent was able
to prove by preponderance of evidence that it was the
intent of Pentacapital Group of Companies and CRDI to
give him P10,316,640.00 and P1,715,156.90.[29] The
CA likewise affirmed the award of interest at the rate
of 16% per annum, plus damages.[30]
Unsatisfied, petitioner moved for reconsideration of
the aforesaid Decision, but it was denied in a
Resolution[31] dated January 21, 2008. Hence, the
present petition in G.R. No. 181482, anchored on the
following arguments:
A.
Considering that the inferences made in the present
case are manifestly absurd, mistaken or impossible,
and are even contrary to the admissions of respondent
Mahinay, and inasmuch as the judgment is premised
on a misapprehension of facts, this Honorable Court
may validly take cognizance of the errors relative to
the findings of fact of both the Honorable Court of
Appeals and the court a quo.
B.
Respondent Mahinay is liable to petitioner PentaCapital
Investment for the PhP1,936,800.00 loaned to him as
well as for damages and attorneys fees.
1.
The Honorable Court of Appeals erred in concluding
that respondent Mahinay failed to receive the money
he borrowed when there is not even any dispute as to
the fact that respondent Mahinay did indeed receive
the PhP1,936,800.00 from petitioner PentaCapital
Investment.
2.
The Promissory Notes executed by respondent
Mahinay are valid instruments and are binding upon
him.
C.
Petitioner PentaCapital Investment cannot be held
liable on the supposed supplemental compulsory
counterclaim of respondent Mahinay.
58
1.
The findings of fact as well as the conclusions arrived
at by the Court of Appeals in its decision were based
on mistaken assumptions and on erroneous
appreciation of the evidence on record.
2.
There is no evidence on record to support the merging
of PentaCapital Realty and petitioner PentaCapital
Investment into one entity and the consequent
imputation on the latter of the formers supposed
liability on respondent Mahinays supplemental
compulsory counterclaim.
3.
Inasmuch as the claim of respondent Mahinay is
supposedly against PentaCapital Realty, and
considering that petitioner PentaCapital Investment is
a separate, distinct entity from PentaCapital Realty,
the latter should have been impleaded as it is an
indispensable party.
D.
Assuming for the sake of pure argument that it is
proper to disregard the corporate fiction and to
consider herein petitioner PentaCapital Investment and
its subsidiary, PentaCapital Realty, as one and the
same entity, respondent Mahinays supplemental
compulsory counterclaim must still necessarily fail.
1.
The cause of action of respondent Mahinay, as
contained in his supplemental compulsory
counterclaim, is already barred by a prior judgment
(res judicata).
2.
Considering that the dismissal on the merits by the
RTC Cebu of respondent Mahinays complaint against
PentaCapital Realty for attorneys fees has attained
finality, respondent Mahinay committed a willful act of
forum shopping when he interposed the exact same
claim in the proceedings a quo as a supposed
supplemental compulsory counterclaim against what
he claims to be one and the same company.
3.
Respondent Mahinays supplemental compulsory
counterclaim is actually a third party complaint against
PentaCapital Realty; the filing thereof therefore
requires the payment of the necessary docket fees.
E.
The doctrine of piercing the corporate veil is an
equitable remedy which cannot and should not be
invoked, much less applied, in order to evade an
obligation and facilitate procedural wrongdoing.[32]
Simply put, the issues for resolution are: 1) whether
the admission of respondents supplemental
compulsory counterclaim is proper; 2) whether
respondents counterclaim is barred by res judicata;
and (3) whether petitioner is guilty of forum-shopping.
The Courts Ruling
Admission of Respondents
Supplemental Compulsory Counterclaim
59
The pertinent provision of the Rules of Court is Section
6 of Rule 10, which reads:
Sec. 6. Supplemental pleadings. Upon motion of a
party, the court may, upon reasonable notice and upon
such terms as are just, permit him to serve a
supplemental pleading setting forth transactions,
occurrences or events which have happened since the
date of the pleading sought to be supplemented. The
adverse party may plead thereto within ten (10) days
from notice of the order admitting the supplemental
pleading.
As a general rule, leave will be granted to a party who
desires to file a supplemental pleading that alleges
any material fact which happened or came within the
partys knowledge after the original pleading was filed,
such being the office of a supplemental pleading. The
application of the rule would ensure that the entire
controversy might be settled in one action, avoid
unnecessary repetition of effort and unwarranted
expense of litigants, broaden the scope of the issues in
an action owing to the light thrown on it by facts,
events and occurrences which have accrued after the
filing of the original pleading, and bring into record the
facts enlarging or charging the kind of relief to which
plaintiff is entitled. It is the policy of the law to grant
relief as far as possible for wrongs complained of,
growing out of the same transaction and thus put an
end to litigation.[33]
In his Motion to Permit Supplemental Compulsory
Counterclaim, respondent admitted that, in his Answer
with Compulsory Counterclaim, he claimed that, as
one of the corporations composing the Pentacapital
Group of Companies, petitioner is liable to him for
P10,316,640.00, representing 20% attorneys fees and
share in the proceeds of the sale transaction between
Pentacapital Realty and CRDI. In the same pleading, he
further admitted that he did not include this amount in
his compulsory counterclaim because he had earlier
commenced another action for the collection of the
same amount against Pentacapital Realty before the
RTC of Cebu. With the dismissal of the RTC-Cebu case,
there was no more legal impediment for respondent to
file the supplemental counterclaim.
Moreover, in his Answer with Compulsory
Counterclaim, respondent already alleged that he
demanded from Pentacapital Group of Companies to
which petitioner supposedly belongs, the payment of
his 20% commission. This, in fact, was what prompted
respondent to file a complaint before the RTC-Cebu for
preliminary mandatory injunction for the release of the
said amount.
Given these premises, it is obvious that the alleged
obligation of petitioner already existed and was known
to respondent at the time of the filing of his Answer
with Counterclaim. He should have demanded
payment of his commission and share in the proceeds
of the sale in that Answer with Compulsory
Counterclaim, but he did not. He is, therefore,
proscribed from incorporating the same and making
such demand via a supplemental pleading. The
supplemental pleading must be based on matters
arising subsequent to the filing of the original pleading
related to the claim or defense presented therein, and
founded on the same cause of action.[34]
Supplemental pleadings must state transactions,
60
occurrences or events which took place since the time
the pleading sought to be supplemented was filed.[35]
Even on the merits of the case, for reasons that will be
discussed below, respondents counterclaim is doomed
to fail.
Petitioners Complaint
In its complaint for sum of money, petitioner prayed
that respondent be ordered to pay his obligation
amounting to P1,936,800.00 plus interest and penalty
charges, and attorneys fees. This obligation was
evidenced by two promissory notes executed by
respondent. Respondent, however, denied liability on
the ground that his obligation was subject to a
condition that did not occur. He explained that the
promissory notes were dependent upon the happening
of a remote event that the parties tried to anticipate at
the time they transacted with each other, and the
event did not happen.[36] He further insisted that he
did not receive the proceeds of the loan.
To ascertain whether or not respondent is bound by
the promissory notes, it must be established that all
the elements of a contract of loan are present. Like
any other contract, a contract of loan is subject to the
rules governing the requisites and validity of contracts
in general. It is elementary in this jurisdiction that
what determines the validity of a contract, in general,
is the presence of the following elements: (1) consent
of the contracting parties; (2) object certain which is
the subject matter of the contract; and (3) cause of the
obligation which is established.[37]
In this case, respondent denied liability on the ground
that the promissory notes lacked consideration as he
did not receive the proceeds of the loan.
We cannot sustain his contention.
Under Article 1354 of the Civil Code, it is presumed
that consideration exists and is lawful unless the
debtor proves the contrary.[38] Moreover, under
Section 3, Rule 131 of the Rules of Court, the following
are disputable presumptions: (1) private transactions
have been fair and regular; (2) the ordinary course of
business has been followed; and (3) there was
sufficient consideration for a contract.[39] A
presumption may operate against an adversary who
has not introduced proof to rebut it. The effect of a
legal presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the legal
presumption or the prima facie case created thereby,
and which, if no proof to the contrary is presented and
offered, will prevail. The burden of proof remains
where it is, but by the presumption, the one who has
that burden is relieved for the time being from
introducing evidence in support of the averment,
because the presumption stands in the place of
evidence unless rebutted.[40]
In the present case, as proof of his claim of lack of
consideration, respondent denied under oath that he
owed petitioner a single centavo. He added that he did
not apply for a loan and that when he signed the
promissory notes, they were all blank forms and all the
blank spaces were to be filled up only if the sale
transaction over the subject properties would not push
through because of a possible adverse decision in the
civil cases involving them (the properties). He thus
61
posits that since the sale pushed through, the
promissory notes did not become effective.
Contrary to the conclusions of the RTC and the CA, we
find such proof insufficient to overcome the
presumption of consideration. The presumption that a
contract has sufficient consideration cannot be
overthrown by the bare, uncorroborated and self-
serving assertion of respondent that it has no
consideration.[41] The alleged lack of consideration
must be shown by preponderance of evidence.[42]
As it now appears, the promissory notes clearly stated
that respondent promised to pay petitioner
P1,520,000.00 and P416,800.00, plus interests and
penalty charges, a year after their execution. Nowhere
in the notes was it stated that they were subject to a
condition. As correctly observed by petitioner,
respondent is not only a lawyer but a law professor as
well. He is, therefore, legally presumed not only to
exercise vigilance over his concerns but, more
importantly, to know the legal and binding effects of
promissory notes and the intricacies involving the
execution of negotiable instruments including the need
to execute an agreement to document extraneous
collateral conditions and/or agreements, if truly there
were such.[43] This militates against respondents
claim that there was indeed such an agreement. Thus,
the promissory notes should be accepted as they
appear on their face.
Respondents liability is not negated by the fact that he
has uncollected commissions from the sale of the
Molino properties. As the records of the case show, at
the time of the execution of the promissory notes, the
Molino properties were subject of various court actions
commenced by different parties. Thus, the sale of the
properties and, consequently, the payment of
respondents commissions were put on hold. The non-
payment of his commissions could very well be the
reason why he obtained a loan from petitioner.
In Sierra v. Court of Appeals,[44] we held that:
A promissory note is a solemn acknowledgment of a
debt and a formal commitment to repay it on the date
and under the conditions agreed upon by the borrower
and the lender. A person who signs such an instrument
is bound to honor it as a legitimate obligation duly
assumed by him through the signature he affixes
thereto as a token of his good faith. If he reneges on
his promise without cause, he forfeits the sympathy
and assistance of this Court and deserves instead its
sharp repudiation.
Aside from the payment of the principal obligation of
P1,936,800.00, the parties agreed that respondent pay
interest at the rate of 25% from February 17, 1997
until fully paid. Such rate, however, is excessive and
thus, void. Since the stipulation on the interest rate is
void, it is as if there was no express contract thereon.
To be sure, courts may reduce the interest rate as
reason and equity demand.[45] In this case, 12%
interest is reasonable.
The promissory notes likewise required the payment of
a penalty charge of 3% per month or 36% per annum.
We find such rates unconscionable. This Court has
recognized a penalty clause as an accessory obligation
which the parties attach to a principal obligation for
the purpose of ensuring the performance thereof by
imposing on the debtor a special prestation (generally
62
consisting of the payment of a sum of money) in case
the obligation is not fulfilled or is irregularly or
inadequately fulfilled.[46] However, a penalty charge
of 3% per month is unconscionable;[47] hence, we
reduce it to 1% per month or 12% per annum,
pursuant to Article 1229 of the Civil Code which states:
Art. 1229. The judge shall equitably reduce the penalty
when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable.[48]
Lastly, respondent promised to pay 25% of his
outstanding obligations as attorneys fees in case of
non-payment thereof. Attorneys fees here are in the
nature of liquidated damages. As long as said
stipulation does not contravene law, morals, or public
order, it is strictly binding upon respondent.
Nonetheless, courts are empowered to reduce such
rate if the same is iniquitous or unconscionable
pursuant to the above-quoted provision.[49] This
sentiment is echoed in Article 2227 of the Civil Code,
to wit:
Art. 2227. Liquidated damages, whether intended as
an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable.
Hence, we reduce the stipulated attorneys fees from
25% to 10%.[50]
Respondents Counterclaim and Supplemental
Counterclaim
The RTC, affirmed by the CA, granted respondents
counterclaims as it applied the doctrine of piercing the
veil of corporate fiction. It is undisputed that the
parties to the contract of sale of the subject properties
are Pentacapital Realty as the buyer, CRDI as the
seller, and respondent as the agent of CRDI.
Respondent insisted, and the RTC and the CA agreed,
that petitioner, as the parent company of Pentacapital
Realty, was aware of the sale transaction, and that it
was the former who paid the consideration of the sale.
Hence, they concluded that the two corporations
should be treated as one entity.
Petitioner assails the CA Decision sustaining the grant
of respondents counterclaim and supplemental
counterclaim on the following grounds: first,
respondents claims are barred by res judicata, the
same having been adjudicated with finality by the RTC-
Cebu in Civil Case No. CEB-25032; second, piercing the
veil of corporate fiction is without basis; third, the case
is dismissible for failure to implead Pentacapital Realty
as indispensable party; and last, respondents
supplemental counterclaim is actually a third party
complaint against Pentacapital Realty, the filing
thereof requires the payment of the necessary docket
fees.
Petitioners contentions are meritorious.
Res judicata means a matter adjudged; a thing
judicially acted upon or decided; a thing or matter
settled by judgment. It lays the rule that an existing
final judgment or decree rendered on the merits,
without fraud or collusion, by a court of competent
63
jurisdiction, upon any matter within its jurisdiction, is
conclusive of the rights of the parties or their privies,
in all other actions or suits in the same or any other
judicial tribunal of concurrent jurisdiction on the points
and matters in issue in the first suit.[51]
The requisites of res judicata are:
(1) The former judgment or order must be final;
(2) It must be a judgment on the merits;
(3) It must have been rendered by a court having
jurisdiction over the subject matter and the parties;
and
(4) There must be between the first and second
actions, identity of parties, subject matter, and cause
of action.[52]
These requisites are present in the instant case. It is
undisputed that respondent instituted an action for
Preliminary Mandatory Injunction against Pentacapital
Realty, before the RTC of Cebu City, docketed as Civil
Case No. CEB-25032. On motion of Pentacapital Realty,
in an Order dated August 15, 2001, the court
dismissed the complaint on two grounds: 1) non-
payment of the correct filing fee considering that the
complaint was actually a collection of sum of money
although denominated as Preliminary Mandatory
Injunction; and 2) lack of cause of action. The court
treated the complaint as a collection suit because
respondent was seeking the payment of his unpaid
commission or share in the proceeds of the sale of the
Molino Properties. Additionally, the RTC found that
respondent had no cause of action against
Pentacapital Realty, there being no privity of contract
between them. Lastly, the court held that it was CRDI
which agreed that 20% of the total consideration of
the sale be paid and delivered to respondent.[53]
Instead of assailing the said Order, respondent filed his
supplemental compulsory counterclaim, demanding
again the payment of his commission, this time,
against petitioner in the instant case. The Order,
therefore, became final and executory.
Respondents supplemental counterclaim against
petitioner is anchored on the doctrine of piercing the
veil of corporate fiction. Obviously, after the dismissal
of his complaint before the RTC-Cebu, he now proceeds
against petitioner, through a counterclaim, on the
basis of the same cause of action. Thus, if we follow
respondents contention that petitioner and
Pentacapital Realty are one and the same entity, the
latter being a subsidiary of the former, respondent is
barred from instituting the present case based on the
principle of bar by prior judgment. The RTC-Cebu
already made a definitive conclusion that Pentacapital
Realty is not a privy to the contract between
respondent and CRDI. It also categorically stated that
it was CRDI which agreed to pay respondents
commission equivalent to 20% of the proceeds of the
sale. With these findings, and considering that
petitioners alleged liability stems from its supposed
relation with Pentacapital Realty, logic dictates that
the findings of the RTC-Cebu, which had become final
and executory, should bind petitioner.
It is well-settled that when material facts or questions
in issue in a former action were conclusively settled by
a judgment rendered therein, such facts or questions
constitute res judicata and may not again be litigated
in a subsequent action between the same parties or
64
their privies regardless of the form of the latter.[54]
Absolute identity of parties is not required, and where
a shared identity of interest is shown by the identity of
the relief sought by one person in a prior case and the
second person in a subsequent case, such was
deemed sufficient.[55] There is identity of parties not
only when the parties in the cases are the same, but
also between those in privity with them.
No other procedural law principle is indeed more
settled than that once a judgment becomes final, it is
no longer subject to change, revision, amendment, or
reversal, except only for correction of clerical errors, or
the making of nunc pro tunc entries which cause no
prejudice to any party, or where the judgment itself is
void. The underlying reason for the rule is two-fold: (1)
to avoid delay in the administration of justice and thus
make orderly the discharge of judicial business; and
(2) to put judicial controversies to an end, at the risk of
occasional errors, inasmuch as controversies cannot
be allowed to drag on indefinitely and the rights and
obligations of every litigant must not hang in suspense
for an indefinite period of time.[56]
In view of the foregoing disquisitions, we find no
necessity to discuss the other issues raised by
petitioner.
Forum Shopping
For his part, respondent adopts the conclusions made
by the RTC and the CA in granting his counterclaims.
He adds that the petition should be dismissed on the
ground of forum-shopping. He argues that petitioner is
guilty of forum-shopping by filing the petition for
review (G.R. No. 181482), assailing the CA Decision
dated October 4, 2007, despite the pendency of G.R.
No. 171736 assailing the CA Decision dated December
20, 2005.
We do not agree with respondent.
Forum-shopping is the act of a litigant who repetitively
availed of several judicial remedies in different courts,
simultaneously or successively, all substantially
founded on the same transactions and the same
essential facts and circumstances, and all raising
substantially the same issues, either pending in or
already resolved adversely by some other court, to
increase his chances of obtaining a favorable decision
if not in one court, then in another.[57]
What is important in determining whether forum-
shopping exists is the vexation caused the courts and
parties-litigants by a party who asks different courts
and/or administrative agencies to rule on the same or
related causes and/or grant the same or substantially
the same reliefs, in the process creating the possibility
of conflicting decisions being rendered by the different
fora upon the same issues.[58]
Forum-shopping can be committed in three ways: (1)
by filing multiple cases based on the same cause of
action and with the same prayer, the previous case not
having been resolved yet (where the ground for
dismissal is litis pendentia); (2) by filing multiple cases
based on the same cause of action and with the same
prayer, the previous case having been finally resolved
(where the ground for dismissal is res judicata); and
(3) by filing multiple cases based on the same cause of
action but with different prayers (splitting of causes of
action, where the ground for dismissal is also either
litis pendentia or res judicata).[59]
65
More particularly, the elements of forum-shopping are: is likewise ordered to pay 10% of his outstanding
(a) identity of parties or at least such parties that obligation as attorneys fees. No pronouncement as to
represent the same interests in both actions; (b) costs.
identity of rights asserted and reliefs prayed for, the
relief being founded on the same facts; (c) identity of
the two preceding particulars, such that any judgment
rendered in the other action will, regardless of which
party is successful, amount to res judicata in the action
under consideration.[60]

These elements are not present in this case. In G.R.

No. 171736, petitioner assails the propriety of the
admission of respondents supplemental compulsory
counterclaim; while in G.R. No. 181482, petitioner
assails the grant of respondents supplemental
compulsory counterclaim. In other words, the first case
originated from an interlocutory order of the RTC, while
the second case is an appeal from the decision of the
court on the merits of the case. There is, therefore, no
forum-shopping for the simple reason that the petition
and the appeal involve two different and distinct
issues.

WHEREFORE, premises considered, the petitions are

hereby GRANTED. The Decisions and Resolutions of the
Court of Appeals dated December 20, 2005 and March
1, 2006, in CA-G.R. SP No. 74851, and October 4, 2007
and January 21, 2008, in CA-G.R. CV No. 86939, are
REVERSED and SET ASIDE.

Respondent Makilito B. Mahinay is ordered to pay

petitioner Pentacapital Investment Corporation
P1,936,800.00 plus 12% interest per annum, and 12%
per annum penalty charge, starting February 17, 1997.
He

66
 11.SIERRA V CA
A promissory note is supposed to be a genuine
document acknowledging a loan duly received and
promising to pay the same on the date indicated in
accordance with the conditions therein set forth. There
is no record is there cannot be of the number of
times such a promise has been fulfilled and the debt
discharged. But our casebooks are replete with reports
of litigations where the promissory note has been
rejected and even indignantly denounced. The usual
objection is that it is spurious or fabricated, or vitiated
by fraud or duress or undue influence, or not reflective
of the true intention of the parties.
The present petition is a case in point.
On November 2, 1984, the petitioner filed a complaint
against the private respondents in the Regional Trial
Court of Dumaguete City. He sought recovery of a sum
of money be allegedly lent them under the following
promissory note which he annexed to his complaint:
PROMISSORY NOTE
For value received, WE, EPIFANIA EBARLE, SOL
EBARLE, & ELE EBARLE, hereby promise to pay Mr.
Armando V. Sierra, his heirs and assigns, the sum of
EIGHTY FIVE THOUSAND PESOS ONLY (P85,000.00)
Philippine Currency, on or before October 8, 1984 at
his residence in Dumaguete City.
In case of default, I will shoulder all expenses incurred
in the collection and attorney's fees of P1,000.00 plus
an interest of 12% per annum.
(Sgd.) EPIFANIA EBARLE
(Sgd.) SOL EBARLE
(Sgd.) ELE EBARLE
September 8, 1984
Dumaguete City
WITNESSES:
1. (Illegible) 2. _______________
SUBSCRIBED AND SWORN TO BEFORE ME this 8th day
of September 1984 at the City of Dumaguete.
(Sgd.) FRANCISCO B. ZERNA, JR.
Notary Public
In their separate answers, the private respondents
denied under oath "the genuineness, due execution,
legality and validity" of the promissory note. They
alleged that the note was executed "under duress, fear
and undue influence." As affirmative defenses, they
claimed that they had been tacked into signing the
note for P85,000.00 (and another note for P54,550.00,
but not the subject of this suit) and that the amount
owing to the petitioner was only P20,000.00. This
represented the loan he had extended to Epifania
Ebarle, mother of the other private respondents, Sol
Ebarle and Ele Ebarle. They also counterclaimed for
damages.
67
At the trial, the petitioner testified that he had lent the
private respondents the sum of P85,000.00 which they
said they needed "to pay some cattle for fattening to
be inspected by the inspector of the Land Bank that
day" in connection with their application for a loan of
P400,000.00 from the said bank to finance their
logging and cattle business. The application was
apparently not approved. When the note fell due, he
made demands for their payment, which were ignored.
He thereupon filed is complaint.
For their part, the private respondents declared that on
September 8, 1984, they were asked by the petitioner
to sign two promissory notes, one for P85,000.00 and
another for P54,550.00, in consideration of Epifania
Ebarle's outstanding debt of P20,000.00 to him. They
said they initially objected because of the amounts
indicated in the said notes. They eventually agreed,
however, on the petitioner's assurance that the
documents were a mere formality that he had to show
his business partner, who was demanding immediate
payment of the said loan. The petitioner also said that
if a complaint was filed against them for recovery
under the notes, what they should do was not answer
so that they would be declared in default. A new
agreement would then be concluded for the correct
amount of Epifania Ebarle's loan and with easier terms
of payment.
On July 21, 1988, the trial court rendered a decision
holding that the promissory note for P85,000.00 was
invalid and that the private respondents were liable to
the petitioner only for the loan of P20,000.00. 1 On
appeal, this decision was affirmed by the respondents
court. 2 The petitioner then came to this Court to seek
reversal of the courts below on factual and legal
grounds.
The petitioner argues that the Court of Appeals
committed reversible error in the interpretation of the
promissory note in light of the established facts. It also
erred in not according the said note the presumption
of validity as a duly executed public document.
Required to submit a comment, the private
respondents contended that the assignment of errors
raised only questions of fact, the determination of
which by the lower courts was as a rule final and
conclusive upon this Court. In reply, the petitioner
submitted that the erroneous findings of fact made by
the respondent court removed the case from the
general rule and justified a review of the challenged
decision.
The Court has gone over the records of this case and
finds that there was indeed a misapprehension of facts
by the trial and appellate courts. The testimonies of
the private respondents on the circumstances
surrounding the execution of the promissory note are,
in our view, not believable.
The Rules of Court provide that "when the terms of an
agreement have been reduced to writing, it is to be
considered as containing all such terms, and,
therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the
agreement other than the contents of the writing." 3 It
is true that parol evidence may be admitted to
challenge the contents of such agreement "where a
mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties,
68
or the validity of the agreement is put in issue by the
pleadings." 4 However, such evidence must be clear
and convincing and of such sufficient credibility as to
overturn the written agreement.
The private respondents are not unlettered peasants
with a modicum of intelligence and unfamiliar with
business and legal matters. They are educated
persons with not a little experience in business affairs
and possibly even legal transactions. They own and
operate an hacienda consisting of 33 hectares.
Epifania Ebarle was a professor in English for 25 years
at the Silliman University. Sol Ebarle holds a degree in
commerce, Ele Ebarle in agriculture. There is no
question that these three professionals fully
understood the import and consequences of what they
were doing when they signed the two promissory notes
on September 8, 1984.
The notes were written in plain English and consisted
of only two short paragraphs. There was no fine print
to conceal hidden meanings. Each was a simple
promise to pay to the petitioner, for value received,
the amounts indicated therein not later than October
8, 1984, at his residence and to assume all litigation
expenses, with 12% interest, in case of default.
The private respondents say they had misgivings
about signing the notes but they signed them just the
same upon the petitioner's prodding. That is strange,
considering their insistence that all Epifania Ebarle
owed the petitioner was the amount of P20,000.00,
which she claimed to have received earlier. If that was
all she really obtained, it is difficult to understand why
all three of them signed the promissory notes for a
total indebtedness of P139,550.00 or almost seven
times the mother's alleged loan. Their natural reaction
when asked to sign the notes would have been an irate
refusal. What they should have done was demand the
correction of the notes to reflect the true amount of
the debt in only one note and to sign it only after
such correction. Instead, each of them, one after the
other, willingly signed the two notes, the first in the
morning and the second in the afternoon of the same
day, without any reservation whatsoever.
The private respondents say that the petitioner was in
a hurry to conclude the transactions, but the fact is
that they themselves were not. There was apparently
no cogent reason for the immediate signing of the
notes as far as they themselves were concerned. After
all, Epifania Ebarle had already received the alleged
original and only loan of P20,000.00, or so they say,
which they were simply being made to affirm.
Moreover, as they also insist, they had not received,
nor did they expect to receive, the amounts indicated
in the two notes.
In this connection, we cannot agree that they could not
have received the amounts stated in the notes
because it was not likely that the petitioner would keep
such large amounts of cash in his house. That is a
mere conjecture. The petitioner operates his own
vineyard as well as his father's hacienda, besides
dealing in the sale of cars and real estate. His
transactions require ready cash now and then, which is
why he keeps substantial sums of money available in
his house.
In any case, as he says correctly, it is his prerogative
to keep money in his house in whatever amount he
pleases, especially since he feels quite secure there
69
with his guards and dogs. What is important is that the
notes the private respondents signed expressly and
categorically acknowledged that they received the
specific amounts indicated therein. Whether the
money came from the bank or from the petitioner's
house did not affect the validity of their acknowledged
indebtedness.
Epifania Ebarle testified that she was also worried
about the petitioner's assurance that if they allowed
themselves to be declared in default when sued, a new
agreement with easier terms and for the correct
amount of P20,000.00 would be concluded between
them. Asked if she understood what default meant,
she said she did. Nevertheless, despite her uneasiness,
she signed the two promissory notes one after the
other, and so did her children even if they also felt a
similar anxiety. It was only afterwards, she said, that
she "went to a lawyer."
Remarkably, all three of the private respondents
signed the two notes notwithstanding their claimed
individual reluctance. One of them at least could have
voiced his or her apprehensions and made efforts to be
dissuade the others from signing, but no one did.
Everyone signed. And not only that. Having signed one
note in the morning, all of them again signed the
second promissory note in the afternoon, again with no
one expressing his or her misgivings. It is as if they
were all mesmerized by the petitioner into signing the
promissory notes although, as they now say in
hindsight, they were all doing so against their better
judgment.
The facts belie this supposition.
Sol Ebarle admitted on the stand that no harassment
or threat in any form was employed by the petitioner
upon any of them. 5
Neither were they subjected to any undue influence,
which is described in the Civil Code thus:
Art. 1337. There is undue influence when a person
takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom
of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the
person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in
financial distress.
This definition is amplified by Tolentino, who says that
"undue influence is any means employed upon a party
which, under the circumstances, he could not well
resist, and which controlled his volition and induced
him to give his consent to the contract, which
otherwise he would not have entered into. It must, in
some measure, destroy the free agency of a party and
interfere with the exercise of that independent
discretion which is necessary for determining the
advantage or disadvantage of a proposed contract. In
every such case, there is a moral coercion. The moral
coercion may be effected through threats, expressed
or implied, or through harassing tactics." 6
Fraud must also be discounted, for according to the
Civil Code:
Art. 1338. There is fraud when, through insidious
words or machinations of one of the contracting
70
parties, the other is induced to enter into a contract
which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have
been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation
constituting the fraud must be established by full,
clear, and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious.
The fraud is serious when it is sufficient to impress, or
to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a
ground for nullity. The circumstances of each case
should be considered, taking into account the personal
conditions of the victim." 7
The non-presentation at the trial of the notary public
who attested the promissory notes did not have the
effect of invalidating them. It is well settled that the
evidentiary nature of public documents must be
sustained in the absence of strong, complete, and
conclusive proof of its nullity.
A notarial document, guaranteed by public attestation
in accordance with the law, must be sustained in full
force and effect so long as he who impugns it does not
present strong, complete, and conclusive proof of its
falsity or nullity on accounts of some flaw or defect
provided against by law. 8
A mere denial of the receipt of the loan, which is
stated in a clear and unequivocal manner in a public
instrument, is not sufficient. To overthrow the recitals
of a mortgage deed, clear, convincing and more than
merely preponderant evidence is necessary. A contrary
rule would throw wide open doors to fraud. 9
The mere assertion of the private respondents that the
notes were not notarized in their presence does not
meet this standard of proof. In any event, a promissory
note does not have to be notarized to be binding. The
private respondents have admitted signing the two
notes and they have not succeeded in proving that
they did so "under duress, fear and undue influence."
The private respondents' argument that the two
promissory notes are spurious because they were
signed separately on the same day is in fact an
argument against them. As they acutely observe, if
indeed the purpose of the notes was simply to
acknowledge and renew the P20,000.00 loan, then it
could have been accomplished in only one promissory
note specifying this amount. True enough. But the
point is that the purpose was not to acknowledge the
supposed loan. It was to acknowledge the two
separate loans. The fact that two promissory notes
were signed indicates that two different loans were
actually extended, not simultaneously but
successively, one in the morning and the other in the
afternoon of September 8, 1984.
It is a no less significant consideration that no written
evidence of the supposed original loan of P20,000.00
extended to Epifania Ebarle has been presented. None
of the private respondents has produced a copy of any
promissory note therefor, to prove that there was
really such a loan. As a businessman, and there being
no special relationship between him and the private
respondents, the petitioner would have required a
71
written acknowledgment of that loan, and given a copy assumed by him through the signature he affixes
of such instrument to the borrower. thereto as a token of his good faith. If he reneges on
his promise without cause, he forfeits the sympathy
In sum, this Court is asked to believe that three highly and assistance of this Court and deserves instead its
educated persons, to acknowledge an alleged debt of sharp repudiation. So must it be in the case at bar.
only P20,000.00 owed by one of them, signed on the
same day two notarized promissory notes for the total WHEREFORE, the appealed decision is REVERSED and
amount of P139,550.00 on the assurance by the SET ASIDE and a new judgment is hereby rendered
petitioner that it was a mere "formality." The notes requiring the private respondents to pay the petitioner
were written in plain English, without the "whereases" the sum of P85,000.00, with 12% interest from
and "wherefores" of the legal idiom, and could not September 8, 1984, until full payment, plus
have been misunderstood or not comprehended by P15,000.00 as moral damages and P15,000.00 as
them. What is even worse, the private respondents attorney's fees. Costs against the respondents.
insist that when they expressed their hesitation, the
petitioner assured them that if they were sued on the SO ORDERED.
notes, all they should do was allow themselves to be
declared in default and a new and more liberal
agreement specifying the correct amount of their loan
would then be concluded. Although they admitted
knowing the meaning of default, they nevertheless
accepted this assurance and freely signed the notes
without reservation. None of the three private
respondents tried to dissuade the others when all of
them signed the first note in the morning, and this
same acquiescence was repeated when all three of
them, again in common concert, signed the second
note that same afternoon.

The defense is preposterous. Despite its acceptance by

the lower courts, we reject it as a rank invention.

A promissory note is a solemn acknowledgment of a

debt and a formal commitment to repay it on the date
and under the conditions agreed upon by the borrower
and the lender. A person who signs such an instrument
is bound to honor it as a legitimate obligation duly

72
 12.LOZANO V MARTINEZ ( ART.III, 1987
CONSTITUTION)
The constitutionality of Batas Pambansa Bilang 22 (BP
22 for short), popularly known as the Bouncing Check
Law, which was approved on April 3, 1979, is the sole
issue presented by these petitions for decision. The
question is definitely one of first impression in our
jurisdiction.
These petitions arose from cases involving prosecution
of offenses under the statute. The defendants in those
cases moved seasonably to quash the informations on
the ground that the acts charged did not constitute an
offense, the statute being unconstitutional. The
motions were denied by the respondent trial courts,
except in one case, which is the subject of G. R. No.
75789, wherein the trial court declared the law
unconstitutional and dismissed the case. The parties
adversely affected have come to us for relief.
As a threshold issue the former Solicitor General in his
comment on the petitions, maintained the posture that
it was premature for the accused to elevate to this
Court the orders denying their motions to quash, these
orders being interlocutory. While this is correct as a
general rule, we have in justifiable cases intervened to
review the lower court's denial of a motion to quash. 1
In view of the importance of the issue involved here,
there is no doubt in our mind that the instant petitions
should be entertained and the constitutional challenge
to BP 22 resolved promptly, one way or the other, in
order to put to rest the doubts and uncertainty that
exist in legal and judicial circles and the general public
which have unnecessarily caused a delay in the
disposition of cases involving the enforcement of the
statute.
For the purpose of resolving the constitutional issue
presented here, we do not find it necessary to delve
into the specifics of the informations involved in the
cases which are the subject of the petitions before us.
2 The language of BP 22 is broad enough to cover all
kinds of checks, whether present dated or postdated,
or whether issued in payment of pre-existing
obligations or given in mutual or simultaneous
exchange for something of value.
I
BP 22 punishes a person "who makes or draws and
issues any check on account or for value, knowing at
the time of issue that he does not have sufficient funds
in or credit with the drawee bank for the payment of
said check in full upon presentment, which check is
subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop
payment." The penalty prescribed for the offense is
imprisonment of not less than 30 days nor more than
one year or a fine or not less than the amount of the
check nor more than double said amount, but in no
case to exceed P200,000.00, or both such fine and
imprisonment at the discretion of the court. 3
The statute likewise imposes the same penalty on "any
person who, having sufficient funds in or credit with
the drawee bank when he makes or draws and issues a
check, shall fail to keep sufficient funds or to maintain
a credit to cover the full amount of the check if
73
presented within a period of ninety (90) days from the
date appearing thereon, for which reason it is
dishonored by the drawee bank. 4
An essential element of the offense is "knowledge" on
the part of the maker or drawer of the check of the
insufficiency of his funds in or credit with the bank to
cover the check upon its presentment. Since this
involves a state of mind difficult to establish, the
statute itself creates a prima facie presumption of such
knowledge where payment of the check "is refused by
the drawee because of insufficient funds in or credit
with such bank when presented within ninety (90) days
from the date of the check. 5 To mitigate the
harshness of the law in its application, the statute
provides that such presumption shall not arise if within
five (5) banking days from receipt of the notice of
dishonor, the maker or drawer makes arrangements
for payment of the check by the bank or pays the
holder the amount of the check.
Another provision of the statute, also in the nature of a
rule of evidence, provides that the introduction in
evidence of the unpaid and dishonored check with the
drawee bank's refusal to pay "stamped or written
thereon or attached thereto, giving the reason
therefor, "shall constitute prima facie proof of "the
making or issuance of said check, and the due
presentment to the drawee for payment and the
dishonor thereof ... for the reason written, stamped or
attached by the drawee on such dishonored check." 6
The presumptions being merely prima facie, it is open
to the accused of course to present proof to the
contrary to overcome the said presumptions.
II
BP 22 is aimed at putting a stop to or curbing the
practice of issuing checks that are worthless, i.e.
checks that end up being rejected or dishonored for
payment. The practice, as discussed later, is
proscribed by the state because of the injury it causes
to t public interests.
Before the enactment of BP 22, provisions already
existed in our statute books which penalize the
issuance of bouncing or rubber checks. Criminal law
has dealth with the problem within the context of
crimes against property punished as "estafa" or crimes
involving fraud and deceit. The focus of these penal
provisions is on the damage caused to the property
rights of the victim.
The Penal Code of Spain, which was in force in the
Philippines from 1887 until it was replaced by the
Revised Penal Code in 1932, contained provisions
penalizing, among others, the act of defrauding
another through false pretenses. Art. 335 punished a
person who defrauded another "by falsely pretending
to possess any power, influence, qualification,
property, credit, agency or business, or by means of
similar deceit." Although no explicit mention was made
therein regarding checks, this provision was deemed to
cover within its ambit the issuance of worthless or
bogus checks in exchange for money. 7
In 1926, an amendment was introduced by the
Philippine Legislature, which added a new clause
(paragraph 10) to Article 335 of the old Penal Code,
this time referring in explicit terms to the issuance of
worthless checks. The amendment penalized any
74
person who 1) issues a check in payment of a debt or
for other valuable consideration, knowing at the time
of its issuance that he does not have sufficient funds in
the bank to cover its amount, or 2) maliciously signs
the check differently from his authentic signature as
registered at the bank in order that the latter would
refuse to honor it; or 3) issues a postdated check and,
at the date set for its payment, does not have
sufficient deposit to cover the same. 8
In 1932, as already adverted to, the old Penal Code
was superseded by the Revised Penal Code. 9 The
above provisions, in amended form, were incorporated
in Article 315 of the Revised Penal Code defining the
crime of estafa. The revised text of the provision read
as follows:
Art. 315. Swindling (estafa).Any person who shall
defraud another by any of the means mentioned
hereinbelow shall be punished by:
xxx xxx xxx
2. By means of any of the following false pretenses
or fraudulent acts executed prior to or simultaneously
with the commis sion of the fraud:
(a) By using fictitious name, or falsely pretending to
possess power, influence, qualifications, property,
credit, agency, business or imaginary transactions, or
by means of other similar deceits;
xxx xxx xxx
(d) By postdating a check, or issuing a check in
payment of an obligation the offender knowing that at
the time he had no funds in the bank, or the funds
deposited by him were not sufficient to cover the
amount of the cheek without informing the payee of
such circumstances.
The scope of paragraph 2 (d), however, was deemed
to exclude checks issued in payment of pre-existing
obligations. 10 The rationale of this interpretation is
that in estafa, the deceit causing the defraudation
must be prior to or simultaneous with the commission
of the fraud. In issuing a check as payment for a pre-
existing debt, the drawer does not derive any material
benefit in return or as consideration for its issuance.
On the part of the payee, he had already parted with
his money or property before the check is issued to
him hence, he is not defrauded by means of any
"prior" or "simultaneous" deceit perpetrated on him by
the drawer of the check.
With the intention of remedying the situation and
solving the problem of how to bring checks issued in
payment of pre-existing debts within the ambit of Art.
315, an amendment was introduced by the Congress
of the Philippines in 1967, 11 which was enacted into
law as Republic Act No. 4885, revising the aforesaid
proviso to read as follows:
(d) By postdating a check, or issuing a check in
payment of an obligation when the offender had no
funds in the bank, or his funds deposited therein were
not sufficient to cover the amount of the check. The
failure of the drawer of the check to deposit the
amount necessary to cover his check within three (3)
days from receipt of notice from the bank and/or the
payee or holder that said check has been dishonored
for lack or insufficiency of funds shall be puma facie
75
evidence of deceit constituting false pretense or
fraudulent act.
However, the adoption of the amendment did not alter
the situation materially. A divided Court held in People
vs. Sabio, Jr. 12 that Article 315, as amended by
Republic Act 4885, does not cover checks issued in
payment of pre-existing obligations, again relying on
the concept underlying the crime of estafa through
false pretenses or deceitwhich is, that the deceit or
false pretense must be prior to or simultaneous with
the commission of the fraud.
Since statistically it had been shown that the greater
bulk of dishonored checks consisted of those issued in
payment of pre-existing debts, 13 the amended
provision evidently failed to cope with the real problem
and to deal effectively with the evil that it was
intended to eliminate or minimize.
With the foregoing factual and legal antecedents as a
backdrop, the then Interim Batasan confronted the
problem squarely. It opted to take a bold step and
decided to enact a law dealing with the problem of
bouncing or worthless checks, without attaching the
law's umbilical cord to the existing penal provisions on
estafa. BP 22 addresses the problem directly and
frontally and makes the act of issuing a worthless
check malum prohibitum. 14
The question now arises: Is B P 22 a valid law?
Previous efforts to deal with the problem of bouncing
checks within the ambit of the law on estafa did not
evoke any constitutional challenge. In contrast, BP 22
was challenged promptly.
Those who question the constitutionality of BP 22 insist
that: (1) it offends the constitutional provision
forbidding imprisonment for debt; (2) it impairs
freedom of contract; (3) it contravenes the equal
protection clause; (4) it unduly delegates legislative
and executive powers; and (5) its enactment is flawed
in that during its passage the Interim Batasan violated
the constitutional provision prohibiting amendments to
a bill on Third Reading.
The constitutional challenge to BP 22 posed by
petitioners deserves a searching and thorough scrutiny
and the most deliberate consideration by the Court,
involving as it does the exercise of what has been
described as "the highest and most delicate function
which belongs to the judicial department of the
government." 15
As we enter upon the task of passing on the validity of
an act of a co-equal and coordinate branch of the
government, we need not be reminded of the time-
honored principle, deeply ingrained in our
jurisprudence, that a statute is presumed to be valid.
Every presumption must be indulged in favor of its
constitutionality. This is not to say that we approach
our task with diffidence or timidity. Where it is clear
that the legislature has overstepped the limits of its
authority under the constitution we should not hesitate
to wield the axe and let it fall heavily, as fall it must,
on the offending statute.
III
Among the constitutional objections raised against BP
22, the most serious is the alleged conflict between
76
the statute and the constitutional provision forbidding
imprisonment for debt. It is contended that the statute
runs counter to the inhibition in the Bill of Rights which
states, "No person shall be imprisoned for debt or non-
payment of a poll tax." 16 Petitioners insist that, since
the offense under BP 22 is consummated only upon
the dishonor or non-payment of the check when it is
presented to the drawee bank, the statute is really a
"bad debt law" rather than a "bad check law." What it
punishes is the non-payment of the check, not the act
of issuing it. The statute, it is claimed, is nothing more
than a veiled device to coerce payment of a debt
under the threat of penal sanction.
First of all it is essential to grasp the essence and
scope of the constitutional inhibition invoked by
petitioners. Viewed in its historical context, the
constitutional prohibition against imprisonment for
debt is a safeguard that evolved gradually during the
early part of the nineteenth century in the various
states of the American Union as a result of the
people's revulsion at the cruel and inhumane practice,
sanctioned by common law, which permitted creditors
to cause the incarceration of debtors who could not
pay their debts. At common law, money judgments
arising from actions for the recovery of a debt or for
damages from breach of a contract could be enforced
against the person or body of the debtor by writ of
capias ad satisfaciendum. By means of this writ, a
debtor could be seized and imprisoned at the instance
of the creditor until he makes the satisfaction awarded.
As a consequence of the popular ground swell against
such a barbarous practice, provisions forbidding
imprisonment for debt came to be generally enshrined
in the constitutions of various states of the Union. 17
This humanitarian provision was transported to our
shores by the Americans at the turn of t0he century
and embodied in our organic laws. 18 Later, our
fundamental law outlawed not only imprisonment for
debt, but also the infamous practice, native to our
shore, of throwing people in jail for non-payment of the
cedula or poll tax. 19
The reach and scope of this constitutional safeguard
have been the subject of judicial definition, both by our
Supreme Court 20 and by American State courts. 21
Mr. Justice Malcolm speaking for the Supreme Court in
Ganaway vs. Queen, 22 stated: "The 'debt' intended to
be covered by the constitutional guaranty has a well-
defined meaning. Organic provisions relieving from
imprisonment for debt, were intended to prevent
commitment of debtors to prison for liabilities arising
from actions ex contractu The inhibition was never
meant to include damages arising in actions ex delicto,
for the reason that damages recoverable therein do
not arise from any contract entered into between the
parties but are imposed upon the defendant for the
wrong he has done and are considered as punishment,
nor to fines and penalties imposed by the courts in
criminal proceedings as punishments for crime."
The law involved in Ganaway was not a criminal
statute but the Code of Procedure in Civil Actions
(1909) which authorized the arrest of the defendant in
a civil case on grounds akin to those which justify the
issuance of a writ of attachment under our present
Rules of Court, such as imminent departure of the
defendant from the Philippines with intent to defraud
his creditors, or concealment, removal or disposition of
properties in fraud of creditors, etc. The Court, in that
case, declared the detention of the defendant
77
unlawful, being violative of the constitutional inhibition
against imprisonment for debt, and ordered his
release. The Court, however, refrained from declaring
the statutory provision in question unconstitutional.
Closer to the case at bar is People v. Vera Reyes, 23
wherein a statutory provision which made illegal and
punishable the refusal of an employer to pay, when he
can do so, the salaries of his employees or laborers on
the fifteenth or last day of every month or on Saturday
every week, was challenged for being violative of the
constitutional prohibition against imprisonment for
debt. The constitutionality of the law in question was
upheld by the Court, it being within the authority of
the legislature to enact such a law in the exercise of
the police power. It was held that "one of the purposes
of the law is to suppress possible abuses on the part of
the employers who hire laborers or employees without
paying them the salaries agreed upon for their
services, thus causing them financial difficulties. "The
law was viewed not as a measure to coerce payment
of an obligation, although obviously such could be its
effect, but to banish a practice considered harmful to
public welfare.
IV
Has BP 22 transgressed the constitutional inhibition
against imprisonment for debt? To answer the
question, it is necessary to examine what the statute
prohibits and punishes as an offense. Is it the failure of
the maker of the check to pay a debt? Or is it the
making and issuance of a worthless check in payment
of a debt? What is the gravamen of the offense? This
question lies at the heart of the issue before us.
The gravamen of the offense punished by BP 22 is the
act of making and issuing a worthless check or a check
that is dishonored upon its presentation for payment. It
is not the non-payment of an obligation which the law
punishes. The law is not intended or designed to
coerce a debtor to pay his debt. The thrust of the law
is to prohibit, under pain of penal sanctions, the
making of worthless checks and putting them in
circulation. Because of its deleterious effects on the
public interest, the practice is proscribed by the law.
The law punishes the act not as an offense against
property, but an offense against public order.
Admittedly, the distinction may seem at first blush to
appear elusive and difficult to conceptualize. But
precisely in the failure to perceive the vital distinction
lies the error of those who challenge the validity of BP
22.
It may be constitutionally impermissible for the
legislature to penalize a person for non-payment of a
debt ex contractu But certainly it is within the
prerogative of the lawmaking body to proscribe certain
acts deemed pernicious and inimical to public welfare.
Acts mala in se are not the only acts which the law can
punish. An act may not be considered by society as
inherently wrong, hence, not malum in se but because
of the harm that it inflicts on the community, it can be
outlawed and criminally punished as malum
prohibitum. The state can do this in the exercise of its
police power.
The police power of the state has been described as
"the most essential, insistent and illimitable of powers"
which enables it to prohibit all things hurtful to the
comfort, safety and welfare of society. 24 It is a power
78
not emanating from or conferred by the constitution,
but inherent in the state, plenary, "suitably vague and
far from precisely defined, rooted in the conception
that man in organizing the state and imposing upon
the government limitations to safeguard constitutional
rights did not intend thereby to enable individual
citizens or group of citizens to obstruct unreasonably
the enactment of such salutary measures to ensure
communal peace, safety, good order and welfare." 25
The enactment of BP 22 is a declaration by the
legislature that, as a matter of public policy, the
making and issuance of a worthless check is deemed
public nuisance to be abated by the imposition of
penal sanctions.
It is not for us to question the wisdom or impolicy of
the statute. It is sufficient that a reasonable nexus
exists between means and end. Considering the
factual and legal antecedents that led to the adoption
of the statute, it is not difficult to understand the
public concern which prompted its enactment. It had
been reported that the approximate value of bouncing
checks per day was close to 200 million pesos, and
thereafter when overdrafts were banned by the Central
Bank, it averaged between 50 minion to 80 million
pesos a day. 26
By definition, a check is a bill of exchange drawn on a
bank and payable on demand. 27 It is a written order
on a bank, purporting to be drawn against a deposit of
funds for the payment of all events, of a sum of money
to a certain person therein named or to his order or to
cash and payable on demand. 28 Unlike a promissory
note, a check is not a mere undertaking to pay an
amount of money. It is an order addressed to a bank
and partakes of a representation that the drawer has
funds on deposit against which the check is drawn,
sufficient to ensure payment upon its presentation to
the bank. There is therefore an element of certainty or
assurance that the instrument wig be paid upon
presentation. For this reason, checks have become
widely accepted as a medium of payment in trade and
commerce. Although not legal tender, checks have
come to be perceived as convenient substitutes for
currency in commercial and financial transactions. The
basis or foundation of such perception is confidence. If
such confidence is shakes the usefulness of checks as
currency substitutes would be greatly diminished or
may become nit Any practice therefore tending to
destroy that confidence should be deterred for the
proliferation of worthless checks can only create havoc
in trade circles and the banking community.
Recent statistics of the Central Bank show that one-
third of the entire money supply of the country,
roughly totalling P32.3 billion, consists of peso demand
deposits; the remaining two. 29 These de deposit
thirds consists of currency in circulation. ma deposits
in the banks constitute the funds against which among
others, commercial papers like checks, are drawn. The
magnitude of the amount involved amply justifies the
legitimate concern of the state in preserving the
integrity of the banking system. Flooding the system
with worthless checks is like pouring garbage into the
bloodstream of the nation's economy.
The effects of the issuance of a worthless check
transcends the private interests of the parties directly
involved in the transaction and touches the interests of
the community at large. The mischief it creates is not
only a wrong to the payee or holder, but also an injury
79
to the public. The harmful practice of putting valueless
commercial papers in circulation, multiplied a
thousand fold, can very wen pollute the channels of
trade and commerce, injure the banking system and
eventually hurt the welfare of society and the public
interest. As aptly stated 30
The 'check flasher' does a great deal more than
contract a debt; he shakes the pillars of business; and
to my mind, it is a mistaken charity of judgment to
place him in the same category with the honest man
who is unable to pay his debts, and for whom the
constitutional inhibition against' imprisonment for
debt, except in cases of fraud was intended as a shield
and not a sword.
In sum, we find the enactment of BP 22 a valid
exercise of the police power and is not repugnant to
the constitutional inhibition against imprisonment for
debt.
This Court is not unaware of the conflicting
jurisprudence obtaining in the various states of the
United States on the constitutionality of the "worthless
check" acts. 31 It is needless to warn that foreign
jurisprudence must be taken with abundant caution. A
caveat to be observed is that substantial differences
exist between our statute and the worthless check acts
of those states where the jurisprudence have evolved.
One thing to remember is that BP 22 was not lifted
bodily from any existing statute. Furthermore, we have
to consider that judicial decisions must be read in the
context of the facts and the law involved and, in a
broader sense, of the social economic and political
environmentin short, the milieuunder which they
were made. We recognize the wisdom of the old saying
that what is sauce for the goose may not be sauce for
the gander.
As stated elsewhere, police power is a dynamic force
that enables the state to meet the exigencies of
changing times. There are occasions when the police
power of the state may even override a constitutional
guaranty. For example, there have been cases wherein
we held that the constitutional provision on non-
impairment of contracts must yield to the police power
of the state. 32 Whether the police power may
override the constitutional inhibition against
imprisonment for debt is an issue we do not have to
address. This bridge has not been reached, so there is
no occasion to cross it.
We hold that BP 22 does not conflict with the
constitutional inhibition against imprisonment for debt.
V
We need not detain ourselves lengthily in the
examination of the other constitutional objections
raised by petitioners, some of which are rather flimsy.
We find no valid ground to sustain the contention that
BP 22 impairs freedom of contract. The freedom of
contract which is constitutionally protected is freedom
to enter into "lawful" contracts. Contracts which
contravene public policy are not lawful. 33 Besides, we
must bear in mind that checks can not be categorized
as mere contracts. It is a commercial instrument
which, in this modem day and age, has become a
convenient substitute for money; it forms part of the
banking system and therefore not entirely free from
the regulatory power of the state.
80

Neither do we find substance in the claim that the
statute in question denies equal protection of the laws
or is discriminatory, since it penalizes the drawer of
the check, but not the payee. It is contended that the
payee is just as responsible for the crime as the
drawer of the check, since without the indispensable
participation of the payee by his acceptance of the
check there would be no crime. This argument is
tantamount to saying that, to give equal protection,
the law should punish both the swindler and the
swindled. The petitioners' posture ignores the well-
accepted meaning of the clause "equal protection of
the laws." The clause does not preclude classification
of individuals, who may be accorded different
treatment under the law as long as the classification is
no unreasonable or arbitrary. 34
It is also suggested that BP 22 constitutes undue or
improper delegation of legislative powers, on the
theory that the offense is not completed by the sole
act of the maker or drawer but is made to depend on
the will of the payee. If the payee does not present the
check to the bank for payment but instead keeps it,
there would be no crime. The logic of the argument
stretches to absurdity the meaning of "delegation of
legislative power." What cannot be delegated is the
power to legislate, or the power to make laws. 35
which means, as applied to the present case, the
power to define the offense sought to be punished and
to prescribe the penalty. By no stretch of logic or
imagination can it be said that the power to define the
crime and prescribe the penalty therefor has been in
any manner delegated to the payee. Neither is there
any provision in the statute that can be construed, no
matter how remotely, as undue delegation of
executive power. The suggestion that the statute
unlawfully delegates its enforcement to the offended
party is farfetched.
Lastly, the objection has been raised that Section 9 (2)
of Article VII of the 1973 Constitution was violated by
the legislative body when it enacted BP 22 into law.
This constitutional provision prohibits the introduction
of amendments to a bill during the Third Reading. It is
claimed that during its Third Reading, the bill which
eventually became BP 22 was amended in that the
text of the second paragraph of Section 1 of the bill as
adopted on Second Reading was altered or changed in
the printed text of the bill submitted for approval on
Third Reading.
A careful review of the record of the proceedings of the
Interim Batasan on this matter shows that, indeed,
there was some confusion among Batasan Members on
what was the exact text of the paragraph in question
which the body approved on Second Reading. 36 Part
of the confusion was due apparently to the fact that
during the deliberations on Second Reading (the
amendment period), amendments were proposed
orally and approved by the body or accepted by the
sponsor, hence, some members might not have gotten
the complete text of the provisions of the bill as
amended and approved on Second Reading. However,
it is clear from the records that the text of the second
paragraph of Section 1 of BP 22 is the text which was
actually approved by the body on Second Reading on
February 7, 1979, as reflected in the approved Minutes
for that day. In any event, before the bin was
submitted for final approval on Third Reading, the
Interim Batasan created a Special Committee to
investigate the matter, and the Committee in its
81
report, which was approved by the entire body on
March 22, 1979, stated that "the clause in question
was ... an authorized amendment of the bill and the
printed copy thereof reflects accurately the provision
in question as approved on Second Reading. 37 We
therefore, find no merit in the petitioners' claim that in
the enactment of BP 22 the provisions of Section 9 (2)
of Article VIII of the 1973 Constitution were violated.

WHEREFORE, judgment is rendered granting the

petition in G.R. No. 75789 and setting aside the order
of the respondent Judge dated August 19, 1986. The
petitions in G.R. Nos. 63419, 66839-42, 71654, 74524-
25, 75122-49, 75812-13 and 75765-67 are hereby
dismissed and the temporary restraining order issued
in G.R. Nos. 74524-25 is lifted. With costs against
private petitioners.

82
 13.TIOMICO V CA (ART.III, 1987 CONSTITUTION)
This is a petition for review by certiorari under Section
2, Rule 125, in relation to Section 1, Rule 45 of the
Rules of Court to correct, reverse and annul the
decision[1] of the Court of Appeals which affirmed the
judgment[2] of the trial court convicting the petitioner
herein for a violation of the Trust Receipts Law.
Petitioner Jesus V. Tiomico, (Tiomico) opened a Letter
of Credit with the Bank of the Philippine Islands (BPI)
for $5,600 to be used for the importation of two (2)
units of Forklifts, Shovel loader and a truck mounted
with crane. On October 29, 1982, the said machineries
were received by the accused, as evidenced by the
covering trust receipt. Upon maturity of the trust
receipt, on December 28, 1982, he made a partial
payment of US$855.94, thereby leaving an unpaid
obligation of US$4,770.46. As of December 21, 1989,
Tiomico owed BPI US$4,770.46. or P109,386.65,
computed at P22.93 per US dollar, the rate of
exchange at the time. Failing to pay the said amount
or to deliver subject machineries and equipments,
despite several demands, the International Operations
Department of BPI referred the matter to the Legal
Department of the bank. But the letter of demand sent
to him notwithstanding, Tiomico failed to satisfy his
monetary obligation sued upon.
Consequently, he was accused of a violation of PD 115,
otherwise known as the Trust Receipts Law, under an
Information[3] alleging :
That on or about the 29th day of October, 1982, in the
Municipality of Makati, Metro Manila, Philippines, and
within the jurisdiction of this Honorable Court, the
above-named accused, executed a Trust Receipt
Agreement for and in behalf of Paramount Calibrators
Merchandising of which he is the sole proprietor in
favor of the Bank of the Philippine Islands in
consideration of the receipt by the said accused of
three (3) bares one unit Forklift Model FD-30 Toyota
Branch 2-J70 Hp and one unit Forklift Model LM-301
Toyota Branch 2-J 70 Hp, and one unit shovel loader
Model SOT 130 HP, 6 Cyl-LC #2-16860, for which there
is now due the sum of US$5600.00, wherein the
accused agreed to sell the same and with the express
obligation to remit to the complainant-bank the
proceeds of the sale, and/or to turn over the same if
not sold, on demand, but the accused once in
possession of the said items, far from complying with
his obligation, with unfaithfulness and abuse of
confidence, did then and there wilfully, unlawfully and
feloniously misappropriate, misapply and convert the
same to his own personal use and benefit despite
repeated demands, failed and refused and still fails
and refuses to account for and/or remit the proceeds
of the sale thereof, to the damage and prejudice of the
said complainant-bank as represented by Lourdes V.
Palomo in the aforementioned amount of US $5600 or
its equivalent in Philippine currency.
Contrary to law.
Arraigned thereunder, Tiomico entered a plea of Not
Guilty, at which juncture, Assistant Provincial
Prosecutor John B. Egana manifested that he was
authorizing the private prosecutor, Atty. Jose B.
Soncuya, to prosecute the case subject to his direction,
supervision and control.
83
On October 16, 1989, Gretel S. Donato was presented
to testify for the prosecution. According to her, she
worked for the Bank of the Philippine Islands (BPI) in
1981 and in 1982, she was assigned as one of the
Letter of Credit processors in the International
Operations Department of BPI. Her duty, among
others, was to process letter of credit applications
which included that of Tiomico. The trust receipt
executed by the latter was given to her as part of the
documents supporting his Letter of Credit.
The following documents presented in the course of
the testimony of Donato were identified by her as
follows :
(1) Exhibit A - Letter of Credit;
(2) Exhibit B - Pro Forma Invoice;
(3) Exhibit C - Letter of Credit Confirmation;
(4) Exhibit D -Trust Receipt; Exhibit D1-D4 - signatures
thereon;
(5) Exhibit E- Statement of Account, the amount of
P306,708.17 appearing therein, as Exhibit E-1, and the
signature thereto of an unidentified bank officer, as
Exhibit E-2;
(6) Exhibit F Letter of Demand of the banks legal
department; a return card, as Exhibit F-1, and the
signature of the addressees agent, as Exhibit F-1 A.
Counsel for petitioner objected to the admission of
Exhibits A, B, C and D on the ground that witness
failed to identify the said documents inasmuch as her
testimony regarding the signatures appearing therein
were evidently hearsay. But the trial court admitted
the said documentary evidence, despite the objections
raised thereto by the defense. Thereafter, the
prosecution rested.
After the People rested its case, petitioner begged
leave to file a demurrer to the evidence, theorizing
that the evidence on record does not suffice to prove
beyond reasonable doubt the accusation against him.
But instead of granting the said motion of the defense,
the trial court ordered a re-opening of the case, so as
to enable the prosecution to adduce more evidence.
The defense objected but to no avail. The trial court
proceeded with the continuation of trial in the interest
of justice.
On September 5, 1990, the lower court denied the
demurrer to evidence. The Motion for Reconsideration
of the defense met the same fate. It was denied. The
case was then set for continuation of trial on
December 12, 1990. Reception of evidence for the
defense was set on January 7, 1991. But on January 4,
1991, three days before the scheduled continuation of
trial, the defense counsel filed an Urgent Motion for
Postponement for the given reason that he had to
appear before Branch 12 of the Metropolitan Trial Court
of Manila on January 7, 1991.
On January 7, 1991, the lower court denied the Urgent
Motion for Postponement and adjudged petitioner to
have waived the right to introduce evidence on his
behalf.
84
On January 30, 1991, the trial court promulgated its
decision finding petitioner guilty of a violation of PD
115, and sentencing him accordingly.
On appeal, the Court of Appeals came out with a
judgment of affirmance, the dispositive portion of
which, is to the following effect:
WHEREFORE, the Court finds JESUS V. TIOMICO guilty
beyond reasonable doubt of violation of PD 115 and is
hereby sentenced to suffer an indeterminate penalty
of ten (10) years of prision mayor , as minimum, to
fifteen (15) years of reclusion temporal as maximum;
to indemnify Bank of the Philippine Islands the sum of
P109,386.65 and to pay the costs.
SO ORDERED.[4]
Undaunted, petitioner found his way to this Court via
the Petition for Review by Certiorari at bar, seeking to
annul the decision[5] of the Court of Appeals; raising
as issues:
(1) WHETHER OR NOT PD 115 OR TRUST RECEIPTS
LAW IS UNCONSTITUTIONAL;
(2) WHETHER OR NOT A TESTIMONY CAN BE ADMITTED
DESPITE THE ABSENCE OF FORMAL OFFER AS
REQUIRED BY SECTIONS 34 AND 35, RULE 132, OF THE
REVISED RULES OF COURT;
(3) WHETHER OR NOT THE TESTIMONY OF WITNESS
WITH REGARD TO THE LETTER OF CREDIT AND OTHER
DOCUMENT IS HEARSAY; AND
(4) WHETHER OR NOT THERE WAS DEPRIVATION OF
DUE PROCESS ON THE RIGHTS OF THE ACCUSED
WHEN THE TRIAL COURT DENIED THE MOTION FOR
POSTPONEMENT BY THE DEFENSE COUNSEL.
As regards the first issue, the Court has repeatedly
upheld the validity of the Trust Receipts Law and
consistently declared that the said law does not violate
the constitutional proscription against imprisonment
for non-payment of debts. (People vs. Cuevo, 104
SCRA 312; People vs. Nitafan, 207 SCRA 726; Lee vs.
Rodil, 175 SCRA 100). Such pronouncement was
thoroughly explained in Lee vs. Rodil (supra) thus:
Verily, PD 115 is a declaration by the legislative
authority that, as a matter of public policy, the failure
of a person to turn over the proceeds of the sale of
goods covered by a trust receipt or to return said
goods if not sold is a public nuisance to be abated by
the imposition of penal sanctions. As held in Lozano vs
Martinez (146 SCRA 323, 338):
xxx certainly, it is within the authority of the
lawmaking body to prescribe certain acts deemed
pernicious and inimical to public welfare. Acts mala in
se are not the only acts that the law can punish. An act
may not be considered by society as inherently wrong,
hence, not malum in se, but because of the harm that
it inflicts on the community, it can be outlawed and
criminally punished as malum prohibitum. The State
can do this in the exercise of its police power.
In fine, PD 115 is a valid exercise of police power and
is not repugnant to the constitutional provision of non-
imprisonment for non-payment of debt.
85
In a similar vein, the case of People vs. Nitafan (supra)
held:
The Trust Receipts Law punishes the dishonesty and
abuse of confidence in the handling of money or goods
to the prejudice of another regardless of whether the
latter is the owner or not. The law does not seek to
enforce payment of a loan. Thus, there can be no
violation of the right against imprisonment for non-
payment of a debt.
Anent the second issue, the pivotal question is: Should
the testimony of a witness be admitted despite the
failure of the proponent to offer it formally in evidence,
as required by Section 34 of Rule 132[6] We rule on
this issue in the affirmative.
Records disclose that the private prosecutor stated the
purpose of the testimony in question although he did
not formally offer the same. The proceedings[7] went
on as follows:
ATTY. SONCUYA:
The purpose of the testimony of the witness is to prove
that the accused applied for a letter of credit, for the
opening of a letter of credit and for the importation of
machinery from Japan and that those machinery were
delivered and received by the accused as evidenced
by the trust receipt and that the accused failed to
comply with the terms and conditions of the said trust
receipt, your Honor.
COURT:
All right, proceed.
As aptly stressed by the Solicitor General in his
Comment,[8] the absence of the words, we are
formally offering the testimony for the purpose of...
should be considered merely as an excusable
oversight on the part of the private prosecutor.
It should be borne in mind that the rationale behind
Section 34 of Rule 132[9] is to inform the Court of the
purpose of the testimony, to enable the judge to rule
whether the said testimony is necessary or is
irrelevant or immaterial.
In the case under scrutiny, since the purpose of
subject testimony was succinctly stated, the reason
behind the requirement for its formal offer has been
substantially complied with. What the defense counsel
should have done should have been to interpose his
objection the moment the private respondent was
called to testify, on the ground that there was no prior
offer made by the proponent.[10]
The tendency of the rules on evidence, is towards
substantial justice rather than strict adherence to
technicalities. To condemn the disputed testimony as
inadmissible due to the failure of the private
prosecutor to properly observe the rules on
presentation of evidence, would render nugatory, and
defeat the proceedings before the lower court.
On the third issue - whether or not the witness can
testify on subject documents introduced as evidence
despite her admission that she did not see the accused
sign the said exhibits, we likewise rule in the
affirmative.
86
As aptly held by the appellate court:[11]
Gretel Donato testified that she was not present when
appellant affixed his signature on the documents in
question (p. 22, ibid). She, however, identified the
signatures thereon (Exhs. A-1, A-2, D-1, D-2 and D-3,
Letter of Credit; Exhibit B - Pro Forma Invoice; Exhibit C
- Letter of Credit Confirmation; Exhibit D -Trust Receipt;
Exhibit D1-D4 - signatures thereon; pp 129 and 132 of
Orig. Rec.) as those of the appellant Jesus V. Tiomico
arising from her familiarity therewith inasmuch as she
was the one who processed the papers pertinent to the
transactions between the appellant and the
complainant bank (TSN, Feb. 5, 1990, pp 4-6). Her
testimony, therefore, cannot be considered hearsay
because it is principally based on her personal
knowledge of bank transactions and the documents
and records which she processes in the regular course
of the banks business operations.
It is not essential to the competence of a lay witness to
express opinions on the genuineness of handwritings
that he did see the person in question write.[12] It is
enough that the witness has so adopted the same into
business transactions as to induce a reasonable
presumption and belief of genuineness of the
document. This is due to the fact that in the ordinary
course of business, documents purporting to be
written or signed by that person have been habitually
submitted to the witness, or where knowledge of
handwriting is acquired by him in an official capacity.
[13]
Did the witness gain familiarity with the signature of
the accused? The answer is yes. Exhibits A to D: Letter
of Credit, Pro-Forma Invoice, Letter of Credit
Confirmation and Trust Receipt, respectively, were all
familiar to the witness since the said documents
bearing the signature of the accused were all
submitted to her for processing. It is therefore beyond
cavil that she acquired sufficient familiarity to make
witness competent to testify on the signatures
appearing in subject documents. From the time of the
application to its approval and when Tiomico
defaulted, she (witness) was the one who had
overseen the transactions and recommended the
actions to be taken thereon. As a matter of fact, she
was the one who referred the failure of Tiomico to pay
his balance to the Legal Department of BPI, prompting
the said legal department to send him (Tiomico) a
demand letter.
Furthermore, whether there was due execution or
authenticity of such documents was impliedly
admitted by the accused. On this point, we quote with
approval the conclusion reached by the Court of
Appeals, to wit:[14]
On the other hand, appellant impliedly admitted the
due execution of the assailed documents considering
that he did not deny the fact that he opened a letter of
credit. Neither did he deny that the signature
appearing thereon is his. What appellant intended to
dispute was merely the balance of his past due
account with the complainant bank, thus:
'COURT
Denied.
What is the defense of the accused?
Denial that he opened the letter of credit.
87
ATTY . EBRO Does the accused deny the signature?

No, your honor. ATTY. EBRO

COURT No, your Honor. I am just showing also that she has
been exaggerating.
What is the defense?
(TSN, Feb. 5, 1990, pp. 12-13, p. 22)
xxx xxx xxx
In light of the foregoing, it stands to reason and
ATTY. EBRO conclude that the documents under scrutiny are
admissible in evidence, as held by the trial court.
Q: - Now you identified signatures allegedly of the
accused on Exhibit A, which is the application for the Anent the fourth issue, petitioner theorizes that the
letter of credit, I ask you Miss Donato, were you denial of the motion for postponement sent in by his
personally present when this signature was affixed to lawyer violated his constitutional right to due process.
the document?
It should be stressed that subject Urgent Motion for
A - (witness going over Exhibit A) I was the one of the Postponement was not the first motion for resetting
ones who processed the letter of credit. ever presented by the counsel for petitioner. On
December 12, 1990, upon motion of the latter, and
ATTY. EBRO without objection on the part of the prosecution, the
reception of evidence for the defense was reset once
May we ask for an order directing that the witness more to January 7, 1991, at 8:30 in the morning.
respond to my question.
The most basic tenet of due process is the right to be
COURT heard. Where a party had been afforded an
opportunity to participate in the proceedings but failed
Just answer the question. to do so, he cannot complain of deprivation of due
process.[15] Due process is satisfied as long as the
WITNESS party is accorded an opportunity to be heard. If it is
not availed of, it is deemed waived or forfeited without
A - No, sir. violating the Bill of Rights.[16]

COURT It is further theorized by petitioner that the lower court

should have at least granted him another trial date so

88
as to enable him to present his evidence, so that the
denial of his Urgent Motion for Postponement infringed
his constitutional right to be heard by himself and by
counsel.[17] This submission is unsustainable.
When an accused is accorded a chance to present
evidence on his behalf but due to his repeated
unjustifiable failure to appear at the trial without any
justification, the lower court orders the case submitted
for decision on the basis of the evidence on record,
said judicial action is not tainted with grave abuse of
discretion because in such a case, the accused is
deemed to have waived the right to adduce evidence
on his behalf.[18]
Furthermore, records show that in this case the
defense counsel did not even bother to appear for the
scheduled reception of evidence for his client on
January 7, 1991, notwithstanding the fact that the trial
court did not act upon, much less grant, the Urgent
Motion for Postponement which he filed on January 4,
1991. Lawyers should never presume that their
motions for postponement would be granted.[19]
A motion for continuance or postponement is not a
matter of right. It is addressed to the sound discretion
of the Court. Action thereon will not be disturbed by
appellate courts, in the absence of clear and manifest
abuse of discretion resulting in a denial of substantial
justice.[20]
Motions for postponement are generally frowned upon
by Courts if there is evidence of bad faith, malice or
inexcusable negligence on the part of the movant.[21]
The inadvertence of the defense counsel in failing to
take note of the trial dates and in belatedly informing
the trial court of any conflict in his schedules of trial or
court appearances, constitutes inexcusable
negligence. It should be borne in mind that a client is
bound by his counsels conduct, negligence and
mistakes in handling the case.[22]
As gleanable from the records:
xxx Attached to the motion is the Order of said court
dated November 19, 1990. Obviously, when the case
was called on December 12, 1990, the counsel for the
accused had already known of the scheduled hearing
before the Metropolitan Trial Court, yet he agreed to
the hearing on January 7, 1991. Counsels conduct is
not consistent with the thrust of the Judiciary to
expedite the termination of cases under the Mandatory
Continuous Trial xxx.[23]
A lawyer as an officer of the court is part of the judicial
machinery in the administration of justice. As such, he
has a responsibility to assist in the proper and sound
administration of justice. Like the court itself, he is an
instrument to advance its ends and the speedy,
efficient, impartial, correct and inexpensive
adjudication of cases. A lawyer should not only help to
attain these objectives. He should also avoid improper
practices that impede, obstruct or prevent their
realization, charged as he is with the primary task of
assisting the court in the speedy and efficient
administration of justice.[24]
Petitioner invites attention to the Affidavit of
Desistance by the Bank of the Philippine Islands (BPI).
This issue raised by the petitioner cannot be
89
entertained as it was only raised for the first time on
appeal.[25]

Considering that the assailed decision is firmly

anchored on prevailing law and established
jurisprudence, the Court cannot help but deny the
petition.

WHEREFORE, the petition is DENIED and the decision

of the Court of Appeals, dated May 31, 1995, affirming
the judgment of conviction rendered on January 28,
1991 by the court of origin AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

90

14.REPUBLIC V BAGTAS (ART. 1935 & 1942)
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
91
January 1959 she file a motion alleging that on 26 June
1952 the two bull Sindhi and Bhagnari were returned
to the Bureau Animal of Industry and that sometime in
November 1958 the third bull, the Sahiniwal, died from
gunshot wound inflicted during a Huk raid on Hacienda
Felicidad Intal, and praying that the writ of execution
be quashed and that a writ of preliminary injunction be
issued. On 31 January 1959 the plaintiff objected to
her motion. On 6 February 1959 she filed a reply
thereto. On the same day, 6 February, the Court
denied her motion. Hence, this appeal certified by the
Court of Appeals to this Court as stated at the
beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son
of the appellant by the late defendant, returned the
Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by
a memorandum receipt signed by the latter (Exhibit 2).
That is why in its objection of 31 January 1959 to the
appellant's motion to quash the writ of execution the
appellee prays "that another writ of execution in the
sum of P859.53 be issued against the estate of
defendant deceased Jose V. Bagtas." She cannot be
held liable for the two bulls which already had been
returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was
accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of
Hacienda Felicidad Intal, Baggao, Cagayan, where the
animal was kept, and that as such death was due to
force majeure she is relieved from the duty of
returning the bull or paying its value to the appellee.
The contention is without merit. The loan by the
appellee to the late defendant Jose V. Bagtas of the
three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed
for another year as regards one bull, was subject to
the payment by the borrower of breeding fee of 10% of
the book value of the bulls. The appellant contends
that the contract was commodatum and that, for that
reason, as the appellee retained ownership or title to
the bull it should suffer its loss due to force majeure. A
contract of commodatum is essentially gratuitous.1 If
the breeding fee be considered a compensation, then
the contract would be a lease of the bull. Under article
1671 of the Civil Code the lessee would be subject to
the responsibilities of a possessor in bad faith, because
she had continued possession of the bull after the
expiry of the contract. And even if the contract be
commodatum, still the appellant is liable, because
article 1942 of the Civil Code provides that a bailee in
a contract of commodatum
. . . is liable for loss of the things, even if it should be
through a fortuitous event:
(2) If he keeps it longer than the period
stipulated . . .
(3) If the thing loaned has been delivered with
appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a
fortuitous event;
The original period of the loan was from 8 May 1948 to
7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But
the appellant kept and used the bull until November
1953 when during a Huk raid it was killed by stray
92
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
93
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.

94
 15.PRODUCERS BANK V CA (ART.1936)
This is a petition for review on certiorari of the
Decision[1] of the Court of Appeals dated June 25,
1991 in CA-G.R. CV No. 11791 and of its Resolution[2]
dated May 5, 1994, denying the motion for
reconsideration of said decision filed by petitioner
Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives
was asked by his neighbor and friend Angeles Sanchez
to help her friend and townmate, Col. Arturo Doronilla,
in incorporating his business, the Sterela Marketing
and Services (Sterela for brevity). Specifically, Sanchez
asked private respondent to deposit in a bank a certain
amount of money in the bank account of Sterela for
purposes of its incorporation. She assured private
respondent that he could withdraw his money from
said account within a months time. Private respondent
asked Sanchez to bring Doronilla to their house so that
they could discuss Sanchezs request.[3]
On May 9, 1979, private respondent, Sanchez,
Doronilla and a certain Estrella Dumagpi, Doronillas
private secretary, met and discussed the matter.
Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private
respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) in favor of
Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompany Doronilla and Sanchez
in opening a savings account in the name of Sterela in
the Buendia, Makati branch of Producers Bank of the
Philippines. However, only Sanchez, Mrs. Vives and
Dumagpi went to the bank to deposit the check. They
had with them an authorization letter from Doronilla
authorizing Sanchez and her companions, in
coordination with Mr. Rufo Atienza, to open an account
for Sterela Marketing Services in the amount of
P200,000.00. In opening the account, the authorized
signatories were Inocencia Vives and/or Angeles
Sanchez. A passbook for Savings Account No. 10-1567
was thereafter issued to Mrs. Vives.[4]
Subsequently, private respondent learned that Sterela
was no longer holding office in the address previously
given to him. Alarmed, he and his wife went to the
Bank to verify if their money was still intact. The bank
manager referred them to Mr. Rufo Atienza, the
assistant manager, who informed them that part of the
money in Savings Account No. 10-1567 had been
withdrawn by Doronilla, and that only P90,000.00
remained therein. He likewise told them that Mrs.
Vives could not withdraw said remaining amount
because it had to answer for some postdated checks
issued by Doronilla. According to Atienza, after Mrs.
Vives and Sanchez opened Savings Account No. 10-
1567, Doronilla opened Current Account No. 10-0320
for Sterela and authorized the Bank to debit Savings
Account No. 10-1567 for the amounts necessary to
cover overdrawings in Current Account No. 10-0320. In
opening said current account, Sterela, through
Doronilla, obtained a loan of P175,000.00 from the
Bank. To cover payment thereof, Doronilla issued three
postdated checks, all of which were dishonored.
Atienza also said that Doronilla could assign or
withdraw the money in Savings Account No. 10-1567
because he was the sole proprietor of Sterela.[5]
Private respondent tried to get in touch with Doronilla
through Sanchez. On June 29, 1979, he received a
letter from Doronilla, assuring him that his money was
95
intact and would be returned to him. On August 13,
1979, Doronilla issued a postdated check for Two
Hundred Twelve Thousand Pesos (P212,000.00) in
favor of private respondent. However, upon
presentment thereof by private respondent to the
drawee bank, the check was dishonored. Doronilla
requested private respondent to present the same
check on September 15, 1979 but when the latter
presented the check, it was again dishonored.[6]
Private respondent referred the matter to a lawyer,
who made a written demand upon Doronilla for the
return of his clients money. Doronilla issued another
check for P212,000.00 in private respondents favor but
the check was again dishonored for insufficiency of
funds.[7]
Private respondent instituted an action for recovery of
sum of money in the Regional Trial Court (RTC) in
Pasig, Metro Manila against Doronilla, Sanchez,
Dumagpi and petitioner. The case was docketed as
Civil Case No. 44485. He also filed criminal actions
against Doronilla, Sanchez and Dumagpi in the RTC.
However, Sanchez passed away on March 16, 1985
while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157,
promulgated its Decision in Civil Case No. 44485, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby
rendered sentencing defendants Arturo J. Doronila,
Estrella Dumagpi and Producers Bank of the
Philippines to pay plaintiff Franklin Vives jointly and
severally
(a) the amount of P200,000.00, representing the
money deposited, with interest at the legal rate from
the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a
similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.[8]
Petitioner appealed the trial courts decision to the
Court of Appeals. In its Decision dated June 25, 1991,
the appellate court affirmed in toto the decision of the
RTC.[9] It likewise denied with finality petitioners
motion for reconsideration in its Resolution dated May
5, 1994.[10]
On June 30, 1994, petitioner filed the present petition,
arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THAT THE TRANSACTION BETWEEN THE
DEFENDANT DORONILLA AND RESPONDENT VIVES
WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THAT PETITIONERS BANK MANAGER, MR.
RUFO ATIENZA, CONNIVED WITH THE OTHER
96
DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should
be PRIVATE RESPONDENT) AND AS A CONSEQUENCE,
THE PETITIONER SHOULD BE HELD LIABLE UNDER THE
PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN
ADOPTING THE ENTIRE RECORDS OF THE REGIONAL
TRIAL COURT AND AFFIRMING THE JUDGMENT
APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION
OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN
DECLARING THAT THE CITED DECISION IN SALUDARES
VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE
LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY
AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THE DECISION OF THE LOWER COURT
THAT HEREIN PETITIONER BANK IS JOINTLY AND
SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR
THE AMOUNT OF P200,000.00 REPRESENTING THE
SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES,
P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF
SUIT.[11]
Private respondent filed his Comment on September
23, 1994. Petitioner filed its Reply thereto on
September 25, 1995. The Court then required private
respondent to submit a rejoinder to the reply. However,
said rejoinder was filed only on April 21, 1997, due to
petitioners delay in furnishing private respondent with
copy of the reply[12] and several substitutions of
counsel on the part of private respondent.[13] On
January 17, 2001, the Court resolved to give due
course to the petition and required the parties to
submit their respective memoranda.[14] Petitioner
filed its memorandum on April 16, 2001 while private
respondent submitted his memorandum on March 22,
2001.
Petitioner contends that the transaction between
private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are
present: first, what was delivered by private
respondent to Doronilla was money, a consumable
thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by
the check issued by Doronilla in the amount of
P212,000.00, or P12,000 more than what private
respondent deposited in Sterelas bank account.[15]
Moreover, the fact that private respondent sued his
good friend Sanchez for his failure to recover his
money from Doronilla shows that the transaction was
not merely gratuitous but had a business angle to it.
Hence, petitioner argues that it cannot be held liable
for the return of private respondents P200,000.00
because it is not privy to the transaction between the
latter and Doronilla.[16]
It argues further that petitioners Assistant Manager,
Mr. Rufo Atienza, could not be faulted for allowing
Doronilla to withdraw from the savings account of
Sterela since the latter was the sole proprietor of said
97
company. Petitioner asserts that Doronillas May 8,
1979 letter addressed to the bank, authorizing Mrs.
Vives and Sanchez to open a savings account for
Sterela, did not contain any authorization for these two
to withdraw from said account. Hence, the authority to
withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and
who alone had legal title to the savings account.[17]
Petitioner points out that no evidence other than the
testimonies of private respondent and Mrs. Vives was
presented during trial to prove that private respondent
deposited his P200,000.00 in Sterelas account for
purposes of its incorporation.[18] Hence, petitioner
should not be held liable for allowing Doronilla to
withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred
in affirming the trial courts decision since the findings
of fact therein were not accord with the evidence
presented by petitioner during trial to prove that the
transaction between private respondent and Doronilla
was a mutuum, and that it committed no wrong in
allowing Doronilla to withdraw from Sterelas savings
account.[19]
Finally, petitioner claims that since there is no wrongful
act or omission on its part, it is not liable for the actual
damages suffered by private respondent, and neither
may it be held liable for moral and exemplary
damages as well as attorneys fees.[20]
Private respondent, on the other hand, argues that the
transaction between him and Doronilla is not a
mutuum but an accommodation,[21] since he did not
actually part with the ownership of his P200,000.00
and in fact asked his wife to deposit said amount in the
account of Sterela so that a certification can be issued
to the effect that Sterela had sufficient funds for
purposes of its incorporation but at the same time, he
retained some degree of control over his money
through his wife who was made a signatory to the
savings account and in whose possession the savings
account passbook was given.[22]
He likewise asserts that the trial court did not err in
finding that petitioner, Atienzas employer, is liable for
the return of his money. He insists that Atienza,
petitioners assistant manager, connived with Doronilla
in defrauding private respondent since it was Atienza
who facilitated the opening of Sterelas current account
three days after Mrs. Vives and Sanchez opened a
savings account with petitioner for said company, as
well as the approval of the authority to debit Sterelas
savings account to cover any overdrawings in its
current account.[23]
There is no merit in the petition.
At the outset, it must be emphasized that only
questions of law may be raised in a petition for review
filed with this Court. The Court has repeatedly held
that it is not its function to analyze and weigh all over
again the evidence presented by the parties during
trial.[24] The Courts jurisdiction is in principle limited
to reviewing errors of law that might have been
committed by the Court of Appeals.[25] Moreover,
factual findings of courts, when adopted and confirmed
by the Court of Appeals, are final and conclusive on
this Court unless these findings are not supported by
the evidence on record.[26] There is no showing of any
misapprehension of facts on the part of the Court of
Appeals in the case at bar that would require this
98
Court to review and overturn the factual findings of
that court, especially since the conclusions of fact of
the Court of Appeals and the trial court are not only
consistent but are also amply supported by the
evidence on record.
No error was committed by the Court of Appeals when
it ruled that the transaction between private
respondent and Doronilla was a commodatum and not
a mutuum. A circumspect examination of the records
reveals that the transaction between them was a
commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this
wise:
By the contract of loan, one of the parties delivers to
another, either something not consumable so that the
latter may use the same for a certain time and return
it, in which case the contract is called a commodatum;
or money or other consumable thing, upon the
condition that the same amount of the same kind and
quality shall be paid, in which case the contract is
simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to
pay interest.
In commodatum, the bailor retains the ownership of
the thing loaned, while in simple loan, ownership
passes to the borrower.
The foregoing provision seems to imply that if the
subject of the contract is a consumable thing, such as
money, the contract would be a mutuum. However,
there are some instances where a commodatum may
have for its object a consumable thing. Article 1936 of
the Civil Code provides:
Consumable goods may be the subject of
commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for
exhibition.
Thus, if consumable goods are loaned only for
purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the
very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a
mutuum.
The rule is that the intention of the parties thereto
shall be accorded primordial consideration in
determining the actual character of a contract.[27] In
case of doubt, the contemporaneous and subsequent
acts of the parties shall be considered in such
determination.[28]
As correctly pointed out by both the Court of Appeals
and the trial court, the evidence shows that private
respondent agreed to deposit his money in the savings
account of Sterela specifically for the purpose of
making it appear that said firm had sufficient
capitalization for incorporation, with the promise that
the amount shall be returned within thirty (30) days.
[29] Private respondent merely accommodated
Doronilla by lending his money without consideration,
as a favor to his good friend Sanchez. It was however
clear to the parties to the transaction that the money
would not be removed from Sterelas savings account
99
and would be returned to private respondent after
thirty (30) days.
Doronillas attempts to return to private respondent the
amount of P200,000.00 which the latter deposited in
Sterelas account together with an additional
P12,000.00, allegedly representing interest on the
mutuum, did not convert the transaction from a
commodatum into a mutuum because such was not
the intent of the parties and because the additional
P12,000.00 corresponds to the fruits of the lending of
the P200,000.00. Article 1935 of the Civil Code
expressly states that [t]he bailee in commodatum
acquires the use of the thing loaned but not its fruits.
Hence, it was only proper for Doronilla to remit to
private respondent the interest accruing to the latters
money deposited with petitioner.
Neither does the Court agree with petitioners
contention that it is not solidarily liable for the return
of private respondents money because it was not privy
to the transaction between Doronilla and private
respondent. The nature of said transaction, that is,
whether it is a mutuum or a commodatum, has no
bearing on the question of petitioners liability for the
return of private respondents money because the
factual circumstances of the case clearly show that
petitioner, through its employee Mr. Atienza, was
partly responsible for the loss of private respondents
money and is liable for its restitution.
Petitioners rules for savings deposits written on the
passbook it issued Mrs. Vives on behalf of Sterela for
Savings Account No. 10-1567 expressly states that
2. Deposits and withdrawals must be made by the
depositor personally or upon his written authority duly
authenticated, and neither a deposit nor a withdrawal
will be permitted except upon the production of the
depositor savings bank book in which will be entered
by the Bank the amount deposited or withdrawn.[30]
Said rule notwithstanding, Doronilla was permitted by
petitioner, through Atienza, the Assistant Branch
Manager for the Buendia Branch of petitioner, to
withdraw therefrom even without presenting the
passbook (which Atienza very well knew was in the
possession of Mrs. Vives), not just once, but several
times. Both the Court of Appeals and the trial court
found that Atienza allowed said withdrawals because
he was party to Doronillas scheme of defrauding
private respondent:
XXX
But the scheme could not have been executed
successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and
cashier of the Makati (Buendia) branch of the
defendant bank. Indeed, the evidence indicates that
Atienza had not only facilitated the commission of the
fraud but he likewise helped in devising the means by
which it can be done in such manner as to make it
appear that the transaction was in accordance with
banking procedure.
To begin with, the deposit was made in defendants
Buendia branch precisely because Atienza was a key
officer therein. The records show that plaintiff had
suggested that the P200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla
100
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
101
assistant manager of the branch and the bank official
servicing the savings and current accounts in question,
he also was aware that the original passbook was
never surrendered. He was also cognizant that Estrella
Dumagpi was not among those authorized to withdraw
so her certification had no effect whatsoever.
The circumstance surrounding the opening of the
current account also demonstrate that Atienzas active
participation in the perpetration of the fraud and
deception that caused the loss. The records indicate
that this account was opened three days later after the
P200,000.00 was deposited. In spite of his disclaimer,
the Court believes that Atienza was mindful and
posted regarding the opening of the current account
considering that Doronilla was all the while in
coordination with him. That it was he who facilitated
the approval of the authority to debit the savings
account to cover any overdrawings in the current
account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had
resulted to the loss subject of this case. x x x.[31]
Under Article 2180 of the Civil Code, employers shall
be held primarily and solidarily liable for damages
caused by their employees acting within the scope of
their assigned tasks. To hold the employer liable under
this provision, it must be shown that an employer-
employee relationship exists, and that the employee
was acting within the scope of his assigned task when
the act complained of was committed.[32] Case law in
the United States of America has it that a corporation
that entrusts a general duty to its employee is
responsible to the injured party for damages flowing
from the employees wrongful act done in the course of
his general authority, even though in doing such act,
the employee may have failed in its duty to the
employer and disobeyed the latters instructions.[33]
There is no dispute that Atienza was an employee of
petitioner. Furthermore, petitioner did not deny that
Atienza was acting within the scope of his authority as
Assistant Branch Manager when he assisted Doronilla
in withdrawing funds from Sterelas Savings Account
No. 10-1567, in which account private respondents
money was deposited, and in transferring the money
withdrawn to Sterelas Current Account with petitioner.
Atienzas acts of helping Doronilla, a customer of the
petitioner, were obviously done in furtherance of
petitioners interests[34] even though in the process,
Atienza violated some of petitioners rules such as
those stipulated in its savings account passbook.[35] It
was established that the transfer of funds from
Sterelas savings account to its current account could
not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their
connivance which was the cause of private
respondents loss.
The foregoing shows that the Court of Appeals
correctly held that under Article 2180 of the Civil Code,
petitioner is liable for private respondents loss and is
solidarily liable with Doronilla and Dumagpi for the
return of the P200,000.00 since it is clear that
petitioner failed to prove that it exercised due
diligence to prevent the unauthorized withdrawals
from Sterelas savings account, and that it was not
negligent in the selection and supervision of Atienza.
Accordingly, no error was committed by the appellate
court in the award of actual, moral and exemplary
102
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.

103
 16.SO ORDERED.MINA V PASCUAL (ART.1947)
Francisco Fontanilla and Andres Fontanilla were
brothers. Francisco Fontanilla acquired during his
lifetime, on March 12, 1874, a lot in the center of the
town of Laoag, the capital of the Province of Ilocos
Norte, the property having been awarded to him
through its purchase at a public auction held by the
alcalde mayor of that province. The lot has a frontage
of 120 meters and a depth of 15.
Andres Fontanilla, with the consent of his brother
Francisco, erected a warehouse on a part of the said
lot, embracing 14 meters of its frontage by 11 meters
of its depth.
Francisco Fontanilla, the former owner of the lot, being
dead, the herein plaintiffs, Alejandro Mina, et al., were
recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse,
also having died, the children of Ruperta Pascual were
recognized likes without discussion, though it is not
said how, and consequently are entitled to the said
building, or rather, as Ruperta Pascual herself stated,
to only six-sevenths of one-half of it, the other half
belonging, as it appears, to the plaintiffs themselves,
and the remaining one-seventh of the first one-half to
the children of one of the plaintiffs, Elena de
Villanueva. The fact is that the plaintiffs and the
defendants are virtually, to all appearance, the owners
of the warehouse; while the plaintiffs are undoubtedly,
the owners of the part of the lot occupied by that
building, as well as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909,
Ruperta Pascual, as the guardian of her minor children,
the herein defendants, petitioned the Curt of First
Instance of Ilocos Norte for authorization to sell "the
six-sevenths of the one-half of the warehouse, of 14 by
11 meters, together with its lot." The plaintiffs that
is Alejandra Mina, et al. opposed the petition of
Ruperta Pascual for the reason that the latter had
included therein the lot occupied by the warehouse,
which they claimed was their exclusive property. All
this action was taken in a special proceeding in re
guardianship.
The plaintiffs did more than oppose Pascual's petition;
they requested the court, through motion, to decide
the question of the ownership of the lot before it pass
upon the petition for the sale of the warehouse. But
the court before determining the matter of the
ownership of the lot occupied by the warehouse,
ordered the sale of this building, saying:
While the trial continues with respect to the ownership
of the lot, the court orders the sale at public auction of
the said warehouse and of the lot on which it is built,
with the present boundaries of the land and condition
of the building, at a price of not less than P2,890
Philippine currency . . . .
So, the warehouse, together with the lot on which it
stands, was sold to Cu Joco, the other defendant in this
case, for the price mentioned.
The plaintiffs insisted upon a decision of the question
of the ownership of the lot, and the court decided it by
holding that this land belonged to the owner of the
104
warehouse which had been built thereon thirty years
before.
The plaintiffs appealed and this court reversed the
judgment of the lower court and held that the
appellants were the owners of the lot in question. 1
When the judgment became final and executory, a writ
of execution issued and the plaintiffs were given
possession of the lot; but soon thereafter the trial
court annulled this possession for the reason that it
affected Cu Joco, who had not been a party to the suit
in which that writ was served.
It was then that the plaintiffs commenced the present
action for the purpose of having the sale of the said lot
declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth
paragraph of which is as follows:
9. That the herein plaintiffs excepted to the
judgment and appealed therefrom to the Supreme
Court which found for them by holding that they are
the owners of the lot in question, although there
existed and still exists a commodatum by virtue of
which the guardianship (meaning the defendants) had
and has the use, and the plaintiffs the ownership, of
the property, with no finding concerning the decree of
the lower court that ordered the sale.
The obvious purport of the cause "although there
existed and still exists a commodatum," etc., appears
to be that it is a part of the decision of the Supreme
Court and that, while finding the plaintiffs to be the
owners of the lot, we recognized in principle the
existence of a commodatum under which the
defendants held the lot. Nothing could be more
inexact. Possibly, also, the meaning of that clause is
that, notwithstanding the finding made by the
Supreme Court that the plaintiffs were the owners,
these former and the defendants agree that there
existed, and still exists, a commodatum, etc. But such
an agreement would not affect the truth of the
contents of the decision of this court, and the opinions
held by the litigants in regard to this point could have
no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the
sale have the least influence in our previous decision
to require our making any finding in regard thereto,
for, with or without that decree, the Supreme Court
had to decide the ownership of the lot consistently
with its titles and not in accordance with the judicial
acts or proceedings had prior to the setting up of the
issue in respect to the ownership of the property that
was the subject of the judicial decree.
What is essentially pertinent to the case is the fact
that the defendant agree that the plaintiffs have the
ownership, and they themselves only the use, of the
said lot.
On this premise, the nullity of the sale of the lot is in
all respects quite evident, whatsoever be the manner
in which the sale was effected, whether judicially or
extrajudicially.
He who has only the use of a thing cannot validly sell
the thing itself. The effect of the sale being a transfer
of the ownership of the thing, it is evident that he who
has only the mere use of the thing cannot transfer its
105
ownership. The sale of a thing effected by one who is
not its owner is null and void. The defendants never
were the owners of the lot sold. The sale of it by them
is necessarily null and void. On cannot convey to
another what he has never had himself.
The returns of the auction contain the following
statements:
I, Ruperta Pascual, the guardian of the minors, etc., by
virtue of the authorization conferred upon me on the
31st of July, 1909, by the Court of First Instance of
Ilocos Norte, proceeded with the sale at public auction
of the six-sevenths part of the one-half of the
warehouse constructed of rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the
minors, etc., sold at public auction all the land and all
the rights title, interest, and ownership in the said
property to Cu Joco, who was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said
purchaser, Cu Joco, his heirs and assigns, all the
interest, ownership and inheritance rights and others
that, as the guardian of the said minors, I have and
may have in the said property, etc.
The purchaser could not acquire anything more than
the interest that might be held by a person to whom
realty in possession of the vendor might be sold, for at
a judicial auction nothing else is disposed of. What the
minor children of Ruperta Pascual had in their
possession was the ownership of the six-sevenths part
of one-half of the warehouse and the use of the lot
occupied by his building. This, and nothing more, could
the Chinaman Cu Joco acquire at that sale: not the
ownership of the lot; neither the other half, nor the
remaining one-seventh of the said first half, of the
warehouse. Consequently, the sale made to him of this
one-seventh of one-half and the entire other half of the
building was null and void, and likewise with still more
reason the sale of the lot the building occupies.
The purchaser could and should have known what it
was that was offered for sale and what it was that he
purchased. There is nothing that can justify the
acquisition by the purchaser of the warehouse of the
ownership of the lot that this building occupies, since
the minors represented by Ruperta Pascual never were
the owners of the said lot, nor were they ever
considered to be such.
The trial court, in the judgment rendered, held that
there were no grounds for the requested annulment of
the sale, and that the plaintiffs were entitled to the
P600 deposited with the clerk of the court as the value
of the lot in question. The defendants, Ruperta Pascual
and the Chinaman Cu Joco, were absolved from the
complaint, without express finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or
allow the sale made and be compelled to accept the
price set on the lot by expert appraisers, not even
though the plaintiffs be considered as coowner of the
warehouse. It would be much indeed that, on the
ground of coownership, they should have to abide by
and tolerate the sale of the said building, which point
this court does not decide as it is not a question
submitted to us for decision, but, as regards the sale of
the lot, it is in all respects impossible to hold that the
plaintiffs must abide by it and tolerate, it, and this
conclusion is based on the fact that they did not give
106
their consent (art. 1261, Civil Code), and only the
contracting parties who have given it are obliged to
comply (art. 1091, idem).
The sole purpose of the action in the beginning was to
obtain an annulment of the sale of the lot; but
subsequently the plaintiffs, through motion, asked for
an amendment by their complaint in the sense that
the action should be deemed to be one for the
recovery of possession of a lot and for the annulment
of its sale. The plaintiff's petition was opposed by the
defendant's attorney, but was allowed by the court;
therefore the complaint seeks, after the judicial
annulment of the sale of the lot, to have the
defendants sentenced immediately to deliver the same
to the plaintiffs.
Such a finding appears to be in harmony with the
decision rendered by the Supreme Court in previous
suit, wherein it was held that the ownership of the lot
lay in the plaintiffs, and for this reason steps were
taken to give possession thereof to the defendants;
but, as the purchaser Cu Joco was not a party to that
suit, the present action is strictly one for recover
against Cu Joco to compel him, once the sale has been
annulled, to deliver the lot to its lawful owners, the
plaintiffs.
As respects this action for recovery, this Supreme
Court finds:
1. That it is a fact admitted by the litigating parties,
both in this and in the previous suit, that Andres
Fontanilla, the defendants' predecessor in interest,
erected the warehouse on the lot, some thirty years
ago, with the explicit consent of his brother Francisco
Fontanilla, the plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the
plaintiffs and the defendants are the coowners of the
warehouse.
3. That it is a fact explicitly admitted in the agreement,
that neither Andres Fontanilla nor his successors paid
any consideration or price whatever for the use of the
lot occupied by the said building; whence it is,
perhaps, that both parties have denominated that use
a commodatum.
Upon the premise of these facts, or even merely upon
that of the first of them, the sentencing of the
defendants to deliver the lot to the plaintiffs does not
follow as a necessary corollary of the judicial
declaration of ownership made in the previous suit, nor
of that of the nullity of the sale of the lot, made in the
present case.
The defendants do not hold lawful possession of the lot
in question.1awphil.net
But, although both litigating parties may have agreed
in their idea of the commodatum, on account of its not
being, as indeed it is not, a question of fact but of law,
yet that denomination given by them to the use of the
lot granted by Francisco Fontanilla to his brother,
Andres Fontanilla, is not acceptable. Contracts are not
to be interpreted in conformity with the name that the
parties thereto agree to give them, but must be
construed, duly considering their constitutive
elements, as they are defined and denominated by
law.
107

By the contract of loan, one of the parties delivers to
the other, either anything not perishable, in order that
the latter may use it during the certain period and
return it to the former, in which case it is called
commodatum . . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the
commodatum that the use of the thing belonging to
another shall for a certain period. Francisco Fontanilla
did not fix any definite period or time during which
Andres Fontanilla could have the use of the lot
whereon the latter was to erect a stone warehouse of
considerable value, and so it is that for the past thirty
years of the lot has been used by both Andres and his
successors in interest. The present contention of the
plaintiffs that Cu Joco, now in possession of the lot,
should pay rent for it at the rate of P5 a month, would
destroy the theory of the commodatum sustained by
them, since, according to the second paragraph of the
aforecited article 1740, "commodatum is essentially
gratuitous," and, if what the plaintiffs themselves aver
on page 7 of their brief is to be believed, it never
entered Francisco's mind to limit the period during
which his brother Andres was to have the use of the
lot, because he expected that the warehouse would
eventually fall into the hands of his son, Fructuoso
Fontanilla, called the adopted son of Andres, which did
not come to pass for the reason that Fructuoso died
before his uncle Andres. With that expectation in view,
it appears more likely that Francisco intended to allow
his brother Andres a surface right; but this right
supposes the payment of an annual rent, and Andres
had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a
building was erected on another's ground, the question
should be decided in accordance with the statutes
that, thirty years ago, governed accessions to real
estate, and which were Laws 41 and 42, title 28, of the
third Partida, nearly identical with the provisions of
articles 361 and 362 of the Civil Code. So, then,
pursuant to article 361, the owner of the land on which
a building is erected in good faith has a right to
appropriate such edifice to himself, after payment of
the indemnity prescribed in articles 453 and 454, or to
oblige the builder to pay him the value of the land.
Such, and no other, is the right to which the plaintiff
are entitled.
For the foregoing reasons, it is only necessary to annul
the sale of the said lot which was made by Ruperta
Pascual, in representation of her minor children, to Cu
Joco, and to maintain the latter in the use of the lot
until the plaintiffs shall choose one or the other of the
two rights granted them by article 361 of the Civil
Code.1awphil.net
The judgment appealed from is reversed and the sale
of the lot in question is held to be null and void and of
no force or effect. No special finding is made as to the
costs of both instances.
108
 17.QUINTOS V BECK (ART.1947)
The plaintiff brought this action to compel the
defendant to return her certain furniture which she lent
him for his use. She appealed from the judgment of
the Court of First Instance of Manila which ordered that
the defendant return to her the three has heaters and
the four electric lamps found in the possession of the
Sheriff of said city, that she call for the other furniture
from the said sheriff of Manila at her own expense, and
that the fees which the Sheriff may charge for the
deposit of the furniture be paid pro rata by both
parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such
occupied the latter's house on M. H. del Pilar street,
No. 1175. On January 14, 1936, upon the novation of
the contract of lease between the plaintiff and the
defendant, the former gratuitously granted to the
latter the use of the furniture described in the third
paragraph of the stipulation of facts, subject to the
condition that the defendant would return them to the
plaintiff upon the latter's demand. The plaintiff sold the
property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the
defendant of the conveyance, giving him sixty days to
vacate the premises under one of the clauses of the
contract of lease. There after the plaintiff required the
defendant to return all the furniture transferred to him
for them in the house where they were found. On
November 5, 1936, the defendant, through another
person, wrote to the plaintiff reiterating that she may
call for the furniture in the ground floor of the house.
On the 7th of the same month, the defendant wrote
another letter to the plaintiff informing her that he
could not give up the three gas heaters and the four
electric lamps because he would use them until the
15th of the same month when the lease in due to
expire. The plaintiff refused to get the furniture in view
of the fact that the defendant had declined to make
delivery of all of them. On November 15th,
before vacating the house, the defendant deposited
with the Sheriff all the furniture belonging to the
plaintiff and they are now on deposit in the warehouse
situated at No. 1521, Rizal Avenue, in the custody of
the said sheriff.
In their seven assigned errors the plaintiffs contend
that the trial court incorrectly applied the law: in
holding that they violated the contract by not calling
for all the furniture on November 5, 1936, when the
defendant placed them at their disposal; in not
ordering the defendant to pay them the value of the
furniture in case they are not delivered; in holding that
they should get all the furniture from the Sheriff at
their expenses; in ordering them to pay-half of the
expenses claimed by the Sheriff for the deposit of the
furniture; in ruling that both parties should pay their
respective legal expenses or the costs; and in denying
pay their respective legal expenses or the costs; and in
denying the motions for reconsideration and new trial.
To dispose of the case, it is only necessary to decide
whether the defendant complied with his obligation to
return the furniture upon the plaintiff's demand;
whether the latter is bound to bear the deposit fees
thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of
commadatum, because under it the plaintiff
gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof;
109
by this contract the defendant bound himself to return
the furniture to the plaintiff, upon the latters demand
(clause 7 of the contract, Exhibit A; articles 1740,
paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to
return the furniture upon the plaintiff's demand, means
that he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not
comply with this obligation when he merely placed
them at the disposal of the plaintiff, retaining for his
benefit the three gas heaters and the four eletric
lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely
applicable. The trial court, therefore, erred when it
came to the legal conclusion that the plaintiff failed to
comply with her obligation to get the furniture when
they were offered to her.
As the defendant had voluntarily undertaken to return
all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to
bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as
bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept
the offer to return the furniture, because the defendant
wanted to retain the three gas heaters and the four
electric lamps.
As to the value of the furniture, we do not believe that
the plaintiff is entitled to the payment thereof by the
defendant in case of his inability to return some of the
furniture because under paragraph 6 of the stipulation
of facts, the defendant has neither agreed to nor
admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the
value thereof should be latter determined by the trial
Court through evidence which the parties may desire
to present.
The costs in both instances should be borne by the
defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The
defendant was the one who breached the contract of
commodatum, and without any reason he refused to
return and deliver all the furniture upon the plaintiff's
demand. In these circumstances, it is just and
equitable that he pay the legal expenses and other
judicial costs which the plaintiff would not have
otherwise defrayed.
The appealed judgment is modified and the defendant
is ordered to return and deliver to the plaintiff, in the
residence to return and deliver to the plaintiff, in the
residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts
Exhibit A. The expenses which may be occasioned by
the delivery to and deposit of the furniture with the
Sheriff shall be for the account of the defendant. the
defendant shall pay the costs in both instances. So
ordered.
110
 18.PAJUYO V CA
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.
111
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
112
demand made Guevarras continued possession of the
house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the
landlord and tenant relationship between Pajuyo and
Guevarra. The terms of the Kasunduan bound
Guevarra to return possession of the house on
demand.
The RTC rejected Guevarras claim of a better right
under Proclamation No. 137, the Revised National
Government Center Housing Project Code of Policies
and other pertinent laws. In an ejectment suit, the RTC
has no power to decide Guevarras rights under these
laws. The RTC declared that in an ejectment case, the
only issue for resolution is material or physical
possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and
Guevarra are squatters. Pajuyo and Guevarra illegally
occupied the contested lot which the government
owned.
Perez, the person from whom Pajuyo acquired his
rights, was also a squatter. Perez had no right or title
over the lot because it is public land. The assignment
of rights between Perez and Pajuyo, and the
Kasunduan between Pajuyo and Guevarra, did not
have any legal effect. Pajuyo and Guevarra are in pari
delicto or in equal fault. The court will leave them
where they are.
The Court of Appeals reversed the MTC and RTC
rulings, which held that the Kasunduan between
Pajuyo and Guevarra created a legal tie akin to that of
a landlord and tenant relationship. The Court of
Appeals ruled that the Kasunduan is not a lease
contract but a commodatum because the agreement is
not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994
to claim the property, the appellate court held that
Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino
(President Aquino) issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in
physical possession of the property. Under Article VI of
the Code of Policies Beneficiary Selection and
Disposition of Homelots and Structures in the National
Housing Project (the Code), the actual occupant or
caretaker of the lot shall have first priority as
beneficiary of the project. The Court of Appeals
concluded that Guevarra is first in the hierarchy of
priority.
In denying Pajuyos motion for reconsideration, the
appellate court debunked Pajuyos claim that Guevarra
filed his motion for extension beyond the period to
appeal.
The Court of Appeals pointed out that Guevarras
motion for extension filed before the Supreme Court
was stamped 13 December 1996 at 4:09 PM by the
Supreme Courts Receiving Clerk. The Court of Appeals
concluded that the motion for extension bore a date,
contrary to Pajuyos claim that the motion for extension
was undated. Guevarra filed the motion for extension
on time on 13 December 1996 since he filed the
113
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.
114
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
115
position.[20] The drafting of the petition for review
entails more time and effort than filing a notice of
appeal.[21] Hence, the Court of Appeals may allow an
extension of time to file a petition for review.
In the more recent case of Commissioner of Internal
Revenue v. Court of Appeals,[22] we held that Liboros
clarification of Lacsamana is consistent with the
Revised Internal Rules of the Court of Appeals and
Supreme Court Circular No. 1-91. They all allow an
extension of time for filing petitions for review with the
Court of Appeals. The extension, however, should be
limited to only fifteen days save in exceptionally
meritorious cases where the Court of Appeals may
grant a longer period.
A judgment becomes final and executory by operation
of law. Finality of judgment becomes a fact on the
lapse of the reglementary period to appeal if no appeal
is perfected.[23] The RTC decision could not have
gained finality because the Court of Appeals granted
the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of
discretion when it approved Guevarras motion for
extension. The Court of Appeals gave due course to
the motion for extension because it complied with the
condition set by the appellate court in its resolution
dated 28 January 1997. The resolution stated that the
Court of Appeals would only give due course to the
motion for extension if filed on time. The motion for
extension met this condition.
The material dates to consider in determining the
timeliness of the filing of the motion for extension are
(1) the date of receipt of the judgment or final order or
resolution subject of the petition, and (2) the date of
filing of the motion for extension.[24] It is the date of
the filing of the motion or pleading, and not the date of
execution, that determines the timeliness of the filing
of that motion or pleading. Thus, even if the motion for
extension bears no date, the date of filing stamped on
it is the reckoning point for determining the timeliness
of its filing.
Guevarra had until 14 December 1996 to file an appeal
from the RTC decision. Guevarra filed his motion for
extension before this Court on 13 December 1996, the
date stamped by this Courts Receiving Clerk on the
motion for extension. Clearly, Guevarra filed the
motion for extension exactly one day before the lapse
of the reglementary period to appeal.
Assuming that the Court of Appeals should have
dismissed Guevarras appeal on technical grounds,
Pajuyo did not ask the appellate court to deny the
motion for extension and dismiss the petition for
review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only
when the Court of Appeals ruled in Guevarras favor
that Pajuyo raised the procedural issues against
Guevarras petition for review.
A party who, after voluntarily submitting a dispute for
resolution, receives an adverse decision on the merits,
is estopped from attacking the jurisdiction of the court.
[25] Estoppel sets in not because the judgment of the
court is a valid and conclusive adjudication, but
because the practice of attacking the courts
jurisdiction after voluntarily submitting to it is against
public policy.[26]
116
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
117
contested lot is not a ground for the courts to withhold
relief from the parties in an ejectment case.
The only question that the courts must resolve in
ejectment proceedings is - who is entitled to the
physical possession of the premises, that is, to the
possession de facto and not to the possession de jure.
[37] It does not even matter if a partys title to the
property is questionable,[38] or when both parties
intruded into public land and their applications to own
the land have yet to be approved by the proper
government agency.[39] Regardless of the actual
condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by
a strong hand, violence or terror.[40] Neither is the
unlawful withholding of property allowed. Courts will
always uphold respect for prior possession.
Thus, a party who can prove prior possession can
recover such possession even against the owner
himself.[41] Whatever may be the character of his
possession, if he has in his favor prior possession in
time, he has the security that entitles him to remain on
the property until a person with a better right lawfully
ejects him.[42] To repeat, the only issue that the court
has to settle in an ejectment suit is the right to
physical possession.
In Pitargue v. Sorilla,[43] the government owned the
land in dispute. The government did not authorize
either the plaintiff or the defendant in the case of
forcible entry case to occupy the land. The plaintiff had
prior possession and had already introduced
improvements on the public land. The plaintiff had a
pending application for the land with the Bureau of
Lands when the defendant ousted him from
possession. The plaintiff filed the action of forcible
entry against the defendant. The government was not
a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts
to settle the issue of possession because while the
application of the plaintiff was still pending, title
remained with the government, and the Bureau of
Public Lands had jurisdiction over the case. We
disagreed with the defendant. We ruled that courts
have jurisdiction to entertain ejectment suits even
before the resolution of the application. The plaintiff,
by priority of his application and of his entry, acquired
prior physical possession over the public land applied
for as against other private claimants. That prior
physical possession enjoys legal protection against
other private claimants because only a court can take
away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the
defendant in Pitargue[44] as squatters, strictly
speaking, their entry into the disputed land was illegal.
Both the plaintiff and defendant entered the public
land without the owners permission. Title to the land
remained with the government because it had not
awarded to anyone ownership of the contested public
land. Both the plaintiff and the defendant were in
effect squatting on government property. Yet, we
upheld the courts jurisdiction to resolve the issue of
possession even if the plaintiff and the defendant in
the ejectment case did not have any title over the
contested land.
Courts must not abdicate their jurisdiction to resolve
the issue of physical possession because of the public
need to preserve the basic policy behind the summary
118
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
119
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
120
of Court.) With this nature of the action in mind, by no
stretch of the imagination can conclusion be arrived at
that the use of the remedy in the courts of justice
would constitute an interference with the alienation,
disposition, and control of public lands. To limit
ourselves to the case at bar can it be pretended at all
that its result would in any way interfere with the
manner of the alienation or disposition of the land
contested? On the contrary, it would facilitate
adjudication, for the question of priority of possession
having been decided in a final manner by the courts,
said question need no longer waste the time of the
land officers making the adjudication or award.
(Emphasis ours)
The Principle of Pari Delicto is not Applicable to
Ejectment Cases
The Court of Appeals erroneously applied the principle
of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code[48] embody
the principle of pari delicto. We explained the principle
of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex
dolo malo non eritur actio and in pari delicto potior est
conditio defedentis. The law will not aid either party to
an illegal agreement. It leaves the parties where it
finds them.[49]
The application of the pari delicto principle is not
absolute, as there are exceptions to its application.
One of these exceptions is where the application of the
pari delicto rule would violate well-established public
policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy
behind the summary actions of forcible entry and
unlawful detainer. We held that:
It must be stated that the purpose of an action of
forcible entry and detainer is that, regardless of the
actual condition of the title to the property, the party
in peaceable quiet possession shall not be turned out
by strong hand, violence or terror. In affording this
remedy of restitution the object of the statute is to
prevent breaches of the peace and criminal disorder
which would ensue from the withdrawal of the remedy,
and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons
who, believing themselves entitled to the possession
of property, resort to force to gain possession rather
than to some appropriate action in the courts to assert
their claims. This is the philosophy at the foundation of
all these actions of forcible entry and detainer which
are designed to compel the party out of possession to
respect and resort to the law alone to obtain what he
claims is his.[52]
Clearly, the application of the principle of pari delicto
to a case of ejectment between squatters is fraught
with danger. To shut out relief to squatters on the
ground of pari delicto would openly invite mayhem and
lawlessness. A squatter would oust another squatter
from possession of the lot that the latter had illegally
occupied, emboldened by the knowledge that the
courts would leave them where they are. Nothing
would then stand in the way of the ousted squatter
from re-claiming his prior possession at all cost.
121
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
122
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
123
continued possession of the property unlawful.[61] The
status of the defendant in such a case is similar to that
of a lessee or tenant whose term of lease has expired
but whose occupancy continues by tolerance of the
owner.[62]
This principle should apply with greater force in cases
where a contract embodies the permission or tolerance
to use the property. The Kasunduan expressly
articulated Pajuyos forbearance. Pajuyo did not require
Guevarra to pay any rent but only to maintain the
house and lot in good condition. Guevarra expressly
vowed in the Kasunduan that he would vacate the
property on demand. Guevarras refusal to comply with
Pajuyos demand to vacate made Guevarras continued
possession of the property unlawful.
We do not subscribe to the Court of Appeals theory
that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties
delivers to another something not consumable so that
the latter may use the same for a certain time and
return it.[63] An essential feature of commodatum is
that it is gratuitous. Another feature of commodatum is
that the use of the thing belonging to another is for a
certain period.[64] Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use
for which the commodatum is constituted.[65] If the
bailor should have urgent need of the thing, he may
demand its return for temporary use.[66] If the use of
the thing is merely tolerated by the bailor, he can
demand the return of the thing at will, in which case
the contractual relation is called a precarium.[67]
Under the Civil Code, precarium is a kind of
commodatum.[68]
The Kasunduan reveals that the accommodation
accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require
Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this
obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are
also different from that of a commodatum. Case law on
ejectment has treated relationship based on tolerance
as one that is akin to a landlord-tenant relationship
where the withdrawal of permission would result in the
termination of the lease.[69] The tenants withholding
of the property would then be unlawful. This is settled
jurisprudence.
Even assuming that the relationship between Pajuyo
and Guevarra is one of commodatum, Guevarra as
bailee would still have the duty to turn over possession
of the property to Pajuyo, the bailor. The obligation to
deliver or to return the thing received attaches to
contracts for safekeeping, or contracts of commission,
administration and commodatum.[70] These contracts
certainly involve the obligation to deliver or return the
thing received.[71]
Guevarra turned his back on the Kasunduan on the
sole ground that like him, Pajuyo is also a squatter.
Squatters, Guevarra pointed out, cannot enter into a
contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even
between squatters. Guevarra freely entered into the
124
Kasunduan. Guevarra cannot now impugn the
Kasunduan after he had benefited from it. The
Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining
who between Pajuyo and Guevarra has a right to
physical possession of the contested property. The
Kasunduan is the undeniable evidence of Guevarras
recognition of Pajuyos better right of physical
possession. Guevarra is clearly a possessor in bad
faith. The absence of a contract would not yield a
different result, as there would still be an implied
promise to vacate.
Guevarra contends that there is a pernicious evil that
is sought to be avoided, and that is allowing an
absentee squatter who (sic) makes (sic) a profit out of
his illegal act.[72] Guevarra bases his argument on the
preferential right given to the actual occupant or
caretaker under Proclamation No. 137 on socialized
housing.
We are not convinced.
Pajuyo did not profit from his arrangement with
Guevarra because Guevarra stayed in the property
without paying any rent. There is also no proof that
Pajuyo is a professional squatter who rents out
usurped properties to other squatters. Moreover, it is
for the proper government agency to decide who
between Pajuyo and Guevarra qualifies for socialized
housing. The only issue that we are addressing is
physical possession.
Prior possession is not always a condition sine qua non
in ejectment.[73] This is one of the distinctions
between forcible entry and unlawful detainer.[74] In
forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must
allege and prove prior possession.[75] But in unlawful
detainer, the defendant unlawfully withholds
possession after the expiration or termination of his
right to possess under any contract, express or
implied. In such a case, prior physical possession is not
required.[76]
Pajuyos withdrawal of his permission to Guevarra
terminated the Kasunduan. Guevarras transient right
to possess the property ended as well. Moreover, it
was Pajuyo who was in actual possession of the
property because Guevarra had to seek Pajuyos
permission to temporarily hold the property and
Guevarra had to follow the conditions set by Pajuyo in
the Kasunduan. Control over the property still rested
with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of
the disputed property. Possession in the eyes of the
law does not mean that a man has to have his feet on
every square meter of the ground before he is deemed
in possession.[77] One may acquire possession not
only by physical occupation, but also by the fact that a
thing is subject to the action of ones will.[78] Actual or
physical occupation is not always necessary.[79]
Ruling on Possession Does not Bind Title to the Land in
Dispute
We are aware of our pronouncement in cases where
we declared that squatters and intruders who
clandestinely enter into titled government property
125
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.
126
WHEREFORE, we GRANT the petition. The Decision
dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP
No. 43129 are SET ASIDE. The Decision dated 11
November 1996 of the Regional Trial Court of Quezon
City, Branch 81 in Civil Case No. Q-96-26943, affirming
the Decision dated 15 December 1995 of the
Metropolitan Trial Court of Quezon City, Branch 31 in
Civil Case No. 12432, is REINSTATED with
MODIFICATION. The award of attorneys fees is deleted.
No costs.

SO ORDERED.

127
 19.REPUBLIC V BALOY
This case originally emanated from a decision of the
then Court of First Instance of Zambales in LRC Case
No. 11-0, LRC Record No. N-29355, denying
respondents' application for registration. From said
order of denial the applicants, heirs of Domingo Baloy,
represented by Ricardo P. Baloy, (herein private
respondents) interposed on appeal to the Court of
Appeals which was docketed as CA-G.R. No. 52039-R.
The appellate court, thru its Fifth Division with the Hon.
Justice Magno Gatmaitan as ponente, rendered a
decision dated February 3, 1977 reversing the decision
appealed from and thus approving the application for
registration. Oppositors (petitioners herein) filed their
Motion for Reconsideration alleging among other
things that applicants' possessory information title can
no longer be invoked and that they were not able to
prove a registerable title over the land. Said Motion for
Reconsideration was denied, hence this petition for
review on certiorari.
Applicants' claim is anchored on their possessory
information title (Exhibit F which had been translated
in Exhibit F-1) coupled with their continuous, adverse
and public possession over the land in question. An
examination of the possessory information title shows
that the description and the area of the land stated
therein substantially coincides with the land applied
for and that said possessory information title had been
regularly issued having been acquired by applicants'
predecessor, Domingo Baloy, under the provisions of
the Spanish Mortgage Law. Applicants presented their
tax declaration on said lands on April 8, 1965.
The Director of Lands opposed the registration alleging
that this land had become public land thru the
operation of Act 627 of the Philippine Commission. On
November 26, 1902 pursuant to the executive order of
the President of the U.S., the area was declared within
the U.S. Naval Reservation. Under Act 627 as amended
by Act 1138, a period was fixed within which persons
affected thereby could file their application, (that is
within 6 months from July 8, 1905) otherwise "the said
lands or interest therein will be conclusively adjudged
to be public lands and all claims on the part of private
individuals for such lands or interests therein not to
presented will be forever barred." Petitioner argues
that since Domingo Baloy failed to file his claim within
the prescribed period, the land had become
irrevocably public and could not be the subject of a
valid registration for private ownership.
Considering the foregoing facts respondents Court of
Appeals ruled as follows:
... perhaps, the consequence was that upon failure of
Domingo Baloy to have filed his application within that
period the land had become irrevocably public; but
perhaps also, for the reason that warning was from the
Clerk of the Court of Land Registration, named J.R.
Wilson and there has not been presented a formal
order or decision of the said Court of Land Registration
so declaring the land public because of that failure, it
can with plausibility be said that after all, there was no
judicial declaration to that effect, it is true that the U.S.
Navy did occupy it apparently for some time, as a
recreation area, as this Court understands from the
communication of the Department of Foreign Affairs to
the U.S. Embassy exhibited in the record, but the very
tenor of the communication apparently seeks to justify
128
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
129
of Land Registration shall immediately upon the
issuing of such notice by the judge cause the same to
be published once a week for three successive weeks
in two newspapers, one of which newspapers shall be
in the English Language, and one in the Spanish
language in the city or province where the land lies, if
there be no such Spanish or English newspapers
having a general circulation in the city or province
wherein the land lies, then it shall be a sufficient
compliance with this section if the notice be published
as herein provided, in a daily newspaper in the Spanish
language and one in the English language, in the City
of Manila, having a general circulation. The clerk shall
also cause a duly attested copy of the notice in the
Spanish language to be posted in conspicuous place at
each angle formed by the lines of the limits of the land
reserved. The clerk shall also issue and cause to be
personally served the notice in the Spanish language
upon every person living upon or in visible possession
of any part of the military reservation. If the person in
possession is the head of the family living upon the
hand, it shall be sufficient to serve the notice upon
him, and if he is absent it shall be sufficient to leave a
copy at his usual place of residence. The clerk shall
certify the manner in which the notices have been
published, posted, and served, and his certificate shall
be conclusive proof of such publication, posting, and
service, but the court shall have the power to cause
such further notice to be given as in its opinion may be
necessary.
Clearly under said provisions, private land could be
deemed to have become public land only by virtue of a
judicial declaration after due notice and hearing. It
runs contrary therefore to the contention of petitioners
that failure to present claims set forth under Sec. 2 of
Act 627 made the land ipso facto public without any
deed of judicial pronouncement. Petitioner in making
such declaration relied on Sec. 4 of Act 627 alone. But
in construing a statute the entire provisions of the law
must be considered in order to establish the correct
interpretation as intended by the law-making body. Act
627 by its terms is not self-executory and requires
implementation by the Court of Land Registration. Act
627, to the extent that it creates a forfeiture, is a penal
statute in derogation of private rights, so it must be
strictly construed so as to safeguard private
respondents' rights. Significantly, petitioner does not
even allege the existence of any judgment of the Land
Registration court with respect to the land in question.
Without a judgment or order declaring the land to be
public, its private character and the possessory
information title over it must be respected. Since no
such order has been rendered by the Land Registration
Court it necessarily follows that it never became public
land thru the operation of Act 627. To assume
otherwise is to deprive private respondents of their
property without due process of law. In fact it can be
presumed that the notice required by law to be given
by publication and by personal service did not include
the name of Domingo Baloy and the subject land, and
hence he and his lane were never brought within the
operation of Act 627 as amended. The procedure laid
down in Sec. 3 is a requirement of due process. "Due
process requires that the statutes which under it is
attempted to deprive a citizen of private property
without or against his consent must, as in
expropriation cases, be strictly complied with, because
such statutes are in derogation of general rights."
(Arriete vs. Director of Public Works, 58 Phil. 507, 508,
511).
130
We also find with favor private respondents' views that
court judgments are not to be presumed. It would be
absurd to speak of a judgment by presumption. If it
could be contended that such a judgment may be
presumed, it could equally be contended that
applicants' predecessor Domingo Baloy presumably
seasonably filed a claim, in accordance with the legal
presumption that a person takes ordinary care of his
concerns, and that a judgment in his favor was
rendered.
The finding of respondent court that during the interim
of 57 years from November 26, 1902 to December 17,
1959 (when the U.S. Navy possessed the area) the
possessory rights of Baloy or heirs were merely
suspended and not lost by prescription, is supported
by Exhibit "U," a communication or letter No. 1108-63,
dated June 24, 1963, which contains an official
statement of the position of the Republic of the
Philippines with regard to the status of the land in
question. Said letter recognizes the fact that Domingo
Baloy and/or his heirs have been in continuous
possession of said land since 1894 as attested by an
"Informacion Possessoria" Title, which was granted by
the Spanish Government. Hence, the disputed property
is private land and this possession was interrupted
only by the occupation of the land by the U.S. Navy in
1945 for recreational purposes. The U.S. Navy
eventually abandoned the premises. The heirs of the
late Domingo P. Baloy, are now in actual possession,
and this has been so since the abandonment by the
U.S. Navy. A new recreation area is now being used by
the U.S. Navy personnel and this place is remote from
the land in question.
Clearly, the occupancy of the U.S. Navy was not in the
concept of owner. It partakes of the character of a
commodatum. It cannot therefore militate against the
title of Domingo Baloy and his successors-in-interest.
One's ownership of a thing may be lost by prescription
by reason of another's possession if such possession
be under claim of ownership, not where the possession
is only intended to be transient, as in the case of the
U.S. Navy's occupation of the land concerned, in which
case the owner is not divested of his title, although it
cannot be exercised in the meantime.
WHEREFORE, premises considered, finding no merit in
the petition the appealed decision is hereby AFFIRMED.
SO ORDERED.
131