SECOND DIVISION

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

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

QUEAO, respondents.

DECISION

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the
Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 1994 [1],
which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay
City.[2]

The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a
complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had
entered into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
declaring the questioned Real Estate Mortgage void, which Naguiat appealed to the Court of
Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the present
petition.

The operative facts follow:

Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao
Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate
Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to
the order of Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand
Pesos (P95,000.00). The proceeds of these checks were to constitute the loan granted by
Naguiat to Queao.[3]

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980
in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the
mortgaged properties.[4] On the same day, the mortgage deed was notarized, and Queao issued
to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS
(P200,000.00), with interest at 12% per annum, payable on 11 September 1980. [5] Queao also
issued a Security Bank and Trust Company check, postdated 11 September 1980, for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of
Naguiat.
 Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On the following day, 12 September 1980, Queao requested Security
Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its
policy not to honor such requests if the check is drawn against insufficient funds.[6]

On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement
of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with
Naguiat. At the meeting, Queao told Naguiat that she did not receive the proceeds of the loan,
adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiats agent.[7]

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal
Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before the
scheduled sale, Queao filed the case before the Pasay City RTC, [8] seeking the annulment of
the mortgage deed. The trial court eventually stopped the auction sale.[9]

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

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

The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of law may be
raised[12] as the Supreme Court is not a trier of facts. [13] The resolution of factual issues is the
function of lower courts, whose findings on these matters are received with respect and are in
fact generally binding on the Supreme Court.[14] A question of law which the Court may pass
upon must not involve an examination of the probative value of the evidence presented by the
litigants.[15] There is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts.[16]

Surely, there are established exceptions to the rule on the conclusiveness of the findings of
facts of the lower courts.[17] But Naguiats case does not fall under any of the exceptions. In any
event, both the decisions of the appellate and trial courts are supported by the evidence on
record and the applicable laws.
 Against the common finding of the courts below, Naguiat vigorously insists that Queao
received the loan proceeds. Capitalizing on the status of the mortgage deed as a public
document, she cites the rule that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is correct in ruling that the
presumption of truthfulness of the recitals in a public document was defeated by the clear and
convincing evidence in this case that pointed to the absence of consideration. [18] This Court has
held that the presumption of truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary, as in this case.[19]

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

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

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

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

Naguiat questions the admissibility of the various written representations made by

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

Suffice to say, however, the existence of an agency relationship between Naguiat and
Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of Appeals,
Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to
withhold from Queao the checks she issued or indorsed to Queao, pending delivery by the latter
of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of
Queaos friend, Marilou Farralese, and it was in connection with that transaction that Queao
came to know Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in her meeting with
Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt actually
drew a check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.[24]

The Court of Appeals recognized the existence of an agency by estoppel [25] citing Article
1873 of the Civil Code.[26] Apparently, it considered that at the very least, as a consequence of
the interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt
was the agent of Naguiat, but Naguiat did nothing to correct Queaos impression. In that
situation, the rule is clear. One who clothes another with apparent authority as his agent, and
holds him out to the public as such, cannot be permitted to deny the authority of such person to
act as his agent, to the prejudice of innocent third parties dealing with such person in good faith,
and in the honest belief that he is what he appears to be.[27] The Court of Appeals is correct in
invoking the said rule on agency by estoppel.

More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt
is irrelevant in the face of the fact that the checks issued or indorsed to Queao were never
encashed or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the courts a quo that the
lender did not remit and the borrower did not receive the proceeds of the loan. That being the
case, it follows that the mortgage which is supposed to secure the loan is null and void. The
consideration of the mortgage contract is the same as that of the principal contract from which it
receives life, and without which it cannot exist as an independent contract. [28] A mortgage
contract being a mere accessory contract, its validity would depend on the validity of the loan
secured by it.[29]

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against
petitioner.

SO ORDERED.

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

SECOND DIVISION

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

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

and ALS MANAGEMENT & DEVELOPMENT CORPORATION,respondents.

DECISION

QUISUMBING, J.:

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

The trial court had held that private respondents were not in default in the payment
of their monthly amortization, hence, the extrajudicial foreclosure conducted by
BPIIC was premature and made in bad faith. It awarded private respondents the
amount of P300,000 for moral damages, P50,000 for exemplary damages,
and P50,000 for attorneys fees and expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.

The facts are as follows:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner
BPIIC, for the construction of a house on his lot in New Alabang Village,
Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and
Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed
the P500,000 balance of Roas indebtedness with AIDC. The latter, however, was not
willing to extend the old interest rate to private respondents and proposed to grant
them a new loan of P500,000 to be applied to Roas debt and secured by the same
property, at an interest rate of 20% per annum and service fee of 1% per annum on
the outstanding principal balance payable within ten years in equal monthly
amortization of P9,996.58 and penalty interest at the rate of 21% per annum per
day from the date the amortization became due and payable.

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

containing the above stipulations with the provision that payment of the monthly
amortization shall commence on May 1, 1981.

On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the
sum of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in
turn, was liquidated when BPIIC applied thereto the proceeds of private respondents
loan of P500,000.

On September 13, 1982, BPIIC released to private respondents P7,146.87,

purporting to be what was left of their loan after full payment of Roas loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents

on the ground that they failed to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five
Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was
published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC.
They alleged, among others, that they were not in arrears in their payment, but in
fact made an overpayment as of June 30, 1984. They maintained that they should
not be made to pay amortization before the actual release of the P500,000 loan in
August and September 1982. Further, out of the P500,000 loan, only the total
amount of P464,351.77 was released to private respondents. Hence, applying the
effects of legal compensation, the balance of P35,648.23 should be applied to the
initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831
and 52093, thus:

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

Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77, with interest at 20% plus service charge of
1% per annum, payable on equal monthly and successive amortizations at
P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization
schedule attached as Annex A to the Deed of Mortgage is correspondingly reformed
as aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when
BPI caused their publication in a newspaper of general circulation as defaulting
debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorneys fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.

Costs against BPI.

SO ORDERED.[2]

Both parties appealed to the Court of Appeals. However, private respondents appeal
was dismissed for non-payment of docket fees.

On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive
portion reads:

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

AFFIRMED in toto.

SO ORDERED.[3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only
upon the delivery of the object of the contract. The contract of loan between BPIIC
and ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC
released the purported balance of the P500,000 loan after deducting therefrom the
value of Roas indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the stipulations
in the contract. This, despite the express agreement of the parties that payment
shall commence on May 1, 1981. From October 1982 to June 1984, the total
amortization due was only P194,960.43. Evidence showed that private respondents
had an overpayment, because as of June 1984, they already paid a total amount
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose
the mortgage and cause the publication in newspapers concerning private
respondents delinquency in the payment of their loan. This fact constituted
sufficient ground for moral damages in favor of private respondents.

The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence
this petition, where BPIIC submits for resolution the following issues:

I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE

LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA
122.

II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY
ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS.
COURT OF APPEALS, 120 SCRA 707.

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

Petitioner also argues that while the documents showed that the loan was released
only on August 1982, the loan was actually released on March 31, 1981, when BPIIC
issued a cancellation of mortgage of Frank Roas loan. This finds support in the
registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in
favor of ALS, transferring the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the
release of the loan should be attributed to private respondents.As BPIIC only agreed
to extend a P500,000 loan, private respondents were required to reduce Frank Roas
loan below said amount. According to petitioner, private respondents were only able
to do so in August 1982.

In their comment, private respondents assert that based on Article 1934 of the Civil
Code,[4] a simple loan is perfected upon the delivery of the object of the contract,
hence a real contract. In this case, even though the loan contract was signed
on March 31, 1981, it was perfected only on September 13, 1982, when the full loan
was released to private respondents.They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that the contract to extend the
loan was perfected on March 31, 1981 but the contract of loan itself was only
perfected upon the delivery of the full loan to private respondents on September 13,
1982.

Private respondents further maintain that even granting, arguendo, that the loan
contract was perfected on March 31, 1981, and their payment did not start a month
thereafter, still no default took place. According to private respondents, a perfected
loan agreement imposes reciprocal obligations, where the obligation or promise of
each party is the consideration of the other party. In this case, the consideration for
BPIIC in entering into the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIIC to deliver the
money. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon
him. Therefore, private respondents conclude, they did not incur in delay when they
did not commence paying the monthly amortization on May 1, 1981, as it was only
on September 13, 1982 when petitioner fully complied with its obligation under the
loan contract.

We agree with private respondents. A loan contract is not a consensual contract but
a real contract. It is perfected only upon the delivery of the object of the contract.
[5]
Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court
as a perfected consensual contract falls under the first clause of Article 1934, Civil
Code. It is an accepted promise to deliver something by way of simple loan.

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

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

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

We also agree with private respondents that a contract of loan involves a reciprocal
obligation, wherein the obligation or promise of each party is the consideration for
that of the other.[8] As averred by private respondents, the promise of BPIIC to
extend and deliver the loan is upon the consideration that ALS and Litonjua shall
pay the monthly amortization commencing on May 1, 1981, one month after the
supposed release of the loan. It is a basic principle in reciprocal obligations that
neither party incurs in delay, if the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him. [9] Only when a party has
performed his part of the contract can he demand that the other party also fulfills
his own obligation and if the latter fails, default sets in. Consequently, petitioner
could only demand for the payment of the monthly amortization after September
13, 1982 for it was only then when it complied with its obligation under the loan
contract. Therefore, in computing the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the mortgage, the starting date is October
13, 1982 and not May 1, 1981.

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

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

Nor can the SSS be held liable for moral and temperate damages. As concluded by
the Court of Appeals the negligence of the appellant is not so gross as to warrant
moral and temperate damages, except that, said Court reduced those damages by
only P5,000.00 instead of eliminating them. Neither can we agree with the findings
of both the Trial Court and respondent Court that the SSS had acted maliciously or
in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of
its right under the mortgage contract in the face of irregular payments made by
private respondents and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a ground for
an award of moral damages in the same way that a clearly unfounded civil action is
not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable
for said damages because it insisted on the payment of amortization on the loan
even before it was released. Further, it did not make the corresponding deduction in
the monthly amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private respondents failed to
make timely payment.

But as admitted by private respondents themselves, they were irregular in their

payment of monthly amortization. Conformably with our ruling in SSS, we can not
properly declare BPIIC in bad faith. Consequently, we should rule out the award of
moral and exemplary damages.[11]

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

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

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

WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award
of damages. The award of moral and exemplary damages in favor of private
respondents is DELETED, but the award to them of attorneys fees in the amount
of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 96770. March 30, 1993.

HERMENEGILDO AGDEPPA (substituted by his heirs MAGDALENA S. AGDEPPA,

EMMANUEL S. AGDEPPA, NELIA A. UNISA, MARILYN A. LEONES, EVANGELINE A.
PIMENTEL, EDWIN S. AGDEPPA EDNA A. AGDEPPA EDNA A. ABELLA, JOCELYN A.
VICUNA, MA. THERESA S. AGDEPPA and VIVIANNE S. AGDEPPA, petitioners, vs.
EMILIANO IBE (substituted by her husband FRUCTUOSO IBE and children LOLITA and
CESAR IBE), BENJAMIN IBE and FERDINAND IBE, respondents.

Cabio and Rabanes Law Offices for petitioners.

Public Attorney's Office for private respondents.

SYLLABUS

1. REMEDIAL LAW; SPECIAL CIVIL ACTION; CERTIORARI; ISSUE LIMITED TO REVIEW

OF ERRORS OF LAW. In a petition for certiorari under Rule 45 of the Rules of Court
like the instant petition, the jurisdiction of this Court is limited to the review of errors
of law.

2. ID.; EVIDENCE; CREDIBILITY; FINDINGS OF FACT OF THE COURT OF APPEALS,

GENERALLY CONCLUSIVE; EXCEPTIONS. The findings of fact of the Court of
Appeals are conclusive upon this Court (Ronquillo vs. Court of Appeals, 195 SCRA
433 [1991]). However, there are exceptions to this rule such as when there is a
conflict between the factual findings of the Court of Appeals and the trial court. The
resolution of such conflict requires the review of the same factual findings by this
Court (Co vs. Court of Appeals, 193 SCRA 198 [1991] citing Raneses vs. IAC, 187
SCRA 397 [1990] and Remalante vs. Tibe, 158 SCRA 138 [1988]).

3. ID.; ID.; RESIDENCE CERTIFICATE; A PUBLIC DOCUMENT. A residence certificate,

being a receipt prescribed by the government to be issued upon receipt of money
for public purposes (Moran, Comments on the Rules of Court, Vol. 6, 1980 ed., p.
101), is a public document.

4. ID.; ID.; PROOF OF DOCUMENTS; CONTENTS OF RESIDENCE CERTIFICATE, HOW

PROVED. As such, presentation of the same document would suffice to prove its
contents. As part of the public record, it may also be proved by the presentation of a
copy attested by the officer having legal custody of the duplicates (Sec. 25, Rule
132, Rules of Court) if, as in this case, a certified copy of the residence certificate
itself cannot be presented. Exhibit F, upon which the trial court relied in nullifying
the questioned documents, is, as correctly pointed out by the Court of Appeals,
merely a secondary evidence. It is even based on the lost pages of an abstract of
the residence certificates issued by the municipal treasurer of Sinait. The
evidentiary value of Exh. F is therefore suspect.

5. ID.; ID.; NOTARIZED DEEDS OF CONVEYANCES, PRESUMED VALID;

PREPONDERANT EVIDENCE, NOT SUFFICIENT TO OVERCOME PRESUMPTION. The
questioned deeds of conveyances, being public documents as they are duly
notarized (Moran, Comments on the Rules of Court, supra), therefore retain the
presumption of validity in the absence of a full, clear and convincing evidence to
overcome such presumption (Favor vs. Court of Appeals, 194 SCRA 308 [1991]
citing Antonio vs. Estrella, 156 SCRA 68 [1987]). Merely preponderant evidence may
not destroy such presumption because strong evidence is required to prove a defect
of a public instrument.

6. ID.; ID.; ID.; CASE AT BAR. In the case at bar, no clear and convincing evidence
had been adduced by petitioners to impugn the validity of the documents executed
by Rosario Igarta. Consequently, the validity of the said documents must be, as they
are hereby, upheld.

DECISION

BIDIN, J p:

This is a petition for review on certiorari of the December 17,1990 decision of the
Court of Appeals affirming with modification the May 12, 1989 decision of the
Regional Trial Court of Ilocos Sur, Branch 24 at Cabugao, on the complaint for the
partition of the properties of the late Rosario Igarta.
Rosario Igarta was one of the three daughters of the deceased Joaquin Igarta and
Angela Gascon. Her two sisters were Carmen and Emiliana, Carmen married Maximo
Agdeppa and they begot Hermenegildo and Jose. The latter died in 1954 leaving
three sons named Joseph, Jefferson and Stevenson.

Rosario's other sister Emiliana married Fructuoso Ibe. The couple had three children:
Benjamin, Lolita and Cesar.

On October 19, 1986, Rosario, an octogenarian, died single and without issue. At
that time, her nearest relatives were her sister Emiliana Ibe and her nephew
Hermenegildo Agdeppa as Carmen, the latter's mother, had predeceased Rosario.
All the properties of Rosario were in the possession of the family of her sister
Emiliana Ibe to the exclusion of the heirs of her other sister, Carmen. From time to
time, however, Hermenegildo would got a share from the produce of the properties.

Hermenegildo thus expressed his desire to partition Rosario's estate in accordance

with law but the Ibes adamantly objected. Hence, on January 27, 1987,
Hermenegildo, together with the sons of his deceased brother Jose named Joseph,
Jefferson and Stevenson Agdeppa, filed in the Regional Trial Court of Ilocos Sur,
Branch 24 at Cabugan, a complaint against Emiliana Ibe, assisted by her husband
Fructuoso Ibe, Benjamin Ibe and Ferdinand Ibe (Benjamin's son), for partition (Civil
Case No. 300- KC) of Rosario's properties.

The complaint enumerated the following properties which are located in different
barangays of Sinait, Ilocos Sur as subjects of the complaint for partition:

(1) Parcel I, an unirrigated riceland and forest land in Balingasa with an area of
7,750 square meters and assessed at P780.00;

(2) Parcel II, an irrigated riceland in Cadanglaan, with an area of 1,305 square
meters and assessed at P470.00;

(3) Parcel III, an unirrigated riceland at Zapat with an area of 594 square meters and
assessed at P170.00;

(4) Parcel IV, an unirrigated riceland in Paratong with an area of 2,037 square
meters and assessed at P570.00;

(5) Parcel V, a residential land in the poblacion (Namnama) with an area of 131
square meters and assessed at P1,180.00;

(6) Parcel VI, an unirrigated riceland, tobacco land and forest land in Cotin, with an
area of 36,271 and assessed at P4,540.00;

(7) Parcel VII, a residential land in the poblacion with an area of 275 square meters
and assessed at P1,350.00;
(8) Parcel VIII, a sugarland with an area of 3,380 square meters and assessed at
P680.00;

(9) Parcel IX, an unirrigated riceland, cornland, cogonland and "bushyland" with an
area of 34,601 square meters and assessed at P6,550.00; and

(10) Parcel X, a cornland and a residential land with respective areas of 1,454
square meters and 100 square meters assessed at P470.00 and P600.00.

Parcels I, II, IV, V, VII and VIII were all declared in the name of Rosario Igarta for tax
purposes. Parcel III was declared in the names of Rosario Igarta and Emiliana Igarta,
Parcel IX in the names of Rosario, Higino and Fernando Igarta while Parcel X was in
the name of Joaquin Igarta (Record, pp. 23-A and 23-B).

Subsequently, the plaintiffs filed a supplemental pleading enumerating the following

properties which are also all located in Sinait, Ilocos Sur as included in the estate of
Rosario Igarta:

(a) Cornland in Cortin, with an area of 1168 square meters and assessed at P230.00

(b) Riceland in Sitio, with an area of 3740 square meters and assessed at Pl,050.00;

(c) Cornland in Teppeng, with an area of 6023 square meters and assessed at
P1,200.00;

(d) Riceland in Masadag, with an area of 578 square meters and assessed at
P160.00

(e) Riceland in Masadag, with an area of 1011 square meters and assessed at
P280.00;

(f) Riceland in Masadag, with an area of 578 square meters and assessed at
P160.00;

(g) Riceland in Nagbalioartian, with an area of 4040 square meters and assessed at
P1,460.00; and

(h) Riceland in Nagbalioartian, with an area of 1330 square meters and assessed at
P480.00.

Properties (a) to (b)were declared for tax purposes in the name of Joaquin Igarta
while properties (c) to (h) were all declared in the names of Rosario Igarta and
Emiliana Ibe.

In their answer to the complaint, the defendants alleged that some of the properties
had been conveyed and transferred by Rosario to different recipients, to wit: Parcels
IV, VI and XI to Benjamin Ibe; Parcels V and X to Ferdinand Ibe and Parcel VII to
Corazon Ibe Lanario. Defendants did not object to the partition of Parcels I, II, III and
VIII although they averred that Parcel III was co-owned by Emiliana Ibe and Rosario
(Ibid., pp. 8-9). With regard to the properties enumerated in the plaintiffs'
supplemental pleading, the defendants stated that property "c" had been sold by
Rosario to a third person and that properties "a", "d", "e", "f', "g" and "h" had been
acquired by them from Rosario by virtue of a deed of conveyance. They admitted,
however, that property "b" should be partitioned (Ibid., p. 42).

In support of their claim, the defendants presented the following documents:

"(1) A deed of quitclaim and transfer of ownership executed by Rosario Igarta on

April 28, 1985 showing that Rosario conveyed and relinquished her interests over
four (4) parcels of land in favor of Benjamin Ibe and another parcel of land in favor
of Ferdinand Ibe. This appears as Document No. 384, Page No. 78, Book No. II,
Series of 1985 of the Notarial Registry of Ernesto S. Yalao (Exh. 1).

(2) A deed of quitclaim executed by Rosario Igarta ceding all her rights to three
parcels of land to Benjamin Ibe and his children Corazon I. Lanario and Ferdinand
Ibe. This appears as Document No. 157, Page 33, Book No. I, Series of 1985 also in
the Notarial Registry of Ernesto S. Yalao, Municipal Trial Judge and Ex-Officio Notary
Public (Exh. 2).

(3) A deed of absolute sale, appearing as Document No. 380, Page 78, Book II,
Series of 1985 also of the Notarial Registry of Ernesto S. Yalao, showing that on April
28, 1985, Rosario Igarta sold to Benjamin Ibe the same parcel of land denominated
as Parcel VI in the complaint in consideration of the amount of P50,000.00. (Exh. 3).

Another document, denominated as a deed of quitclaim was presented as Exh. 11

to show that on January 16, 1984, Rosario Igarta renounced all her rights and
interests over properties "d", "e", "f", "g, and "h" of the supplemental pleading, in
favor of Emiliana Ibe.

During the pendency of the case or on June 10, 1987, Emiliana Ibe died (Record,
p.33). She was therefore substituted as party-defendant by her husband Fructuoso
Ibe and their children Lolita and Cesar.

After trial on the merits, the lower court rendered its decision 1 finding Exhs. 1,2
and 3 to be defective as the residence certificate numbers appearing therein as that
of Rosario Igarta actually belonged to three other persons indicated in the
certification issued by the municipal treasurer of Sinait (Exh. F). The said
certification states that Residence Certificate No. 10529408 in the deed of absolute
sale (Exh. 3) belonged to one David Arrocena; Residence Certificate No. 10529708
used in the deed of quitclaim and transfer of ownership Exh. 1) was issued to
Simeon Bautista, and Residence Certificate No. 10502786 in the deed of quitclaim
(Exh. 2) was issued to Florante Rosal who, as a witness during the trial, admitted
having prepared the questioned documents notarized by Atty. Ernesto Yalao.
The trial court also noted that Exhs. 1 and 3 conveying inter vivos certain properties
of Rosario Igarta to Benjamin Ibe and his children, were executed "at different hours
of the same day." In view thereof, the said court observed that the "situation does
not seem to jibe with the ordinary and natural course of things because if it were
true, as alleged, that the grantor freely, voluntarily and intelligently disposed of her
properties in favor of the Ibes in more than one instance on the same day, the
dispositions should have been embodied in only one document" (Decision, p. 8;
Rollo, p. 28).

Another "badge of anomaly" that the trial court noted is that Parcel IV is the subject
matter of both the deed of quitclaim and transfer of ownership of April 28, 1985
(Exh. 1) and the deed of quitclaim of December 20, 1985 (Exh. 2). These documents
both have Benjamin Ibe as recipient of the subject properties. These findings led the
trial court to conclude that there is a "clear, strong and convincing evidence to
prove that the documents notarized by Atty. Yalao do not reflect the truth" (Ibid., p.
9).

The trial court, however, found as "lawful and regular" the deed of quitclaim
executed on January 16,1984 wherein Rosario renounced all her rights over the
properties described as parcels "d", "e", "f", "g", and "h" in favor of her sister
Emiliana Ibe because even the tax declarations indicate the co-ownership of Rosario
and Emiliana over said properties. Thus, the trial court concluded, said properties
were not part of Rosario's hereditary estate. However, Parcel No. III, which is also
declared in the names of Rosario and Emiliana, must be deemed the former's
exclusive property as it was not included in the deed of quitclaim. The trial court
disposed of the case as follows:

"WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:

"(1) Declaring all the parcels of land subject-matter of this suit, except Parcels 'c',
'd', 'e', 'f', 'g', and 'h' under the Supplemental Pleading, as comprising the
hereditary' estate of the deceased, Rosario Igarta;

"(2) Ordering the partition of the same, except those indicated above, between
plaintiff Hermenegildo Agdeppa and defendant Benjamin Ibe, in representation of
their parents, Carmen Igarta-Agdeppa and Emiliana Igarta-Ibe, respectively, in equal
shares;

"(3) Declaring Parcels "d", "e", "f', "g", and "h'" under the Supplemental Pleading, as
the exclusive properties of the late Emiliana Igarta-Ibe, subject to such dispositions
as the deceased owner might have made during her lifetime;

"(4) Ordering plaintiff Hermenegildo Agdeppa and defendant Benjamin Ibe to agree
on the division of the properties subject of partition and to submit their written
agreement to the Court, for confirmation, within thirty (30) days after the finality of
this decision; otherwise, the Court shall appoint commissioners to make the
partition pursuant to Section 3, Rule 69, of the Rules of Court;

"(5) Ordering the defendants, Benjamin Ibe and Ferdinand Ibe, to render an
accounting of the fruits and income of the portions of the partible properties that
may be allotted to plaintiff Hermenegildo Agdeppa, and to vacate the same in order
that the said plaintiff may have peaceful possession thereof.

"No pronouncement as to costs, in the same manner that no damages and

attorney's fees are awarded either under the complaint or under the counterclaim
which is hereby dismissed for lack of merit.

"Let a copy of this decision be furnished the Revenue District Officer, Bureau of
Internal Revenue, Vigan, Ilocos Sur, for a determination of the tax aspect of the
case.

"SO ORDERED."

Only Hermenegildo Agdeppa appealed to the Court of Appeals as the lower court
had ruled that his co-plaintiffs, Joseph, Jefferson and Stevenson, the sons of his
brother Jose, "cannot be considered as heirs of the late Rosario Igarta because in
the collateral line, representation takes place only in favor of the children of
brothers and sisters (in this case, children of Carmen and Emiliana) whether they be
of the full or half blood" (Ibid., p. 2, Citing Art. 972, Civil Code). While the appeal
was pending resolution before the Court of Appeals, Hermenegildo died on October
23, 1989.

On December 17, 1999, the Court of Appeals rendered its decision 2 finding merit in
the appeal. Giving full faith and credit to the documents involved, the Court of
Appeals said:

"The proof adduced by plaintiff-appellees is not sufficient to overcome the

presumption of regularity in favor of the questioned documents. Their attempt to
show that the residence certificates appearing on said documents belonged to
persons other than the late Rosario Igarta through the testimony of Mrs. Ester T.
Remos, Municipal Treasurer of Sinait, Ilocos Sur, and her Certification to that effect
dated October 15, 1988 do not impress Us. The court a quo erred in considering
said testimony and certification since they were merely secondary evidences, and
plaintiff-appellees have not laid the basis for their presentation. The best evidence
of the residence certificates are the residence certificates themselves. in lieu
thereof, certified true copies of the residence certificates should have been
presented since these are part of the public record.

"The presumption of validity of the questioned documents have not been overcome
by the circumstances surrounding its execution. There is no showing that fraud,
force or intimidation was perpetuated on Rosario Igarta in the preparation of the
documents. Neither have plaintiff-appellees shown that the signature of Rosario
Igarta appearing on said documents was forged. Forgery cannot be presumed. It
must be proved. Faced with the fact that the signature of Rosario Igarta on said
documents appears to be genuine, the provisions of said documents must be
upheld.

'Thus, the court a quo erred in disregarding the dispositions contained in the
questioned documents and tendering the partition of the properties covered
thereby. The decision appealed from is hereby modified declaring the
aforementioned properties, Parcels IV, V, VI, VII, IX, X and one-half of Parcel III under
paragraph 5 (a) of the Complaint and Parcel 'a' under the Supplemental Pleading,
the exclusive properties of the late Emiliana Igarta-Ibe and therefore, not subject to
partition. We note that defendant appellants admitted the partible nature of one-
half of Parcel III, and thus partition should take place only with regard to that half"
(CA Decision, pp. 8-9, Rollo, pp. 51-52).

The heirs of Hermenegildo Agdeppa filed the instant petition for review on certiorari
assailing the decision of the Court of Appeals for having set aside the findings of the
lower court that the three documents which conveyed to the respondents parcels
IV, V, VI, IX and X and property "a" were irregular and not reflective of the truth, and
for excluding from Rosario Igarta's estate Parcels IV, V, VI, VII, IX and X.

From the foregoing, the resolution of this case revolves around the issue of the
validity of the documents executed by Rosario Igarta conveying certain properties
belonging to her to the herein respondents.

In a petition for certiorari under Rule 45 of the Rules of Court like the instant
petition, the jurisdiction of this Court is limited to the review of errors of law. The
findings of fact of the Court of Appeals are conclusive upon this Court (Ronquillo vs.
Court of Appeals, 195 SCRA 433 [1991]). However, there are exceptions to this rule
such as when there is a conflict between the factual findings of the Court of Appeals
and the trial court. The resolution of such conflict requires the review of the same
factual findings by this Court (Co vs. Court of Appeals, 193 SCRA 198 [1991] citing
Raneses vs. IAC, 187 SCRA 397(1990] and Remalante vs. Tibe, 158 SCRA
138[1988]). Thus, the divergent findings of the trial court and the Court of Appeals
on the validity of the three documents executed by Rosario Igarta in favor of
Benjamin Ibe and his children Ferdinand and Corazon, necessitate this Court's
scrutiny.

The trial court's objections to the documents are based on its finding that residence
certificates of other persons were used therein by Rosario Igarta. The plaintiffs (now
appellants) tried to prove this through the rebuttal testimony of Mrs. Ester Y. Ramos,
the Municipal Treasurer of Sinait. Mrs. Ramos admitted having signed the
certification marked as Exh. F and which shows the names of the persons to whom
the residence certificates appearing in the questioned documents were issued.
According to Mrs. Ramos, the certification was based on the abstract of residence
certificates because one of their office clerks, a certain Florida Ines, could not find
the triplicates of the residence certificates subject of her certification (TSN, April
10,1989, pp. 5-6). Mrs. Ramos had with her "the abstract where Mrs. Ines quoted
the certification, but unluckily, the data are no longer available" meaning the pages
of the abstract where the three (3) residence certificate numbers are found had
been "lost" (Ibid., pp. 8-9). Mrs. Ramos could not explain why and how they were
lost (Ibid., p. 9).

A residence certificate, being a receipt prescribed by the government to be issued

upon receipt of money for public purposes (Moran, Comments on the Rules of Court,
Vol. 6, 1980 ed., p.101), is a public document. As such, presentation of the same
document would suffice to prove its contents. As part of the public record, it may
also be proved by the presentation of a copy attested by the officer having legal
custody of the duplicates (Sec. 25, Rule 132 Rules of Court)if, as in this case, a
certified copy of the residence certificate itself cannot be presented. Exhibit F, upon
which the trial court relied in nullifying the questioned documents, is, as correctly
pointed out by the Court of Appeals, merely a secondary evidence. It is even based
on the lost pages of an abstract of the residence certificates issued by the municipal
treasurer of Sinait. The evidentiary value of Exh. F. is therefore suspect.

The questioned deeds, being public documents as they are duly notarized (Moran,
Comments on the Rules of Court, supra), therefore retain the presumption of validity
in the absence of a full, clear and convincing evidence to overcome such
presumption (Favor vs. Court of Appeals, 194 SCRA 308 [1991] citing Antonio vs.
Estrella, 156 SCRA 68 [1987]). Merely preponderant evidence may not destroy such
presumption because strong evidence is required to prove a defect of a public
instrument.

The petitioners never questioned the authenticity of the signature of Rosario Igarta
on the documents. Their due execution has been amply proved below. The
testimony of Florante Rosal who prepared them, was corroborated by Atty. Ernesto
Yalao who notarized all three documents. Yalao, who was a citizens' attorney and
who had become a municipal trial court judge by the time he notarized the
December 20,1985 document, testified that while he noticed that Rosario Igurta
was a "little bit sickly" and thin when she signed the documents in his presence, she
was mentally okay (TSN, September 13, 1988, p.5).

Even the nagging doubts nurtured by the trial court appear more apparent than real
upon a close examination of the testimonial evidence presented before it. Thus, the
execution of two documents on the same day was explained by defense witness
Florante Rosal. According to Rosal, who was an employee of the Citizens Legal
Assistance Office, in April, 1985, Rosario Igarta requested him to accompany her to
a lawyer "for purpose of drawing up a document." He accompanied her to the house
of Atty. Ernesto Yalao who was then a citizens' attorney. Atty. Yalao, after having
been informed of the purpose of Rosario Igarta's visit, told Rosal to prepare the
documents promising that he would go over them later. Thus, Rosal who appears to
have previous experience in drafting documents, prepared the document in his
house (TSN, July 19, 1988, pp. 1315).

Rosario Igarta then went to Rosal's house and, after the document was prepared,
they went back together to the house of Atty. Yalao. The latter examined the
document and asked Rosario if its contents were alright. Rosario, a former school
teacher, said that the document was indeed alright and signed it. Rosal and a visitor
of Atty. Yalao signed as witnesses in the document which, although written in
English was understood by Rosario as she was a former teacher (Ibid, pp. 15-19).

According to Rosal, after Atty. Yalao had delivered Exh. 1 to Rosario, the latter
remarked that another document had to be prepared otherwise Benjamin Ibe could
not give her any cash. So, in the afternoon, Rosal prepared Exh. 3 (Ibid., pp. 23-24)
and it was notarized on the same day by Atty. Yalao. While on that day Rosario did
not receive the consideration of the sale in Exh. 3 from Benjamin Ibe, the latter
actually paid Rosario the P50,000.00 consideration of the sale at a much later date
as the money had to come from Benjamin's younger brother in America (TSN,
November 17, 1988, pp. 7-9).

With regard to the discrepancy in the residence certificate numbers, Rosal testified
that Rosario did not show him her residence certificate but she only gave him a
piece of paper containing its number (Ibid, p. 11). On why the two documents
executed on April 28, 1985 bear two different residence certificate numbers both
purportedly belonging to Rosario Igarta, Rosal admitted that he "might have
committed a mistake" (Ibid., p. 26). This narration of facts had not been rebutted by
the plaintiffs (now appellants) by evidence aside from Exh. F.

In the same manner, the deed of quitclaim and transfer of ownership of April
28,1985 and the deed of quitclaim of December 20, 1985 may not be nullified just
because they refer to the same Parcel IV with Benjamin Ibe as the recipient in both
instances. That Rosario Igarta conveyed the same property to Benjamin Ibe in two
different documents only shows that she favored Benjamin over Hermenegildo.
There is unrebutted evidence that it was Benjamin who took care of Rosario. While
Rosario Igarta had a house of her own, Benjamin would fetch her in the afternoon
and accompany her back to the house in the morning from his own residence (TSN,
November 17, 1988, pp. 1-2). Further, according to the deputy public land inspector
who testified, Rosario Igarta even tried to delete the name of Hermenegildo from
the space indicating her nearest relatives in her application for free patent over Lot
9796 (Exh. 8-a) because Rosario believed that Hermenegildo had "another woman
in his life" (TSN, October 13, 1988, p. 9).

In Gevero vs. Intermediate Appellate Court (189 SCRA 201 [1990]), this court held:
". . . it has long been settled that a public document executed and attested through
the intervention of the notary public is evidence of the facts in clear, unequivocal
manner therein expressed. It has the presumption of regularity and to contradict all
these, evidence must be clear, convincing and more than merely preponderant
(Rebuldela v. I.A.C. 155 SCRA 520-521 [1987]). Forgery cannot be presumed, it must
be proven (Siasat v. IAC No. 67889, October 10, 1985). Likewise, petitioners'
allegation of absence of consideration of the deed was not substantiated. Under Art.
1354 of the Civil Code, consideration is presumed unless the contrary is proven."

Similarly, in the case at bar, no clear and convincing evidence had been adduced by
petitioners to impugn the validity of the documents executed by Rosario Igarta.
Consequently, the validity of the said documents must be, as they are hereby,
upheld.

WHEREFORE, the decision of the Court of Appeals dated December 17, 1990 is
Affirmed in toto.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 85909 February 9, 1993

TERESITA C. GERALES, CESAR DELA FUENTE, MARCELA GOLDING, MARIA

VERGARA and PERLITO TRIGERO, petitioners,
vs.
HON. COURT OF APPEALS, ENRIQUE E. PIMENTEL and LETICIA FIDELDIA,
respondents.
Jose B. Daguna, Jr. for petitioners.

Camacho and Associates for private respondents.

BIDIN, J.:

This is a petition for review on certiorari which seeks to reverse and set aside: (1)
the decision of the Court of Appeals promulgated on September 26, 1988 in C.A.-
G.R. S.P. No. 11811 entitled "Enrique E. Pimentel and Leticia T. Fideldia v. Hon.
Ruben T. Reyes, as Regional Trial Court Judge, Branch 1, Balanga, Bataan and
Teresita C. Gerales, Cesar Dela Fuente, Marcela Gelding, Maria Vergara, and Perlito
Trigero" dismissing Civil Case. No. 5210 and reversing the decision of the trial court
and (2) the resolution of the Court of Appeals promulgated on November 15, 1988
denying the Motion for Reconsideration.

The undisputed facts of the case are as follows:

On July 9, 1984, a car owned by Leticia Fideldia, then driven by Enrique E. Pimentel,
hit another car, owned by Teresita Gerales then driven by Cesar Dela Fuente, with
Marcela Golding, Maria Vergara and Perlito Trigero as passengers at San Jose, San
Fernando, Pampanga.

On August 17, 1984, private respondent Enrique E. Pimentel was charged before the
Municipal Trial Court of San Fernando, Pampanga with the crime of Damage to
Property with Multiple Physical Injuries thru Reckless Imprudence, docketed as
Criminal Case No. 84-9302 (Rollo, p. 18, Annex "A", p. 1).

During the pendency of the criminal case, particularly on January 11, 1985, private
offended parties (now petitioners) Maria Vergara, Perlito Trigero, Marcela del Rosario
Golding, Cesar Dela Fuente, and Teresita Gerales filed a civil case for Damages in
the total amount of P400,000.00 docketed as Civil Case No. 5210, in the Regional
Trial Court of Bataan against Enrique E. Pimentel and Leticia Fideldia. This civil case
is based on the same incident for which private respondent, Enrique E. Pimentel was
charged in Criminal Case No. 84-9302 (Rollo, p. 19, Annex "A", p. 2).

On April 23, 1985, or after the filing of Civil Case No. 5210 but before the service of
summons upon the defendants (herein private respondents), the claims of the
offended parties (plaintiffs in Civil Case No. 5210) were amicably settled, to wit:

Cesar Dela Fuente received 15,016.79

Marcela Golding received 10,171.75

Maria Vergara received 7,674.96

Teresita Gerales received 15,000.00

Perlito Trigero received 2,136.50

as full and final settlement of all their claims, both civil and criminal, in connection
with the vehicular accident that occurred on July 9, 1984.

These offended parties (now petitioners), whose claims were amicably settled,
individually executed and signed a "Release Of Claim," the contents of which
substantially reads as follows:

For the sole consideration of . . ., the receipt whereof is hereby acknowledged, (I),
(We) . . . for myself, my heirs, representatives, successors and assigns do hereby
forever release, discharge and absolve Atty. Enrique E. Pimentel, Leticia Fideldia &
F.E. Zuellig (M), Inc. of and from all actions, claims and demands whatsoever that
now exist or may hereafter develop and particularly on account of all known,
unknown and unanticipated injuries and damages arising out of and in consequence
of the accident/illness occurring on or about July 9, 1984 at about 6:00 P.M. along
the North Expressway, San Fernando, Pampanga when I sustained serious physical
injuries while riding as a passenger of a Toyota Corona Sedan with Plate No. CFR-
447 was hit and bumped by a Mit. Lancer Sedan with Plate No. NLL-979 driven by
Atty. Enrique E. Pimentel and owned by Leticia Fideldia.

The undersigned furthermore agrees that the foregoing sum is voluntarily accepted
as full and final compromise, adjustment and settlement of all claims with respect
to both civil and/or criminal actions that may have been filed in connection with the
above accident; that the payment of said amount shall never be construed as an
admission of liability by the party/parties hereby released. (Rollo, Annexes "I" to "I-
C", pp. 79-82; emphasis supplied).

A Motion to Dismiss the criminal case was filed by Atty. Jaime C. Bueza, counsel of
the offended parties, with the conformity of the Prosecuting Fiscal, based on the
Affidavits of Desistance executed by the offended parties.

On April 23, 1985, the Municipal Trial Court of San Fernando, Pampanga, Branch IV,
acting on the Motion to Dismiss, accordingly dismissed Criminal Case No. 84-9302.

After the dismissal of the criminal charge against private respondent Enrique E.
Pimentel, the latter and respondent Leticia Fideldia were served on July 30, 1985
with summons and a copy of the complaint in Civil Case No. 5210 (Rollo, p. 19,
Annex "A", p. 3).

On August 14, 1985, respondent Enrique E. Pimentel wrote a letter addressed to the
Clerk of Court of the Regional Trial Court of Bataan, which reads:

Please (sic) refer to summons Civil Case No. 5210 Balanga, Bataan dated July 1,
1985 which was received on July 30, 1985.
In relation thereto, is Criminal Case No. 84-9302 wherein a Motion to Dismiss was
submitted on April 23, 1985, 9:30 a.m. thus the affected parties mutually settled
the case before the Municipal Trial Court of Pampanga, Branch IV.

In view thereof, may we request that said settlement be considered. (Annex "G")

On August 21, 1985, or after receipt of respondent Pimentel's letter, the Presiding
Judge of Branch 1 of the Regional Trial Court of Balanga, Bataan issued an order in
Civil Case No. 5210, to wit:

It appearing that defendants Enrique E. Pimentel and Leticia T. Fideldia were served
with summons and copies of the complaint on July 30, 1985 at their Quezon City
residence and they have not filed their answer up to now, plaintiffs are hereby
ordered to file the necessary motion within (5) days from receipt of this order.

Should plaintiffs fail to comply herewith, the Court shall consider that they have no
more interest in the prosecution of this action, especially considering that according
to a letter of defendant Enrique E. Pimentel dated August 14, 1985, a motion to
dismiss was filed by plaintiffs' counsel in the related criminal case (C.C. Case No.
9302) before the Municipal Trial Court of San Fernando, Pampanga, Branch IV.
(Annex "H")

On motion of petitioners, the trial court issued an order declaring respondents

Enrique E. Pimentel and Leticia Fideldia in default and forthwith set the case for
presentation of petitioners' evidence ex-parte on October 8, 1985. A copy of said
order was received by private respondents on September 18, 1985.

Judgment was rendered in favor of the petitioners, ordering respondents Enrique E.

Pimentel and Leticia T. Fideldia, to pay jointly and severally the following:

(1) To Cesar Dela Fuente, actual damages in the amount of P55,771.05;

(2) To Marcela Golding, actual damages in the amount of P30,101.55;

(3) To Maria Vergara, actual damages in the amount of P21,142.00;

(4) To Teresita Gerales, compensatory damages in the amount of P50,000.00;

(5) No further award is due Perlito Trigero as he had been fully compensated;

(6) To all plaintiffs, attorney's fees in the total amount of P50,000.00 plus costs of
suit.

Copy of the said judgment was received by private respondents on February 12,
1986. On March 10, 1986, private respondents filed a Petition for Relief from
Judgment. On February 20, 1987, the trial judge denied the Petition for Relief from
Judgment. A writ of execution was issued on March 6, 1987 (Rollo, p. 20, Annex "A",
p. 3). Private respondents received a copy of the order of denial on March 26, 1987
(Rollo, p. 20, Annex "A", p. 3).

Private respondents filed a Petition for Certiorari, Mandamus and Prohibition with
Prayer for Writ of Preliminary Injunction and Restraining Order with the Court of
Appeals to set aside the aforementioned judgment and orders of the Regional Trial
Court in Civil Case No. 5210, alleging among others that the trial court acted
without or in excess of its jurisdiction and with grave abuse of discretion amounting
to lack of jurisdiction in rendering a judgment by default against private
respondents, in denying the petition for relief from judgment and in issuing a writ of
execution.

The Court of Appeals, citing the case of Ledesma v. Avelino (82 SCRA 396 [1978]),
reversed the decision of the trial court, the dispositive portion of which reads as
follows:

Following the action of the Supreme Court in said case and considering that the only
defense of the petitioners is the release of claims signed by all the respondents
which released all the petitioners from all actions, claims and demands whatsoever
that now may exist or may hereafter develop and particularly on all known and
unknown and unanticipated injuries and damages arising out of and in consequence
of the accident, a new decision is entered dismissing the complaint against
petitioners (Rollo, p. 18, Annex "A", p. 6).

The Motion for Reconsideration filed by petitioners was denied in a resolution

promulgated on November 15, 1988. (Rollo, p. 25, Annex "B", p. 2)

Hence, this petition.

In a resolution dated March 1, 1989, this Court gave due course to the petition and
required both parties to file their respective memoranda.

Petitioners raise the issue of whether or not the respondent Court of Appeals
committed reversible error in deciding private respondents' petition on the merits,
thereby reversing the decision of the trial court and disregarding petitioners'
evidence.

Petitioners claim that the respondent Court of Appeals should have denied and
dismissed private respondents' petition for certiorari as there was no error of
jurisdiction correctible by certiorari under Rule 65 of the Rules of Court. They insist
that the court a quo had jurisdiction over the subject matter of the case and over
the persons of the private respondents when the latter were duly served with
summons on July 30, 1985. Hence, whatever error may have been committed in the
case was not an error of jurisdiction correctible by certiorari. They claim that the
respondent court, in dismissing the civil case for damages on the sole basis of the
"releases of claims," had denied them procedural due process as they were not
afforded the opportunity to refute, assail, and overcome their/probative value (Rollo,
pp. 10-12).

On the other hand, private respondents maintain that the trial court committed
grave abuse of discretion in not considering their letter dated August 14, 1985 as
their responsive pleading and in consequently declaring them in default; in denying
in its order dated February 20, 1987 their petition for relief from judgment; and in
issuing a writ of execution on March 6, 1987, even before they received a copy of
the order denying their petition for relief from judgment.

An examination of the records of the case shows that the trial court, after taking
judicial notice of the letter of private respondents informing the court that the
parties have mutually settled the case, and that a Motion to Dismiss was even filed
by petitioners' counsel in the related criminal case, altogether did not consider nor
treat it as private respondents' responsive pleading to the complaint for damages.
In fact, on motion of petitioners, the private respondents were declared in default
and accordingly, a judgment by default was rendered against them (private
respondents).

Under the factual setting of the case, the trial court ought to have considered the
letter of respondent Enrique E. Pimentel as a responsive pleading even if it lacks the
formalities required by law. Undoubtedly, the letter made mention of the fact that
the parties mutually settled the case, which allegation may be deemed as an
averment of an affirmative defense and if proven
in a preliminary hearing pursuant to Section 5, Rule l6, would constitute a
meritorious defense of private respondents which would bar petitioners from
recovering damages from the former as the claim or demand set forth in plaintiffs'
(petitioners') pleading had been paid or extinguished.

Pleadings as well as remedial laws should be liberally construed in order that the
litigant may have ample opportunity to prove their respective claims, and possible
denial of substantial justice, due to technicalities, may be avoided (Cabutin, et al. v.
Amacio, 170 SCRA 750 [1989], citing Quibuyen v. CA, 9 SCRA 741 [1963]).
Litigations should as much as possible be decided on the merits and not on
technicality (Fonseca v. Court of Appeals, 165 SCRA 40 [1988], citing A-One Feeds,
Inc. v. Court of Appeals, 100 SCRA 590, 594 [1980]). Technicality, when it deserts its
proper office as an aid to justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts (American Express International, Inc. v.
Intermediate Appellate Court, 167 SCRA 209 [1988] citing Alonso v. Villamor, 16
Phil. 315 (1910]), and because there is no vested right in technicalities, in
meritorious crises, a liberal, not literal interpretation of the rules becomes
imperative and technicalities should not be resorted to in derogation of the intent
and purpose of the rules, which is the proper and just determination of a litigation
(Fonseca v. C.A., supra.).
In addition thereto, the trial court's denial of private respondents' petition for relief
from judgment, inspite of the fact that they raise the meritorious defense of full
settlement and/or payment of the claim is improper. The trial judge should have
granted the aforesaid petition as it would ultimately afford both parties the
opportunity to prove their respective claims by fully and fairly laying before the
Court, the facts in issue and seek justice upon the merits thereof and that possible
denial of justice due to legal technicalities may be avoided.

The courts should be liberal in setting aside orders of default for default judgment is
frowned upon, and unless it clearly appears that the reopening of the case is
intended for delay, it is best that the trial courts give both parties every chance to
fight their case fairly and in the open, without resort to technicality (Zenith
Insurance Corporation v. Hon. Fidel Purisima, 114 SCRA 62 [1982], citing Pineda v.
Court of Appeals, 67 SCRA 229 [1975]).

In the light of the foregoing, it is evident that indeed the trial court committed grave
abuse of discretion in declaring private respondents in default, and in denying their
petition for relief from judgment. Consequently, the validity of the order of default
and all the proceedings that transpired subsequent thereto cannot be sustained.

A petition for Certiorari lies when any tribunal, board or officer exercising judicial
functions, has acted without or in excess of its or his jurisdiction, or with grave
abuse of discretion and there is no appeal, nor any plain, speedy, and adequate
remedy in the ordinary course of law (Section I of Rule 65 of the Rules of Court). It is
the inadequacy not the mere absence of all other legal remedies and the danger
of failure of justice without/such writ that usually determines the propriety
ofcertiorari (Philippine National Bank v. Puno, 170 SCRA 229 [1989] citing Jaca v.
Davao Lumber Co., 113 SCRA 107 (1982]).

Undoubtedly, Certiorari is a more speedy and efficacious remedy to have the

judgment by default be set aside as a nullity where a party has been illegally
declared in default. It will be noted that the trial court had already issued a writ of
execution even before respondents received a copy of the order denying their
petition for relief from judgment (Rollo, p. 20). Clearly therefore even if appeal was
available to private respondents, it was no longer speedy and adequate.

Petitioners contend that respondent Court of Appeals, in dismissing the complaint

(Civil Case No. 5210) against private respondents on the basis solely of the releases
of claims, had denied them their right to procedural due process. They claim that
the settlements contained in the releases of claims were not true; that patent
irregularities attended their execution as petitioners executed them because private
respondents led them to believe that what they were receiving were partial
settlements only; and that the said documents were more of a receipt rather than
any document (Rollo, p. 12).
Conversely, private respondents contend that the releases of claims executed and
signed by petitioners show that full settlements were received by the latter from
private respondents and their insurer, F.E. Zuellig, Inc.; that when petitioners
executed these documents, they were assisted by their very own counsel, Atty.
Jaime C. Bueza; that the same was duly notarized and that petitioners cannot now
impugn the veracity of the documents upon the self-serving argument that they
were misled by their own counsel into believing that the settlements were but
partial.

It should be borne in mind that the petitioners do not deny at all their having
executed the releases of claims which are in the nature of quitclaims. Their
allegation that the execution thereof was attended by false pretenses is self-serving.
Contrary thereto, petitioners, in executing these releases of claims, were in fact
assisted by their counsel, Atty. Bueza, and the document was even notarized.

A notarized instrument is admissible in evidence without further proof of its due

execution and is conclusive as to the truthfulness of its contents, although not
absolute but rebuttable by clear and convincing evidence to the contrary (Baranda
v. Baranda, 150 SCRA 59 [1987], citing Antillon v. Barcelon, 37 Phil. 148 [1917] and
Mendezona v. Phil Sugar Estate Development Corporation. 41 Phil. 475 [1921]). A
public document executed and attested through the intervention of the notary
public is evidence of the facts in clear, unequivocal manner therein expressed. It
has in its favor the presumption of regularity. To contradict all these, there must be
evidence that is clear and convincing more than merely preponderant (Collantes v.
Capuno, 123 SCRA 652 [1983]).

Petitioners can not now question the validity and/or veracity of the releases of
claims on the allegation that the same were executed on their belief that what they
received were only partial settlements and that they could not have released them
"forever from all actions arising from such vehicular accident." If they did not
release their claims against, respondents forever, why did they cause the dismissal
of the criminal case against Enrique Pimentel?

In essence, petitioners are varying the terms embodied in the releases of claims,
which is proscribed by Section 7 of Rule 130 of the Rules of Court. It is a well-settled
principle of law that proof of verbal agreements offered to vary the terms of written
agreements is inadmissible under the Parol Evidence Rule (Continental Airlines Inc.
v. Santiago, 172 SCRA 490 [1989]), and while Parol Evidence is admissible in a
variety of ways to explain the meaning of written contracts, it cannot serve the
purpose of incorporating into the contract additional contemporaneous conditions
which are not mentioned at all in the writing, unless there has been fraud or
mistake (Tupue v. Urgel, 161 SCRA 417 [1988] citing Yu Tek & Co. v. Gonzalez, 29
Phil. 384 [1915]).
It is edgy to see that the exceptions to the rule do not apply in the instant case. The
wordings of the "releases of claims" are clear, simple and unambiguous and there is
no showing of any fraud, mistake or failure to express the true agreement of the
parties. The second paragraph of the releases of claims executed by petitioners
provides:

the undersigned agrees that the foregoing sum is voluntarily accepted as full and
final compromise, adjustments and settlement of claims with respect to both civil
and/or criminal actions that may have been filed in connection with the above
accident; . . . . (Rollo, Annexes "I" to "I-C", pp. 79-82, emphasis supplied).

When petitioners executed the releases of claims on April 23, 1986, Civil Case No.
5210 for damages had already been filed on January 11, 1985 by petitioners as
plaintiffs against private respondents as defendants. With the subsequent execution
of the releases of claims by petitioners, all claims and demands of petitioners as
plaintiffs in Civil Case No. 5210 which "had been filed in connection with the above
(vehicular) accident," were fully and finally compromised, settled and forever
released as stipulated in the releases of claims and agreed upon by petitioners.

There could have been no fraud or mistake in the execution of the "releases of
claims" because the petitioners were assisted by their counsel in the execution
thereof, who affixed his signature on each and every document as witness thereto,
which documents ("releases of claims") were acknowledged before a notary public.

While strictly speaking, a remand of the case to the trial court to enable petitioners
to present their evidence would be the normal course to follow before a decision is
rendered, it has been held that such time-consuming procedure may be properly
dispensed with for being unnecessary where the Supreme Court could resolve the
dispute on the basis of the records before it (Quisumbing v. CA, SCRA 703 [1983];
Board of Liquidators v. Zulueta, 115 SCRA 549 [1982]). The only defense of the
private respondents is the "releases of claims" executed by the petitioners, the
existence of which is beyond dispute and is sufficient basis for rendering a decision
on the merits, i.e., the dismissal of petitioners' complaint on the ground that the
claim or demand of petitioners as plaintiffs had been paid or released.

WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of
Appeals dismissing the complaint for damages against private respondents is
hereby AFFIRMED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-24968 April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-
appellee.

Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was
rendered on June 28, 1965 sentencing defendant Development Bank of the
Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import
and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate
from the date the complaint was filed and attorney's fees in the amount of
P5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the
Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00, to be used as follows: P250,000.00 for the
construction of a factory building (for the manufacture of jute sacks); P240,900.00
to pay the balance of the purchase price of the jute mill machinery and equipment;
and P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential
Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its
release without first paying the draft, Saura, Inc. executed a trust receipt in favor of
the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application
for P500,000.00, to be secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be
installed. Among the other terms spelled out in the resolution were the following:

1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and
Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly
with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance

Corporation, subject to availability of funds, and as the construction of the factory
buildings progresses, to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day
before, however, evidently having otherwise been informed of its approval, Saura,
Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it,
namely: that in lieu of having China Engineers, Ltd. (which was willing to assume
liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker
on the corresponding promissory notes, Saura, Inc. would put up a bond for
P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca
would be substituted for Inocencia Arellano as one of the other co-makers, having
acquired the latter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954,
designating of the members of its Board of Governors, for certain reasons stated in
the resolution, "to reexamine all the aspects of this approved loan ... with special
reference as to the advisability of financing this particular project based on present
conditions obtaining in the operations of jute mills, and to submit his findings
thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again
agreed to act as co-signer for the loan, and asked that the necessary documents be
prepared in accordance with the terms and conditions specified in Resolution No.
145. In connection with the reexamination of the project to be financed with the
loan applied for, as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other and undertake
the necessary studies, although in appointing its own committee Saura, Inc. made
the observation that the same "should not be taken as an acquiescence on (its) part
to novate, or accept new conditions to, the agreement already) entered into,"
referring to its acceptance of the terms and conditions mentioned in Resolution No.
145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R.
Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April
17.

It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the
RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of
Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to
P300,000.00. Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc.
under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd.
Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the
loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the
purpose of financing the manufacture of jute sacks in Davao, with special reference
as to the advisability of financing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard Ramon E. Saura and
after extensive discussion on the subject the Board, upon recommendation of the
Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be
authorized as may be necessary from time to time to place the factory in actual
operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the
promissory note for China Engineers Ltd. jointly and severally with the other RFC
that his company no longer to of the loan and therefore considered the same as
cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC
that the registration of the mortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of
P500,000.00 be granted. The request was denied by RFC, which added in its letter-
reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in
view of a notification ... from the China Engineers Ltd., expressing their desire to
consider the loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and
informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as
co-signer of the note if RFC releases to us the P500,000.00 originally approved by
you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the
original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now
willing to sign the promissory notes jointly with the borrower-corporation," but with
the following proviso:

That in view of observations made of the shortage and high cost of imported raw
materials, the Department of Agriculture and Natural Resources shall certify to the
following:

1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for

the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated
December 22, 1954, wherein it was explained that the certification by the
Department of Agriculture and Natural Resources was required "as the intention of
the original approval (of the loan) is to develop the manufacture of sacks on the
basis of locally available raw materials." This point is important, and sheds light on
the subsequent actuations of the parties. Saura, Inc. does not deny that the factory
he was building in Davao was for the manufacture of bags from local raw materials.
The cover page of its brochure (Exh. M) describes the project as a "Joint venture by
and between the Mindanao Industry Corporation and the Saura Import and Export
Co., Inc. to finance, manage and operate aKenaf mill plant, to manufacture copra
and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw
materials, principal kenaf." The explanatory note on page 1 of the same brochure
states that, the venture "is the first serious attempt in this country to use 100%
locally grown raw materials notably kenaf which is presently grown commercially in
theIsland of Mindanao where the proposed jutemill is located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loan
application in the first place, and to require, in its Resolution No. 9083, a
certification from the Department of Agriculture and Natural Resources as to the
availability of local raw materials to provide adequately for the requirements of the
factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of
January 21, 1955: (1) stating that according to a special study made by the Bureau
of Forestry "kenaf will not be available in sufficient quantity this year or probably
even next year;" (2) requesting "assurances (from RFC) that my company and
associates will be able to bring in sufficient jute materials as may be necessary for
the full operation of the jute mill;" and (3) asking that releases of the loan be made
as follows:

a) For the payment of the receipt for jute mill

machineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-

ment per attached list to enable the jute
mill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the 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 deed of cancellation and
delivered it to Ramon F. Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of
the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to
December 31 of the same year within which to pay its obligation on the trust receipt
heretofore mentioned. It appears further that for failure to pay the said obligation
the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was
cancelled at the request of Saura, Inc., the latter commenced the present suit for
damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply
with its obligation to release the proceeds of the loan applied for and approved,
thereby preventing the plaintiff from completing or paying contractual commitments
it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected
contract between the parties and that the defendant was guilty of breach thereof.
The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's
cause of action had prescribed, or that its claim had been waived or abandoned; (2)
that there was no perfected contract; and (3) that assuming there was, the plaintiff
itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in
Article 1934 of the Civil Code, which provides:

ART. 1954. An accepted promise to deliver something, by way of commodatum or

simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura,
Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short
of resolving the basic claim that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. There is no serious dispute about this. It was in line with
such assumption that when RFC, by Resolution No. 9083 approved on December 17,
1954, restored the loan to the original amount of P500,000.00. it imposed two
conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and (2) that there is
prospect of increased production thereof to provide adequately for the requirements
of the factory." The imposition of those conditions was by no means a deviation
from the terms of the agreement, but rather a step in its implementation. There was
nothing in said conditions that contradicted the terms laid down in RFC Resolution
No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall
be utilizedexclusively for the following purposes: for construction of factory building
P250,000.00; for payment of the balance of purchase price of machinery and
equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc.
realized that it could not meet the conditions required by RFC, and so wrote its
letter of January 21, 1955, stating that local jute "will not be able in sufficient
quantity this year or probably next year," and asking that out of the loan agreed
upon the sum of P67,586.09 be released "for raw materials and labor." This was a
deviation from the terms laid down in Resolution No. 145 and embodied in the
mortgage contract, implying as it did a diversion of part of the proceeds of the loan
to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations
which had been going on for the implementation of the agreement reached an
impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions.
So instead of doing so and insisting that the loan be released as agreed upon,
Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955.
The action thus taken by both parties was in the nature cf mutual desistance
what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing
obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest
against any alleged breach of contract by RFC, or even point out that the latter's
stand was legally unjustified. Its request for cancellation of the mortgage carried no
reservation of whatever rights it believed it might have against RFC for the latter's
non-compliance. In 1962 it even applied with DBP for another loan to finance a rice
and corn project, which application was disapproved. It was only in 1964, nine years
after the loan agreement had been cancelled at its own request, that Saura, Inc.
brought this action for damages.All these circumstances demonstrate beyond doubt
that the said agreement had been extinguished by mutual desistance and that on
the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve
the other issues raised in the respective briefs of the parties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed,
with costs against the plaintiff-appellee.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-49101 October 24, 1983

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF
COMMERCE, respondents.

Edgardo I. De Leon for petitioners.

Siguion Reyna, Montecillo & Associates for private respondent.

GUERRERO, J:

Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals,
now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs.
Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution
denying the motion for reconsideration.

The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First
Instance of Rizal against respondent Philippine Bank of Commerce sought the annulment of the
Deed of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of Commerce
by the spouses Jose M. Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made
on September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks consideration
and (b) the mortgage was executed by one who was not the owner of the mortgaged property. It
further alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended,
without, however, complying with the condition imposed for a valid foreclosure. Granting the validity
of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank should have
accepted petitioner's offer to redeem the property under the principle of equity said justice.

On the other hand, the answer of defendant Bank, now private respondent herein, specifically
denied most of the allegations in the complaint and raised the following affirmative defenses: (a) that
the defendant has not given its consent, much less the requisite written consent, to the sale of the
mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that
the demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was
notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that
the law on contracts requires defendant's consent before Jose Lozano can be released from his
bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose
Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two
renewals remain unpaid despite countless reminders and demands; of that the property in question
remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no
entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established banking
practice that payments against accounts need not be personally made by the debtor himself; and (h)
that it is not true that the mortgage, at the time of its execution and registration, was without
consideration as alleged because the execution and registration of the securing mortgage, the
signing and delivery of the promissory note and the disbursement of the proceeds of the loan are
mere implementation of the basic consensual contract of loan.

After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a
motion for intervention. The intervention was premised on the Deed of Assignment executed by
petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and
interests of petitioner Honesto Bonnevie over the subject property. The intervention was ultimately
granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits.

On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as
follows:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered

dismissing the complaint with costs against the plaintiff and the intervenor.

After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to
respondent Court of Appeals assigning the following errors:

1. The lower court erred in not finding that the real estate mortgage executed by Jose
Lozano was null and void;

2. The lower court erred in not finding that the auction sale decide on August 19,
1968 was null and void;

3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the
property;

4. The lower court erred in not finding that the defendant acted in bad faith; and
 5. The lower court erred in dismissing the complaint.

On August 11, 1978, the respondent court promulgated its decision affirming the decision of the
lower court, and on October 3. 1978 denied the motion for reconsideration. Hence, the present
petition for review.

The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby
adopt the facts found the trial court and found by the Court of Appeals to be consistent with the
evidence adduced during trial, to wit:

It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the
owners of the property which they mortgaged on December 6, 1966, to secure the
payment of the loan in the principal amount of P75,000.00 they were about to obtain
from defendant-appellee Philippine Bank of Commerce; that on December 8, 1966,
executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in
consideration of the sum of P100,000.00, P25,000.00 of which amount being payable
to the Lozano spouses upon the execution of the document, and the balance of
P75,000.00 being payable to defendant- appellee; that on December 6, 1966, when
the mortgage was executed by the Lozano spouses in favor of defendant-appellee,
the loan of P75,000.00 was not yet received them, as it was on December 12, 1966
when they and their co-maker Alfonso Lim signed the promissory note for that
amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant made payments
to defendant-appellee on the mortgage in the total amount of P18,944.22; that on
May 4, 1968, plaintiff-appellant assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10,
1968, defendant-appellee applied for the foreclosure of the mortgage, and notice of
sale was published in the Luzon Weekly Courier on June 30, July 7, and July 14,
1968; that auction sale was conducted on August 19, 1968, and the property was
sold to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to
repurchase the property failed, and on October 9, 1969, he caused an adverse claim
to be annotated on the title of the property. (Decision of the Court of Appeals, p. 5).

Presented for resolution in this review are the following issues:

Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.

II

Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.

III
 Whether petitioners had a right to redeem the foreclosed property.

IV

Granting that petitioners had such a right, whether respondent was justified in
refusing their offers to repurchase the property.

As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They
primarily attack the validity of the mortgage executed by the Lozano spouses in favor of respondent
Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and
equity. In attacking the validity of the deed of mortgage, they contended that when it was executed
on December 6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was
not received by the Lozano spouses "So much so that in the absence of a principal obligation, there
is want of consideration in the accessory contract, which consequently impairs its validity and fatally
affects its very existence." (Petitioners' Brief, par. 1, p. 7).

This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly
seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano
spouses. The fact that the latter did not collect from the respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract,
the herein contract of loan was perfected at the same time the contract of mortgage was executed.
The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does
not indicate lack of consideration of the mortgage at the time of its execution.

Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the
original loan, using as security the same property which the Lozano spouses had already sold to
petitioners, rendered the mortgage null and void,

This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale,
disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent
of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged
property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is
constituted. These provisions are expressly made part and parcel of the Deed of Sale with
Assumption of Mortgage.

Petitioners admit that they did not secure the consent of respondent Bank to the sale with
assumption of mortgage. Coupled with the fact that the sale/assignment was not registered so that
the title remained in the name of the Lozano spouses, insofar as respondent Bank was concerned,
the Lozano spouses could rightfully and validly mortgage the property. Respondent Bank had every
right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the
mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent
mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48).
Another argument for the respondent Bank is that a mortgage follows the property whoever the
possessor may be and subjects the fulfillment of the obligation for whose security it was constituted.
Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered into
the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its
validity whether on the original loan or renewals thereof.

Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following
grounds:

a) petitioners were never notified of the foreclosure sale.

b) The notice of auction sale was not posted for the period required by law.

c) publication of the notice of auction sale in the Luzon Weekly Courier was not in
accordance with law.

The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not
being a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not
aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner
Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he had transferred
and assigned all his rights and interests over the property in favor of intervenor Raoul Bonnevie and
respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not
entitled to notice. Most importantly, Act No. 3135 does not require personal notice on the mortgagor.
The requirement on notice is that:

Section 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city

In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July
14, 1968 and notices of the sale were posted for not less than twenty days in at least three (3) public
places in the Municipality where the property is located. Petitioners were thus placed on constructive
notice.

The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said
case involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly
registered making the mortgaged privy to the sale.

As regards the claim that the period of publication of the notice of auction sale was not in
accordance with law, namely: once a week for at least three consecutive weeks, the Court of
Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the
publication requirement under Act No. 3135 notwithstanding the fact that June 30 to July 14 is only
14 days. We agree. Act No. 3135 merely requires that such notice shall be published once a week
for at least three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs.
Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance
with law as said newspaper is not of general circulation must likewise be disregarded. The affidavit
of publication, executed by the Publisher, business/advertising manager of the Luzon Weekly
Courier, stares that it is "a newspaper of general circulation in ... Rizal, and that the Notice of
Sheriff's sale was published in said paper on June 30, July 7 and July 14, 1968. This constitutes
prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).

To be a newspaper of general circulation, it is enough that "it is published for the dissemination of
local news and general information; that it has a bona fide subscription list of paying subscribers;
that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not
have the largest circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67).
The testimony of three witnesses that they do read the Luzon Weekly Courier is no proof that said
newspaper is not a newspaper of general circulation in the province of Rizal.

Whether or not the notice of auction sale was posted for the period required by law is a question of
fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126).
Nevertheless, the records show that copies of said notice were posted in three conspicuous places
in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig
Municipal Hall. In the same manner, copies of said notice were also posted in the place where the
property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and
on Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal department of
respondent bank, namely:

Q How many days were the notices posted in these two places, if you
know?

A We posted them only once in one day. (TSN, p. 45, July 25, 1973)

is not a sufficient countervailing evidence to prove that there was no compliance with the posting
requirement in the absence of proof or even of allegation that the notices were removed before the
expiration of the twenty- day period. A single act of posting (which may even extend beyond the
period required by law) satisfies the requirement of law. The burden of proving that the posting
requirement was not complied with is now shifted to the one who alleges non-compliance.

On the question of whether or not the petitioners had a right to redeem the property, We hold that the
Court of Appeals did not err in ruling that they had no right to redeem. No consent having been
secured from respondent Bank to the sale with assumption of mortgage by petitioners, the latter
were not validly substituted as debtors. In fact, their rights were never recorded and hence,
respondent Bank is charged with the obligation to recognize the right of redemption only of the
Lozano spouses. But even granting that as purchaser or assignee of the property, as the case may
be, the petitioners had acquired a right to redeem the property, petitioners failed to exercise said
right within the period granted by law. Thru certificate of sale in favor of appellee was registered on
September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not
until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and offered to
redeem the property. Moreover, on September 29, 1969, Honesto had at that time already
transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent
Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to
respondent Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized
to make payments for the amount secured by the mortgage on the subject property, to receive
acknowledgment of payments, obtain the Release of the Mortgage after full payment of the
obligation and to take delivery of the title of said property. On the assumption that the letter was
received by respondent Bank, a careful reading of the same shows that the plaintiff was merely
authorized to do acts mentioned therein and does not mention that petitioner is the new owner of the
property nor request that all correspondence and notice should be sent to him.

The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the
maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for
the foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and
misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968,
when respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners'
payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank
inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan
may be effected, not only the payment of the accrued interest is necessary but also the payment of
interest for the proposed period of renewal as well. Besides, whether or not a loan may be renewed
does not solely depend on the debtor but more so on the discretion of the bank. Respondent Bank
may not be, therefore, charged of bad faith.

WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby
AFFIRMED. Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-45710 October 3, 1985

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T.

CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in
his capacity as statutory receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.

I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.

Antonio R. Tupaz for private respondent.

MAKASIAR, CJ.:

This is a petition for review on certiorari to set aside as null and void the decision of
the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying
the decision dated February 15, 1972 of the Court of First Instance of Agusan, which
dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary injunction.

On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino,
who, as a security for the loan, executed on the same day a real estate mortgage
over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT
No. T-305, and which mortgage was annotated on the said title the next day. The
approved loan application called for a lump sum P80,000.00 loan, repayable in
semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an
additional capital to develop his other property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was
made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a
promissory note for P17,000.00 at 12% annual interest, payable within 3 years from
the date of execution of the contract at semi-annual installments of P3,459.00 (p.
64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period
amounting to P4,800.00 was deducted from the partial release of P17,000.00. But
this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965,
after being informed by the Bank that there was no fund yet available for the
release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).

On August 13, 1965, the Monetary Board of the Central Bank, after finding Island
Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which
provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its
deposit liabilities, the Board, by unanimous vote, decided as follows:

1) To prohibit the bank from making new loans and investments [except
investments in government securities] excluding extensions or renewals of already
approved loans, provided that such extensions or renewals shall be subject to
review by the Superintendent of Banks, who may impose such limitations as may be
necessary to insure correction of the bank's deficiency as soon as possible;

xxx xxx xxx

(p. 46, rec.).

On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed
to put up the required capital to restore its solvency, issued Resolution No. 967
which prohibited Island Savings Bank from doing business in the Philippines and
instructed the Acting Superintendent of Banks to take charge of the assets of Island
Savings Bank (pp. 48-49, rec).

On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00

covered by the promissory note, filed an application for the extra-judicial foreclosure
of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino;
and the sheriff scheduled the auction for January 22, 1969.

On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First
Instance of Agusan for injunction, specific performance or rescission and damages
with preliminary injunction, alleging that since Island Savings Bank failed to deliver
the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific
performance by ordering Island Savings Bank to deliver the P63,000.00 with interest
of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to
rescind the real estate mortgage (pp. 32-43, rec.).

On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond,
issued a temporary restraining order enjoining the Island Savings Bank from
continuing with the foreclosure of the mortgage (pp. 86-87, rec.).

On January 29, 1969, the trial court admitted the answer in intervention praying for
the dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the
restraining order, filed by the Central Bank and by the Acting Superintendent of
Banks (pp. 65-76, rec.).

On February 15, 1972, the trial court, after trial on the merits rendered its decision,
finding unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island
Savings Bank the amount of PI 7 000.00 plus legal interest and legal charges due
thereon, and lifting the restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino,
modified the Court of First Instance decision by affirming the dismissal of Sulpicio M.
Tolentino's petition for specific performance, but it ruled that Island Savings Bank
can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp.
30-:31. rec.).

Hence, this instant petition by the central Bank.

The issues are:

1. Can the action of Sulpicio M. Tolentino for specific performance prosper?

2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the

promissory note?

3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real
estate mortgage be foreclosed to satisfy said amount?

When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal
obligations, the obligation or promise of each party is the consideration for that of
the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29
SCRA 1 [1969]); and when one party has performed or is ready and willing to
perform his part of the contract, the other party who has not performed or is not
ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of
Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino
executed a real estate mortgage on April 28, 1965, he signified his willingness to
pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to
furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire
loan started on April 28, 1965, and lasted for a period of 3 years or when the
Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968,
which prohibited Island Savings Bank from doing further business. Such prohibition
made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance
of the P80,000.00 loan. The power of the Monetary Board to take over insolvent
banks for the protection of the public is recognized by Section 29 of R.A. No. 265,
which took effect on June 15, 1948, the validity of which is not in question.

The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the
default of Island Savings Bank in complying with its obligation of releasing the
P63,000.00 balance because said resolution merely prohibited the Bank from
making new loans and investments, and nowhere did it prohibit island Savings Bank
from releasing the balance of loan agreements previously contracted. Besides, the
mere pecuniary inability to fulfill an engagement does not discharge the obligation
of the contract, nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And,
the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of
an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A,
1974 ed., CJS p. 650)

The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-
deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan
covering a 6-month period cannot be taken as a waiver of his right to collect the
P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest
for 6 months on the supposed P80,000.00 loan, was improper considering that only
P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally
charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino
of the pre-deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The
exercise of one right does not affect, much less neutralize, the exercise of the other.

The alleged discovery by Island Savings Bank of the over-valuation of the loan
collateral cannot exempt it from complying with its reciprocal obligation to furnish
the entire P80,000.00 loan. 'This Court previously ruled that bank officials and
employees are expected to exercise caution and prudence in the discharge of their
functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the
obligation of the bank's officials and employees that before they approve the loan
application of their customers, they must investigate the existence and evaluation
of the properties being offered as a loan security. The recent rush of events where
collaterals for bank loans turn out to be non-existent or grossly over-valued
underscore the importance of this responsibility. The mere reliance by bank officials
and employees on their customer's representation regarding the loan collateral
being offered as loan security is a patent non-performance of this responsibility. If
ever bank officials and employees totally reIy on the representation of their
customers as to the valuation of the loan collateral, the bank shall bear the risk in
case the collateral turn out to be over-valued. The representation made by the
customer is immaterial to the bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined
petitioners from presenting proof on the alleged over-valuation because of their
failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The
lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which
states that "defenses and objections not pleaded either in a motion to dismiss or in
the answer are deemed waived." Petitioners, thus, cannot raise the same issue
before the Supreme Court.

Since Island Savings Bank was in default in fulfilling its reciprocal obligation under
their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code,
may choose between specific performance or rescission with damages in either
case. But since Island Savings Bank is now prohibited from doing further business
by Monetary Board Resolution No. 967, WE cannot grant specific performance in
favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is
only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in
default only insofar as such amount is concerned, as there is no doubt that the bank
failed to give the P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank
was deemed to have complied with its reciprocal obligation to furnish a P17,000.00
loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to
pay the P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the
promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank.
If Tolentino had not signed a promissory note setting the date for payment of
P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay.

Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to
furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation
to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for
damages.

Article 1192 of the Civil Code provides that in case both parties have committed a
breach of their reciprocal obligations, the liability of the first infractor shall be
equitably tempered by the courts. WE rule that the liability of Island Savings Bank
for damages in not furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI
7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just
that he should account for the interest thereon.

WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be
entirely foreclosed to satisfy his P 17,000.00 debt.

The consideration of the accessory contract of real estate mortgage is the same as
that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For
the debtor, the consideration of his obligation to pay is the existence of a debt.
Thus, in the accessory contract of real estate mortgage, the consideration of the
debtor in furnishing the mortgage is the existence of a valid, voidable, or
unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).

The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because Island
Savings Bank had not made any release on the loan, does not make the real estate
mortgage void for lack of consideration. It is not necessary that any consideration
should pass at the time of the execution of the contract of real mortgage (Bonnevie
vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter. But
when the consideration is subsequent to the mortgage, the mortgage can take
effect only when the debt secured by it is created as a binding contract to pay
(Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage,
Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172
N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually
owing to the holder of the mortgage is less than the sum named in the mortgage,
the mortgage cannot be enforced for more than the actual sum due (Metropolitan
Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage,
Vol. 1, P. 180).

Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the
Civil Code is inapplicable to the facts of this case.

Article 2089 provides:

A pledge or mortgage is indivisible even though the debt may be divided among the
successors in interest of the debtor or creditor.

Therefore, the debtor's heirs who has paid a part of the debt can not ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.

Neither can the creditor's heir who have received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of other heirs who have not been
paid.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted

presupposes several heirs of the debtor or creditor which does not obtain in this
case. Hence, the rule of indivisibility of a mortgage cannot apply

WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977
IS HEREBY MODIFIED, AND

1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN

PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12%
INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22,
1985 UNTIL PAID;

2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE

COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED

UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.

NO COSTS. SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-48349 December 29, 1986

FRANCISCO HERRERA, plaintiff-appellant,

vs.
PETROPHIL CORPORATION, defendant-appellee.

Paterno R. Canlas Law Offices for plaintiff-appellant.

CRUZ, J.:

This is an appeal by the plaintiff-appellant from a decision rendered by the then

Court of First Instance of Rizal on a pure question of law. 1
The judgment appealed from was rendered on the pleadings, the parties having
agreed during the pretrial conference on the factual antecedents.

The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO
Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered into a
"Lease Agreement" whereby the former leased to the latter a portion of his property
for a period of twenty (20) years from said date, subject inter alia to the following
conditions:

3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400
sqm. and are to be expropriated later on (sic) or P560 per month and Fl.40 per sqm.
per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month
2,093 sqm. more or less, payable yearly in advance within the 1st twenty days of
each year; provided, a financial aid in the sum of P15,000 to clear the leased
premises of existing improvements thereon is paid in this manner; P10,000 upon
execution of this lease and P5,000 upon delivery of leased premises free and clear
of improvements thereon within 30 days from the date of execution of this
agreement. The portion on the side of the leased premises with an area of 365
sqrm. more or less, will be occupied by LESSEE without rental during the lifetime of
this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based
on P2,930.70 per month discounted at 12% interest per annum or a total net
amount of P130,288.47 before registration of lease. Leased premises shall be
delivered within 30 days after 1st partial payment of financial aid. 2

On December 31, 1969, pursuant to the said contract, the defendant-appellee paid
to the plaintfff-appellant advance rentals for the first eight years, subtracting
therefrom the amount of P101,010.73, the amount it computed as constituting the
interest or discount for the first eight years, in the total sum P180,288.47. On
August 20, 1970, the defendant-appellee, explaining that there had been a mistake
in computation, paid to the appellant the additional sum of P2,182.70, thereby
reducing the deducted amount to only P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the
sum of P98,828.03, with interest, claiming this had been illegally deducted from him
in violation of the Usury Law. 4 He also prayed for moral damages and attorney's
fees. In its answer, the defendant-appellee admitted the factual allegations of the
complaint but argued that the amount deducted was not usurious interest but a
given to it for paying the rentals in advance for eight years. 5Judgment on the
pleadings was rendered for the defendant. 6

Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower
court erred in the computation of the interest collected out of the rentals paid for
the first eight years; that such interest was excessive and violative of the Usury
Law; and that he had neither agreed to nor accepted the defendant-appellant's
computation of the total amount to be deducted for the eight years advance
rentals. 7

The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his

complaint, which read:

6. The interest collected by defendant out of the rentals for the first eight years was
excessive and beyond that allowable by law, because the total interest on the said
amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that
the interest should be computed excluding the first year rental because at the time
the amount of P281, 199.20 was paid it was already due under the lease contract
hence no interest should be collected from the rental for the first year, the amount
of P29,536.42 only as the total interest should have been deducted by defendant
from the sum of P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and
that the same is not excessive and above that allowed by law.

As its title plainly indicates, the contract between the parties is one of lease and not
of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is
there any showing that the parties intended a loan rather than a lease. The
provision for the payment of rentals in advance cannot be construed as a
repayment of a loan because there was no grant or forbearance of money as to
constitute an indebtedness on the part of the lessor. On the contrary, the
defendant-appellee was discharging its obligation in advance by paying the eight
years rentals, and it was for this advance payment that it was getting a rebate or
discount.

The provision for a discount is not unusual in lease contracts. As to its validity, it is
settled that the parties may establish such stipulations, clauses, terms and
condition as they may want to include; and as long as such agreements are not
contrary to law, morals, good customs, public policy or public order, they shall have
the force of law between them. 8

There is no usury in this case because no money was given by the defendant-
appellee to the plaintiff-appellant, nor did it allow him to use its money already in
his possession. 9 There was neither loan nor forbearance but a mere discount which
the plaintiff-appellant allowed the defendant-appellee to deduct from the total
payments because they were being made in advance for eight years. The discount
was in effect a reduction of the rentals which the lessor had the right to determine,
and any reduction thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does
not have to be repaid. The loan or forbearance is subject to repayment and is
therefore governed by the laws on usury. 10
To constitute usury, "there must be loan or forbearance; the loan must be of money
or something circulating as money; it must be repayable absolutely and in all
events; and something must be exacted for the use of the money in excess of and
in addition to interest allowed by law." 11

It has been held that the elements of usury are (1) a loan, express or implied; (2) an
understanding between the parties that the money lent shall or may be returned;
that for such loan a greater rate or interest that is allowed by law shall be paid, or
agreed to be paid, as the case may be; and (4) a corrupt intent to take more than
the legal rate for the use of money loaned. Unless these four things concur in every
transaction, it is safe to affirm that no case of usury can be declared. 12

Concerning the computation of the deductible discount, the trial court declared:

As above-quoted, the 'Lease Agreement' expressly provides that the lessee

(defendant) shag pay the lessor (plaintiff) eight (8) years in advance rentals based
on P2,930.20 per month discounted at 12% interest per annum. Thus, the total
rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12 months) and
that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So,
therefore, the total interest for the first eight (8) years should be only P33,755.90
(P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendant
claimed it to be.

The afore-quoted manner of computation made by plaintiff is patently erroneous. It

is most seriously misleading. He just computed the annual discount to be at
P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into
consideration the naked fact that the rentals due on the eight year were paid in
advance by seven (7) years, the rentals due on the seventh year were paid in
advance by six (6) years, those due on the sixth year by five (5) years, those due on
the fifth year by four (4) years, those due on the fourth year by three (3) years,
those due on the third year by two (2) years, and those due on the second year by
one (1) year, so much so that the total number of years by which the annual rental
of P4,129.4880 was paid in advance is twenty-eight (28), resulting in a total amount
of P118,145.44 (P4,129.48 multiplied by 28 years) as the discount. However,
defendant was most fair to plaintiff. It did not simply multiply the annual rental
discount by 28 years. It computed the total discount with the principal diminishing
month to month as shown by Annex 'A' of its memorandum. This is why the total
discount amount to only P 8,828.03.

The allegation of plaintiff that defendant made the computation in a compounded

manner is erroneous. Also after making its own computations and after examining
closely defendant's Annex 'A' of its memorandum, the court finds that defendant did
not charge 12% discount on the rentals due for the first year so much so that the
computation conforms with the provision of the Lease Agreement to the effect that
the rentals shall be 'payable yearly in advance within the 1st 20 days of each year. '
We do not agree. The above computation appears to be too much technical mumbo-
jumbo and could not have been the intention of the parties to the transaction. Had
it been so, then it should have been clearly stipulated in the contract. Contracts
should be interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment. 13

The plaintfff-appellant simply understood that for every year of advance payment
there would be a deduction of 12% and this amount would be the same for each of
the eight years. There is no showing that the intricate computation applied by the
trial court was explained to him by the defendant-appellee or that he knowingly
accepted it.

The lower court, following the defendant-appellee's formula, declared that the
plaintiff-appellant had actually agreed to a 12% reduction for advance rentals for all
of twenty eight years. That is absurd. It is not normal for a person to agree to a
reduction corresponding to twenty eight years advance rentals when all he is
receiving in advance rentals is for only eight years.

The deduction shall be for only eight years because that was plainly what the
parties intended at the time they signed the lease agreement. "Simplistic" it may
be, as the Solicitor General describes it, but that is how the lessor understood the
arrangement. In fact, the Court will reject his subsequent modification that the
interest should be limited to only seven years because the first year rental was not
being paid in advance. The agreement was for auniform deduction for the advance
rentals for each of the eight years, and neither of the parties can deviate from it
now.

On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and
for eight years, the total rental was P281,347.20 from which was deducted the total
discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this
amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35
still due the plaintiff-appellant.

The above computation is based on the more reasonable interpretation of the

contract as a whole rather on the single stipulation invoked by the respondent for
the flat reduction of P130,288.47.

WHEREFORE, the decision of the trial court is hereby modified, and the defendant-
appellee Petrophil Corporation is ordered to pay plaintiff-appellant the amount of
Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos
(P65,114.35), with interest at the legal rate until fully paid, plus Ten Thousand Pesos
(P10,000.00) as attorney's fees. Costs against the defendant-appellee.

SO ORDERED.