G.R. No.
L-24968 April 27, 1972 on the factory building to be constructed, the land site thereof, and
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs.
DEVELOPMENT BANK OF THE PHILIPPINES, 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
the machinery and equipment to be installed. Among the other
terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for
the following purposes:
 For construction of factory building P250,000.00
 For payment of the balance of purchase price of
machinery and equipment 240,900.00
 For working capital 9,100.00
TOTAL P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano,
Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd.
shall sign the promissory notes jointly with the borrower-
corporation;
5. That release shall be made at the discretion of the
Rehabilitation Finance Corporation, subject to availability of funds,
and as the construction of the factory buildings progresses, to be
certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9,
1954. The day before, however, evidently having otherwise been
informed of its approval, Saura, Inc. wrote a letter to RFC,
requesting a modification of the terms laid down by it, namely: that
in lieu of having China Engineers, Ltd. (which was willing to assume
liability only to the extent of its stock subscription with Saura, Inc.)
sign as co-maker on the corresponding promissory notes, Saura, Inc.
would put 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 equipment 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 opening 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.
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.
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 requirement in the absence of proof
or even of allegation that the notices were removed before the
expiration of the twenty- day period. A single act of posting (which
may even extend beyond the period required by law) satisfies the
requirement of law. The burden of proving that the posting
requirement was not complied with is now shifted to the one who
alleges non-compliance.
On the question of whether or not the petitioners had a right to
redeem the property, We hold that the Court of Appeals did not err
in ruling that they had no right to redeem. No consent having been
secured from respondent Bank to the sale with assumption of
mortgage by petitioners, the latter were not validly substituted as
debtors. In fact, their rights were never recorded and hence,
respondent Bank is charged with the obligation to recognize the
right of redemption only of the Lozano spouses. But even granting
that as purchaser or assignee of the property, as the case may be,
the petitioners had acquired a right to redeem the property,
petitioners failed to exercise said right within the period granted by six months overdue. Petitioners' payment of interest on July 12,
law. Thru certificate of sale in favor of appellee was registered on 1968 does not thereby make the earlier act of respondent Bank
September 2, 1968 and the one year redemption period expired on inequitous nor does it ipso facto result in the renewal of the loan. In
September 3, 1969. It was not until September 29, 1969 that order that a renewal of a loan may be effected, not only the
petitioner Honesto Bonnevie first wrote respondent and offered to payment of the accrued interest is necessary but also the payment
redeem the property. Moreover, on September 29, 1969, Honesto of interest for the proposed period of renewal as well. Besides,
had at that time already transferred his rights to intervenor Raoul whether or not a loan may be renewed does not solely depend on
Bonnevie. the debtor but more so on the discretion of the bank. Respondent
Bank may not be, therefore, charged of bad faith.
On the question of whether or not respondent Court of Appeals
erred in holding that respondent Bank did not act in bad faith, WHEREFORE, the appeal being devoid of merit, the decision of the
petitioners rely on Exhibit "B" which is the letter of lose Lozano to Court of Appeals is hereby AFFIRMED. Costs against petitioners.
respondent Bank dated December 8, 1966 advising the latter that
Honesto Bonnevie was authorized to make payments for the SO ORDERED.
amount secured by the mortgage on the subject property, to
receive acknowledgment of payments, obtain the Release of the
Mortgage after full payment of the obligation and to take delivery
of the title of said property. On the assumption that the letter was
received by respondent Bank, a careful reading of the same shows
that the plaintiff was merely authorized to do acts mentioned
therein and does not mention that petitioner is the new owner of
the property nor request that all correspondence and notice should
be sent to him.

The claim of appellants that the collection of interests on the loan

up to July 12, 1968 extends the maturity of said loan up to said date
and accordingly on June 10, 1968 when defendant applied for the
foreclosure of the mortgage, the loan was not yet due and
demandable, is totally incorrect and misleading. The undeniable fact
is that the loan matured on December 26, 1967. On June 10, 1968,
when respondent Bank applied for foreclosure, the loan was already
G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF
APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.
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
₱300,000 for moral damages, ₱50,000 for exemplary damages, and
₱50,000 for attorney’s 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 ₱850,000. They paid ₱350,000 in cash and assumed the
₱500,000 balance of Roa’s 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 ₱500,000 to
be applied to Roa’s 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 ₱9,996.58 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 Roa’s arrearages by
paying BPIIC the sum of ₱190,601.35. This reduced Roa’s principal
balance to ₱457,204.90 which, in turn, was liquidated when BPIIC
applied thereto the proceeds of private respondents’ loan of
₱500,000.
On September 13, 1982, BPIIC released to private respondents
₱7,146.87, purporting to be what was left of their loan after full
payment of Roa’s 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 (₱475,585.31). A notice of sheriff’s
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 ₱500,000 loan in
August and September 1982. Further, out of the ₱500,000 loan,
only the total amount of ₱464,351.77 was released to private
respondents. Hence, applying the effects of legal compensation, the
balance of ₱35,648.23 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 attorney’s fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for
being premature.
Costs against BPI.
SO ORDERED.
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.
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 ₱500,000 loan after deducting therefrom
the value of Roa’s 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 ₱194,960.43. Evidence showed that
private respondents had an overpayment, because as of June 1984,
they already paid a total amount of ₱201,791.96. 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 ATTORNEY’S 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 Roa’s 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
₱500,000 loan, private respondents were required to reduce Frank
Roa’s 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 ₱500,000
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.
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.1âwphi1
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.
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 ₱25,000 is sufficient.
Lastly, as in SSS where we awarded attorney’s fees because private
respondents were compelled to litigate, we sustain the award of
₱50,000 in favor of private respondents as attorney’s 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 attorney’s fees in the amount of ₱50,000
is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents ₱25,000 as nominal damages. Costs against petitioner.

SO ORDERED.
G.R. No. 118375 October 3, 2003
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and
AURORA QUEAÑO, respondents.
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45,
assailing the decision of the Sixteenth Division of the respondent
Court of Appeals promulgated on 21 December 19941 , which
affirmed in toto the decision handed down by the Regional Trial
Court (RTC) of Pasay City.
The case arose when on 11 August 1981, private respondent Aurora
Queaño (Queaño) filed a complaint before the Pasay City RTC for
cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
declaring the questioned Real Estate Mortgage void, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld
the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queaño applied with Naguiat for a loan in the amount of Two
Hundred Thousand Pesos (₱200,000.00), which Naguiat granted. On
11 August 1980, Naguiat indorsed to Queaño Associated Bank Check
No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (₱95,000.00), which was earlier issued to Naguiat
by the Corporate Resources Financing Corporation. She also issued
her own Filmanbank Check No. 065314, to the order of Queaño,
also dated 11 August 1980 and for the amount of Ninety Five
Thousand Pesos (₱95,000.00). The proceeds of these checks were to
constitute the loan granted by Naguiat to Queaño.
To secure the loan, Queaño executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and
surrendered to the latter the owner’s duplicates of the titles
covering the mortgaged properties.4 On the same day, the
mortgage deed was notarized, and Queaño issued to Naguiat a
promissory note for the amount of TWO HUNDRED THOUSAND
PESOS (₱200,000.00), with interest at 12% per annum, payable on
11 September 1980.5 Queaño also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of
TWO HUNDRED THOUSAND PESOS (₱200,000.00) and payable to
the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check
was dishonored for insufficiency of funds. On the following day, 12
September 1980, Queaño requested Security Bank to stop payment
of her postdated check, but the bank rejected the request pursuant
to its policy not to honor such requests if the check is drawn against
insufficient funds.
On 16 October 1980, Queaño received a letter from Naguiat’s
lawyer, demanding settlement of the loan. Shortly thereafter,
Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.
At the meeting, Queaño told Naguiat that she did not receive the
proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiat’s agent.
Naguiat applied for the extrajudicial foreclosure of the mortgage
with the Sheriff of Rizal Province, who then scheduled the
foreclosure sale on 14 August 1981. Three days before the
scheduled sale, Queaño filed the case before the Pasay City RTC,8
seeking the annulment of the mortgage deed. The trial court
eventually stopped the auction sale.
On 8 March 1991, the RTC rendered judgment, declaring the Deed
of Real Estate Mortgage null and void, and ordering Naguiat to
return to Queaño the owner’s duplicates of her titles to the
mortgaged lots.10 Naguiat appealed the decision before the Court
of Appeals, making no less than eleven assignments of error. The
Court of Appeals promulgated the decision now assailed before us
that affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of
Appeals, especially on the issue of whether Queaño had actually
received the loan proceeds which were supposed to be covered by
the two checks Naguiat had issued or indorsed. Naguiat claims that
being a notarial instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are true. Naguiat
also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-
binding effect of the admissions of third persons.
The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does
not exercise in an appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be raised12 as the
Supreme Court is not a trier of facts.13 The resolution of factual
issues is the function of lower courts, whose findings on these
matters are received with respect and are in fact generally binding
on the Supreme Court.14 A question of law which the Court may
pass upon must not involve an examination of the probative value
of the evidence presented by the litigants.15 There is a question of
law in a given case when the doubt or difference arises as to what
the law is on a certain state of facts; there is a question of fact when
the doubt or difference arises as to the truth or the falsehood of
alleged facts.
Surely, there are established exceptions to the rule on the
conclusiveness of the findings of facts of the lower courts.17 But
Naguiat’s case does not fall under any of the exceptions. In any
event, both the decisions of the appellate and trial courts are
supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously
insists that Queaño received the loan proceeds. Capitalizing on the
status of the mortgage deed as a public document, she cites the rule
that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is
correct in ruling that the presumption of truthfulness of the recitals
in a public document was defeated by the clear and convincing
evidence in this case that pointed to the absence of
consideration.18 This Court has held that the presumption of
truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary,
as in this case.
On the other hand, absolutely no evidence was submitted by
Naguiat that the checks she issued or endorsed were actually
encashed or deposited. The mere issuance of the checks did not
result in the perfection of the contract of loan. For the Civil Code
provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only
when they have been cashed.20 It is only after the checks have
produced the effect of payment that the contract of loan may be
deemed perfected. Art. 1934 of the Civil Code provides:
"An accepted promise to deliver something by way of commodatum
or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract."
A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract.21 In
this case, the objects of the contract are the loan proceeds which
Queaño would enjoy only upon the encashment of the checks
signed or indorsed by Naguiat. If indeed the checks were encashed
or deposited, Naguiat would have certainly presented the
corresponding documentary evidence, such as the returned checks
and the pertinent bank records. Since Naguiat presented no such
proof, it follows that the checks were not encashed or credited to
Queaño’s account.
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they
could not bind her following the res inter alia acta alteri nocere non
debet rule. The Court of Appeals rejected the argument, holding
that since Ruebenfeldt was an authorized representative or agent of
Naguiat the situation falls under a recognized exception to the
rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship
between Naguiat and Ruebenfeldt is supported by ample evidence.
As correctly pointed out by the Court of Appeals, Ruebenfeldt was
not a stranger or an unauthorized person. Naguiat instructed
Ruebenfeldt to withhold from Queaño the checks she issued or
indorsed to Queaño, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaño’s friend, Marilou Farralese, and it was in
connection with that transaction that Queaño came to know
Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in
her meeting with Naguiat and on that occasion, on her own and
without Queaño asking for it, Reubenfeldt actually drew a check for
the sum of ₱220,000.00 payable to Naguiat, to cover for Queaño’s
alleged liability to Naguiat under the loan agreement.24
The Court of Appeals recognized the existence of an "agency by
estoppel25 citing Article 1873 of the Civil Code.26 Apparently, it
considered that at the very least, as a consequence of the
interaction between Naguiat and Ruebenfeldt, Queaño got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat
did nothing to correct Queaño’s impression. In that situation, the
rule is clear. One who clothes another with apparent authority as
his agent, and holds him out to the public as such, cannot be
permitted to deny the authority of such person to act as his agent,
to the prejudice of innocent third parties dealing with such person
in good faith, and in the honest belief that he is what he appears to
be.27 The Court of Appeals is correct in invoking the said rule on
agency by estoppel.
More fundamentally, whatever was the true relationship between
Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
checks issued or indorsed to Queaño were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the
courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that
the mortgage which is supposed to secure the loan is null and void.
The consideration of the mortgage contract is the same as that of
the principal contract from which it receives life, and without which
it cannot exist as an independent contract.28 A mortgage contract
being a mere accessory contract, its validity would depend on the
validity of the loan secured by it.

WHEREFORE, the petition is denied and the assailed decision is

affirmed. Costs against petitioner.

SO ORDERED.
G.R. No. 154878 March 16, 2007
CAROLYN M. GARCIA, Petitioner, vs. RICA MARIE S. THIO,
Respondent.
CORONA, J.:
Assailed in this petition for review on certiorari1 are the June 19,
2002 decision2 and August 20, 2002 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February
28, 1997 decision of the Regional Trial Court (RTC) of Makati City,
Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received
from petitioner Carolyn M. Garcia a crossed check4 dated February
24, 1995 in the amount of US$100,000 payable to the order of a
certain Marilou Santiago.5 Thereafter, petitioner received from
respondent every month (specifically, on March 24, April 26, June
26 and July 26, all in 1995) the amount of US$3,0006 and ₱76,5007
on July 26,8 August 26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed
check9 dated June 29, 1995 in the amount of ₱500,000, also
payable to the order of Marilou Santiago.10 Consequently,
petitioner received from respondent the amount of ₱20,000 every
month on August 5, September 5, October 5 and November 5, 1995.
According to petitioner, respondent failed to pay the principal
amounts of the loans (US$100,000 and ₱500,000) when they fell
due. Thus, on February 22, 1996, petitioner filed a complaint for
sum of money and damages in the RTC of Makati City, Branch 58
against respondent, seeking to collect the sums of US$100,000, with
interest thereon at 3% a month from October 26, 1995 and
₱500,000, with interest thereon at 4% a month from November 5,
1995, plus attorney’s fees and actual damages.12
Petitioner alleged that on February 24, 1995, respondent borrowed
from her the amount of US$100,000 with interest thereon at the
rate of 3% per month, which loan would mature on October 26,
1995.13 The amount of this loan was covered by the first check. On
June 29, 1995, respondent again borrowed the amount of ₱500,000
at an agreed monthly interest of 4%, the maturity date of which was
on November 5, 1995.14 The amount of this loan was covered by
the second check. For both loans, no promissory note was executed
since petitioner and respondent were close friends at the time.15
Respondent paid the stipulated monthly interest for both loans but
on their maturity dates, she failed to pay the principal amounts
despite repeated demands.
Respondent denied that she contracted the two loans with
petitioner and countered that it was Marilou Santiago to whom
petitioner lent the money. She claimed she was merely asked by
petitioner to give the crossed checks to Santiago.17 She issued the
checks for ₱76,000 and ₱20,000 not as payment of interest but to
accommodate petitioner’s request that respondent use her own
checks instead of Santiago’s.
In a decision dated February 28, 1997, the RTC ruled in favor of
petitioner.19 It found that respondent borrowed from petitioner
the amounts of US$100,000 with monthly interest of 3% and
₱500,000 at a monthly interest of 4%:
WHEREFORE, finding preponderance of evidence to sustain the
instant complaint, judgment is hereby rendered in favor of
[petitioner], sentencing [respondent] to pay the former the amount
of:
1. [US$100,000.00] or its peso equivalent with interest thereon at
3% per month from October 26, 1995 until fully paid;
2. ₱500,000.00 with interest thereon at 4% per month from
November 5, 1995 until fully paid.
3. ₱100,000.00 as and for attorney’s fees; and
4. ₱50,000.00 as and for actual damages.
For lack of merit, [respondent’s] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.
On appeal, the CA reversed the decision of the RTC and ruled that
there was no contract of loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to
substantiate her claim that [respondent] indeed borrowed money
from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is
the fact that [respondent] received a MetroBank [crossed] check
dated February 24, 1995 in the sum of US$100,000.00, payable to
the order of Marilou Santiago and a CityTrust [crossed] check dated
June 29, 1995 in the amount of ₱500,000.00, again payable to the
order of Marilou Santiago, both of which were issued by
[petitioner]. The checks received by [respondent], being crossed,
may not be encashed but only deposited in the bank by the payee
thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a)
the check may not be encashed but only deposited in the bank; (b)
the check may be negotiated only once—to one who has an account
with the bank; (c) and the act of crossing the check serves as
warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due
course.
Consequently, the receipt of the [crossed] check by [respondent] is
not the issuance and delivery to the payee in contemplation of law
since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer
title thereto. Neither could she be deemed as an agent of Marilou
Santiago with respect to the checks because she was merely
facilitating the transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that
there were really no contracts of loan that existed between the
parties. x x x (emphasis supplied)22
Hence this petition.
As a rule, only questions of law may be raised in a petition for
review on certiorari under Rule 45 of the Rules of Court. However,
this case falls under one of the exceptions, i.e., when the factual
findings of the CA (which held that there were no contracts of loan
between petitioner and respondent) and the RTC (which held that
there were contracts of loan) are contradictory.
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected
only upon the delivery of the object of the contract.25 This is
evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum
or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the
money received by the debtor when the checks were encashed) the
debtor acquires ownership of such money or loan proceeds and is
bound to pay the creditor an equal amount.
It is undisputed that the checks were delivered to respondent.
However, these checks were crossed and payable not to the order
of respondent but to the order of a certain Marilou Santiago. Thus
the main question to be answered is: who borrowed money from
petitioner — respondent or Santiago?
Petitioner insists that it was upon respondent’s instruction that
both checks were made payable to Santiago.27 She maintains that it
was also upon respondent’s instruction that both checks were
delivered to her (respondent) so that she could, in turn, deliver the
same to Santiago.28 Furthermore, she argues that once respondent
received the checks, the latter had possession and control of them
such that she had the choice to either forward them to Santiago
(who was already her debtor), to retain them or to return them to
petitioner.
We agree with petitioner. Delivery is the act by which the res or
substance thereof is placed within the actual or constructive
possession or control of another.30 Although respondent did not
physically receive the proceeds of the checks, these instruments
were placed in her control and possession under an arrangement
whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know
Santiago. It was highly improbable that petitioner would grant two
loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt
considering that the amounts involved were quite big. Respondent,
on the other hand, already had transactions with Santiago at that
time.
Second, Leticia Ruiz, a friend of both petitioner and respondent (and
whose name appeared in both parties’ list of witnesses) testified
that respondent’s plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the
same amount to Santiago at a higher rate of 5% and realize a profit
of 2%.33 This explained why respondent instructed petitioner to
make the checks payable to Santiago. Respondent has not shown
any reason why Ruiz’ testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her
own checks in the amount of ₱76,000 each (peso equivalent of
US$3,000) for eight months to cover the monthly interest. For the
₱500,000 loan, she also issued her own checks in the amount of
₱20,000 each for four months.34 According to respondent, she
merely accommodated petitioner’s request for her to issue her own
checks to cover the interest payments since petitioner was not
personally acquainted with Santiago.35 She claimed, however, that
Santiago would replace the checks with cash.36 Her explanation is
simply incredible. It is difficult to believe that respondent would put
herself in a position where she would be compelled to pay interest,
from her own funds, for loans she allegedly did not contract. We
declared in one case that:
In the assessment of the testimonies of witnesses, this Court is
guided by the rule that for evidence to be believed, it must not only
proceed from the mouth of a credible witness, but must be credible
in itself such as the common experience of mankind can approve as
probable under the circumstances. We have no test of the truth of
human testimony except its conformity to our knowledge,
observation, and experience. Whatever is repugnant to these
belongs to the miraculous, and is outside of juridical cognizance.
Fourth, in the petition for insolvency sworn to and filed by Santiago,
it was respondent, not petitioner, who was listed as one of her
(Santiago’s) ceditors.
Last, respondent inexplicably never presented Santiago as a witness
to corroborate her story.39 The presumption is that "evidence
willfully suppressed would be adverse if produced."40 Respondent
was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that
respondent did not borrow the amounts of US$100,000 and
₱500,000 from petitioner. We instead agree with the ruling of the
RTC making respondent liable for the principal amounts of the
loans.
We do not, however, agree that respondent is liable for the 3% and
4% monthly interest for the US$100,000 and ₱500,000 loans
respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and
4% interest per month. Article 1956 of the Civil Code provides that
"[n]o interest shall be due unless it has been expressly stipulated in
writing."
Be that as it may, while there can be no stipulated interest, there
can be legal interest pursuant to Article 2209 of the Civil Code. It is
well-settled that:
When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
Hence, respondent is liable for the payment of legal interest per
annum to be computed from November 21, 1995, the date when
she received petitioner’s demand letter. From the finality of the
decision until it is fully paid, the amount due shall earn interest at
12% per annum, the interim period being deemed equivalent to a
forbearance of credit.
The award of actual damages in the amount of ₱50,000 and
₱100,000 attorney’s fees is deleted since the RTC decision did not
explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002
decision and August 20, 2002 resolution of the Court of Appeals in
CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February
28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266
is AFFIRMED with the MODIFICATION that respondent is directed to
pay petitioner the amounts of US$100,000 and ₱500,000 at 12% per
annum interest from November 21, 1995 until the finality of the
decision. The total amount due as of the date of finality will earn
interest of 12% per annum until fully paid. The award of actual
damages and attorney’s fees is deleted.

SO ORDERED.
POLO S. PANTALEON, Petitioner, vs. AMERICAN EXPRESS
INTERNATIONAL, INC., Respondent.
G.R. No. 174269 August 25, 2010
BRION, J.:
We resolve the motion for reconsideration filed by respondent
American Express International, Inc. (AMEX) dated June 8, 2009,[1]
seeking to reverse our Decision dated May 8, 2009 where we ruled
that AMEX was guilty of culpable delay in fulfilling its obligation to
its cardholder petitioner Polo Pantaleon. Based on this conclusion,
we held AMEX liable for moral and exemplary damages, as well as
attorneys fees and costs of litigation.
FACTUAL ANTECEDENTS
The established antecedents of the case are narrated below.
AMEX is a resident foreign corporation engaged in the business of
providing credit services through the operation of a charge card
system. Pantaleon has been an AMEX cardholder since 1980.[3]
In October 1991, Pantaleon, together with his wife (Julialinda),
daughter (Regina), and son (Adrian Roberto), went on a guided
European tour. On October 25, 1991, the tour group arrived in
Amsterdam. Due to their late arrival, they postponed the tour of the
city for the following day.
The next day, the group began their sightseeing at around 8:50 a.m.
with a trip to the Coster Diamond House (Coster). To have enough
time for take a guided city tour of Amsterdam before their
departure scheduled on that day, the tour group planned to leave
Coster by 9:30 a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to purchase some diamond
pieces worth a total of US$13,826.00. Pantaleon presented his
American Express credit card to the sales clerk to pay for this
purchase. He did this at around 9:15 a.m. The sales clerk swiped the
credit card and asked Pantaleon to sign the charge slip, which was
then electronically referred to AMEXs Amsterdam office at 9:20
a.m.
At around 9:40 a.m., Coster had not received approval from AMEX
for the purchase so Pantaleon asked the store clerk to cancel the
sale. The store manager, however, convinced Pantaleon to wait a
few more minutes. Subsequently, the store manager informed
Pantaleon that AMEX was asking for bank references; Pantaleon
responded by giving the names of his Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon presented his
credit card, AMEX still had not approved the purchase. Since the city
tour could not begin until the Pantaleons were onboard the tour
bus, Coster decided to release at around 10:05 a.m. the purchased
items to Pantaleon even without AMEXs approval.
When the Pantaleons finally returned to the tour bus, they found
their travel companions visibly irritated. This irritation intensified
when the tour guide announced that they would have to cancel the
tour because of lack of time as they all had to be in Calais, Belgium
by 3 p.m. to catch the ferry to London.
From the records, it appears that after Pantaleons purchase was
transmitted for approval to AMEXs Amsterdam office at 9:20 a.m.;
was referred to AMEXs Manila office at 9:33 a.m.; and was
approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs
Manila office finally transmitted the Approval Code to AMEXs
Amsterdam office. In all, it took AMEX a total of 78 minutes to
approve Pantaleons purchase and to transmit the approval to the
jewelry store.
After the trip to Europe, the Pantaleon family proceeded to the
United States. Again, Pantaleon experienced delay in securing
approval for purchases using his American Express credit card on
two separate occasions. He experienced the first delay when he
wanted to purchase golf equipment in the amount of US$1,475.00
at the Richard Metz Golf Studio in New York on October 30, 1991.
Another delay occurred when he wanted to purchase childrens
shoes worth US$87.00 at the Quiency Market in Boston on
November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter demanding an
apology for the humiliation and inconvenience he and his family
experienced due to the delays in obtaining approval for his credit
card purchases. AMEX responded by explaining that the delay in
Amsterdam was due to the amount involved the charged purchase
of US$13,826.00 deviated from Pantaleons established charge
purchase pattern. Dissatisfied with this explanation, Pantaleon filed
an action for damages against the credit card company with the
Makati City Regional Trial Court (RTC).
On August 5, 1996, the RTC found AMEX guilty of delay, and
awarded Pantaleon P500,000.00 as moral damages, P300,000.00 as
exemplary damages, P100,000.00 as attorneys fees, and P85,233.01
as litigation expenses.
On appeal, the CA reversed the awards.[8] While the CA recognized
that delay in the nature of mora accipiendi or creditors default
attended AMEXs approval of Pantaleons purchases, it disagreed
with the RTCs finding that AMEX had breached its contract, noting
that the delay was not attended by bad faith, malice or gross
negligence. The appellate court found that AMEX exercised diligent
efforts to effect the approval of Pantaleons purchases; the purchase
at Coster posed particularly a problem because it was at variance
with Pantaleons established charge pattern. As there was no proof
that AMEX breached its contract, or that it acted in a wanton,
fraudulent or malevolent manner, the appellate court ruled that
AMEX could not be held liable for any form of damages.
Pantaleon questioned this decision via a petition for review on
certiorari with this Court.
In our May 8, 2009 decision, we reversed the appellate courts
decision and held that AMEX was guilty of mora solvendi, or debtors
default. AMEX, as debtor, had an obligation as the credit provider to
act on Pantaleons purchase requests, whether to approve or
disapprove them, with timely dispatch. Based on the evidence on
record, we found that AMEX failed to timely act on Pantaleons
purchases.
Based on the testimony of AMEXs credit authorizer Edgardo
Jaurique, the approval time for credit card charges would be three
to four seconds under regular circumstances. In Pantaleons case, it
took AMEX 78 minutes to approve the Amsterdam purchase. We
attributed this delay to AMEXs Manila credit authorizer, Edgardo
Jaurique, who had to go over Pantaleons past credit history, his
payment record and his credit and bank references before he
approved the purchase. Finding this delay unwarranted, we
reinstated the RTC decision and awarded Pantaleon moral and
exemplary damages, as well as attorneys fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues that this Court erred
when it found AMEX guilty of culpable delay in complying with its
obligation to act with timely dispatch on Pantaleons purchases.
While AMEX admits that it normally takes seconds to approve
charge purchases, it emphasizes that Pantaleon experienced delay
in Amsterdam because his transaction was not a normal one. To
recall, Pantaleon sought to charge in a single transaction jewelry
items purchased from Coster in the total amount of US$13,826.00
or P383,746.16. While the total amount of Pantaleons previous
purchases using his AMEX credit card did exceed US$13,826.00,
AMEX points out that these purchases were made in a span of more
than 10 years, not in a single transaction.
Because this was the biggest single transaction that Pantaleon ever
made using his AMEX credit card, AMEX argues that the transaction
necessarily required the credit authorizer to carefully review
Pantaleons credit history and bank references. AMEX maintains that
it did this not only to ensure Pantaleons protection (to minimize the
possibility that a third party was fraudulently using his credit card),
but also to protect itself from the risk that Pantaleon might not be
able to pay for his purchases on credit. This careful review,
according to AMEX, is also in keeping with the extraordinary degree
of diligence required of banks in handling its transactions. AMEX
concluded that in these lights, the thorough review of Pantaleons
credit record was motivated by legitimate concerns and could not
be evidence of any ill will, fraud, or negligence by AMEX.
AMEX further points out that the proximate cause of Pantaleons
humiliation and embarrassment was his own decision to proceed
with the purchase despite his awareness that the tour group was
waiting for him and his wife. Pantaleon could have prevented the
humiliation had he cancelled the sale when he noticed that the
credit approval for the Coster purchase was unusually delayed.
In his Comment dated February 24, 2010, Pantaleon maintains that
AMEX was guilty of mora solvendi, or delay on the part of the
debtor, in complying with its obligation to him. Based on
jurisprudence, a just cause for delay does not relieve the debtor in
delay from the consequences of delay; thus, even if AMEX had a
justifiable reason for the delay, this reason would not relieve it from
the liability arising from its failure to timely act on Pantaleons
purchase.
In response to AMEXs assertion that the delay was in keeping with
its duty to perform its obligation with extraordinary diligence,
Pantaleon claims that this duty includes the timely or prompt
performance of its obligation.
As to AMEXs contention that moral or exemplary damages cannot
be awarded absent a finding of malice, Pantaleon argues that evil
motive or design is not always necessary to support a finding of bad
faith; gross negligence or wanton disregard of contractual
obligations is sufficient basis for the award of moral and exemplary
damages.
OUR RULING
We GRANT the motion for reconsideration.
Brief historical background
A credit card is defined as any card, plate, coupon book, or other
credit device existing for the purpose of obtaining money, goods,
property, labor or services or anything of value on credit.[9] It traces
its roots to the charge card first introduced by the Diners Club in
New York City in 1950.[10] American Express followed suit by
introducing its own charge card to the American market in 1958. In
the Philippines, the now defunct Pacific Bank was responsible for
bringing the first credit card into the country in the 1970s.[12]
However, it was only in the early 2000s that credit card use gained
wide acceptance in the country, as evidenced by the surge in the
number of credit card holders then.
Nature of Credit Card Transactions
To better understand the dynamics involved in credit card
transactions, we turn to the United States case of Harris Trust &
Savings Bank v. McCray[14] which explains:
The bank credit card system involves a tripartite relationship
between the issuer bank, the cardholder, and merchants
participating in the system. The issuer bank establishes an account
on behalf of the person to whom the card is issued, and the two
parties enter into an agreement which governs their relationship.
This agreement provides that the bank will pay for cardholders
account the amount of merchandise or services purchased through
the use of the credit card and will also make cash loans available to
the cardholder. It also states that the cardholder shall be liable to
the bank for advances and payments made by the bank and that the
cardholders obligation to pay the bank shall not be affected or
impaired by any dispute, claim, or demand by the cardholder with
respect to any merchandise or service purchased.
The merchants participating in the system agree to honor the banks
credit cards. The bank irrevocably agrees to honor and pay the sales
slips presented by the merchant if the merchant performs his
undertakings such as checking the list of revoked cards before
accepting the card. x x x.
These slips are forwarded to the member bank which originally
issued the card. The cardholder receives a statement from the bank
periodically and may then decide whether to make payment to the
bank in full within a specified period, free of interest, or to defer
payment and ultimately incur an interest charge.
We adopted a similar view in CIR v. American Express International,
Inc. (Philippine branch), where we also recognized that credit card
issuers are not limited to banks. We said:
Under RA 8484, the credit card that is issued by banks in general, or
by non-banks in particular, refers to any card x x x or other credit
device existing for the purpose of obtaining x x x goods x x x or
services x x x on credit; and is being used usually on a revolving
basis. This means that the consumer-credit arrangement that exists
between the issuer and the holder of the credit card enables the
latter to procure goods or services on a continuing basis as long as
the outstanding balance does not exceed a specified limit. The card
holder is, therefore, given the power to obtain present control of
goods or service on a promise to pay for them in the future.
Business establishments may extend credit sales through the use of
the credit card facilities of a non-bank credit card company to avoid
the risk of uncollectible accounts from their customers. Under this
system, the establishments do not deposit in their bank accounts
the credit card drafts that arise from the credit sales. Instead, they
merely record their receivables from the credit card company and
periodically send the drafts evidencing those receivables to the
latter.
The credit card company, in turn, sends checks as payment to
these business establishments, but it does not redeem the drafts at
full price. The agreement between them usually provides for
discounts to be taken by the company upon its redemption of the
drafts. At the end of each month, it then bills its credit card holders
for their respective drafts redeemed during the previous month. If
the holders fail to pay the amounts owed, the company sustains the
loss.
Simply put, every credit card transaction involves three contracts,
namely: (a) the sales contract between the credit card holder and
the merchant or the business establishment which accepted the
credit card; (b) the loan agreement between the credit card issuer
and the credit card holder; and lastly, (c) the promise to pay
between the credit card issuer and the merchant or business
establishment.
Credit card issuer cardholder relationship
When a credit card company gives the holder the privilege of
charging items at establishments associated with the issuer,[17] a
necessary question in a legal analysis is when does this relationship
begin? There are two diverging views on the matter. In City Stores
Co. v. Henderson,[18] another U.S. decision, held that:
The issuance of a credit card is but an offer to extend a line of open
account credit. It is unilateral and supported by no consideration.
The offer may be withdrawn at any time, without prior notice, for
any reason or, indeed, for no reason at all, and its withdrawal
breaches no duty for there is no duty to continue it and violates no
rights.
Thus, under this view, each credit card transaction is considered a
separate offer and acceptance.
Novack v. Cities Service Oil Co.[19] echoed this view, with the court
ruling that the mere issuance of a credit card did not create a
contractual relationship with the cardholder.
On the other end of the spectrum is Gray v. American Express
Company[20] which recognized the card membership agreement
itself as a binding contract between the credit card issuer and the
card holder. Unlike in the Novack and the City Stores cases,
however, the cardholder in Gray paid an annual fee for the privilege
of being an American Express cardholder.
In our jurisdiction, we generally adhere to the Gray ruling,
recognizing the relationship between the credit card issuer and the
credit card holder as a contractual one that is governed by the
terms and conditions found in the card membership agreement.[21]
This contract provides the rights and liabilities of a credit card
company to its cardholders and vice versa.
We note that a card membership agreement is a contract of
adhesion as its terms are prepared solely by the credit card issuer,
with the cardholder merely affixing his signature signifying his
adhesion to these terms. This circumstance, however, does not
render the agreement void; we have uniformly held that contracts
of adhesion are as binding as ordinary contracts, the reason being
that the party who adheres to the contract is free to reject it
entirely. The only effect is that the terms of the contract are
construed strictly against the party who drafted it.
On AMEXs obligations to Pantaleon
We begin by identifying the two privileges that Pantaleon assumes
he is entitled to with the issuance of his AMEX credit card, and on
which he anchors his claims. First, Pantaleon presumes that since
his credit card has no pre-set spending limit, AMEX has the
obligation to approve all his charge requests. Conversely, even if
AMEX has no such obligation, at the very least it is obliged to act on
his charge requests within a specific period of time.
i. Use of credit card a mere offer to enter into loan agreements
Although we recognize the existence of a relationship between the
credit card issuer and the credit card holder upon the acceptance by
the cardholder of the terms of the card membership agreement
(customarily signified by the act of the cardholder in signing the
back of the credit card), we have to distinguish this contractual
relationship from the creditor-debtor relationship which only arises
after the credit card issuer has approved the cardholders purchase
request. The first relates merely to an agreement providing for
credit facility to the cardholder. The latter involves the actual credit
on loan agreement involving three contracts, namely: the sales
contract between the credit card holder and the merchant or the
business establishment which accepted the credit card; the loan
agreement between the credit card issuer and the credit card
holder; and the promise to pay between the credit card issuer and
the merchant or business establishment.
From the loan agreement perspective, the contractual relationship
begins to exist only upon the meeting of the offer[25] and
acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they
merely offer to enter into loan agreements with the credit card
company. Only after the latter approves the purchase requests that
the parties enter into binding loan contracts, in keeping with Article
1319 of the Civil Code, which provides:
Article 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-
offer.
This view finds support in the reservation found in the card
membership agreement itself, particularly paragraph 10, which
clearly states that AMEX reserve[s] the right to deny authorization
for any requested Charge. By so providing, AMEX made its position
clear that it has no obligation to approve any and all charge
requests made by its card holders.
ii. AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the purchase requests of
its credit cardholders, Pantaleon cannot claim that AMEX defaulted
in its obligation. Article 1169 of the Civil Code, which provides the
requisites to hold a debtor guilty of culpable delay, states:
Article 1169. 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. x x x.
The three requisites for a finding of default are: (a) that the
obligation is demandable and liquidated; (b) the debtor delays
performance; and (c) the creditor judicially or extrajudicially
requires the debtors performance.[26]
Based on the above, the first requisite is no longer met because
AMEX, by the express terms of the credit card agreement, is not
obligated to approve Pantaleons purchase request. Without a
demandable obligation, there can be no finding of default.
Apart from the lack of any demandable obligation, we also find that
Pantaleon failed to make the demand required by Article 1169 of
the Civil Code.
As previously established, the use of a credit card to pay for a
purchase is only an offer to the credit card company to enter a loan
agreement with the credit card holder. Before the credit card issuer
accepts this offer, no obligation relating to the loan agreement
exists between them. On the other hand, a demand is defined as
the assertion of a legal right; xxx an asking with authority, claiming
or challenging as due.[27] A demand presupposes the existence of
an obligation between the parties.
Thus, every time that Pantaleon used his AMEX credit card to pay
for his purchases, what the stores transmitted to AMEX were his
offers to execute loan contracts. These obviously could not be
classified as the demand required by law to make the debtor in
default, given that no obligation could arise on the part of AMEX
until after AMEX transmitted its acceptance of Pantaleons offers.
Pantaleons act of insisting on and waiting for the charge purchases
to be approved by AMEX[28] is not the demand contemplated by
Article 1169 of the Civil Code.
For failing to comply with the requisites of Article 1169, Pantaleons
charge that AMEX is guilty of culpable delay in approving his
purchase requests must fail.
iii. On AMEXs obligation to act on the offer within a specific period
of time
Even assuming that AMEX had the right to review his credit card
history before it approved his purchase requests, Pantaleon insists
that AMEX had an obligation to act on his purchase requests, either
to approve or deny, in a matter of seconds or in timely dispatch.
Pantaleon impresses upon us the existence of this obligation by
emphasizing two points: (a) his card has no pre-set spending limit;
and (b) in his twelve years of using his AMEX card, AMEX had always
approved his charges in a matter of seconds.
Pantaleons assertions fail to convince us.
We originally held that AMEX was in culpable delay when it acted on
the Coster transaction, as well as the two other transactions in the
United States which took AMEX approximately 15 to 20 minutes to
approve. This conclusion appears valid and reasonable at first
glance, comparing the time it took to finally get the Coster purchase
approved (a total of 78 minutes), to AMEXs normal approval time of
three to four seconds (based on the testimony of Edgardo Jaurigue,
as well as Pantaleons previous experience). We come to a different
result, however, after a closer look at the factual and legal
circumstances of the case.
AMEXs credit authorizer, Edgardo Jaurigue, explained that having
no pre-set spending limit in a credit card simply means that the
charges made by the cardholder are approved based on his ability
to pay, as demonstrated by his past spending, payment patterns,
and personal resources.[29] Nevertheless, every time Pantaleon
charges a purchase on his credit card, the credit card company still
has to determine whether it will allow this charge, based on his past
credit history. This right to review a card holders credit history,
although not specifically set out in the card membership agreement,
is a necessary implication of AMEXs right to deny authorization for
any requested charge.
As for Pantaleons previous experiences with AMEX (i.e., that in the
past 12 years, AMEX has always approved his charge requests in
three or four seconds), this record does not establish that Pantaleon
had a legally enforceable obligation to expect AMEX to act on his
charge requests within a matter of seconds. For one, Pantaleon
failed to present any evidence to support his assertion that AMEX
acted on purchase requests in a matter of three or four seconds as
an established practice. More importantly, even if Pantaleon did
prove that AMEX, as a matter of practice or custom, acted on its
customers purchase requests in a matter of seconds, this would still
not be enough to establish a legally demandable right; as a general
rule, a practice or custom is not a source of a legally demandable or
enforceable right.
We next examine the credit card membership agreement, the
contract that primarily governs the relationship between AMEX and
Pantaleon. Significantly, there is no provision in this agreement that
obligates AMEX to act on all cardholder purchase requests within a
specifically defined period of time. Thus, regardless of whether the
obligation is worded was to act in a matter of seconds or to act in
timely dispatch, the fact remains that no obligation exists on the
part of AMEX to act within a specific period of time. Even Pantaleon
admits in his testimony that he could not recall any provision in the
Agreement that guaranteed AMEXs approval of his charge requests
within a matter of minutes.
Nor can Pantaleon look to the law or government issuances as the
source of AMEXs alleged obligation to act upon his credit card
purchases within a matter of seconds. As the following survey of
Philippine law on credit card transactions demonstrates, the State
does not require credit card companies to act upon its cardholders
purchase requests within a specific period of time.
Republic Act No. 8484 (RA 8484), or the Access Devices Regulation
Act of 1998, approved on February 11, 1998, is the controlling
legislation
that regulates the issuance and use of access devices,[32] including
credit cards. The more salient portions of this law include the
imposition of the obligation on a credit card company to disclose
certain important financial information[33] to credit card applicants,
as well as a definition of the acts that constitute access device fraud.
As financial institutions engaged in the business of providing credit,
credit card companies fall under the supervisory powers of the
Bangko Sentral ng Pilipinas (BSP).[34] BSP Circular No. 398 dated
August 21, 2003 embodies the BSPs policy when it comes to credit
cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the development
of consumer credit through innovative products such as credit cards
under conditions of fair and sound consumer credit practices. The
BSP likewise encourages competition and transparency to ensure
more efficient delivery of services and fair dealings with customers.
(Emphasis supplied)
Based on this Circular, x x x [b]efore issuing credit cards, banks
and/or their subsidiary credit card companies must exercise proper
diligence by ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their credit
commitments.[35] As the above-quoted policy expressly states, the
general intent is to foster fair and sound consumer credit practices.
Other than BSP Circular No. 398, a related circular is BSP Circular
No. 454, issued on September 24, 2004, but this circular merely
enumerates the unfair collection practices of credit card companies
a matter not relevant to the issue at hand.
In light of the foregoing, we find and so hold that AMEX is neither
contractually bound nor legally obligated to act on its cardholders
purchase requests within any specific period of time, much less a
period of a matter of seconds that Pantaleon uses as his standard.
The standard therefore is implicit and, as in all contracts, must be
based on fairness and reasonableness, read in relation to the Civil
Code provisions on human relations, as will be discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a) AMEX had neither a
contractual nor a legal obligation to act upon Pantaleons purchases
within a specific period of time; and (b) AMEX has a right to review a
cardholders credit card history. Our recognition of these
entitlements, however, does not give AMEX an unlimited right to
put off action on cardholders purchase requests for indefinite
periods of time. In acting on cardholders purchase requests, AMEX
must take care not to abuse its rights and cause injury to its clients
and/or third persons. We cite in this regard Article 19, in
conjunction with Article 21, of the Civil Code, which provide:
Article 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due
and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another
in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.
Article 19 pervades the entire legal system and ensures that a
person suffering damage in the course of anothers exercise of right
or performance of duty, should find himself without relief.[36] It
sets the standard for the conduct of all persons, whether artificial or
natural, and requires that everyone, in the exercise of rights and the
performance of obligations, must: (a) act with justice, (b) give
everyone his due, and (c) observe honesty and good faith. It is not
because a person invokes his rights that he can do anything, even to
the prejudice and disadvantage of another.[37]
While Article 19 enumerates the standards of conduct, Article 21
provides the remedy for the person injured by the willful act, an
action for damages. We explained how these two provisions
correlate with each other in GF Equity, Inc. v. Valenzona:
[Article 19], known to contain what is commonly referred to as the
principle of abuse of rights, sets certain standards which must be
observed not only in the exercise of one's rights but also in the
performance of one's duties. These standards are the following: to
act with justice; to give everyone his due; and to observe honesty
and good faith. The law, therefore, recognizes a primordial
limitation on all rights; that in their exercise, the norms of human
conduct set forth in Article 19 must be observed. A right, though by
itself legal because recognized or granted by law as such, may
nevertheless become the source of some illegality. When a right is
exercised in a manner which does not conform with the norms
enshrined in Article 19 and results in damage to another, a legal
wrong is thereby committed for which the wrongdoer must be held
responsible. But while Article 19 lays down a rule of conduct for the
government of human relations and for the maintenance of social
order, it does not provide a remedy for its violation. Generally, an
action for damages under either Article 20 or Article 21 would be
proper.
In the context of a credit card relationship, although there is neither
a contractual stipulation nor a specific law requiring the credit card
issuer to act on the credit card holders offer within a definite period
of time, these principles provide the standard by which to judge
AMEXs actions.
According to Pantaleon, even if AMEX did have a right to review his
charge purchases, it abused this right when it unreasonably delayed
the processing of the Coster charge purchase, as well as his
purchase requests at the Richard Metz Golf Studio and Kids
Unlimited Store; AMEX should have known that its failure to act
immediately on charge referrals would entail inconvenience and
result in humiliation, embarrassment, anxiety and distress to its
cardholders who would be required to wait before closing their
transactions.
It is an elementary rule in our jurisdiction that good faith is
presumed and that the burden of proving bad faith rests upon the
party alleging it.[40] Although it took AMEX some time before it
approved Pantaleons three charge requests, we find no evidence to
suggest that it acted with deliberate intent to cause Pantaleon any
loss or injury, or acted in a manner that was contrary to morals,
good customs or public policy. We give credence to AMEXs claim
that its review procedure was done to ensure Pantaleons own
protection as a cardholder and to prevent the possibility that the
credit card was being fraudulently used by a third person.
Pantaleon countered that this review procedure is primarily
intended to protect AMEXs interests, to make sure that the
cardholder making the purchase has enough means to pay for the
credit extended. Even if this were the case, however, we do not find
any taint of bad faith in such motive. It is but natural for AMEX to
want to ensure that it will extend credit only to people who will
have sufficient means to pay for their purchases. AMEX, after all, is
running a business, not a charity, and it would simply be ludicrous
to suggest that it would not want to earn profit for its services.
Thus, so long as AMEX exercises its rights, performs its obligations,
and generally acts with good faith, with no intent to cause harm,
even if it may occasionally inconvenience others, it cannot be held
liable for damages.
We also cannot turn a blind eye to the circumstances surrounding
the Coster transaction which, in our opinion, justified the wait. In
Edgardo Jaurigues own words:
Q 21: With reference to the transaction at the Coster Diamond
House covered by Exhibit H, also Exhibit 4 for the defendant, the
approval came at 2:19 a.m. after the request was relayed at 1:33
a.m., can you explain why the approval came after about 46
minutes, more or less?
A21: Because we have to make certain considerations and
evaluations of [Pantaleons] past spending pattern with [AMEX] at
that time before approving plaintiffs request because [Pantaleon]
was at that time making his very first single charge purchase of
US$13,826 [this is below the US$16,112.58 actually billed and paid
for by the plaintiff because the difference was already automatically
approved by [AMEX] office in Netherland[s] and the record of
[Pantaleons] past spending with [AMEX] at that time does not
favorably support his ability to pay for such purchase. In fact, if the
foregoing internal policy of [AMEX] had been strictly followed, the
transaction would not have been approved at all considering that
the past spending pattern of the plaintiff with [AMEX] at that time
does not support his ability to pay for such purchase.[41]
xxxx
Q: Why did it take so long?
A: It took time to review the account on credit, so, if there is any
delinquencies [sic] of the cardmember. There are factors on
deciding the charge itself which are standard measures in approving
the authorization. Now in the case of Mr. Pantaleon although his
account is single charge purchase of US$13,826. [sic] this is below
the US$16,000. plus actually billed x x x we would have already
declined the charge outright and asked him his bank account to
support his charge. But due to the length of his membership as
cardholder we had to make a decision on hand.
As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait
for AMEXs approval was because he had to go over Pantaleons
credit card history for the past twelve months. It would certainly be
unjust for us to penalize AMEX for merely exercising its right to
review Pantaleons credit history meticulously.
Finally, we said in Garciano v. Court of Appeals that the right to
recover [moral damages] under Article 21 is based on equity, and he
who comes to court to demand equity, must come with clean
hands. Article 21 should be construed as granting the right to
recover damages to injured persons who are not themselves at
fault.[44] As will be discussed below, Pantaleon is not a blameless
party in all this.
Pantaleon’s action was the proximate cause for his injury
Pantaleon mainly anchors his claim for moral and exemplary
damages on the embarrassment and humiliation that he felt when
the European tour group had to wait for him and his wife for
approximately 35 minutes, and eventually had to cancel the
Amsterdam city tour. After thoroughly reviewing the records of this
case, we have come to the conclusion that Pantaleon is the
proximate cause for this embarrassment and humiliation.
As borne by the records, Pantaleon knew even before entering
Coster that the tour group would have to leave the store by 9:30
a.m. to have enough time to take the city tour of Amsterdam before
they left the country. After 9:30 a.m., Pantaleons son, who had
boarded the bus ahead of his family, returned to the store to inform
his family that they were the only ones not on the bus and that the
entire tour group was waiting for them. Significantly, Pantaleon
tried to cancel the sale at 9:40 a.m. because he did not want to
cause any inconvenience to the tour group. However, when Costers
sale manager asked him to wait a few more minutes for the credit
card approval, he agreed, despite the knowledge that he had
already caused a 10-minute delay and that the city tour could not
start without him.
In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person
who knowingly and voluntarily exposes himself to danger cannot
claim damages for the resulting injury:
The doctrine of volenti non fit injuria (to which a person assents is
not esteemed in law as injury) refers to self-inflicted injury or to the
consent to injury which precludes the recovery of damages by one
who has knowingly and voluntarily exposed himself to danger, even
if he is not negligent in doing so.
This doctrine, in our view, is wholly applicable to this case.
Pantaleon himself testified that the most basic rule when travelling
in a tour group is that you must never be a cause of any delay
because the schedule is very strict.[46] When Pantaleon made up
his mind to push through with his purchase, he must have known
that the group would become annoyed and irritated with him. This
was the natural, foreseeable consequence of his decision to make
them all wait.
We do not discount the fact that Pantaleon and his family did feel
humiliated and embarrassed when they had to wait for AMEX to
approve the Coster purchase in Amsterdam. We have to
acknowledge, however, that Pantaleon was not a helpless victim in
this scenario at any time, he could have cancelled the sale so that
the group could go on with the city tour. But he did not.
More importantly, AMEX did not violate any legal duty to Pantaleon
under the circumstances under the principle of damnum absque
injuria, or damages without legal wrong, loss without injury.[47] As
we held in BPI Express Card v. CA:
We do not dispute the findings of the lower court that private
respondent suffered damages as a result of the cancellation of his
credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right;
damage is the loss, hurt, or harm which results from the injury; and
damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury in those
instances in which the loss or harm was not the result of a violation
of a legal duty. In such cases, the consequences must be borne by
the injured person alone, the law affords no remedy for damages
resulting from an act which does not amount to a legal injury or
wrong. These situations are often called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for
the injuries of which he complains, he must establish that such
injuries resulted from a breach of duty which the defendant owed
to the plaintiff - a concurrence of injury to the plaintiff and legal
responsibility by the person causing it. The underlying basis for the
award of tort damages is the premise that an individual was injured
in contemplation of law. Thus, there must first be a breach of some
duty and the imposition of liability for that breach before damages
may be awarded; and the breach of such duty should be the
proximate cause of the injury.
Pantaleon is not entitled to damages
Because AMEX neither breached its contract with Pantaleon, nor
acted with culpable delay or the willful intent to cause harm, we
find the award of moral damages to Pantaleon unwarranted.
Similarly, we find no basis to award exemplary damages. In
contracts, exemplary damages can only be awarded if a defendant
acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner. The plaintiff must also show that he is entitled to moral,
temperate, or compensatory damages before the court may
consider the question of whether or not exemplary damages should
be awarded.
As previously discussed, it took AMEX some time to approve
Pantaleons purchase requests because it had legitimate concerns on
the amount being charged; no malicious intent was ever established
here. In the absence of any other damages, the award of exemplary
damages clearly lacks legal basis.
Neither do we find any basis for the award of attorneys fees and
costs of litigation. No premium should be placed on the right to
litigate and not every winning party is entitled to an automatic grant
of attorney's fees. To be entitled to attorneys fees and litigation
costs, a party must show that he falls under one of the instances
enumerated in Article 2208 of the Civil Code.[52] This, Pantaleon
failed to do. Since we eliminated the award of moral and exemplary
damages, so must we delete the award for attorney's fees and
litigation expenses.
Lastly, although we affirm the result of the CA decision, we do so for
the reasons stated in this Resolution and not for those found in the
CA decision.
WHEREFORE, premises considered, we SET ASIDE our May 8, 2009
Decision and GRANT the present motion for reconsideration. The
Court of Appeals Decision dated August 18, 2006 is hereby
AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-8321 October 14, 1913
ALEJANDRA MINA, ET AL., plaintiffs-appellants, vs. RUPERTA
PASCUAL, ET AL., defendants-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.
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.
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.
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.
SO ORDERED.

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
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-
appellants, vs. BECK, defendant-appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return
her certain furniture which she lent him for his use. She appealed
from the judgment of the Court of First Instance of Manila which
ordered that the defendant return to her the three has heaters and
the four electric lamps found in the possession of the Sheriff of said
city, that she call for the other furniture from the said sheriff of
Manila at her own expense, and that the fees which the Sheriff may
charge for the deposit of the furniture be paid pro rata by both
parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied
the latter's house on M. H. del Pilar street, No. 1175. On January 14,
1936, upon the novation of the contract of lease between the
plaintiff and the defendant, the former gratuitously granted to the
latter the use of the furniture described in the third paragraph of
the stipulation of facts, subject to the condition that the defendant
would return them to the plaintiff upon the latter's demand. The
plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one
of the clauses of the contract of lease. There after the plaintiff
required the defendant to return all the furniture transferred to him
for them in the house where they were found. On November
5, 1936, the defendant, through another person, wrote to the
plaintiff reiterating that she may call for the furniture in the ground
floor of the house. On the 7th of the same month, the defendant
wrote another letter to the plaintiff informing her that he could not
give up the three gas heaters and the four electric lamps because he
would use them until the 15th of the same month when the lease in
due to expire. The plaintiff refused to get the furniture in view of
the fact that the defendant had declined to make delivery of all of
them. On November 15th, before vacating the house, the
defendant deposited with the Sheriff all the furniture belonging to
the plaintiff and they are now on deposit in the warehouse situated
at No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial
court incorrectly applied the law: in holding that they violated the
contract by not calling for all the furniture on November 5, 1936,
when the defendant placed them at their disposal; in not ordering
the defendant to pay them the value of the furniture in case they
are not delivered; in holding that they should get all the furniture
from the Sheriff at their expenses; in ordering them to pay-half of
the expenses claimed by the Sheriff for the deposit of the furniture;
in ruling that both parties should pay their respective legal expenses
or the costs; and in denying pay their respective legal expenses or
the costs; and in denying the motions for reconsideration and new
trial. To dispose of the case, it is only necessary to decide whether
the defendant complied with his obligation to return the furniture
upon the plaintiff's demand; whether the latter is bound to bear the
deposit fees thereof, and whether she is entitled to the costs of
litigation.
The contract entered into between the parties is one of
commadatum, because under it the plaintiff gratuitously granted
the use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself to
return the furniture to the plaintiff, upon the latters demand (clause
7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of
the Civil Code). The obligation voluntarily assumed by the defendant
to return the furniture upon the plaintiff's demand, means that he
should return all of them to the plaintiff at the latter's residence or
house. The defendant did not comply with this obligation when he
merely placed them at the disposal of the plaintiff, retaining for his
benefit the three gas heaters and the four eletric lamps. The
provisions of article 1169 of the Civil Code cited by counsel for the
parties are not squarely applicable. The trial court, therefore, erred
when it came to the legal conclusion that the plaintiff failed to
comply with her obligation to get the furniture when they were
offered to her.
As the defendant had voluntarily undertaken to return all the
furniture to the plaintiff, upon the latter's demand, the Court could
not legally compel her to bear the expenses occasioned by the
deposit of the furniture at the defendant's behest. The latter, as
bailee, was not entitled to place the furniture on deposit; nor was
the plaintiff under a duty to accept the offer to return the furniture,
because the defendant wanted to retain the three gas heaters and
the four electric lamps.
latter determined by the trial Court through evidence which the
parties may desire to present.
The costs in both instances should be borne by the defendant
because the plaintiff is the prevailing party (section 487 of the Code
of Civil Procedure). The defendant was the one who breached the
contract of commodatum, and without any reason he refused to
return and deliver all the furniture upon the plaintiff's demand. In
these circumstances, it is just and equitable that he pay the legal
expenses and other judicial costs which the plaintiff would not have
otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to
return and deliver to the plaintiff, in the residence to return and
deliver to the plaintiff, in the residence or house of the latter, all the
furniture described in paragraph 3 of the stipulation of facts Exhibit
A. The expenses which may be occasioned by the delivery to and
deposit of the furniture with the Sheriff shall be for the account of
the defendant. the defendant shall pay the costs in both instances.
So ordered.

As to the value of the furniture, we do not believe that the plaintiff

is entitled to the payment thereof by the defendant in case of his
inability to return some of the furniture because under paragraph 6
of the stipulation of facts, the defendant has neither agreed to nor
admitted the correctness of the said value. Should the defendant
fail to deliver some of the furniture, the value thereof should be
G.R. No. L-46145 November 26, 1986
REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner, vs.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY,
represented by RICARDO BALOY, ET AL., respondents.
PARAS, J.:
This case originally emanated from a decision of the then Court of
First Instance of Zambales in LRC Case No. 11-0, LRC Record No. N-
29355, denying respondents' application for registration. From said
order of denial the applicants, heirs of Domingo Baloy, represented
by Ricardo P. Baloy, (herein private respondents) interposed on
appeal to the Court of Appeals which was docketed as CA-G.R. No.
52039-R. The appellate court, thru its Fifth Division with the Hon.
Justice Magno Gatmaitan as ponente, rendered a decision dated
February 3, 1977 reversing the decision appealed from and thus
approving the application for registration. Oppositors (petitioners
herein) filed their Motion for Reconsideration alleging among other
things that applicants' possessory information title can no longer be
invoked and that they were not able to prove a registerable title
over the land. Said Motion for Reconsideration was denied, hence
this petition for review on certiorari.
Applicants' claim is anchored on their possessory information title
(Exhibit F which had been translated in Exhibit F-1) coupled with
their continuous, adverse and public possession over the land in
question. An examination of the possessory information title shows
that the description and the area of the land stated therein
substantially coincides with the land applied for and that said
possessory information title had been regularly issued having been
acquired by applicants' predecessor, Domingo Baloy, under the
provisions of the Spanish Mortgage Law. Applicants presented their
tax declaration on said lands on April 8, 1965.
The Director of Lands opposed the registration alleging that this
land had become public land thru the operation of Act 627 of the
Philippine Commission. On November 26, 1902 pursuant to the
executive order of the President of the U.S., the area was declared
within the U.S. Naval Reservation. Under Act 627 as amended by Act
1138, a period was fixed within which persons affected thereby
could file their application, (that is within 6 months from July 8,
1905) otherwise "the said lands or interest therein will be
conclusively adjudged to be public lands and all claims on the part
of private individuals for such lands or interests therein not to
presented will be forever barred." Petitioner argues that since
Domingo Baloy failed to file his claim within the prescribed period,
the land had become irrevocably public and could not be the
subject of a valid registration for private ownership.
Considering the foregoing facts respondents Court of Appeals ruled
as follows:
... perhaps, the consequence was that upon failure of Domingo
Baloy to have filed his application within that period the land had
become irrevocably public; but perhaps also, for the reason that
warning was from the Clerk of the Court of Land Registration,
named J.R. Wilson and there has not been presented a formal order
or decision of the said Court of Land Registration so declaring the
land public because of that failure, it can with plausibility be said
that after all, there was no judicial declaration to that effect, it is
true that the U.S. Navy did occupy it apparently for some time, as a
recreation area, as this Court understands from the communication
of the Department of Foreign Affairs to the U.S. Embassy exhibited
in the record, but the very tenor of the communication apparently
seeks to justify the title of herein applicants, in other words, what
this Court has taken from the occupation by the U.S. Navy is that
during the interim, the title of applicants was in a state of
suspended animation so to speak but it had not died either; and the
fact being that this land was really originally private from and after
the issuance and inscription of the possessory information Exh. F
during the Spanish times, it would be most difficult to sustain
position of Director of Lands that it was land of no private owner;
open to public disposition, and over which he has control; and since
immediately after U.S. Navy had abandoned the area, applicant
came in and asserted title once again, only to be troubled by first
Crispiniano Blanco who however in due time, quitclaimed in favor of
applicants, and then by private oppositors now, apparently
originally tenants of Blanco, but that entry of private oppositors
sought to be given color of ownership when they sought to and did
file tax declaration in 1965, should not prejudice the original rights
of applicants thru their possessory information secured regularly so
long ago, the conclusion must have to be that after all, applicants
had succeeded in bringing themselves within the provisions of Sec.
19 of Act 496, the land should be registered in their favor;
IN VIEW WHEREOF, this Court is constrained to reverse, as it now
reverses, judgment appealed from the application is approved, and
once this decision shall have become final, if ever it would be, let
decree issue in favor of applicants with the personal circumstances
outlined in the application, costs against private oppositors.
Petitioner now comes to Us with the following:
ASSIGNMENT OF ERRORS:
1. Respondent court erred in holding that to bar private
respondents from asserting any right under their possessory
information title there is need for a court order to that effect.
2. Respondent court erred in not holding that private respondents'
rights by virtue of their possessory information title was lost by
prescription.
3. Respondent court erred in concluding that applicants have
registerable title.
A cursory reading of Sec. 3, Act 627 reveals that several steps are to
be followed before any affected land can "be conclusively adjudged
to be public land." Sec. 3, Act 627 reads as follows:
SEC. 3. Immediately upon receipt of the notice from the civil
Governor in the preceeding section mentioned it shall be the duty
of the judge of the Court of Land Registration to issue a notice,
stating that the lands within the limits aforesaid have been reserved
for military purposes, and announced and declared to be military
reservations, and that claims for all private lands, buildings, and
interests therein, within the limits aforesaid, must be presented for
registration under the Land Registration Act within six calendar
months from the date of issuing the notice, and that all lands,
buildings, and interests therein within the limits aforesaid not so
presented within the time therein limited will be conclusively
adjudged to be public lands and all claims on the part of private
individuals for such lands, buildings, or an interest therein not so
presented will be forever barred. The clerk of the Court of Land
Registration shall immediately upon the issuing of such notice by
the judge cause the same to be published once a week for three
successive weeks in two newspapers, one of which newspapers
shall be in the English Language, and one in the Spanish language in
the city or province where the land lies, if there be no such Spanish
or English newspapers having a general circulation in the city or
province wherein the land lies, then it shall be a sufficient
compliance with this section if the notice be published as herein
provided, in a daily newspaper in the Spanish language and one in
the English language, in the City of Manila, having a general
circulation. The clerk shall also cause a duly attested copy of the
notice in the Spanish language to be posted in conspicuous place at
each angle formed by the lines of the limits of the land reserved.
The clerk shall also issue and cause to be personally served the
notice in the Spanish language upon every person living upon or in
visible possession of any part of the military reservation. If the
person in possession is the head of the family living upon the hand,
it shall be sufficient to serve the notice upon him, and if he is absent
it shall be sufficient to leave a copy at his usual place of residence.
The clerk shall certify the manner in which the notices have been
published, posted, and served, and his certificate shall be conclusive
proof of such publication, posting, and service, but the court shall
have the power to cause such further notice to be given as in its
opinion may be necessary.
Clearly under said provisions, private land could be deemed to have
become public land only by virtue of a judicial declaration after due
notice and hearing. It runs contrary therefore to the contention of
petitioners that failure to present claims set forth under Sec. 2 of
Act 627 made the land ipso facto public without any deed of judicial
pronouncement. Petitioner in making such declaration relied on
Sec. 4 of Act 627 alone. But in construing a statute the entire
provisions of the law must be considered in order to establish the
correct interpretation as intended by the law-making body. Act 627
by its terms is not self-executory and requires implementation by
the Court of Land Registration. Act 627, to the extent that it creates
a forfeiture, is a penal statute in derogation of private rights, so it
must be strictly construed so as to safeguard private respondents'
rights. Significantly, petitioner does not even allege the existence of
any judgment of the Land Registration court with respect to the
land in question. Without a judgment or order declaring the land to
be public, its private character and the possessory information title
over it must be respected. Since no such order has been rendered
by the Land Registration Court it necessarily follows that it never
became public land thru the operation of Act 627. To assume
otherwise is to deprive private respondents of their property
without due process of law. In fact it can be presumed that the
notice required by law to be given by publication and by personal
service did not include the name of Domingo Baloy and the subject
land, and hence he and his lane were never brought within the
operation of Act 627 as amended. The procedure laid down in Sec. 3
is a requirement of due process. "Due process requires that the
statutes which under it is attempted to deprive a citizen of private
property without or against his consent must, as in expropriation
cases, be strictly complied with, because such statutes are in
derogation of general rights." (Arriete vs. Director of Public Works,
58 Phil. 507, 508, 511).
We also find with favor private respondents' views that court
judgments are not to be presumed. It would be absurd to speak of a
judgment by presumption. If it could be contended that such a
judgment may be presumed, it could equally be contended that intended to be transient, as in the case of the U.S. Navy's
applicants' predecessor Domingo Baloy presumably seasonably filed occupation of the land concerned, in which case the owner is not
a claim, in accordance with the legal presumption that a person divested of his title, although it cannot be exercised in the
takes ordinary care of his concerns, and that a judgment in his favor meantime.
was rendered.
WHEREFORE, premises considered, finding no merit in the petition
The finding of respondent court that during the interim of 57 years the appealed decision is hereby AFFIRMED.
from November 26, 1902 to December 17, 1959 (when the U.S.
Navy possessed the area) the possessory rights of Baloy or heirs SO ORDERED.
were merely suspended and not lost by prescription, is supported
by Exhibit "U," a communication or letter No. 1108-63, dated June
24, 1963, which contains an official statement of the position of the
Republic of the Philippines with regard to the status of the land in
question. Said letter recognizes the fact that Domingo Baloy and/or
his heirs have been in continuous possession of said land since 1894
as attested by an "Informacion Possessoria" Title, which was
granted by the Spanish Government. Hence, the disputed property
is private land and this possession was interrupted only by the
occupation of the land by the U.S. Navy in 1945 for recreational
purposes. The U.S. Navy eventually abandoned the premises. The
heirs of the late Domingo P. Baloy, are now in actual possession,
and this has been so since the abandonment by the U.S. Navy. A
new recreation area is now being used by the U.S. Navy personnel
and this place is remote from the land in question.

Clearly, the occupancy of the U.S. Navy was not in the concept of
owner. It partakes of the character of a commodatum. It cannot
therefore militate against the title of Domingo Baloy and his
successors-in-interest. One's ownership of a thing may be lost by
prescription by reason of another's possession if such possession be
under claim of ownership, not where the possession is only
G.R. No. 115324 February 19, 2003
PRODUCERS BANK OF THE PHILIPPINES (now FIRST
INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS
AND FRANKLIN VIVES, respondents.
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the
Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and
of its Resolution2 dated May 5, 1994, denying the motion for
reconsideration of said decision filed by petitioner Producers Bank
of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by
his neighbor and friend Angeles Sanchez to help her friend and
townmate, Col. Arturo Doronilla, in incorporating his business, the
Sterela Marketing and Services ("Sterela" for brevity). Specifically,
Sanchez asked private respondent to deposit in a bank a certain
amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could
withdraw his money from said account within a month’s time.
Private respondent asked Sanchez to bring Doronilla to their house
so that they could discuss Sanchez’s request.
On May 9, 1979, private respondent, Sanchez, Doronilla and a
certain Estrella Dumagpi, Doronilla’s private secretary, met and
discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued
a check in the amount of Two Hundred Thousand Pesos
(₱200,000.00) in favor of Sterela. Private respondent instructed his
wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in
opening a savings account in the name of Sterela in the Buendia,
Makati branch of Producers Bank of the Philippines. However, only
Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the
check. They had with them an authorization letter from Doronilla
authorizing Sanchez and her companions, "in coordination with Mr.
Rufo Atienza," to open an account for Sterela Marketing Services in
the amount of ₱200,000.00. In opening the account, the authorized
signatories were Inocencia Vives and/or Angeles Sanchez. A
passbook for Savings Account No. 10-1567 was thereafter issued to
Mrs. Vives.
Subsequently, private respondent learned that Sterela was no
longer holding office in the address previously given to him.
Alarmed, he and his wife went to the Bank to verify if their money
was still intact. The bank manager referred them to Mr. Rufo
Atienza, the assistant manager, who informed them that part of the
money in Savings Account No. 10-1567 had been withdrawn by
Doronilla, and that only ₱90,000.00 remained therein. He likewise
told them that Mrs. Vives could not withdraw said remaining
amount because it had to answer for some postdated checks issued
by Doronilla. According to Atienza, after Mrs. Vives and Sanchez
opened Savings Account No. 10-1567, Doronilla opened Current
Account No. 10-0320 for Sterela and authorized the Bank to debit
Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said
current account, Sterela, through Doronilla, obtained a loan of
₱175,000.00 from the Bank. To cover payment thereof, Doronilla
issued three postdated checks, all of which were dishonored.
Atienza also said that Doronilla could assign or withdraw the money
in Savings Account No. 10-1567 because he was the sole proprietor
of Sterela.
Private respondent tried to get in touch with Doronilla through
Sanchez. On June 29, 1979, he received a letter from Doronilla,
assuring him that his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a postdated check for
Two Hundred Twelve Thousand Pesos (₱212,000.00) in favor of
private respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored.
Doronilla requested private respondent to present the same check
on September 15, 1979 but when the latter presented the check, it
was again dishonored.
Private respondent referred the matter to a lawyer, who made a
written demand upon Doronilla for the return of his client’s money.
Doronilla issued another check for ₱212,000.00 in private
respondent’s favor but the check was again dishonored for
insufficiency of funds.
Private respondent instituted an action for recovery of sum of
money in the Regional Trial Court (RTC) in Pasig, Metro Manila
against Doronilla, Sanchez, Dumagpi and petitioner. The case was
docketed as Civil Case No. 44485. He also filed criminal actions
against Doronilla, Sanchez and Dumagpi in the RTC. However,
Sanchez passed away on March 16, 1985 while the case was
pending before the trial court. On October 3, 1995, the RTC of Pasig,
Branch 157, promulgated its Decision in Civil Case No. 44485, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
sentencing defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff Franklin Vives
jointly and severally –
(a) the amount of ₱200,000.00, representing the money deposited,
with interest at the legal rate from the filing of the complaint until
the same is fully paid;
(b) the sum of ₱50,000.00 for moral damages and a similar amount
for exemplary damages;
(c) the amount of ₱40,000.00 for attorney’s fees; and
(d) the costs of the suit.
SO ORDERED.
Petitioner appealed the trial court’s decision to the Court of
Appeals. In its Decision dated June 25, 1991, the appellate court
affirmed in toto the decision of the RTC.9 It likewise denied with
finality petitioner’s motion for reconsideration in its Resolution
dated May 5, 1994.
On June 30, 1994, petitioner filed the present petition, arguing that
–
I. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA
AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THAT PETITIONER’S BANK MANAGER, MR. RUFO ATIENZA,
CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING
PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER
THE PRINCIPLE OF NATURAL JUSTICE;
III. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING
THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND
AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF
THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION
OF FACTS;
IV. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING
THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA
745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS
COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER
BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEY’S FEES AND THE COSTS OF SUIT.
Private respondent filed his Comment on September 23, 1994.
Petitioner filed its Reply thereto on September 25, 1995. The Court
then required private respondent to submit a rejoinder to the reply.
However, said rejoinder was filed only on April 21, 1997, due to
petitioner’s delay in furnishing private respondent with copy of the
reply12 and several substitutions of counsel on the part of private
respondent.13 On January 17, 2001, the Court resolved to give due
course to the petition and required the parties to submit their
respective memoranda.14 Petitioner filed its memorandum on April
16, 2001 while private respondent submitted his memorandum on
March 22, 2001.
Petitioner contends that the transaction between private
respondent and Doronilla is a simple loan (mutuum) since all the
elements of a mutuum are present: first, what was delivered by
private respondent to Doronilla was money, a consumable thing;
and second, the transaction was onerous as Doronilla was obliged
to pay interest, as evidenced by the check issued by Doronilla in the
amount of ₱212,000.00, or ₱12,000 more than what private
respondent deposited in Sterela’s bank account.15 Moreover, the
fact that private respondent sued his good friend Sanchez for his
failure to recover his money from Doronilla shows that the
transaction was not merely gratuitous but "had a business angle" to
it. Hence, petitioner argues that it cannot be held liable for the
return of private respondent’s ₱200,000.00 because it is not privy to
the transaction between the latter and Doronilla.16
It argues further that petitioner’s Assistant Manager, Mr. Rufo
Atienza, could not be faulted for allowing Doronilla to withdraw
from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronilla’s May
8, 1979 letter addressed to the bank, authorizing Mrs. Vives and
Sanchez to open a savings account for Sterela, did not contain any
authorization for these two to withdraw from said account. Hence,
the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone
had legal title to the savings account.17 Petitioner points out that
no evidence other than the testimonies of private respondent and
Mrs. Vives was presented during trial to prove that private
respondent deposited his ₱200,000.00 in Sterela’s account for
purposes of its incorporation.18 Hence, petitioner should not be
held liable for allowing Doronilla to withdraw from Sterela’s savings
account.
Petitioner also asserts that the Court of Appeals erred in affirming
the trial court’s decision since the findings of fact therein were not
accord with the evidence presented by petitioner during trial to
prove that the transaction between private respondent and
Doronilla was a mutuum, and that it committed no wrong in
allowing Doronilla to withdraw from Sterela’s savings account.
Finally, petitioner claims that since there is no wrongful act or
omission on its part, it is not liable for the actual damages suffered
by private respondent, and neither may it be held liable for moral
and exemplary damages as well as attorney’s fees.
Private respondent, on the other hand, argues that the transaction
between him and Doronilla is not a mutuum but an
accommodation,21 since he did not actually part with the
ownership of his ₱200,000.00 and in fact asked his wife to deposit
said amount in the account of Sterela so that a certification can be
issued to the effect that Sterela had sufficient funds for purposes of
its incorporation but at the same time, he retained some degree of
control over his money through his wife who was made a signatory
to the savings account and in whose possession the savings account
passbook was given.
He likewise asserts that the trial court did not err in finding that
petitioner, Atienza’s employer, is liable for the return of his money.
He insists that Atienza, petitioner’s assistant manager, connived
with Doronilla in defrauding private respondent since it was Atienza
who facilitated the opening of Sterela’s current account three days
after Mrs. Vives and Sanchez opened a savings account with
petitioner for said company, as well as the approval of the authority
to debit Sterela’s savings account to cover any overdrawings in its
current account.23
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may
be raised in a petition for review filed with this Court. The Court has
repeatedly held that it is not its function to analyze and weigh all
over again the evidence presented by the parties during trial.24 The
Court’s jurisdiction is in principle limited to reviewing errors of law
that might have been committed by the Court of Appeals.25
Moreover, factual findings of courts, when adopted and confirmed
by the Court of Appeals, are final and conclusive on this Court
unless these findings are not supported by the evidence on
record.26 There is no showing of any misapprehension of facts on
the part of the Court of Appeals in the case at bar that would
require this Court to review and overturn the factual findings of that
court, especially since the conclusions of fact of the Court of
Appeals and the trial court are not only consistent but are also
amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that
the transaction between private respondent and Doronilla was a
commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was a
commodatum. Article 1933 of the Civil Code distinguishes between
the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for
a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall
be paid, in which case the contract is simply called a loan or
mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing
loaned, while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the
contract is a consumable thing, such as money, the contract would
be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article
1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object, as
when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of
exhibition, or when the intention of the parties is to lend
consumable goods and to have the very same goods returned at the
end of the period agreed upon, the loan is a commodatum and not
a mutuum.
The rule is that the intention of the parties thereto shall be
accorded primordial consideration in determining the actual
character of a contract.27 In case of doubt, the contemporaneous
and subsequent acts of the parties shall be considered in such
determination.
As correctly pointed out by both the Court of Appeals and the trial
court, the evidence shows that private respondent agreed to
deposit his money in the savings account of Sterela specifically for
the purpose of making it appear "that said firm had sufficient
capitalization for incorporation, with the promise that the amount
shall be returned within thirty (30) days."29 Private respondent
merely "accommodated" Doronilla by lending his money without
consideration, as a favor to his good friend Sanchez. It was however
clear to the parties to the transaction that the money would not be
removed from Sterela’s savings account and would be returned to
private respondent after thirty (30) days.
Doronilla’s attempts to return to private respondent the amount of
₱200,000.00 which the latter deposited in Sterela’s account
together with an additional ₱12,000.00, allegedly representing
interest on the mutuum, did not convert the transaction from a
commodatum into a mutuum because such was not the intent of
the parties and because the additional ₱12,000.00 corresponds to
the fruits of the lending of the ₱200,000.00. Article 1935 of the Civil
Code expressly states that "[t]he bailee in commodatum acquires
the use of the thing loaned but not its fruits." Hence, it was only
proper for Doronilla to remit to private respondent the interest
accruing to the latter’s money deposited with petitioner.
Neither does the Court agree with petitioner’s contention that it is
not solidarily liable for the return of private respondent’s money
because it was not privy to the transaction between Doronilla and
private respondent. The nature of said transaction, that is, whether
it is a mutuum or a commodatum, has no bearing on the question of
petitioner’s liability for the return of private respondent’s money
because the factual circumstances of the case clearly show that
petitioner, through its employee Mr. Atienza, was partly responsible
for the loss of private respondent’s money and is liable for its
restitution.
Petitioner’s rules for savings deposits written on the passbook it
issued Mrs. Vives on behalf of Sterela for Savings Account No. 10-
1567 expressly states that—
"2. Deposits and withdrawals must be made by the depositor
personally or upon his written authority duly authenticated, and
neither a deposit nor a withdrawal will be permitted except upon
the production of the depositor savings bank book in which will be
entered by the Bank the amount deposited or withdrawn."30
Said rule notwithstanding, Doronilla was permitted by petitioner,
through Atienza, the Assistant Branch Manager for the Buendia
Branch of petitioner, to withdraw therefrom even without
presenting the passbook (which Atienza very well knew was in the
possession of Mrs. Vives), not just once, but several times. Both the
Court of Appeals and the trial court found that Atienza allowed said
withdrawals because he was party to Doronilla’s "scheme" of
defrauding private respondent:
XXX
But the scheme could not have been executed successfully without
the knowledge, help and cooperation of Rufo Atienza, assistant
manager and cashier of the Makati (Buendia) branch of the
defendant bank. Indeed, the evidence indicates that Atienza had
not only facilitated the commission of the fraud but he likewise
helped in devising the means by which it can be done in such
manner as to make it appear that the transaction was in accordance
with banking procedure.
To begin with, the deposit was made in defendant’s Buendia branch
precisely because Atienza was a key officer therein. The records
show that plaintiff had suggested that the ₱200,000.00 be
deposited in his bank, the Manila Banking Corporation, but
Doronilla and Dumagpi insisted that it must be in defendant’s
branch in Makati for "it will be easier for them to get a
certification". In fact before he was introduced to plaintiff, Doronilla
had already prepared a letter addressed to the Buendia branch
manager authorizing Angeles B. Sanchez and company to open a
savings account for Sterela in the amount of ₱200,000.00, as "per
coordination with Mr. Rufo Atienza, Assistant Manager of the Bank
x x x" (Exh. 1). This is a clear manifestation that the other
defendants had been in consultation with Atienza from the
inception of the scheme. Significantly, there were testimonies and
admission that Atienza is the brother-in-law of a certain Romeo
Mirasol, a friend and business associate of Doronilla.1awphi1.nét
Then there is the matter of the ownership of the fund. Because of
the "coordination" between Doronilla and Atienza, the latter knew
before hand that the money deposited did not belong to Doronilla
nor to Sterela. Aside from such foreknowledge, he was explicitly
told by Inocencia Vives that the money belonged to her and her
husband and the deposit was merely to accommodate Doronilla.
Atienza even declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank
records disclose that the only ones empowered to withdraw the
same were Inocencia Vives and Angeles B. Sanchez. In the signature
card pertaining to this account (Exh. J), the authorized signatories
were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it
is the usual banking procedure that withdrawals of savings deposits
could only be made by persons whose authorized signatures are in
the signature cards on file with the bank. He, however, said that this
procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authority to
withdraw by virtue of such ownership. The Court is not inclined to
agree with Atienza. In the first place, he was all the time aware that
the money came from Vives and did not belong to Sterela. He was
also told by Mrs. Vives that they were only accommodating
Doronilla so that a certification can be issued to the effect that
Sterela had a deposit of so much amount to be sued in the
incorporation of the firm. In the second place, the signature of
Doronilla was not authorized in so far as that account is concerned
inasmuch as he had not signed the signature card provided by the
bank whenever a deposit is opened. In the third place, neither Mrs.
Vives nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook
having been presented. It is an accepted practice that whenever a
withdrawal is made in a savings deposit, the bank requires the
presentation of the passbook. In this case, such recognized practice
was dispensed with. The transfer from the savings account to the
current account was without the submission of the passbook which
Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook
was issued to Sterela because the original passbook had been
surrendered to the Makati branch in view of a loan accommodation
assigning the savings account (Exh. C). Atienza, who undoubtedly
had a hand in the execution of this certification, was aware that the
contents of the same are not true. He knew that the passbook was
in the hands of Mrs. Vives for he was the one who gave it to her.
Besides, as assistant manager of the branch and the bank official
servicing the savings and current accounts in question, he also was
aware that the original passbook was never surrendered. He was
also cognizant that Estrella Dumagpi was not among those
authorized to withdraw so her certification had no effect
whatsoever.
The circumstance surrounding the opening of the current account
also demonstrate that Atienza’s active participation in the
perpetration of the fraud and deception that caused the loss. The
records indicate that this account was opened three days later after
the ₱200,000.00 was deposited. In spite of his disclaimer, the Court
believes that Atienza was mindful and posted regarding the opening
of the current account considering that Doronilla was all the while
in "coordination" with him. That it was he who facilitated the
approval of the authority to debit the savings account to cover any
overdrawings in the current account (Exh. 2) is not hard to transfer of funds from Sterela’s savings account to its current
comprehend. account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance
Clearly Atienza had committed wrongful acts that had resulted to
which was the cause of private respondent’s loss.
the loss subject of this case. x x x.
The foregoing shows that the Court of Appeals correctly held that
Under Article 2180 of the Civil Code, employers shall be held
under Article 2180 of the Civil Code, petitioner is liable for private
primarily and solidarily liable for damages caused by their respondent’s loss and is solidarily liable with Doronilla and Dumagpi
employees acting within the scope of their assigned tasks. To hold for the return of the ₱200,000.00 since it is clear that petitioner
the employer liable under this provision, it must be shown that an failed to prove that it exercised due diligence to prevent the
employer-employee relationship exists, and that the employee was unauthorized withdrawals from Sterela’s savings account, and that
acting within the scope of his assigned task when the act it was not negligent in the selection and supervision of Atienza.
complained of was committed.32 Case law in the United States of Accordingly, no error was committed by the appellate court in the
America has it that a corporation that entrusts a general duty to its award of actual, moral and exemplary damages, attorney’s fees and
employee is responsible to the injured party for damages flowing
costs of suit to private respondent.
from the employee’s wrongful act done in the course of his general
authority, even though in doing such act, the employee may have WHEREFORE, the petition is hereby DENIED. The assailed Decision
failed in its duty to the employer and disobeyed the latter’s and Resolution of the Court of Appeals are AFFIRMED.
instructions.
SO ORDERED.
There is no dispute that Atienza was an employee of petitioner.
Furthermore, petitioner did not deny that Atienza was acting within
the scope of his authority as Assistant Branch Manager when he
assisted Doronilla in withdrawing funds from Sterela’s Savings
Account No. 10-1567, in which account private respondent’s money
was deposited, and in transferring the money withdrawn to
Sterela’s Current Account with petitioner. Atienza’s acts of helping
Doronilla, a customer of the petitioner, were obviously done in
furtherance of petitioner’s interests34 even though in the process,
Atienza violated some of petitioner’s rules such as those stipulated
in its savings account passbook.35 It was established that the
G.R. No. L-4150 February 10, 1910
FELIX DE LOS SANTOS, plaintiff-appelle, vs. AGUSTINA JARRA,
administratrix of the estate of Magdaleno Jimenea, deceased,
defendant-appellant.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit
against Agustina Jarra, the administratrix of the estate of
Magdaleno Jimenea, alleging that in the latter part of 1901 Jimenea
borrowed and obtained from the plaintiff ten first-class carabaos, to
be used at the animal-power mill of his hacienda during the season
of 1901-2, without recompense or remuneration whatever for the
use thereof, under the sole condition that they should be returned
to the owner as soon as the work at the mill was terminated; that
Magdaleno Jimenea, however, did not return the carabaos,
notwithstanding the fact that the plaintiff claimed their return after
the work at the mill was finished; that Magdaleno Jimenea died on
the 28th of October, 1904, and the defendant herein was appointed
by the Court of First Instance of Occidental Negros administratrix of
his estate and she took over the administration of the same and is
still performing her duties as such administratrix; that the plaintiff
presented his claim to the commissioners of the estate of Jimenea,
within the legal term, for the return of the said ten carabaos, but
the said commissioners rejected his claim as appears in their report;
therefore, the plaintiff prayed that judgment be entered against the
defendant as administratrix of the estate of the deceased, ordering
her to return the ten first-class carabaos loaned to the late Jimenea,
or their present value, and to pay the costs.
The defendant was duly summoned, and on the 25th of September,
1906, she demurred in writing to the complaint on the ground that
it was vague; but on the 2d of October of the same year, in answer
to the complaint, she said that it was true that the late Magdaleno
Jimenea asked the plaintiff to loan him ten carabaos, but that he
only obtained three second-class animals, which were afterwards
transferred by sale by the plaintiff to the said Jimenea; that she
denied the allegations contained in paragraph 3 of the complaint;
for all of which she asked the court to absolve her of the complaint
with the cost against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix
Martinez notified the defendant and her counsel, Matias Hilado,
that he had made an agreement with the plaintiff to the effect that
the latter would not compromise the controversy without his
consent, and that as fees for his professional services he was to
receive one half of the amount allowed in the judgment if the same
were entered in favor of the plaintiff.
The case came up for trial, evidence was adduced by both parties,
and either exhibits were made of record. On the 10th of January,
1907, the court below entered judgment sentencing Agustina Jarra,
as administratrix of the estate of Magdaleno Jimenea, to return to
the plaintiff, Felix de los Santos, the remaining six second and third
class carabaos, or the value thereof at the rate of P120 each, or a
total of P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment,
and, by a writing dated January 19, moved for anew trial on the
ground that the findings of fact were openly and manifestly
contrary to the weight of the evidence. The motion was overruled,
the defendant duly excepted, and in due course submitted the
corresponding bill of exceptions, which was approved and
submitted to this court.
The defendant has admitted that Magdaleno Jimenea asked the
plaintiff for the loan of ten carabaos which are now claimed by the
latter, as shown by two letters addressed by the said Jimenea to
Felix de los Santos; but in her answer the said defendant alleged
that the late Jimenea only obtained three second-class carabaos,
which were subsequently sold to him by the owner, Santos;
therefore, in order to decide this litigation it is indispensable that
proof be forthcoming that Jimenea only received three carabaos
from his son-in-law Santos, and that they were sold by the latter to
him.
The record discloses that it has been fully proven from the
testimony of a sufficient number of witnesses that the plaintiff,
Santos, sent in charge of various persons the ten carabaos
requested by his father-in-law, Magdaleno Jimenea, in the two
letters produced at the trial by the plaintiff, and that Jimenea
received them in the presence of some of said persons, one being a
brother of said Jimenea, who saw the animals arrive at the hacienda
where it was proposed to employ them. Four died of rinderpest,
and it is for this reason that the judgment appealed from only deals
with six surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-
law Santos is not evidenced by any trustworthy documents such as
those of transfer, nor were the declarations of the witnesses
presented by the defendant affirming it satisfactory; for said reason
it can not be considered that Jimenea only received three carabaos
on loan from his son-in-law, and that he afterwards kept them
definitely by virtue of the purchase.
By the laws in force the transfer of large cattle was and is still made
by means of official documents issued by the local authorities; these
documents constitute the title of ownership of the carabao or horse
so acquired. Furthermore, not only should the purchaser be
provided with a new certificate or credential, a document which has
not been produced in evidence by the defendant, nor has the loss of
the same been shown in the case, but the old documents ought to
be on file in the municipality, or they should have been delivered to
the new purchaser, and in the case at bar neither did the defendant
present the old credential on which should be stated the name of
the previous owner of each of the three carabaos said to have been
sold by the plaintiff.
From the foregoing it may be logically inferred that the carabaos
loaned or given on commodatum to the now deceased Magdaleno
Jimenea were ten in number; that they, or at any rate the six
surviving ones, have not been returned to the owner thereof, Felix
de los Santos, and that it is not true that the latter sold to the
former three carabaos that the purchaser was already using;
therefore, as the said six carabaos were not the property of the
deceased nor of any of his descendants, it is the duty of the
administratrix of the estate to return them or indemnify the owner
for their value.
The Civil Code, in dealing with loans in general, from which generic
denomination the specific one of commodatum is derived,
establishes prescriptions in relation to the last-mentioned contract
by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the
other, either anything not perishable, in order that the latter may
use it during a certain period and return it to the former, in which
case it is called commodatum, or money or any other perishable
thing, under the condition to return an equal amount of the same
kind and quality, in which case it is merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay
interest.
ART. 1741. The bailee acquires retains the ownership of the thing
loaned. The bailee acquires the use thereof, but not its fruits; if any
compensation is involved, to be paid by the person requiring the
use, the agreement ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from the
commodatum pass to the heirs of both contracting parties, unless
the loan has been in consideration for the person of the bailee, in
which case his heirs shall not have the right to continue using the
thing loaned.
The carabaos delivered to be used not being returned by the
defendant upon demand, there is no doubt that she is under
obligation to indemnify the owner thereof by paying him their
value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever act
in contravention of the stipulations of the same, shall be subjected
to indemnify for the losses and damages caused thereby.
The obligation of the bailee or of his successors to return either the
thing loaned or its value, is sustained by the supreme tribunal of
Sapin. In its decision of March 21, 1895, it sets out with precision
the legal doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor
retains the ownership of the thing loaned, and at the expiration of
the period, or after the use for which it was loaned has been
accomplished, it is the imperative duty of the bailee to return the
thing itself to its owner, or to pay him damages if through the fault
of the bailee the thing should have been lost or injured, it is clear
that where public securities are involved, the trial court, in deferring
to the claim of the bailor that the amount loaned be returned him
by the bailee in bonds of the same class as those which constituted
the contract, thereby properly applies law 9 of title 11 of partida 5.
With regard to the third assignment of error, based on the fact that
the plaintiff Santos had not appealed from the decision of the
commissioners rejecting his claim for the recovery of his carabaos, it
is sufficient to estate that we are not dealing with a claim for the
payment of a certain sum, the collection of a debt from the estate,
or payment for losses and damages (sec. 119, Code of Civil
Procedure), but with the exclusion from the inventory of the
property of the late Jimenea, or from his capital, of six carabaos
which did not belong to him, and which formed no part of the
inheritance.
The demand for the exclusion of the said carabaos belonging to a
third party and which did not form part of the property of the
deceased, must be the subject of a direct decision of the court in an
ordinary action, wherein the right of the third party to the property
which he seeks to have excluded from the inheritance and the right
of the deceased has been discussed, and rendered in view of the
result of the evidence adduced by the administrator of the estate
and of the claimant, since it is so provided by the second part of
section 699 and by section 703 of the Code of Civil Procedure; the
refusal of the commissioners before whom the plaintiff
unnecessarily appeared can not affect nor reduce the
unquestionable right of ownership of the latter, inasmuch as there
is no law nor principle of justice authorizing the successors of the
late Jimenea to enrich themselves at the cost and to the prejudice
of Felix de los Santos.

For the reasons above set forth, by which the errors assigned to the
judgment appealed from have been refuted, and considering that
the same is in accordance with the law and the merits of the case, it
is our opinion that it should be affirmed and we do hereby affirm it
with the costs against the appellant. So ordered.
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE,
petitioner, vs. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO
AND JUAN VALDEZ, respondents.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the
Court of Appeals promulgated a long time ago can properly be
considered res judicata by respondent Court of Appeals in the
present two cases between petitioner and two private respondents.
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 affirmed the Decision of the Honorable Nicodemo
T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in
Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the
dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant,
Catholic Vicar Apostolic of the Mountain Province to return and
surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan
Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the
Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby
denied. Said defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision,
sustained the trial court's conclusions that the Decision of the Court
of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two
cases affirmed by the Supreme Court, touched on the ownership of
lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of
ownership in good faith from 1906 to 1951; that petitioner had
been 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 aforementioned cases (CA G.R. No. CV-
05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail
court are as follows —
... The documents and records presented reveal that the whole
controversy started when the defendant Catholic Vicar Apostolic of
the Mountain Province (VICAR for brevity) filed with the Court of
First Instance of Baguio Benguet on September 5, 1962 an
application for registration of title over Lots 1, 2, 3, and 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, convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. On March 22, 1963
the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed
their Answer/Opposition on Lots Nos. 2 and 3, respectively,
asserting ownership and title thereto. After trial on the merits, the
land registration court promulgated its Decision, dated November
17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3,
and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655)
and the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil
Case No. 3607) appealed 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 9, 1977,
reversing the decision of the land registration court and dismissing
the VICAR's application as to Lots 2 and 3, the lots claimed by the
two sets of oppositors in the land registration case (and two sets of
plaintiffs in the two cases now at bar), the first lot being presently
occupied by the convent and the second by the women's dormitory
and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for
reconsideration praying the Court of Appeals to order the
registration of Lot 3 in the names of the Heirs of Egmidio Octaviano,
and on May 17, 1977, the Heirs 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. B—B-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. 38830-R. Its findings of fact have become
incontestible. This Court declined to review said decision, thereby in
effect, affirming it. It has become final and executory a long time
ago.
Respondent appellate court did not commit any reversible error,
much less grave abuse of 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. 05148 and CA-G.R. No. 05149. The facts as supported by
evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is

DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-
G.R. Nos. 05148 and 05149, by respondent Court of Appeals is
AFFIRMED, with costs against petitioner.

SO ORDERED.
G.R. No. 146364 June 3, 2004
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE
GUEVARRA, respondents.
CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000 Decision2
and 14 December 2000 Resolution of the Court of Appeals in CA-
G.R. SP No. 43129. The Court of Appeals set aside the 11 November
1996 decision3 of the Regional Trial Court of Quezon City, Branch
81,4 affirming the 15 December 1995 decision5 of the Metropolitan
Trial Court of Quezon City, Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid ₱400 to a
certain Pedro Perez for the rights over a 250-square meter lot in
Barrio Payatas, Quezon City. Pajuyo then constructed a house made
of light materials on the lot. Pajuyo and his family lived in the house
from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie
Guevarra ("Guevarra") executed a Kasunduan or agreement. Pajuyo,
as owner of the house, allowed Guevarra to live in the house for
free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would
voluntarily vacate the premises on Pajuyo’s demand.
In September 1994, Pajuyo informed Guevarra of his need of the
house and demanded that Guevarra vacate the house. Guevarra
refused.
Pajuyo filed an ejectment case against Guevarra with the
Metropolitan Trial Court of Quezon City, Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or
right of possession over the lot where the house stands because the
lot is within the 150 hectares set aside by Proclamation No. 137 for
socialized housing. Guevarra pointed out that from December 1985
to September 1994, Pajuyo did not show up or communicate with
him. Guevarra insisted that neither he nor Pajuyo has valid title to
the lot.
On 15 December 1995, the MTC rendered its decision in favor of
Pajuyo. The dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for
the plaintiff and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other
person or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (₱300.00)
monthly as reasonable compensation for the use of the premises
starting from the last demand;
C) pay plaintiff the sum of ₱3,000.00 as and by way of attorney’s
fees; and
D) pay the cost of suit.
SO ORDERED.
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon
City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The
dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible
error in the decision appealed from, being in accord with the law
and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.
Guevarra received the RTC decision on 29 November 1996.
Guevarra had only until 14 December 1996 to file his appeal with
the Court of Appeals. Instead of filing his appeal with the Court of
Appeals, Guevarra filed with the Supreme Court a "Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42"
("motion for extension"). Guevarra theorized that his appeal raised
pure questions of law. The Receiving Clerk of the Supreme Court
received the motion for extension on 13 December 1996 or one day
before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the
Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution9 referring the motion for extension to the Court of
Appeals which has concurrent jurisdiction over the case. The case
presented no special and important matter for the Supreme Court
to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals
issued a Resolution10 granting the motion for extension
conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to
comment on Guevara’s petition for review. On 11 April 1997, Pajuyo
filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing
the RTC decision. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the
court a quo in Civil Case No. Q-96-26943 is REVERSED and SET
ASIDE; and it is hereby declared that the ejectment case filed
against defendant-appellant is without factual and legal basis.
SO ORDERED.
Pajuyo filed a motion for reconsideration of the decision. Pajuyo
pointed out that the Court of Appeals should have dismissed
outright Guevarra’s petition for review because it was filed out of
time. Moreover, it was Guevarra’s counsel and not Guevarra who
signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution
denying Pajuyo’s motion for reconsideration. The dispositive
portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is
hereby DENIED. No costs.
SO ORDERED.
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo
and Guevarra is the house and not the lot. Pajuyo is the owner of
the house, and he allowed Guevarra to use the house only by
tolerance. Thus, Guevarra’s refusal to vacate the house on Pajuyo’s
demand made Guevarra’s continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and
tenant relationship between Pajuyo and Guevarra. The terms of the
Kasunduan bound Guevarra to return possession of the house on
demand.
The RTC rejected Guevarra’s claim of a better right under
Proclamation No. 137, the Revised National Government Center
Housing Project Code of Policies and other pertinent laws. In an
ejectment suit, the RTC has no power to decide Guevarra’s rights
under these laws. The RTC declared that in an ejectment case, the
only issue for resolution is material or physical possession, not
ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are
squatters. Pajuyo and Guevarra illegally occupied the contested lot
which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a
squatter. Perez had no right or title over the lot because it is public
land. The assignment of rights between Perez and Pajuyo, and the
Kasunduan between Pajuyo and Guevarra, did not have any legal
effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The
court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held
that the Kasunduan between Pajuyo and Guevarra created a legal
tie akin to that of a landlord and tenant relationship. The Court of
Appeals ruled that the Kasunduan is not a lease contract but a
commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the
property, the appellate court held that Guevarra has a better right
over the property under Proclamation No. 137. President Corazon C.
Aquino ("President Aquino") issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical possession
of the property. Under Article VI of the Code of Policies Beneficiary
Selection and Disposition of Homelots and Structures in the
National Housing Project ("the Code"), the actual occupant or
caretaker of the lot shall have first priority as beneficiary of the
project. The Court of Appeals concluded that Guevarra is first in the
hierarchy of priority.
In denying Pajuyo’s motion for reconsideration, the appellate court
debunked Pajuyo’s claim that Guevarra filed his motion for
extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarra’s motion for
extension filed before the Supreme Court was stamped "13
December 1996 at 4:09 PM" by the Supreme Court’s Receiving
Clerk. The Court of Appeals concluded that the motion for extension
bore a date, contrary to Pajuyo’s claim that the motion for
extension was undated. Guevarra filed the motion for extension on
time on 13 December 1996 since he filed the motion one day before
the expiration of the reglementary period on 14 December 1996.
Thus, the motion for extension properly complied with the
condition imposed by the Court of Appeals in its 28 January 1997
Resolution. The Court of Appeals explained that the thirty-day
extension to file the petition for review was deemed granted
because of such compliance.
The Court of Appeals rejected Pajuyo’s argument that the appellate
court should have dismissed the petition for review because it was
Guevarra’s counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that
Pajuyo did not raise this issue in his Comment. The Court of Appeals
held that Pajuyo could not now seek the dismissal of the case after
he had extensively argued on the merits of the case. This
technicality, the appellate court opined, was clearly an
afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS
AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION:
1) in GRANTING, instead of denying, Private Respondent’s Motion
for an Extension of thirty days to file petition for review at the time
when there was no more period to extend as the decision of the
Regional Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondent’s
Petition for Review even though the certification against forum-
shopping was signed only by counsel instead of by petitioner
himself.
3) in ruling that the Kasunduan voluntarily entered into by the
parties was in fact a commodatum, instead of a Contract of Lease as
found by the Metropolitan Trial Court and in holding that "the
ejectment case filed against defendant-appellant is without legal
and factual basis".
4) in reversing and setting aside the Decision of the Regional Trial
Court in Civil Case No. Q-96-26943 and in holding that the parties
are in pari delicto being both squatters, therefore, illegal occupants
of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called
Code of Policies of the National Government Center Housing Project
instead of deciding the same under the Kasunduan voluntarily
executed by the parties, the terms and conditions of which are the
laws between themselves.
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we
find merit in the substantive issues Pajuyo is submitting for
resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed
outright Guevarra’s petition for review because the RTC decision
had already become final and executory when the appellate court
acted on Guevarra’s motion for extension to file the petition. Pajuyo
points out that Guevarra had only one day before the expiry of his
period to appeal the RTC decision. Instead of filing the petition for
review with the Court of Appeals, Guevarra filed with this Court an
undated motion for extension of 30 days to file a petition for
review. This Court merely referred the motion to the Court of
Appeals. Pajuyo believes that the filing of the motion for extension
with this Court did not toll the running of the period to perfect the
appeal. Hence, when the Court of Appeals received the motion, the
period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their
appellate jurisdiction are appealable to the Court of Appeals by
petition for review in cases involving questions of fact or mixed
questions of fact and law.14 Decisions of the regional trial courts
involving pure questions of law are appealable directly to this Court
by petition for review.15 These modes of appeal are now embodied
in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only
questions of law. Guevarra thus filed his motion for extension to file
petition for review before this Court on 14 December 1996. On 3
January 1997, Guevarra then filed his petition for review with this
Court. A perusal of Guevarra’s petition for review gives the
impression that the issues he raised were pure questions of law.
There is a question of law when the doubt or difference is on what
the law is on a certain state of facts.16 There is a question of fact
when the doubt or difference is on the truth or falsity of the facts
alleged.
In his petition for review before this Court, Guevarra no longer
disputed the facts. Guevarra’s petition for review raised these
questions: (1) Do ejectment cases pertain only to possession of a
structure, and not the lot on which the structure stands? (2) Does a
suit by a squatter against a fellow squatter constitute a valid case
for ejectment? (3) Should a Presidential Proclamation governing the
lot on which a squatter’s structure stands be considered in an
ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties
under the law on ejectment and the Presidential Proclamation. At
first glance, the questions Guevarra raised appeared purely legal.
However, some factual questions still have to be resolved because
they have a bearing on the legal questions raised in the petition for
review. These factual matters refer to the metes and bounds of the
disputed property and the application of Guevarra as beneficiary of
Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to
file a petition for review. In Lacsamana v. Second Special Cases
Division of the Intermediate Appellate Court,18 we declared that
the Court of Appeals could grant extension of time in appeals by
petition for review. In Liboro v. Court of Appeals,19 we clarified that
the prohibition against granting an extension of time applies only in
a case where ordinary appeal is perfected by a mere notice of
appeal. The prohibition does not apply in a petition for review
where the pleading needs verification. A petition for review, unlike
an ordinary appeal, requires preparation and research to present a
persuasive position.20 The drafting of the petition for review entails
more time and effort than filing a notice of appeal.21 Hence, the
Court of Appeals may allow an extension of time to file a petition
for review.
In the more recent case of Commissioner of Internal Revenue v.
Court of Appeals,22 we held that Liboro’s clarification of Lacsamana
is consistent with the Revised Internal Rules of the Court of Appeals
and Supreme Court Circular No. 1-91. They all allow an extension of
time for filing petitions for review with the Court of Appeals. The
extension, however, should be limited to only fifteen days save in
exceptionally meritorious cases where the Court of Appeals may
grant a longer period.
A judgment becomes "final and executory" by operation of law.
Finality of judgment becomes a fact on the lapse of the
reglementary period to appeal if no appeal is perfected.23 The RTC
decision could not have gained finality because the Court of Appeals
granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion
when it approved Guevarra’s motion for extension. The Court of
Appeals gave due course to the motion for extension because it
complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that the
Court of Appeals would only give due course to the motion for
extension if filed on time. The motion for extension met this
condition.
The material dates to consider in determining the timeliness of the
filing of the motion for extension are (1) the date of receipt of the
judgment or final order or resolution subject of the petition, and (2)
the date of filing of the motion for extension.24 It is the date of the
filing of the motion or pleading, and not the date of execution, that
determines the timeliness of the filing of that motion or pleading.
Thus, even if the motion for extension bears no date, the date of
filing stamped on it is the reckoning point for determining the
timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the
RTC decision. Guevarra filed his motion for extension before this
Court on 13 December 1996, the date stamped by this Court’s
Receiving Clerk on the motion for extension. Clearly, Guevarra filed
the motion for extension exactly one day before the lapse of the
reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed
Guevarra’s appeal on technical grounds, Pajuyo did not ask the
appellate court to deny the motion for extension and dismiss the
petition for review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only when the
Court of Appeals ruled in Guevarra’s favor that Pajuyo raised the
procedural issues against Guevarra’s petition for review.
A party who, after voluntarily submitting a dispute for resolution,
receives an adverse decision on the merits, is estopped from
attacking the jurisdiction of the court.25 Estoppel sets in not
because the judgment of the court is a valid and conclusive
adjudication, but because the practice of attacking the court’s
jurisdiction after voluntarily submitting to it is against public policy.
In his Comment before the Court of Appeals, Pajuyo also failed to
discuss Guevarra’s failure to sign the certification against forum
shopping. Instead, Pajuyo harped on Guevarra’s counsel signing the
verification, claiming that the counsel’s verification is insufficient
since it is based only on "mere information."
A party’s failure to sign the certification against forum shopping is
different from the party’s failure to sign personally the verification.
The certificate of non-forum shopping must be signed by the party,
and not by counsel. The certification of counsel renders the petition
defective.
On the other hand, the requirement on verification of a pleading is a
formal and not a jurisdictional requisite.29 It is intended simply to
secure an assurance that what are alleged in the pleading are true
and correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith.30 The party
need not sign the verification. A party’s representative, lawyer or
any person who personally knows the truth of the facts alleged in
the pleading may sign the verification.
We agree with the Court of Appeals that the issue on the certificate
against forum shopping was merely an afterthought. Pajuyo did not
call the Court of Appeals’ attention to this defect at the early stage
of the proceedings. Pajuyo raised this procedural issue too late in
the proceedings.
Absence of Title over the Disputed Property will not Divest the
Courts of Jurisdiction to Resolve the Issue of Possession
Settled is the rule that the defendant’s claim of ownership of the
disputed property will not divest the inferior court of its jurisdiction
over the ejectment case.32 Even if the pleadings raise the issue of
ownership, the court may pass on such issue to determine only the
question of possession, especially if the ownership is inseparably
linked with the possession.33 The adjudication on the issue of
ownership is only provisional and will not bar an action between the
same parties involving title to the land.34 This doctrine is a
necessary consequence of the nature of the two summary actions
of ejectment, forcible entry and unlawful detainer, where the only
issue for adjudication is the physical or material possession over the
real property.
In this case, what Guevarra raised before the courts was that he and
Pajuyo are not the owners of the contested property and that they
are mere squatters. Will the defense that the parties to the
ejectment case are not the owners of the disputed lot allow the
courts to renounce their jurisdiction over the case? The Court of
Appeals believed so and held that it would just leave the parties
where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at
issue in an action for recovery of possession. The parties cannot
present evidence to prove ownership or right to legal possession
except to prove the nature of the possession when necessary to
resolve the issue of physical possession.36 The same is true when
the defendant asserts the absence of title over the property. The
absence of title over the contested lot is not a ground for the courts
to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment
proceedings is - who is entitled to the physical possession of the
premises, that is, to the possession de facto and not to the
possession de jure.37 It does not even matter if a party’s title to the
property is questionable,38 or when both parties intruded into
public land and their applications to own the land have yet to be
approved by the proper government agency.39 Regardless of the
actual condition of the title to the property, the party in peaceable
quiet possession shall not be thrown out by a strong hand, violence
or terror.40 Neither is the unlawful withholding of property
allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such
possession even against the owner himself.41 Whatever may be the
character of his possession, if he has in his favor prior possession in
time, he has the security that entitles him to remain on the property
until a person with a better right lawfully ejects him.42 To repeat,
the only issue that the court has to settle in an ejectment suit is the
right to physical possession.
In Pitargue v. Sorilla, the government owned the land in dispute.
The government did not authorize either the plaintiff or the
defendant in the case of forcible entry case to occupy the land. The
plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending
application for the land with the Bureau of Lands when the
defendant ousted him from possession. The plaintiff filed the action
of forcible entry against the defendant. The government was not a
party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the
issue of possession because while the application of the plaintiff
was still pending, title remained with the government, and the
Bureau of Public Lands had jurisdiction over the case. We disagreed
with the defendant. We ruled that courts have jurisdiction to
entertain ejectment suits even before the resolution of the
application. The plaintiff, by priority of his application and of his
entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical
possession enjoys legal protection against other private claimants
because only a court can take away such physical possession in an
ejectment case.
While the Court did not brand the plaintiff and the defendant in
Pitargue44 as squatters, strictly speaking, their entry into the
disputed land was illegal. Both the plaintiff and defendant entered
the public land without the owner’s permission. Title to the land
remained with the government because it had not awarded to
anyone ownership of the contested public land. Both the plaintiff
and the defendant were in effect squatting on government
property. Yet, we upheld the courts’ jurisdiction to resolve the issue
of possession even if the plaintiff and the defendant in the
ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of
physical possession because of the public need to preserve the basic
policy behind the summary actions of forcible entry and unlawful
detainer. The underlying philosophy behind ejectment suits is to
prevent breach of the peace and criminal disorder and to compel
the party out of possession to respect and resort to the law alone to
obtain what he claims is his.45 The party deprived of possession
must not take the law into his own hands.46 Ejectment proceedings
are summary in nature so the authorities can settle speedily actions
to recover possession because of the overriding need to quell social
disturbances.47
We further explained in Pitargue the greater interest that is at stake
in actions for recovery of possession. We made the following
pronouncements in Pitargue:
The question that is before this Court is: Are courts without
jurisdiction to take cognizance of possessory actions involving these
public lands before final award is made by the Lands Department,
and before title is given any of the conflicting claimants? It is one of
utmost importance, as there are public lands everywhere and there
are thousands of settlers, especially in newly opened regions. It also
involves a matter of policy, as it requires the determination of the
respective authorities and functions of two coordinate branches of
the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code,
either in the old, which was in force in this country before the
American occupation, or in the new, we have a possessory action,
the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to who
has the title thereto. Under the Spanish Civil Code we had the
accion interdictal, a summary proceeding which could be brought
within one year from dispossession (Roman Catholic Bishop of Cebu
vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901,
upon the enactment of the Code of Civil Procedure (Act No. 190 of
the Philippine Commission) we implanted the common law action of
forcible entry (section 80 of Act No. 190), the object of which has
been stated by this Court to be "to prevent breaches of the peace
and criminal disorder which would ensue from the withdrawal of
the remedy, and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons who, believing
themselves entitled to the possession of property, resort to force to
gain possession rather than to some appropriate action in the court
to assert their claims." (Supia and Batioco vs. Quintero and Ayala, 59
Phil. 312, 314.) So before the enactment of the first Public Land Act
(Act No. 926) the action of forcible entry was already available in
the courts of the country. So the question to be resolved is, Did the
Legislature intend, when it vested the power and authority to
alienate and dispose of the public lands in the Lands Department, to
exclude the courts from entertaining the possessory action of
forcible entry between rival claimants or occupants of any land
before award thereof to any of the parties? Did Congress intend
that the lands applied for, or all public lands for that matter, be
removed from the jurisdiction of the judicial Branch of the
Government, so that any troubles arising therefrom, or any
breaches of the peace or disorders caused by rival claimants, could
be inquired into only by the Lands Department to the exclusion of
the courts? The answer to this question seems to us evident. The
Lands Department does not have the means to police public lands;
neither does it have the means to prevent disorders arising
therefrom, or contain breaches of the peace among settlers; or to
pass promptly upon conflicts of possession. Then its power is clearly
limited to disposition and alienation, and while it may decide
conflicts of possession in order to make proper award, the
settlement of conflicts of possession which is recognized in the
court herein has another ultimate purpose, i.e., the protection of
actual possessors and occupants with a view to the prevention of
breaches of the peace. The power to dispose and alienate could not
have been intended to include the power to prevent or settle
disorders or breaches of the peace among rival settlers or claimants
prior to the final award. As to this, therefore, the corresponding
branches of the Government must continue to exercise power and
jurisdiction within the limits of their respective functions. The
vesting of the Lands Department with authority to administer,
dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of
the exercise of the respective functions or powers thereon, such as
the authority to stop disorders and quell breaches of the peace by
the police, the authority on the part of the courts to take
jurisdiction over possessory actions arising therefrom not involving,
directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American
courts to the effect that courts have no jurisdiction to determine
the rights of claimants to public lands, and that until the disposition
of the land has passed from the control of the Federal Government,
the courts will not interfere with the administration of matters
concerning the same. (50 C. J. 1093-1094.) We have no quarrel with
this principle. The determination of the respective rights of rival
claimants to public lands is different from the determination of who
has the actual physical possession or occupation with a view to
protecting the same and preventing disorder and breaches of the
peace. A judgment of the court ordering restitution of the
possession of a parcel of land to the actual occupant, who has been
deprived thereof by another through the use of force or in any
other illegal manner, can never be "prejudicial interference" with
the disposition or alienation of public lands. On the other hand, if
courts were deprived of jurisdiction of cases involving conflicts of
possession, that threat of judicial action against breaches of the
peace committed on public lands would be eliminated, and a state
of lawlessness would probably be produced between applicants,
occupants or squatters, where force or might, not right or justice,
would rule.
It must be borne in mind that the action that would be used to solve
conflicts of possession between rivals or conflicting applicants or
claimants would be no other than that of forcible entry. This action,
both in England and the United States and in our jurisdiction, is a
summary and expeditious remedy whereby one in peaceful and
quiet possession may recover the possession of which he has been
deprived by a stronger hand, by violence or terror; its ultimate
object being to prevent breach of the peace and criminal disorder.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The
basis of the remedy is mere possession as a fact, of physical
possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil.
752.) The title or right to possession is never in issue in an action of
forcible entry; as a matter of fact, evidence thereof is expressly
banned, except to prove the nature of the possession. (Second 4,
Rule 72, Rules of Court.) With this nature of the action in mind, by
no stretch of the imagination can conclusion be arrived at that the
use of the remedy in the courts of justice would constitute an
interference with the alienation, disposition, and control of public
lands. To limit ourselves to the case at bar can it be pretended at all
that its result would in any way interfere with the manner of the
alienation or disposition of the land contested? On the contrary, it
would facilitate adjudication, for the question of priority of
possession having been decided in a final manner by the courts, said
question need no longer waste the time of the land officers making
the adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari
delicto to this case.
Articles 1411 and 1412 of the Civil Code48 embody the principle of
pari delicto. We explained the principle of pari delicto in these
words:
The rule of pari delicto is expressed in the maxims ‘ex dolo malo non
eritur actio’ and ‘in pari delicto potior est conditio defedentis.’ The
law will not aid either party to an illegal agreement. It leaves the
parties where it finds them.
The application of the pari delicto principle is not absolute, as there
are exceptions to its application. One of these exceptions is where
the application of the pari delicto rule would violate well-
established public policy.
In Drilon v. Gaurana, we reiterated the basic policy behind the
summary actions of forcible entry and unlawful detainer. We held
that:
It must be stated that the purpose of an action of forcible entry and
detainer is that, regardless of the actual condition of the title to the
property, the party in peaceable quiet possession shall not be
turned out by strong hand, violence or terror. In affording this
remedy of restitution the object of the statute is to prevent
breaches of the peace and criminal disorder which would ensue
from the withdrawal of the remedy, and the reasonable hope such
withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some
appropriate action in the courts to assert their claims. This is the
philosophy at the foundation of all these actions of forcible entry
and detainer which are designed to compel the party out of
possession to respect and resort to the law alone to obtain what he
claims is his.
Clearly, the application of the principle of pari delicto to a case of
ejectment between squatters is fraught with danger. To shut out
relief to squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another squatter
from possession of the lot that the latter had illegally occupied,
emboldened by the knowledge that the courts would leave them
where they are. Nothing would then stand in the way of the ousted
squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what
ejectment cases or actions for recovery of possession seek to
prevent. Even the owner who has title over the disputed property
cannot take the law into his own hands to regain possession of his
property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to
the ejectment suit are squatters. The determination of priority and
superiority of possession is a serious and urgent matter that cannot
be left to the squatters to decide. To do so would make squatters
receive better treatment under the law. The law restrains property
owners from taking the law into their own hands. However, the
principle of pari delicto as applied by the Court of Appeals would
give squatters free rein to dispossess fellow squatters or violently
retake possession of properties usurped from them. Courts should
not leave squatters to their own devices in cases involving recovery
of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case
of ejectment. The Court of Appeals refused to rule on the issue of
physical possession. Nevertheless, the appellate court held that the
pivotal issue in this case is who between Pajuyo and Guevarra has
the "priority right as beneficiary of the contested land under
Proclamation No. 137."54 According to the Court of Appeals,
Guevarra enjoys preferential right under Proclamation No. 137
because Article VI of the Code declares that the actual occupant or
caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested
lot is part of a relocation site under Proclamation No. 137.
Proclamation No. 137 laid down the metes and bounds of the land
that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land
specified by Proclamation No. 137. Guevarra had the burden to
prove that the disputed lot is within the coverage of Proclamation
No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to
Guevarra’s unsubstantiated claim that he is the beneficiary of
Proclamation No. 137. Guevarra merely alleged that in the survey
the project administrator conducted, he and not Pajuyo appeared
as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of
Proclamation No. 137. Pajuyo allowed Guevarra to occupy the
disputed property in 1985. President Aquino signed Proclamation
No. 137 into law on 11 March 1986. Pajuyo made his earliest
demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to
the time that Proclamation No. 137 allegedly segregated the
disputed lot, Guevarra never applied as beneficiary of Proclamation
No. 137. Even when Guevarra already knew that Pajuyo was
reclaiming possession of the property, Guevarra did not take any
step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of
Proclamation No. 137 and Guevarra has a pending application over
the lot, courts should still assume jurisdiction and resolve the issue
of possession. However, the jurisdiction of the courts would be
limited to the issue of physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory
actions involving public land to determine the issue of physical
possession. The determination of the respective rights of rival
claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has
a better right of physical possession.56 The administrative
disposition and alienation of public lands should be threshed out in
the proper government agency.
The Court of Appeals’ determination of Pajuyo and Guevarra’s rights
under Proclamation No. 137 was premature. Pajuyo and Guevarra
were at most merely potential beneficiaries of the law. Courts
should not preempt the decision of the administrative agency
mandated by law to determine the qualifications of applicants for
the acquisition of public lands. Instead, courts should expeditiously
resolve the issue of physical possession in ejectment cases to
prevent disorder and breaches of peace.58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyo’s prior possession of the lot and
ownership of the house built on it. Guevarra expressly admitted the
existence and due execution of the Kasunduan. The Kasunduan
reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas,
Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na
pansamantalang manirahan sa nasabing bahay at lote ng "walang
bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, sila’y kusang
aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in
the house and lot free of rent, but Guevarra was under obligation to
maintain the premises in good condition. Guevarra promised to
vacate the premises on Pajuyo’s demand but Guevarra broke his
promise and refused to heed Pajuyo’s demand to vacate.
These facts make out a case for unlawful detainer. Unlawful
detainer involves the withholding by a person from another of the
possession of real property to which the latter is entitled after the
expiration or termination of the former’s right to hold possession
under a contract, express or implied.
Where the plaintiff allows the defendant to use his property by
tolerance without any contract, the defendant is necessarily bound
by an implied promise that he will vacate on demand, failing which,
an action for unlawful detainer will lie.60 The defendant’s refusal to
comply with the demand makes his continued possession of the
property unlawful.61 The status of the defendant in such a case is
similar to that of a lessee or tenant whose term of lease has expired
but whose occupancy continues by tolerance of the owner.62
This principle should apply with greater force in cases where a
contract embodies the permission or tolerance to use the property.
The Kasunduan expressly articulated Pajuyo’s forbearance. Pajuyo
did not require Guevarra to pay any rent but only to maintain the
house and lot in good condition. Guevarra expressly vowed in the
Kasunduan that he would vacate the property on demand.
Guevarra’s refusal to comply with Pajuyo’s demand to vacate made
Guevarra’s continued possession of the property unlawful.
We do not subscribe to the Court of Appeals’ theory that the
Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for
a certain time and return it.63 An essential feature of commodatum
is that it is gratuitous. Another feature of commodatum is that the
use of the thing belonging to another is for a certain period.64 Thus,
the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the
use for which the commodatum is constituted.65 If the bailor
should have urgent need of the thing, he may demand its return for
temporary use.66 If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case
the contractual relation is called a precarium.67 Under the Civil
Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo
to Guevarra was not essentially gratuitous. While the Kasunduan did
not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes
the Kasunduan a contract different from a commodatum. The
effects of the Kasunduan are also different from that of a
commodatum. Case law on ejectment has treated relationship
based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the
termination of the lease.69 The tenant’s withholding of the
property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra
is one of commodatum, Guevarra as bailee would still have the duty
to turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to
contracts for safekeeping, or contracts of commission,
administration and commodatum.70 These contracts certainly
involve the obligation to deliver or return the thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that
like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out,
cannot enter into a contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between
squatters. Guevarra freely entered into the Kasunduan. Guevarra
cannot now impugn the Kasunduan after he had benefited from it.
The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who
between Pajuyo and Guevarra has a right to physical possession of
the contested property. The Kasunduan is the undeniable evidence
of Guevarra’s recognition of Pajuyo’s better right of physical
possession. Guevarra is clearly a possessor in bad faith. The absence
of a contract would not yield a different result, as there would still
be an implied promise to vacate.
Guevarra contends that there is "a pernicious evil that is sought to
be avoided, and that is allowing an absentee squatter who (sic)
makes (sic) a profit out of his illegal act."72 Guevarra bases his
argument on the preferential right given to the actual occupant or
caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because
Guevarra stayed in the property without paying any rent. There is
also no proof that Pajuyo is a professional squatter who rents out
usurped properties to other squatters. Moreover, it is for the proper
government agency to decide who between Pajuyo and Guevarra
qualifies for socialized housing. The only issue that we are
addressing is physical possession.
Prior possession is not always a condition sine qua non in
ejectment.73 This is one of the distinctions between forcible entry
and unlawful detainer.74 In forcible entry, the plaintiff is deprived
of physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must allege and
prove prior possession.75 But in unlawful detainer, the defendant
unlawfully withholds possession after the expiration or termination
of his right to possess under any contract, express or implied. In
such a case, prior physical possession is not required.76
Pajuyo’s withdrawal of his permission to Guevarra terminated the
Kasunduan. Guevarra’s transient right to possess the property
ended as well. Moreover, it was Pajuyo who was in actual
possession of the property because Guevarra had to seek Pajuyo’s
permission to temporarily hold the property and Guevarra had to
follow the conditions set by Pajuyo in the Kasunduan. Control over
the property still rested with Pajuyo and this is evidence of actual
possession.
Pajuyo’s absence did not affect his actual possession of the disputed
property. Possession in the eyes of the law does not mean that a
man has to have his feet on every square meter of the ground
before he is deemed in possession.77 One may acquire possession
not only by physical occupation, but also by the fact that a thing is
subject to the action of one’s will. Actual or physical occupation is
not always necessary.
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared
that "squatters and intruders who clandestinely enter into titled
government property cannot, by such act, acquire any legal right to
said property."80 We made this declaration because the person
who had title or who had the right to legal possession over the
disputed property was a party in the ejectment suit and that party
instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a
party to the ejectment case. This case is between squatters. Had the
government participated in this case, the courts could have evicted
the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is
not impleaded in this case, we cannot evict on our own the parties.
Such a ruling would discourage squatters from seeking the aid of
the courts in settling the issue of physical possession. Stripping both
the plaintiff and the defendant of possession just because they are
squatters would have the same dangerous implications as the
application of the principle of pari delicto. Squatters would then
rather settle the issue of physical possession among themselves
than seek relief from the courts if the plaintiff and defendant in the
ejectment case would both stand to lose possession of the disputed
property. This would subvert the policy underlying actions for
recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property,
he is entitled to remain on the property until a person who has title
or a better right lawfully ejects him. Guevarra is certainly not that
person. The ruling in this case, however, does not preclude Pajuyo
and Guevarra from introducing evidence and presenting arguments
before the proper administrative agency to establish any right to
which they may be entitled under the law.81
In no way should our ruling in this case be interpreted to condone
squatting. The ruling on the issue of physical possession does not
affect title to the property nor constitute a binding and conclusive
adjudication on the merits on the issue of ownership.82 The owner
can still go to court to recover lawfully the property from the person
who holds the property without legal title. Our ruling here does not
diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or
unauthorized structures in accordance with existing laws.
the two courts. We find the amount reasonable compensation to
Pajuyo. The ₱300 monthly rental is counted from the last demand
to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June
2000 and Resolution dated 14 December 2000 of the Court of
Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated
11 November 1996 of the Regional Trial Court of Quezon City,
Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated
15 December 1995 of the Metropolitan Trial Court of Quezon City,
Branch 31 in Civil Case No. 12432, is REINSTATED with
MODIFICATION. The award of attorney’s fees is deleted. No costs.
SO ORDERED.

Attorney’s Fees and Rentals

The MTC and RTC failed to justify the award of ₱3,000 attorney’s
fees to Pajuyo. Attorney’s fees as part of damages are awarded only
in the instances enumerated in Article 2208 of the Civil Code.83
Thus, the award of attorney’s fees is the exception rather than the
rule.84 Attorney’s fees are not awarded every time a party prevails
in a suit because of the policy that no premium should be placed on
the right to litigate.85 We therefore delete the attorney’s fees
awarded to Pajuyo.

We sustain the ₱300 monthly rentals the MTC and RTC assessed
against Guevarra. Guevarra did not dispute this factual finding of
G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V.
BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left
by the late Jose V. Bagtas, petitioner-appellant.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only
questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the
Philippines through the Bureau of Animal Industry three bulls: a Red
Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and
a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to
7 May 1949 for breeding purposes subject to a government charge
of breeding fee of 10% of the book value of the bulls. Upon the
expiration on 7 May 1949 of the contract, the borrower asked for a
renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of
only one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V.
Bagtas wrote to the Director of Animal Industry that he would pay
the value of the three bulls. On 17 October 1950 he reiterated his
desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October
1950 the Director of Animal Industry advised him that the book
value of the three bulls could not be reduced and that they either
be returned or their book value paid not later than 31 October
1950. Jose V. Bagtas failed to pay the book value of the three bulls
or to return them. So, on 20 December 1950 in the Court of First
Instance of Manila the Republic of the Philippines commenced an
action against him praying that he be ordered to return the three
bulls loaned to him or to pay their book value in the total sum of
P3,241.45 and the unpaid breeding fee in the sum of P199.62, both
with interests, and costs; and that other just and equitable relief be
granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and
Manalo, answered that because of the bad peace and order
situation in Cagayan Valley, particularly in the barrio of Baggao, and
of the pending appeal he had taken to the Secretary of Agriculture
and Natural Resources and the President of the Philippines from the
refusal by the Director of Animal Industry to deduct from the book
value of the bulls corresponding yearly depreciation of 8% from the
date of acquisition, to which depreciation the Auditor General did
not object, he could not return the animals nor pay their value and
prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09
the total value of the three bulls plus the breeding fees in the
amount of P626.17 with interest on both sums of (at) the legal rate
from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of
execution which the court granted on 18 October and issued on 11
November 1958. On 2 December 1958 granted an ex-parte motion
filed by the plaintiff on November 1958 for the appointment of a
special sheriff to serve the writ outside Manila. Of this order
appointing a special sheriff, on 6 December 1958, Felicidad M.
Bagtas, the surviving spouse of the defendant Jose Bagtas who died
on 23 October 1951 and as administratrix of his estate, was notified.
On 7 January 1959 she file a motion alleging that on 26 June 1952
the two bull Sindhi and Bhagnari were returned to the Bureau
Animal of Industry and that sometime in November 1958 the third
bull, the Sahiniwal, died from gunshot wound inflicted during a Huk
raid on Hacienda Felicidad Intal, and praying that the writ of
execution be quashed and that a writ of preliminary injunction be
issued. On 31 January 1959 the plaintiff objected to her motion. On
6 February 1959 she filed a reply thereto. On the same day, 6
February, the Court denied her motion. Hence, this appeal certified
by the Court of Appeals to this Court as stated at the beginning of
this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the
appellant by the late defendant, returned the Sindhi and Bhagnari
bulls to Roman Remorin, Superintendent of the NVB Station, Bureau
of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a
memorandum receipt signed by the latter (Exhibit 2). That is why in
its objection of 31 January 1959 to the appellant's motion to quash
the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of
defendant deceased Jose V. Bagtas." She cannot be held liable for
the two bulls which already had been returned to and received by
the appellee.
The appellant contends that the Sahiniwal bull was accidentally
killed during a raid by the Huk in November 1953 upon the
surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan,
where the animal was kept, and that as such death was due to force
majeure she is relieved from the duty of returning the bull or paying
its value to the appellee. The contention is without merit. The loan
by the appellee to the late defendant Jose V. Bagtas of the three
bulls for breeding purposes for a period of one year from 8 May
1948 to 7 May 1949, later on renewed for another year as regards
one bull, was subject to the payment by the borrower of breeding
fee of 10% of the book value of the bulls. The appellant contends
that the contract was commodatum and that, for that reason, as the
appellee retained ownership or title to the bull it should suffer its
loss due to force majeure. A contract of commodatum is essentially
gratuitous.1 If the breeding fee be considered a compensation, then
the contract would be a lease of the bull. Under article 1671 of the
Civil Code the lessee would be subject to the responsibilities of a
possessor in bad faith, because she had continued possession of the
bull after the expiry of the contract. And even if the contract be
commodatum, still the appellant is liable, because article 1942 of
the Civil Code provides that a bailee in a contract of commodatum
—
. . . is liable for loss of the things, even if it should be through a
fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949.
The loan of one bull was renewed for another period of one year to
end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray
bullets. Furthermore, when lent and delivered to the deceased
husband of the appellant the bulls had each an appraised book
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56
and the Sahiniwal at P744.46. It was not stipulated that in case of
loss of the bull due to fortuitous event the late husband of the
appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the
appellee for the return of the bull or the payment of its value being
a money claim should be presented or filed in the intestate
proceedings of the defendant who died on 23 October 1951, is not
altogether without merit. However, the claim that his civil
personality having ceased to exist the trial court lost jurisdiction
over the case against him, is untenable, because section 17 of Rule
3 of the Rules of Court provides that —
After a party dies and the claim is not thereby extinguished, the
court shall order, upon proper notice, the legal representative of
the deceased to appear and to be substituted for the deceased,
within a period of thirty (30) days, or within such time as may be
granted. . . .
and after the defendant's death on 23 October 1951 his counsel
failed to comply with section 16 of Rule 3 which provides that —
Whenever a party to a pending case dies . . . it shall be the duty of
his attorney to inform the court promptly of such death . . . and to
give the name and residence of the executory administrator,
guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de
Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all
persons having claims for monopoly against the deceased Jose V.
Bagtas, arising from contract express or implied, whether the same
be due, not due, or contingent, for funeral expenses and expenses
of the last sickness of the said decedent, and judgment for
monopoly against him, to file said claims with the Clerk of this Court
at the City Hall Bldg., Highway 54, Quezon City, within six (6) months
from the date of the first publication of this order, serving a copy
thereof upon the aforementioned Felicidad M. Bagtas, the
appointed administratrix of the estate of the said deceased," is not
a notice to the court and the appellee who were to be notified of
the defendant's death in accordance with the above-quoted rule,
and there was no reason for such failure to notify, because the
attorney who appeared for the defendant was the same who
represented the administratrix in the special proceedings instituted
for the administration and settlement of his estate. The appellee or
its attorney or representative could not be expected to know of the
death of the defendant or of the administration proceedings of his
estate instituted in another court that if the attorney for the
deceased defendant did not notify the plaintiff or its attorney of
such death as required by the rule.
As the appellant already had returned the two bulls to the appellee,
the estate of the late defendant is only liable for the sum of
P859.63, the value of the bull which has not been returned to the
appellee, because it was killed while in the custody of the
administratrix of his estate. This is the amount prayed for by the
appellee in its objection on 31 January 1959 to the motion filed on 7
January 1959 by the appellant for the quashing of the writ of
execution.

Special proceedings for the administration and settlement of the

estate of the deceased Jose V. Bagtas having been instituted in the
Court of First Instance of Rizal (Q-200), the money judgment
rendered in favor of the appellee cannot be enforced by means of a
writ of execution but must be presented to the probate court for
payment by the appellant, the administratrix appointed by the
court.

ACCORDINGLY, the writ of execution appealed from is set aside,

without pronouncement as to costs.