G.R. No.
59255 December 29, 1995
OLIVIA M. NAVOA and ERNESTO NAVOA, petitioners,
vs.
COURT OF APPEALS, TERESITA DOMDOMA and EDUARDO DOMDOMA, respondents.
BELLOSILLO, J.:
Petitioners Olivia M. Navoa and Ernesto Navoa seek reversal of the decision of the Court of
Appeals 1 which "modified" the order of the trial court dismissing the complaint for lack of cause
of action. The appellate court remanded the case to the court a quo for private respondents to
file their responsive pleading and for trial on the merits.
On 17 December 1977 private respondents filed with the Regional Trial Court of Manila an
action against petitioners for collection of various sums of money based on loans obtained by
the latter. On 3 January 1978 petitioners filed a motion to dismiss the complaint on the ground
that the complaint stated no cause of action and that plaintiffs had no capacity to sue.
After private respondents submitted their opposition to the motion to dismiss on 9 January 1978
the trial court dismissed the case. A motion to reconsider the dismissal was denied.
On 27 March 1978 private respondents appealed to the Court of Appeals which on 11 December
1980 modified the order of dismissal "by returning the records of this case for trial on the merits,
upon filing of an answer subject to the provisions of Articles 1182 and 1197 of the Civil Code for
the first cause of action. The other causes of action should be tried on the merits subject to the
defenses the defendants may allege in their answer."
The instant petition alleges that respondent court erred: (a) in not dismissing the appeal for lack
of appellate jurisdiction over the case which involves merely a question of law; (b) in not
affirming the order of dismissal for lack of cause of action; and, (c) in holding that private
respondents have a cause of action under the second to the sixth causes of action of the
complaint. 2
We cannot sustain the petition. Petitioners are now estopped from assailing the appellate
jurisdiction of the Court of Appeals after receiving an adverse judgment therefrom. 3 Having
participated actively in the proceedings before the appellate court, petitioners can no longer
question its authority.
Petitioners submit that private respondents failed to specify in their complaint a fixed period
within which petitioners should pay their obligations; that instead of stating that petitioners failed
to discharge their obligations upon maturity private respondents sought to collect on the checks
which were issued to them merely as security for the loans; and, that private respondents failed
to make a formal demand on petitioners to satisfy their obligations before filing the action.
For a proper determination of whether the complaint filed by private respondents sufficiently
stated a cause of action, we shall examine the relevant allegations in the complaint, to wit:
Allegations Common To All Causes of Actions
xxx xxx xxx
3. That sometime in . . . February, 1977, when the Reycard Duet was in
Manila, plaintiff Teresita got acquainted with defendant Olivia in the jewelry
business, the former selling the jewelries of the latter; that to the Reycard
Duet alone, plaintiff Teresita sold jewelries worth no less than ONE
HUNDRED TWENTY THOUSAND (P120,000.00) PESOS in no less than
twenty (20) transactions; that even when the Reycards have already left,
their association continued, and up to the month of August, 1977, plaintiff
Teresita sold for defendant Olivia jewelries worth no less than TWENTY
THOUSAND (P20,000.00) PESOS, in ten (10) transactions more or less;
xxx xxx xxx
5. That sometime in the month of June and July of 1977, defendant Olivia,
on two occasions, asked for a loan from plaintiff Teresita, for the purpose of
investing the same in the purchase of jewelries, which loan were secured by
personal checks of the former; that in connection with these loans,
defendant promised plaintiff a participation in an amount equivalent to one
half (1/2) of the profit to be realized; that on these loans, plaintiff was given
a share in the amount of P1,200.00 in the first transaction, and in the
second transaction, the sum of P950.00;
First Cause of Action
6. That on August 15, 1977, defendant Olivia got from plaintiff Teresita, one
diamond ring, one and one half (1-1/2) karats, heart shape, valued in the
amount of Fifteen thousand (P15,000.00) Pesos; that as a security for the
said ring, Olivia issued a Philippine Commercial and Industrial Bank Check,
San Sebastian Branch, dated August 15, 1977, No. 13894, copy of which is
hereto attached and made a part hereof as Annex "A";
7. That the condition of the issuance of the check was if the ring is not
returned within fifteen (15) days from August 15, 1977, the ring is
considered sold; that after fifteen days, plaintiff Teresita asked defendant
Olivia if she could deposit the check, and the answer of defendant Olivia
was hold it for sometime, until I tell you to deposit the same; that the
check was held until the month of November, 1977, and when deposited, it
was dishonored for lack of sufficient funds; that for the reason that the
aforementioned check was not honored when deposited, defendant Olivia
should be held liable for interest at the rate of one percent a month, from
date of issue, until the same is fully paid;
Second Cause of Action
8. That on August 25, 1977, plaintiff Teresita extended a loan to the herein
defendant Olivia in the amount of TEN THOUSAND (P10,000.00) PESOS,
secured by a Philippine Commercial and Industrial Bank Check, PCIBANK
Singalong Branch, No. 14307, dated Sept. 25, 1977, photo copy of which is
hereto attached and made a part hereof as Annex "B";
9. That this loan was extended upon representation of defendant Olivia that
she needed money to pay for jewelries which she can resell for a big profit;
that having established her goodwill, by reason of the transaction mentioned
in par. "5" hereof, the loan was extended by plaintiff;
10. That this check, Annex "B", when deposited was dishonored; that for the
reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest at the rate of one percent (1%) per month,
from the date of issue until fully paid;
Third Cause of Action
11. That on August 27, 1977, plaintiff extended to defendant Olivia a loan in
the amount of FIVE THOUSAND PESOS (P5,000.00), secured by a
Philippine Commercial & Industrial Bank check, PCIBANK Singalong
Branch, No. 14308, dated Sept. 27, 1977, photo copy of which is hereto
attached and made a part hereof as Annex "C";
12. That this loan was extended on the same representation made by
defendant Olivia, stated in par. "9", under the terms and conditions stated in
par. "5" hereof;
13. That the check Annex "C", has not as yet been paid up to now, hence,
defendant Olivia should be held liable for interest at the rate of one percent
(1%) monthly, from date of issue, until fully paid;
Fourth Cause of Action
14. That on August 30, 1977, plaintiff Teresita, extended a loan in favor of
defendant Olivia, in the amount of Five Thousand (P5,000.00) Pesos,
secured by a Philippine Commercial and Industrial Bank Check, PCIBANK
Singalong Branch, No. 14311, dated Sept. 30, 1977, photo copy of which is
hereto attached and made a part hereof as Annex "D";
15. That this loan was extended on the same representation made by
defendant Olivia, as stated in par. "9" hereof, under the terms and
conditions stated in par. "5" hereof;
16. That this check, Annex "D" has not as yet been paid up to now, hence,
she should be held liable for interest thereon at the rate of one percent (1%)
per month, from date of issue, until fully paid;
Fifth Cause of Action
17. That on Sept. 15, 1977, plaintiff Teresita extended a loan in favor of
defendant Olivia, in the amount of TEN THOUSAND (P10,000.00) PESOS,
secured by a Philippine Commercial & Industrial Bank check, PCIBANK
Singalong Branch, No. 14320, dated October 15, 1977, photo copy of which
is hereto attached and made a part hereof as Annex "E";
18. That this loan was given on the same representation made by defendant
Olivia, stated on par. "9" hereof, and under the terms and conditions stated
in par. "5" hereof;
19. That this check Annex "E" when deposited was dishonored; that for the
reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest at the rate of one percent (1%) monthly,
from date of issue, until fully paid;
Sixth Cause of Action
20. That on Sept. 27, 1977, plaintiff Teresita extended a loan to defendant
Olivia, in the amount of TEN THOUSAND (P10,000.00) PESOS, secured by
a Philippine Commercial & Industrial Bank check, No. 14325, dated October
27, 1977, photo copy of which is hereto attached and made a part hereof as
Annex "F";
21. That this loan was given on the same representation made by defendant
Olivia, stated in par. "9" hereof, and under the terms and conditions stated in
par. "5" hereof;
22. That this check, Annex F, when deposited was dishonored; that for the
reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest thereon, at the rate of one percent (1%)
monthly, from date of issue, until fully paid;
Seventh Cause of Action
23. That plaintiff, by reason of the two transactions in par. "5" hereof,
reposed trust and confidence on defendant Olivia, however, by virtue of
these trust and confidence, she availed of the same in securing the loans
aforementioned by misrepresentations, and as a direct consequence
thereof, the loans have not as yet been settled up to now, for which plaintiff
Teresita suffered sleepless nights, mental torture and wounded feelings, for
the reason that the money used in said transactions do all belong to her;
that this situation is further aggravated by the malicious act of defendant
Olivia, by having filed a complaint with the Manila Police, to the effect that
she (Teresita) stole the checks involved in this case; that as a consequence
thereof, she was investigated and she suffered besmirched reputation,
social humiliation, wounded feelings, moral shock and similar injuries, for
 which defendant Olivia should be held liable, as and by way of moral
damages in the amount of EIGHTY THOUSAND (P80,000.00) PESOS;
Eight Cause of Action
24. That as and by way of exemplary or corrective damages, to serve as an
example or correction for the public good, defendant Olivia should be held
liable to pay to the herein plaintiff Teresita, the amount of Ten Thousand
Pesos, as exemplary damages;
Ninth Cause of Action
25. That plaintiff, in order to protect her rights and interests, engaged the
services of the undersigned, and she committed herself to pay the following:
a. The amount of P200.00 for every appearance in the trial of this case.
b. The amount of P2,000.00 as retainers fees.
c. An amount equivalent to ten percent of any recover from defendant.
On the basis of the allegations under the heading Allegations Common to all Causes of Action
above stated as well as those found under the First Cause of Action to the Ninth Cause of
Action, should the complaint be dismissed for want of cause of action?
A cause of action is the fact or combination of facts which affords a party a right to judicial
interference in his behalf. The requisites for a cause of action are: (a) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created, (b) an obligation on
the part of the defendant to respect and not to violate such right; and, (c) an act or omission on
the part of the defendant constituting a violation of the plaintiff's right or breach of the obligation
of the defendant to the plaintiff. 4 Briefly stated, it is the reason why the litigation has come about;
it is the act or omission of defendant resulting in the violation of someone's right. 5
In determining the existence of a cause of action, only the statements in the complaint may
properly be considered. Lack of cause of action must appear on the face of the complaint and its
existence may be determined only by the allegations of the complaint, consideration of other
facts being proscribed and any attempt to prove extraneous circumstances not being allowed.
If a defendant moves to dismiss the complaint on the ground of lack of cause of action, such as
what petitioners did in the case at bar, he is regarded as having hypothetically admitted all the
averments thereof. The test of sufficiency of the facts found in a complaint as constituting a
cause of action is whether or not admitting the facts alleged the court can render a valid
judgment upon the same in accordance with the prayer thereof. The hypothetical admission
extends to the relevant and material facts well pleaded in the complaint and inferences fairly
deducible therefrom. Hence, if the allegations in a complaint furnish sufficient basis by which the
complaint can be maintained, the same should not be dismissed regardless of the defense that
may be assessed by the defendants. 6
In their first cause of action private respondents Eduardo and Teresita Domdoma alleged that
petitioner Olivia Navoa obtained from the latter a ring valued at P15,000.00 and issued as
security therefor a check for the same amount dated 15 August 1977 with the condition that if
the ring was not returned within fifteen (15) days the ring would be considered sold; and, after
the lapse of the period, private respondent Teresita Domdoma asked to deposit the check but
petitioner Olivia Navoa requested the former not to deposit it in the meantime; that when Teresita
Domdoma deposited the check after holding it for sometime the same was dishonored for lack of
funds. Private respondent Teresita Domdoma sought to collect the amount of P15,000.00 plus
interest from 15 August 1977 until fully paid.
From these facts the ring was considered sold to petitioner Olivia Navoa 15 days from 15 August
1977 and despite the sale the latter failed to pay the price therefor even as the former was given
ample time to pay the agreed amount covered by a check. Clearly, respondent Teresita
Domdoma's right under the agreement with petitioner Olivia Navoa was violated by the latter.
In the second to the sixth causes of action it was alleged that private respondents granted loans
to petitioners in different amounts on different dates. All these loans were secured by separate
checks intended for each amount of loan obtained and dated one month after the contracts of
loan were executed. That when these checks were deposited on their due dates they were all
dishonored by the bank. As a consequence, private respondents prayed that petitioners be
ordered to pay the amounts of the loans granted to them plus one percent interest monthly from
the dates the checks were dishonored until fully paid.
Culled from the above, the right of private respondents to recover the amounts loaned to
petitioners is clear. Moreover, the corresponding duty of petitioners to pay private respondents is
undisputed. The question now is whether Petitioners committed an act or omission constituting a
violation of the right of private respondents.
All the loans granted to petitioners are secured by corresponding checks dated a month after
each loan was obtained. In this regard, the term security is defined as a means of ensuring the
enforcement of an obligation or of protecting some interest in property. It may be personal, as
when an individual becomes a surety or a guarantor; or a property security, as when a mortgage,
pledge, charge, lien, or other device is used to have property held, out of which the person to be
made secure can be compensated for loss. 7 Security is something to answer for as a
promissory note. 8 That is why a secured creditor is one who holds a security from his debtor for
payment of a debt. 9 From the allegations in the complaint there is no other fair inference than
that the loans were payable one month after they were contracted and the checks issued by
petitioners were drawn to answer for their debts to private respondents.
Petitioners failed to make good the checks on their due dates for the payment of their
obligations. Hence, private respondents filed the action with the trial court precisely to compel
petitioners to pay their due and demandable obligations. Art. 1169 of the Civil Code is explicit
those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation. The continuing refusal of
petitioners to heed the demand of private respondents stated in their complaint unmistakably
shows the existence of a cause of action on the part of the latter against the former.
Quite obviously, the trial court erred in dismissing the case on the ground of lack of cause of
action. Respondent Court of Appeals therefore is correct in remanding the case to the trial court
for the filing of an answer by petitioners and to try the case on the merits.
WHEREFORE, the petition is DENIED. The judgment of the Court of Appeals dated 11
December 1980 remanding the case to the trial court for the filing of petitioners' answer and
thereafter for trial on the merits is AFFIRMED. Costs against petitioners.
SO ORDERED.
Padilla, Davide, Jr., Kapunan and Hermosisima, Jr., JJ., concur.
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.
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 person violating any provisions of the same, and imposing
imprisonment as a part of the penalty, the prohibition contained in said section 35 is without
penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the prohibition extends
to the board of directors, and to each director separately and individually.
(People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National
Bank, in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C."
constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was because
he was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the
loans made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has
been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the
defendant has violated, criminal intent is not necessarily material. The doing of the inhibited act,
inhibited on account of public policy and public interest, constitutes the crime. And, in this
instance, as previously demonstrated, the acts of the President of the Philippine National Bank
do not fall within the purview of the rulings of the Insular Auditor, even conceding that such
rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
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.
G.R. No. L-16106 December 30, 1961
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK, ET AL., defendants,
THE FIRST NATIONAL CITY BANK OF NEW YORK, defendant-appellee.
Office of the Solicitor General for plaintiff-appellant.
Picazo, Lichauco and Agcaoili for defendant-appellee.
BAUTISTA ANGELO, J.:
The Republic of the Philippines filed on September 25, 1957 before the Court of First Instance of
Manila a complaint for escheat of certain unclaimed bank deposits balances under the
provisions of Act No. 3936 against several banks, among them the First National City Bank of
New York. It is alleged that pursuant to Section 2 of said Act defendant banks forwarded to the
Treasurer of the Philippines a statement under oath of their respective managing officials of all
the credits and deposits held by them in favor of persons known to be dead or who have not
made further deposits or withdrawals during the period of 10 years or more. Wherefore, it is
prayed that said credits and deposits be escheated to the Republic of the Philippines by ordering
defendant banks to deposit them to its credit with the Treasurer of the Philippines.
In its answer the First National City Bank of New York claims that, while it admits that various
savings deposits, pre-war inactive accounts, and sundry accounts contained in its report
submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totalling more than
P100,000.00, which remained dormant for 10 years or more, are subject to escheat however, it
has inadvertently included in said report certain items amounting to P18,589.89 which, properly
speaking, are not credits or deposits within the contemplation of Act No. 3936. Hence, it prayed
that said items be not included in the claim of plaintiff.
After hearing the court a quo rendered judgment holding that cashier's is or manager's checks
and demand drafts as those which defendant wants excluded from the complaint come within
the purview of Act No. 3936, but not the telegraphic transfer payment which orders are of
different category. Consequently, the complaint was dismissed with regard to the latter. But, after
a motion to reconsider was filed by defendant, the court a quo changed its view and held that
even said demand drafts do not come within the purview of said Act and so amended its
decision accordingly. Plaintiff has appealed.lawphil.net
Section 1, Act No. 3936, provides:
Section 1. "Unclaimed balances" within the meaning of this Act shall include credits or
deposits of money, bullion, security or other evidence of indebtedness of any kind, and
interest thereon with banks, as hereinafter defined, in favor of any person unheard
 from for a period of ten years or more. Such unclaimed balances, together with the
increase and proceeds thereof, shall be deposited with the Insular Treasure to the
credit of the Government of the Philippine Islands to be as the Philippine Legislature
may direct.
It would appear that the term "unclaimed balances" that are subject to escheat include credits or
deposits money, or other evidence of indebtedness of any kind with banks, in favor of any
person unheard from for a period of 10 years or more. And as correctly stated by the trial court,
the term "credit" in its usual meaning is a sum credited on the books of a company to a person
who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said
to imply ability, by reason of property or estates, to make a promised payment ( In re Ford, 14 F.
2d 848, 849). It is the correlative to debt or indebtedness, and that which is due to any person, a
distinguished from that which he owes (Mountain Motor Co. vs. Solof, 124 S.E., 824, 825; Eric
vs. Walsh, 61 Atl. 2d 1, 4; See also Libby vs. Hopkins, 104 U.S. 303, 309; Prudential Insurance
Co. of America vs. Nelson, 101 F. 2d, 441, 443; Barnes vs. Treat, 7 Mass. 271, 274). The same
is true with the term "deposits" in banks where the relationship created between the depositor
and the bank is that of creditor and debtor (Article 1980, Civil Code; Gullas vs. National Bank, 62
Phil. 915; Gopoco Grocery, et al. vs. Pacific Coast Biscuit Co., et al., 65 Phil. 443).
The questions that now arise are: Do demand draft and telegraphic orders come within the
meaning of the term "credits" or "deposits" employed in the law? Can their import be considered
as a sum credited on the books of the bank to a person who appears to be entitled to it? Do they
create a creditor-debtor relationship between drawee and the payee?
The answers to these questions require a digression the legal meaning of said banking
terminologies.
To begin with, we may say that a demand draft is a bill of exchange payable on demand (Arnd
vs. Aylesworth, 145 Iowa 185; Ward vs. City Trust Company, 102 N.Y.S. 50; Bank of Republic vs.
Republic State Bank, 42 S.W. 2d, 27). Considered as a bill of exchange, a draft is said to be, like
the former, an open letter of request from, and an order by, one person on another to pay a sum
of money therein mentioned to a third person, on demand or at a future time therein specified
(13 Words and Phrases, 371). As a matter of fact, the term "draft" is often used, and is the
common term, for all bills of exchange. And the words "draft" and "bill of exchange" are used
indiscriminately (Ennis vs. Coshoctan Nat. Bank, 108 S.E., 811; Hinnemann vs. Rosenback, 39
N.Y. 98, 100, 101; Wilson vs. Bechenau, 48 Supp. 272, 275).
On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law (Act
No. 2031) does not operate as an assignment of funds in the hands of the drawee who is not
liable on the instrument until he accepts it. This is the clear import of Section 127. It says: "A bill
of exchange of itself does not operate as an assignment of the funds in the hands of the drawee
available for the payment thereon and the drawee is not liable on the bill unless and until he
accepts the same." In other words, in order that a drawee may be liable on the draft and then
become obligated to the payee it is necessary that he first accepts the same. In fact, our law
requires that with regard to drafts or bills of exchange there is need that they be presented either
for acceptance or for payment within a reasonable time after their issuance or after their last
negotiation thereof as the case may be (Section 71, Act 2031). Failure to make such
presentment will discharge the drawer from liability or to the extent of the loss caused by the
delay (Section 186, Ibid.)
Since it is admitted that the demand drafts herein involved have not been presented either for
acceptance or for payment, the inevitable consequence is that the appellee bank never had any
chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the payee
concerned and as such the aforesaid drafts cannot be considered as credits subject to escheat
within the meaning of the law.
But a demand draft is very different from a cashier's or manager's cheek, contrary to appellant's
pretense, for it has been held that the latter is a primary obligation of the bank which issues it
and constitutes its written promise to pay upon demand. Thus, a cashier's check has been
clearly characterized in In Re Bank of the United States, 277 N.Y.S. 96. 100, as follows:
A cashier's check issued by a bank, however, is not an ordinary draft. The latter is a
bill of exchange payable demand. It is an order upon a third party purporting to drawn
upon a deposit of funds. Drinkall v. Movious State Bank, 11 N.D. 10, 88 N.W. 724, 57
L.R.A. 341, 95 Am. St. Rep. 693; State v. Tyler County State Bank (Tex. Com. App.)
277 S.W. 625, 42 A.L.R. 1347. A cashier's check is of a very different character. It is
the primary obligation of the bank which issues it (Nissenbaum v. State, 38 Ga. App.
253, S.E. 776) and constitutes its written promise to pay upon demand (Steinmetz v.
Schultz, 59 S.D. 603, 241 N.W. 734)....lawphil.net
The following definitions cited by appellant also confirm this view:
A cashier's check is a check of the bank's cashier on his or another bank. It is in effect
a bill of exchange drawn by a bank on itself and accepted in advance by the act of
issuance (10 C.J.S. 409).
A cashier's check issued on request of a depositor is the substantial equivalent of a
certified check and the deposit represented by the check passes to the credit of the
checkholder, who is thereafter a depositor to that amount (Lummus Cotton Gin Co. v.
Walker, 70 So. 754, 756, 195 Ala. 552).
A cashier's check, being merely a bill of exchange drawn by a bank on itself, and
accepted in advance by the act of issuance, is not subject to countermand by the
payee after indorsement, and has the same legal effects as a certificate deposit or a
certified check (Walker v. Sellers, 77 So. 715, 201 Ala. 189).
A demand draft is not therefore of the same category as a cashier's check which should come
within the purview of the law.
The case, however, is different with regard to telegraphic payment order. It is said that as the
transaction is for the establishment of a telegraphic or cable transfer the agreement to remit
creates a contractual obligation a has been termed a purchase and sale transaction (9 C.J.S.
368). The purchaser of a telegraphic transfer upon making payment completes the transaction
insofar as he is concerned, though insofar as the remitting bank is concerned the contract is
executory until the credit is established (Ibid.) We agree with the following comment the Solicitor
General: "This is so because the drawer bank was already paid the value of the telegraphic
transfer payment order. In the particular cases under consideration it appears in the books of the
defendant bank that the amounts represented by the telegraphic payment orders appear in the
names of the respective payees. If the latter choose to demand payment of their telegraphic
transfers at the time the same was (were) received by the defendant bank, there could be no
question that this bank would have to pay them. Now, the question is, if the payees decide to
have their money remain for sometime in the defendant bank, can the latter maintain that the
ownership of said telegraphic payment orders is now with the drawer bank? The latter was
already paid the value of the telegraphic payment orders otherwise it would not have transmitted
the same to the defendant bank. Hence, it is absurd to say that the drawer banks are still the
owners of said telegraphic payment orders."
WHEREFORE, the decision of the trial court is hereby modified in the sense that the items
specifically referred to and listed under paragraph 3 of appellee bank's answer representing
telegraphic transfer payment orders should be escheated in favor of the Republic of the
Philippines. No costs.
Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur.
Bengzon, C.J., Padilla, Labrador and Concepcion, JJ., took no part.
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June
28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of
P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's
fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for
the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute
mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by
Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and
arrived in Davao City in July 1953; and that to secure its release without first paying the draft,
Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the
land site thereof, and the machinery and equipment to be installed. Among the other terms
spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo
and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject
to availability of funds, and as the construction of the factory buildings progresses, to be certified
to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however,
evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC,
requesting a modification of the terms laid down by it, namely: that in lieu of having China
Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription
with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put
up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca
would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the
latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of
the members of its Board of Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan ... with special reference as to the advisability of
financing this particular project based on present conditions obtaining in the operations of jute
mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as
co-signer for the loan, and asked that the necessary documents be prepared in accordance with
the terms and conditions specified in Resolution No. 145. In connection with the reexamination
of the project to be financed with the loan applied for, as stated in Resolution No. 736, the
parties named their respective committees of engineers and technical men to meet with each
other and undertake the necessary studies, although in appointing its own committee Saura, Inc.
made the observation that the same "should not be taken as an acquiescence on (its) part to
novate, or accept new conditions to, the agreement already) entered into," referring to its
acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of
mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on
June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to
reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as
follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under
Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s.,
authorizing the re-examination of all the various aspects of the loan granted the Saura Import &
Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute
sacks in Davao, with special reference as to the advisability of financing this particular project
based on present conditions obtaining in the operation of jute mills, and after having heard
Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation
of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as
may be necessary from time to time to place the factory in actual operation: PROVIDED that all
terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full
force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for
China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of
the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up
letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC, which added in its letter-reply that it was "constrained
to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China
Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC
that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if
RFC releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported
raw materials, the Department of Agriculture and Natural Resources shall
certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide
adequately for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22,
1954, wherein it was explained that the certification by the Department of Agriculture and Natural
Resources was required "as the intention of the original approval (of the loan) is to develop the
manufacture of sacks on the basis of locally available raw materials." This point is important, and
sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the
factory he was building in Davao was for the manufacture of bags from local raw materials. The
cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the
Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage
and operate a Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings,
carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on
page 1 of the same brochure states that, the venture "is the first serious attempt in this country
to use 100% locally grown raw materials notably kenaf which is presently grown commercially in
theIsland of Mindanao where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in the
first place, and to require, in its Resolution No. 9083, a certification from the Department of
Agriculture and Natural Resources as to the availability of local raw materials to provide
adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand
impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by
the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably
even next year;" (2) requesting "assurances (from RFC) that my company and associates will be
able to bring in sufficient jute materials as may be necessary for the full operation of the jute
mill;" and (3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
 1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955,
regarding the release of your loan under consideration
of P500,000. As stated in our letter of December 22,
1954, the releases of the loan, if revived, are proposed
to be made from time to time, subject to availability of
funds towards the end that the sack factory shall be
placed in actual operating status. We shall be able to
act on your request for revised purpose and manner of
releases upon re-appraisal of the securities offered for
the loan.
With respect to our requirement that the Department of
Agriculture and Natural Resources certify that the raw
materials needed are available in the immediate vicinity
and that there is prospect of increased production
thereof to provide adequately the requirements of the
factory, we wish to reiterate that the basis of the original
approval is to develop the manufacture of sacks on the
basis of the locally available raw materials. Your
statement that you will have to rely on the importation of
jute and your request that we give you assurance that
your company will be able to bring in sufficient jute
materials as may be necessary for the operation of your
factory, would not be in line with our principle in
approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the
matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC
executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as
president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage
contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank
and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within
which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for
failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15,
1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of
RFC (as predecessor of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing
or paying contractual commitments it had entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract
between the parties and that the defendant was guilty of breach thereof. The defendant pleaded
below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that
its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that
assuming there was, the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of
the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery of
the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls short of resolving the basic claim
that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover
damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption
that the factory to be constructed would utilize locally grown raw materials, principally kenaf.
There is no serious dispute about this. It was in line with such assumption that when RFC, by
Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount
of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the
borrower-corporation to carry out its operation are available in the immediate vicinity; and (2)
that there is prospect of increased production thereof to provide adequately for the requirements
of the factory." The imposition of those conditions was by no means a deviation from the terms of
the agreement, but rather a step in its implementation. There was nothing in said conditions that
contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954,
namely "that the proceeds of the loan shall be utilized exclusively for the following purposes:
for construction of factory building P250,000.00; for payment of the balance of purchase price
of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently
Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter
of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or
probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be
released "for raw materials and labor." This was a deviation from the terms laid down in
Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part
of the proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had
been going on for the implementation of the agreement reached an impasse. Saura, Inc.
obviously was in no position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be
cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the
nature cf mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any
alleged breach of contract by RFC, or even point out that the latter's stand was legally
unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights
it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with
DBP for another loan to finance a rice and corn project, which application was disapproved. It
was only in 1964, nine years after the loan agreement had been cancelled at its own request,
that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond
doubt that the said agreement had been extinguished by mutual desistance and that on the
initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other
issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs
against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ.,
concur.
Makasiar, J., took no part.
G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals
and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed
the judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831,
for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against
private respondents ALS Management and Development Corporation and Antonio K.
Litonjua,1 consolidated with (b) Civil Case No. 52093, for damages with prayer for the issuance
of a writ of preliminary injunction by the private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their
monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature
and made in bad faith. It awarded private respondents the amount of P300,000 for moral
damages, P50,000 for exemplary damages, and P50,000 for attorneys fees and expenses for
litigation. It likewise dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a
house on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to
AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents
ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000
balance of Roas indebtedness with AIDC. The latter, however, was not willing to extend the old
interest rate to private respondents and proposed to grant them a new loan of P500,000 to be
applied to Roas debt and secured by the same property, at an interest rate of 20% per annum
and service fee of 1% per annum on the outstanding principal balance payable within ten years
in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21% per annum
per day from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the
above stipulations with the provision that payment of the monthly amortization shall commence
on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum
of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was
liquidated when BPIIC applied thereto the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be
what was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the
ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30,
1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100
Pesos (P475,585.31). A notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged,
among others, that they were not in arrears in their payment, but in fact made an overpayment
as of June 30, 1984. They maintained that they should not be made to pay amortization before
the actual release of the P500,000 loan in August and September 1982. Further, out of
the P500,000 loan, only the total amount of P464,351.77 was released to private respondents.
Hence, applying the effects of legal compensation, the balance of P35,648.23 should be applied
to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093,
thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development
Corporation and Antonio K. Litonjua and against BPI Investment Corporation, holding that the
amount of loan granted by BPI to ALS and Litonjua was only in the principal sum of
P464,351.77, with interest at 20% plus service charge of 1% per annum, payable on equal
monthly and successive amortizations at P9,283.83 for ten (10) years or one hundred twenty
(120) months. The amortization schedule attached as Annex "A" to the "Deed of Mortgage" is
correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused
their publication in a newspaper of general circulation as defaulting debtors, and therefore
orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.
Costs against BPI.
SO ORDERED.2
Both parties appealed to the Court of Appeals. However, private respondents appeal was
dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion
reads:
WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.
SO ORDERED.3
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the
delivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua
was perfected only on September 13, 1982, the date when BPIIC released the purported
balance of the P500,000 loan after deducting therefrom the value of Roas indebtedness. Thus,
payment of the monthly amortization should commence only a month after the said date, as can
be inferred from the stipulations in the contract. This, despite the express agreement of the
parties that payment shall commence on May 1, 1981. From October 1982 to June 1984, the
total amortization due was only P194,960.43. Evidence showed that private respondents had an
overpayment, because as of June 1984, they already paid a total amount of P201,791.96.
Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the
publication in newspapers concerning private respondents delinquency in the payment of their
loan. This fact constituted sufficient ground for moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition,
where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN
THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS,
125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL
SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a
simple loan is perfected upon the delivery of the object of the contract, the loan contract in this
case was perfected only on September 13, 1982. Petitioner claims that a contract of loan is a
consensual contract, and a loan contract is perfected at the time the contract of mortgage is
executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the
present case, the loan contract was perfected on March 31, 1981, the date when the mortgage
deed was executed, hence, the amortization and interests on the loan should be computed from
said date.
Petitioner also argues that while the documents showed that the loan was released only on
August 1982, the loan was actually released on March 31, 1981, when BPIIC issued a
cancellation of mortgage of Frank Roas loan. This finds support in the registration on March 31,
1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of the
property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner
claims, the delay in the release of the loan should be attributed to private respondents. As BPIIC
only agreed to extend a P500,000 loan, private respondents were required to reduce Frank
Roas loan below said amount. According to petitioner, private respondents were only able to do
so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code,4 a
simple loan is perfected upon the delivery of the object of the contract, hence a real contract. In
this case, even though the loan contract was signed on March 31, 1981, it was perfected only on
September 13, 1982, when the full loan was released to private respondents. They submit that
petitioner misread Bonnevie. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that the contract to extend the loan was
perfected on March 31, 1981 but the contract of loan itself was only perfected upon the delivery
of the full loan to private respondents on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was
perfected on March 31, 1981, and their payment did not start a month thereafter, still no default
took place. According to private respondents, a perfected loan agreement imposes reciprocal
obligations, where the obligation or promise of each party is the consideration of the other party.
In this case, the consideration for BPIIC in entering into the loan contract is the promise of
private respondents to pay the monthly amortization. For the latter, it is the promise of BPIIC to
deliver the money. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him.
Therefore, private respondents conclude, they did not incur in delay when they did not
commence paying the monthly amortization on May 1, 1981, as it was only on September 13,
1982 when petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract.5 Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected
consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the
application through a board resolution. Thereafter, the corresponding mortgage was executed
and registered. However, because of acts attributable to petitioner, the loan was not released.
Later, petitioner instituted an action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have made the bank liable for not
releasing the loan. However, since the fault was attributable to petitioner therein, the court did
not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery
of the object of the contract for its perfection and which gives rise to obligations only on the part
of the borrower.6
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on
the other, was perfected only on September 13, 1982, the date of the second release of the
loan. Following the intentions of the parties on the commencement of the monthly amortization,
as found by the Court of Appeals, private respondents obligation to pay commenced only on
October 13, 1982, a month after the perfection of the contract.7
We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other.8 As
averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1,
1981, one month after the supposed release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.9 Only when a party has performed
his part of the contract can he demand that the other party also fulfills his own obligation and if
the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the
monthly amortization after September 13, 1982 for it was only then when it complied with its
obligation under the loan contract. Therefore, in computing the amount due as of the date when
BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13,
1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual
release of the loan and whether private respondents were the cause of the delay in the release
of the loan, are factual. Since petitioner has not shown that the instant case is one of the
exceptions to the basic rule that only questions of law can be raised in a petition for review
under Rule 45 of the Rules of Court,10 factual matters need not tarry us now. On these points we
are bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary
damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely
exercised its right under the mortgage contract because private respondents were irregular in
their monthly amortization.1wphi1 It invoked our ruling in Social Security System vs. Court of
Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of
Appeals "the negligence of the appellant is not so gross as to warrant moral and temperate
damages," except that, said Court reduced those damages by only P5,000.00 instead of
eliminating them. Neither can we agree with the findings of both the Trial Court and respondent
Court that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was
acting in the legitimate exercise of its right under the mortgage contract in the face of irregular
payments made by private respondents and placed reliance on the automatic acceleration
clause in the contract. The filing alone of the foreclosure application should not be a ground for
an award of moral damages in the same way that a clearly unfounded civil action is not among
the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said
damages because it insisted on the payment of amortization on the loan even before it was
released. Further, it did not make the corresponding deduction in the monthly amortization to
conform to the actual amount of loan released, and it immediately initiated foreclosure
proceedings when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of
monthly amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in
bad faith. Consequently, we should rule out the award of moral and exemplary damages.11
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the amount actually
released to private respondents and the date when it was released. Such negligence resulted in
damage to private respondents, for which an award of nominal damages should be given in
recognition of their rights which were violated by BPIIC.12 For this purpose, the amount
of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were
compelled to litigate, we sustain the award of P50,000 in favor of private respondents as
attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution
dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The
award of moral and exemplary damages in favor of private respondents is DELETED, but the
award to them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is
ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
G.R. No. L-49101 October 24, 1983
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF
COMMERCE, respondents.
Edgardo I. De Leon for petitioners.
Siguion Reyna, Montecillo & Associates for private respondent.
GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of
Appeals, now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto
Bonnevie vs. Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well as the
Resolution denying the motion for reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First
Instance of Rizal against respondent Philippine Bank of Commerce sought the annulment of the
Deed of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of
Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as well as the extrajudicial
foreclosure made on September 4, 1968. It alleged among others that (a) the Deed of Mortgage
lacks consideration and (b) the mortgage was executed by one who was not the owner of the
mortgaged property. It further alleged that the property in question was foreclosed pursuant to
Act No. 3135 as amended, without, however, complying with the condition imposed for a valid
foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it finally
alleged that respondent Bank should have accepted petitioner's offer to redeem the property
under the principle of equity said justice.
On the other hand, the answer of defendant Bank, now private respondent herein, specifically
denied most of the allegations in the complaint and raised the following affirmative defenses: (a)
that the defendant has not given its consent, much less the requisite written consent, to the sale
of the mortgaged property to plaintiff and the assumption by the latter of the loan secured
thereby; (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his
address; (c) that it was notified for the first time about the alleged sale after it had foreclosed the
Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose
Lozano can be released from his bilateral agreement with the former and doubly so, before
plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00
which was secured by mortgage, after two renewals remain unpaid despite countless reminders
and demands; of that the property in question remained registered in the name of Jose M.
Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged
sale to plaintiff; (g) that it is an established banking practice that payments against accounts
need not be personally made by the debtor himself; and (h) that it is not true that the mortgage,
at the time of its execution and registration, was without consideration as alleged because the
execution and registration of the securing mortgage, the signing and delivery of the promissory
note and the disbursement of the proceeds of the loan are mere implementation of the basic
consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a
motion for intervention. The intervention was premised on the Deed of Assignment executed by
petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and
interests of petitioner Honesto Bonnevie over the subject property. The intervention was
ultimately granted in order that all issues be resolved in one proceeding to avoid multiplicity of
suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads
as follows:
WHEREFORE, all the foregoing premises considered, judgment is hereby
rendered dismissing the complaint with costs against the plaintiff and the
intervenor.
After the motion for reconsideration of the lower court's decision was denied, petitioners
appealed to respondent Court of Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage
executed by Jose Lozano was null and void;
2. The lower court erred in not finding that the auction sale decide on August
19, 1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to
redeem the property;
4. The lower court erred in not finding that the defendant acted in bad faith;
and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the decision of the
lower court, and on October 3. 1978 denied the motion for reconsideration. Hence, the present
petition for review.
The factual findings of respondent Court of Appeals being conclusive upon this Court, We
hereby adopt the facts found the trial court and found by the Court of Appeals to be consistent
with the evidence adduced during trial, to wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were
the owners of the property which they mortgaged on December 6, 1966, to
secure the payment of the loan in the principal amount of P75,000.00 they
were about to obtain from defendant-appellee Philippine Bank of
Commerce; that on December 8, 1966, executed in favor of plaintiff-
appellant the Deed of Sale with Mortgage ,, for and in consideration of the
sum of P100,000.00, P25,000.00 of which amount being payable to the
Lozano spouses upon the execution of the document, and the balance of
P75,000.00 being payable to defendant- appellee; that on December 6,
1966, when the mortgage was executed by the Lozano spouses in favor of
defendant-appellee, the loan of P75,000.00 was not yet received them, as it
was on December 12, 1966 when they and their co-maker Alfonso Lim
signed the promissory note for that amount; that from April 28, 1967 to July
12, 1968, plaintiff-appellant made payments to defendant-appellee on the
mortgage in the total amount of P18,944.22; that on May 4, 1968, plaintiff-
appellant assigned all his rights under the Deed of Sale with Assumption of
Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968,
defendant-appellee applied for the foreclosure of the mortgage, and notice
of sale was published in the Luzon Weekly Courier on June 30, July 7, and
July 14, 1968; that auction sale was conducted on August 19, 1968, and the
property was sold to defendant-appellee for P84,387.00; and that offers
from plaintiff-appellant to repurchase the property failed, and on October 9,
1969, he caused an adverse claim to be annotated on the title of the
property. (Decision of the Court of Appeals, p. 5).
Presented for resolution in this review are the following issues:
I
Whether the real estate mortgage executed by the spouses Lozano in favor
of respondent bank was validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and
legally effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified
in refusing their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They
primarily attack the validity of the mortgage executed by the Lozano spouses in favor of
respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal
to justice and equity. In attacking the validity of the deed of mortgage, they contended that when
it was executed on December 6, 1966, there was yet no principal obligation to secure as the
loan of P75,000.00 was not received by the Lozano spouses "So much so that in the absence of
a principal obligation, there is want of consideration in the accessory contract, which
consequently impairs its validity and fatally affects its very existence." (Petitioners' Brief, par. 1,
p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is
clearly seen that the mortgage deed was executed for and on condition of the loan granted to
the Lozano spouses. The fact that the latter did not collect from the respondent Bank the
consideration of the mortgage on the date it was executed is immaterial. A contract of loan being
a consensual contract, the herein contract of loan was perfected at the same time the contract of
mortgage was executed. The promissory note executed on December 12, 1966 is only an
evidence of indebtedness and does not indicate lack of consideration of the mortgage at the
time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of
the original loan, using as security the same property which the Lozano spouses had already
sold to petitioners, rendered the mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which prohibits the
sale, disposition of, mortgage and encumbrance of the mortgaged properties, without the written
consent of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the
mortgaged property is sold, the vendee shall assume the mortgage in the terms and conditions
under which it is constituted. These provisions are expressly made part and parcel of the Deed
of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with
assumption of mortgage. Coupled with the fact that the sale/assignment was not registered so
that the title remained in the name of the Lozano spouses, insofar as respondent Bank was
concerned, the Lozano spouses could rightfully and validly mortgage the property. Respondent
Bank had every right to rely on the certificate of title. It was not bound to go behind the same to
look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being
applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs.
De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a mortgage
follows the property whoever the possessor may be and subjects the fulfillment of the obligation
for whose security it was constituted. Finally, it can also be said that petitioners voluntarily
assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage.
They are, therefore, estopped from impugning its validity whether on the original loan or
renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following
grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was
not in accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not
being a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was
not aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner
Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he had
transferred and assigned all his rights and interests over the property in favor of intervenor
Raoul Bonnevie and respondent Bank not likewise informed of the same. For the same reason,
Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not require
personal notice on the mortgagor. The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less
than twenty days in at least three public places of the municipality or city
where the property is situated, and if such property is worth more than four
hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in the
municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and
July 14, 1968 and notices of the sale were posted for not less than twenty days in at least three
(3) public places in the Municipality where the property is located. Petitioners were thus placed
on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said
case involved a judicial foreclosure and the sale to the vendee of the mortgaged property was
duly registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in
accordance with law, namely: once a week for at least three consecutive weeks, the Court of
Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the
publication requirement under Act No. 3135 notwithstanding the fact that June 30 to July 14 is
only 14 days. We agree. Act No. 3135 merely requires that such notice shall be published once
a week for at least three consecutive weeks." Such phrase, as interpreted by this Court in Basa
vs. Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in
accordance with law as said newspaper is not of general circulation must likewise be
disregarded. The affidavit of publication, executed by the Publisher, business/advertising
manager of the Luzon Weekly Courier, stares that it is "a newspaper of general circulation in ...
Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July 7 and
July 14, 1968. This constitutes prima facie evidence of compliance with the requisite publication.
Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the dissemination
of local news and general information; that it has a bona fide subscription list of paying
subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The
newspaper need not have the largest circulation so long as it is of general circulation. Banta vs.
Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read the Luzon Weekly
Courier is no proof that said newspaper is not a newspaper of general circulation in the province
of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question
of fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA
126). Nevertheless, the records show that copies of said notice were posted in three
conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig
Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice were also
posted in the place where the property was located, namely: the Municipal Building of San Juan,
Rizal; the Municipal Market and on Benitez Street. The following statement of Atty. Santiago
Pastor, head of the legal department of respondent bank, namely:
Q How many days were the notices posted in these two
places, if you know?
A We posted them only once in one day. (TSN, p. 45,
July 25, 1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.
requirement in the absence of proof or even of allegation that the notices were removed before
the expiration of the twenty- day period. A single act of posting (which may even extend beyond Concepcion J J., took no part.
the period required by law) satisfies the requirement of law. The burden of proving that the
posting requirement was not complied with is now shifted to the one who alleges non-
compliance. De Castro, J., is on leave.

On the question of whether or not the petitioners had a right to redeem the property, We hold
that the Court of Appeals did not err in ruling that they had no right to redeem. No consent
having been secured from respondent Bank to the sale with assumption of mortgage by
petitioners, the latter were not validly substituted as debtors. In fact, their rights were never
recorded and hence, respondent Bank is charged with the obligation to recognize the right of
redemption only of the Lozano spouses. But even granting that as purchaser or assignee of the
property, as the case may be, the petitioners had acquired a right to redeem the property,
petitioners failed to exercise said right within the period granted by law. Thru certificate of sale in
G.R. No. L-45710 October 3, 1985
favor of appellee was registered on September 2, 1968 and the one year redemption period
expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto
Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR.
29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as
statutory receiver of Island Savings Bank, petitioners,
vs.
On the question of whether or not respondent Court of Appeals erred in holding that respondent
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to
respondent Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was
authorized to make payments for the amount secured by the mortgage on the subject property, I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
to receive acknowledgment of payments, obtain the Release of the Mortgage after full payment
of the obligation and to take delivery of the title of said property. On the assumption that the Antonio R. Tupaz for private respondent.
letter was received by respondent Bank, a careful reading of the same shows that the plaintiff
was merely authorized to do acts mentioned therein and does not mention that petitioner is the
MAKASIAR, CJ.:
new owner of the property nor request that all correspondence and notice should be sent to him.

The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends
the maturity of said loan up to said date and accordingly on June 10, 1968 when defendant
applied for the foreclosure of the mortgage, the loan was not yet due and demandable, is totally
incorrect and misleading. The undeniable fact is that the loan matured on December 26, 1967.
On June 10, 1968, when respondent Bank applied for foreclosure, the loan was already six
months overdue. Petitioners' payment of interest on July 12, 1968 does not thereby make the
earlier act of respondent Bank inequitous nor does it ipso facto result in the renewal of the loan.
In order that a renewal of a loan may be effected, not only the payment of the accrued interest is
necessary but also the payment of interest for the proposed period of renewal as well. Besides,
whether or not a loan may be renewed does not solely depend on the debtor but more so on the
discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby
AFFIRMED. Costs against petitioners.
This is a petition for review on certiorari to set aside as null and void the decision of the Court of
Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated
February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages
with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department,
approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the
loan, executed on the same day a real estate mortgage over his 100-hectare land located in
Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated
on the said title the next day. The approved loan application called for a lump sum P80,000.00
loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It
was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional
capital to develop his other property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the
SO ORDERED.
Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for
P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the
Aquino, J., concur. contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the
P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the
partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available
for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank
was suffering liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank
against its deposit liabilities, the Board, by unanimous vote, decided as
follows:
1) To prohibit the bank from making new loans and investments [except
investments in government securities] excluding extensions or renewals of
already approved loans, provided that such extensions or renewals shall be
subject to review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the bank's deficiency
as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the
required capital to restore its solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of
Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by
the promissory note, filed an application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the
auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of
Agusan for injunction, specific performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of
the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to
deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance
cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a
temporary restraining order enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal
of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the
Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the
amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the
restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the
Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for
specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate
mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the
promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his
real estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the
obligation or promise of each party is the consideration for that of the other (Penaco vs. Ruaya,
110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has
performed or is ready and willing to perform his part of the contract, the other party who has not
performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings
Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate
mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such
date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the
Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3
years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14,
1968, which prohibited Island Savings Bank from doing further business. Such prohibition made
it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the
protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June
15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and investments, and nowhere did
it prohibit island Savings Bank from releasing the balance of loan agreements previously
contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the
obligation of the contract, nor does it constitute any defense to a decree of specific performance
(Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of
insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is
taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted
interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island
Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan,
was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio
M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The exercise of one
right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot
exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This
Court previously ruled that bank officials and employees are expected to exercise caution and
prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA
151 [1981]). It is the obligation of the bank's officials and employees that before they approve
the loan application of their customers, they must investigate the existence and evaluation of the
properties being offered as a loan security. The recent rush of events where collaterals for bank
loans turn out to be non-existent or grossly over-valued underscore the importance of this
responsibility. The mere reliance by bank officials and employees on their customer's
representation regarding the loan collateral being offered as loan security is a patent non-
performance of this responsibility. If ever bank officials and employees totally reIy on the
representation of their customers as to the valuation of the loan collateral, the bank shall bear
the risk in case the collateral turn out to be over-valued. The representation made by the
customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore,
the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting
proof on the alleged over-valuation because of their failure to raise the same in their pleadings
(pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue
before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between
specific performance or rescission with damages in either case. But since Island Savings Bank
is now prohibited from doing further business by Monetary Board Resolution No. 967, WE
cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such
amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as
the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a
promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation
to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal
obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default, hence not entitled to
rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it
shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a
promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled
to ask for rescission of the entire loan because he cannot possibly be in default as there was no
date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations,
that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts.
WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is
offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and
surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for
interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties.
Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he
should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely
foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the
principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract
of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the
Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration
was then in existence, as there was no debt yet because Island Savings Bank had not made any
release on the loan, does not make the real estate mortgage void for lack of consideration. It is
not necessary that any consideration should pass at the time of the execution of the contract of
real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent
matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect
only when the debt secured by it is created as a binding contract to pay (Parks vs, Sherman,
Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there
is partial failure of consideration, the mortgage becomes unenforceable to the extent of such
failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where
the indebtedness actually owing to the holder of the mortgage is less than the sum named in the
mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life
Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the
real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00
is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to
secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is
inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided
among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for
the proportionate extinguishment of the pledge or mortgage as long as the
debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt
return the pledge or cancel the mortgage, to the prejudice of other heirs who
have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes
several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of
indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977
IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST
PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12%
INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED
UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.
G.R. No. L-8321 October 14, 1913
ALEJANDRA MINA, ET AL., plaintiffs-appellants,
vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
N. Segundo for appellants.
Iigo Bitanga for appellees.
ARELLANO, C.J.:
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during
his lifetime, on March 12, 1874, a lot in the center of the town of Laoag, the capital of the
Province of Ilocos Norte, the property having been awarded to him through its purchase at a
public auction held by the alcalde mayor of that province. The lot has a frontage of 120 meters
and a depth of 15.
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of
the said lot, embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro
Mina, et al., were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta
Pascual were recognized likes without discussion, though it is not said how, and consequently
are entitled to the said building, or rather, as Ruperta Pascual herself stated, to only six-
sevenths of one-half of it, the other half belonging, as it appears, to the plaintiffs themselves, and
the remaining one-seventh of the first one-half to the children of one of the plaintiffs, Elena de
Villanueva. The fact is that the plaintiffs and the defendants are virtually, to all appearance, the
owners of the warehouse; while the plaintiffs are undoubtedly, the owners of the part of the lot
occupied by that building, as well as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian of her
minor children, the herein defendants, petitioned the Curt of First Instance of Ilocos Norte for
authorization to sell "the six-sevenths of the one-half of the warehouse, of 14 by 11 meters,
together with its lot." The plaintiffs that is Alejandra Mina, et al. opposed the petition of
Ruperta Pascual for the reason that the latter had included therein the lot occupied by the
warehouse, which they claimed was their exclusive property. All this action was taken in a
special proceeding in re guardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion,
to decide the question of the ownership of the lot before it pass upon the petition for the sale of
the warehouse. But the court before determining the matter of the ownership of the lot occupied
by the warehouse, ordered the sale of this building, saying:
While the trial continues with respect to the ownership of the lot, the court orders the
sale at public auction of the said warehouse and of the lot on which it is built, with the
present boundaries of the land and condition of the building, at a price of not less than
P2,890 Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the other
defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court
decided it by holding that this land belonged to the owner of the warehouse which had been built
thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court and held that the
appellants were the owners of the lot in question. 1
When the judgment became final and executory, a writ of execution issued and the plaintiffs
were given possession of the lot; but soon thereafter the trial court annulled this possession for
the reason that it affected Cu Joco, who had not been a party to the suit in which that writ was
served.
It was then that the plaintiffs commenced the present action for the purpose of having the sale of
the said lot declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as follows:
9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the
Supreme Court which found for them by holding that they are the owners of the lot in
question, although there existed and still exists a commodatum by virtue of which the
guardianship (meaning the defendants) had and has the use, and the plaintiffs the
ownership, of the property, with no finding concerning the decree of the lower court
that ordered the sale.
The obvious purport of the cause "although there existed and still exists a commodatum," etc.,
appears to be that it is a part of the decision of the Supreme Court and that, while finding the
plaintiffs to be the owners of the lot, we recognized in principle the existence of a commodatum
under which the defendants held the lot. Nothing could be more inexact. Possibly, also, the
meaning of that clause is that, notwithstanding the finding made by the Supreme Court that the
plaintiffs were the owners, these former and the defendants agree that there existed, and still
exists, a commodatum, etc. But such an agreement would not affect the truth of the contents of
the decision of this court, and the opinions held by the litigants in regard to this point could have
no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least influence in our
previous decision to require our making any finding in regard thereto, for, with or without that
decree, the Supreme Court had to decide the ownership of the lot consistently with its titles and
not in accordance with the judicial acts or proceedings had prior to the setting up of the issue in
respect to the ownership of the property that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs
have the ownership, and they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be
the manner in which the sale was effected, whether judicially or extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being
a transfer of the ownership of the thing, it is evident that he who has only the mere use of the
thing cannot transfer its ownership. The sale of a thing effected by one who is not its owner is
null and void. The defendants never were the owners of the lot sold. The sale of it by them is
necessarily null and void. On cannot convey to another what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization
conferred upon me on the 31st of July, 1909, by the Court of First Instance of Ilocos
Norte, proceeded with the sale at public auction of the six-sevenths part of the one-
half of the warehouse constructed of rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all
the land and all the rights title, interest, and ownership in the said property to Cu Joco,
who was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and
assigns, all the interest, ownership and inheritance rights and others that, as the
guardian of the said minors, I have and may have in the said property, etc.
The purchaser could not acquire anything more than the interest that might be held by a person
to whom realty in possession of the vendor might be sold, for at a judicial auction nothing else is
disposed of. What the minor children of Ruperta Pascual had in their possession was the
ownership of the six-sevenths part of one-half of the warehouse and the use of the lot occupied
by his building. This, and nothing more, could the Chinaman Cu Joco acquire at that sale: not
the ownership of the lot; neither the other half, nor the remaining one-seventh of the said first
half, of the warehouse. Consequently, the sale made to him of this one-seventh of one-half and
the entire other half of the building was null and void, and likewise with still more reason the sale
of the lot the building occupies.
The purchaser could and should have known what it was that was offered for sale and what it
was that he purchased. There is nothing that can justify the acquisition by the purchaser of the
warehouse of the ownership of the lot that this building occupies, since the minors represented
by Ruperta Pascual never were the owners of the said lot, nor were they ever considered to be
such.
The trial court, in the judgment rendered, held that there were no grounds for the requested
annulment of the sale, and that the plaintiffs were entitled to the P600 deposited with the clerk of
the court as the value of the lot in question. The defendants, Ruperta Pascual and the Chinaman
Cu Joco, were absolved from the complaint, without express finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to
accept the price set on the lot by expert appraisers, not even though the plaintiffs be considered
as coowner of the warehouse. It would be much indeed that, on the ground of coownership, they
should have to abide by and tolerate the sale of the said building, which point this court does not
decide as it is not a question submitted to us for decision, but, as regards the sale of the lot, it is
in all respects impossible to hold that the plaintiffs must abide by it and tolerate, it, and this
conclusion is based on the fact that they did not give their consent (art. 1261, Civil Code), and
only the contracting parties who have given it are obliged to comply (art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot;
but subsequently the plaintiffs, through motion, asked for an amendment by their complaint in
the sense that the action should be deemed to be one for the recovery of possession of a lot and
for the annulment of its sale. The plaintiff's petition was opposed by the defendant's attorney, but
was allowed by the court; therefore the complaint seeks, after the judicial annulment of the sale
of the lot, to have the defendants sentenced immediately to deliver the same to the plaintiffs.
Such a finding appears to be in harmony with the decision rendered by the Supreme Court in
previous suit, wherein it was held that the ownership of the lot lay in the plaintiffs, and for this
reason steps were taken to give possession thereof to the defendants; but, as the purchaser Cu
Joco was not a party to that suit, the present action is strictly one for recover against Cu Joco to
compel him, once the sale has been annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this and in the previous suit,
that Andres Fontanilla, the defendants' predecessor in interest, erected the warehouse
on the lot, some thirty years ago, with the explicit consent of his brother Francisco
Fontanilla, the plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the defendants are
the coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla
nor his successors paid any consideration or price whatever for the use of the lot
occupied by the said building; whence it is, perhaps, that both parties have
denominated that use a commodatum.
Upon the premise of these facts, or even merely upon that of the first of them, the sentencing of
the defendants to deliver the lot to the plaintiffs does not follow as a necessary corollary of the
judicial declaration of ownership made in the previous suit, nor of that of the nullity of the sale of
the lot, made in the present case.
The defendants do not hold lawful possession of the lot in question.1awphil.net
But, although both litigating parties may have agreed in their idea of the commodatum, on
account of its not being, as indeed it is not, a question of fact but of law, yet that denomination
given by them to the use of the lot granted by Francisco Fontanilla to his brother, Andres
Fontanilla, is not acceptable. Contracts are not to be interpreted in conformity with the name that
the parties thereto agree to give them, but must be construed, duly considering their constitutive
elements, as they are defined and denominated by law.
By the contract of loan, one of the parties delivers to the other, either anything not
perishable, in order that the latter may use it during the certain period and return it to
the former, in which case it is called commodatum . . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing belonging to
another shall for a certain period. Francisco Fontanilla did not fix any definite period or time
during which Andres Fontanilla could have the use of the lot whereon the latter was to erect a
stone warehouse of considerable value, and so it is that for the past thirty years of the lot has
been used by both Andres and his successors in interest. The present contention of the plaintiffs
that Cu Joco, now in possession of the lot, should pay rent for it at the rate of P5 a month, would
destroy the theory of the commodatum sustained by them, since, according to the second
paragraph of the aforecited article 1740, "commodatum is essentially gratuitous," and, if what the
plaintiffs themselves aver on page 7 of their brief is to be believed, it never entered Francisco's
mind to limit the period during which his brother Andres was to have the use of the lot, because
he expected that the warehouse would eventually fall into the hands of his son, Fructuoso
Fontanilla, called the adopted son of Andres, which did not come to pass for the reason that
Fructuoso died before his uncle Andres. With that expectation in view, it appears more likely that
Francisco intended to allow his brother Andres a surface right; but this right supposes the
payment of an annual rent, and Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on another's ground, the
question should be decided in accordance with the statutes that, thirty years ago, governed
accessions to real estate, and which were Laws 41 and 42, title 28, of the third Partida, nearly
identical with the provisions of articles 361 and 362 of the Civil Code. So, then, pursuant to
article 361, the owner of the land on which a building is erected in good faith has a right to
appropriate such edifice to himself, after payment of the indemnity prescribed in articles 453 and
454, or to oblige the builder to pay him the value of the land. Such, and no other, is the right to
which the plaintiff are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made
by Ruperta Pascual, in representation of her minor children, to Cu Joco, and to maintain the
latter in the use of the lot until the plaintiffs shall choose one or the other of the two rights
granted them by article 361 of the Civil Code.1awphil.net
The judgment appealed from is reversed and the sale of the lot in question is held to be null and
void and of no force or effect. No special finding is made as to the costs of both instances.
Torres, Johnson, Carson, Moreland and Trent, JJ., concur.
 in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated
the trust and when it applied for registration in 1962; that petitioner had just been in possession
as owner for eleven years, hence there is no possibility of acquisitive prescription which requires
10 years possession with just title and 30 years of possession without; that the principle of res
judicata on these findings by the Court of Appeals will bar a reopening of these questions of
facts; and that those facts may no longer be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
G.R. No. 80294-95 September 21, 1988
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

The facts and background of these cases as narrated by the trail court are as follows
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
... The documents and records presented reveal that
the whole controversy started when the defendant
Valdez, Ereso, Polido & Associates for petitioner.
Catholic Vicar Apostolic of the Mountain Province
(VICAR for brevity) filed with the Court of First Instance
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner. of Baguio Benguet on September 5, 1962 an
application for registration of title over Lots 1, 2, 3, and
Jaime G. de Leon for the Heirs of Egmidio Octaviano. 4 in Psu-194357, situated at Poblacion Central, La
Trinidad, Benguet, docketed as LRC N-91, said Lots
being the sites of the Catholic Church building,
Cotabato Law Office for the Heirs of Juan Valdez.
convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. On
GANCAYCO, J.: March 22, 1963 the Heirs of Juan Valdez and the Heirs
of Egmidio Octaviano filed their Answer/Opposition on
The principal issue in this case is whether or not a decision of the Court of Appeals promulgated Lots Nos. 2 and 3, respectively, asserting ownership
a long time ago can properly be considered res judicata by respondent Court of Appeals in the and title thereto. After trial on the merits, the land
present two cases between petitioner and two private respondents. registration court promulgated its Decision, dated
November 17, 1965, confirming the registrable title of
VICAR to Lots 1, 2, 3, and 4.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth
Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)]
and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which The Heirs of Juan Valdez (plaintiffs in the herein Civil
affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Case No. 3655) and the Heirs of Egmidio Octaviano
Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the (plaintiffs in the herein Civil Case No. 3607) appealed
dispositive portion as follows: the decision of the land registration court to the then
Court of Appeals, docketed as CA-G.R. No. 38830-R.
The Court of Appeals rendered its decision, dated May
WHEREFORE, Judgment is hereby rendered ordering the defendant,
9, 1977, reversing the decision of the land registration
Catholic Vicar Apostolic of the Mountain Province to return and surrender
court and dismissing the VICAR's application as to Lots
Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of
2 and 3, the lots claimed by the two sets of oppositors
the same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano
in the land registration case (and two sets of plaintiffs in
(Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs'
the two cases now at bar), the first lot being presently
claim or damages is hereby denied. Said defendant is ordered to pay costs.
occupied by the convent and the second by the
(p. 36, Rollo)
women's dormitory and the sister's convent.

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
On May 9, 1977, the Heirs of Octaviano filed a motion
conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-
for reconsideration praying the Court of Appeals to
R, in the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in
order the registration of Lot 3 in the names of the Heirs
question; that the two lots were possessed by the predecessors-in-interest of private
of Egmidio Octaviano, and on May 17, 1977, the Heirs
respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had been
of Juan Valdez and Pacita Valdez filed their motion for
reconsideration praying that both Lots 2 and 3 be
ordered registered in the names of the Heirs of Juan
Valdez and Pacita Valdez. On August 12,1977, the
Court of Appeals denied the motion for reconsideration
filed by the Heirs of Juan Valdez on the ground that
there was "no sufficient merit to justify reconsideration
one way or the other ...," and likewise denied that of the
Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a
petition for review on certiorari of the decision of the
Court of Appeals dismissing his (its) application for
registration of Lots 2 and 3, docketed as G.R. No. L-
46832, entitled 'Catholic Vicar Apostolic of the Mountain
Province vs. Court of Appeals and Heirs of Egmidio
Octaviano.'
From the denial by the Court of Appeals of their motion
for reconsideration the Heirs of Juan Valdez and Pacita
Valdez, on September 8, 1977, filed with the Supreme
Court a petition for review, docketed as G.R. No. L-
46872, entitled, Heirs of Juan Valdez and Pacita Valdez
vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano
and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a
minute resolution both petitions (of VICAR on the one
hand and the Heirs of Juan Valdez and Pacita Valdez
on the other) for lack of merit. Upon the finality of both
Supreme Court resolutions in G.R. No. L-46832 and
G.R. No. L- 46872, the Heirs of Octaviano filed with the
then Court of First Instance of Baguio, Branch II, a
Motion For Execution of Judgment praying that the
Heirs of Octaviano be placed in possession of Lot 3.
The Court, presided over by Hon. Salvador J. Valdez,
on December 7, 1978, denied the motion on the ground
that the Court of Appeals decision in CA-G.R. No.
38870 did not grant the Heirs of Octaviano any
affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with
the Court of Appeals a petitioner for certiorari and
mandamus, docketed as CA-G.R. No. 08890-R,
entitled Heirs of Egmidio Octaviano vs. Hon. Salvador
J. Valdez, Jr. and Vicar. In its decision dated May 16,
1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed.
The Heirs of Egmidio Octaviano filed Civil Case No.
3607 (419) on July 24, 1979, for recovery of possession
of Lot 3; and the Heirs of Juan Valdez filed Civil Case
No. 3655 (429) on September 24, 1979, likewise for
recovery of possession of Lot 2 (Decision, pp. 199-201,
Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio
Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the
alleged ownership of the land in question (Lot 3) by their predecessor-in-
interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. BB-4 ) to
defendant Vicar for the return of the land to them; and the reasonable
rentals for the use of the land at P10,000.00 per month. On the other hand,
defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any of the plaintiffs
(Exh. 8). The defendant dispensed with the testimony of Mons.William
Brasseur when the plaintiffs admitted that the witness if called to the witness
stand, would testify that defendant Vicar has been in possession of Lot 3,
for seventy-five (75) years continuously and peacefully and has constructed
permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not
in dispute, submitted the case on the sole issue of whether or not the
decisions of the Court of Appeals and the Supreme Court touching on the
ownership of Lot 2, which in effect declared the plaintiffs the owners of the
land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred
from setting up the defense of ownership and/or long and continuous
possession of the two lots in question since this is barred by prior judgment
of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res
judicata. Plaintiffs contend that the question of possession and ownership
have already been determined by the Court of Appeals (Exh. C, Decision,
CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1, Minute
Resolution of the Supreme Court). On his part, defendant Vicar maintains
that the principle of res judicata would not prevent them from litigating the
issues of long possession and ownership because the dispositive portion of
the prior judgment in CA-G.R. No. 038830-R merely dismissed their
application for registration and titling of lots 2 and 3. Defendant Vicar
contends that only the dispositive portion of the decision, and not its body, is
the controlling pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to petitioner are as
follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM
VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS
WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO
WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS
AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT
APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND
JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF
THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO.
038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON
OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3
MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD
FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY
THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and
05149, when it clearly held that it was in agreement with the findings of the trial court that the
Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of
ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-
R) did not positively declare private respondents as owners of the land, neither was it declared
that they were not owners of the land, but it held that the predecessors of private respondents
were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951.
Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When petitioner applied for
registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for
eleven years. Ordinary acquisitive prescription requires possession for ten years, but always
with just title. Extraordinary acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of Appeals in
CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's
ruling that said findings are res judicata between the parties. They can no longer be altered by
presentation of evidence because those issues were resolved with finality a long time ago. To
ignore the principle of res judicata would be to open the door to endless litigations by continuous
determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R.
No. 38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to
register the lands in question under its ownership, on its evaluation of evidence and conclusion
of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The
appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by
petitioner Vicar because there was absolutely no documentary evidence to support the same
and the alleged purchases were never mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano.
Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The
predecessors of private respondents, not petitioner Vicar, were in possession of the questioned
lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not
Lots 2 and 3, because the buildings standing thereon were only constructed after liberation in
1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The
improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only
in 1947, the church was constructed only in 1951 and the new convent only 2 years before the
trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the
lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in
1962.
Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they became bailors
in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter
of commodatum to the bailor did not mean adverse possession on the part of the borrower. The
bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner
came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar
by such adverse claim could not ripen into title by way of ordinary acquisitive prescription
because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a
bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of
38830-R. Its findings of fact have become incontestible. This Court declined to review said merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court
decision, thereby in effect, affirming it. It has become final and executory a long time ago. of Appeals is AFFIRMED, with costs against petitioner.

Respondent appellate court did not commit any reversible error, much less grave abuse of SO ORDERED.
discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is
governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R. No. Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision
may no longer be altered.