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THE PEOPLE OF THE PHILIPPINE ISLANDS, vs. VENANCIO CONCEPCION.

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National
Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May
7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of
P300,000. This special authorization was essential in view of the memorandum order of President
Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan,
to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to
P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y
Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with
the interest, were taken up and paid by July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion

contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S.
Concepcion was the administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member
of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation
of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First
Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of P3,000, with
subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must
hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant
loans to any of the members of the board of directors of the bank nor to agents of the branch banks." Section
49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall be
punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by
both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful
acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.

Counsel for the defense assign ten errors as having been committed by the trial court. These errors they
have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General
Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one
by one.

The question presented are reduced to their simplest elements in the opinion which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio
Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act
No. 2747?

Counsel argue that the documents of record do not prove that authority to make a loan was given, but only
show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question
speak of a "credito" (credit) and not of a " prestamo" (loan).

The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed
by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law
Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a given sum of
money, upon an agreement, express or implied, to repay the sum loaned, with or without interest.
(Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the
granting of "loans" up to the limit of the amount fixed in the "credit,"
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II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by
Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?

Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit
what is commonly known as a "discount."

In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the
Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans.
The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred
to loans alone, and placed no restriction upon discount transactions. It becomes material, therefore, to
discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction comes
under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live,
transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with, however,
these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the
expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name
paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts,
yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C."
were not discount paper but were mere evidences of indebtedness, because (1) interest was not deducted
from the face of the notes, but was paid when the notes fell due; and (2) they were single-name and not
double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially different from
the facts in the Binalbagan Estate case. Just as there it was declared that the operations constituted a loan
and not a discount, so should we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of
section 35 of Act No. 2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In
this connection, it should be recalled that the wife of the defendant held one-half of the capital of this
partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the
intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety
against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the
familiar maxim that no man may serve two masters that where personal interest clashes with fidelity to
duty the latter almost always suffers. If, therefore, it is shown that the husband is financially interested in
the success or failure of his wife's business venture, a loan to partnership of which the wife of a director is
a member, falls within the prohibition.

Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership.
(Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership
of which the wife of a director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the
acknowledged fact that in this instance the defendant was tempted to mingle his personal and family affairs
with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and
without asking for collateral security.
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In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court
of Maryland said:

What then was the purpose of the law when it declared that no director or officer should borrow of
the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating
this section he shall be punished by fine and imprisonment?" We say to protect the stockholders,
depositors and creditors of the bank, against the temptation to which the directors and officers might
be exposed, and the power which as such they must necessarily possess in the control and
management of the bank, and the legislature unwilling to rely upon the implied understanding that
in assuming this relation they would not acquire any interest hostile or adverse to the most exact
and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the
bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it
was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to himself
directly. The loan was made indirectly to him through his firm.

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of
section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of Act No.
2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the
judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35
of the same Act, provides a punishment for any person who shall violate any of the provisions of the Act.
It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No.
2938 has served to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an answer adverse to such contention
in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil.,
653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In
other words, it has been the holding, and it must again be the holding, that where an Act of the Legislature
which penalizes an offense, such repeals a former Act which penalized the same offense, such repeal does
not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders
charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio
Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No. 2747,
penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since
section 49 of said Act provides a punishment not on the bank when it violates any provisions of the law,
but on a personviolating any provisions of the same, and imposing imprisonment as a part of the penalty,
the prohibition contained in said section 35 is without penal sanction.lawph!l.net

The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board
of directors, and to each director separately and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in
extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal
defense?
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Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled
by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the
copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine
National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has
violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of
public policy and public interest, constitutes the crime. And, in this instance, as previously demonstrated,
the acts of the President of the Philippine National Bank do not fall within the purview of the rulings of the
Insular Auditor, even conceding that such rulings have controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the other
stockholders. The law will not allow private profit from a trust, and will not listen to any proof of
honest intent.

JUDGMENT

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

Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, vs. THE HONORABLE COURT OF
APPEALS and THE PHILIPPINE BANK OF COMMERCE
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
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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
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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:
I
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
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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.
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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.
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REPUBLIC OF THE PHILIPPINES, vs. JOSE GRIJALDO

In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan,
Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded
quarterly. These loans are evidenced by five promissory notes executed by the appellant in favor of the
Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943,
P22.86; on August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes without due dates, but because
the loans were due one year after they were incurred. To secure the payment of the loans the appellant
executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as Hacienda Campugas
in Hinigiran, Negros Occidental.

By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the
Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were
vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the
United States, these assets, including the loans in question, were subsequently transferred to the Republic
of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954.
These assets were among the properties that were placed under the administration of the Board of
Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with
Republic Acts Nos. 8 and 477 and other pertinent laws.

On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board
of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in
question. The record shows that the appellant had actually received the written demand for payment, but he
failed to pay.

The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale
of values as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at
the rate of 6% per annum compounded quarterly, computed as of December 31, 1959 was P2,377.23.

On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of
Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. The appellee
appealed to the Court of First Instance of Negros Occidental and on March 26, 1962 the court a
quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December
31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10%
of the amount due as attorney's fees and costs.

The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo
died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel
Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo
to appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.

In the present appeal the appellant contends: (1) that the appellee has no cause of action against the
appellant; (2) that if the appellee has a cause of action at all, that action had prescribed; and (3) that the
lower court erred in ordering the appellant to pay the amount of P2,377.23.

In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract
with the appellant. It is claimed that the transaction between the Taiwan Bank, Ltd. and the appellant, so
that the appellee, Republic of the Philippines, could not legally bring action against the appellant for the
enforcement of the obligation involved in said transaction. This contention has no merit. It is true that the
Bank of Taiwan, Ltd. was the original creditor and the transaction between the appellant and the Bank of
Taiwan was a private contract of loan. However, pursuant to the Trading with the Enemy Act, as amended,
and Executive Order No. 9095 of the United States; and under Vesting Order No. P-4, dated January 21,
1946, the properties of the Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction
 10
MUTUUM
of the enemy country (Japan), were vested in the United States Government and the Republic of the
Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the
Philippines. The successive transfer of the rights over the loans in question from the Bank of Taiwan, Ltd.
to the United States Government, and from the United States Government to the government of the Republic
of the Philippines, made the Republic of the Philippines the successor of the rights, title and interest in said
loans, thereby creating a privity of contract between the appellee and the appellant. In defining the word
"privy" this Court, in a case, said:

The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one subrogated
to it, etc. will be privies; in short, he who by succession is placed in the position of one of those
who contracted the judicial relation and executed the private document and appears to be
substituting him in the personal rights and obligation is a privy (Alpurto vs. Perez, 38 Phil. 785,
790).

The United States of America acting as a belligerent sovereign power seized the assets of the Bank of
Taiwan, Ltd. which belonged to an enemy country. The confiscation of the assets of the Bank of Taiwan,
Ltd. being an involuntary act of war, and sanctioned by international law, the United States succeeded to
the rights and interests of said Bank of Taiwan, Ltd. over the assets of said bank. As successor in interest
in, and transferee of, the property rights of the United States of America over the loans in question, the
Republic of the Philippines had thereby become a privy to the original contracts of loan between the Bank
of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the Philippines has a legal right
to bring the present action against the appellant Jose Grijaldo.

The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that
because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and
these crops were lost or destroyed through enemy action his obligation to pay the loans was thereby
extinguished. This argument is untenable. The terms of the promissory notes and the chattel mortgage that
the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The
obligation of the appellant under the five promissory notes was not to deliver a determinate thing namely,
the crops to be harvested from his land, or the value of the crops that would be harvested from his land.
Rather, his obligation was to pay a generic thing the amount of money representing the total sum of the
five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series
of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers
to another ... money or other consumable thing upon the condition that the same amount of the same kind
and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five
promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of
money a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides:

In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does
not extinguish the obligation.

The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment
of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish
his obligation to pay, because the account could still be paid from other sources aside from the mortgaged
crops.

In his second point of contention, the appellant maintains that the action of the appellee had prescribed. The
appellant points out that the loans became due on June 1, 1944; and when the complaint was filed on January
17,1961 a period of more than 16 years had already elapsed far beyond the period of ten years when an
action based on a written contract should be brought to court.

This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the
present case was brought by the Republic of the Philippines not as a nominal party but in the exercise of its
sovereign functions, to protect the interests of the State over a public property. Under paragraph 4 of Article
1108 of the Civil Code prescription, both acquisitive and extinctive, does not run against the State. This
 11
MUTUUM
Court has held that the statute of limitations does not run against the right of action of the Government of
the Philippines (Government of the Philippine Islands vs. Monte de Piedad, etc., 35 Phil. 738-
751).Secondly, the running of the period of prescription of the action to collect the loan from the appellant
was interrupted by the moratorium laws (Executive Orders No. 25, dated November 18, 1944; Executive
Order No. 32. dated March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in
question, as evidenced by the five promissory notes, were incurred in the year 1943, or during the period
of Japanese occupation of the Philippines. This case is squarely covered by Executive Order No. 25, which
became effective on November 18, 1944, providing for the suspension of payments of debts incurred after
December 31, 1941. The period of prescription was, therefore, suspended beginning November 18, 1944.
This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68), declared on May 18,
1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are unconstitutional;
but in that case this Court ruled that the moratorium laws had suspended the prescriptive period until May
18, 1953. This ruling was categorically reiterated in the decision in the case of Manila Motors vs. Flores,
L-9396, August 16, 1956. It follows, therefore, that the prescriptive period in the case now before US was
suspended from November 18,1944, when Executive Orders Nos. 25 and 32 were declared unconstitutional
by this Court. Computed accordingly, the prescriptive period was suspended for 8 years and 6 months. By
the appellant's own admission, the cause of action on the five promissory notes in question arose on June
1, 1944. The complaint in the present case was filed on January 17, 1961, or after a period of 16 years, 6
months and 16 days when the cause of action arose. If the prescriptive period was not interrupted by the
moratorium laws, the action would have prescribed already; but, as We have stated, the prescriptive period
was suspended by the moratorium laws for a period of 8 years and 6 months. If we deduct the period of
suspension (8 years and 6 months) from the period that elapsed from the time the cause of action arose to
the time when the complaint was filed (16 years, 6 months and 16 days) there remains a period of 8 years
and 16 days. In other words, the prescriptive period ran for only 8 years and 16 days. There still remained
a period of one year, 11 months and 14 days of the prescriptive period when the complaint was filed.

In his third point of contention the appellant maintains that the lower court erred in ordering him to pay the
amount of P2,377.23. It is claimed by the appellant that it was error on the part of the lower court to apply
the Ballantyne Scale of values in evaluating the Japanese war notes as of June 1943 when the loans were
incurred, because what should be done is to evaluate the loans on the basis of the Ballantyne Scale as of the
time the loans became due, and that was in June 1944. This contention of the appellant is also without merit.

The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959,
plus interest rate of 6% per annum compounded quarterly from the date of the filing of the complaint. The
sum total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in
Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97
in Japanese war notes in June 1943 is equivalent to P889.64 in genuine Philippine currency which was
considered the aggregate amount due as principal of the five loans, and the amount of P2,377.23 as of
December 31, 1959 was arrived at after computing the interest on the principal sum of P889.64 compounded
quarterly from the time the obligations were incurred in 1943.

It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the
obligation was incurred, and that was in June 1943. This stand of the appellee was upheld by the lower
court; and the decision of the lower court is supported by the ruling of this Court in the case of Hilado vs.
De la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472), which states:

... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our
Courts after the liberation to the extent of the just obligation of the contracting parties and, as said
notes have become worthless, in order that justice may be done and the party entitled to be paid
can recover their actual value in Philippine Currency, what the debtor or defendant bank should
return or pay is the value of the Japanese military notes in relation to the peso in Philippine
Currency obtaining on the date when and at the place where the obligation was incurred unless
the parties had agreed otherwise. ... . (italics supplied)
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MUTUUM
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant.
Inasmuch as the appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in
the execution of the judgment in the present case.

FROILAN LOPEZ, vs. SALVADOR V. DEL ROSARIO and BENITA QUIOGUE DE V. DEL
ROSARIO
Both parties to this action appeal from the judgment of Judge Simplicio del Rosario of the Court of First
Instance of Manila awarding the plaintiff the sum of 88,495.21 with legal interest from May 13, 1921,
without special finding as to costs.
The many points pressed by contending counsel can be best disposed of by, first, making a statement of the
facts; next, considering plaintiff's appeal; next, considering defendant's appeal; and, lastly, rendering
judgment.
STATEMENT OF THE FACTS
On and prior to June 6, 1920, Benita Quiogue de V. del Rosario, whom we will hereafter call Mrs. Del
Rosario, was the owner of a bonded warehouse situated in the City of Manila. She was engaged in the
business of a warehouse keeper, and stored copra and other merchandise in the said building. Among the
persons who had copra deposited in the Del Rosario warehouse was Froilan Lopez, the holder of fourteen
warehouse receipts in his own name, and the name of Elias T. Zamora. (Exhibits C, D, and R.)
The warehouse receipts, or negotiable warrants, or quedans (as they are variously termed) of Lopez named
a declared value of P107,990.40 (Exhibits L-1 to L-13). The warehouse receipts provided: (1) For insurance
at the rate of 1 per cent per month on the declared value; (2) the company reserves to itself the right to raise
and/or lower the rates of storage and/or of insurance on giving one calendar month's notice in writing; (3)
this warrant carries no insurance unless so noted on the face hereof, cost of which is in addition to storage;
(4) the time for which storage and/or insurance is charged is thirty (30) days; (5) payment for storage and/or
insurance, etc., shall be made in advance, and/or within five (5) days after presentation of bill. It is admitted
that insurance was paid by Lopez to May 18, 1920, but not thereafter.
Mrs. Del Rosario secured insurance on the warehouse and its contents with the National Insurance Co.,
Inc., the Commercial Union Insurance Company, the Alliance Insurance Company, the South British
Insurance Co., Ltd., and the British Traders Insurance Co., Ltd., in the amount of P404,800. All the policies
were in the name of Sra. Benita Quiogue de V. del Rosario, with the exception of one of the National
Insurance Company, Inc., for P40,000, in favor of the Compaia Coprera de Tayabas. (Exhibits N, O, P,
R-1 to R-4.)
The warehouse of Mrs. Del Rosario and its contents were destroyed by fire on June 6, 1920. The warehouse
was a total loss, while of the copra stored therein, only an amount equal to P49,985 was salvaged.
Following an unsuccessful attempt by Henry Hunter Bayne, Fire Loss Adjuster, to effect a settlement
between the insurance companies and Mrs. Del Rosario, the latter, on August 24, 1920, authorized Attorney
F. C. Fisher to negotiate with the various insurance companies. (Exhibit A.) As a result, an agreement
between Mrs. Del Rosario and the insurance companies to submit the matter to administration was executed
in September, 1920. (Exhibit B.) Mrs. Del Rosario laid claim before the arbitrators, Messrs. Muir and
Campbell, to P419,683.95, and the proceeds of the salvage sale. The arbitrators in their report allowed Mrs.
Del Rosario P363,610, which, with the addition of the money received from the salvaged copra amounting
to P49,985, and interest, made a total of P414,258, collected by her from the companies. (Exhibits E, F, G,
H, and Q.)
Mrs. Del Rosario seems to have satisfied all of the persons who had copra stored in her warehouse, including
the stockholders in the Compaia Coprera de Tayabas (whose stock she took over), with the exception of
Froilan Lopez, the plaintiff. Ineffectual attempts by Mrs. Del Rosario to effect a compromise with Lopez
 13
MUTUUM
first for P71,994, later raised to P72,724, and finally reduced to P17,000, were made. (Exhibits Y, 1, 3, 4,
6, 7, 8, 12.) But Lopez stubbornly contended, or, at least, his attorney contended for him, that he should
receive not a centavo less than P88,595.43. (Exhibits 4, 5.)
PLAINTIFF'S APPEAL
Plaintiff, by means of his assignment of error, lays claim to P88,595.43 in lieu of P88,495.21 allowed by
the trial court. The slight difference of P100.22 is asked for so that plaintiff can participate in the interest
money which accrued on the amount received for the salvaged copra. (Exhibits EE and FF.) Defendant
makes no specific denial of this claim. We think the additional sum should accrue to the plaintiff.
Plaintiff's second and third assignment of error present the point that the defendant has fraudulently and
even criminally refrained from paying the plaintiff, and that the plaintiff should recover interest at the
rate of 12 per cent per annum. We fail to grasp plaintiff's point of view. The defendant has not sought to
elude her moral and legal obligations. The controversy is merely one which unfortunately all too often
arises between litigious persons. Plaintiff has exactly the rights of any litigant, equally situated, and no
more.
It has been the constant practice of the court to make article 1108 of the Civil Code the basis for the
calculation of interest. Damages in the form of interest at the rate of 12 per cent, as claimed by the plaintiff,
are too remote and speculative to be allowed. The deprivation of an opportunity for making money which
might have proved beneficial or might have been ruinous is of too uncertain character to be weighed in the
even balances of the law. (Civil Code, art. 1108; Gonzales Quiros vs. Palanca Tan-Guinlay [1906], 5 Phil.,
675; Tin Fian vs. Tan [1909], 14 Phil., 126; Sun Life Insurance Co. of Canada vs. Rueda Hermanos & Co.
and Delgado [1918], 37 Phil., 844; Scvola, Codigo Civil, vol. 19, p. 576; 8 R. C. L., 463; 17 C. J., 864.)
DEFENDANT'S APPEAL
Counsel for defendant have adroitly and ingeniously attempted to avoid all liability. However, we remain
unimpressed by many of these arguments.lawph!l.net
Much time has been spent by counsel for both parties in discussing the question, of whether the defendant
acted as the agent of the plaintiff, in taking out insurance on the contents of the bodega, or whether the
defendant acted as a reinsurer of the copra. Giving a natural expression to the terms of the warehouse
receipts, the first hypothesis is the correct one. The agency can be deduced from the warehouse receipts,
the insurance policies, and the circumstances surrounding the transaction.
After all, however, this is not so vitally important, for it might well be although we do not have to decide
that under any aspect of the case, the defendant would be liable. The law is that a policy effected by
bailee and covering by its terms his own property and property held in trust; inures, in the event of a loss,
equally and proportionately to the benefit of all the owners of the property insured. Even if one secured
insurance covering his own goods and goods stored with him, and even if the owner of the stored goods did
not request or know of the insurance, and did not ratify it before the payment of the loss, yet it has been
held by a reputable court that the warehouseman is liable to the owner of such stored goods for his share.
(Snow vs. Carr [1878], 61 Ala., 363; 32 Am. Rep., 3; Broussard vs.South Texas Rice Co., [1910], 103 Tex.,
535; Ann. Cas., 1913-A, 142, and note; Home Insurance Co. of New York vs. Baltimore Warehouse Co.
[1876], 93 U. S., 527.)
Moreover, it has not escaped our notice that in two documents, one the agreement for arbitration, and the
other the statement of claim of Mrs. Del Rosario, against the insurance companies, she acknowledged her
responsibility to the owners of the stored merchandise, against risk of loss by fire. (Exhibits B and C-3.)
The award of the arbitrators covered not alone Mrs. Del Rosario's warehouse but the products stored in the
warehouse by Lopez and others.
 14
MUTUUM
Plaintiff's rights to the insurance money have not been forfeited by failure to pay the insurance provided for
in the warehouse receipts. A preponderance of the proof does not demonstrate that the plaintiff ever ordered
the cancellation of his insurance with the defendant. Nor is it shown that the plaintiff ever refused to pay
the insurance when the bills were presented to him, and that notice of an intention to cancel the insurance
was ever given the plaintiff.
The record of the proceedings before the board of arbitrators, and its report and findings, were properly
taken into consideration by the trial court as a basis for the determination of the amount due from the
defendant to the plaintiff. In a case of contributing policies, adjustments of loss made by an expert or by a
board of arbitrators may be submitted to the court not as evidence of the facts stated therein, or as obligatory,
but for the purpose of assisting the court in calculating the amount of liability. (Home Insurance
Co. vs. Baltimore Warehouse Co., supra.)
Counsel for the defendant have dwelt at length on the phraseology of the policies of the National Insurance
Company, Inc. Special emphasis has been laid upon one policy (Exhibit 9) in the name of the Compaia
Coprera de Tayabas. In this connection it may be said that three members of the court, including the writer
of this opinion, have been favorable impressed by this argument, and would have preferred at least to
eliminate the policy for which premiums were paid, not by Mrs. Del Rosario on behalf of Lopez and others,
but by Compaia Coprera de Tayabas. A majority of the court, however, believe that all the assets should
be marshalled and that the plaintiff should receive the benefit accruing from the gross amount realized from
all the policies. Consequently, no deduction for this claim can be made.
The remaining contention of the defendant that the plaintiff cannot claim the benefits of the agency without
sharing in the expenses, is well taken. Although the plaintiff did not expressly authorize the agreement to
submit the matter to arbitration, yet on his own theory of the case, Mrs. Del Rosario was acting as his agent
in securing insurance, while he benefits from the amicable adjustment of the insurance claims. As no
intimation is made that the expenses were exorbitant, we necessarily accept the statement of the same
appearing in Exhibits Q and 8.
Of the insurance money, totalling P414,258, P382,558 was for copra and the remainder for buildings, corn,
etc. The expenses for collecting the P414,258 totalled P33,600. 382,558/414,258 of 33,600 equals
P31,028.85, the proportionate part of the expenses with reference to the copra. Of the expenses amounting,
as we have said, to P31,028.85, plaintiff would be liable for his proportionate share or 88,595.43/382,558.00
of P31,028.85 or P7,185.875.
The parties finally agree that the plaintiff at the time of the fire was indebted to the defendant for storage
and insurance in the sum of P315.90.
JUDGMENT
In resume, the result is to sustain plaintiff's first assignment of error and to overrule his second and third
assignments of error, to overrule defendant's assignment of error 1, 2, 3, and 4 in toto and to accede to
defendant's assignments of error, 5, 6, and 7 in part. If our mathematics are correct, and the amounts can be
figured in several different ways, plaintiff is entitled to P88,595.43 minus P7,185.88, his share of the
expenses, minus P315.90, due for insurance and storage, or approximately a net amount of P81,093.65,
with legal interest. This sum the defendant must disgorge.
Wherefore, judgment is modified and the plaintiff shall have and recover from the defendants the sum of
P81,093.65, with interest at 6 per cent per annum from May 13, 1921, until paid. Without special finding
as to costs in either instance, it is so ordered.

CU UNJIENG E HIJOS, vs. THE MABALACAT SUGAR CO., ET AL.,

THE MABALACAT SUGAR CO.,
 15
MUTUUM
This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for the purpose
of recovering from the Mabalacat Sugar Company an indebtedness amounting to more than P163,00, with
interest, and to foreclose a mortgage given by the debtor to secure the same, as well as to recover stipulated
attorney's fee and the sum of P1,206, paid by the plaintiff for insurance upon the mortgaged property, with
incidental relief. In the complaint Siuliong & Co., Inc., was joined as defendant, as a surety of the Mabalacat
Sugar Company, and as having a third mortgage on the mortgaged property. The Philippine National Bank
was also joined by reason of its interest as second mortgagee of the land covered by the mortgage to the
plaintiff. After the cause had been brought to issue by the answers of the several defendants, the cause was
heard and judgment rendered, the dispositive portion of the decision being as follows:

Por las consideraciones expuestas, el Juzgado condena a The Mabalacat Sugar Company a pagar a
la demandante la suma de P163,534.73, con sus intereses de 12 por ciento al ano, compuestos
mensualmente desde el 1. de mayo de 1929. Tambien se le condena a pagar a dicha demandante la
suma de P2,412 por las primas de seguros abonadas por esta, con sus intereses de 12 por ciento al
ano, compuestos tambien mensualmente desde el 15 de mayo de 1928, mas la de P7,500 por
honorarios de abogados y las costas del juicio. Y si esta deuda no se pagare dentro del plazo de tres
meses, se ejecutaran los bienes hipotecados de acuerdo con la ley.

Si del producto de la venta hubiese algun remanente, este se destinara al pago del credito del Banco
Nacional, o sea de P32,704.69, con sus intereses de 9 por ciento al ano desde el 7 de junio de 1929,
sin perjuicio de la orden de ejecucion que pudiera expedirse en el asundo No. 26435 del Juzgado
de Primera Instancia de Manila.

Se condena ademas a The Mabalacat Sugar Company al pago de la suma de P3,205.78 reclamada
por Siuliong & Co., con sus intereses de 9 por ciento al ano desde el 29 de julio de 1926 hasta su
completo pago, ordenandola que rinda cuentas del azucar por ella producido y pague la comision
correspondiente bajo la base de 5 por ciento de su valor, descontandose, desde luego, las cantidades
ya pagadas.

Se absuelve de la demanda de Cu Unjieng e Hijos a Siuliong & Co., Inc.1awph!l.net

From this judgment the defendant, the Mabalacat Sugar Company, appealed.

The first point assigned as error has relation to the question whether the action was prematurely stated. In
this connection we note that the mortgage executed by the Mabalacat Sugar Company contains, in
paragraph 5, a provision to the effect that non-compliance on the part of the mortgage debtor with any of
the obligations assumed in virtue of this contract will cause the entire debt to become due and give occasion
for the foreclosure of the mortgage. The debtor party failed to comply with the obligation, imposed upon it
in the mortgage, to pay the mortgage debt in the stipulated installments at the time specified in the contract.
It results that the creditor was justified in treating the entire mortgage debt as having been accelerated by
such failure of the debtor in paying the installments.

It appears, however, that on or about October 20, 1928, the mortgage creditor, Cu Unjieng e Hijos, agreed
to extend the time for payment of the mortgage indebtedness until June 30, 1929, with certain interim
payments to be made upon specified dates prior to the contemplated final liquidation of the whole
indebtedness. But the debtor party failed to make the interim payments due on February 25, 1929, March
25, 1929, and April 25, 1929, and failed altogether to pay the balance due, according to the terms of this
extension, on June 30, 1929. Notwithstanding the failure of the debtor to comply with the terms of this
extension, it is insisted for the appellant that this agreement for the extension of the time of payment had
the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity
of the debt by non-compliance with the terms of the mortgage. As the trial court pointed out, this contention
is untenable. The agreement to extend the time of payment was voluntary and without consideration so far
as the creditor is concerned; and the failure of the debtor to comply with the terms of the extension justified
the creditor in treating it as of no effect. The first error is therefore without merit.
 16
MUTUUM
The second error is directed to the propriety of the interest charges made by the plaintiff in estimating the
amount of the indebtedness. In this connection we note that, under the second clause of the mortgage,
interest should be calculated upon the indebtedness at the rate of 12 per cent per annum. In the same clause,
but in a separate paragraph, there is another provision with respect to the payment of interest expressed in
Spanish in the following words:

Los intereses seran pagados mensualmente a fin de cada mes, computados teniendo en cuenta el
capital del prestamo aun no pagado.

Translated into English this provision reads substantially as follows: "Interest, to be computed upon the still
unpaid capital of the loan, shall be paid monthly, at the end of each month."

It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the Usury Law (Act
No. 2655), the parties may stipulate that interest shall be compounded; and rests for the computation of
compound interest can certainly be made monthly, as well as quarterly, semiannually, or annually. But in
the absence of express stipulation for the accumulation of compound interest, no interest can be collected
upon interest until the debt is judicially claimed, and then the rate at which interest upon accrued interest
must be computed is fixed at 6 per cent per annum.

In the present case, however, the language which we have quoted above does not justify the charging of
interest upon interest, so far as interest on the capital is concerned. The provision quoted merely requires
the debtor to pay interest monthly at the end of each month, such interest to be computed upon the capital
of the loan not already paid. Clearly this provision does not justify the charging of compound interest upon
the interest accruing upon the capital monthly. It is true that in subsections (a), (b) and (c) of article IV of
the mortgage, it is stipulated that the interest can be thus computed upon sums which the creditor would
have to pay out (a) to maintain insurance upon the mortgaged property, (b) to pay the land tax upon the
same property, and (c) upon disbursements that might be made by the mortgagee to maintain the property
in good condition. But the chief thing is that interest cannot be thus accumulated on unpaid interest accruing
upon the capital of the debt.

The trial court was of the opinion that interest could be so charged, because of the Exhibit 1 of the Mabalacat
Sugar Company, which the court considered as an interpretation by the parties to the contract and a
recognition by the debtor of the propriety of compounding the interest earned by the capital. But the exhibit
referred to is merely a receipt showing that the sum of P256.28 was, on March 19, 1928, paid by the debtor
to the plaintiff as interest upon interest. But where interest is improperly charged, at an unlawful rate, the
mere voluntary payment of it to the creditor by the debtor is not binding. Such payment, in the case before
us, was usurious, being in excess of 12 per cent which is allowed to be charged, under section 2 of the
Usury Law, when a debt is secured by mortgage upon real property. The Exhibit 1 therefore adds no support
to the contention of the plaintiff that interest upon interest can be accumulated in the manner adopter by the
creditor in this case. The point here ruled is in exact conformity with the decision of this court in Bachrach
Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held that interest cannot be allowed
in the absence of stipulation, or in default thereof, except when the debt is judicially claimed; and when the
debt is judicially claimed, the interest upon the interest can only be computed at the rate of 6 per cent per
annum.

It results that the appellant's second assignment of error is well taken, and the compound interest must be
eliminated from the judgment. With respect to the amount improperly charged, we accept the estimate
submitted by the president and manager of the Mabalacat Sugar Company, who says that the amount
improperly included in the computation made by the plaintiff's bookkeeper is P879.84, in addition to the
amount of P256.28 covered by Exhibit 1 of the Mabalacat Sugar Company. But the plaintiff creditor had
the right to charge interest, in the manner adopted by it, upon insurance premiums which it had paid out;
and if any discrepancy of importance is discoverable by the plaintiff in the result here reached, it will be at
liberty to submit a revised computation in this court, upon motion for reconsideration, wherein interest shall
be computed in accordance with this opinion, that is to say, that no accumulation of interest will be
 17
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permitted at monthly intervals, as regards the capital of the debt, but such unpaid interest shall draw interest
at the rate of 6 per cent from the date of the institution of the action.

In the third assignment of error the appellant complains, as excessive, of the attorney's fees allowed by the
court in accordance with stipulation in the mortgage. The allowance made on the principal debt was around
4 per cent, and about the same upon the fee allowed to the bank. Under the circumstances we think the
debtor has no just cause for complaint upon this score.

The fourth assignment of error complains of the failure of the trial court to permit an amendment to be filed
by the debtor to its answer, the application therefore having been made on the day when the cause had been
set for trial, with notice that the period was non-extendible. The point was a matter in the discretion of the
court, and no abuse of discretion is shown.

From what has been stated, it follows that the appealed judgment must be modified by deducting the sum
of P1,136.12 from the principal debt, so that the amount of said indebtedness shall be P162,398.61, with
interest at 12 per cent per annum, from May 1, 1929. In other respects the judgment will be affirmed, and
it is so ordered, with cost against the appellant.

JAMES SVENDSEN, vs. PEOPLE OF THE PHILIPPINES

Assailed via Petition for Review on Certiorari is the Court of Appeals Decision1 of November 16, 2006
denying petitioners appeal from the December 22, 2005 Decision2 of the Regional Trial Court (RTC) of
Manila, Branch 14 which affirmed the December 17, 2003 Judgment3 of the Metropolitan Trial Court
(MeTC) of Manila, Branch 5, finding James Svendsen (petitioner) guilty of violation of Batas Pambansa
Blg. (B.P. Blg.) 22 or the Bouncing Checks Law.
In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in the amount of P200,000, to bear
interest at 10% a month. After petitioner had partially paid his obligation, he failed to settle the balance
thereof which had reached P380,000 inclusive of interest.4
Cristina thus filed a collection suit against petitioner, which was eventually settled when petitioner paid
her P200,0005 and issued in her favor an International Exchange Bank check postdated February 2, 1999
(the check) in the amount of P160,000 representing interest.6 The check was co-signed by one Wilhelm
Bolton.
When the check was presented for payment on February 9, 1999, it was dishonored for having been Drawn
Against Insufficient Funds (DAIF).7
Cristina, through counsel, thus sent a letter to petitioner by registered mail informing him that the check
was dishonored by the drawee bank, and demanding that he make it good within five (5) days from receipt
thereof.8
No settlement having been made by petitioner, Cristina filed a complaint dated March 1, 1999 against him
and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22 before the City Prosecutors Office
of Manila. No counter-affidavit was submitted by petitioner and his co-respondent. An Information dated
April 13, 1999 for violation of B.P. Blg. No. 22 was thus filed on April 29, 1999 before the MeTC of Manila
against the two, the accusatory portion of which reads:
That sometime in December 1998 the said accused did then and there willfully, unlawfully, and feloniously
and jointly make or draw and issue to CRISTINA C. REYES to apply on account or for value
INTERNATIONAL EXCHANGE BANK check no. 0000009118 dated February 2, 1999 payable to
CRISTINA REYES in the amount of P160,000.00 said accused well knowing that at the time of issue
she/he/they did not have sufficient funds and/or credit with the drawee bank for payment of such check in
full upon its presentment, which check after having been deposited in the City of Manila, Philippines, and
upon being presented for payment within ninety (90) days from the date thereof was subsequently
 18
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dishonored by the drawee bank for INSUFFICIENCY OF FUNDS and despite receipt of notice of such
dishonor, said accused failed to pay said CRISTINA C. REYES the amount of the check or to make
arrangement for full payment of the same within five (5) banking days after receiving said notice.
CONTRARY TO LAW.9
Bolton having remained at large, the trial court never acquired jurisdiction over his person.10
By Judgment of December 17, 2003, Branch 5 of the Manila MeTC found petitioner guilty as charged,
disposing as follows:
WHEREFORE, this Court finds accused James Robert Svendson [sic] GUILTY beyond reasonable doubt
of a violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and imposes upon him to
pay a fine of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00), with subsidiary
imprisonment in case of insolvency.
Accused is also made liable to pay private complainant Cristina C. Reyes civil indemnity in the total amount
of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00) representing his civil obligation
covered by subject check.
Meantime, considering that other accused Wilhelm Bolton remains at large, let a warrant of arrest against
him ISSUE. Pending his apprehension, let the case against him be sent to the ARCHIVES. (Emphasis in
the original; underscoring supplied)
As priorly stated, the RTC affirmed the MeTC judgment and the Court of Appeals denied petitioners
appeal.
Hence, the present petition for review.
Petitioner argues that the appellate court erred in finding that the first element of violation of B.P. Blg. 22
the making, drawing, and issuance of any check "to apply on account or for value" was present, as the
obligation to pay interest is void, the same not being in writing and the 10% monthly interest is
unconscionable; in holding him civilly liable in the amount of P160,000 to private complainant,
notwithstanding the invalidity of the interest stipulation; and in violating his right to due process when it
convicted him, notwithstanding the absence of proof of receipt by him of a written notice of dishonor.
The petition is impressed with merit.
Section 1 of B.P. Blg. 22 or the Bouncing Checks Law reads:
SECTION 1. Checks without sufficient funds. Any person who makes or draws and issues any check to
apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop
payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or
by fine of not less than but not more than double the amount of the check which fine shall in no case exceed
Two Hundred Thousand pesos, or both such fine and imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the
drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain
a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date
appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a
corporation, company or entity, the person or persons who actually signed the check in behalf of such
drawer shall be liable under this Act.
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For petitioner to be validly convicted of the crime under B.P. Blg. 22, the following requisites must thus
concur: (1) the making, drawing and issuance of any check to apply for account or for value; (2) the
knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or
credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent
dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment.11
Petitioner admits having issued the postdated check to Cristina. The check, however, was dishonored when
deposited for payment in Banco de Oro due to DAIF. Hence, the first and the third elements obtain in the
case.
As for the second element, Section 2 of B.P. Blg. 22 provides that
[t]he making, drawing and issuance of a check payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the
check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such
maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in
full by the drawee of such check within five (5) banking days after receiving notice that such check has not
been paid by the drawee.
In Rico v. People of the Philippines,12 this Court held:
x x x [I]f x x x notice of non-payment by the drawee bank is not sent to the maker or drawer of the bum
check, or if there is no proof as to when such notice was received by the drawer, then the presumption of
knowledge as provided in Section 2 of B.P. 22 cannot arise, since there would simply be no way of
reckoning the crucial five-day period.
x x x In recent cases, we had the occasion to emphasize that not only must there be a written notice of
dishonor or demand letters actually received by the drawer of a dishonored check, but there must also
be proof of receipt thereof that is properly authenticated, and not mere registered receipt and/or return
receipt.
Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of B.P. 22 indeed does not state that the
notice of dishonor be in writing, this must be taken in conjunction with Section 3 of the law, i.e., "that
where there are no sufficient funds in or credit with such drawee bank, such fact shall always be explicitly
stated in the notice of dishonor or refusal". A mere oral notice or demand to pay would appear to be
insufficient for conviction under the law. In our view, both the spirit and letter of the Bouncing Checks Law
require for the act to be punished thereunder not only that the accused issued a check that is dishonored,
but also that the accused has actually been notified in writing of the fact of dishonor. This is consistent with
the rule that penal statues must be construed strictly against the state and liberally in favor of the accused.
xxx
In fine, the failure of the prosecution to prove the existence and receipt by petitioner of the requisite written
notice of dishonor and that he was given at least five banking days within which to settle his account
constitutes sufficient ground for his acquittal.13 (Italics in the original; emphasis and underscoring supplied)
The evidence for the prosecution failed to prove the second element. While the registry receipt, 14 which is
said to cover the letter-notice of dishonor and of demand sent to petitioner, was presented, there is no proof
that he or a duly authorized agent received the same. Receipts for registered letters including return receipts
do not themselves prove receipt; they must be properly authenticated to serve as proof of receipt of the
letters.15 Thus in Ting v. Court of Appeals,16 this Court observed:
x x x All that we have on record is an illegible signature on the registry receipt as evidence that someone
received the letter. As to whether this signature is that of one of the petitioners or of their authorized agent
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MUTUUM
remains a mystery. From the registry receipt alone, it is possible that petitioners or their authorized agent
did receive the demand letter. Possibilities, however, cannot replace proof beyond reasonable doubt.17
For failure then to prove all the elements of violation of B.P. Blg. 22, petitioners acquittal is in order.
Petitioner is civilly liable, however. For in a criminal case, the social injury is sought to be repaired through
the imposition of the corresponding penalty, whereas with respect to the personal injury of the victim, it is
sought to be compensated through indemnity, which is civil in nature.18
The decision of the MeTC, which was affirmed on appeal by the RTC and the appellate court, ordering
petitioner "to pay private complainant Cristina C. Reyes civil indemnity in the total amount of ONE
HUNDRED SIXTY THOUSAND PESOS (P160,000) representing his civil obligation covered by subject
check," deserves circumspect examination, however, given that the obligation of petitioner to pay 10%
interest per month on the loan is unconscionable and against public policy.
The P160,000 check petitioner issued to Cristina admittedly represented unpaid interest. By Cristinas
information, the interest was computed at a fixed rate of 10% per month.19
While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing therein
grants lenders carte blanche to raise interest rates to levels which will either enslave their borrowers or lead
to a hemorrhaging of their assets.20 Stipulations authorizing such interest are contra bonos mores, if not
against the law. They are, under Article 140921 of the New Civil Code, inexistent and void from the
beginning.22
The interest rate of 10% per month agreed upon by the parties in this case being clearly excessive, iniquitous
and unconscionable cannot thus be sustained. In Macalalag v. People,23 Dio v. Jardines,24 and in Cuaton
v. Salud,25this Court, finding the 10% per month interest rate to be unconscionable, reduced it to 12% per
annum. And in other cases26 where the interest rates stipulated were even less than that involved herein, the
Court equitably reduced them.
This Court deems it fair and reasonable then, consistent with existing jurisprudence, to adjust the civil
indemnity to P16,000, the equivalent of petitioners unpaid interest on the P200,000 loan at 12%
percent per annum as of February 2, 1999, the date of the check, plus 12% per annum interest to be
computed from April 29, 1999, the date of judicial demand (date of the filing of the Information) up to the
finality of this judgment. After the judgment becomes final and executory until the obligation is satisfied,
the total amount due shall bear interest at 12% per annum.27
Respecting petitioners claim that since the promissory note incorporating the stipulated 10% interest per
month was not presented, there is no written proof thereof, hence, his obligation to pay the same must be
void, the same fails. As reflected above, Cristina admitted such stipulation.
In any event, the presentation of the promissory note may be dispensed with in a prosecution for violation
of B.P. Blg. 22 as the purpose for the issuance of such check is irrelevant in the determination of the
accuseds criminal liability. It is for the purpose of determining his civil liability that the document bears
significance. Notably, however, Section 24 of the Negotiable Instruments Law provides that "Every
negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every
person whose signature appears thereon to have become a party thereto for value." It was incumbent then
on petitioner to prove that the check was not for a valuable consideration. This he failed to discharge.
WHEREFORE, the Court of Appeals Decision of November 16, 2006 is REVERSED and SET ASIDE.
Petitioner, James Svendsen, is acquitted of the crime charged for failure of the prosecution to prove his
guilt beyond reasonable doubt.
He is, however, ordered to pay private complainant, Cristina C. Reyes, the amount of SIXTEEN
THOUSAND PESOS (P16,000) representing civil indemnity, plus 12% interest per annum computed from
 21
MUTUUM
April 29, 1999 up to the finality of this judgment. After the judgment becomes final and executory until the
obligation is satisfied, the total amount due shall earn interest at 12% per annum.
SO ORDERED.

GERUNCIO H. ILAGAN, CLARO PION and ROSENDO PION, vs. HON. COURT OF
APPEALS, HON. ARTURO A. ROMERO, SALVADOR Q. QUIMPO and HOMETRUST
DEVELOPMENT CORPORATION

This case presents another instance of the mode of advocacy that bedevils our criminal justice system,
evoking thereby the jeremiad of herein respondent corporation against the abuse of certiorari for
unnecessary delay in the resolution of a mere interlocutory order. Indeed, considering its revelations and
the supporting annexes to its comment,1 this appeal as initially resolved by the First Division was advisedly
accepted by the Court En Banc so that we may write finis to such a simple incident as a motion to quash
which for years has regrettably held up the adjudication on the merits of the main criminal actions.

The records show that on July 21, 1992, eight informations were filed and docketed as Criminal Cases Nos.
C-40482 to C-40489 in the Regional Trial Court, Branch 120, Kalookan City, charging herein petitioners
Geruncio H. Ilagan, Claro Pion and Rosendo Pion as co-conspirators in the crime of estafa.

The information in Criminal Case No. C-404822 contained the following accusatory allegations:

That on or about covering the period from July, 1990 up to December, 1991 in Kalookan
City, MM, Philippines and within the jurisdiction of this Honorable Court, the above-
named accused bei(ng) then the President, Finance Manager and Sales Director,
respectively, of the Apple Realty and Development Corporation, a Corporation duly
appointed Agent of the HOMETRUST DEVELOPMENT CORPORATION, herein
represented by its Manager, one SALLY S. GO, defrauded and deceived the latter in the
following manner, to wit: said accused conspiring and confederating with one another, by
means of false manifestations and fraudulent representations which they made to the
prospective lots and houses and lot buyers, namely: Erlinda Sayasa, Rogelio Damasco,
Gina G. Teston, Filomena Lanoz(o), Natividad Diaz, Florida Gargoles and Marce(l)ita
Ranara, that is, by representing themselves that they are authorized to collect/receive and
issue receipts of payments from said buyers, accused knowing fully well that they are not
authorized to do so, induced and convinced herein buyers to give and deliver, as in fact,
the latter did give and deliver to said accused the total amount of P353,500.00, Philippine
Currency, who instead of remitting the same amount to the Hometrust Development
Corporation, with deliberate intent to defraud, did then and there wilfully, and unlawfully
and feloniously misapply, misappropriate and convert to their own personal use and benefit
the said amount and despite repeated demands made upon them, refused and failed and still
fail and refuse to restitute the same, to the damage and prejudice of the said Corporation,
in the aforementioned total amount of P353,500.00. (Corrections in parentheses ours.)

On the other hand, in Criminal Case No. C-40483,3 the information alleged as follows:

That on or about the first week of June to Nov. 23, 1991 in Kalookan City, MM, Philippines
and within the jurisdiction of this Honorable Court, the above-named accused, being then
a President, Finance Manager and Sales Director, respectively, of the Apple Realty and
Development Corporation, conspiring and confederating with one another, defrauded and
deceived the HOMETRUST DEVELOPMENT CORPORATION, herein represented by
its MANAGER, one SALLY S. GO, in the following manner, to wit: said accused being
then duly appointed as Agents of the said Corporation in a Contract of Agency dated July
30, 1990 and they are authorized to sell lots and/or houses and lots to prospective buyers
on a commission basis with the restrictions however, that herein Agents cannot receive any
form of payment from buyers as well as to issue any receipt therefor, accused knowing
 22
MUTUUM
fully well of the said agreement the terms and conditions of which are embodied in the said
Contract, induced and convinced one MARCELITA RANARA to buy and purchase lots
and/or house and lots and receive payments and issue receipts therefor, as in fact herein
complainant did give the total amount of P24,000.00 to said accused, representing as the
reservation fee/downpayment of the lots and/or houses and lots purchase price, when in
truth and in fact, they are not entitled to do so, much less, have no personality to collect
whatever amount from said prospective buyers, but said accused, once in possession of the
said amount, with deliberate intent to defraud, did then and there wilfully, unlawfully and
feloniously misapply, misappropriate and convert to their own personal use and benefit the
said amount, and despite repeated demands made upon them to return/deliver the said
amount, failed and refused and still fail and refuse to restitute the same, to the damage and
prejudice of the complainant thereof, in the aforementioned amount of P24,000.00,
Philippine Currency.

Uniformly, all the indictments in Criminal Cases Nos. C-40484 to

404894 contained the same allegations as those in Criminal Case No. C-40483, except with respect to the
offended party, the date of commission of the offense, and the amount subject of the offense, thus:

CASE NO. OFFENDED DATE OF AMOUNT

PARTY COMMISSION

C-40484 Rogelio Damasco April 30, 1991 to P60,000.00

August 22, 1991
C-40485 Gina G. Teston June, 1991 to 169,000.00
November 4, 1991
C-40486 Natividad Diaz May, 1991 to 19,000.00
July, 1991
C-40487 Erlinda Sayasa July 21, 1991 to 133,500.00
October 18, 1991
C-40488 Filomena Lanozo May, 1991 to 19,000.00
July, 1991
C-40489 Florida Gargoles May, 1991 to 29,000.00
July, 1991

According to petitioners, on July 30, 1992 they moved to quash the informations in Criminal Cases Nos.
C-40483 to C-40489 on the ground of duplicity of offenses charged therein. The same was dismissed by
the trial court in its order of December 10, 1992 which is hereunder reproduced:

Acting on the "Motion to Quash" and the "Opposition" thereto, and considering, as urged,
that each Information filed against the accused in Crim. Cases Nos. 40482, 40483, 40484,
40485, 40486, 40487, 40488 and 40489 indubitably show different private complainants
involving different transactions committed on different dates, which assertion is further
reinforced by the averment in the affidavit-complaints executed by the complainants in
each (of the) aforesaid criminal cases, the movant's contention therefore that the ground
alleged in the Motion to Quash is within the provision of Sec. 3, Rule 117, is untenable.

The applicable rule on the question of duplicitous Information is Sec. 2(e), Rule 117, not
Sec. 3 of Rule 117 as urged.

As correctly pointed out by the public prosecutor, the duplicitous Information presupposes
one or more offenses contained in one or (a) single Information under Sec. 2(e), Rule 117,
Rules of Court.
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But read as it should be, each Information here clearly alleges only one offense for one
single act, consequently, the Rule in question does not apply.

Accordingly, the Motion to Quash is hereby DENIED. 5

Unfazed, and obviously for the same purpose since they raised exactly the same contentions, petitioners
sought the extraordinary writ of certiorari and prohibition from the Court of Appeals to set aside the
aforesaid denial order of the trial court. In its decision6 in CA-G.R. SP No. 31021 promulgated on June 22,
1993, said appellate court made short shrift of the pretensions of petitioners in these terse observations:

Petitioners allege that the informations are duplicitous and the trial court should have
quashed them. They contend that the complainants in Criminal Case No. 40482 and the
individual complainants in the seven other cases (Criminal Case No. 40483-40489) are one
and the same and that the acts alleged in the first case (No. 40482) to have been committed
during the period July, 1990 to December, 1991 are the same acts charged individually in
the other seven cases (Nos. 40483-40489) on dates covered by the same period alleged in
the first case. Petitioners argue that in refusing to quash the informations, the trial court
committed a grave abuse of discretion.

These contentions are without merit. To be sure, an information is considered duplicitous

and therefore subject to dismissal if it charges more than one offense except in cases in
which a single punishment is prescribed for various offenses. (Rule 117, Sec. 3[e]). In the
case at bar, each information charges only one offense of estafa and, therefore, there is no
basis for moving to quash on the ground of duplicity of offense.

Nonetheless, in an apparent gesture of understanding accommodation and by way of guidance to petitioners

on the error of their ways even on such elementary procedural matters, respondent court deigned to proceed
further and extended this solicitous explanation to them:

What probably petitioners want to say is that for the same act alleged to constitute the crime
of estafa they are being held liable to two complainants. For the theory of the prosecution
appears to be that during the period July 1990 to December 1991, petitioners, as agents of
the respondent Hometrust Development Corp. defrauded and deceived both Hometrust
Development and the lot buyers by representing to the latter that they (petitioners) were
authorized to receive payments when in fact they were not, and were thus able to collect
from the lot owners the total amount of P353,000.00 which they subsequently
misappropriated and converted to their personal use and benefit. For this reason eight
informations were filed against petitioners from which it is clear that the cases involve
different parties and amounts and that the acts alleged to constitute estafa were committed
on different dates, to wit:

xxx xxx xxx

Thus for every single act of misappropriation both those from whom the amounts were
received and the Hometrust Development to which the payments were intended have
brought estafa cases against the herein petitioners in (the) latter's capacity as president,
finance manager and sales director respectively of the Apple Realty and Development
Corp., sales agent (without authority to receive payments) of Hometrust Development
Corp. It is clear that each information charges only one offense.7

That was all, that was enough, and that was correct. In fine, respondent Court of Appeals frontally and
succinctly confronted the sole issue of the alleged multifariousness of the informations which was the same
and only ground invoked by petitioners in both the trial court and the respondent court. It did not digress
into the arcanum of the application to said criminal cases of the rule on a delito continuado or the
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MUTUUM
inapplicability of a supposed non-existent rule of litis pendentia as applied to double jeopardy, as was done
during the deliberations in this case. Rationally, it did not have to and, legally, it could not do so.

For, in no uncertain terms, Section 2, Rule 117 of the 1985 Rules on Criminal Procedure, as intentionally
amended for that purpose, mandatorily provides that "(t)he motion to quash shall be in writing signed by
the accused or his counsel. It shall specify distinctly the factual and legal grounds therefor and the
court shall consider no grounds other than those stated therein, except lack of jurisdiction over the offense
charged" (Emphasis supplied).

All the way from the lower court, through the respondent court, and now before this Court, petitioners have
at least been consistent in obdurately cleaving and limiting their plaint to the lone issue of supposed
duplicitous informations. We cannot, therefore, conceive of how the foregoing pithy dispositions of the two
courts before us could have failed to put that matter to rest. We also cannot understand why, despite the
aforecited prohibition in Rule 117, this Court should still be expected to consider other grounds intrusive
upon the merits of the criminal cases involved which would disturb the correct pronouncements of the two
lower courts, instead of summarily denying this petition. However, if only to dissipate intransigent
reservations on our decision on this incident, and to serve as bearings to the court a quo with regard to our
ultimate resolution thereof, we shall tread on the virtual merits of the estafa cases in question as the facts
thereof appear from the pleadings of record.

II

Indulging all inferences in favor of petitioners, what appears to be the implication in their otherwise
defective submissions is that despite the number of aggrieved parties, they committed only one offense of
estafa, and solely against respondent corporation which is now the subject of Criminal Case No. C-40482.
They would postulate that into said case should be deemed integrated the separate offenses complained of
by the seven individual lot buyers, instead of the latter being made the respective subjects of Criminal Cases
Nos.
C-40483 to C-40489.

What would seem to be the reason for that theory is that the essential allegations of facts and the
specifications of the offenses charged in the informations in Criminal Cases Nos. C-40483 to C-40489 are
supposedly the same as those stated in the information in Criminal Case No. C-40482, hence respondent
corporation is the offended party in all the eight informations. They would rebuke respondent Court of
Appeals for holding that the seven complainants in the seven other informations are different from the
complainant corporation in Criminal Case No. C-40482. Their thesis would be that since the informations
also state that petitioners had defrauded respondent corporation, the allegations in the informations in
Criminal Cases Nos. C-40483 to C-40489 that the acts of petitioners caused damage and prejudice to the
individual complainants mentioned therein should be treated as superfluities.

Now, the function of the extraordinary writ of certiorari, as it is here invoked, would be to annul and set
aside a purported grave abuse of discretion by the prosecutor in filing several informations involving,
according to petitioners' theory, one and the same offense. This argument, however, would completely
ignore the fact that the ground of double jeopardy was never raised in a motion to quash, hence that ground
cannot be made the basis for attributing grave abuse of discretion to the prosecutor. It is also inconsistent
with the reasoning advanced during our deliberations that these cases would fall within the purview of the
constitutional right against double jeopardy were it not for the failure of existing rules on criminal procedure
to address the instant situation. In ex hypothesi there is no rule on double jeopardy to govern such situation
and, for that matter, it has not even been invoked in the motion to quash, it is then unpardonably absurd to
claim that its non-application by the prosecutor could constitute grave abuse of discretion on his part.

The core issue is, therefore, whether the offenses separately charged in the eight informations actually
constitute only one offense or were correctly considered as eight separate crimes of estafa. No hearing on
this issue was ever conducted in the court below as it was never raised therein; and the sole ground of
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multifariousness was, since it could properly be, resolved by the court only on the bases of the allegations
in the motion to quash without introduction of evidence aliunde.

The issue of double jeopardy should properly have been raised in and resolved by the trial court in the first
instance as it would necessitate evidence on the terms of the contracts or documentation of the transactions
with the lot buyers, the rights and obligations of the parties thereunder, the binding effects thereof, the
resolutory conditions or grounds for rescission, any confirmation or repudiation thereof as may have been
made by respondent corporation, and the like. In any event, the present petition could also have been
rejected outright, without thereby causing any undue prejudice to the parties, even merely on the bases of
the present contents and state of the records before us.

1. The crime of estafa committed against respondent corporation, on the one hand, and those committed
against the lot buyers, on the other, are definitely separate felonies. They were dictated by different criminal
intents, committed under different modes of commission provided by the law on estafa, perpetrated
by different acts, consummated ondifferent occasions, and caused injury to different parties.

The crime of estafa against respondent corporation was committed through unfaithfulness or abuse of
confidence, specifically as provided in Paragraph 1(b) of Article 315, Revised Penal Code. The operative
act in the perpetration thereof was the failure to turn over or deliver to respondent corporation the amounts
collected by the accused, despite their duty to do so. The felony was consummated on the dates when and
at the places where such amounts were to be delivered to respondent corporation under the agency
agreement therefor or within a reasonable time from receipt of the payments made by the lot buyers. The
aggrieved party was respondent corporation which suffered damages basically to the extent of the sums
collected in its behalf but not delivered or accounted for by the accused.

With respect to the lot buyers, the offense of swindling was committed by deceit or false pretenses employed
prior to or simultaneously with the commission of the fraud, more specifically as provided in Paragraph
2(a) of the same article of the Code, that is, by the accused falsely pretending to possess the power to collect
the payments due from said buyers, despite the peculiar but specific prohibition imposed by their said
principal. The felony was perpetrated through the aforesaid the deceitful misrepresentations which made
possible the unauthorized collections. The offense was consummated upon receipt by the accused of the
amounts in the different occasions and places where the payments were made by the lot buyers. The
aggrieved parties were the lot buyers who individually and separately suffered damages by being deprived
not only of their money but primarily of their property rights to and in the lots they respectively purchased.

In either instance, the requisite ingredients of estafa as separate offenses are present, that is, for respondent
corporation the elements of abuse of confidence and damage, and for the lot buyers the elements of deceit
and damage. It has been held that estafa can be committed with the attendance of both modes of
commission, that is, abuse of confidence and deceit employed against the same victim and causing damage
to him. Thus, where an agent deliberately misrepresented to the landowner the real position of the
prospective buyer of the land in order to induce said owner to agree to a lower price and, thereafter, the
agent sold the land for the higher amount which was actually agreed upon by him and the buyer, and he
then clandestinely misappropriated the excess, the crime of estafa was committed under both modes and he
could be charged under either.8 Withal, it has also been held that such estafa is more properly categorized
as one committed through abuse of confidence. 9

With much more reason, therefore, should the offense of estafa against respondent corporation be
considered discretely and separately from those committed against the lot buyers since, inter alia, different
modes of commission and different parties are concerned. Furthermore, to underscore the distinction
between the estafa committed against respondent corporation and the lot buyers, in estafa through abuse of
confidence prior demand should be made by the offended party on the accused to comply with the obligation
before the latter may be charged criminally, 10 but there is no such requirement where the estafa was
committed through deceit. 11
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MUTUUM
As earlier stated, the damage sustained by the lot buyers is distinct from that suffered by respondent
corporation since, primarily, the injury to the lot buyers was the deprivation of their rights or the exercise
thereof over the properties they respectively purchased. It has long been the rule that actual damage is not
necessary in estafa, as long as it is capable of pecuniary estimation, hence mere temporary disturbance of
property rights is equivalent to damage. 12 Even if the prejudice is temporary, that would suffice for the
element of damage in estafa. 13 Here, the lot buyers involved in the criminal cases subject of the present
recourse have, as a direct consequence of the acts of petitioners, been deprived of the exercise of their rights
of actual or potential ownership over their properties since 1991 up to the present.

That the names of the seven lot buyers and the amounts they paid are mentioned in the information in
Criminal Case No. C-40482 does not have the significance claimed by petitioners. These were only
mentioned therein to explain the source of and the amounts involved, the totality whereof constituted the
element of damage to respondent corporation. On the other hand, the statement in Criminal Cases Nos. C-
40483 to C-40489 that the accused "defrauded and deceived" respondent corporation is the phrase which
should be considered as a surplusage. The information in each of the latter seven cases specifically refers
to the individual complainant therein, alleges how the accused "induced and convinced (the complainant)
to buy and purchase lots and/or houses and lots and receive(d) payments and issue(d) receipts therefor,"
which amounts they represented "as the reservation fee/downpayment" for the properties sold "when in
truth and in fact they were not entitled to do so . . . to the damage and prejudice of the complainant thereof."
Such allegations constitute the estafa contemplated in Paragraph 2(a) of Article 315, with the respective
complainants as the offended parties separately from respondent corporation.

2. Consequent to the theory of identity of the offense committed against respondent corporation vis-a-
vis those against the lot buyers, we reject petitioners' plea for the dismissal of Criminal Cases Nos. C-40483
to C-40489 which were filed each with one lot buyer as the offended party therein. While the felonious acts
perpetrated against said lot buyers do not constitute a delito continuado, there must be an explicitation as
to whether, under the taxonomy in the Spanish concept of concurso de delitos, the seven acts of
defraudation under said informations constitute material or real plurality, hence there are seven crimes of
estafa, or should be considered as in the nature of formal or ideal plurality, hence there is only one crime
of estafa. We rule that said seven cases fall under the category of concurso real, hence there are seven
juridically independent crimes involving said lot buyers.

The series of acts committed against the seven lot buyers was not the product of a single criminal intent.
The misrepresentation or deceit was employed against each lot buyer on different dates and in separate
places, hence they originated from separate criminal intents and consequently resulted in separate
felonies. 14 Furthermore, even assuming arguendo that the defraudations were pursuant to an identical
design, they were committed over a period of about one and a half years and at substantial intervals both in
time and in distance of situs.

More conclusive is the fact that, after the commission of one estafa, the accused could not have had the
foreknowledge as to when or whether they could replicate the same felony against another victim still
necessarily unknown. This lack of prevision on their part definitely proves that the criminal intent entailed
in a preceding swindle could not operate as the same criminal intent in futuro as regards another subsequent
estafa. 15 The inescapable conclusion is that, all told, a total of eight crimes of estafa were actually
committed by the accused against different victims.

3. There is, therefore, no cogency in the proposition that the prosecutor acted with grave abuse of discretion
in filing eight separate charges of estafa, or, for that matter, that the trial court and respondent court are
guilty of the same discretional error in refusing to quash the eight informations.

If, as petitioners seem to apprehend, the adverse actions of two lower courts could create a scenario of
multiple prosecutions for the same offense or, more candidly expressed, of double jeopardy, then this is
neither the procedural stage nor the proper occasion to pass upon that possibility. For, squarely imputable
to petitioners is the evident lack of factual basis for and a grossly defective presentation of that issue for
this Court to rule thereon in this proceeding and at this time.
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MUTUUM
However, this observation would not foreclose relief to petitioners if at the trial of this case the evidence
presented and the developments therein suffice to establish the supervenient fact that indeed there could
possibly be a breach of the rule of double jeopardy. Under Section 8 of Rule 117, they can still hereafter
raise that defense of non bis in idem, provided that they can lay the evidentiary bases therefor and refute
from the standpoint of substantive penal law what was earlier said on the nature and the non-identity of the
several crimes of estafa involved which, to repeat, we pronounced purely on the bases of existing
records sans the benefit of any evidentiary fact since none has been adduced.

ACCORDINGLY, the impugned decision of respondent Court of Appeals is AFFIRMED and the instant
petition is hereby DENIED, with treble costs against petitioners. This judgment is immediately executory
and, upon entry thereof in due course, the record of this case is ordered to be forthwith remanded to the
court a quo which is herebyDIRECTED to take appropriate action therein with all deliberate and practicable
dispatch.

SO ORDERED.

BANCO DE ORO-EPCI, INC., vs. JAPRL DEVELOPMENT CORPORATION, RAPID FORMING

CORPORATION and JOSE U. AROLLADO,
This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals (CA) in CA-
G.R. SP No. 95659 and its resolution3 denying reconsideration.
After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for
fiscal years 1998, 1999 and 2000,4 petitioner Banco de Oro-EPCI, Inc. extended credit facilities to it
amounting to P230,000,0005 on March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose
U. Arollado acted as JAPRL's sureties.
Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon
after the approval of its loan.6 Petitioner later learned from MRM Management, JAPRL's financial adviser,
that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post
a big income from operations for the concerned fiscal years to project itself as a viable investment. 7 The
information alarmed petitioner. Citing relevant provisions of the Trust Receipt Agreement, 8 it demanded
immediate payment of JAPRL's outstanding obligations amounting to P194,493,388.98.9
SP Proc. No. Q-03-064
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional
Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC).10 It disclosed that it had been
experiencing a decline in sales for the three preceding years and a staggering loss in 2002.11
Because the petition was sufficient in form and substance, a stay order12 was issued on September 28,
2003.13However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the
Quezon City RTC in an order dated May 9, 2005.14
Civil Case No. 03-991
Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an
application for the issuance of a writ of preliminary attachment against respondents in the RTC of Makati
City, Branch 145 (Makati RTC) on August 21, 2003.15 Petitioner essentially asserted that JAPRL was guilty
of fraud because it (JAPRL) altered and falsified its financial statements.16
The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment)
for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it ordered the service
of summons on respondents.17 Pursuant to the said order, summonses were issued against respondents and
were served upon them.
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Respondents moved to dismiss the complaint due to an allegedly invalid service of summons. 18 Because
the officer's return stated that an "administrative assistant" had received the summons,19 JAPRL and RFC
argued that Section 11, Rule 14 of the Rules of Court20 contained an exclusive list of persons on whom
summons against a corporation must be served.21 An "administrative assistant" was not one of them.
Arollado, on the other hand, cited Section 6, Rule 14 thereof22 which mandated personal service of
summons on an individual defendant.23
The Makati RTC, in its October 10, 2005 order,24 noted that because corporate officers are often busy,
summonses to corporations are usually received only by administrative assistants or secretaries of corporate
officers in the regular course of business. Hence, it denied the motion for lack of merit.
Respondents moved for reconsideration25 but withdrew it before the Makati RTC could resolve the matter.26
RTC SEC Case No. 68-2008-C
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of
Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRL's petition sufficient in form and in substance,
the Calamba RTC issued a stay order27 on March 13, 2006.
In view of the said order, respondents hastily moved to suspend the proceedings in Civil Case No. 03-991
pending in the Makati RTC.28
On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado
to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the
proceedings against him should continue.29 Respondents moved for reconsideration30 but it was denied.31
On August 11, 2006, respondents filed a petition for certiorari32 in the CA alleging that the Makati RTC
committed grave abuse of discretion in issuing the October 10, 2005 and July 7, 2006 orders.33 They
asserted that the court did not acquire jurisdiction over their persons due to defective service of summons.
Thus, the Makati RTC could not hear the complaint for sum of money.34
In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative
assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, it granted the petition.35
Petitioner moved for reconsideration but it was denied.36 Hence, this petition.
Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC
from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings
by cunningly exploiting procedural technicalities to avoid the payment of their obligations.37
We grant the petition.
Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over
their persons (i.e., whether or not the service of summons was validly made). Therefore, it was only the
October 10, 2005 order of the said trial court which they in effect assailed. 38 However, because they
withdrew their motion for reconsideration of the said order, it became final. Moreover, the petition was
filed 10 months and 1 day after the assailed order was issued by the Makati RTC, 39 way past the 60 days
allowed by the Rules of Court. For these reasons, the said petition should have been dismissed outright by
the CA.
More importantly, when respondents moved for the suspension of proceedings in Civil Case No. 03-991
before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived
whatever defect there was in the service of summons and were deemed to have submitted themselves
voluntarily to the jurisdiction of the Makati RTC.40
We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the
proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. Under the Interim Rules
 29
MUTUUM
of Procedure on Corporate Rehabilitation, a stay order defers all actions or claims against the corporation
seeking rehabilitation41from the date of its issuance until the dismissal of the petition or termination of the
rehabilitation proceedings.42
The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to
go after JAPRL and RFC (as will later be discussed). A creditor can demand payment from the surety
solidarily liable with the corporation seeking rehabilitation.43
Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or
at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the
speedy dispensation of justice. More importantly, however, considering the amount involved, respondents
utterly disregarded the significance of a stable and efficient banking system to the national economy.44
Banks are entities engaged in the lending of funds obtained through deposits45 from the public.46 They
borrow the public's excess money (i.e., deposits) and lend out the same.47 Banks therefore redistribute
wealth in the economy by channeling idle savings to profitable investments.
Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the
public.48 They plough back the bulk of said deposits into the economy in the form of loans. 49 Since banks
deal with the public's money, their viability depends largely on their ability to return those deposits on
demand. For this reason, banking is undeniably imbued with public interest. Consequently, much
importance is given to sound lending practices and good corporate governance.50
Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role
of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware
of the rampant and unscrupulous practice of obtaining loans without intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order
to obtain its credit facilities. Considering the amount of petitioner's exposure in JAPRL, justice and fairness
dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit
accomodation.
A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to
move for the dismissal of the rehabilitation case in the Calamba RTC.
The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud.
Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents
guided by Section 40 of the General Banking Law which states:
Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or
other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments
to the bank.
Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities
and of their income and expenditures and such information as may be prescribed by law or by rules and
regulations of the Monetary Board to enable the bank to properly evaluate the credit application which
includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal
Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may
terminate any loan or credit accommodation granted on the basis of said statements and shall have
the right to demand immediate repayment or liquidation of the obligation.
In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar
characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered
by traditional collateral. (emphasis supplied)
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MUTUUM
Under this provision, banks have the right to annul any credit accommodation or loan, and demand the
immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled
to the immediate payment of P194,493,388.98 and other appropriate damages.51
Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should
investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the
Trust Receipts Law.52
ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007
resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of
Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted.
SO ORDERED.

HENRY DELA RAMA CO., vs. ADMIRAL UNITED SAVINGS BANK

On appeal is the February 19, 2002 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 42167,
setting aside the May 18, 1991 Decision2 of the Regional Trial Court (RTC) of Quezon City, Branch 100,
as well as its subsequent Resolution,3 denying petitioners motion for reconsideration.

On February 28, 1983, Admiral United Savings Bank (ADMIRAL) extended a loan of Five Hundred
Thousand Pesos (P500,000.00) to petitioner Henry Dela Rama Co (Co), with Leocadio O. Isip (Isip) as co-
maker. The loan was evidenced by Promissory Note No. A1-0414 dated February 28, 1983 and payable on
or before February 23, 1984, with interest at the rate of 18% per annum and service charge of 10% per
annum. The note also provided for liquidated damages at the rate of 3% per month plus incidental cost of
collection and/or legal fees/cost, in the event of non-payment on due date.

Co and Isip failed to pay the loan when it became due and demandable. Demands for payment were made
by ADMIRAL, but these were not heeded. Consequently, ADMIRAL filed a collection case against Co and
Isip with the RTC of Quezon City, docketed as Civil Case No. Q-48543.

Co answered the complaint alleging that the promissory note was sham and frivolous; hence, void ab initio.
He denied receiving any benefits from the loan transaction, claiming that ADMIRAL merely induced him
into executing a promissory note. He also claimed that the obligations, if any, had been paid, waived or
otherwise extinguished. Co allegedly ceded several vehicles to ADMIRAL, the value of which was more
than enough to cover the alleged obligation. He added that there was condonation of debt and novation of
the obligation. ADMIRAL was also guilty of laches in prosecuting the case. Finally, he argued that the case
was prematurely filed and was not prosecuted against the real parties-in-interest.5

Pending resolution of the case, Isip died. Accordingly, he was dropped from the complaint.

Co then filed a third party complaint against Metropolitan Rentals & Sales, Inc. (METRO RENT). He
averred that the incorporators and officers of METRO RENT were the ones who prodded him in obtaining
a loan of P500,000.00 from ADMIRAL. The proceeds of the loan were given to the directors and officers
of METRO RENT, who assured him of prompt payment of the loan obligation. METRO RENT also assured
him that he would be discharged from all liabilities under the promissory note, but it did not make good its
promise. Co, thus, prayed that METRO RENT be adjudged liable to ADMIRAL for the payment of the
obligation under the promissory note.6

Traversing the third party complaint, METRO RENT denied receiving the loan proceeds from Co. It
claimed that the loan was Cos personal loan from which METRO RENT derived no benefit, thus, it cannot
be held liable for the payment of the same.7
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MUTUUM
In due course and after hearing, the RTC rendered a Decision8 on May 18, 1991, dismissing the complaint
on the ground that the obligation had already been paid or otherwise extinguished. It primarily relied on the
release of mortgage executed by the officers of ADMIRAL, and on Cos testimony that METRO RENT
already paid the loan. The RTC also dismissed Cos third party complaint against METRO RENT, as well
as his counterclaim against ADMIRAL for lack of basis.

ADMIRAL appealed the dismissal of the complaint to the CA.9 On February 19, 2002, the CA rendered
the assailed decision.10 Reversing the RTC, the CA found preponderance of evidence to hold Co liable for
the payment of his loan obligation to ADMIRAL. It rejected Cos assertion that he merely acted as an
accommodation party for METRO RENT, declaring that Cos liability under the note was apparent in his
express, absolute and unconditional promise to pay the loan upon maturity. The CA further held that
whatever agreement Co had with METRO RENT cannot bind ADMIRAL since there is no showing that
the latter was aware of the agreement, let alone consented to it. The CA also rejected Cos alternative
defense that METRO RENT already paid the loan, finding the testimonial evidence in support of the
assertion as pure hearsay.

The CA disposed, thus:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from must be
as it hereby is, REVERSED and SET ASIDE, and a new one
entered CONDEMNING [petitioner] Henry Dela Rama Co to pay [respondent] Admiral United
Savings Bank: (1) the sum of FIVE HUNDRED THOUSAND (P500,000.00) PESOS, Philippine
Currency, with interest at eighteen percent (18%) per annum, and charges of ten percent (10%) per
annum, reckoned from 28 February 1984, until fully paid; (2) the sum equivalent to three percent
(3%) per month from said due date until fully paid, by way of liquidated damages; and, (3) the sum
equivalent to twenty-five percent (25%) of the total amount due in the concept of attorneys fees.

For insufficiency of evidence, the third party complaint against third party defendant Metropolitan
Rental and Sales, Incorporated, is DISMISSED. Without costs.

SO ORDERED.11

Co filed a motion for reconsideration, but the CA denied the same on August 7, 2002.12

Hence, this appeal by Co faulting the CA for reversing the RTC.

The appeal lacks merit.

Co has not denied the authenticity and due execution of the promissory note. He, however, asserts that he
is not legally bound by said document because he merely acted as an accommodation party for METRO
RENT. He claimed the he signed the note only for the purpose of lending his name to METRO RENT,
without receiving value therefor.

The argument fails to persuade.

The document, bearing Cos signature, speaks for itself. To repeat, Co has not questioned the genuineness
and due execution of the note. By signing the promissory note, Co acknowledged receipt of the loan
amounting to P500,000.00, and undertook to pay the same, plus interest, to ADMIRAL on or before
February 28, 1984. Thus, he cannot validly set up the defense that he did not receive the value of the note
or any consideration therefor.

At any rate, Cos assertion that he merely acted as an accommodation party for METRO RENT cannot
release him from liability under the note. An accommodation party who lends his name to enable the
accommodated party to obtain credit or raise money is liable on the instrument to a holder for value even
 32
MUTUUM
if he receives no part of the consideration.13 He assumes the obligation to the other party and binds himself
to pay the note on its due date. By signing the note, Co thus became liable for the debt even if he had no
direct personal interest in the obligation or did not receive any benefit therefrom.

In Sierra v. Court of Appeals,14 we held that:

A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on

the date and under the conditions agreed upon by the borrower and the lender. A person who signs
such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the
signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause,
he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation.

Co is not unfamiliar with commercial transactions. He is a certified public accountant, who obtained his
bachelors degree in accountancy from De La Salle University. Certainly, he fully understood the import
and consequences of what he was doing when he signed the promissory note. He even mortgaged his own
properties to secure payment of the loan. His disclaimer, therefore, does not inspire belief.

Co also offered the alternative defense that the loan had already been extinguished by payment. He testified
that METRO RENT paid the loan a week before April 11, 1983.15

In Alonzo v. San Juan,16 we held that the receipts of payment, although not exclusive, were deemed to be
the best evidence of the fact of payment.

In this case, no receipt was presented to substantiate the claim of payment. Instead, Co presented a Release
of Real Estate Mortgage17 dated April 11, 1983 to prove his assertion. But a cancellation of mortgage is not
conclusive proof of payment of a loan, even as it may serve as basis for an inference that payment of the
principal obligation had been made.

Unfortunately for Co, no such inference can be made from the deed he presented. The Release of Real
Estate Mortgage reads:

The ADMIRAL UNITED SAVINGS BANK, a banking institution duly organized and existing
under and by virtue of the laws of the Philippines, with offices at S. Medalla Building, EDSA corner
Gen. MacArthur, Cubao, Quezon City, Metro-Manila, represented in this act by its First Vice-
President, MR. EMMANUEL ALMANZOR, and its Asst. Vice President, MR. ROSSINI PETER
G. GAMALINDA, the mortgagee of the properties described in Transfer Certificates of Title Nos.
3478 and 95759 of the Registry of Deeds of Laguna in the MORTGAGE executed on February 24,
1983 and acknowledged on the same date before Atty. Benjamin Baens del Rosario, Notary Public
for and in Quezon City, Metro Manila who entered in his notarial protocol as Doc. No. 70, Page
No. 15, Book No. IV, Series of 1983, in favor of the said Bank, by HENRY DE[LA] RAMA CO,
hereby RELEASES and DISCHARGES the mortgage on the aforesaid Transfer Certificates of Title
Nos. 3478 and 95759 of the Registry of Deeds of Laguna.18

The record is bereft of any showing that the promissory note was secured by a mortgage over properties
covered by TCT Nos. 3478 and 95759. Thus, it cannot be assumed that the mortgage executed on February
28, 1983, and released on April 11, 1983, was the security for the subject promissory note.

In addition, TCT Nos. 3478 and 95759, the supposed collaterals for the loan, are still with the bank. 19 If
indeed there was payment of the principal obligation and cancellation of the mortgage in 1983, Co should
have immediately demanded for the return of the TCTs. This he failed to do.20 It was only on June 11, 1987,
after the filing of the complaint with the RTC, that Co demanded for the return of TCT Nos. 3478 and
95759.21 Cos inaction militates against his assertion.
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Jurisprudence is replete with rulings that in civil cases, the party who alleges a fact has the burden of proving
it. Burden of proof is the duty of a party to present evidence on the facts in issue necessary to prove the
truth of his claim or defense by the amount of evidence required by law.22 Thus, a party who pleads payment
as a defense has the burden of proving that such payment had, in fact, been made. When the plaintiff alleges
nonpayment, still, the general rule is that the burden rests on the defendant to prove payment, rather than
on the plaintiff to prove nonpayment.23

Verily, Co failed to discharge this burden. His bare testimonial assertion that METRO RENT paid the loan a
week before April 11, 1983 or forty-five (45) days after [the] release of the loan, cannot be characterized
as adequate and competent proof of payment. Accordingly, the CA rightly rejected his alternative defense
of payment.

Similarly, Cos protestation that the cancellation of the real estate mortgage extinguished his obligation to
pay the loan cannot be sustained. We perceive it as a strained attempt to rationalize his untenable position.

A real estate mortgage is but an accessory contract to secure the loan in the promissory note. Its cancellation
does not automatically result in the extinguishment of the loan. Being the principal contract, the loan is
unaffected by the release or cancellation of the mortgage. Certainly, a debt may subsist even without a
mortgage. Thus, in the case at bench, ADMIRAL can still run after Co for the payment of the loan under
the promissory note, even after the release of the mortgage on the properties, especially because there was
no showing that the mortgage was constituted as a security for the loan covered by the promissory note.

In sum, the CA committed no reversible error in holding Co liable for the payment of the loan.

However, we find a need to modify the damages awarded in favor of ADMIRAL.

The CA, in conformity with the terms of the promissory note, awarded to ADMIRAL the amount
of P500,000.00 with interest at 18% per annum, and service charge at the rate of 10% per annum, computed
from February 28, 1984 until fully paid. It also awarded the sum equivalent to three percent (3%) per month
from said due date until fully paid, by way of liquidated damages, and the sum equivalent to twenty-five
(25%) of the total amount due in the concept of attorneys fees.24

We sustain the interest rate of 18% per annum for being fair and reasonable. However, equity dictates that
we reduce the service charge, liquidated damages and attorneys fees awarded in favor of ADMIRAL.

In L.M. Handicraft Manufacturing Corporation v. Court of Appeals,25 we held that a bank is only entitled
to a maximum of 2% per annum service charge for amounts not over P500,000.00. We, therefore, modify
the amount of service charge from 10% to 2%, or P10,000.00 per annum beginning February 28, 1984 until
full payment of the loan obligation.

As to the awards of liquidated damages and attorneys fees, we acknowledge that the law allows a party to
recover liquidated damages and attorney's fees under a written agreement, thus:

[T]he attorney's fees here are in the nature of liquidated damages and the stipulation
therefor is aptly called a penal clause. It has been said that so long as such stipulation does
not contravene law, morals, or public order, it is strictly binding upon defendant. The
attorney's fees so provided are awarded in favor of the litigant, not his counsel.

On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be
paid in case of breach. A stipulation on liquidated damages is a penalty clause where the obligor
assumes a greater liability in case of breach of an obligation. The obligor is bound to pay the
stipulated amount without need for proof on the existence and on the measure of damages caused
by the breach.26
 34
MUTUUM
Nonetheless, courts are empowered to reduce such penalty if the same is iniquitous or unconscionable.
Article 1229 of the Civil Code states:

ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable.

This sentiment is echoed in Article 2227 of the same Code:

ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.

ADMIRAL is more than adequately protected from a possible breach of contract because of the stipulations
on the payment of interest, service fee, liquidated damages and attorneys fees. Thus, this Court finds the
award of liquidated damages and attorneys fees by the CA exorbitant. After all, liquidated damages and
attorneys fees serve the same purpose, that is, as penalty for breach of contract.27 Accordingly, we reduce
the liquidated damages to P150,000.00, and attorneys fees to 10% of the principal loan or P50,000.00.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals in CA-G.R. CV
No. 42167 is AFFIRMED with MODIFICATIONS. Petitioner Henry Dela Rama Co is ordered to pay
Admiral United Savings Bank P500,000.00, with interest at 18% per annum from February 28, 1984 until
the loan is fully paid. In addition, Co is adjudged liable to pay ADMIRAL a service charge equivalent to
2% of the principal loan, or P10,000.00 per year also from February 28, 1984 until the full payment of the
loan; P150,000.00, as liquidated damages; and P50,000.00, as attorneys fees.

SO ORDERED.

SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA, vs. EQUITABLE PCI BANK, INC.
Via a contract denominated as "CREDIT LINE AND REAL ESTATE MORTGAGE AGREEMENT FOR
PROPERTY LINE"1 (Credit Line Agreement) executed on March 31, 1997, Leo-Mers Commercial, Inc.,
as the Client, and its officers spouses Leopoldo and Mercedita Viola (petitioners) obtained a loan through
a credit line facility in the maximum amount of P4,700,000.00 from the Philippine Commercial
International Bank (PCI Bank), which was later merged with Equitable Bank and became known as
Equitable PCI Bank, Inc. (respondent).
The Credit Line Agreement stipulated that the loan would bear interest at the "prevailing PCIBank lending
rate" per annum on the principal obligation and a "penalty fee of three percent (3%) per month on the
outstanding amount."
To secure the payment of the loan, petitioners executed also on March 31, 1997 a "Real Estate
Mortgage"2 in favor of PCIBank over their two parcels of land covered by Transfer Certificates of Title No.
N-113861 (consisting of 300 square meters, more or less ) and N-129036 (consisting of 446 square meters,
more or less) of the Registry of Deeds of Marikina.
Petitioners availed of the full amount of the loan. Subsequently, they made partial payments which
totaled P3,669,210.67. By respondents claim, petitioner had since November 24, 2000 made no further
payments and despite demand, they failed to pay their outstanding obligation which, as of September 30,
2002, totaled P14,024,623.22, broken down as follows:

(a) Principal obligation P4,783,254.69

 35
MUTUUM

(b) Past due interest from 11/24/00

to 09/30/02 at15% interest P1,345,290.38

(c) Penalty at 3% per monthfrom

03/31/98 to 02/23/02 P7,896,078.15

P14,024,623.223 (Underscoring supplied)

Respondent thus extrajudicially foreclosed the mortgage before the Office of the Clerk of Court & Ex-
Officio Provincial Sheriff of the Regional Trial Court (RTC) of Marikina City. The mortgaged properties
were sold on April 10, 2003 for P4,284,000.00 at public auction to respondent, after which a Certificate of
Sale dated April 21, 20034 was issued.
More than five months later or on October 8, 2003, petitioners filed a complaint 5 for annulment of
foreclosure sale, accounting and damages before the Marikina RTC, docketed as Civil Case No. 2003-905-
MK and raffled to Branch 192. Petitioners alleged, inter alia, that they had made substantial payments
of P3,669,210.67 receipts of which were issued without respondent specifying "whether the payment was
for interest, penalty or the principal obligation;" that based on respondents statement of account, not a
single centavo of their payments was applied to the principal obligation; that every time respondent sent
them a statement of account and demand letters, they requested for a proper accounting for the purpose of
determining their actual obligation, but all their requests were unjustifiably ignored on account of which
they were forced to discontinue payment; that "the foreclosure proceedings and auction sale were not only
irregularly and prematurely held but were null and void because the mortgage debt is only P2,224,073.31
on the principal obligation and P1,455,137.36 on the interest, or a total of only P3,679,210.67 as of April
15, 2003, but the mortgaged properties were sold to satisfy an inflated and erroneous principal obligation
of P4,783,254.69, plus 3% penalty fee per month or 33% per year and 15% interest per year, which
amounted to P14,024,623.22 as of September 30, 2002;" that "the parties never agreed and stipulated in
the real estate mortgage contract" that the 15% interest per annum on the principal loan and the 3% penalty
fee per month on the outstanding amount would be covered or secured by the mortgage; that assuming
respondent could impose such interest and penalty fee, the same are "exorbitant, unreasonable, iniquitous
and unconscionable, hence, must be reduced;" and that respondent is only allowed to impose the legal rate
of interest of 12% per annum on the principal loan absent any stipulation thereon.6
In its Answer, respondent denied petitioners assertions, contending, inter alia, that the absence of
stipulation in the mortgage contract securing the payment of 15% interest per annum on the principal loan,
as well as the 3% penalty fee per month on the outstanding amount, is immaterial since the mortgage
contract is "a mere accessory contract which must take its bearings from the principal Credit Line
Agreement."7
During the pre-trial conference, the parties defined as sole issue in the case whether the mortgage
contract also secured the payment of 15% interest per annum on the principal loan of P4,700,000.00 and
the 3% penalty fee per month on the outstanding amount, which interest and penalty fee are stipulated only
in the Credit Line Agreement.8
By Decision9 of September 14, 2005, the trial court sustained respondents affirmative position on the issue
but found the questioned interest and penalty fee "excessive and exorbitant." Thus, it equitably reduced the
interest on the principal loan from 15% to 12% per annum and the penalty fee per month on the outstanding
amount from 3% to 1.5% per month.
Accordingly, the court nullified the foreclosure proceedings and the Certificate of Sale subsequently issued,
"without prejudice" to the holding anew of foreclosure proceedings based on the "re-computed amount" of
the indebtedness, "if the circumstances so warrant."
The dispositive portion of the trial courts Decision reads:
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MUTUUM
WHEREFORE, judgment is hereby rendered as follows:
1) The interest on the principal loan in the amount of Four Million Seven Hundred Thousand
(P4,700,000.00) Pesos should be recomputed at 12% per annum;
2) The 3% per month penalty on delinquent account as stipulated by the parties in the Credit Line Contract
dated March 31, 1997 is hereby REDUCED to 1.5% per month;
3) The foreclosure sale conducted on April 10, 2003 by the Clerk of Court and Ex-Officio Sheriff of
Marikina, to satisfy the plaintiffs mortgage indebtedness, and the Certificate of Sale issued as a
consequence of the said
proceedings, are declared NULL and VOID, without prejudice tothe conduct of another foreclosure proce
edings on the basis of the re-
computed amount of theplaintiffs indebtedness, if the circumstances so warrant.
No pronouncement as to costs.
SO ORDERED. (Underscoring supplied)
Petitioners filed a Motion for Partial Reconsideration,10 contending that the penalty fee per month on the
outstanding amount should have been taken out of the coverage of the mortgage contract as it was not
stipulated therein. By Order dated December 6, 2005, the trial court denied the motion.
On appeal by petitioners, the Court of Appeals, by Decision11 of February 21, 2007, dismissed the same for
lack of merit, holding that "the Real Estate Mortgage covers not only the principal amount
[of P4,700,000.00] but also the interest and bank charges, which [phrase bank charges] refers to
the penalty charges stipulated in the Credit Line Agreement."12
Petitioners Motion for Reconsideration having been denied by Resolution13 of May 16, 2007, they filed
the present Petition for Review on Certiorari, alleging that
THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN DECIDING
THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT BY RULING THAT THERE IS NO AMBIGUITY IN CONSTRUING TOGETHER THE
CREDIT LINE AND MORTGAGE CONTRACTS WHICH
PROVIDED CONFLICTING PROVISIONS AS TO INTEREST AND PENALTY.14
The only issue is whether the mortgage contract also secured the penalty fee per month on the outstanding
amount as stipulated in the Credit Line Agreement.
The Court holds not.
A mortgage must "sufficiently describe the debt sought to be secured, which description must not be such
as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the
terms of the mortgage.15
In the case at bar, the parties executed two separate documents on March 31, 1997 the Credit Line
Agreement granting the Client a loan through a credit facility in the maximum amount of P4,700,000.00,
and the Real Estate Mortgage contract securing the payment thereof. Undisputedly, both contracts were
prepared by respondent and written in fine print, single space.
The Credit Line Agreement contains the following stipulations on interest and delinquency charges:
A. CREDIT FACILITY
9. INTEREST ON AVAILMENTS
The CLIENT shall pay the BANK interest on each availment against the Credit Facility at the rate of:
 37
MUTUUM
PREVAILING PCIBANK LENDING RATE
for the first interest period as defined in A(10) hereof. x x x.
xxxx
15. DELINQUENCY
CLIENTs account shall be considered delinquent if the availments exceed the amount of the line and/or in
case the Account is debited for unpaid interest and the Available Balance is insufficient to cover the amount
debited. In such cases, the Available Balance shall become negative and the CLIENT shall pay the
deficiency immediately in addition to collection expenses incurred by the BANK and a penalty fee of three
percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up
to the date of full payment thereon.
x x x x.16 (Underscoring supplied)
The Real Estate Mortgage contract states its coverage, thus:
That for and in consideration of certain loans, credit and other banking facilities obtained x x x from the
Mortgagee, the principal amount of which is PESOS FOUR MILLION SEVEN HUNDERED
THOUSAND ONLY (P4,700,000.00) Philippine Currency, and for the purpose of securing the payment
thereof, including the interest and bank charges accruing thereon, the costs of collecting the same and
of taking possession of and keeping the mortgaged propert[ies], and all other expenses to which the
Mortgagee may be put in connection with or as an incident to this mortgage, as well as the faithful
compliance with the terms and conditions of this agreement and of the separate instruments under which
the credits hereby secured were obtained, the Mortgagor does hereby constitute in favor of the Mortgagee,
its successors or assigns, a mortgage on the real property particularly described, and the location of which
is set forth, in the list appearing at the back hereof and/or appended hereto, of which the Mortgagor declare
that he is the absolute owner and the one in possession thereof, free and clear of any liens, encumbrances
and adverse claims.17 (Emphasis and underscoring supplied)
The immediately-quoted provision of the mortgage contract does not specifically mention that, aside from
the principal loan obligation, it also secures the payment of "a penalty fee of three percent (3%) per month
of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment
thereon," which penalty as the above-quoted portion of the Credit Line Agreement expressly stipulates.
Since an action to foreclose "must be limited to the amount mentioned in the mortgage"18 and the penalty
fee of 3% per month of the outstanding obligation is not mentioned in the mortgage, it must
be excluded from the computation of the amount secured by the mortgage.
The ruling of the Court of Appeals in its assailed Decision that the phrase "including the interest and bank
charges" in the mortgage contract "refers to the penalty charges stipulated in the Credit Line Agreement"
is unavailing.
"Penalty fee" is entirely different from "bank charges." The phrase "bank charges" is normally understood
to refer to compensation for services. A "penalty fee" is likened to a compensation for damages in case of
breach of the obligation. Being penal in nature, such fee must be specific and fixed by the contracting
parties, unlike in the present case which slaps a 3% penalty fee per month ofthe outstanding amount of the
obligation.
Moreover, the "penalty fee" does not belong to the species of obligation enumerated in the mortgage
contract, namely: "loans, credit and other banking facilities obtained x x x from the Mortgagee, . . . including
the interest and bank charges, . . . the costs of collecting the same and of taking possession of and keeping
the mortgaged properties, and all other expenses to which the Mortgagee may be put in connection with or
as an incident to this mortgage . . ."
 38
MUTUUM
In Philippine Bank of Communications v. Court of Appeals19 which raised a similar issue, this Court held:
The sole issue in this case is whether, in the foreclosure of a real estate mortgage, the penalties stipulated
in two promissory notes secured by the mortgage may be charged against the mortgagors as part of the
sums secured, although the mortgage contract does not mention the said penalties.
xxxx
We immediately discern that the mortgage contract does not at all mention the penalties stipulated in the
promissory notes. However, the petitioner insists that the penalties are covered by the following provision
of the mortgage contract:
This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity, as the
case may be, of all promissory notes, letters of credit, trust receipts, bills of exchange, drafts, overdrafts and
all other obligations of every kind already incurred or which hereafter may be incurred.
xxxx
The Court is unconvinced, for the cases relied upon by the petitioner are inapplicable. x x x.
xxxx
The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the only
participation of the other party was the affixing of his signature or "adhesion" thereto. Being a contract of
adhesion, the mortgage is to be strictly construed against the petitioner, the party which prepared the
agreement.
A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields no mention
of penalty charges. Construing this silence strictly against the petitioner, it can fairly be concluded that the
petitioner did not intend to include the penalties on the promissory notes in the secured amount. This
explains the finding by the trial court, as affirmed by the Court of Appeals, that "penalties and charges are
not due for want of stipulation in the mortgage contract."
Indeed, a mortgage must sufficiently describe the debt sought to be secured, which description must
not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes
fairly within the terms of the mortgage. In this case, the mortgage contract provides that it secures notes
and other evidences of indebtedness. Under the rule of ejusdem generis, where a description of things of a
particular class or kind is "accompanied by words of a generic character, the generic words will usually be
limited to things of a kindred nature with those particularly enumerated . . . " A penalty charge does not
belong to the species of obligations enumerated in the mortgage, hence, the said contract cannot be
understood to secure the penalty.20 (Emphasis and underscoring supplied)
Respondents contention that the absence in the mortgage contract of a stipulation securing the payment of
the 3% penalty fee per month on the outstanding amount is of no consequence, the deed of mortgage being
merely an "accessory contract" that "must take its bearings from the principal Credit Line
Agreement,"21 fails. Such absence is significant as it
creates an ambiguity between the two contracts, which ambiguity must be resolved in favor of petitioners
and against respondent who drafted the contracts. Again, as stressed by the Court in Philippine Bank of
Communications:
There is also sufficient authority to declare that any ambiguity in a contract whose terms are susceptible of
different interpretations must be read against the party who drafted it.
A mortgage and a note secured by it are deemed parts of one transaction and are construed together, thus, an
ambiguity is created when the notes provide for the payment of a penalty but the mortgage contract
does not. Construing the ambiguity against the petitioner, it follows that no penalty was intended to be
 39
MUTUUM
covered by the mortgage. The mortgage contract consisted of three pages with no less than seventeen
conditions in fine print; it included provisions for interest and attorneys fees similar to those in the
promissory notes; and it even provided for the payment of taxes and insurance charges. Plainly, the
petitioner can be as specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty
in the promissory notes would be secured by the mortgage. This can then only be interpreted to mean that
the petitioner had no design of including the penalty in the amount secured.22 (Emphasis and underscoring
supplied)
WHEREFORE, the assailed Court of Appeals Decision of February 21, 2007 and Resolution of May 16,
2007 in CA-G.R. SP No. CA-G.R. CV No. 86412 affirming the trial courts decision are, in light of the
foregoing disquisition, AFFIRMED with MODIFICATION in that the "penalty fee" per month of the
outstanding obligation is excluded in the computation of the amount secured by the Real Estate Mortgage
executed by petitioners in respondents favor.
SO ORDERED.

CHARLES L. ONG, vs. REPUBLIC OF THE PHILIPPINES

This petition for review on certiorari assails the April 25, 2006 Decision 1 of the Court of Appeals in CA-
G.R. CV No. 76085, which reversed and set aside the January 16, 2002 Decision 2 of the Municipal Trial
Court of Mangaldan, Pangasinan in Land Registration Case No. 99-023, and the November 20, 2006
Resolution3 which denied petitioners motion for reconsideration.

The antecedent facts are as follows.

On July 1, 1999, petitioner Charles L. Ong (petitioner) in his behalf and as duly authorized representative
of his brothers, namely, Roberto, Alberto and Cesar, filed an Application for Registration of Title4 over Lot
15911 (subject lot) situated in Barangay Anolid, Mangaldan, Pangasinan with an area of five hundred
seventy four (574) square meters, more or less. They alleged that they are the co-owners of the subject lot;
that the subject lot is their exclusive property having acquired the same by purchase from spouses Tony
Bautista and Alicia Villamil on August 24, 1998; that the subject lot is presently unoccupied; and that they
and their predecessors-in-interest have been in open, continuous and peaceful possession of the subject lot
in the concept of owners for more than thirty (30) years.

After due notice and publication, only respondent Republic of the Philippines (respondent), represented by
the Office of the Solicitor General, opposed the application for registration of title. Respondent asserted
that neither applicants nor their predecessors-in-interest have been in open, continuous, exclusive and
notorious possession and occupation of the subject lot since June 12, 1945 or earlier as required by Section
48(b) of Commonwealth Act No. 141, as amended by Presidential Decree (P.D.) No. 1073; that applicants
failed to adduce any muniment of title to prove their claims; that the tax declaration appended to the
application does not appear genuine and merely shows pretended possession of recent vintage; that the
application was filed beyond the period allowed under P.D. No. 892; and that the subject lot is part of the
public domain which cannot be the subject of private appropriation.

On January 16, 2002, the trial court rendered a Decision in favor of petitioner and his brothers, viz:

The foregoing evidences presented by the applicant indubitably established sufficient basis to grant the
applicant (sic) for registration. Originally, the whole parcel of land was owned by spouses Teofilo Abellara
and Abella Charmine who acquired the same by virtue of a Deed of Sale from Cynthia Cacho, Agustin
Cacho, Jr., Jasmin Cacho, Jover Cacho and Lauro Cacho. Later, they sold the same parcel of land to spouses
Tony C. Villamil and Alicia Bautista, who in turn sold the same land to herein applicants.

The same parcel of land has been declared in the name of the applicant and her predecessors-in-interest and
its taxes has (sic) been religiously paid.
 40
MUTUUM
The said circumstances further show that the possession and ownership of the applicant and her (sic)
predecessors-in-interest over the same parcel of land has (sic) been continuous and peaceful under bona
fide claim of ownership before the filing of the instant application for registration on [July 1, 1999].

WHEREFORE, after confirming the Order of General Default, the Court hereby orders and decrees the
registration of a parcel of land as shown on plan ap-01-004897 approved by the Bureau of Land(s) situated
in Barangay Anolid, Mangaldan, Pangasinan, containing an area of Five Hundred Seventy Four (574)
square meters, subject of the application for registration of title, in accordance with Presidential Decree No.
1529, in favor of CHARLIE L. ONG in his behalf and as representative of his brothers namely, ROBERTO
L. ONG, ALBERTO L. ONG and CESAR L. ONG.

Furnish copies of this Decision to the Office of the Solicitor General, Makati City, Metro Manila, the Office
of the Provincial Prosecutor, Dagupan City, Atty. Celestino Domingo Jr., the Office of the Land
Registration Authority, Quezon City, as well as the applicant.

SO ORDERED.5

Aggrieved, respondent appealed to the Court of Appeals which rendered the assailed Decision, the
dispositive portion of which reads:

WHEREFORE, the instant appeal is GRANTED. Accordingly, the decision of the court a quo granting the
application for registration of title of applicants-appellees is REVERSED and SET ASIDE. No
pronouncement as to costs.

SO ORDERED.6

In reversing the decision of the trial court, the Court of Appeals found that the subject lot is part of the
alienable and disposable lands of the public domain. Thus, it was incumbent upon petitioner to prove that
they possessed the subject lot in the nature and for the duration required by law. However, petitioner failed
to prove that he or his predecessors-in-interest have been in adverse possession of the subject lot in the
concept of owner since June 12, 1945 or earlier as mandated by Section 14(1) of P.D. 1529. It noted that
the earliest tax declaration which petitioner presented is dated 1971. Consequently, petitioner could not
fairly claim possession of the land prior to 1971. Neither was petitioner able to prove that he or his
predecessors-in-interest actually occupied the subject lot prior to the filing of the application. Thus, the trial
court erred in granting the application for registration of title over the subject lot.

Hence, this petition raising the following issues:

1. WHETHER OR NOT PETITIONER, TOGETHER WITH HIS BROTHERS, NAMELY,

ROBERTO L. ONG, ALBERTO L. ONG AND CEZAR L. ONG, HAVE REGISTRABLE
OWNERSHIP OVER THE REAL PROPERTY SUBJECT MATTER OF LAND
REGISTRATION CASE NO. 99-023, AND

2. WHETHER OR NOT THE FINDINGS AND CONCLUSION OF THE FORMER SPECIAL

FOURTH DIVISION OF THE COURT OF APPEALS THAT THE SUBJECT REAL
PROPERTY IS A PUBLIC LAND IS CORRECT.7

The petition lacks merit.

Section 14(1) of P.D. 1529 ("Property Registration Decree"), as amended, provides

SEC. 14. Who may apply. The following persons may file in the proper Court of First Instance an
application for registration of title to land, whether personally or through their duly authorized
representatives:
 41
MUTUUM
(1) Those who by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of alienable and disposable lands of the public domain
under a bona fide claim of ownership since June 12, 1945, or earlier.

Thus, pursuant to the aforequoted provision of law, applicants for registration of title must prove: (1) that
the subject land forms part of the disposable and alienable lands of the public domain, and (2) that they
have been in open, continuous, exclusive and notorious possession and occupation of the same under a bona
fide claim of ownership since June 12, 1945, or earlier.8 These requisites involve questions of fact which
are not proper in a petition for review on certiorari. Factual findings of the court a quo are generally binding
on this Court except for certain recognized exceptions, as is the case here, where the trial court and the
Court of Appeals arrived at conflicting findings.9 After a careful review of the records, we sustain the
findings and conclusions of the Court of Appeals.

There is no dispute that the subject lot is classified as alienable and disposable land of the public domain.
The Report10 dated January 17, 2000 of the Bureau of Lands stated that the subject lot is "within the
alienable and disposable zone as classified under Project 50 L.C. Map No. 698 and released and classified
as such on November 21, 1927."11 This finding is, likewise, embodied in the Report12 dated January 7, 1999
of the Department of Environment and Natural Resources Community Environment and Natural Resources
Office (DENR-CENRO) and the blue print Copy13 of the plan covering the subject lot. However, petitioner
failed to prove that he or his predecessors-in-interest have been in open, continuous, exclusive and notorious
possession and occupation of the subject lot since June 12, 1945 or earlier.

The records show that petitioner and his brothers bought the subject lot from spouses Tony Bautista and
Alicia Villamil on August 24, 1998,14 who in turn purchased the same from spouses Teofilo Abellera and
Abella Sarmen on January 16, 1997.15 The latter bought the subject lot from Cynthia, Agustin Jr., Jasmin,
Omir and Lauro, all surnamed Cacho, on July 10, 1979.16 The earliest tax declaration which was submitted
in evidence was Tax Declaration No. 2560617 issued in 1971 in the names of spouses Agustin Cacho and
Eufrosinia Baustista. While tax declarations are not conclusive proof of ownership, they constitute good
indicia of possession in the concept of owner and a claim of title over the subject property.18 Even if we
were to tack petitioners claim of ownership over the subject lot to that of their alleged predecessors-in-
interest, spouses Agustin Cacho and Eufrosinia Baustista in 1971, still this would fall short of the required
possession from June 12, 1945 or earlier.1avvphi1

Further, as correctly pointed by the Court of Appeals, possession alone is not sufficient to acquire title to
alienable lands of the public domain because the law requires possession and occupation. As held in
Republic v. Alconaba:19

The law speaks of possession and occupation. Since these words are separated by the conjunction and, the
clear intention of the law is not to make one synonymous with the other. Possession is broader than
occupation because it includes constructive possession. When, therefore, the law adds the word occupation,
it seeks to delimit the all encompassing effect of constructive possession. Taken together with the words
open, continuous, exclusive and notorious, the word occupation serves to highlight the fact that for an
applicant to qualify, his possession must not be a mere fiction. Actual possession of a land consists in the
manifestation of acts of dominion over it of such a nature as a party would naturally exercise over his own
property.20

Petitioner admitted that after he and his brothers bought the subject lot from spouses Tony Bautista and
Alicia Villamil in 1998, neither he nor his brothers actually occupied the subject lot.21 No improvements
were made thereon and the most that they did was to visit the lot on several occasions. 22 Petitioners
predecessor-in-interest, Tony Bautista testified that he and his wife never actually occupied the subject lot
from the time they bought the same from spouses Teofilo Abellera and Abella Sarmen in 1997.23 Aside
from these two testimonies, no other evidence was presented to establish the character of the possession of
the subject lot by petitioners other alleged predecessors-in-interest. Clearly, petitioners evidence failed to
establish specific acts of ownership to substantiate the claim that he and his predecessors-in-interest
possessed and occupied the subject lot in the nature and duration required by law.
 42
MUTUUM
The burden of proof in land registration cases rests on the applicant who must show by clear, positive and
convincing evidence that his alleged possession and occupation of the land is of the nature and duration
required by law.24 Unfortunately, petitioners evidence do not constitute the "well-nigh incontrovertible"
evidence necessary in cases of this nature.25 Accordingly, the Court of Appeals did not err in reversing the
Decision of the trial court and in denying his application for registration of title over the subject lot.

WHEREFORE, in view of the foregoing, the petition is DENIED. The April 25, 2006 Decision of the Court
of Appeals in CA-G.R. CV No. 76085 which reversed and set aside the January 16, 2002 Decision of the
Municipal Trial Court of Mangaldan, Pangasinan in Land Registration Case No. 99-023, and the November
20, 2006 Resolution denying the motion for reconsideration, are AFFIRMED.

Costs against petitioner.

SO ORDERED.

DR. CECILIA DE LOS SANTOS, vs. DR. PRISCILA BAUTISTA VIBAR

The Case
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated 29 June 2001 and
Resolution3dated 21 November 2001 of the Court of Appeals in CA-G.R. CV No. 66605.
The Facts
Petitioner Cecilia de los Santos (Cecilia) and respondent Priscila Bautista Vibar (Priscila) were former co-
workers in the Medical Department of the Social Security System. They were close and trusted friends for
33 years.
Sometime in 1994, Cecilia introduced Jose de Leon (de Leon) to Priscila. De Leon needed money and
borrowed 100,000 from Priscila. De Leon issued a promissory note dated 2 June 1994 and bound himself
to pay the loan three months from date with a monthly interest rate of 3%.4 Cecilia signed as a guarantor of
de Leons loan.
On 28 June 1995, de Leon asked Priscila for another loan. Together with Cecilia and Avelina Conte, de
Leon went to Priscilas house. Priscila and her sister, Atty. Josefina Bautista (Atty. Bautista), were present
in the same gathering. After some discussion, they all agreed that the outstanding 100,000 loan together
with the accrued interest would be deducted from the new loan of 500,000.5
De Leon signed a typewritten promissory note, which he brought with him, acknowledging the debt of
500,000 payable within 12 months from 28 August 1995, at a fixed monthly interest rate of 3% and a
penalty of 2% per month in case of default.6 Then, Cecilia signed as a witness under the phrase "signed in
the presence of." However, Atty. Bautista brought up the need for Cecilia to sign as guarantor. Thereupon,
de Leon, in his own handwriting, inserted the word "guarantor" besides Cecilias name, as Cecilia nodded
her head to what de Leon was doing. De Leon also added the phrase, "as security for this loan this TCT No.
T-47375, Registry of Baguio City, is being submitted by way of mortgage."
On maturity date, de Leon failed to pay any of the monthly installments. Priscila made several verbal
demands on de Leon for payment but to no avail. Priscilas counsel then sent de Leon a demand letter dated
17 July 1996 asking for payment of the principal loan with interest and penalties. 7 De Leon failed to
respond. On 4 September 1996, Priscilas counsel again sent a demand letter not only to de Leon as principal
debtor, but also to Cecilia.8 Cecilia was being made to answer for de Leons debt as the latters guarantor.
Cecilia then remitted to Priscila 15,000 to pay one months interest on the loan. 9 However, this was the
only payment Cecilia made to Priscila as Cecilia claimed she had no money to pay the full amount of the
loan.
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After several failed attempts to collect the loan, Priscila filed with the Registry of Deeds of Baguio City an
adverse claim on the property registered under TCT No. T-47375. However, the Register of Deeds denied
the registration of Priscilas claim on several grounds:10
(a) the issue involved is a money claim which does not fall within Section 70 of Presidential Decree No.
1529;11
(b) the annexes were not marked;
(c) the family names of Jose and Evangeline, registered owners, do not tally with those on the title;12 and
(d) there is no statement that there is no other provision in the Property Registration Decree for registering
the same.
On 20 November 1996, Priscila filed an action for recovery of money with the Regional Trial Court of
Quezon City, Branch 100, against de Leon and Cecilia.13 De Leon did not file an answer and the trial court
declared him in default. Cecilia, on the other hand, filed an answer denying that she signed as guarantor of
de Leons loan.
On 26 November 1999, the trial court ruled in favor of Cecilia and dismissed the complaint for insufficiency
of evidence.14 On 12 January 2000, Priscila filed a Motion for Reconsideration on the grounds that the trial
court erred in (a) dismissing the complaint against de Leon despite his being declared in default; and (b)
finding that Cecilia was not a guarantor of de Leons loan.
In an Order dated 8 February 2000,15 the trial court modified its decision and ruled that de Leon acted
fraudulently or in bad faith in refusing to pay his debt to Priscila. However, the trial court affirmed its
decision dismissing the complaint against Cecilia. The trial court ruled that there was no express consent
given by Cecilia binding her as guarantor. The dispositive portion of the Order provides:
WHEREFORE, in view of the foregoing, the Decision of the Court dated November 26, 1999, is hereby
amended as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Dra. Priscila Vibar and against defendant
Jose de Leon, and hereby orders the latter to pay the plaintiff the following amounts:
(1) 500,000.00 representing the total amount of the loan extended with interest at 3% per month and
penalty of 2% per month (due to default) from July 17, 1996 until the obligation is fully paid;
(2) 30,000.00 representing moral damages;
(3) 20,000.00 representing attorney's fees; and
(4) costs of suit.
Further, the Court hereby DISMISSES the instant complaint against defendant Dra. Cecilia de los Santos
for insufficiency of evidence. No pronouncement as to costs.
SO ORDERED.
Priscila filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 66605.
The Ruling of the Court of Appeals
On 29 June 2001, the appellate court affirmed the trial courts ruling against de Leon but modified the same
with respect to Cecilia.16 The appellate court declared Cecilia as guarantor of de Leons loan. The relevant
portions of the Decision state:
x x x The conduct of defendant-appellee de los Santos during the signing, however, belies her intention to
act merely as a witness. It cannot be gainsaid that she did not react when she heard Atty. Bautistas protest
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about her signing the promissory note in the capacity only of a witness and not as a guarantor. Neither did
defendant-appellee de los Santos object when defendant-appellee de Leon got back the promissory note
and wrote the word "guarantor" after her signature in full view of all those present, including defendant-
appellee de los Santos. In fact, said appellee nodded, signifying approval, when defendant-appellee de Leon
placed the word "guarantor" after her signature on the promissory note.
xxxx
In this factual milieu, if defendant-appellee de los Santos intended only to sign as a witness, she should
have reacted when the word "guarantor" was written on the note in her presence. She should have expressed
her strong and firm objections to such imposition of liability. But defendant-appellee de los Santos kept
mum. Such silence can lead to no other conclusion that she has impliedly given her consent to be the
guarantor of de Leons loan.
Moreover, defendant-appellee de los Santos is estopped from claiming otherwise. Estoppel in pais arises x
x x.
Moreover, one can imply from defendant-appellee de los Santos letter dated May 5, 1996 addressed to the
Register of Deeds, City of Baguio that defendant-appellee de los Santos agreed to be bound as guarantor x
x x.
It is significant to note that she made no statement therein repudiating her having signed the same in the
capacity of a guarantor, contrary to what she now claims in her defense. Her failure to correct or refute such
statement reinforces the claim that indeed she guaranteed payment of the loan in question, and that writing
was to her interest considering her liabilities under the note as guarantor.
x x x Thus, defendant-appellee de los Santos can be compelled to pay plaintiff-appellant Vibar the judgment
debt if it remains unsatisfied after execution is enforced against the properties of the principal debtor,
defendant-appellee Jose de Leon. x x x
Cecilia filed a Motion for Reconsideration which the appellate court denied in a Resolution dated 21
November 2001.17
Hence, this petition.
The Issue
The main issue for resolution is whether Cecilia is liable as guarantor of de Leons loan from Priscila.
Cecilia contends that she is not liable as guarantor. Her behavior, as when she allegedly "kept mum" or
"nodded her head and smiled," was not an implied consent as guarantor. She insists that the law is clear that
a guaranty is not presumed and that there must be a concrete positive act of acceptance or consent to the
guaranty. Thus, without such knowledge or consent, there is no estoppel in pais.
Priscila, on the other hand, maintains that from the totality of Cecilias acts, she consented to be bound as
guarantor of de Leons loan. Her nod of approval and non-objection to the insertion of the word "guarantor"
at the signing of the second promissory note show that she agreed to be a guarantor, just like in the first
promissory note. Even after discovering that the loan was unpaid and already overdue, Cecilia did not
contest that she was a guarantor and even paid partially to Priscila. Instead, Cecilia claimed she had no
money to pay the entire loan. It was only after the case was filed that Cecilia challenged the insertions in
the promissory note. Hence, Priscila insists that Cecilia is estopped from denying that she is a guarantor.
The Courts Ruling
The issue before us is a question of fact, the determination of which is beyond this Courts power of review
for it is not a trier of facts.18 However, there are instances when questions of fact may be reviewed by this
Court, as when the findings of the Court of Appeals are contrary to those of the trial court.19 In the present
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case, the trial court and the Court of Appeals made conflicting findings of fact. Thus, a review of such
factual findings is in order.
Here, the controversy centers on whether there exists a contract of guaranty to hold Cecilia liable for the
loan of de Leon, the principal debtor. The trial court found that Cecilia had no knowledge of, and did not
consent to, the guaranty. On the other hand, the appellate court ruled that Cecilias conduct during the
signing of the promissory note and her non-objection to the insertion of the word "guarantor" show that she
acted as guarantor. Cecilias nodding of her head upon the insertion of the word "guarantor" signified her
consent to be a guarantor.
We rule that Cecilia was a guarantor of de Leons loan.
Cecilia denies that she had actual knowledge of the guaranty. However, Priscila points to the promissory
note and Cecilias actions as the best evidence to prove that Cecilia signed as guarantor. The promissory
note indicates that Cecilia signed as a witness, as manifested by the typewritten format. However, the word
"guarantor" as handwritten beside Cecilias name makes Cecilia a guarantor. From the records of the case
and the evidence presented, we are convinced that the insertion was made with the express consent of
Cecilia.
Firstly, Cecilias act of "nodding her head" signified her assent to the insertion of the word "guarantor."
The word "guarantor" could have been inserted by Cecilia herself, or by someone authorized by Cecilia. In
either case, Cecilia would be bound as guarantor. In this case, Cecilia, by nodding her head, authorized de
Leon, who prepared the promissory note, to insert the word "guarantor." Since de Leon made the insertion
only after Atty. Bautista had raised the need for Cecilia to be a guarantor, a positive or negative reaction
was expected from Cecilia, who responded by giving her nod of approval. Otherwise, Cecilia should have
immediately expressed her objection to the insertion of the word "guarantor." Cecilias act of nodding her
head showed her consent to be a guarantor.
Secondly, Priscila would not have extended a loan to de Leon without the representations of Cecilia. Cecilia
arranged for de Leon and Priscila to meet so that de Leon could borrow money from Priscila. Cecilia
vouched for de Leons capacity to pay. As a friend and common link between the borrower and lender,
Cecilia took active part in the first loan of 100,000 and even signed as guarantor. On the second promissory
note, the word "guarantor" again appears, admitted by both Cecilia and Priscila as an insertion made by de
Leon at the time of signing. The first loan of 100,000, which Cecilia guaranteed, was paid from the
proceeds of the second loan. As shown by the intervention of Atty. Bautista in bringing up the need for
Cecilia to act as guarantor, Priscila would not have granted the second bigger loan of 500,000 without the
guaranty of Cecilia. It was only natural for Priscila to commit to the second bigger loan subject at least to
the same guarantee as the first smaller loan.
Thirdly, Cecilia claimed ignorance of the guaranty only after this case was filed. However, the records show
that Cecilia had several meetings with Priscila and the latters counsel before the demand letters were
sent.20 In these meetings, Cecilia acknowledged her liability as guarantor but simply claimed that she had
no money to pay Priscila.21 In fact, Cecilia made an initial payment of 15,000 as partial compliance of her
obligation as guarantor. This only shows that Cecilia never denied her liability to Priscila as guarantor until
this case was filed in court.
Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City inquiring on the status of the property
mentioned in the promissory note as a mortgage security for de Leons loan.22 The letter states:
May 5, 1996
The Register of Deeds
City of Baguio
Sir:
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This is relative to a "Promissory Note" dated June 28, 1995 x x x.
In the aforestated "Promissory Note", the undersigned appears to be a "Guarantor" and it is a condition
therein that "as security for this loan this TCT No. 47375, Registry of Baguio City, is being submitted, by
way of mortgage". However, information has been received that said registered owners, individually or
collectively, have executed and filed with your Office an "affidavit of loss" of said duplicate owners copy.
If such information is correct, may I request for a "certification" to said effect, and possibly, a certified true
copy of such document.
xxxx
Here, Cecilia clearly stated that she "appears to be a guarantor" in the promissory note. This serves as a
written admission that Cecilia knew she was a guarantor. During the trial, Cecilia did not impugn the letter
or its contents. In fact, Cecilia submitted this letter in evidence.23 Cecilia wrote the Register of Deeds to
protect her interest, hoping that the property covered by TCT No. T-47375 could answer for de Leons loan
and save her from personally paying as guarantor. This explains Cecilias letter admitting that she appears
as a guarantor in the promissory note.
It is axiomatic that the written word "guarantor" prevails over the typewritten word "witness." In case of
conflict, the written word prevails over the printed word. Section 15 of Rule 130 provides:
Sec. 15. Written words control printed. - When an instrument consists partly of written words and partly of
a printed form, and the two are inconsistent, the former controls the latter.
The rationale for this rule is that the written words are the latest expression of the will of the
parties.1avvphi1 Thus, in this case, the latest expression of Cecilias will is that she signed the promissory
note as guarantor.
We agree with the Court of Appeals that estoppel in pais arose in this case. Generally, estoppel is a doctrine
that prevents a person from adopting an inconsistent position, attitude, or action if it will result in injury to
another.24 One who, by his acts, representations or admissions, or by his own silence when he ought to
speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and
such other rightfully relies and acts on such belief, can no longer deny the existence of such fact as it will
prejudice the latter.25
Cecilias conduct in the course of the negotiations and contract signing shows that she consented to be a
guarantor of the loan as witnessed by everyone present. Her act of "nodding her head," and at the same time
even smiling, expressed her voluntary assent to the insertion of the word "guarantor" after her signature. It
is the same as saying that she agreed to the insertion. Also, Cecilias acts of making the partial payment of
15,000 and writing the letter to the Register of Deeds sustain the ruling that Cecilia affirmed her obligation
as de Leons guarantor to the loan. Thus, Cecilia is now estopped from denying that she is a guarantor.
WHEREFORE, we DENY the petition. We AFFIRM the 29 June 2001 Decision and 21 November 2001
Resolution of the Court of Appeals in CA-G.R. CV No. 66605.
SO ORDERED.