G.R. No.
L-17474 October 25, 1962 could not return the animals nor pay their value and
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the
Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-
appellant.
Office of the Solicitor General for plaintiff-appellee.
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
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.
 prayed that the writ of execution be quashed and
Republic V. Bagtas (1962) that a writ of preliminary injunction be issued.
ISSUE: W/N the contract is commodatum and NOT a
lease and the estate should be liable for the loss due
Laws Applicable: Commodatum to force majeure due to delay.

HELD: YES. writ of execution appealed from is set

FACTS: aside, without pronouncement as to costs
 If contract was commodatum then Bureau of
Animal Industry retained ownership or title to the
 May 8, 1948: Jose V. Bagtas borrowed from the bull it should suffer its loss due to force majeure.
Republic of the Philippines through the Bureau of A contract of commodatum is essentially
Animal Industry three bulls: a Red Sindhi with a gratuitous. If the breeding fee be considered a
book value of P1,176.46, a Bhagnari, of compensation, then the contract would be a lease
P1,320.56 and a Sahiniwal, of P744.46, for a of the bull. Under article 1671 of the Civil Code
period of 1 year for breeding purposes subject to the lessee would be subject to the responsibilities
a breeding fee of 10% of the book value of the of a possessor in bad faith, because she had
bulls continued possession of the bull after the expiry
 May 7, 1949: Jose requested for a renewal for of the contract. And even if the contract be
another year for the three bulls but only one bull commodatum, still the appellant is liable if he
was approved while the others are to be returned keeps it longer than the period stipulated
 March 25, 1950: He wrote to the Director of  the estate of the late defendant is only liable for
Animal Industry that he would pay the value of the the sum of P859.63, the value of the bull which
3 bulls has not been returned because it was killed while
 October 17, 1950: he reiterated his desire to buy in the custody of the administratrix of his estate
them at a value with a deduction of yearly  Special proceedings for the administration and
depreciation to be approved by the Auditor settlement of the estate of the deceased Jose V.
General. Bagtas having been instituted in the CFI, the
 October 19, 1950: Director of Animal Industry money judgment rendered in favor of the appellee
advised him that either the 3 bulls are to be cannot be enforced by means of a writ of
returned or their book value without deductions execution but must be presented to the probate
should be paid not later than October 31, 1950 court for payment by the appellant, the
which he was not able to do administratrix appointed by the court.
 December 20, 1950: An action at the CFI was
commenced against Jose praying that he be
ordered to return the 3 bulls or to pay their book
value of P3,241.45 and the unpaid breeding fee of
P199.62, both with interests, and costs
 July 5, 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,
he could not return the animals nor pay their
value and prayed for the dismissal of the
complaint.
 RTC: granted the action
 December 1958: granted an ex-parte motion for
the appointment of a special sheriff to serve the
writ outside Manila
 December 6, 1958: Felicidad M. Bagtas, the
surviving spouse of Jose who died on October 23,
1951 and administratrix of his estate, was notified
 January 7, 1959: she file a motion that the 2 bulls
where returned by his son on June 26, 1952
evidenced by recipt and the 3rd bull died from
gunshot wound inflicted during a Huk raid and
G.R. No. 80294-95 September 21, 1988 touched on the ownership of lots 2 and 3 in
question; that the two lots were possessed by the
CATHOLIC VICAR APOSTOLIC OF THE predecessors-in-interest of private respondents
MOUNTAIN PROVINCE, petitioner, under claim of ownership in good faith from 1906 to
vs. 1951; that petitioner had been in possession of the
COURT OF APPEALS, HEIRS OF EGMIDIO same lots as bailee in commodatum up to 1951,
OCTAVIANO AND JUAN VALDEZ, respondents. when petitioner repudiated the trust and when it
applied for registration in 1962; that petitioner had
Valdez, Ereso, Polido & Associates for petitioner. just been in possession as owner for eleven years,
hence there is no possibility of acquisitive
Claustro, Claustro, Claustro Law Office prescription which requires 10 years possession
collaborating counsel for petitioner. with just title and 30 years of possession without;
that the principle of res judicata on these findings
Jaime G. de Leon for the Heirs of Egmidio by the Court of Appeals will bar a reopening of
Octaviano. these questions of facts; and that those facts may
no longer be altered.
Cotabato Law Office for the Heirs of Juan Valdez.
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.
GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of The facts and background of these cases as
Appeals promulgated a long time ago can properly be considered res narrated by the trail court are as follows —
judicata by respondent Court of Appeals in the present two cases between
petitioner and two private respondents.
... The documents and
records presented
Petitioner questions as allegedly erroneous the
reveal that the whole
Decision dated August 31, 1987 of the Ninth controversy started
Division of Respondent Court of Appeals 1 in CA- when the defendant
G.R. No. 05148 [Civil Case No. 3607 (419)] and Catholic Vicar Apostolic
CA-G.R. No. 05149 [Civil Case No. 3655 (429)], of the Mountain
both for Recovery of Possession, which affirmed Province (VICAR for
the Decision of the Honorable Nicodemo T. Ferrer, brevity) filed with the
Judge of the Regional Trial Court of Baguio and Court of First Instance
Benguet in Civil Case No. 3607 (419) and Civil of Baguio Benguet on
Case No. 3655 (429), with the dispositive portion as September 5, 1962 an
application for
follows:
registration of title over
Lots 1, 2, 3, and 4 in
WHEREFORE, Judgment is hereby Psu-194357, situated at
rendered ordering the defendant, Poblacion Central, La
Catholic Vicar Apostolic of the Mountain Trinidad, Benguet,
Province to return and surrender Lot 2 docketed as LRC N-91,
of Plan Psu-194357 to the plaintiffs. said Lots being the sites
Heirs of Juan Valdez, and Lot 3 of the of the Catholic Church
same Plan to the other set of plaintiffs, building, convents, high
the Heirs of Egmidio Octaviano school building, school
(Leonardo Valdez, et al.). For lack or gymnasium, school
insufficiency of evidence, the plaintiffs' dormitories, social hall,
claim or damages is hereby denied. stonewalls, etc. On
Said defendant is ordered to pay costs. March 22, 1963 the
(p. 36, Rollo) Heirs of Juan Valdez
and the Heirs of
Respondent Court of Appeals, in affirming the trial Egmidio Octaviano filed
court's decision, sustained the trial court's their Answer/Opposition
conclusions that the Decision of the Court of on Lots Nos. 2 and 3,
Appeals, dated May 4,1977 in CA-G.R. No. 38830- respectively, asserting
R, in the two cases affirmed by the Supreme Court, 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 Octaviano (Exh. C ); his written
Heirs of Octaviano filed demand (Exh. B—B-4 ) to defendant
with the then Court of Vicar for the return of the land to
First Instance of Baguio, them; and the reasonable rentals for
Branch II, a Motion For
the use of the land at P10,000.00
Execution of Judgment
praying that the Heirs of per month. On the other hand,
Octaviano be placed in defendant Vicar presented the
possession of Lot 3. Register of Deeds for the Province
The Court, presided of Benguet, Atty. Nicanor Sison, who
over by Hon. Salvador testified that the land in question is
J. Valdez, on December not covered by any title in the name
7, 1978, denied the of Egmidio Octaviano or any of the
motion on the ground plaintiffs (Exh. 8). The defendant
that the Court of dispensed with the testimony of
Appeals decision in CA-
Mons.William Brasseur when the
G.R. No. 38870 did not
grant the Heirs of plaintiffs admitted that the witness if
Octaviano any called to the witness stand, would
affirmative relief. testify that defendant Vicar has been
in possession of Lot 3, for seventy-
On February 7, 1979, five (75) years continuously and
the Heirs of Octaviano peacefully and has constructed
filed with the Court of permanent structures thereon.
Appeals a petitioner for
certiorari and In Civil Case No. 3655, the parties
mandamus, docketed admitting that the material facts are
as CA-G.R. No. 08890-
not in dispute, submitted the case on
R, entitled Heirs of
Egmidio Octaviano vs. the sole issue of whether or not the
Hon. Salvador J. decisions of the Court of Appeals
Valdez, Jr. and Vicar. In and the Supreme Court touching on
its decision dated May the ownership of Lot 2, which in
16, 1979, the Court of effect declared the plaintiffs the
Appeals dismissed the owners of the land constitute res
petition. judicata.

It was at that stage that In these two cases , the plaintiffs

the instant cases were arque that the defendant Vicar is
filed. The Heirs of
barred from setting up the defense
Egmidio Octaviano filed
Civil Case No. 3607 of ownership and/or long and
(419) on July 24, 1979, continuous possession of the two
for recovery of lots in question since this is barred
possession of Lot 3; by prior judgment of the Court of
and the Heirs of Juan Appeals in CA-G.R. No. 038830-R
Valdez filed Civil Case under the principle of res judicata.
No. 3655 (429) on Plaintiffs contend that the question
September 24, 1979, of possession and ownership have
likewise for recovery of already been determined by the
possession of Lot 2
Court of Appeals (Exh. C, Decision,
(Decision, pp. 199-201,
Orig. Rec.). CA-G.R. No. 038830-R) and
affirmed by the Supreme Court (Exh.
1, Minute Resolution of the Supreme
In Civil Case No. 3607 (419) trial
Court). On his part, defendant Vicar
was held. The plaintiffs Heirs of
maintains that the principle of res
Egmidio Octaviano presented one
judicata would not prevent them
(1) witness, Fructuoso Valdez, who
from litigating the issues of long
testified on the alleged ownership of
possession and ownership because
the land in question (Lot 3) by their
the dispositive portion of the prior
predecessor-in-interest, Egmidio
 judgment in CA-G.R. No. 038830-R 10. ERROR IN FINDING THAT PETITIONER IS A
merely dismissed their application POSSESSOR AND BUILDER IN GOOD FAITH
for registration and titling of lots 2 WITHOUT RIGHTS OF RETENTION AND
and 3. Defendant Vicar contends REIMBURSEMENT AND IS BARRED BY THE
FINALITY AND CONCLUSIVENESS OF THE
that only the dispositive portion of
DECISION IN CA G.R. NO. 038830. 3
the decision, and not its body, is the
controlling pronouncement of the
Court of Appeals. 2 The petition is bereft of merit.

The alleged errors committed by respondent Court Petitioner questions the ruling of respondent Court
of Appeals according to petitioner are as follows: of Appeals in CA-G.R. Nos. 05148 and 05149,
when it clearly held that it was in agreement with
1. ERROR IN APPLYING LAW OF THE CASE the findings of the trial court that the Decision of the
AND RES JUDICATA; Court of Appeals dated May 4,1977 in CA-G.R. No.
38830-R, on the question of ownership of Lots 2
2. ERROR IN FINDING THAT THE TRIAL COURT and 3, declared that the said Court of Appeals
RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY Decision CA-G.R. No. 38830-R) did not positively
PURCHASE BUT WITHOUT DOCUMENTARY declare private respondents as owners of the land,
EVIDENCE PRESENTED; neither was it declared that they were not owners of
the land, but it held that the predecessors of private
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT respondents were possessors of Lots 2 and 3, with
PURCHASED LOTS 2 AND 3 FROM VALDEZ AND claim of ownership in good faith from 1906 to 1951.
OCTAVIANO WAS AN IMPLIED ADMISSION THAT Petitioner was in possession as borrower in
THE FORMER OWNERS WERE VALDEZ AND commodatum up to 1951, when it repudiated the
OCTAVIANO; trust by declaring the properties in its name for
taxation purposes. When petitioner applied for
4. ERROR IN FINDING THAT IT WAS registration of Lots 2 and 3 in 1962, it had been in
PREDECESSORS OF PRIVATE RESPONDENTS WHO
possession in concept of owner only for eleven
WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST
FROM 1906, AND NOT PETITIONER;
years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title.
5. ERROR IN FINDING THAT VALDEZ AND
Extraordinary acquisitive prescription requires 30
OCTAVIANO HAD FREE PATENT APPLICATIONS years. 4
AND THE PREDECESSORS OF PRIVATE
RESPONDENTS ALREADY HAD FREE PATENT On the above findings of facts supported by
APPLICATIONS SINCE 1906; evidence and evaluated by the Court of Appeals in
CA-G.R. No. 38830-R, affirmed by this Court, We
6. ERROR IN FINDING THAT PETITIONER see no error in respondent appellate court's ruling
DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST that said findings are res judicata between the
TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 parties. They can no longer be altered by
IN RELATION TO ART. 1129 OF THE CIVIL CODE presentation of evidence because those issues
FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 were resolved with finality a long time ago. To
YEARS;
ignore the principle of res judicata would be to open
the door to endless litigations by continuous
7. ERROR IN FINDING THAT THE DECISION OF THE
determination of issues without end.
COURT OF APPEALS IN CA G.R. NO. 038830 WAS
AFFIRMED BY THE SUPREME COURT;
An examination of the Court of Appeals Decision
8. ERROR IN FINDING THAT THE DECISION IN CA dated May 4, 1977, First Division 5 in CA-G.R. No.
G.R. NO. 038830 TOUCHED ON OWNERSHIP OF 38830-R, shows that it reversed the trial court's
LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS Decision 6 finding petitioner to be entitled to register
AND THEIR PREDECESSORS WERE IN the lands in question under its ownership, on its
POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF evaluation of evidence and conclusion of facts.
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
The Court of Appeals found that petitioner did not
9. ERROR IN FINDING THAT PETITIONER HAD BEEN meet the requirement of 30 years possession for
IN POSSESSION OF LOTS 2 AND 3 MERELY AS acquisitive prescription over Lots 2 and 3. Neither
BAILEE BOR ROWER) IN COMMODATUM, A
did it satisfy the requirement of 10 years
GRATUITOUS LOAN FOR USE;
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.
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.

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
CATHOLIC VICAR APOSTOLIC OF THE
MOUNTAIN PROVINCE v.
COURT OF APPEALS, et al.
G.R. No. 80294-95 September 21, 1988
Summary: Catholic Vicar Apostolic of the Mountain
Province (VICAR for brevity) filed an application for
registration of title over Lots 1, 2, 3, and 4, said Lots
being the sites of the Catholic Church building,
convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. 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 since their predecessors’ house was borrowed
by petitioner Vicar after the church and the convent
were destroyed.. After trial on the merits, the land
registration court promulgated its Decision confirming
the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez appealed the decision of
the land registration court to the then Court of
Appeals, The Court of Appeals reversed the decision.
Thereupon, the VICAR filed with the Supreme Court a
petition for review on certiorari of the decision of the
Court of Appeals dismissing his application for
registration of Lots 2 and 3.
GANCAYCO, J.
Facts:
- 1962: Catholic Vicar Apostolic of the Mountain
Province (Vicar), petitioner, filed with the court an
application for the registration of title over lots 1, 2, 3
and 4 situated in Poblacion Central, Benguet, said
lots being used as sites of the Catholic Church,
building, convents, high school building, school
gymnasium, dormitories, social hall and stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio
Octaviano claimed that they have ownership over lots
1, 2 and 3. (2 separate civil cases)
- 1965: The land registration court confirmed the
registrable title of Vicar to lots 1 , 2, 3 and 4. Upon
appeal by the private respondents (heirs), the
decision of the lower court was reversed. Title for lots
2 and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for
review on certiorari of the decision of the Court of
Appeals dismissing his application for registration of
Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one
(1) witness, who testified on the alleged ownership of
the land in question (Lot 3) by their predecessor-in-
interest, Egmidio Octaviano; his written demand to
Vicar for the return of the land to them; and the
reasonable rentals for the use of the land at P10,000
per month. On the other hand, Vicar presented the
Register of Deeds for the Province of Benguet, Atty.
Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano
or any of the heirs. Vicar dispensed with the testimony
of Mons. Brasseur when the heirs admitted that the
witness if called to the witness stand, would testify
that Vicar has been in possession of Lot 3, for 75
years continuously and peacefully and has
constructed permanent structures thereon.
Issue:
1. WON Vicar had been in possession of lots 2 and 3
merely as bailee borrower in commodatum, a gratuitous
loan for use.
2. Whether or not the failure to return the subject matter
of commodatum constitutes an adverse possession on
the part of the owner
Held:
1. YES. 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.
2. No. 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.
Petitioner repudiated the trust by declaring the
properties in its name for taxation purposes.
Ratio: The Court of Appeals found that petitioner Vicar
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.
Ruling: 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
G.R. No. 102970 May 13, 1993
LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and
TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private
respondent.
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in
CA-G.R. CV No. 26737, promulgated on 21 August
1991, reversing and setting aside the Decision, dated 19
1
February 1990, of Branch 47 of the Regional Trial Court
2
(RTC) of Manila in Civil Case No. 87-42601, entitled
"LUZAN SIA vs. SECURITY BANK and TRUST CO.," is
challenged in this petition for review on certiorari under
Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages
arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained in
Safety Deposit Box No. 54 which had been rented from
the defendant pursuant to a contract denominated as a
Lease Agreement. Judgment therein was rendered in
3
favor of the dispositive portion of which reads:
WHEREFORE, premises considered,
judgment is hereby rendered in favor of
the plaintiff and against the defendant,
Security Bank & Trust Company,
ordering the defendant bank to pay the
plaintiff the sum of —
a) Twenty Thousand Pesos
(P20,000.00), Philippine Currency, as
actual damages;
b) One Hundred Thousand Pesos
(P100,000.00), Philippine Currency, as
moral damages; and
c) Five Thousand Pesos (P5,000.00),
Philippine Currency, as attorney's fees
and legal expenses.
The counterclaim set up by the
defendant are hereby dismissed for lack
of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are
summarized by the public respondent in its challenged
decision as follows:
The plaintiff rented on March 22, 1985
the Safety Deposit Box No. 54 of the
defendant bank at its Binondo Branch
located at the Fookien Times Building,
Soler St., Binondo, Manila wherein he
placed his collection of stamps. The said
safety deposit box leased by the plaintiff
was at the bottom or at the lowest level
of the safety deposit boxes of the
defendant bank at its aforesaid Binondo
Branch.
During the floods that took place in 1985
and 1986, floodwater entered into the
defendant bank's premises, seeped into
the safety deposit box leased by the
plaintiff and caused, according to the
plaintiff, damage to his stamps
collection. The defendant bank rejected
the plaintiff's claim for compensation for
his damaged stamps collection, so, the
plaintiff instituted an action for damages
against the defendant bank.
The defendant bank denied liability for
the damaged stamps collection of the
plaintiff on the basis of the "Rules and
Regulations Governing the Lease of
Safe Deposit Boxes" (Exhs. "A-1", "1-
A"), particularly paragraphs 9 and 13,
which reads (sic):
"9. The liability of the Bank by reason of
the lease, is limited to the exercise of
the diligence to prevent the opening of
the safe by any person other than the
Renter, his authorized agent or legal
representative;
xxx xxx xxx
"13. The Bank is not a depository of the
contents of the safe and it has neither
the possession nor the control of the
same. The Bank has no interest
whatsoever in said contents, except as
herein provided, and it assumes
absolutely no liability in connection
therewith."
The defendant bank also contended that
its contract with the plaintiff over safety
deposit box No. 54 was one of lease
and not of deposit and, therefore,
 governed by the lease agreement
(Exhs. "A", "L") which should be the
applicable law; that the destruction of
the plaintiff's stamps collection was due
to a calamity beyond obligation on its
part to notify the plaintiff about the
floodwaters that inundated its premises
at Binondo branch which allegedly
seeped into the safety deposit box
leased to the plaintiff.
The trial court then directed that an
ocular inspection on (sic) the contents of
the safety deposit box be conducted,
which was done on December 8, 1988
by its clerk of court in the presence of
the parties and their counsels. A report
thereon was then submitted on
December 12, 1988 (Records, p. 98-A)
and confirmed in open court by both
parties thru counsel during the hearing
on the same date (Ibid., p. 102) stating:
"That the Safety Box
Deposit No. 54 was
opened by both plaintiff
Luzan Sia and the
Acting Branch Manager
Jimmy B. Ynion in the
presence of the
undersigned, plaintiff's
and defendant's
counsel. Said Safety
Box when opened
contains two albums of
different sizes and
thickness, length and
width and a tin box with
printed word 'Tai Ping
Shiang Roast Pork in
pieces with Chinese
designs and character."
Condition of the above-stated Items —
"Both albums are wet, moldy and badly
damaged.
1. The first album measures 10 1/8
inches in length, 8 inches in width and
3/4 in thick. The leaves of the album are
attached to every page and cannot be
lifted without destroying it, hence the
stamps contained therein are no longer
visible.
2. The second album measure 12 1/2
inches in length, 9 3/4 in width 1 inch
thick. Some of its pages can still be
lifted. The stamps therein can still be
distinguished but beyond restoration.
Others have lost its original form.
3. The tin box is rusty inside. It contains
an album with several pieces of papers
stuck up to the cover of the box. The
condition of the album is the second
abovementioned album." 5
The SECURITY BANK AND TRUST COMPANY,
hereinafter referred to as SBTC, appealed the trial
court's decision to the public respondent Court of
Appeals. The appeal was docketed as CA-G.R. CV No.
26737.
In urging the public respondent to reverse the decision of
the trial court, SBTC contended that the latter erred in
(a) holding that the lease agreement is a contract of
adhesion; (b) finding that the defendant had failed to
exercise the required diligence expected of a bank in
maintaining the safety deposit box; (c) awarding to the
plaintiff actual damages in the amount of P20,000.00,
moral damages in the amount of P100,000.00 and
attorney's fees and legal expenses in the amount of
P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the respondent promulgated its
decision the dispositive portion of which reads:
WHEREFORE, the decision appealed
from is hereby REVERSED and instead
the appellee's complaint is hereby
DISMISSED. The appellant bank's
counterclaim is likewise DISMISSED.
No costs. 6
In reversing the trial court's decision and absolving
SBTC from liability, the public respondent found and
ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A"
and "1" ) constitutes the terms and conditions of the
contract of lease which the appellee (now petitioner) had
voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe
Deposit Box No. 54 was not a contract of deposit
wherein the bank became a depositary of the subject
stamp collection; hence, as contended by SBTC, the
provisions of Book IV, Title XII of the Civil Code on
deposits do not apply;
c) The following provisions of the questioned lease
agreement of the safety deposit box limiting SBTC's
liability:
9. The liability of the bank by reason of
the lease, is limited to the exercise of
the diligence to prevent the opening of
the Safe by any person other than the
 Renter, his authorized agent or legal
representative.
xxx xxx xxx
13. The bank is not a depository of the
contents of the Safe and it has neither
the possession nor the control of the
same. The Bank has no interest
whatsoever in said contents, except as
herein provided, and it assumes
absolutely no liability in connection
therewith.
are valid since said stipulations are not contrary to law,
morals, good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC
failed to exercise the required diligence in maintaining
the safety deposit box; what was proven was that the
floods of 1985 and 1986, which were beyond the control
of SBTC, caused the damage to the stamp collection;
said floods were fortuitous events which SBTC should
not be held liable for since it was not shown to have
participated in the aggravation of the damage to the
stamp collection; on the contrary, it offered its services to
secure the assistance of an expert in order to save most
of the stamps, but the appellee refused; appellee must
then bear the lose under the principle of "res perit
domino."
Unsuccessful in his bid to have the above decision
reconsidered by the public respondent, petitioner filed
7
the instant petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN
ABUSE OF DISCRETION ON THE
PART OF THE RESPONDENT COURT
WHEN IT RULED THAT
RESPONDENT SBTC DID NOT FAIL
TO EXERCISE THE REQUIRED
DILIGENCE IN MAINTAINING THE
SAFETY DEPOSIT BOX OF THE
PETITIONER CONSIDERING THAT
SUBSTANTIAL EVIDENCE EXIST (sic)
PROVING THE CONTRARY.
II
THE RESPONDENT COURT
SERIOUSLY ERRED IN
EXCULPATING PRIVATE
RESPONDENT FROM ANY LIABILITY
WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9
AND 13 OF THE AGREEMENT (EXHS.
"A" AND "A-1").
III
THE RESPONDENT COURT
SERIOUSLY ERRED IN NOT
UPHOLDING THE AWARDS OF THE
TRIAL COURT FOR ACTUAL AND
MORAL DAMAGES, INCLUDING
ATTORNEY'S FEES AND LEGAL
EXPENSES, IN FAVOR OF THE
PETITIONER. 8
We subsequently gave due course the petition and
required both parties to submit their respective
memoranda, which they complied with. 9
Petitioner insists that the trial court correctly ruled that
SBTC had failed "to exercise the required diligence
expected of a bank maintaining such safety deposit box .
. . in the light of the environmental circumstance of said
safety deposit box after the floods of 1985 and 1986."
He argues that such a conclusion is supported by the
evidence on record, to wit: SBTC was fully cognizant of
the exact location of the safety deposit box in question; it
knew that the premises were inundated by floodwaters in
1985 and 1986 and considering that the bank is guarded
twenty-four (24) hours a day , it is safe to conclude that it
was also aware of the inundation of the premises where
the safety deposit box was located; despite such
knowledge, however, it never bothered to inform the
petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of
the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it
relies on the rule that findings of facts of the Court of
Appeals, when supported by substantial exidence, are
not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain
exceptions such as when there exists a disparity
between the factual findings and conclusions of the
Court of Appeals and the trial court. Such a disparity
11
obtains in the present case.
As We see it, SBTC's theory, which was upheld by the
public respondent, is that the "Lease Agreement "
covering Safe Deposit Box No. 54 (Exhibit "A and "1") is
just that — a contract of lease — and not a contract of
deposit, and that paragraphs 9 and 13 thereof, which
expressly limit the bank's liability as follows:
9. The liability of the bank by reason of
the lease, is limited to the exercise of
the diligence to prevent the opening of
the Safe by any person other than the
Renter, his autliorized agent or legal
representative;
xxx xxx xxx
 13. The bank is not a depository of the
contents of the Safe and it has neither
the possession nor the control of the
same. The Bank has no interest
whatsoever said contents, except as
herein provided, and it assumes
absolutely no liability in connection
therewith. 12
are valid and binding upon the parties. In the challenged
decision, the public respondent further avers that even
without such a limitation of liability, SBTC should still be
absolved from any responsibility for the damage
sustained by the petitioner as it appears that such
damage was occasioned by a fortuitous event and that
the respondent bank was free from any participation in
the aggravation of the injury.
We cannot accept this theory and ratiocination.
Consequently, this Court finds the petition to be
impressed with merit.
In the recent case CA Agro-Industrial Development
Corp. vs. Court of Appeals, this Court explicitly rejected
13
the contention that a contract for the use of a safety
deposit box is a contract of lease governed by Title VII,
Book IV of the Civil Code. Nor did We fully subscribe to
the view that it is a contract of deposit to be strictly
governed by the Civil Code provision on deposit; it is, 14
as We declared, a special kind of deposit. The prevailing
rule in American jurisprudence — that the relation
between a bank renting out safe deposit boxes and its
customer with respect to the contents of the box is that
of a bailor and bailee, the bailment for hire and mutual
benefit — has been adopted in this jurisdiction, thus:
15
In the context of our laws which
authorize banking institutions to rent out
safety deposit boxes, it is clear that in
this jurisdiction, the prevailing rule in the
United States has been adopted.
Section 72 of the General Banking Act
[R.A. 337, as amended] pertinently
provides:
"Sec. 72. In addition to the operations
specifically authorized elsewhere in this
Act, banking institutions other than
building and loan associations may
perform the following services:
(a) Receive in custody
funds, documents, and
valuable objects, and
rent safety deposit
boxes for the
safequarding of such
effects.
xxx xxx xxx
The banks shall perform the services
permitted under subsections (a), (b) and
(c) of this section as depositories or as
agents. . . ."(emphasis supplied)
Note that the primary function is still
found within the parameters of a
contract of deposit, i.e., the receiving in
custody of funds, documents and other
valuable objects for safekeeping. The
renting out of the safety deposit boxes is
not independent from, but related to or
in conjunction with, this principal
function. A contract of deposit may be
entered into orally or in writing (Art.
1969, Civil Code] and, pursuant to
Article 1306 of the Civil Code, the
parties thereto may establish such
stipulations, clauses, terms and
conditions as they may deem
convenient, provided they are not
contrary to law, morals, good customs,
public order or public policy. The
depositary's responsibility for the
safekeeping of the objects deposited in
the case at bar is governed by Title I,
Book IV of the Civil Code. Accordingly,
the depositary would be liable if, in
performing its obligation, it is found
guilty of fraud, negligence, delay or
contravention of the tenor of the
agreement [Art. 1170, id.]. In the
absence of any stipulation prescribing
the degree of diligence required, that of
a good father of a family is to be
observed [Art. 1173, id.]. Hence, any
stipulation exempting the depositary
from any liability arising from the loss of
the thing deposited on account of fraud,
negligence or delay would be void for
being contrary to law and public policy.
In the instant case, petitioner maintains
that conditions 13 and l4 of the
questioned contract of lease of the
safety deposit box, which read:
"13. The bank is a depositary of the
contents of the safe and it has neither
the possession nor control of the same.
"14. The bank has no interest
whatsoever in said contents, except as
herein expressly provided, and it
assumes absolutely no liability in
connection therewith."
are void as they are contrary to law and
public policy. We find Ourselves in
agreement with this proposition for
indeed, said provisions are inconsistent
with the respondent Bank's
responsibility as a depositary under
Section 72 (a) of the General Banking
Act. Both exempt the latter from any
liability except as contemplated in
condition 8 thereof which limits its duty
to exercise reasonable diligence only
with respect to who shall be admitted to
any rented safe, to wit:
"8. The Bank shall use
due diligence that no
unauthorized person
shall be admitted to any
rented safe and beyond
this, the Bank will not be
responsible for the
contents of any safe
rented from it."
Furthermore condition 13 stands on a
wrong premise and is contrary to the
actual practice of the Bank. It is not
correct to assert that the Bank has
neither the possession nor control of the
contents of the box since in fact, the
safety deposit box itself is located in its
premises and is under its absolute
control; moreover, the respondent Bank
keeps the guard key to the said box. As
stated earlier, renters cannot open their
respective boxes unless the Bank
cooperates by presenting and using this
guard key. Clearly then, to the extent
above stated, the foregoing conditions in
the contract in question are void and
ineffective. It has been said:
"With respect to
property deposited in a
safe-deposit box by a
customer of a safe-
deposit company, the
parties, since the
relation is a contractual
one, may by special
contract define their
respective duties or
provide for increasing or
limiting the liability of
the deposit company,
provided such contract
is not in violation of law
or public policy. It must
clearly appear that there
actually was such a
special contract,
however, in order to
vary the ordinary
obligations implied by
law from the
relationship of the
parties; liability of the
deposit company will
not be enlarged or
restricted by words of
doubtful meaning. The
company, in renting
safe-deposit boxes,
cannot exempt itself
from liability for loss of
the contents by its own
fraud or negligence or
that, of its agents or
servants, and if a
provision of the contract
may be construed as an
attempt to do so, it will
be held ineffective for
the purpose. Although it
has been held that the
lessor of a safe-deposit
box cannot limit its
liability for loss of the
contents thereof
through its own
negligence, the view
has been taken that
such a lessor may limit
its liability to some
extent by agreement or
stipulation ."[10 AM
JUR 2d., 466]. (citations
omitted) 16
It must be noted that conditions No. 13 and No. 14 in the
Contract of Lease of Safety Deposit Box in CA Agro-
Industrial Development Corp. are strikingly similar to
condition No. 13 in the instant case. On the other hand,
both condition No. 8 in CA Agro-Industrial Development
Corp. and condition No. 9 in the present case limit the
scope of the exercise of due diligence by the banks
involved to merely seeing to it that only the renter, his
authorized agent or his legal representative should open
or have access to the safety deposit box. In short, in all
other situations, it would seem that SBTC is not bound to
exercise diligence of any kind at all. Assayed in the light
of Our aforementioned pronouncements in CA Agro-
industrial Development Corp., it is not at all difficult to
conclude that both conditions No. 9 and No. 13 of the
"Lease Agreement" covering the safety deposit box in
question (Exhibits "A" and "1") must be stricken down for
being contrary to law and public policy as they are meant
to exempt SBTC from any liability for damage, loss or
destruction of the contents of the safety deposit box
which may arise from its own or its agents' fraud,
negligence or delay. Accordingly, SBTC cannot take
refuge under the said conditions.
Public respondent further postulates that SBTC cannot
be held responsible for the destruction or loss of the
stamp collection because the flooding was a fortuitous
event and there was no showing of SBTC's participation
in the aggravation of the loss or injury. It states:
 Article 1174 of the Civil Code provides:
"Except in cases
expressly specified by
the law, or when it is
otherwise declared by
stipulation, or when the
nature of the obligation
requires the assumption
of risk, no person shall
be responsible for those
events which could not
be foreseen, or which,
aforementioned fourth characteristic of a fortuitous event
is absent Article 1170 of the Civil Code, which reads:
Those who in the performance of their
obligation are guilty of fraud, negligence,
or delay, and those who in any manner
contravene the tenor thereof, are liable
for damages,
thus comes to the succor of the petitioner. The
destruction or loss of the stamp collection which was, in
the language of the trial court, the "product of 27 years
of patience and diligence" caused the petitioner
21

though foreseen, were pecuniary loss; hence, he must be compensated

inevitable.' therefor.

In its dissertation of the phrase "caso
fortuito" the Enciclopedia Jurisdicada
Española says: "In a legal sense and, consequently,
17
also in relation to contracts, a "caso fortuito" prevents
(sic) 18 the following essential characteristics: (1) the cause of
the unforeseen ands unexpected occurrence, or of the failure
of the debtor to comply with his obligation, must be
independent of the human will; (2) it must be impossible to
We cannot, however, place Our imprimatur on the trial
court's award of moral damages. Since the relationship
between the petitioner and SBTC is based on a contract,
either of them may be held liable for moral damages for
breach thereof only if said party had acted fraudulently
or in bad faith. There is here no proof of fraud or bad
22

foresee the event which constitutes the "caso fortuito," or if it faith on the part of SBTC.
can be foreseen, it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for one
debtor to fulfill his obligation in a normal manner; and (4) the
obligor must be free from any participation in the aggravation WHEREFORE, the instant petition is hereby GRANTED.
of the injury resulting to the creditor." (cited in The challenged Decision and Resolution of the public
Servando vs. Phil., Steam Navigation Co., supra). 19
respondent Court of Appeals of 21 August 1991 and 21
November 1991, respectively, in CA-G.R. CV No. 26737,
Here, the unforeseen or unexpected are hereby SET ASIDE and the Decision of 19 February
inundating floods were independent of 1990 of Branch 47 of the Regional Trial Court of Manila
the will of the appellant bank and the in Civil Case No. 87-42601 is hereby REINSTATED in
latter was not shown to have full, except as to the award of moral damages which is
participated in aggravating damage (sic) hereby set aside.
to the stamps collection of the appellee.
In fact, the appellant bank offered its
services to secure the assistance of an Costs against the private respondent.
expert to save most of the then good
stamps but the appelle refused and let SO ORDERED.
(sic) these recoverable stamps inside
the safety deposit box until they were
ruined. 20

Both the law and authority cited are clear enough and
require no further elucidation. Unfortunately, however,
the public respondent failed to consider that in the
instant case, as correctly held by the trial court, SBTC
was guilty of negligence. The facts constituting
negligence are enumerated in the petition and have
been summarized in this ponencia. SBTC's
negligence aggravated the injury or damage to the
stamp collection. SBTC was aware of the floods of 1985
and 1986; it also knew that the floodwaters inundated
the room where Safe Deposit Box No. 54 was located. In
view thereof, it should have lost no time in notifying the
petitioner in order that the box could have been opened
to retrieve the stamps, thus saving the same from further
deterioration and loss. In this respect, it failed to exercise
the reasonable care and prudence expected of a good
father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the
Sia vs. Court of Appeals rent safety deposit boxes for the safequarding of such
G.R. No. 102970, May 13, 1990 effects.

As correctly held by the trial court, Security Bank was

Contract of the use of a safety deposit box of a
bank is not a deposit but a lease under Sec 72, A
of General Banking Act. Accordingly, it should
have lost no time in notifying the petitioner in
order that the box could have been opened to
retrieve the stamps, thus saving the same from
further deterioration and loss. The bank’s
negligence aggravated the injury or damage to the
stamp collection..
Facts: Plaintiff Luzon Sia rented a safety deposit
box of Security Bank and Trust Co. (Security Bank) at
its Binondo Branch wherein he placed his collection of
stamps. The said safety deposit box leased by the
plaintiff was at the bottom or at the lowest level of the
safety deposit boxes of the defendant bank. During
the floods that took place in 1985 and 1986,
floodwater entered into the defendant bank’s
premises, seeped into the safety deposit box leased
by the plaintiff and caused, according damage to his
stamps collection. Security Bank rejected the
plaintiff’s claim for compensation for his damaged
stamps collection.
Sia, thereafter, instituted an action for damages
against the defendant bank. Security Bank contended
that its contract with the Sia over safety deposit box
was one of lease and not of deposit and, therefore,
governed by the lease agreement which should be
the applicable law; the destruction of the plaintiff’s
stamps collection was due to a calamity beyond
obligation on its part to notify the plaintiff about the
floodwaters that inundated its premises at Binondo
branch which allegedly seeped into the safety deposit
box leased to the plaintiff. The trial court rendered in
favor of plaintiff Sia and ordered Sia to pay damages.
guilty of negligence. The bank’s
negligence aggravated the injury or damage to the
stamp collection. SBTC was aware of the floods of
1985 and 1986; it also knew that the floodwaters
inundated the room where the safe deposit box was
located. In view thereof, it should have lost no time in
notifying the petitioner in order that the box could
have been opened to retrieve the stamps, thus saving
the same from further deterioration and loss. In this
respect, it failed to exercise the reasonable care and
prudence expected of a good father of a family,
thereby becoming a party to the aggravation of the
injury or loss. Accordingly, the aforementioned fourth
characteristic of a fortuitous event is absent. Article
1170 of the Civil Code, which reads “Those who in the
performance of their obligation are guilty of fraud,
negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages”
is applicable. Hence, the petition was granted.
The provisions contended by Security Bank in the
lease agreement which are meant to exempt SBTC
from any liability for damage, loss or destruction of the
contents of the safety deposit box which may arise
from its own agents’ fraud, negligence or delay must
be stricken down for being contrary to law and public
policy.

Issue:
Whether or not the Bank is liable for
negligence.

Held:
Contract of the use of a safety deposit box of
a bank is not a deposit but a lease. Section 72 of the
General Banking Act [R.A. 337, as amended]
pertinently provides: In addition to the operations
specifically authorized elsewhere in this Act, banking
institutions other than building and loan associations
may perform the following services (a) Receive in
custody funds, documents, and valuable objects, and
 METROPOLITAN BANK AND TRUST COMPANY vs
S.F Naguiat Enterprises Inc
G.R. No. 178407, March 18, 2015
LEONEN, J.
FACTS:
S.F. Naguiat obtained a loan from Metrobank in
the amount of P1,575,000.00. The loan was likewise
secured by the 1997 real estate mortgage by virtue of
the Agreement on Existing Mortgage executed between
the parties on March 15, 2004. On July 7, 2005, S.F.
Naguiat filed a Petition for Voluntary Insolvency with
Application for the Appointment of a Receiver pursuant
to Act No. 1956, as amended, before the Regional Trial
Court of Angeles City and which was raffled to Branch
56. Among the assets declared in the Petition was the
property covered by TCT No. 58676 (one of the
properties mortgaged to Metrobank). Presiding Judge
Irin Zenaida S. Buan issued the Order15 dated July 12,
2005, declaring S.F. Naguiat insolvent; directing the
Deputy Sheriff to take possession of all the properties of
S.F. Naguiat until the appointment of
receiver/assignee; and forbidding payment of any debts
due, delivery of properties, and transfer of any of its
properties.
foreclosure proceedings. Metrobank filed a Motion for
Reconsideration and Clarification, which was denied by
the Court of Appeals. The Court of Appeals held that
leave of court must be obtained from the insolvency
court whether the foreclosure suit was instituted judicially
or extrajudicially so as to afford the insolvent estate's
proper representation in such action and to avoid the
dissipation of the insolvent debtor's assets in possession
of the insolvency court without the latter's knowledge.
ISSUE:
Whether or not, prior leave of the insolvency
court is necessary before a secured creditor, like
petitioner Metropolitan Bank and Trust Company, can
extrajudicially foreclose the mortgaged property?
HELD:
YES. The foreclosure and sale of the mortgaged
property of the debtor, without leave of court, contravene
the provisions of Act No. 1956 and violate the Order
a dated July 12, 2005 of the insolvency court which
declared S.F. Naguiat insolvent and forbidden from
making any transfer of any of its properties to any
person.

Pending the appointment of a receiver, Judge
Buan directed the creditors, including Metrobank, to file
their respective Comments on the Petition. In lieu of a
Comment, Metrobank filed a Manifestation and Motion
informing the court of Metrobank's decision to withdraw
from the insolvency proceedings because it intended to
extrajudicially foreclose the mortgaged property to
satisfy its claim against S.F. Naguiat. On November 8,
2005, Metrobank instituted an extrajudicial foreclosure
proceeding against the mortgaged property and sold the
property at a public auction held on December 9, 2005 to
Phoenix Global Energy, Inc., the highest bidder.
Afterwards, Sheriff Claude B. Balasbas prepared the
Certificate of Sale and submitted it for approval to Clerk
of Court Vicente S. Fernandez, Jr. and Executive Judge
Bernardita Gabitan-Erum. However, Executive Judge
Gabitan-Erum issued the Order denying her approval of
the Certificate of Sale in view of the July 12, 2005 Order
issued by the insolvency court. Metrobank's subsequent
Motion for Reconsideration was also denied. Metrobank
filed a Petition for certiorari and mandamus before the
Court of Appeals on June 22, 2006. S.F. Naguiat filed its
Manifestation stating that it was not interposing any
objection to the Petition and requested that the issues
raised in the Petition be resolved without objection and
argument on its part.
The Court of Appeals rendered its Decision
dismissing the Petition on the basis of Metrobank's
failure to obtain the permission of the insolvency court to
extrajudicially foreclose the mortgaged property. The
Court of Appeals declared that a suspension of the
foreclosure proceedings is in order, until an assignee is
elected or appointed by the insolvency court so as to
afford the insolvent debtor proper representation in the
It is the policy of Act No. 1956 to place all the
assets and liabilities of the insolvent debtor completely
within the jurisdiction and control of the insolvency court
without the intervention of any other court in the
insolvent debtor's concerns or in the administration of
the estate. It was considered to be of prime importance
that the insolvency proceedings follow their course as
speedily as possible in order that a discharge, if the
insolvent debtor is entitled to it, should be decreed
without unreasonable delay. Proceedings of this nature
cannot proceed properly or with due dispatch unless
they are controlled absolutely by the court having charge
thereof. Act No. 1956 impliedly requires a secured
creditor to ask the permission of the insolvent court
before said creditor can foreclose the mortgaged
property.
With the declaration of insolvency of the debtor,
insolvency courts obtain full and complete jurisdiction
over all property of the insolvent and of all claims by and
against it. It follows that the insolvency court has
exclusive jurisdiction to deal with the property of the
insolvent. Consequently, after the mortgagor-debtor has
been declared insolvent and the insolvency court has
acquired control of his estate, a mortgagee may not,
without the permission of the insolvency court, institute
proceedings to enforce its lien. In so doing, it would
interfere with the insolvency court's possession and
orderly administration of the insolvent's properties.
The extrajudicial foreclosure and sale of the
mortgaged property of the debtor would clearly
constitute an interference with the insolvency court's
possession of the property.
 SPOUSES SALVADOR ABELLA v. SPOUSES
ROMEO ABELLA
G.R. No. 195166, July 08, 2015
LEONEN, J.
FACTS:
Petitioners Spouses Salvador and Alma
Abella filed a Complaint for sum of money and
damages against respondents Spouses Romeo
and Annie Abella wherein it was alleged that
respondents obtained a loan from them in the
amount of P500K. The loan was evidenced by an
acknowledgment receipt dated March 22, 1999 and
was payable within one (1) year. Petitioners added
that respondents were able to pay a total of
P200K—P100K paid on two separate occasions—
leaving an unpaid balance of P300K.
In their Answer, respondents alleged that
the amount involved did not pertain to a loan but
was part of the capital for a joint venture involving
the lending of money when respondents that they
were approached by petitioners, who proposed that
if respondents were to "undertake the management
of whatever money [petitioners] would give them,
[petitioners] would get 2.5% a month with a 2.5%
service fee to [respondents]." Moreover, they
claimed that the entire amount of P500,000.00 was
disposed of in accordance with their agreed terms
and conditions and that petitioners terminated the
joint venture, prompting them to collect from the
joint venture's borrowers. They were, however, able
to collect only to the extent of P200,000.00; hence,
the P300,000.00 balance remained unpaid.
The RTC ruled in favor of petitioners. On
respondents' appeal, the Court of Appeals ruled
that while respondents had indeed entered into a
simple loan with petitioners, respondents were no
longer liable to pay the outstanding amount of
P300,000.00.
ISSUE1:
What contract was entered into by the
parties?
HELD1:
Respondents entered into a simple loan or
mutuum, rather than a joint venture, with
petitioners.
Respondents' claims, as articulated in their
testimonies before the trial court, cannot prevail
over the clear terms of the document attesting to
the relation of the parties. "If the terms of a contract
are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its
stipulations shall control.”
ISSUE2:
Whether interest accrued on respondents'
loan from petitioner and if in the affirmative, at what
rate?
HELD2:
First issue - Guided by the decision in Nacar
v. Gallery Frames: In the absence of an express
stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or
credits and the rate allowed in judgments shall no
longer be twelve percent (12%) per annum — as
reflected in the case of Eastern Shipping Lines and
Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by
BSP-MB Circular No. 799 — but will now be six
percent (6%) per annum effective July 1, 2013.
It should be noted, nonetheless, that the
new rate could only be applied prospectively and
not retroactively. Consequently, the twelve percent
(12%) per annum legal interest shall apply only until
June 30, 2013. Come July 1, 2013 the new rate of
six percent (6%) per annum shall be the prevailing
rate of interest when applicable.
G.R. No. 191174 Paradigm Development
Corporation of the Philippines vs. Bank of
the Philippine Islands
Facts:
Sengkon Trading (Sengkon), a sole
proprietorship, obtained a loan from Far East Bank
and Trust Company (FEBTC) under a credit facility.
FEBTC again granted Sengkon another credit
facility. Two real estate mortgage (REM) contracts
were executed by PDCP’s President to partially
secure Sengkon’s obligations under this Credit
Line.
Sengkon defaulted in the payment of its
loan obligations. FEBTC demanded payment from
PDCP. Negotiations were put on hold because BPI
acquired FEBTC and assumed the rights and
obligations of the latter.
Upon verification with the Registry of
Deeds, PDCP discovered that FEBTC extra-
judicially foreclosed the first and second mortgage
without notice to it as mortgagor and sold the
mortgaged properties to FEBTC as the lone bidder.
Thereafter, the corresponding Certificate of Sale
was registered. PDCP filed a Complaint for
Annulment of Mortgage, Foreclosure, Certificate of
Sale and Damages. PDCP alleged that FEBTC
assured it that the mortgaged properties will only
secure the Credit Line sub-facility of the Omnibus
Line. With this understanding, PDCP President
allegedly agreed to sign on two separate dates a
pro-forma and blank REM. PDCP, however,
claimed that it had no intent to be bound under the
second REM, which was not intended to be a
separate contract, but only a means to reduce
registration expenses. According to PDCP, when
FEBTC registered both REMs, even if the intent
was only to register one, the validity of both REMs
was vitiated by lack of consent. PDCP claims that
said intent is supported by the fact that the REMs
were constituted merely as “partial security” for
Sengkon’s obligations and therefore there was
really no intent to be bound under both – but only in
one – REM.
The RTC rendered its Decision nullifying the REMs
and the foreclosure proceedings. The CA reversed
the RTC’s ruling.
Issues:
(1) Whether or not the validity of both REMs was
vitiated by lack of consent.
(2) Whether or not the foreclosure proceedings are
valid.
Ruling:
(1) No. To begin with, the registration of the REM
contract is not essential to its validity under Article
2085. In relation thereto, Article 2125 of the Civil
Code reads:
Article 2125. In addition to the requisites stated in
Article 2085, it is indispensable, in order that a
mortgage may be validly constituted, that the
document in which it appears be recorded in the
Registry of Property. If the instrument is not
recorded, the mortgage is nevertheless binding
between the parties.
The codal provision is clear and explicit. Even if the
instrument were not recorded, “the mortgage is
nevertheless binding between the parties.”
Hence, even assuming that the parties indeed
agreed to register only one of the two REMs, the
subsequent registration of both REMs did not affect
an already validly executed REM if there was no
other basis for the declaration of its nullity. That the
REMs were intended merely as “partial security”
does not make PDCP’s argument more plausible
because as aptly observed by the CA, the PDCP’s
act of surrendering all the titles to the properties to
FEBTC clearly establishes PDCP’ s intent to
mortgage all of the four properties in favor of
FEBTC to secure Sengkon’s obligation under the
Credit Line.
PDCP’s Amended Complaint is essentially
premised on the supposed fraud employed on it by
FEBTC consisting of the latter’s assurances that
the REMs it already signed would not be registered.
In Solidbank Corporation v. Mindanao Ferroalloy
Corporation, the Court discussed the nature of
fraud that would annul or avoid a contract, thus:
Fraud refers to all kinds of deception – whether
through insidious machination, manipulation,
concealment or misrepresentation- that would lead
an ordinarily prudent person into error after taking
the circumstances into account. In contracts, a
fraud known as dolo causante or causal fraud is
basically a deception used by one party prior to or
simultaneous with the contract, in order to secure
the consent of the other. Needless to say, the
deceit employed must be serious.
contradistinction, only some particular or accident
of the obligation is referred to by incidental fraud or
dolo incidente, or that which is not serious in
character and without which the other party would
have entered into the contract anyway.
publication of that notice in a newspaper of general
circulation. The exception is when the parties
stipulate that personal notice is additionally
required to be given the mortgagor. Failure to abide
In by the general rule, or its exception, renders the
foreclosure proceedings null and void.

Under Article 1344 of the Civil Code, the fraud must

be serious to annul or avoid a contract and render it
voidable. This fraud or deception must be so
material that had it not been present, the defrauded
party would not have entered into the contract.

In the present case, even if FEBTC represented

that it will not register one of the REMs, PDCP
cannot disown the REMs it executed after FEBTC
reneged on its alleged promise. As earlier stated,
with or without the registration of the REMs, as
between the parties thereto, the same is valid and
PDCP is already bound thereby. The signature of
PDCP’s President coupled with its act of
surrendering the titles to the four properties to
FEBTC is proof that no fraud existed in the
execution of the contract. Arguably at most,
FEBTC’s act of registering the mortgage only
amounted to dolo incidente which is not the kind of
fraud that avoids a contract.

(2) No. FEBTC’s failure to comply with its

contractual obligation to send notice to PDCP of the
foreclosure sale is fatal to the validity of the
foreclosure proceedings. In Metropolitan Bank v.
Wong, the Court ruled that while as a rule, personal
notice to the mortgagor is not required, such notice
may be subject of a contractual stipulation, the
breach of which is sufficient to nullify the
foreclosure sale.

Precisely, the purpose of the foregoing stipulation is

to apprise respondent of any action which petitioner
might take on the subject property, thus according
him the opportunity to safeguard his rights.

Thus, we restate: the general rule is that personal

notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary and posting and
publication will suffice. Sec. 3 of Act 3135
governing extra-judicial foreclosure of [REMs], as
amended by Act 4118, requires only posting of the
notice of sale in three public places and the
G.R. No. 192971 January 10, 2018
FLORO MERCENE, Petitioner
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM,
Respondent
DECISION
MARTIRES, J.:
This petition for review on certiorari seeks to reverse
and set aside the 29 April 2010 Decision1 and 20 July
2010 Resolution2 of the Court of Appeals (CA) in CA-
G.R. CV No. 86615 which reversed the 15 September
2005 Decision3 of the Regional Trial Court, Branch
220, Quezon City (RTC).
THE FACTS
On 19 January 1965, petitioner Floro
Mercene (Mercene) obtained a loan from respondent
Government Service Insurance System (GSIS) in the
amount of ₱29,500.00. As security, a real estate
mortgage was executed over Mercene's property in
Quezon City, registered under Transfer Certificate of
Title No. 90535. The mortgage was registered and
annotated on the title on 24 March 1965.4
On 14 May 1968, Mercene contracted another loan
with GSIS for the amount of ₱14,500.00. The loan
was likewise secured by a real estate mortgage on
the same parcel of land. The following day, the loan
was registered and duly annotated on the title.5
On 11 June 2004, Mercene opted to file a complaint
for Quieting of Title6 against GSIS. He alleged that:
since 1968 until the time the complaint was filed,
GSIS never exercised its rights as a mortgagee; the
real estate mortgage over his property constituted a
cloud on the title; GSIS' right to foreclose had
prescribed. In its answer,7 GSIS assailed that the
complaint failed to state a cause of action and that
prescription does not run against it because it is a
government entity.
During the pre-trial conference, Mercene manifested
that he would file a motion for judgment on the
pleadings. There being no objection, the RTC granted
the motion for judgment on the pleadings.8
The RTC Decision
In its 15 September 2005 decision, the RTC granted
Mercene's complaint and ordered the cancellation of
the mortgages annotated on the title. It ruled that the
real estate mortgages annotated on the title
constituted a cloud thereto, because the annotations
appeared to be valid but was ineffective and
prejudicial to the title. The trial court opined that GSIS'
right as a mortgagee had prescribed because more
than ten (10) years had lapsed from the time the
cause of action had accrued. The R TC stated that
prescription ran against GSIS because it is a juridical
person with a separate personality, and with the
power to sue and be sued. The dispositive portion
reads:
WHEREFORE, premises considered, judgment is
hereby rendered:
1) Declaring the Real Estate Mortgage
dated January 19, 1965, registered on
March 24, 1965 and Real Estate
Mortgage dated May 14, 1965
registered on May 15, 1968, both
annotated at the back of Transfer
Certificate of Title No. 90435 of the
Registry of Deeds of Quezon City,
registered in the name of plaintiff Floro
Mercene married to Felisa Mercene,
to be ineffective.
2) Ordering the Registry of Deeds of
Quezon City to cancel the following
entries annotated on the subject title
1) Entry No. 4148/90535: mortgage to
GSIS and; 2) Entry No. 4815/90535:
mortgage to GSIS.
3) The other claims and counter-
claims are hereby denied for lack of
merit.9
Aggrieved, GSIS appealed before the CA.
The CA Ruling
In its 30 January 2015 decision, the CA reversed the
RTC decision. The appellate court posited that the
trial court erred in declaring that GSIS' right to
foreclose the mortgaged properties had prescribed. It
highlighted that Mercene's complaint neither alleged
the maturity date of the loans, nor the fact that a
demand for payment was made. The CA explained
that prescription commences only upon the accrual of
the cause of action, and that a cause of action in a
written contract accrues only when there is an actual
breach or violation. Thus, the appellate court
surmised that no prescription had set in against GSIS
because it has not made a demand to Mercene. It
ruled:
WHEREFORE, the appeal is GRANTED. The
decision appealed from is REVERSED and SET
ASIDE. The complaint for Quieting of Title is hereby
DISMISSED.10
Mercene moved for reconsideration, but the same
was denied by the CA in its assailed 7 April 2011
resolution.
Hence, this present petition raising the following:
ISSUES
I
WHETHER THE COURT OF APPEALS ERRED IN
CONSIDERING ISSUES NOT RAISED BEFORE
THE TRIAL COURT;
II
WHETHER THE COURT OF APPEALS ERRED IN
DISREGARDING THE JUDICIAL ADMISSION
ALLEGEDLY MADE BY GSIS; AND
III
WHETHER THE COURT OF APPEALS ERRED IN
RULING THAT THE REAL ESTATE MORTGAGES
HAD YET TO PRESCRIBE.
THE COURTS RULING
The petition has no merit.
Related issues addressed by the trial courts
Mercene assails the CA decision for entertaining
issues that were not addressed by the trial court. He
claims that for the first time on appeal, GSIS raised
the issue on whether the loans were still effective in
view of his nonpayment. A reading of the CA decision,
however, reveals that the appellate court did not dwell
on the issue of nonpayment, but instead ruled that
prescription had not commenced because the cause
of action had not yet accrued. Hence, it concluded
that the complaint failed to state a cause of action.
The appellate court did not focus on the question of
payment precisely because it was raised for the first
time on appeal. It is noteworthy that, in its answer,
GSIS raised the affirmative defense that Mercene's
complaint failed to state a cause of action.
Only ultimate facts need be specifically denied
Further, Mercene insists that GSIS had judicially
admitted that its right to foreclose the mortgage had
prescribed. He assails that GSIS failed to specifically
deny the allegations in his complaint, particularly
paragraphs 11.1 and 11.2 which read:
11.1. The right of the defendant GSIS, to institute the
necessary action in court, to enforce its right as a
mortgagee, under Real Estate Mortgages dated
January 19, 1965 and May 14, 1968, respectively, by
filing a complaint for judicial foreclosure of Real
Estate Mortgage, with the Regional Trial Court of
Quezon City, against the plaintiff, as the mortgagor,
pursuant to Rule 68 of the 1997 Rules of Civil
Procedures (Rules, for brevity); or by filing a petition
for extra-judicial foreclosure of real estate mortgage,
under Act. 3135, as amended, with the Sheriff, or with
the Notary Public, of the place where the subject
property is situated, for the purpose of collecting the
loan secured by the said real estate mortgages, or in
lieu thereof, for the purpose of consolidating title to
the parcel of land xxx in the name of the defendant
GSIS, has already prescribed, after ten (10) years
from May 15, 1968. More particularly, since May 15,
1968, up to the present, more than thirty-five (35)
years have already elapsed, without the mortgagee
defendant GSIS, having instituted a mortgage
action[s] against the herein plaintiff-mortgagor.
xxx
11.2. Since the defendant GSIS has not brought any
action to foreclose either the first or the second real
estate mortgage on the subject real property, so as to
collect the loan secured by the said real estate
mortgages, or in lieu thereof, to consolidate title to the
said parcel of land, covered by the documents
entitled, first and second real estate mortgages, in the
name of the defendant GSIS, notwithstanding the
lapse of ten (10) years from the time the cause of
action accrued, either then (10) years after May 15,
1968, or after the alleged violation by the plaintiff of
the terms and conditions of his real estate mortgages,
therefore, the said defendant GSIS, has lost its
aforesaid mortgagee's right, not only by virtue of
Article 1142, N.C.C., but also under Article 476,
N.C.C., which expressly provides that there may also
be an action to quiet title, or remove a cloud
therefrom, when the contract, instrument or other
obligation has been extinguished or has terminated,
or has been barred by extinctive prescription;11
The Court agrees with Mercene that material
averments not specifically denied are deemed
admitted.12 Nonetheless, his conclusion that GSIS
judicially admitted that its right to foreclose had
prescribed is erroneous. It must be remembered that
conclusions of fact and law stated in the complaint are
not deemed admitted by the failure to make a specific
denial.13 This is true considering that only ultimate
facts must be alleged in any pleading and only
material allegation of facts need to be specifically
denied.14
A conclusion of law is a legal inference on a question
of law made as a result of a factual showing where no
further evidence is required.15 The allegation of
prescription in Mercene's complaint is a mere
conclusion of law. In Abad v. Court of First Instance of
Pangasinan, 16 the Court ruled that the
characterization of a contract as void or voidable is a
conclusion of law, to wit:
A pleading should state the ultimate facts essential to
the rights of action or defense asserted, as
distinguished from mere conclusions of fact, or
conclusions of law. General allegations that a contract
is valid or legal, or is just, fair and reasonable, are
mere conclusions of law. Likewise, allegations that a
contract is void, voidable, invalid, illegal, ultra vires, or
against public policy, without stating facts showing its
invalidity, are mere conclusions of law.
In the same vein, labelling-an obligation to have
prescribed without specifying the circumstances
behind it is a mere conclusion of law. As would be
discussed further, the fact that GSIS had not instituted
any action within ten (10) years after the loan had
been contracted is insufficient to hold that prescription
had set in. Thus, even if GSIS' denial would not be
considered as a specific denial, only the fact that
GSIS had not commenced any action, would be
deemed admitted at the most. This is true considering
that the circumstances to establish prescription
against GSIS have not been alleged with particularity.
Commencement of the prescriptive period for real
estate mortgages material in determining cause of
action
In its answer, GSIS raised the affirmative defense,
among others, that the complaint failed to state a
cause of action.1âwphi1 In turn, the CA ruled that
Mercene's complaint did not state a cause of action
because the maturity date of the loans, or the demand
for the satisfaction of the obligation, was never
alleged.
In order for cause of action to arise, the following
elements must be present: (1) a right in favor of the
plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of
the named defendant to respect or not to violate such
right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or
constituting a breach of obligation of the defendant to
the plaintiff.17
In University of Mindanao, Inc. v. Bangko Sentral ng
Pilipinas, et al., 18 the Court clarified that prescription
runs in mortgage contract from the time the cause of
action arose and not from the time of its execution, to
wit:
The prescriptive period neither runs from the date of
the execution of a contract nor does the prescriptive
period necessarily run on the date when the loan
becomes due and demandable. Prescriptive period
runs from the date of demand, subject to certain
exceptions.
In other words, ten (10) years may lapse from the
date of the execution of contract, without barring a
cause of action on the mortgage when there is a gap
between the period of execution of the contract and
the due date or between the due date and the
demand date in cases when demand is necessary.
The mortgage contracts in this case were executed by
Saturnino Petalcorin in 1982. The maturity dates of
FISLAI's loans were repeatedly extended until the
loans became due and demandable only in 1990.
Respondent informed petitioner of its decision to
foreclose its properties and demanded payment in
1999.
The running of the prescriptive period of respondent's
action on the mortgages did not start when it
executed the mortgage contracts with Saturnino
Petalcorin in 1982.1âwphi1
The prescriptive period for filing an action may run
either (1) from 1990 when the loan became due, if the
obligation was covered by the exceptions under
Article 1169 of the Civil Code; (2) or from 1999 when
respondent demanded payment, if the obligation was
not covered by the exceptions under Article 116919 of
the Civil Code. [emphasis supplied]
In Maybank Philippines, Inc. v. Spouses
Tarrosa, 20 the Court explained that the right to
foreclose prescribes after ten (10) years from the time
a demand for payment is made, or when then loan
becomes due and demandable in cases where
demand is unnecessary, viz:
An action to enforce a right arising from a mortgage
should be enforced within ten (10) years from the time
the right of action accrues, i.e., when the mortgagor
defaults in the payment of his obligation to the
mortgagee; otherwise, it will be barred by prescription
and the mortgagee will lose his rights under the
mortgage. However, mere delinquency in payment
does not necessarily mean delay in the legal concept.
To be in default is different from mere delay in the
grammatical sense, because it involves the beginning
of a special condition or status which has its own WHEREFORE, the petition is DENIED. The 29 April
peculiar effects or results. 2010 Decision and 20 July 2010 Resolution of the
Court of Appeals (CA) in CAG. R. CV No. 86615 are
In order that the debtor may be in default, it is AFFIRMED in toto.
necessary that: (a) the obligation be demandable and
already liquidated; (b) the debtor delays performance; SO ORDERED.
and (c) the creditor requires the performance judicially
or extrajudicially, unless demand is not necessary -
i.e., when there is an express stipulation to that effect;
where the law so provides; when the period is the
controlling motive or the principal inducement for the
creation of the obligation; and where demand would
be useless. Moreover, it is not sufficient that the law
or obligation fixes a date for performance; it must
further state expressly that after the period lapses,
default will commence. Thus, it is only when demand
to pay is unnecessary in case of the aforementioned
circumstances, or when required, such demand is
made and subsequently refused that the mortgagor
can be considered in default and the mortgagee
obtains the right to file an action to collect the debt or
foreclose the mortgage.

Thus, applying the pronouncements of the Court

regarding prescription on the right to foreclose
mortgages, the Court finds that the CA did not err in
concluding that Mercene's complaint failed to state a
cause of action. It is undisputed that his complaint
merely stated the dates when the loan was contracted
and when the mortgages were annotated on the title
of the lot used as a security. Conspicuously lacking
were allegations concerning: the maturity date of the
loan contracted and whether demand was necessary
under the terms and conditions of the loan.

As such, the RTC erred in ruling that GSIS' right to

foreclose had prescribed because the allegations in
Mercene's complaint were insufficient to establish
prescription against GSIS. The only information the
trial court had were the dates of the execution of the
loan, and the annotation of the mortgages on the title.
As elucidated in the above-mentioned decisions,
prescription of the right to foreclose mortgages is not
reckoned from the date of execution of the contract.
Rather, prescription commences from the time the
cause of action accrues; in other words, from the time
the obligation becomes due and demandable, or upon
demand by the creditor/mortgagor, as the case may
be.

In addition, there was no judicial admission on the

part of GSIS with regard to prescription because
treating the obligation as prescribed, was merely a
conclusion of law. It would have been different if
Mercene's complaint alleged details necessary to
determine when GSIS' right to foreclose arose, i.e.,
date of maturity and whether demand was necessary.
FLORO MERCENE vs. GOVERNMENT
SERVICE INSURANCE SYSTEM
FACTS:
On 19 January 1965, petitioner Floro
Mercene (Mercene) obtained a loan from respondent
Government Service Insurance System (GSIS) in the
amount of ₱29,500.00. As security, a real estate
mortgage was executed over Mercene's property in
Quezon City, registered under Transfer Certificate of
Title No. 90535. The mortgage was registered and
annotated on the title on 24 March 1965
On 14 May 1968, Mercene contracted another loan
with GSIS for the amount of ₱14,500.00. The loan
was likewise secured by a real estate mortgage on
the same parcel of land. The following day, the loan
was registered and duly annotated on the title.
On 11 June 2004, Mercene opted to file a complaint
for Quieting of Title against GSIS. He alleged that:
since 1968 until the time the complaint was filed,
GSIS never exercised its rights as a mortgagee; the
real estate mortgage over his property constituted a
cloud on the title; GSIS' right to foreclose had
prescribed. In its answer, GSIS assailed that the
complaint failed to state a cause of action and that
prescription does not run against it because it is a
government entity.
During the pre-trial conference, Mercene manifested
that he would file a motion for judgment on the
pleadings. There being no objection, the RTC granted
the motion for judgment on the pleadings.
In its 15 September 2005 decision, the RTC granted
Mercene's complaint and ordered the cancellation of
the mortgages annotated on the title. It ruled that the
real estate mortgages annotated on the title
constituted a cloud thereto, because the annotations
appeared to be valid but was ineffective and
prejudicial to the title. The trial court opined that GSIS'
right as a mortgagee had prescribed because more
than ten (10) years had lapsed from the time the
cause of action had accrued. The R TC stated that
prescription ran against GSIS because it is a juridical
person with a separate personality, and with the
power to sue and be sued.
In its 30 January 2015 decision, the CA reversed the
RTC decision. The appellate court posited that the
trial court erred in declaring that GSIS' right to
foreclose the mortgaged properties had prescribed. It
highlighted that Mercene's complaint neither alleged
the maturity date of the loans, nor the fact that a
demand for payment was made. The CA explained
that prescription commences only upon the accrual of
the cause of action, and that a cause of action in a
written contract accrues only when there is an actual
breach or violation. Thus, the appellate court
surmised that no prescription had set in against GSIS
because it has not made a demand to Mercene.
Mercene moved for reconsideration, but the same
was denied by the CA in its assailed 7 April 2011
resolution.
ISSUE:
Whether or not the CA erred in ruling that the real
estate mortgages had yet to prescribe.
HELD:
(3) NO.
In University of Mindanao, Inc. v. Bangko Sentral ng
Pilipinas, et al., the Court clarified that prescription
runs in mortgage contract from the time the cause of
action arose and not from the time of its execution.
In Maybank Philippines, Inc. v. Spouses
Tarrosa, 20 the Court explained that the right to
foreclose prescribes after ten (10) years from the time
a demand for payment is made, or when then loan
becomes due and demandable in cases where
demand is unnecessary.
Thus, applying the pronouncements of the Court
regarding prescription on the right to foreclose
mortgages, the Court finds that the CA did not err in
concluding that Mercene's complaint failed to state a
cause of action. It is undisputed that his complaint
merely stated the dates when the loan was contracted
and when the mortgages were annotated on the title
of the lot used as a security. Conspicuously lacking
were allegations concerning: the maturity date of the
loan contracted and whether demand was necessary
under the terms and conditions of the loan.
As such, the RTC erred in ruling that GSIS' right to
foreclose had prescribed because the allegations in
Mercene's complaint were insufficient to establish
prescription against GSIS. The only information the
trial court had were the dates of the execution of the
loan, and the annotation of the mortgages on the title.
As elucidated in the above-mentioned decisions,
prescription of the right to foreclose mortgages is not
reckoned from the date of execution of the contract.
Rather, prescription commences from the time the
cause of action accrues; in other words, from the time
the obligation becomes due and demandable, or upon
demand by the creditor/mortgagor, as the case may
be.
In addition, there was no judicial admission on the
part of GSIS with regard to prescription because
treating the obligation as prescribed, was merely a
conclusion of law. It would have been different if
Mercene's complaint alleged details necessary to
determine when GSIS' right to foreclose arose, i.e.,
date of maturity and whether demand was necessary.