Republic

SUPREME
Manila

of

the

Philippines
COURT

PHILIPPINE

ISLANDS, plaintiff-appellee,

EN BANC
G.R. No. L-19190

November 29, 1922

THE
PEOPLE
OF
THE
vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo
Ma.
Attorney-General Villa-Real for appellee.

Calvo

for

appellant.

MALCOLM, J.:
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,"
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.
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?
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.
Araullo, C. J., Johnson, Street, Avancea, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-17474

October 25, 1962

REPUBLIC
OF
THE
PHILIPPINES, plaintiff-appellee,
vs.
JOSE
V.
BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
D.
T.
Reyes,
Liaison
and
Office of the Solicitor General for plaintiff-appellee.

Associates

for

petitioner-appellant.

PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration
on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However,
the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for
another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March
1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three
bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry
advised him that the book value of the three bulls could not be reduced and that they either be returned or
their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the
three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the
Republic of the Philippines commenced an action against him praying that he be ordered to return the
three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding
fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be
granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of
the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the
pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of
the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the
bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the
Auditor General did not object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls
plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate
from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18
October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this
order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the
defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. On
7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were
returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the
Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying
that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January
1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day,
6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court
as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned
the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of
execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the
estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already
had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the
animal was kept, and that as such death was due to force majeure she is relieved from the duty of
returning the bull or paying its value to the appellee. The contention is without merit. The loan by the
appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject
to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant
contends that the contract was commodatum and that, for that reason, as the appellee retained
ownership or title to the bull it should suffer its loss due to force majeure. A contract ofcommodatum is
essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a
lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of
a possessor in bad faith, because she had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the
Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November
1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the
deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at
P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of
loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the
payment of its value being a money claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil

personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable,
because section 17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the deceased,
within a period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3
which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court
promptly of such death . . . and to give the name and residence of the executory administrator,
guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had
been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having
claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied,
whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness
of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this
Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first
publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the
appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee
who were to be notified of the defendant's death in accordance with the above-quoted rule, and there was
no reason for such failure to notify, because the attorney who appeared for the defendant was the same
who represented the administratrix in the special proceedings instituted for the administration and
settlement of his estate. The appellee or its attorney or representative could not be expected to know of
the death of the defendant or of the administration proceedings of his estate instituted in another court
that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as
required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only
liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it
was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the
appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the
quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas
having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in
favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal,
JJ., concur.
Barrera, J., concurs in the result.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-46240

November 3, 1939

MARGARITA
QUINTOS
vs.
BECK, defendant-appellee.

and

Mauricio
Carlos
Felipe Buencamino, Jr. for appellee.

ANGEL

A.

ANSALDO, plaintiffs-appellants,

for

appellants.

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

The contract entered into between the parties is one of commadatum, because under it the plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof;
by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand
(clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation
voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he
should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply
with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the
three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by
counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the
legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were
offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit;
nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted
to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the
defendant in case of his inability to return some of the furniture because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value.
Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined by
the trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract
of commodatum, and without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal expenses and
other judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in
the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by
the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the
defendant shall pay the costs in both instances. So ordered.
Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-20240

December 31, 1965

REPUBLIC
OF
vs.
JOSE GRIJALDO, defendant-appellant.
Office
of
the
Solicitor
Isabelo P. Samson for defendant-appellant.

THE

PHILIPPINES, plaintiff-appellee,

General

for

plaintiff-appellee.

ZALDIVAR, J.:
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 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 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)
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.
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Makalintal and Bengzon,
J.P., JJ.,concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26058 October 28, 1977
AMPARO JOVEN DE CORTES & NOEL J. CORTES (Jesus Noel plaintiff-appellees,
vs.
MARY E. VENTURANZA, ETC., JOSE OLEDAN & ERLINDA M. OLEDAN, defendants-appellants.
Delia L. Hermoso for appellants the Venturanzas.
Ang. Atienza, Tabora & Del Rosario for appellants the Oledans, Bernardo Guerrero & Associates for
appellees.

MAKASIAR, J.:t.hqw
Direct appeal by the defendants-appellants from the decision of the Court of First Instance of Bulacan
against them in its Civil Case No. 2693, entitled "Felix Cortes y Ochoa, and Noel J. Cortes (Jesus Noel
plaintiffs, versus Gregorio Venturanza, Mary E. Venturanza, Jose Oledan and Erlinda M. Oledan,
defendants."
The original plaintiffs in this case were Felix Cortes y Ochoa and Noel J. Cortes, and the original
defendants were Gregorio Venturanza, Mary E. Venturanza, Jose Oledan and Erlinda M. Oledan. On
December 11, 1967, defendant Gregorio Venturanza died. Accordingly, as prayed for by appellees, Mary
E. Venturanza, Edna Lucille, Greymar, Sylvia, Edward and Mary Grace, all surnamed Venturanza,
surviving spouse and children of the deceased Gregorio Venturanza, were substituted as appellants, in
place of the deceased, by resolution of this Court dated February 28, 1968. On September 12, 1968, Felix
Cortes y Ochoa died. Appellees, through counsel, thereupon filed a petition praying that the title of this
case be changed to read: "Amparo Joven de Cortes and Noel J. Cortes (Jesus Noel plaintiffs-appellant,
versus Mary E. Venturanza, etc., Jose Oledan and Erlinda M. Oledan, defendants-appellants," which
petition was granted by this Court in its resolution dated April 11, 1969.
The background facts may be gleaned from the pertinent portions of the decision of the court a quo, as
follows:+.wph!1
Plaintiff Felix Cortes y Ochoa and Noel J. Cortes filed the instant action for foreclosure of
real estate against the defendants Gregorio Venturanza, Mary E. Venturanza, Jose
Oledan and Erlinda M. Oledan. The complaint alleges that plaintiff Felix Cortez y Ochoa
was the original owner of nine (9) parcels of land covered by Transfer Certificates of Title
Nos. 21334 to 21342, inclusive, while plaintiff Noel J. Cortes was likewise the original
owner of twenty-four (24) parcels of land covered by Transfer Certificates off Title Nos.
21343, 21345, 21347 to 21367, inclusive, all of the land records of Bulacan; that on
October 24, 1958 said plaintiffs sold and delivered to the defendants all the abovementioned thirty-three (33) parcels of land with all the improvements thereon for the total
sum of P716,573.90 of which defendants agreed to pay jointly and severally the plaintiffs
the sum of P100,000.00 upon the signing and execution of a deed of sale and
P40,000.00 on January 1, 1959 thereby leaving a balance of P576,573.90 which the
defendants agreed and bound themselves to pay plaintiffs jointly and severally within

three (3) years from January 1, 1959 with interest thereon at the rate of 6% per annum;
that defendants further agreed and bound themselves to secure the payment of the said
balance of P576,573.90 with a first mortgage upon the said 33 parcels of land with
improvements; that the defendants have already paid the plaintiffs the total sum of
P140,000.00; that of the unpaid balance owing to plaintiffs, P169,484.24 pertaining to
plaintiff Felix Cortes and P407,089.66 pertains to plaintiff Noel J. Cortes; that upon the
registration of the deed of sale and mortgage with the office of the register of deeds of
Bulacan new certificates of title for the 33 parcels of land were issued in the names of the
defendants and the mortgage obligation was noted thereon; that the mortgage obligation
fell due on January 1, 1962, but despite repeated demands for payment, defendants
failed and refused to pay the said balance of P576,573.90 to plaintiffs; that from the time
the mortgage obligation fell due and demandable up to December 1, 1962 the total
interest due from the defendants on the balance of their obligation is P103,783.32
computer led at the stipulated interest of 6% per annum; that it is stipulated in the deed of
sale with purchase money mortgage that in the event or default by defendants to pay the
obligation secured by the mortgage and a suit is brought for the foreclosure of the
mortgage or any other legal proceedings is instituted for the enforcement of plaintiffs'
right, defendants would be obligated and hound to pay the plaintiffs reasonable
compensation for attorney's fees which plaintiffs fixed at P50,000.00.
Defendants Spouses Venturanza admit the allegations of the complaint regarding
plaintiffs's former ownership of the lands in question as well as their execution of the
mortgage in favor of plaintiffs but allege that they are at present the registered owners of
the same parcels of land by virtue of the sale thereof made to them; they likewise admit
the allotment of payment to plaintiffs of the balance of their obligation but allege that the
said balance has not yet become due and demandable so that they have not incurred in
default. As special affirmative defense defendants Venturanza allege that the document
designated as deed of sale with purchase money mortgage does not express the true
intent and agreement of the parties with respect to the manner of payment of the balance
of the purchase price, the truth being that defendants will pay the balance of the
purchase price in,the amount of P576,573.90 to the plaintiffs, and the latter agreed, as
soon as defendants will have received from the Land Tenure Administration the purchase
price of their (defendants') hacienda in Bugo, Cagayan de Oro in the amount of
P360,000.00 which hacienda is the object of exporpiration proceedings before the Court
of First Instance of said City; that it was agreed moreover that defendants will complete
payment of the balance of the purchase price upon the consummation of the sale of their
other hacienda at Buhi, Camarines Sur to one Mr. De Castro for P837, 00.00 more or
less; that this negotiation was known to plaintiffs who agreed to wait for the sale of the
same properties by defendants; that the property in question was bought by defendant for
speculative purposes. As second special and affirmative defenses defendants allege that
the deed of sale with purchase money mortgage had been novated by a subsequent
agreement regarding the manner and period of payment to be made by defendants and
that, therefore, the cause of action has not yet accrued.
Defendants Jose Oledan and Erlinda M. Oledan deny the material allegations of the
complaint with respect to the mortgage obligation alleging that plaintiffs cause of action
against them has been extinguished and, therefore did not become due against them on
January 1, 1962; that even as regards their co-defendants Venturanzas the mortgage
obligation did not become due on January 1, 1962 there hating been a novation of the
original agreement which affected material changes in the manner and condition of time
of payment of the balance of the mortgage obligation. By way of affirmative defenses
defendants Oledans alleged that the deed of sale with purchase money mortgage fails to
express the true intent and agreement of the parties thereto insofar as the nature of the
liability of the defendants is concerned, the true intention being to hold them (defendants
Oledan) obligated unto plaintiffs only to the extent of the proportion of their share,

ownership and interests in the property conveyed; that their obligation to plaintiffs has
been extinguished by novation; that their obligation to plaintiffs has been extinguished by
the assumption of the obligation by defendants Venturanza as provided for in the
agreement among defendants dated December 28, 1959, such assumption of the
obligation being inside' with full knowledge (of) and consent of plaintiffs which partakes of
the character of a novation of the original agreement and that by their failure to
seasonably interrupt any opposition to the assumption of any obligation by defendants
Venturanza and to take appropriate action thereon, plaintiffs have waived their right to
proceed against them.
By way of cross-claim against their co-defendants Venturanza, defendants Oledan allege
that on December 28, 1958 they and their co-defendants executed and entered into an
agreement whereby they sold, transferred unto their co-defendants all their shares,
ownership and interest in the property subject of a deed of sale with purchase money
mortgage for and in consideration of the sum of P44,571.66 payable at the time and in
the manner specified in the written agreement; that of the aforementioned consideration
cross-defendants have paid to them the sum of P22,285.83 thereby leaving a balance
still due and unpaid in the amount of P22,285.83 which cross-defendants have failed to
pay within the period stipulated in their agreement; that it is further stipulated in their
agreement with cross-defendants that in the event of failure by the latter to pay the said
balance within the period agreed upon they (cross-defendants) shall pay to them the sum
of P6,367.30 for the period August 8, 1960 to August 28, 1961; another amount of
P6,367.30 for the period August 28,1961 to August 28, 1962 and still another amount of
P6,367.30 for the period August 28, 1963 by way of penalty, which despite repeated
demands cross-defendants have failed to pay; that it is further stipulated in their
agreement that in the event of default on the part of cross-defendants, interest in the
legal rate of 6% per annum shall be borne by the unpaid balance in the amount of
P22,285.83 plus the penalties aforementioned.
By way of counter-claim, defendants-cross-plaintiffs allege that at the time defendants
executed the agreement dated December 28, 1958 plaintiffs had full knowledge of and
gave their consent to the transfer of their shares, ownership and interest in favor of their
co-defendants, as well as the assumption by the latter of the mortgage obligation; that
despite such knowledge and consent, plaintiffs induced cross-defendants not to register
the agreement and effect the issuance of new transfer certificate of title in the name
solely of defendants Venturanza, evidently for the purpose of preversing cause of action
against them under the deed of sale with purchase money mortgage; that as a
consequence of plaintiffs' injurious and malicious suit against them they suffered mental
anguish, serious anxiety, besmirched reputation and moral shock on the basis of which
plaintiffs should he held answerable to them in moral damages in the amount of
P100,000.00 aside from exemplary damages; and that a, a consequence of plaintiffs'
having filed the instant action against them they were compelled to engage the services
of counsel and incurred expenses of litigation in the total amount of P20,000.00 for which
plaintiffs should be held liable to them (pp. 93-100, Corrected Rec. on Appeal, pp. 320323, rec ).
After due trial, the court a quo rendered its judgment with the following rationale and dispositive
portion:+.wph!1
There is no question that defendants are indebted to plaintiffs on the mortgage executed
by them contained in the document denominated as 'Deed of Sale with Purchase Money
Mortgage' (Exhibit 'A') to the tune of P576,573.90 with interest thereon at the stipulate
rate of 6% per annum. The pertinent portion of the document in question is quoted, as
follows:+.wph!1

'(c) The remaining balance of the purchase price, after deducting the
sums of P100,000.00 and P40,000.00, mentioned in Paragraphs (a) and
(b) of this Article II, aggregating the sum of Five Hundred Seventy Six
Thousand Five Hundred Seventy Three Pesos and Ninety Centavos
(P576,573.90) shall be paid jointly and severally, by the vendees to the
vendors within three (3) Nears from January 1, 1959, with interest
thereon at the rate of six per annum, until fully paid, of which the sum of
P169,484.24, plus the corresponding interest thereon, shall be paid by
the vendees to the vendor, Felix Cortes y Ochoa, and the balance of
P407,089.66, plus the corresponding interest thereon, shall be paid by
the Vendees to the Vendor, Noel J. Cortes.'
Defendants do not deny their failure to make good their obligation to pay plaintiffs the
balance of the purchase price within the three-year period agreed upon in their
document. However, defendants Venturanzas explained their failure as being due to their
inability to collect the payment of the sale of their own property located in Buhi,
Camarines Sur, and Bugo, Cagayan de Oro. in this connection, we are again quoting a
specific provision of the agreement between the parties as regards the payment of the
obligation, thus:+.wph!1
C. In the event that the vendees shall fail to pay to the vendors, in the
form and manner provided in Paragraphs (b) and (c) of Article II hereof,
the said sums of P40,000.00 and P576,573.90, and the interest thereon,
or should the vendees make default in the performance of any one or
more of the conditions stipulated herein, the Vendors shall have the right,
at their election, to foreclos(ur)e this mortgage, and to that end the
vendors are hereby appointed the attorneys-in-fact for the Vendees with
full power of substitution, to enter upon and take possession of the
mortgaged properties, without the order of any court or any other
authority other than herein granted, and to sell and dispose of the same
to the highest bidder at public auction, ... .'
Defendants claim that there had been a novation of the contract between them and
plaintiffs on account of the transfer made by defendants Oledans of their interest in the
property in favor of their defendants Venturanzas, with the knowledge and consent of the
plaintiffs As regards this claim of defendants, we have another pertinenent provision of
their contract which reads as follows:+.wph!1
'B. The vendees may, during the existence of this mortgage, sell the
property hereby mortgaged, or any part thereof, or encumber the same
with a second mortgage, with the previous written consent of the
vendors. ... .'
In view of the foregoing stipulations in the contract between the parties, while plaintiffs
may have knowledge of the transfer made by defendants Oledans of their interest in the
property in question in favor of their co-defendants, yet insofar as the original contract
between plaintiffs and defendants are concerned, 'the provisions thereof shall govern. For
plaintiffs' written consent to any transfer is required by the provisions of their contract.
Since defendants were of the said provision, they should have taken steps to obtain
plaintiffs' written consent if only to effect a novation. To the mind of the court, it must have
been due to a premonition on the part of plaintiffs that there might be a substitution of
debtor that gave rise to the incIusion of the aforequoted provision in their original
contract.

It having been satisfactorily established that defendants are indeed indebted to plaintiffs
on the mortgage constituted by them over the parcels of land in question, the period of
payment of the obligations having become due, plaintiffs are, therefore, entitled to a
foreclosure of the said mortgage.
The next question that crops up for determination is whether or not defendants Oledans
have a right against their co-defendants Venturanzas in this case. Exhibit 1-Oledan which
is an Agreement and Deed of Sale of Undivided Share in Real Estate entered into by and
between the Venturanzas and the Oledans clearly shows that by virtue of said document,
the Venturanzas assumed the whole obligation to plaintiffs for and in consideration of the
sum of P44,571.66, one-half of which amount was paid to the Oledans upon the
execution and signing thereof and the balance payable within 8 months therefrom. The
Venturanzas do not assail the veracity of the document However, they seem to deny
having agreed to the divisions of the penalty clause claiming that the Oledans assured
them that the same was just incorporated therein as a matter of form but that it would not
be enforced. The Venturanzas having agreed to time, as in fact, they have assumed the
whole obligation to the plaintiffs, they should, therefore, be held liable to the Oledans
for ,Alexander the latter shall be bound to pay to plaintiffs under the original contract
known as Deed of Sale with Purchase Money Mortgage.
WHEREFORE, judgment is hereby rendered in favor of pIaintiffs and against the
defendants, ordering the latter jointly and severally to pay to the former or to deposit with
the clerk of court the sum of P576,573.90 with interest thereon at the stipulated rate of
6% per annum until fully paid, within 90 days from notice hereof. In default of such
payment the mortgaged property will be sold at public auction to realize the mortgage
indebtedness and costs. in accordance with law.
On the cross-claim filed by defendants-cross-claimants Oledans, cross-defendants
Venturanzas are ordered to reimburse to the former the amount which cross-claimants
are to pay to plaintiffs under the above judgment.
The parties will bear their own costs and expensive of litigation" (pp. 107-113, Corrected
Record on Appeal, pp. 327-330, rec.).
Not satisfied with the foregoing decision of the court a quo, particularly with respect to its dispositive
portion, plaintiffs filed a motion for reconsideration and/or new trial, dated October 19, 1965, and an
urgent supplemental ration for reconsideration, dated November 2, 1965. The defendants Oledans
likewise filed their motion for reconsideration dated November 2, 1965, and the defendants Venturanzas
also filed a motion for reconsideration dated November 10, 1965.
Resolving the aforesaid motions of the parties litigants, the trial court amended the dispositive portion of
its in question in its order dated November 22, 1965, which reads as follows:+.wph!1
This case is again before the Court upon a motion for reconsideration and/or new trial
filed by plaintiffs dated October 19, 1965, an urgent supplemental motion for
reconsideration dated November 2, 1965 filed by the same plaintiffs, a motion for
reconsideration dated November 2, 1965 filed by defendants Oledans, and a motion for
reconsideration dated November 10, 1965 filed by defendants Venturanzas.
After a careful deliberation of the different motions for filed by the parties, the Court
believes a further modification of the decision of September 30, 1965, as amended by the
order of October l, 1965, is in order. This, in accordance with the agreement entered into
by the parties embodied in the document designated as Deed of Sale with Purchase
Money Mortgage.

WHEREFORE, the dispositive part of the decision of September 30, 1965 is hereby reamended so as to read as follows:+.wph!1
'WHEREFORE, judgment is hereby rendered in favor of plaintiff.s, and
against the defendants ordering the latter, jointly and severally, to pay the
former or to deposit with the clerk of court the sum of P576,573.90 with
interest thereon at the stipulated rate of 6% per annum from January 1,
1959 until fully paid, within 90 days from notice hereof. In default of such
payment the mortgaged property will be sold at public auction to realize
the mortgage indebtedness and costs, in accordance with law.'
'On the cross-claim by the defendants-cross-claimants Venturanzas are
ordered to reimburse to the former the amount which cross-claimants are
to pay to plaintiff under the judgment.
'The parties will bear their own costs and expenses of litigation.'
With the foregoing resolution the motion for reconsideration filed by defendants
Venturanzas and Oledans are, therefore, DENIED (pp. 151-152, Corrected Record on
Appeal, pp. 349-350, rec.).
From the foregoing judgment, as amended, the defendants Venturanzas and Oledans now appeal directly
before this Court. The Venturanzas assigned four (4) errors while the Oledans assinged five (5) errors
allegedly committed by the trial court. WE believe these errors taken together all boil down to the
following issues:
a. Whether, upon the filing by plaintiffs of their complaint against the defendants on December 12, 1962,
the obligation of the defendants had not yet become due and demandable and, hence, the complaint was
filed prematurely.
b. Whether the payment of P576,573.90 with interest thereon at the stipulated rate of 6% per annum was
to be made dependent upon the consummation of the sale of the two haciendas of defendants
Venturanzas and, hence, there was a novation of the contract of sale with purchase money mortgage,
Exhibit B, as a result of a change in the manner of payment.
c. Whether the sale on December 28, 1959 by the defendants Oledans to their co-defendants
Venturanzas, of all their rights and interests in the property, subject-matter of the deed of sale with
purchase money mortgage, Exhibit B, likewise constituted a novation thereof and, therefore, had the
effect of discharging the defendants Oledans from their original obligation to the plaintiffs.
1. The first and second issues involve an interpretation of paragraph II (c) of the Deed of Sale with
Purchase Money Mortgage, Exhibit B, which provides as follows: +.wph!1
(c) The remaining balance of the purchase price, after deducting the sums of
P100,000.00 and P40,000.00, mentioned in Paragraphs (a) and (b) of this Article II,
aggregating the sum of FIVE HUNDRED SEVENTY-SIX THOUSAND FIVE HUNDRED
SEVENTY-THREE PESOS AND NINETY CENTAVOS (P576,573.90) shall be paid, jointly
and severally, by the VENDEES to the VENDORS WITHIN THREE (3) years from
January 1, 1959, with interest at the rate of Six Per Centrum (6%) per annum, until fully
paid of which the sum of P169,484.24, plus the corresponding interest thereon, shall be
paid by the VENDEES to the VENDOR, FELIX CORTES y OCHOA, and the balance of
P407,089.66, plus the corresponding interest thereon, shall be paid by the VENDEES to
the VENDOR, NOEL J. CORTES. ...

With respect to the first issue whether the complaint was filed prematurely there is no dispute that
plaintiffs filed their complaint on December 12, 1962; that under the term of the contract, the pertinent
portion of which is quoted above, the defendants were given until January 1, 1962 within which to pay
their obligation; and that January 1, 1962 had passed without the defendants having paid to the plaintiffs
the sum of P576,573.90 and the corresponding interest thereon notwithstanding repeated demands for
payment made upon and duly received by them (Exhs. D, D-3 E, E-3, pp. 72, 73, 73-A, 74- 75, Folder of
Exhibits). Therefore, when plaintiffs filed the complaint on December 12, 1962, the effects of default as
against the defendants had already arisen. Besides, no less than the defendants Venturanzas themselves
admitted in their brief that they were delayed in the payment of the balance of their obligation to the
plaintiffs. Let us turn to page 25 of their brief.+.wph!1
The delay in the payment of the balance of the purchase price due to the plaintiffsappellees was caused by the delay in the receipt of the payment of the purchase price of
the two haciendas of the herein defendants-appellants Venturanza spouses. The noncompliance of herein defendants-appellants with their obligations to pIaintiffs-appellees
was due to circumstances not within their control ... .
One cannot admit being delayed in the payment of his obligation unless he believes that his obligation is
already due and demandable. Stated otherwise, there is no delay if the obligation is not yet due.
The alleged cause of their default in paying the balance of the price, is not force majeure nor an act of
God. Hence, their failure to pay is not justified.
2. With respect to the second issue, defendants Venturanzas contend that the three-year period provided
for in the Deed of Sale with Purchase Money Mortgage, Exhibit B, was dependent on the date when they
would be able to collect the purchase price of the two properties they were trying to sell. For this purpose,
they claim that Dr. Cortes, one of the plaintiffs, granted them an extension of time within which to pay and
this act of Dr. Cortes constituted a novation of the contract.
This claim of defendants Venturanzas is equally devoid of merit. A careful reading of the Deed of Sale
with Purchase Money Mortgage, Exhibit B, reveals the conspicuous absence of any provision making the
consummation of the said contract dependent on the ability of defendants Venturanzas to collect the
purchase price of their two haciendas. If this were the intention of the parties, they should have clearly
stated it in the contract. It is true the defendants wrote two letters to Dr. Cortes and/or his lawyer (Exhibits
H and I-Venturanza, p. 90, Folder of Exhibits), wherein the defendants Venturanzas requested an
extension of time within which to pay and Dr. Cortes admitted having been informed of the alleged
projected sale of defendants Venturanzas' properties. Dr. Cortes, however, vehemently denied having
given said defendants any extension of time.
The deed of sale with purchase money mortgage clearly indicates that the balance of P576,573.90 shall
be paid by the defendants, jointly and severally, within three (3) years from January 1, 1959, with interest
at the rate of 6% per annum, until fully paid. On January 1, 1962, the defendants failed and refused to pay
their obligation. This is a clear case of an obligation with a definite period ex die, which period was
incidentally established for the benefit of the defendants. The evidence presented by the plaintiffs to
substantiate these facts approaches moral certainty, not merely preponderance of evidence. Hence,
defendants' defense of novation as to the period for payment, fails.
Furthermore, according to Article 1159 of the New Civil Code, obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith. The deed, Exhibit
B, does not show on its face that any of the limitation of the freedom of contract under Article 1306 of the
same Code, such as law, morals, good customs, public order, or public policy, exists, On the contrary, the
terms of said exhibit are so clear and leave no doubt with respect to the intention of the contracting
parties. Hence, the literal meaning of its stipulations shall control (Art. 1370, New Civil Code). This is so
because the intention of the parties is clearly manifested and they are presumed to intend the

consequences of their voluntary acts ft. 5, par. [c], Rule 131, Revised Rules of Court). There being
nothing in the deed, Exhibit B, which would argue against its enforcement, it follows that there is no
ground or reason why it should not be given effect.
WE therefore, see no reason to overturn the finding of the court a quo that the defendants are indebted to
the plaintiffs on the mortgage constituted by them over the 33 parcels of land in question since the period
for payment of the obligation had become due and, therefore, plaintiffs are entitled to a foreclosure of the
said mortgage
3. The third and last issue pertains to the principal defense of the defendants Oledans. These defendants
claim that because they transferred their interest and participation in the property subject of the Deed of
Sale with Purchase Money Mortgage, Exhibit B, to the defendants Venturanzas allegedly with the
knowledge of the plaintiffs, novation by substitution of the person of the debtor took place and, therefore,
their obligation to the plaintiffs had been extinguished.
In resolving this issue, it is important to state some principles and jurisprudence underlying the concept
and nature of novation as a mode of extinguishing obligations.
According to Manresa, novation is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or
Principal conditions, or by substituting the person of the debtor, or by subrogating a third person to the
rights of the creditor (8 Manresa 428, cited in IV Civil Code of the Philippines by Tolentino 1962 ed., p.
352). Unlike other modes of extinction of obligations, novation is a juridical act with a dual function it
extinguishes an obligation and creates a new one in lieu of the old.
Article 1293 of the New Civil Code provides:+.wph!1
Novation which consists in substituting a new debtor ,in the place of the original one, may
be made even without the knowledge or -i , it the will of the latter, but not without the
without of the creditor (Emphasis supplied).
Under this provision, there are two forms of novation by substituting the person of the debtor, and they
are: (1)expromision and (2) delegacion. In the former,the initiative for the change does not come from the
debtor and may even be made without his knowledge, since it consists in a third person assuming the
obligation. As such, it logically requires the consent of the third person and the creditor. In the latter, the
debtor offers and the creditor accepts a third person who consents to the substitution and assumes the
obligation, so that the intervention and the consent of these three persons are necessary (8 Manresa 436437, cited in IV Civil Code of the Philippines by Tolentino, 1962 ed., p. 360). In these two modes of
substitution, the consent of the creditor is an indispensable requirement (Garcia vs. Khu Yek Chiong, 65
Phil. 466, 468)
Defendants Oledans' theory is that the Agreement and Deed of Sale of Undivided Share in Real Estate
(Exhibit 1-Oledan, p. 91, Folder of Exhibits), executed and entered into by and between them and their
co-defendants Venturanzas, and which in effect transferred all their interest and participation in the
property subject of the deed of mortgage (Exhibit B) to their co-defendants Venturanzas, extinguished
their obligation to the plaintiffs. In support of their theory, they cited Article 1293 of the New Civil Code,
quoted above, and then concluded that the creditor's consent to the novation which consists one "is
entirely unnecessary and senseless." They also cited the cases of Rio Grande Oil Co. vs. Coleman (39
O.G. No. 38, 986) and Santisimo Rosario de Molo vs. Gemperle (39 O.G. No. 59, 1410), both decided by
the Court of Appeals, through the learned Mr. Justice Sabino Padilla, who later became an active and
respected member of this Court.
A perusal of the aforecited cases shows the following:+.wph!1

From the Coleman case:

... A personal novation by substitution of another in place of the debtor may be effected
with or without the knowledge of the debtor but not without the consent of the creditor
(Art. 1205, Civil Code [now Art 1293, New Civil code]). this is the legal provision
applicable to the case at bar. the reason for the requirement that the creditor give his
consent to the substitution is obvious. the substitution of another in place of the debtor
may prevent or delay the fulfillment or performance of the obligation by reason of the
inability or insolvency of the new debtor; hence, the consent of the creditor is necessary.
This kind of substitution may take place without the knowledge of the debtor when a third
party assumes the obligation of the debtor with the consent of the creditor. The novation
effected in this way is called delegacion. (Art. 1206, Civil Code [now Art. 1295, New Civil
Code]). In these two modes of substitution, the consent of the creditor is always
required.... (emphasis supplied).
From the Gemperle case:+.wph!1
A personal novation by substitution of another in place of the debtor may take place with
or without the knowledge of the debtor but not without the consent of the creditor (Article
1205, Civil code the creditor's consent to such substitution is obvious. Substitution of one
debtor, for another may delay or prevent the fulfillment or performance of the obligation
by reason of the temporary inability or insolvency of the new debtor. In a novation that
takes place when the debtor offers and the creditor accepts a third party in place of the
former debtor, the consent of the creditor is also necessary (art. 1206, Civil Code [now
Art. 1295, New civil Code]). ...
After going over carefully the aforecited portions of the decisions of the Court of Appeal cited by the
defendants Oledans, WE find that they do not help any the cause of said defendants; on the contrary,
they both militate against their theory. Be that as it may, suffice it to state that while the Agreement and
Deed of Sale of Undivided Share in Real Estate, Exhibit 1-Oledan, might have created a juridical relation
as between defendants Venturanzas and Oledans, it cannot however affect the relation between them on
one hand, and the plaintiffs, on the other, since the latter are not privies to the said agreement, and this
kind of novation cannot be made without the consent of the plaintiffs (Garcia vs. Khu Yek Chiong, et
al., supra). One reason for the requirement of the creditor's consent to such substitution is obvious.
Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of
the financial inability or insolvency of the new debtor; hence, the creditor should agree to accept the
substitution in order that it may be binding on him.
Incidentally, this case is, in practically all respects, similar to, if not Identical with, the case of McCullough
& Co. vs. Veloso and Serna (46 Phil. 1). In that case, plaintiff sold to defendant Veloso its property known
as "McCullough Building" consisting of a land with the building thereon, for the price of P700,000.00.
Veloso paid a down payment of P50,000.00 cash on account at the execution of the contract, and the
balance of P650,000.00 to be paid on installment basis. To secure the payment of the balance, Veloso
mortgaged the property purchased in favor of McCullough. It was stipulated that in case of failure on the
part of Veloso to comply with any of the stipulations contained in the mortgage deed, all the installments
with the interest thereon at the rate of 7% per annum shall become due, and the creditor shall then have
the right to bring the proper action in court.
Subsequently, Veloso sold the property with the improvements thereon for P100,000.00 to Serna, who
agreed to respect the mortgage on the property in favor of McCullough and to assume Veloso's obligation
to pay the plaintiff the balance. Veloso paid P50,000.00 on account of the P650,000.00 and Serna made
several payments up to the total sum of P250.000.00 Subsequently, however, neither Veloso nor Serna
made any payment upon the last installments, by virtue of which delay, the whole obligation became due
McCullough went to court.

After due trial, the court sentenced defendant Veloso to pay the plaintiff the sum of P510,047.34, with
interest thereon at 7% per annum, within three months; otherwise, the property mortgaged shall be sold at
public auction to the highest bidder and in the manner provided by law, the proceeds of the sale to be
applied to the payment of the judgment, after deducting the fees of the court's officer.
On appeal, defendant Veloso contended that having sold the property to Serna and the otter having
assumed the obligation to pay the plaintiff"the unpaid balance of the price secured by the he was relieved
from the obligation to pay the plaintiff. This means contract between the appellant and Serna, contract
between him and the plaintiff was novated by the substitution of Serna as a new debtor.
The Supreme Court ruled +.wph!1
In order that this novation may take place, the law requires the consent of the creditor
(Art. 1205 of the Old Civil code; now Art. 1293 of the New Civil Code). The plaintiff did not
intervene in the contract between Veloso and Serna and did not expressly give his
consent to this substitution. Novation must be express, and cannot be presumed.
In the case at bar, the agreement, Exhibit 1-Oledan relied upon by the defendants Oledans, does not
show on its face that the plaintiffs intervened in, much less gave their consent to, the substitution; as a
matter of fact, plaintiff Cortes vehemently denied having consented to the transfer of rights from the
Oledans to the Venturanzas alone. Res inter alios acta alteri nocere non debet , no less than defendant
lose Oledan himself testified that he did not personally see Dr. Cortes about the transfer of rights in
Exhibit 1-Oledan, despite his commitment with his co-defendants in said agreement 'to inform Messrs.
Felix Cortes and Noel J. Cortes (Jesus Noel) of the execution of the said agreement" (p. 15, t.s.n. hearing
of January 19, 1965). There is thus a complete absence of animus novandi, whether express or implied,
on the part of the creditors the Corteses.
With respect to the claim of plaintiffs for reasonable attorney's fees, paragraph III (G) of the Deed of Sale
with Purchase Money Mortgage, Exhibit B, provides:+.wph!1
G In the event of default on the part of the VENDEES and by reason thereof a suit is
brought for the foreclosure of this mortgage or any other legal proceedings is instituted
for the enforcement of any of the rights of the VENDORS hereunder, a reasonable
compensation shall be paid, jointly and severally, by the VENDEES to the VENDORS for
attorney's fees, in addition to the fees and costs allowed by the Rules of Court.
The validity of the above agreement for reasonable attorney's fees was questioned in the pleadings of the
defendants before the trial court. Before this Court, the plaintiffs in their brief (pp. 121-123, 126), called
OUR attention to the oversight in respect thereto committed by the court a quo.
With respect, however, to the interest due to the plaintiffs on the indebtedness of the defendants, WE are
reminded of the mandate of Article 2212 of the New Civil Code, which provides: +.wph!1
Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.
Per stipulation, plaintiffs are entitled to collect from defendants interest at the rate of six per centum (6%)
per annum on the remaining balance of P576,573.90 from January 1, 1959. Hence, for the period from
January 1, 1959 to December 12, 1962, the date of the riling of the complaint, plaintiffs are entitled to
collect from the defendants, by way of interest at six percent per annum, the sum of P136,482.13.
Applying the aforequoted legal provision, this amount of P136,482.13 should be added to the principal of
P576,573.90, making a total of P713,056.03, which shall earn legal interest stipulated at six percent per
annum from December 13, 1962 until fully paid. Such interest is not due to stipulation; rather it is due to
the mandate of the law hereinbefore quoted.

Now, considering that the total amount recoverable in this case approximates 1.4 million pesos as of
October 31, 1977 (consisting of principal of P576,573.90, plus P136,482.13 interest from January 1, 1959
to December 12, 1962, plus P636,827.37 interest from December 13, 1962 to October 31, 1977), and that
every step in the foreclosure proceedings had been tenaciously contested, not to mention the work it will
still require counsel for the plaintiffs to collect the same by judicial proceedings, WE find that P50,000.00
is a reasonable amount to which the plaintiffs are entitled as and for attorney's fees.
Anent the cross-claim of defendants Oledans against their co-defendants Venturanzas to the effect "that
the defendants Venturanzas are liable to them for the balance of P22,285.83 in addition to the penalties
stipulated in the agreement and deed of sale, Exhibit 1-Oledan, and the interests provided therein, WE
find the claim for the balance of P22,285.83 meritorious.
On their claim for penalties and interests as provided for in the same agreement, cross-claimants and
defendants Oledans rely on the pertinent portions of the agreement, which read:+.wph!1
xxx xxx xxx
2. That upon the execution and signing of this Agreement, the PARTIES/OF THE FIRST
PART (the Venturanzas will pay to the PARTIES OF THE SECOND PART (the Oledans
and the latter hereby, acknowledge receipt thereof, of the sum of TWENTY TWO
THOUSAND (TWO HUNDRED) AND EIGHTY FIVE PESOS AND EIGHTY THREE
CENTAVOS (P22,285-83), Philippine Currency (Prudential Bank Check No. 965159) and
the balance of Twenty Two Thousand Two Hundred and Eighty Five Pesos and Eighty
Three centavos (P22,285.83), Philippine Currency, shall be paid by the PARTIES OF
THE FIRST PART to the PARTIES OF THE SECOND PART within eight (8) months from
the date and execution of this Agreement and Deed of Sale;
xxx xxx xxx
4. That in the event of failure on the part of the PARTIES OF THE FIRST PART to pay the
said balance of Twenty Two Thousand Two Hundred and Eighty Five Pesos and Eighty
Centavos (P22,285.80) within the said period of eight (8) months stipulated above, the
said PARTIES OF THE FIRST PART will pay to the PARTIES OF THE SECOND PART a
penalty of Six Thousand Three Hundred Sixty Seven Pesos and Thirty Centavos
(P6,367.30) for the period from August 28, 1960 to August 28, 1961; another penalty of
P6,367.30 for the period from August 28, 1961 to August 28, 1962; and another penalty
of P6,367.30 for the period from August 28, 1962 to August 28, 1963. It is agreed that any
part payment on the said balance of P22,285.80 has no effect on the payment of the
penalty provided for herein, and in case of non-payment of the full amount of the balance
of P22,285.80 within the said period of three years aforementioned or up to August 28,
1963, then the said balance left unpaid plus the penalties due, as provided for herein,
shall bear an interest at the legal rate. It is of course understood, that the penalties and
interest provided for herein shall not apply if the PARTIES OF THE FIRST PART shall pay
the said balance of Twenty Two Thousand Two Hundred and Eighty Five Pesos and
Eighty Centavos (P22,285.80) within the eight (8) months stipulated in paragraph 2
above, or on or before August 28, 1960;
xxx xxx xxx
(Brief for defendants Oledans, pp. 32-34, Folder of Exhibits, pp. 92- 93).
A meticulous analysis of the aforequoted portions of Exhibit 1-Oledan shows:

1. That the Venturanzas were given a period of eight (8) months from and after December 28, 1959 - the
date of the execution of the agreement - within which to pay the balance of P22,285.80;
2. That in the event of failure on the part of the Venturanzas to pay the said balance of P22,285.80 within
the said period of eight (8) months, the Venturanzas would pay to the Oledans a penalty of P6,367.30
annually, beginning August 28, 1960, for a period of three (3) years lip to August 28, 1963, regardless of
any partial payment which the Venturanzas might make on the balance of P22,285.80; and
3. That in case of non-payment of the whole obligation of P22,285.80 within the stipulated period of three
(3) years from August 28, 1960 to August 28, 1963, such obligation or any balance thereof remaining
unpaid, plus the penalties due at the rate of P6,367.30 annually for three (3) years, shall earn interest at
the legal rate.
Going over the entire agreement, Exhibit 1-Oledan, WE have noted the following:
1. That in connection with the deed of sale with mortgage, Exhibit B, the Venturanzas were the ones who
paid out of their own personal funds the One Hundred Thousand Pesos (P100,000.00) to the plaintiffs,
representing the down payment on the purchase price of the property, with the understanding that the
Oledans would reimburse the Venturanzas their one-half (1/2) share of P50,000.00;
2. That subsequently, the Oledans decided not to continue with the payment or reimbursement to the
Venturanzas of their one-half (1/2) share of P50,000.00 as above indicated, but they agreed to share in
the amount of their investment of only P20,000.00;
3. That the Venturanzas were again the ones who paid out of their own personal funds the succeeding
P40,000.00, which fell due on January 1, 1959, to the plaintiffs;
4. That it was only on January 16, 1959 that the Oledans were able to reimburse to the Venturanzas their
one-half (1/2) share of the P40,000.00; and
5. That the sum of P20,000.00 was the only amount paid by the Oledans to and/or invested with the
Venturanzas in their joint venture envisioned in the deed of sale with mortgage, Exhibit B.
In support of their claim for penalties and interests, the cross-claimants and defendants Oledans contend
that "this is a normal stipulation in contracts of this character." WE do not agree and hereby reject such
claim for penalties as well as for interests.
Settled is the rule that the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy (Art. 1306, New Civil Code). The onwards show that cross-claimants and
defendants Oledans more than broke even on their investment of P20,000.00 when they received from
their co-defendants Venturanzas the sum of P22,285.F3 on December 28, 1959. From all indications, it
would seem that defendants Venturanzas threw caution to the four winds, so to say, and bound
themselves to pay to their co-defendants Oledans the stipulated penalty of P6,367.30 annually for three
(3) years, beginning August 28, 1960, in their belief that within the said period of time they would have
more than enough money with which to pay their obligation to the plaintiffs. Unfortunately, however, to
their great disappointment, the unexpected happened as they ended up with no money with which to pay
not only the balance of their obligation to the plaintiffs in the sum of P576,573.90, but also the balance of
their obligation to their co-defendants Oledans in the sum of P22,285.30. Be that as it may justice and
morality cannot consent to and sanction a clearly iniquitous deprivation of property, repulsive to the
common sense of man. This is what this Court said some sixty (60) years ago in the case of Ibarra vs.
Aveyro and Pre (37 Phil 273, 282), which WE cannot help but quote hereunder:+.wph!1

Notwithstanding the imprudence and temerity shown by the defendants by their execution
of a ruinous engagement, assumed, as it appears, knowingly and voluntarily, morality and
justice cannot consent to and sanction a repugnant spoliation and iniquitous deprivation
of property, repulsive to the common sense of man; and therefore, as all acts performed
against the provisions of law are null and void, and as the penal clause referred to,
notwithstanding its being an ostensible violation of morals, was inserted in said
promissory note, and as there is no law that expressly authorizes it, we must conclude
that the contracting party favored by said penal clause totally lacks all right of action to
enforce its fulfillment (emphasis supplied).
WHEREFORE, THE APPEALED JUDGMENT IS MODIFIED AND ANOTHER ONE IS RENDERED,
DIRECTING:
I. ALL THE DEFENDANTS APPELLANTS VENTURANZAS AND OLEDANS TO PAY JOINTLY AND
SEVERALLY THE PLAINTIFFS-APPELLEES: +.wph!1
A. THE SUM OF FIVE HUNDRED SEVENTY SIX THOUSAND FIVE HUNDRED
SEVENTY THREE PESOS AND NINETY CENTAVOS (P576,573.90), PLUS ONE
HUNDRED THIRTY SIX THOUSAND FOUR HUNDRED EIGHTY TWO PESOS AND
THIRTEEN CENTAVOS (P136,482.13) INTEREST AT THE RATE OF SIX PER CENTUM
(6%) PER ANNUM FROM JANUARY 1, 1959 TO DECEMBER 12, 1962, PLUS
INTEREST AT THE SAME RATE ON THE PRINCIPAL AMOUNT OF P576, 573.90
ADDED TO THE ACCRUED INTEREST FOR THE PERIOD FROM DECEMBER 13,1962
UNTIL THE WHOLE OBLIGATION IS FULLY PAID, WITHIN NINETY (90) DAYS FROM
NOTICE HEREOF. IN DEFAULT OF SUCH PAYMENT, THE MORTGAGED
PROPERTIES SHALL BE SOLD AT PUBLIC AUCTION TO REALIZE THE MORTGAGE
INDEBTEDNESS AND COSTS IN ACCORDANCE WITH LAW; AND
B. THE SUM OF FIFTY THOUSAND PESOS (P50,000.00) AS ATTORNEY'S FEES:
II. THE CROSS-DEFENDANT'S VENTURANZAS TO PAY AND/OR REIMBURSE THE CROSSCLAIMANTS OLEDANS: +.wph!1
A. THE SUM OF TWENTY TWO THOUSAND TWO HUNDRED AND EIGHTY FIVE
PESOS AND EIGHTY THREE CENTAVOS (P22,285.83), PLUS INTEREST AT THE
RATE OF SIX PERCENT (6%) PER ANNUM COUNTED FROM THE FINALITY OF THIS
DECISION, UNTIL THE SAW IS FULLY PAID;
B. THE AMOUNT WHICH SAID CROSS-CLAIMANT'S MAY PAY TO PLAINTIFFSAPPELLEES UNDER THIS JUDGMENT;AND
III. THE DEFENDANTS-APPELLANTS VENTURANZAS TO PAY TREBLE COSTS.
Teehankee (Chairman), Mu;oz Palma, Martin, Fernandez and Guerrero, JJ., concur.1wph1.