Beruflich Dokumente
Kultur Dokumente
SYLLABUS
DECISION
VITUG , J : p
Would it be valid and effective to have a clause in a chattel mortgage that purports
to likewise extend its coverage to obligations yet to be contracted or incurred? This
question is the core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme
Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of the
company, a chattel mortgage in favor of private respondent Producers Bank of the
Philippines. The mortgage stood by way of security for petitioner's corporate loan of three
million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to this
effect —
"(c) If the MORTGAGOR, his heirs, executors or administrators shall
well and truly perform the full obligation or obligations above-stated according to
the terms thereof, then this mortgage shall be null and void. . . .
"In case the MORTGAGOR executes subsequent promissory note or notes
either as a renewal of the former note, as an extension thereof, or as a new loan,
or is given any other kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments on Trust
Receipts, etc., this mortgage shall also stand as security for the payment of the
said promissory note or notes and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations were existing on
the date thereof. This mortgage shall also stand as security for said obligations
and any and all other obligations of the MORTGAGOR to the MORTGAGEE of
whatever kind and nature, whether such obligations have been contracted before,
during or after the constitution of this mortgage." 1
makes it obvious that the debt referred to in the law is a current, not an obligation that
is yet merely contemplated. In the chattel mortgage here involved, the only obligation
speci ed in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the
payment of the obligation automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al. , 14
the Court said—
". . . A mortgage that contains a stipulation in regard to future advances in
the credit will take effect only from the date the same are made and not from the
date of the mortgage." 1 5
The signi cance of the ruling to the instant problem would be that since the 1978
chattel mortgage had ceased to exist coincidentally with the full payment of the
P3,000,000.00 loan, 1 6 there no longer was any chattel mortgage that could cover the new
loans that were concluded thereafter.
We nd no merit in petitioner corporation's other prayer that the case should be
remanded to the trial court for a speci c nding on the amount of damages it has
sustained "as a result of the unlawful action taken by respondent bank against it." 1 7
This prayer is not re ected in its complaint which has merely asked for the amount of
P3,000,000.00 by way of moral damages. 1 8 In LBC Express, Inc. vs. Court of Appeals,
1 9 we have said:
While Chua Pac is included in the case, the complaint, however, clearly states that he
has merely been so named as a party in representation of petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his
client's cause. It instead turned out to be, however, a source of disappointment for this
Court to read in petitioner's reply to private respondent's comment on the petition his so-
called "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the trial court,
respondent Court of Appeals should be required to justify its decision which
completely disregarded the basic laws on obligations and contracts, as well as
the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of
this Honorable Court; that in the event that its explanation is wholly unacceptable,
this Honorable Court should impose appropriate sanctions on the erring justices.
This is one positive step in ridding our courts of law of incompetent and
dishonest magistrates especially members of a superior court of appellate
jurisdiction." 2 1 (Emphasis supplied.)
The statement is not called for. The Court invites counsel's attention to the
admonition in Guerrero vs. Villamor; 2 2 thus:
"(L)awyers . . . should bear in mind their basic duty 'to observe and
maintain the respect due to the courts of justice and judicial o cers and . . . (to)
insist on similar conduct by others.' This respectful attitude towards the court is
to be observed, 'not for the sake of the temporary incumbent of the judicial o ce,
but for the maintenance of its supreme importance.' And it is 'through a
scrupulous preference for respectful language that a lawyer best demonstrates
his observance of the respect due to the courts and judicial officers . . ..'" 2 3
The virtues of humility and of respect and concern for others must still live on even
in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court
are set aside without prejudice to the appropriate legal recourse by private respondent as
may still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in
dealing with the courts.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ ., concur.
Padilla, J ., took no part.
Bellosillo, J ., is on leave.
Footnotes
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1. Rollo, p. 45.
2. Ibid., p. 34.
3. Ibid.
4. Associate Justice Consuelo Ynares Santiago, ponente, with Associate Justices Ricardo
L. Pronove, Jr. and Nicolas P. Lapeña, Jr., concurring.
5. In the Court's resolution, dated 27 May 1992, Rollo, p. 91.
6. Sec. 5 (2)(d), Art. VIII, 1987 Constitution.
7. See Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and 2140, Civil Code.
8. See Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA 515.
9. See Sec. 3, Act 1508.
10. See Mojica vs. Court of Appeals, 201 SCRA 517; Lim Julian vs. Lutero, 49 Phil. 703.
11. Act No. 1508.
12. See Philippine Refining Co. vs. Jarque, 61 Phil. 229.
13. Civil Code, Vol. 3, 1990 Edition by Ramon C. Aquino and Carolina C. Griño-Aquino, pp.
610-611.
SYLLABUS
3. ID.; ID.; ID.; ID.; CASE AT BAR. — In their rst cause of action private
respondents Eduardo and Teresita Domdoma alleged that petitioner Olivia Navoa obtained
from the latter a ring valued at P15,000.00 and issued as security therefor a check for the
same amount dated 15 August 1977 with the condition that if the ring was not returned
within fifteen (15) days the ring would be considered sold. The ring was considered sold to
the petitioner Olivia Navoa 15 days from 15 August 1977 and despite the sale the latter
failed to pay the price therefor even as she was given ample time to pay the agreed
amount covered by a check. Clearly, respondent Teresita Domdoma's right under the
agreement with petitioner Olivia Navoa was violated by the latter. In the second to the sixth
causes of action it was alleged that private respondents granted loans to petitioners in
different amounts on different dates. All these loans were secured by separate checks
intended for each amount of loan obtained and dated one month after the contracts of
loan were executed. That when these checks were deposited on their due dates they were
all dishonored by the bank. As a consequence, private respondents prayed that petitioners
be ordered to pay the amounts of the loans granted to them plus one percent interest
monthly from the dates the checks were dishonored until fully paid. Petitioners failed to
make good the checks on their due dates for the payment of their obligations. Hence,
private respondents led the action with the trial court precisely to compel petitioners to
pay their due and demandable obligations. Art. 1169 of the Civil Code is explicit — those
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obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the ful llment of their obligation. The continuing refusal
of petitioners to heed the demand of private respondents stated in their complaint
unmistakably shows the existence of a cause of action on the part of the latter against the
former. Quite obviously, the trial court erred in dismissing the case on the ground of lack of
cause of action. Respondent Court of Appeals therefore is correct in remanding the case
to the trial court for the filing of an answer by petitioners and to try the case on the merits.
4. ID.; ID.; MOTION TO DISMISS; LACK OF CAUSE OF ACTION; EXISTENCE MAY
BE DETERMINED ONLY BY THE ALLEGATIONS IN THE COMPLAINT. — In determining the
existence of a cause of action, only the statements in the complaint may properly be
considered. Lack of cause of action must appear on the face of the complaint and its
existence may be determined only by the allegations of the complaint, consideration of
other facts being proscribed and any attempt to prove extraneous circumstances not
being allowed. From the allegations in the complaint there is no other fair inference than
that the loans were payable one month after they were contracted and the checks issued
by petitioners were drawn to answer for their debts to private respondents. HCITcA
5. ID.; ID.; ID.; ID.; DEFENDANT DEEMED TO HAVE ADMITTED ALL THE
AVERMENTS IN THE COMPLAINT. — If a defendant moves to dismiss the complaint on the
ground of lack of cause of action, such as what petitioners did in the case at bar, he is
regarded as having hypothetically admitted all the averments thereof. The test of
su ciency of the facts found in a complaint as constituting a cause of action is whether or
not admitting the facts alleged the court can render a valid judgment upon the same in
accordance with the prayers thereof. The hypothetical admission extends to the relevant
and material facts well pleaded in the complaint and inferences fairly deducible therefrom.
Hence, if the allegations in a complaint furnish su cient basis by which the complaint can
be maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendants.
6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SECURITY, DEFINED. — The
term security is de ned as a means of ensuring the enforcement of an obligation or of
protecting some interest in property. It may be personal, as when an individual becomes a
surety or a guarantor; or a property security, as when a mortgage, pledge, charge, lien, or
other device is used to have property held, out of which the person to be made secure can
be compensated for loss. Security is something to answer for as a promissory note. That
is why a secured creditor is one who holds a security from his debtor for payment of a
debt. DHACES
DECISION
BELLOSILLO , J : p
Petitioners Olivia M. Navoa and Ernesto Navoa seek reversal of the decision of the
Court of Appeals 1 which "modi ed" the order of the trial court dismissing the complaint
for lack of cause of action. The appellate court remanded the case to the court a quo for
private respondents to file their responsive pleading and for trial on the merits.
On 17 December 1977 private respondents led with the Regional Trial Court of
Manila an action against petitioners for collection of various sums of money based on
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loans obtained by the latter. On 3 January 1978 petitioners led a motion to dismiss the
complaint on the ground that the complaint stated no cause of action and that plaintiffs
had no capacity to sue.
After private respondents submitted their opposition to the motion to dismiss on 9
January 1978 the trial court dismissed the case. A motion to reconsider the dismissal was
denied.
On 27 March 1978 private respondents appealed to the Court of Appeals which on
11 December 1980 modi ed the order of dismissal "by returning the records of this case
for trial on the merits, upon ling of an answer subject to the provisions of Articles 1182
and 1197 of the Civil Code for the rst cause of action. The other causes of action should
be tried on the merits subject to the defenses the defendants may allege in their answer."
The instant petition alleges that respondent court erred: (a) in not dismissing the
appeal for lack of appellate jurisdiction over the case which involves merely a question of
law; (b) in not a rming the order of dismissal for lack of cause of action; and, (c) in
holding that private respondents have a cause of action under the second to the sixth
causes of action of the complaint. 2
We cannot sustain the petition. Petitioners are now estopped from assailing the
appellate jurisdiction of the Court of Appeals after receiving an adverse judgment
therefrom. 3 Having participated actively in the proceedings before the appellate court,
petitioners can no longer question its authority.
Petitioners submit that private respondents failed to specify in their complaint a
xed period within which petitioners should pay their obligations; that instead of stating
that petitioners failed to discharge their obligations upon maturity private respondents
sought to collect on the checks which were issued to them merely as security for the
loans; and, that private respondents failed to make a formal demand on petitioners to
satisfy their obligations before filing the action.
For a proper determination of whether the complaint led by private respondents
su ciently stated a cause of action, we shall examine the relevant allegations in the
complaint, to wit:
Allegations Common To All Causes of Actions
xxx xxx xxx
3. That sometime in . . . February, 1977, when the Reycard Duet was in
Manila, plaintiff Teresita got acquainted with defendant Olivia in the jewelry
business, the former selling the jewelries of the latter; that to the Reycard Duet
alone, plaintiff Teresita sold jewelries worth no less than ONE HUNDRED TWENTY
THOUSAND (P120,000.00) PESOS in no less than twenty (20) transactions; that
even when the Reycards have already left, their association continued, and up to
the month of August, 1977, plaintiff Teresita sold for defendant Olivia jewelries
worth no less than TWENTY THOUSAND (P20,000.00) PESOS, in ten (10)
transactions more or less;
xxx xxx xxx
10. That this check, Annex "B", when deposited was dishonored; that
for the reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest at the rate of one percent (1%) per month, from
the date of issue until fully paid;
Third Cause of Action
11. That on August 27, 1977, plaintiff extended to defendant Olivia a
loan in the amount of FIVE THOUSAND PESOS (P5,000.00), secured by a
Philippine Commercial & Industrial Bank check, PCIBANK Singalong Branch, No.
14308, dated Sept. 27, 1977, photo copy of which is hereto attached and made a
part hereof as Annex "C";
12. That this loan was extended on the same representation made by
defendant Olivia, stated in par. "9", under the terms and conditions stated in par.
"5" hereof;
13. That the check Annex "C", has not as yet been paid up to now,
hence, defendant Olivia should be held liable for interest at the rate of one percent
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(1%) monthly, from date of issue, until fully paid;
Fourth Cause of Action
14. That on August 30, 1977, plaintiff Teresita, extended a loan in
favor of defendant Olivia, in the amount of Five Thousand (P5,000.00) Pesos,
secured by a Philippine Commercial and Industrial Bank Check, PCIBANK
Singalong Branch, No. 14311, dated Sept. 30, 1977, photo copy of which is hereto
attached and made a part hereof as Annex "D";
15. That this loan was extended on the same representation made by
defendant Olivia, as stated in par. "9" hereof, under the terms and conditions
stated in par. "5" hereof;
16. That this check, Annex "D" has not as yet been paid up to now,
hence, she should be held liable for interest thereon at the rate of one percent (1%)
per month, from date of issue, until fully paid;
Fifth Cause of Action
17. That on Sept. 15, 1977, plaintiff Teresita extended a loan in favor
of defendant Olivia, in the amount of TEN THOUSAND (P10,000.00) PESOS,
secured by a Philippine Commercial & Industrial Bank check, PCIBANK Singalong
Branch, No. 14320, dated October 15, 1977, photo copy of which is hereto
attached and made a part hereof as Annex "E";
18. That this loan was given on the same representation made by
defendant Olivia, stated on par. "9" hereof, and under the terms and conditions
stated in par. "5" hereof;
19. That this check Annex "E" when deposited was dishonored; that for
the reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest at the rate of one percent (1%) monthly, from
date of issue, until fully paid;
21. That this loan was given on the same representation made by
defendant Olivia, stated in par. "9" hereof, and under the terms and conditions
stated in par. "5" hereof;
22. That this check, Annex F, when deposited was dishonored; that for
the reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest thereon, at the rate of one percent (1%) monthly,
from date of issue, until fully paid;
On the basis of the allegations under the heading Allegations Common to all Causes
of Action above stated as well as those found under the First Cause of Action to the Ninth
Cause of Action, should the complaint be dismissed for want of cause of action?
A cause of action is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. The requisites for a cause of action are: (a) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is created, (b)
an obligation on the part of the defendant to respect and not to violate such right; and, (c)
an act or omission on the part of the defendant constituting a violation of the plaintiff's
right or breach of the obligation of the defendant to the plaintiff. 4 Brie y stated, it is the
reason why the litigation has come about; it is the act or omission of defendant resulting in
the violation of someone's right. 5
In determining the existence of a cause of action, only the statements in the
complaint may properly be considered. Lack of cause of action must appear on the face of
the complaint and its existence may be determined only by the allegations of the
complaint, consideration of other facts being proscribed and any attempt to prove
extraneous circumstances not being allowed.
If a defendant moves to dismiss the complaint on the ground of lack of cause of
action, such as what petitioners did in the case at bar, he is regarded as having
hypothetically admitted all the averments thereof. The test of su ciency of the facts
found in a complaint as constituting a cause of action is whether or not admitting the facts
alleged the court can render a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and material facts well
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pleaded in the complaint and inferences fairly deducible therefrom. Hence, if the
allegations in a complaint furnish su cient basis by which the complaint can be
maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendants. 6
In their rst cause of action private respondents Eduardo and Teresita Domdoma
alleged that petitioner Olivia Navoa obtained from the latter a ring valued at P15,000.00
and issued as security therefor a check for the same amount dated 15 August 1977 with
the condition that if the ring was not returned within fteen (15) days the ring would be
considered sold; and, after the lapse of the period, private respondent Teresita Domdoma
asked to deposit the check but petitioner Olivia Navoa requested the former not to deposit
it in the meantime; that when Teresita Domdoma deposited the check after holding it for
sometime the same was dishonored for lack of funds. Private respondent Teresita
Domdoma sought to collect the amount of P15,000.00 plus interest from 15 August 1977
until fully paid.
From these facts the ring was considered sold to petitioner Olivia Navoa 15 days
from 15 August 1977 and despite the sale the latter failed to pay the price therefor even as
the former was given ample time to pay the agreed amount covered by a check. Clearly,
respondent Teresita Domdoma's right under the agreement with petitioner Olivia Navoa
was violated by the latter.
In the second to the sixth causes of action it was alleged that private respondents
granted loans to petitioners in different amounts on different dates. All these loans were
secured by separate checks intended for each amount of loan obtained and dated one
month after the contracts of loan were executed. That when these checks were deposited
on their due dates they were all dishonored by the bank. As a consequence, private
respondents prayed that petitioners be ordered to pay the amounts of the loans granted
to them plus one percent interest monthly from the dates the checks were dishonored
until fully paid.
Culled from the above, the right of private respondents to recover the amounts
loaned to petitioners is clear. Moreover, the corresponding duty of petitioners to pay
private respondents is undisputed. The question now is whether petitioners committed an
act or omission constituting a violation of the right of private respondents.
All the loans granted to petitioners are secured by corresponding checks dated a
month after each loan was obtained. In this regard, the term security is de ned as a means
of ensuring the enforcement of an obligation or of protecting some interest in property. It
may be personal, as when an individual becomes a surety or a guarantor; or a property
security, as when a mortgage, pledge, charge, lien, or other device is used to have property
held, out of which the person to be made secure can be compensated for loss. 7 Security
is something to answer for as a promissory note. 8 That is why a secured creditor is one
who holds a security from his debtor for payment of a debt. 9 From the allegations in the
complaint there is no other fair inference than that the loans were payable one month after
they were contracted and the checks issued by petitioners were drawn to answer for their
debts to private respondents.
Petitioners failed to make good the checks on their due dates for the payment of
their obligations. Hence, private respondents led the action with the trial court precisely
to compel petitioners to pay their due and demandable obligations. Art. 1169 of the Civil
Code is explicit — those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the ful llment of their
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obligation. The continuing refusal of petitioners to heed the demand of private
respondents stated in their complaint unmistakably shows the existence of a cause of
action on the part of the latter against the former.
Quite obviously, the trial court erred in dismissing the case on the ground of lack of
cause of action. Respondent Court of Appeals therefore is correct in remanding the case
to the trial court for the filing of an answer by petitioners and to try the case on the merits.
WHEREFORE, the petition is DENIED. The judgment of the Court of Appeals dated 11
December 1980 remanding the case to the trial court for the ling of petitioners' answer
and thereafter for trial on the merits is AFFIRMED. Costs against petitioners.
SO ORDERED
Padilla, Davide, Jr., Kapunan and Hermosisima, JJ., concur.
Footnotes
1. Penned by Associate Justice Jorge R. Coquia, concurred in by Associate Justices
Samuel F. Reyes and Mariano A. Zosa.
2. Rollo, pp. 10-13.
3. Summit Guaranty and Insurance Company, Inc. v. Court of Appeals, G.R. No. 51539, 14
December 1981, 110 SCRA 241.
4. Rava Development Corporation v. Court of Appeals, G.R. No. 96825, 3 July 1992, 211
SCRA 114.
5. Paras, Edgar L., Rules of Court Annotated, 1989 Ed., Vol. I, p. 44.
6. See Note 4.
7. Sibal, Jose Agaton R., Philippine Legal Encyclopedia, 1986 Ed., p. 928.
8. Moreno, Federico B., Philippine Law Dictionary , 1988 Ed., p. 868.
9. See Note 8.
SYLLABUS
DECISION
MALCOLM , J : p
By telegrams and a letter of con rmation to the manager of the Aparri branch of
the Philippine National Bank, Venancio Conception, President of the Philippine National
Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in
favor of "Puno y Conception, S. en C." in the amount of P300,000. This special
authorization was essential in view of the memorandum order of President Conception
dated May 17, 1918, limiting the discretional power of the local manager at Aparri,
Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain
cases, could be increased to P10,000. Pursuant to this authorization, credit
aggregating P300,000, was granted the rm of "Puno y Conception, S. en C.," the only
security required consisting of six demand notes. The notes, together with the interest,
were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000.
Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S.
Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con.
Gral. Venancio Concepcion," P50,000. Member Miguel S. Conception was the
administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine
National Bank and as member of the board of directors of this bank, was charged in the
Court of First Instance of Cagayan with a violation of section 35 of Act No. 2747. He
was found guilty by the Honorable Enrique V Filamor, Judge of First Instance, and was
sentenced to imprisonment for one year and six months, to pay a ne of P3,000, with
subsidiary imprisonment in case of insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to
which reference must hereafter repeatedly be made, reads as follows: "The National
Bank shall not, directly or indirectly, grant loans to any of the members of the board of
directors of the bank nor to agents of the branch banks." Section 49 of the same Act
provides: "Any person who shall violate any of the provisions of this Act shall be
punished by a ne not to exceed ten thousand pesos, or by imprisonment not to exceed
ve years, or by both such ne and imprisonment." These two sections were in effect in
1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the trial
court. These errors they have argued adroitly and exhaustively in their printed brief, and
again in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and
comprehensive brief, answers the propositions of appellant one by one.
The questions presented are reduced to their simplest elements in the opinion
which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C." by Venacio Concepcion, President of the Philippine National Bank,
a "loan" within the meaning of section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that the authority to
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make a loan was given, but only show the concession of a credit. In this statement of
fact, counsel is correct, for the exhibits in question speak of a "credito" (credit) and not
of a "prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the
con dence or trust reposed by a lender that he will pay what he may promise. (Donnell
vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by
one party and the receipt by the other party of a given sum of money, upon an
agreement, express or implied, to repay the sum of money, upon an agreement, express
or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864],
29 N.Y., 146, 167.) The concession of a "credit" necessarily involves the granting of
"loans" up to the limit of the amount fixed in the "credit."
II. Was the granting of a credit of P300,000 to the copartnership "Puno y
Conception, S. en C.," by Venancio Conception, President of the Philippine National
Bank, a "loan" or a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National
Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended
to apply to discounts as well as to loans. The ruling of the Acting Insular Auditor, dated
August 11, 1916, was to placed no restriction upon discount transactions. It be
becomes material, therefore, to discover the distinction between a "loan" and a
"discount," and to ascertain if the instant transaction comes under the rst or the latter
denomination.
Discounts are favored by bankers because of their liquid nature, growing, as they
do, out of an actual, live transaction. But in its last analysis, to discount a paper is only a
mode of loaning money, with, however, these distinctions: (1) In a discount, interest is
deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a
discount is always on double-name paper; a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers
loans and not discounts, yet the conclusion is inevitable that the demand notes signed
by the rm "Puno y Concepcion, S. en C." were not discount paper but were mere
evidences of indebtedness, because (1) interest was not deducted from the face of the
notes, but was paid when the notes fell due; and (2) they were single-name and not
double-name paper.
The facts of the instant case having relation to this phase of the argument are
not essentially different from the facts in the Binalbagan Estate case. Just as there it
was declared that the operations constituted a loan and not a discount, so should we
here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y
Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National
Bank, an "indirect loan" within the meaning of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was
not an "indirect loan." In this connection, it should be recalled that the wife of the
defendant held one-half of the capital of this partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain
and give effect to the intention of the Legislature. In this instance, the purpose of the
Legislature is plainly to erect a wall of safety against temptation for a director of the
bank. The prohibition against indirect loans is a recognition of the familiar maxim that
no man may serve two masters — that where personal interest clashes with delity to
duty the latter almost always suffers. If, therefore, it is shown that the husband is
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nancially interested in the success or failure of his wife's business venture, a loan to a
partnership of which the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil Code serve to establish the familiar relationship
called a conjugal partnership. (Articles 1315, 1393, 1401, 1408, and 1412 can be
specially noted.) A loan, therefore, to a partnership of which the wife of a director of a
bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence
is shown by the acknowledged fact that in this instance the defendant was tempted to
mingle his personal and family affairs with his o cial duties, and to permit the loan of
P300,000 to a partnership of no established reputation and without asking for
collateral security.
In the case of Lester and Wife vs. Howard bank ([1870], 33 Md., 558; 3 Am. Rep.,
211), the Supreme Court of Maryland said:
"What then was the purpose of the law when it declared that no director or
o cer should borrow of the bank, and "if any director,' etc., 'shall be convicted,'
etc., 'of directly or indirectly violating this section he shall be punished by ne
imprisonment?" We say to protect the stockholders, depositors and creditors of
the bank, against the temptation to which the directors and o cers might be
exposed, and the power which as such they must necessarily possess in the
control and management of the bank, and the legislature unwilling to rely upon
the implied understanding that in assuming this relation they would not acquire
any interest hostile or adverse to the most exact and faithful discharge of duty,
declared in express terms that they should not borrow, etc., of the bank."
In the case of People vs. Knapp ([1912], 206 N.Y., 373), relied upon in the
Binalbagan Estate decision, it was said:
"We are of opinion the statute forbade the loan to his copartnership firm as
well as to himself directly. The loan was made indirectly to him through his firm."
IV. Could Venancio Concepcion, President of the Philippine National Bank, be
convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of the
same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to
the filing of the information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747,
in relation to section 35 of the same Act, provides a punishment for any person who
shall violate any of the provisions of the Act. It is contended, however, by the appellant,
that the repeal of these sections of Act No. 2747 by Act No. 2747 by Act No. 2938 has
served to take away the basis for criminal prosecution.
This same question has been previously submitted and has received an answer
adverse to such contention in the cases of United States vs. Cuna ([1908], 12 Phil.,
241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong
Fok vs. United States ([1910], 218 U.S., 272; 40 Phil., 1046). In other words, it has been
the holding, and it must again be the holding, that where an Act of the Legislature which
penalizes an offense, such repeal does not have the effect of thereafter depriving the
courts of jurisdiction to try, convict, and sentence offenders charged with violations of
the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C." by Venancio Concepcion, President of the Philippine national
Bank, in violation of section 35 of Act No. 2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747
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is on the bank, and since section 49 of said Act provides a punishment not on the bank
when it violates any provision of the law, but on a person violating any provision of the
law, but on a person violating any provision of the same, and imposing imprisonment as
part of the penalty, the prohibition, contained in said 35 is without penal sanction.
The answer is that when the corporation itself is forbidden to do an act, the
prohibition extends to the board of directors, and to each director separately and
individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the
Philippine National Bank, in extending the credit of P300,000 to the copartnership
"Puno y Concepcion, S. en C." constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was convicted, it
was because he was misled by rulings coming from the Insular Auditor. It is
furthermore stated that since the loans made to the copartnership "Puno y Concepcion,
S. en C." have been paid, no loss has been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute
which the defendant has violated, criminal intent is not necessarily material. The doing
of the inhabited act, inhibited on account of public policy and public interest,
constitutes the crime. And, in this instance, as previously demonstrated, the acts of the
President of the Philippine National Bank do not fall within the purview of the rulings
have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
"It is fraud for directors to secure by means of their trust, any advantage
not common to the other stockholders. The law will not allow private profit from a
trust, and will not listen to any proof of honest intent."
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial
court, and the errors assigned by the appellant, and with reference to previous
decisions of this court on the same subject, we are irresistibly led to the conclusion
that no reversible error was committed in the trial of this case, and that the defendant
has been proved guilty beyond a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge falls within the limits of the punitive
provisions of the law.
Judgment is a rmed, with the costs of this instance against the appellant. So
ordered.
Araullo, C.J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez,
JJ., concur.
SYLLABUS
1. WORDS AND PHRASES; "CREDIT". — The term "credit" in its usual meaning
is a sum credited on the books of a company to a person who appears to be entitled to
it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by
reason of property or estates to make a promised payment (In Re Ford, 14 F. 2nd 848,
849). It is the correlative debt or indebtedness, and that which is due to any person as
distinguished from that which he asks.
2. ID.; "A DEMAND DRAFT". — A demand draft is a bill of exchange payable on
demand (Arnd vs. Aylesworth, 145 Iowa 185; Ward vs. City Trust Company, 102 N.Y.S.
50; Bank of Republic vs. Republic State Bank, 42 S.W. 2nd, 27). Considered as a bill of
exchange, a draft is said to be, like the former, an open letter of request from, and an
order by, one person on another to pay a sum of money therein mentioned to a third
person, on demand or at a future time therein speci ed (13 Words and Phrases, 371.)
As a matter of fact, the term "draft" is often used, and is the common term, for all bills
of exchange. And the words "draft" and "bill of exchange" are used indiscriminately
(Ennis vs. Coshoctan National Bank, 108 S. R., 811; Hinneman vs. Rosenback, 39 N.C.
98: 100, 101; Wilson vs. Buchenau, 43 Supp. 272, 275.
3. ID.; "A BILL OF EXCHANGE" — A bill of exchange within the meaning of our
Negotiable Instrument Law (Act No. 2031) does not operate as an assignment of funds
in the hands of the drawee who is not liable in the instrument until he accepts it.
4. NEGOTIABLE INSTRUMENT; BILL OF EXCHANGE; PRESENTMENT
ESSENTIAL. — With regard to drafts of bills of exchange there is need that they be
presented either for acceptance or for payment within a reasonable time after their
issuance or after their last negotiation thereof as the case may be (section 71 Act
2031). Failure to make such presentment will discharge the drawer from liability or to
the extent of the loss caused by the delay (section 186, Act 2031).
5 WORDS AND PHRASES; "CASHIER'S OR MANAGER'S CHECK". — A bank
which issued it and constitutes its written promise to pay upon demand.
6. ID.; TELEGRAPHIC PAYMENT ORDER, NATURE OF. — Being a transaction
for the establishment of a telegraphic or cable transfer the agreement to remit creates
a contractual obligation and has been termed a purchase and sale transactions (9 CJS.
368). The purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned though insofar as the remitting bank is
concerned the contract is executory until the credit is established.
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DECISION
BAUTISTA ANGELO , J : p
The Republic of the Philippines led on September 25, 1957 before the Court of
First Instance of Manila a complaint for escheat of certain unclaimed bank deposits
balances under the provisions of Act No. 3936 against several banks, among them the
First National City Bank of New York. It is alleged that pursuant to Section 2 of said Act
defendant banks forwarded to the Treasurer of the Philippines a statement under oath
of their respective managing o cials of all the credits and deposits held by them in
favor of persons known to be dead or who have not made further deposits or
withdrawals during the period of 10 years or more. Wherefore, it is prayed that said
credits and deposits be escheated to the Republic of the Philippines by ordering
defendant banks to deposit them to its credit with the Treasurer of the Philippines.
In its answer the First National City Bank of New York claims that, while it admits
that various savings deposits, pre-war inactive accounts, and sundry accounts
contained in its report submitted to the Treasurer of the Philippines pursuant to Act No.
3936, totalling more than P100,000.00, which remained dormant for 10 years or more,
are subject to escheat, however it has inadvertently included in said report certain items
amounting to P18,589.89 which, properly speaking, are not credits or deposits within
the contemplation of Act No. 3936. Hence, it prayed that said items be not included in
the claim of plaintiff.
After hearing the court a quo rendered judgment holding that cashier's or
manager's checks and demand drafts as those which defendant wants excluded from
the complaint come within the purview of Act No. 3936, but not the telegraphic transfer
payment orders which are of different category. Consequently, the complaint was
dismissed with regard to the latter. But, after a motion to reconsider was led by
defendant, the court a quo changed its view and held that even said demand drafts do
not come within the purview of said Act and so amended its decision accordingly.
Plaintiff has appealed.
Section 1, Act No. 3936, provides:
"SECTION 1. 'Unclaimed balances' within the meaning of this Act
shall include credits or deposits of money, bullion, security or other evidence
of indebtedness of any kind, and interest thereon with banks, as hereinafter
de ned, in favor of any person unheard from for a period of ten years or
more. Such unclaimed balances, together with the increase and proceeds
thereof, shall be deposited with the Insular Treasurer to the credit of the
Government of the Philippine Islands to be used as the Philippine
Legislature may direct."
It would appear that the terms "unclaimed balances" that are subject to escheat
include credits or deposits of money, or other evidence of indebtedness of any kind,
with banks, in favor of any person unheard from for a period of 10 years or more. And
as correctly stated by the trial court, the term "credit" in its usual meaning is a sum
credited on the books of a company to a person who appears to be entitled to it. It
presupposes a creditor-debtor relationship, and may be said to imply ability, by reason
of property or estates, to make a promised payment (In Re Ford, 14 F. 2d 848, 849). It
is the correlative to debt or indebtedness, and that which is due to any person, as
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distinguished from that which he owes (Mountain Motor Car Co. vs. Solof, 124 S.E.,
824, 825; Eric vs. Walsh, 61 Atl. 2d 1, 4, See also Libby vs. Hopkins, 104 U.S. 303, 309;
Prudential Insurance Co. of America vs. Nelson, 101 F. 2d, 441, 443; Barnes vs. Treat, 7
Mass. 271, 274). The same is true with the term "deposits" in banks where the
relationship created between the depositor and the bank is that of creditor and debtor
(Article 1980, Civil Code; Gullas vs. National Bank, 62 Phil. 519; Gopoco Grocery, et al.
vs. Pacific Coast Biscuit Co., et al., 65 Phil. 443).
The question that now arise are: Do demand drafts and telegraphic orders come
within the meaning of the term "credits" or "deposits" employed in the law? Can their
import be considered as a sum credited on the books of the bank to a person who
appears to be entitled to it? Do they create a creditor-debtor relationship between the
drawee and the payee?
The answer to these questions require a digression on the legal meaning of said
banking terminologies.
To begin with, we may say that a demand draft is a bill of exchange payable on
demand (Arnd vs. Aylesworth, 145 Iowa 185; Ward vs. City Trust Company, 102 N.Y.S.
50; Bank of Republic vs. Republic State Bank, 42 S. W. 2d, 27). Considered as a bill of
exchange, a draft is said to be, like the former, an open letter of request from, and an
order by, one person on another to pay a sum of money therein mentioned to a third
person, on demand or at a future time therein speci ed (13 Words and Phrases, 371).
As a matter of fact, the term "draft" is often used, and is the common term, for all bills
of exchange. And the words "draft" and "bill of exchange" are used indiscriminately
(Ennis vs. Coshoctan Nat. Bank, 108 S.E., 811, Hinnemann vs. Rosenback, 39 N.Y. 98,
100, 101; Wilson vs. Buchenau, 43 Supp. 272, 275).
On the other hand, a bill of exchange within the meaning of our Negotiable
Instrument Law (Act No. 2031) does not operate as an assignment of funds in the
hands of the drawee who is not liable on the instrument until he accepts it. This is the
clear import of Section 127. It says: "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereon
and the drawee is not liable on the bill unless and until he accepts the same." In other
words, in order that a drawee may be liable on the draft and then become obligated to
the payee it is necessary that he rst accepts the same. In fact, our law requires that
with regard to drafts or bills of exchange there is need that they be presented either for
acceptance or for payment within a reasonable time after their issuance or after their
last negotiation thereof as the case may be (Section 71, Act 2031). Failure to make
such presentment will discharge the drawer from liability or to the extent of the loss
caused by the delay (Section 186, Ibid.)
Since it is admitted that the demand drafts herein involved have not been
presented either for acceptance or for payment, the inevitable consequence is that the
appellee bank never had any chance of accepting or rejecting them. Verily, appellee
bank never became a debtor of the payee concerned and as such the aforesaid drafts
cannot be considered as credits subject to escheat within the meaning of the law.
But a demand draft is very different from a cashier's or manager's check,
contrary to appellant's pretense, for it has been held that the latter is a primary
obligation of the bank which issues it and constitutes its written promise to pay upon
demand. Thus, a cashier's check has been clearly characterized In Re Bank of the United
States, 277 N.Y.S. 96, 100, as follows:
"A cashier's check issued by a bank, however, is not an ordinary draft.
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The latter is a bill of exchange payable on demand. It is an order upon a
third party purporting to be drawn upon a deposit of funds. Drinkall v.
Movious State Bank, 11 N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep.
693; State v. Tyler County State Bank (Tex. Com. App.) 277 S.W. 625, 42
A.L.R. 1347. A cashier's check is of a very different character. It is the
primary obligation of the bank which issues it (Nissenbaum v. State, 38 Ga.
App. 253, 143 S.E. 776) and constitutes its written promise to pay upon
demand (Steinmetz v. Schultz, 59 S.D. 603, 241 N.W. 734) . . ."
A demand draft is not therefore of the same category as a cashier's check which
should come within the purview of the law.
The case, however, is different with regard to a telegraphic payment order. It is
said that as the transaction is for the establishment of a telegraphic or cable transfer,
the agreement to remit creates a contractual obligation and has been termed a
purchase and sale transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer
upon making payment completes the transaction insofar as he is concerned, though
insofar as the remitting bank is concerned the contract is executory until the credit is
established (Ibid.). We agree with the following comment of the Solicitor General: "This
is so because the drawer bank was already paid the value of the telegraphic transfer
payment order. In the particular cases under consideration it appears in the books of
the defendant bank that the amounts represented by the telegraphic payment orders
appear in the names of the respective payees. If the latter choose to demand payment
of their telegraphic transfers at the time the same was (were) received by the
defendant bank, there could be no question that this bank would have to pay them.
Now, the question is, if the payees decide to have their money remain for sometime in
the defendant bank, can the latter maintain that the ownership of said telegraphic
payment orders is now with the drawer bank? The latter was already paid the value of
the telegraphic payment orders otherwise it would not have transmitted the same to
the defendant bank. Hence, it is absurd to say that the drawer banks are still the owners
of said telegraphic payment orders."
WHEREFORE, the decision of the trial court is hereby modi ed in the sense that
the items speci cally referred to and listed under paragraph 3 of appellee bank's
answer representing telegraphic transfer payment orders should be escheated in favor
of the Republic of the Philippines. No costs.
Reyes, J.B.L., Barrera, Paredes, Dizon, and De Leon, JJ., concur.
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Bengzon, C.J., Padilla, Labrador and Concepcion, JJ., took no part.
SYLLABUS
DECISION
CRUZ , J : p
The defendant maintains that the correct amount of the discount is P98,828.03
and that the same is not excessive and above that allowed by law.
As its title plainly indicates, the contract between the parties is one of lease and
not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract
is there any showing that the parties intended a loan rather than a lease. The provision
for the payment of rentals in advance cannot be construed as a repayment of a loan
because there was no grant or forbearance of money as to constitute an indebtedness
on the part of the lessor. On the contrary, the defendant-appellee was discharging its
obligation in advance by paying the eight years rentals, and it was for this advance
payment that it was getting a rebate or discount.
The provision for a discount is not unusual in lease contracts. As to its validity, it
is settled that the parties may establish such stipulations, clauses, terms and condition
as they may want to include; and as long as such agreements are not contrary to law,
morals, good customs, public policy or public order, they shall have the force of law
between them. 8
There is no usury in this case because no money was given by the defendant-
appellee to the plaintiff-appellant, nor did it allow him to use its money already in his
possession. 9 There was neither loan nor forbearance but a mere discount which the
plaintiff-appellant allowed the defendant-appellee to deduct from the total payments
because they were being made in advance for eight years. The discount was in effect a
reduction of the rentals which the lessor had the right to determine, and any reduction
thereof, by any amount, would not contravene the Usury Law.
The difference between a discount and a loan or forbearance is that the former
does not have to be repaid. The loan or forbearance is subject to repayment and is
therefore governed by the laws on usury. 1 0 To constitute usury, "there must be loan or
forbearance; the loan must be of money or something circulating as money; it must be
repayable absolutely and in all events; and something must be exacted for the use of
the money in excess of and in addition to interest allowed by law." 1 1
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It has been held that the elements of usury are (1) a loan, express or implied; (2)
an understanding between the parties that the money lent shall or may be returned; (3)
that for such loan a greater rate or interest that is allowed by law shall be paid, or
agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the
legal rate for the use of money loaned. Unless these four things concur in every
transaction, it is safe to affirm that no case of usury can be declared. 1 2
Concerning the computation of the deductible discount, the trial court declared:
"As above-quoted, the 'Lease Agreement' expressly provides that the lessee
(defendant) shall pay the lessor (plaintiff) eight (8) years in advance rentals
based on P2,930.20 per month discounted at 12% interest per annum. Thus, the
total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12 months)
and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by 12%).
So, therefore, the total interest for the rst eight (8) years should be only
P33,755.90 (P4,129.4880 multiplied by eight (8) years) and not P98,828.03 as the
defendant claimed it to be."
Footnotes
1. Rollo, p. 28.
2. Rec. on Appeal, pp. 14-15.
3. Rollo, p. 28.
12. Jenkins v. Dugger, C.C., A. Tenn., p. 96 F. 2nd 727, 729, 119 A.L.R. 1488.
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13. Article 1370, Civil Code.
Mabanag, Eliger & Associates & Saura, Magno & Associates for plaintiff-appellee.
Jesus A. Avaceña and Hilario G. Orsolino for defendant-appellant.
SYLLABUS
DECISION
MAKALINTAL, J : p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was
rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines
(DBP) to pay actual and consequential damages to plaintiff Saura Import and Export
Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the
complaint was led and attorney's fees in the amount of P5,000.00. The present appeal
is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the
Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction
of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the
balance of the purchase price of the jute mill machinery and equipment; and P9,100.00
as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential Bank
and Trust Co., and arrived in Davao City in July 1953; and that to secure its release
without rst paying the draft, Saura, Inc. executed a trust receipt in favor of the said
bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan
application for P500,000.00, to be secured by a rst mortgage on the factory buildings
to be constructed, the land site thereof, and the machinery and equipment to be
installed. Among the other terms spelled out in the resolution were the following:
"1. That the proceeds of the loan shall be utilized exclusively for
the following purposes:
TOTAL P500,000.00
Saura, Inc. was o cially noti ed of the resolution on January 9, 1954. The day
before, however, evidently having otherwise been informed of its approval, Saura, Inc.
wrote a letter to RFC, requesting a modi cation of the terms laid down by it, namely:
that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to
the extent of its stock subscription with Saura, Inc.) sign as co-maker on the
corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an
amount equivalent to such subscription; and that Maria S. Roca would be substituted
for Inocencia Arellano as one of the other co-makers, having acquired the latter's
shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954,
designating of the members of its Board of Governors, for certain reasons stated in the
resolution, "to reexamine all the aspects of this approved loan . . . with special reference
as to the advisability of nancing this particular project based on present conditions
obtaining in the operations of jute mills, and to submit his ndings thereon at the next
meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again
agreed to act as co-signer for the loan, and asked that the necessary documents be
prepared in accordance with the terms and conditions speci ed in Resolution No. 145
In connection with the re-examination of the project to be financed with the loan applied
for, as stated in Resolution No. 736, the parties named their respective committees of
engineers and technical men to meet with each other and undertake the necessary
studies, although in appointing its own committee Saura, Inc. made the observation
that the same "should not be taken as an acquiescence on (its) part to novate, or
accept new conditions to, the agreement already entered into," referring to its
acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with
F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the
re-examination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC
Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc.,
was present, it was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
"RESOLUTION No. 3989. Reducing the Loan Granted Saura
Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan granted the Saura Import
& Export Co. under Resolution No. 145, c.s., for the purpose of nancing the
manufacture of jute sacks in Davao, with special reference as to the
advisability of nancing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard Ramon E.
Saura and after extensive discussion on the subject the Board, upon
recommendation of the Chairman, RESOLVED that the loan granted the
Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that
releases up to P100,000 may be authorized as may be necessary from time
to time to place the factory in actual operation: PROVIDED that all terms and
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conditions of Resolution No. 145, c.s., not inconsistent herewith, shall
remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the
promissory note for China Engineers Ltd. jointly and severally with the other co-signers,
wrote RFC that his company no longer wished to avail of the loan and therefore
considered the same cancelled as far as it was concerned. A follow-up letter dated July
2 requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of
P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply
that it was "constrained to consider as cancelled the loan of P300,000.00 . . . in view of
a noti cation . . . from the China Engineers, Ltd., expressing their desire to consider the
loan cancelled insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and
informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-
signer of the note if RFC releases to us the P500,000.00 originally approved by you."
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to
the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now
willing to sign the promissory notes jointly with the borrower-corporation," but with the
following proviso:
"That in view of observations made of the shortage and high cost of
imported raw materials, the Department of Agriculture and Natural
Resources shall certify to the following:
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated
December 22, 1954, wherein it was explained that the certi cation by the Department
of Agriculture and Natural Resources was required "as the intention of the original
approval (of the loan) is to develop the manufacture of sacks on the basis of locally
available raw materials." This point is important, and sheds light on the subsequent
actuations of the parties. Saura, Inc. does not deny that the factory he was building in
Davao was for the manufacture of bags from local raw materials. The cover page of its
brochure (Exh. M) describes the project as a "Joint venture by and between the
Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to nance,
manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners,
oor mattings, carpets, draperies, out of 100% local raw materials, principal kenaf." The
explanatory note on page 1 of the same brochure states that the venture "is the rst
serious attempt in this country to use 100% locally grown raw materials notably kenaf
which is presently grown commercially in the Island of Mindanao where the proposed
jutemill is located . . ."
This fact, according to defendant DBP, is what moved RFC to approve the loan
application in the rst place, and to require, in its Resolution No. 9083, a certi cation
from the Department of Agriculture and Natural Resources as to the availability of local
raw materials to provide adequately for the requirements of the factory. Saura, Inc.
itself con rmed the defendant's stand impliedly in its letter of January 21, 1955: (1)
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stating that according to a special study made by the Bureau of Forestry "kenaf will not
be available in su cient quantity this year or probably even next year;" (2) requesting
"assurances (from RFC) that my company and associates will be able to bring in
su cient jute materials as may be necessary for the full operation of the jute mill;" and
(3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equipment
per attached list to enable the jute
mill to operate P182,413.91
c) For raw materials and labor 67,586.09
This is with reference to your letter of January 21, 1955, regarding the
release of your loan under consideration of P500,000. As stated in our letter
of December 22, 1954, the releases of the loan, if revived, are proposed to be
made from time to time, subject to availability of funds towards the end that
the sack factory shall be placed in actual operating status. We shall be able
to act on your request for revised purposes and manner of releases upon re-
appraisal of the securities offered for the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not
pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on
June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to
Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration
of a mortgage contract, executed on August 6, 1954, over the same property in favor of
the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December
31 of the same year within which to pay its obligation on the trust receipt heretofore
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mentioned. It appears further that for failure to pay the said obligation the Prudential
Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, almost 9 years after the mortgage in favor of RFC was
cancelled at the request of Saura, Inc., the latter commenced the present suit for
damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with
its obligation to release the proceeds of the loan applied for and approved, thereby
preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a
perfected contract between the parties and that the defendant was guilty of breach
thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the
plaintiff's cause of action had prescribed, or that its claim had been waived or
abandoned; (2) that there was no perfected contract; and (3) that assuming there was,
the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in
Article 1934 of the Civil Code, which provides:
"ART. 1954. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract."
There was undoubtedly offer and acceptance in this case: the application of
Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and
the corresponding mortgage was executed and registered. But this fact alone falls
short of resolving the basic claim that the defendant failed to ful ll its obligation and
that the plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. There is no serious dispute about this. It was in line with
such assumption that when RFC, by Resolution No. 9033 approved on December 17,
1954, restored the loan to the original amount of P500,000.00, it imposed two
conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and (2) that there is
prospect of increased production thereof to provide adequately for the requirements of
the factory." The imposition of those conditions was by no means a deviation from the
terms of the agreement, but rather a step in its implementation. There was nothing in
said conditions that contradicted the terms laid down in RFC Resolution No. 145,
passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilized
exclusively for the following purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase price of machinery and
equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc.
realized that it could not meet the conditions required by RFC, and so wrote its letter of
January 21, 1955, stating that local jute "will not be available in su cient quantity this
year or probably next year," and asking that out of the loan agreed upon the sum of
P67,586.09 be released "for raw materials and labor." This was a deviation from the
terms laid down in Resolution No. 145 and embodied in the mortgage contract,
implying as it did a diversion of part of the proceeds of the loan to purposes other than
those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the
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negotiations which had been going on for the implementation of the agreement
reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's
conditions. So instead of doing so and insisting that the loan be released as agreed
upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15,
1955. The action thus taken by both parties was in the nature of mutual desistance —
what Manresa terms "mutuo disenso" 1 — which is a mode of extinguishing obligations.
It is a concept that derives from the principle that since mutual agreement can create a
contract, mutual disagreement by the parties can cause its extinguishment. 2
The subsequent conduct of Saura, Inc. con rms this desistance. It did not
protest against any alleged breach of contract by RFC, or even point out that the latter's
stand was legally unjusti ed. Its request for cancellation of the mortgage carried no
reservation of whatever rights it believed it might have against RFC for the latter's
noncompliance. In 1962 it even applied with DBP for another loan to nance a rice and
corn project, which application was disapproved. It was only in 1964, nine years after
the loan agreement had been cancelled at its own request, that Saura, Inc. brought this
action for damages. All these circumstances demonstrate beyond doubt that the said
agreement had been extinguished by mutual desistance — and that on the initiative of
the plaintiff-appellee itself.
With this view we take of the case, we nd it unnecessary to consider and resolve
the other issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint
dismissed, with costs against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and
Antonio, JJ., concur.
Makasiar, J., took no part.
Footnotes
1. 8 Manresa, p. 294.
2. Castan, p. 560.
SYLLABUS
DECISION
GUERRERO , J : p
Petition for review on certiorari seeking the reversal of the decision of the
defunct Court of Appeals, now Intermediate Appellate Court, in CA-G.R. No. 61193-R,
entitled "Honesto Bonnevie vs. Philippine Bank of Commerce, et al.," promulgated
August 11, 1978 1 as well as the Resolution denying the motion for reconsideration.
The complaint led on January 26, 1971 by petitioner Honesto Bonnevie with the
Court of First Instance of Rizal against respondent Philippine Bank of Commerce
sought the annulment of the Deed of Mortgage dated December 6, 1966 executed in
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favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa
P. Lozano as well as the extrajudicial foreclosure made on September 4, 1968. It
alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the
mortgage was executed by one who was not the owner of the mortgaged property. It
further alleged that the property in question was foreclosed pursuant to Act No. 3135
as amended, without, however, complying with the condition imposed for a valid
foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it
nally alleged that respondent Bank should have accepted petitioner's offer to redeem
the property under the principle of equity and justice.
On the other hand, the answer of defendant Banks, now private respondent
herein, speci cally denied most of the allegations in the complaint and raised the
following a rmative defenses: (a) that the defendant has not given its consent, much
less the requisite written consent, to the sale of the mortgaged property to plaintiff and
the assumption by the latter of the loan secured thereby; (b) that the demand letters
and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was
noti ed for the rst time about the alleged sale after it had foreclosed the Lozano
mortgage; (d) that the law on contracts requires defendant's consent before Jose
Lozano can be released from his bilateral agreement with the former and doubly so,
before plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the loan
of P75,000.00 which was secured by mortgage, after two renewals remain unpaid
despite countless reminders and demands; (f) that the property in question remained
registered in the name of Jose M. Lozano in the land records of Rizal and there was no
entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established
banking practice that payments against accounts need not be personally made by the
debtor himself; and (h) that it is not true that the mortgage, at the time of its execution
and registration, was without consideration as alleged because the execution and
registration of the securing mortgage, the signing and delivery of the promissory note
and the disbursement of the proceeds of the loan are mere implementation of the basic
consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul S.V.
Bonnevie led a motion for intervention. The intervention was premised on the Deed of
Assignment executed by petitioner Honesto Bonnevie in favor of petitioner Raoul S.V.
Bonnevie covering the rights and interests of petitioner Honesto Bonnevie over the
subject property. The intervention was ultimately granted in order that all issues be
resolved in one proceeding to avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion
of which reads as follows: LibLex
After the motion for reconsideration of the lower court's decision was denied,
petitioners appealed to respondent Court of Appeals assigning the following errors:
1. The lower court erred in not nding that the real estate mortgage
executed by Jose Lozano was null and void;
2. The lower court erred in not nding that the auction sale made on
August 19, 1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor
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to redeem the property;
4. The lower court erred in not nding that the defendant acted in bad
faith; and
On August 11, 1978, the respondent court promulgated its decision a rming the
decision of the lower court, and on October 3, 1978 denied the motion for
reconsideration. Hence, the present petition for review.
The factual ndings of respondent Court of Appeals being conclusive upon this
Court, We hereby adopt the facts found by the trial court and found by the Court of
Appeals to be consistent with the evidence adduced during trial, to wit:
"It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano
were the owners of the property which they mortgaged on December 6, 1966, to
secure the payment of the loan in the principal amount of P75,000.00 they were
about to obtain from defendant-appellee Philippine Bank of Commerce; that on
December 8, 1966, they executed in favor of plaintiff-appellant the Deed of Sale
with Assumption of Mortgage, for and in consideration of the sum of
P100,000.00, P20,000.00 of which amount being payable to the Lozano spouses
upon the execution of the document, and the balance of P75,000.00 being
payable to defendant-appellee; that on December 6, 1966, when the mortgage
was executed by the Lozano spouses in favor of defendant-appellee, the loan of
P75,000.00 was not yet received by them, as it was on December 12, 1966 when
they and their co-maker Alfonso Lim signed the promissory note for that amount;
that from April 28, 1967 to July 12, 1968, plaintiff-appellant made payments to
defendant-appellee on the mortgage in the total amount of P18,944.22; that on
May 4, 1968, plaintiff-appellant assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June
10, 1968, defendant-appellee applied for the foreclosure of the mortgage, and
notice of sale was published in the Luzon Weekly Courier on June 30, July 7, and
July 14, 1968; that auction sale was conducted on August 19, 1968, and the
property was sold to defendant-appellee for P84,387.00; and that offers from
plaintiff-appellant to repurchase the property failed, and on October 9, 1969, he
caused an adverse claim to be annotated on the title of the property." (Decision of
the Court of Appeals, p. 5)
As clearly seen from the foregoing issues raised, petitioners' course of action is
three-fold. They primarily attack the validity of the mortgage executed by the Lozano
spouses in favor of respondent Bank. Next, they attack the validity of the extrajudicial
foreclosure and nally, appeal to justice and equity. In attacking the validity of the deed
of mortgage, they contended that when it was executed on December 6, 1966 there
was yet no principal obligation to secure as the loan of P75,000.00 was not received by
the Lozano spouses "so much so that in the absence of a principal obligation, there is
want of consideration in the accessory contract, which consequently impairs its validity
and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7)
This contention is patently devoid of merit. From the recitals of the mortgage
deed itself, it is clearly seen that the mortgage deed was executed for and on condition
of the loan granted to the Lozano spouses. The fact that the latter did not collect from
the respondent Bank the consideration of the mortgage on the date it was executed is
immaterial. A contract of loan being a consensual contract, the herein contract of loan
was perfected at the same time the contract of mortgage was executed. The
promissory note executed on December 12, 1966 is only an evidence of indebtedness
and does not indicate lack of consideration of the mortgage at the time of its
execution.
Petitioners also argued that granting the validity of the mortgage, the
subsequent renewals of the original loan, using as security the same property which the
Lozano spouses had already sold to petitioners, rendered the mortgage null and void.
This argument failed to consider the provision 2 of the contract of mortgage
which prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged
properties, without the written consent of the mortgagee, as well as the additional
proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee
shall assume the mortgage in the terms and conditions under which it is constituted.
These provisions are expressly made part and parcel of the Deed of Sale with
Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the
sale with assumption of mortgage. Coupled with the fact that the sale/assignment was
not registered so that the title remained in the name of the Lozano spouses, insofar as
respondent Bank was concerned, the Lozano spouses could rightfully and validly
mortgage the property. Respondent Bank had every right to rely on the certi cate of
title. It was not bound to go behind the same to look for aws in the mortgagor's title,
the doctrine of innocent purchaser for value being applicable to an innocent mortgagee
for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48).
Another argument for the respondent Bank is that a mortgage follows the property
whoever the possessor may be and subjects the ful llment of the obligation for whose
security it was constituted. Finally, it can also be said that petitioners voluntarily
assumed the mortgage when they entered into the Deed of Sale with Assumption of
Mortgage. They are, therefore, estopped from impugning its validity whether on the
original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the
following grounds: LLpr
b) The notice of auction sale was not posted for the period required by law.
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c) The publication of the notice of auction sale in the Luzon Weekly Courier
was not in accordance with law.
In the case at bar, the notice of sale was published in the Luzon Courier on June
30, July 7 and July 14, 1968 and notices of the sale were posted for not less than
twenty days in at least three (3) public places in the Municipality where the property is
located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable
because said case involved a judicial foreclosure and the sale to the vendee of the
mortgaged property was duly registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale
was not in accordance with law, namely: once a week for at least three consecutive
weeks, the Court of Appeals ruled that the publication of notice on June 30, July 7 and
July 14, 1968 satisfies the publication requirement under Act No. 3135 notwithstanding
the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires
that "such notice shall be published once a week for at least three consecutive weeks."
Such phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not
mean that notice should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was
not in accordance with law as said newspaper is not of general circulation must
likewise be disregarded. The a davit of publication, executed by the publisher,
business/advertising manager of the Luzon Weekly Courier, states that it is "a
newspaper of general circulation in . . . Rizal: and that the Notice of Sheriff's sale was
published in said paper on June 30, July 7 and July 14, 1968." This constitutes prima
facie evidence of compliance with the requisite publication. (Sadang vs. GSIS, 18 SCRA
491) Cdpr
A We posted them only once in one day." (TSN, p. 45, July 25, 1973)
The claim of appellants that the collection of interests on the loan up to July 12,
1968 extends the maturity of said loan up to said date and accordingly on June 10,
1968 when defendant applied for the foreclosure of the mortgage, the loan was not yet
due and demandable, is totally incorrect and misleading. The undeniable fact is that the
loan matured on December 26, 1967. On June 10, 1968, when respondent Bank applied
for foreclosure, the loan was already six months overdue. Petitioners' payment of
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interest on July 12, 1968 does not thereby make the earlier act of respondent Bank
inequitous nor does it ipso facto result in the renewal of the loan. In order that a
renewal of a loan may be effected, not only the payment of the accrued interest is
necessary but also the payment of interest for the proposed period of renewal as well.
Besides, whether or not a loan may be renewed does not solely depend on the debtor
but more so on the discretion of the bank. Respondent Bank may not be, therefore,
charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of
Appeals is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concur in the result.
Concepcion, Jr., J., did not take part.
De Castro, J., is on leave.
Footnotes
1. Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.
2. "4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber
the mortgaged properties without the written consent of MORTGAGEE. If in spite of this
stipulation, a mortgaged property is sold, the Vendee shall assume the mortgaged in the
terms and conditions under which it is constituted, it being understood that the
assumption of the Vendee (does) not release the Vendor of his obligation to the
MORTGAGEE; on the contrary, both the Vendor and the Vendee shall be jointly and
severally liable for said mortgage obligation . . ."
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
DECISION
MAKASIAR , C.J : p
This is a petition for review on certiorari to set aside as null and void the decision
of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying
the decision dated February 15, 1972 of the Court of First Instance of Agusan, which
dismissed the petition of respondent Sulpicio M. Tolentino for injunction, speci c
performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its
legal department, approved the loan application for P80,000.00 of Sulpicio M.
Tolentino, who, as a security for the loan, executed on the same day a real estate
mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered
by TCT No. T-305, and which mortgage was annotated on the said title the next day.
The approved loan application called for a lump sum P80,000.00 loan, repayable in
semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional
capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was
made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a
promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the
date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.),
An advance interest for the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted
interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by
the Bank that there was no fund yet available for the release of the P63,000.00 balance
(p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the
release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after nding Island
Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which
provides:
"In view of the chronic reserve de ciencies of the Island Savings Bank
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against its deposit liabilities, the Board, by unanimous vote, decided as follows:
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the
pre-deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan
covering a 6-month period cannot be taken as a waiver of his right to collect the
P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for
6 months on the supposed P80,000.00 loan, was improper considering that only
P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally
charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. Tolentino of
the pre-deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The
exercise of one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan
collateral cannot exempt it from complying with its reciprocal obligation to furnish the
entire P80,000.00 loan. This Court previously ruled that bank o cials and employees
are expected to exercise caution and prudence in the discharge of their functions (Rural
Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's
o cials and employees that before they approve the loan application of their
customers, they must investigate the existence and valuation of the properties being
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offered as a loan security. The recent rush of events where collaterals for bank loans
turn out to be non-existent or grossly over-valued underscore the importance of this
responsibility. The mere reliance by bank o cials and employees on their customer's
representation regarding the loan collateral being offered as loan security is a patent
non-performance of this responsibility. If ever, bank o cials and employees totally rely
on the representation of their customers as to the valuation of the loan collateral, the
bank shall bear the risk in case the collateral turn out to be over-valued. The
representation made by the customer is immaterial to the bank's responsibility to
conduct its own investigation. Furthermore, the lower court, on objections of Sulpicio
M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-
valuation because of their failure to raise the same in their pleadings (pp. 198-199,
t.s.n., Sept. 15, 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise
the same issue before the Supreme Court.
Since Island Savings Bank was in default in ful lling its reciprocal obligation
under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code,
may choose between speci c performance or rescission with damages in either case.
But since Island Savings Bank is now prohibited from doing further business by
Monetary Board Resolution No. 967, WE cannot grant speci c performance in favor of
Sulpicio M. Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is
only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default
only insofar as such amount is concerned, as there is no doubt that the bank failed to
give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M.
Tolentino accepted and executed a promissory note to cover it, the bank was deemed
to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The
promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under
the promissory note made him a party in default, hence not entitled to rescission
(Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall
belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a
promissory note setting the date for payment of P17,000.00 within 3 years, he would
be entitled to ask for rescission of the entire loan because he cannot possibly be in
default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation
to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation
to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for
damages. Cdpr
Article 1192 of the Civil Code provides that in case both parties have committed
a breach of their reciprocal obligations, the liability of the rst infractor shall be
equitably tempered by the courts. WE rule that the liability of Island Savings Bank for
damages in not furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his
P17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some bene t for his use of the P17,000.00, it is just that
he should account for the interest thereon.
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WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot
be entirely foreclosed to satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same
as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For
the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in
the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art.
2086, in relation to Art. 2052, of the Civil Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because Island Savings
Bank had not made any release on the loan, does not make the real estate mortgage
void for lack of consideration. It is not necessary that any consideration should pass at
the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA
122 [1983]). It may either be a prior or subsequent matter. But when the consideration
is subsequent to the mortgage, the mortgage can take effect only when the debt
secured by it is created as a binding contract to pay (Parks vs. Sherman, Vol. 176 N.W.
p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is
partial failure of consideration, the mortgage becomes unenforceable to the extent of
such failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p.
138). Where the indebtedness actually owing to the holder of the mortgage is less than
the sum named in the mortgage, the mortgage cannot be enforced for more than the
actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 6th
ed., Wiltsie on Mortgage, Vol. 1, p. 180). LLpr
Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than su cient to secure a
P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of
the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be divided
among the successors in interest of the debtor or creditor.
"Therefore, the debtor's heirs who has paid a part of the debt can not ask
for the proportionate extinguishment of the pledge or mortgage as long as the
debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of the debt
return the pledge or cancel the mortgage, to the prejudice of other heirs who have
not been paid."
SYLLABUS
DECISION
PADILLA , J : p
The Court of Appeals certi ed 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
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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 P499.62, both with interests, and costs; and that other just
and equitable relief be granted it (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan Valley,
particularly in the barrio of Baggao, and of the pending appeal he had taken to the
Secretary of Agriculture and Natural Resources and the President of the Philippines
from the refusal by the Director of Animal Industry to deduct from the book value of the
bulls corresponding yearly depreciation of 8% from the date of acquisition, to which
depreciation the Auditor General did not object, he could not return the animals nor pay
their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court rendered 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 it
granted an ex-parte motion led by the plaintiff on 28 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 V. Bagtas who died on 23 October 1951 and as
administratrix of his estate, was noti ed. On 7 January 1959 she led a motion alleging
that on 26 June 1952 the two bulls, Sindhi and Bhagnari, were returned to the Bureau of
Animal Industry and that sometime in November 1953 the third bull, the Sahiniwal, died
from gunshot wounds in icted during a Huks 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 led a reply thereto. On the same day, 6 February, the Court denied her motion.
Hence, this appeal certi ed 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 P859.5.3 be
issued against the estate of defendant deceased José 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 Huks 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 the returning the bull or paying its value
to the appellee. The contention is without merit. The loan by the appellee to the late
defendant José V. Bagtas of the three bulls for breeding purposes for a period of one
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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 thing, even if it should be through a fortuitous event:
(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 wit: 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 led 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 executor or 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 issued letters of administration of the estate of the late José V.
Bagtas and that "all persons having claims for money against the deceased José 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 money against him, to le said claims with the Clerk of this
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Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the
date of the rst 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 noti ed of
the defendant's death in accordance with the abovequoted 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, 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 led 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 José V. Bagtas having been instituted in the Court of First Instance of Rizal
(Q-200), the money judgment rendered in favor of the appellee cannot be enforced by
means of a writ of execution but must be presented to the probate court for payment
by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes,
Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.
SYLLABUS
DECISION
ARELLANO , C.J : p
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse
on a part of the said lot, embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs,
Alejandra Mina et al., were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the
children of Ruperta Pascual were recognized likewise without discussion, though it is
not said how, and consequently are entitled to the said building, or rather, as Ruperta
Pascual herself stated, to only six-seventh of one-half of it, the other half belonging, as it
appears, to the plaintiffs themselves, and the remaining one-seventh of the rst one-
half to the children of one of the plaintiffs, Elena de Villanueva. The fact is that the
plaintiffs and the defendants are virtually, to all appearance, the owners of the
warehouse; while the plaintiffs are undoubtedly the owners of the part of the lot
occupied by that building, as well also as of the remainder thereof.
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This was the state of affairs when, on May 6, 1909, Ruperta Pascual, as the
guardian of her minor children, the herein defendants, petitioned the Court of First
Instance of Ilocos Norte for authorization to sell "the six-sevenths of the one-half of the
warehouse, of 14 by 11 meters, together with its lot." The plaintiffs — that is, Alejandra
Mina et al. — opposed the petition of Ruperta Pascual for the reason that the latter had
included therein the lot occupied by the warehouse, which they claimed was their
exclusive property. All this action was taken in a special proceeding in re guardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court,
through motion, decide the question of the ownership of the lot before it pass upon the
petition for the sale of the warehouse. But the court, before determining the matter of
the ownership of the lot occupied by the warehouse, ordered the sale of this building,
saying:
"While the trial continues with respect to the ownership of the lot, the court
orders the sale at public auction of the said warehouse and of the lot on which it
is built, with the present boundaries of the land condition of the building, at a
price of not less than P2,890 Philippine currency . . ."
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco,
the other defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot,
and the court decided it by holding that this land belonged to the owner of the
warehouse which had been built thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court
and held that the appellants were the owners of the lot in question. 1
When the judgment became nal and executory, a writ of execution issued and
the plaintiffs were given possession of lot; but soon thereafter the trial court annulled
this possession for the reason that it affected Cu Joco, who had been a party to the suit
in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of
having the sale of the said lot declared null and void and of no force and effect.
An agreement was had as to the facts, the ninth paragraph of which is as follows:
"9. That the herein plaintiffs excepted to the judgment and appealed
therefrom to the Supreme Court which found for them by holding that they are
owners of the lot in question, although there existed and still exists a
commodatum by virtue of which the guardianship (meaning the defendants) had
and has the use, and the plaintiffs the ownership, of the property, with no nding
concerning the decree of the lower court that ordered the sale."
The obvious purport of the clause "although there existed and still exists a
commodatum," etc., appears to be that it is a part of the decision of the Supreme Court
and that, while nding the plaintiffs to be the owners of the lot, we recognized in
principle the existence of a commodatum under which the defendants held the lot.
Nothing could be more inexact. Possibly, also, the meaning of that clause is that,
notwithstanding the nding made by the Supreme Court that the plaintiffs were the
owners, these former and the defendants agree that there existed, and still exists, a
commodatum, etc. But such an agreement would not affect the truth of the contents of
the decision of this court, and the opinion held by the litigants in regard to this point
could have no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least
in uence in our previous decision to require our making any nding in regard thereto,
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for, with or without that decree, the Supreme Court had to decide the ownership of the
lot consistently with its titles and not in accordance with the judicial acts or
proceedings had prior to the setting up of the issue in respect to the ownership of the
property that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendants agree that
the plaintiffs have the ownership, and they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident,
whatsoever be the manner in which the sale was effected, whether judicially or
extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of
the sale being a transfer of the ownership of the thing, it is evident that he who has only
the mere use of the thing cannot transfer its ownership. The sale of a thing effected by
one who is not its owner is null and void. The defendants never were the owners of the
lot sold. The sale of it by them is necessarily null and void. One cannot convey to
another what he has never had himself.
The returns of the auction contain the following statements:
"I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the
authorization conferred upon me on the 31st of July, 1909, by the Court of First
Instance of Ilocos Norte, proceeded with the sale at public auction of the six-
sevenths part of the one-half of the warehouse constructed of rubble stone, etc.
"Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public
auction all the land and all the rights, titled, interest, and ownership in the said
property to Cu Joco, who was the highest bidder, etc.
"Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his
heirs and assigns, all the interest, ownership and inheritance rights and others
that, as the guardian of the said minors, I have and may have in the said property,
etc."
The purchaser could not acquire anything more than the interest that might be
held by a person to whom realty in possession of the vendor might be sold, for at a
judicial auction nothing else is disposed of. What the minor children of Ruperta Pascual
had in their possession was the ownership of the six-sevenths part of one-half of the
warehouse and the use of the lot occupied by this building. This, and nothing more,
could the Chinaman Cu Joco acquire at that sale: not the ownership of the lot; neither
the other half, nor the remaining one-seventh of the said rst half, of the warehouse.
Consequently, the sale made to him of this one-seventh of the one-half and the entire
other half of the building was null and void, and likewise with still more reason the sale
of the lot the building occupies.
The purchaser could and should have known what it was offered for sale and
what it was that he purchased. There is nothing that can justify the acquisition by the
purchaser of the warehouse of the ownership of the lot that this building occupies,
since the minors represented by Ruperta Pascual never were the owners of the said lot,
nor were they ever were the owners of the said lot, nor were they have ever considered
to be such.
The trial court, in the judgment rendered, held that there were no grounds for the
requested annulment of the sale, and that the plaintiffs were entitled to the P600
deposited with the clerk of the court as the value of the lot in question. The defendants,
Ruperta Pascual and the Chinaman Cu Joco, were absolved from the complaint, without
express finding as to costs.
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The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be
compelled to accept the price set on the lot by experts appraisers, not even though the
plaintiffs be considered as coowners of the warehouse. It would be much indeed that,
on the ground of coownership, they should have to abide by the tolerate the sale of the
said building, which point this court does not decide as it is not a question submitted to
us for decision, but, as regards the sale of the lot, it is in all respects impossible to hold
that the plaintiffs must abide by it and tolerate it, and this conclusion is based on the
fact that they did not give their consent (art. 1261, Civil Code), and only the contracting
parties who have given it are obliged to comply (art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of
the sale of the lot; but subsequently the plaintiffs, through motion, asked for an
amendment of their complaint in the sense that the action should be deemed to be one
for the recovery of possession of a lot and for the annulment of its sale. The plaintiffs'
petition was opposed by the defendants' attorney, but was allowed by the court;
therefore the complaint seeks, after the judicial annulment of the sale of the lot, to have
the defendants sentenced immediately to deliver the same to the plaintiffs.
Such ndings appears to be in harmony with the decision rendered by the
Supreme Court in the previous such wherein it was held that the ownership of the of the
lot lay in the plaintiffs, and for this reason steps were taken to give possession thereof
to the defendants; but, as the purchaser Cu Joco was not a party to that suit, the
present action him, once the sale has been annulled, to deliver the lot to its lawful,
owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this in the
previous suit, that Andres Fontanilla, the defendants' predecessor in interest, erected
the warehouse on the lot, some thirty years ago, with explicit consent of his brother
Francisco Fontanilla, the plaintiffs' predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the
defendants are the coowners of the warehouse.
3. That is a fact explicity admitted in the agreement, neither Andres Fontanilla
nor his successors paid any consideration or price whatever for the use to the lot
occupied by the said building; whence it is, perhaps, that both parties have
denominated that use a commodatum.
Upon the premise of these facts, or even merely upon that of the rst of them,
the sentencing of the defendants to deliver the lot to the plaintiffs does not follow as a
necessary corollary of the judicial declaration of ownership made in the previous suit,
nor of that of the nullity of the sale of the lot, made in the present case.
The defendants do not hold lawful possession of the lot in question.
But, although both litigating parties may have agreed in their idea of the
commodatum, on account of its not being, as indeed it is not, a question of fact but of
law, yet that denomination given by them to the use of the lot granted by Francisco
Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts are not to be
interpreted in conformity with the name that the parties thereto agree to give them, but
must be construed, duly considering their constitute elements, as they are de ned and
denominated by law.
"By the contract of loan, one of the parties delivers to the other, either
anything not perishable, in order that the latter may use it during a certain period
and return it to the former, in which case it called commodatum . . ." (art. 1740,
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Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing
belonging to another shall be for a certain period. Francisco Fontanilla did not x any
de nite period of time during which Andres Fontanilla could have the use of the lot
whereon the latter was to erect a stone warehouse of considerable value, and so it is
that for the past thirty years the lot has been used by both Andres and his successors
in interest. The present contention of the plaintiffs that Cu Joco, now in possession of
the lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the
commodatum sustained by them, since, according to the second paragraph of the
aforecited article 1740, "commodatum is essentially gratuitous," and, if what the
plaintiffs themselves aver on page 7 of their brief is to be believed, it never entered
Francisco's mind to limit the period during which his brother Andres was to have the
use of the lot, because he expected that the warehouse would eventually fall into the
hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not
come to pass for the reason that Fructuoso died before his uncle Andres. With that
expectation in view, it appears more likely that Francisco intended to allow his brother
Andres a surface right; but this right supposes the payment of an annual rent, and
Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on
another's ground, the question should be decided in accordance with the statutes that,
thirty years ago, governed accessions to real estate, and which were Laws 41 and 42,
title 28, of the third Partida, nearly identical with provisions of articles 361 and 362 of
the Civil Code. So, then, pursuant to article 361, the owner of the land on which a
building is erected in good faith has a right to appropriated such edi ce to himself,
after payment of the indemnity prescribed in articles 453 and 454, or to oblige the
builder to pay him the value of the land. Such, and no other, is the right to which the
plaintiffs are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot
which was made by Ruperta Pascual, in representation of her minor children, to Cu
Joco, and to maintain the latter in the use of the lot until the plaintiffs shall choose one
or the other of the two rights granted them by article 361 of the Civil Code.
The judgment appealed from is reversed and the sale of the lot in question is
held to be null and void and of no force or effect. No special nding is made as to the
costs of both instances.
Torres, Johnson, Carson, Moreland and Trent, JJ., concur.
Footnotes
1. Pascual vs. Mina, 20 Phil . Rep., 202.
DECISION
LEONEN , J : p
This resolves a Petition for Review on Certiorari under Rule 45 of the Rules of
Court praying that judgment be rendered reversing and setting aside the September 30,
2010 Decision 1 and the January 4, 2011 Resolution 2 of the Court of Appeals
Nineteenth Division in CA-G.R. CV No. 01388. The Petition also prays that respondents
Spouses Romeo and Annie Abella be ordered to pay petitioners Spouses Salvador and
Alma Abella 2.5% monthly interest plus the remaining balance of the amount loaned.
The assailed September 30, 2010 Decision of the Court of Appeals reversed and
set aside the December 28, 2005 Decision 3 of the Regional Trial Court, Branch 8,
Kalibo, Aklan in Civil Case No. 6627. It directed petitioners to pay respondents
P148,500.00 (plus interest), which was the amount respondents supposedly overpaid.
The assailed January 4, 2011 Resolution of the Court of Appeals denied petitioners'
Motion for Reconsideration.
The Regional Trial Court's December 28, 2005 Decision ordered respondents to
pay petitioners the supposedly unpaid loan balance of P300,000.00 plus the allegedly
stipulated interest rate of 30% per annum, as well as litigation expenses and attorney's
fees. 4
On July 31, 2002, petitioners Spouses Salvador and Alma Abella led a
Complaint 5 for sum of money and damages with prayer for preliminary attachment
against respondents Spouses Romeo and Annie Abella before the Regional Trial Court,
Branch 8, Kalibo, Aklan. The case was docketed as Civil Case No. 6627. 6
In their Complaint, petitioners alleged that respondents obtained a loan from
them in the amount of P500,000.00. 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 P200,000.00 — P100,000.00 paid on two
separate occasions — leaving an unpaid balance of P300,000.00. 7
In their Answer 8 (with counterclaim and motion to dismiss), respondents alleged
that the amount involved did not pertain to a loan they obtained from petitioners but
was part of the capital for a joint venture involving the lending of money. 9
Speci cally, respondents claimed 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]." 10 The 2.5% that each party would be receiving represented their
sharing of the 5% interest that the joint venture was supposedly going to charge
against its debtors. Respondents further alleged that the one year averred by
petitioners was not a deadline for payment but the term within which they were to
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return the money placed by petitioners should the joint venture prove to be not
lucrative. 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. 11
In the Decision 12 dated December 28, 2005, the Regional Trial Court ruled in
favor of petitioners. It noted that the terms of the acknowledgment receipt executed by
respondents clearly showed that: (a) respondents were indebted to the extent of
P500,000.00; (b) this indebtedness was to be paid within one (1) year; and (c) the
indebtedness was subject to interest. Thus, the trial court concluded that respondents
obtained a simple loan, although they later invested its proceeds in a lending enterprise.
13 The Regional Trial Court adjudged respondents solidarily liable to petitioners. The
dispositive portion of its Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendants jointly and severally to pay the plaintiffs the
sum of P300,000.00 with interest at the rate of 30% per annum from
the time the complaint was filed on July 31, 2002 until fully paid;
CAIHTE
(Emphasis supplied)
The text of the acknowledgment receipt is uncomplicated and straightforward. It
attests to: rst, respondents' receipt of the sum of P500,000.00 from petitioner Alma
Abella; second, respondents' duty to pay back this amount within one (1) year from
March 22, 1999; and third, respondents' duty to pay interest. Consistent with what
typi es a simple loan, petitioners delivered to respondents with the corresponding
condition that respondents shall pay the same amount to petitioners within one (1)
year.
II
Although we have settled the nature of the contractual relation between
petitioners and respondents, controversy persists over respondents' duty to pay
conventional interest, i.e., interest as the cost of borrowing money. 34
Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be
due unless it has been expressly stipulated in writing."
On the matter of interest, the text of the acknowledgment receipt is simple, plain,
and unequivocal. It attests to the contracting parties' intent to subject to interest the
loan extended by petitioners to respondents. The controversy, however, stems from the
acknowledgment receipt's failure to state the exact rate of interest.
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Jurisprudence is clear about the applicable interest rate if a written instrument
fails to specify a rate. In Spouses Toring v. Spouses Olan , 35 this court clari ed the
effect of Article 1956 of the Civil Code and noted that the legal rate of interest (then at
12%) is to apply: "In a loan or forbearance of money, according to the Civil Code, the
interest due should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum." 36 aDSIHc
Spouses Toring cites and restates (practically verbatim) what this court settled
in Security Bank and Trust Company v. Regional Trial Court of Makati, Branch 61 : "In a
loan or forbearance of money, the interest due should be that stipulated in writing, and
in the absence thereof, the rate shall be 12% per annum." 37
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals ,
which, in turn, stated: 38
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Cod e . 39 (Emphasis
supplied)
The rule is not only de nite; it is cast in mandatory language. From Eastern
Shipping to Security Bank to Spouses Toring , jurisprudence has repeatedly used the
word "shall," a term that has long been settled to denote something imperative or
operating to impose a duty. 40 Thus, the rule leaves no room for alternatives or
otherwise does not allow for discretion. It requires the application of the legal rate of
interest.
Our intervening Decision in Nacar v. Gallery Frames 41 recognized that the legal
rate of interest has been reduced to 6% per annum:
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment of
Section 2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular
No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which
reads:
The Monetary Board, in its Resolution No. 796 dated 16
May 2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
Section 1 . The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence
of an express contract as to such rate of interest, shall be six
percent (6%) per annum.
Section 2 . In view of the above, 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
are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to
the rate of interest that would govern the parties, the rate of legal interest for
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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 re ected 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. 42 (Emphasis supplied, citations
omitted)
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013
and Nacar retain the de nite and mandatory framing of the rule articulated in Eastern
Shipping, Security Bank, and Spouses Toring. Nacar even restates Eastern Shipping:
To recapitulate and for future guidance, the guidelines laid down in the
case of Eastern Shipping Lines are accordingly modi ed to embody BSP-MB
Circular No. 799, as follows:
xxx xxx xxx
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 6% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code. 43 (Emphasis supplied,
citations omitted) ETHIDa
Thus, it remains that where interest was stipulated in writing by the debtor and
creditor in a simple loan or mutuum, but no exact interest rate was mentioned, the legal
rate of interest shall apply. At present, this is 6% per annum, subject to Nacar's
qualification on prospective application.
Applying this, the loan obtained by respondents from petitioners is deemed
subjected to conventional interest at the rate of 12% per annum, the legal rate of
interest at the time the parties executed their agreement. Moreover, should
conventional interest still be due as of July 1, 2013, the rate of 12% per annum shall
persist as the rate of conventional interest .
This is so because interest in this respect is used as a surrogate for the parties'
intent, as expressed as of the time of the execution of their contract. In this sense, the
legal rate of interest is an a rmation of the contracting parties' intent; that is, by their
contract's silence on a speci c rate, the then prevailing legal rate of interest shall be the
cost of borrowing money. This rate, which by their contract the parties have settled on,
is deemed to persist regardless of shifts in the legal rate of interest. Stated otherwise,
the legal rate of interest, when applied as conventional interest, shall always be the legal
rate at the time the agreement was executed and shall not be susceptible to shifts in
rate.
Petitioners, however, insist on conventional interest at the rate of 2.5% per month
or 30% per annum. They argue that the acknowledgment receipt fails to show the
complete and accurate intention of the contracting parties. They rely on Article 1371 of
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the Civil Code, which provides that the contemporaneous and subsequent acts of the
contracting parties shall be considered should there be a need to ascertain their intent.
44 In addition, they claim that this case falls under the exceptions to the Parol Evidence
Rule, as spelled out in Rule 130, Section 9 of the Revised Rules on Evidence. 45
It is a basic precept in legal interpretation and construction that a rule or
provision that treats a subject with speci city prevails over a rule or provision that
treats a subject in general terms. 46
The rule spelled out in Security Bank and Spouses Toring is anchored on Article
1956 of the Civil Code and speci cally governs simple loans or mutuum. Mutuum is a
type of nominate contract that is speci cally recognized by the Civil Code and for which
the Civil Code provides a speci c set of governing rules: Articles 1953 to 1961. In
contrast, Article 1371 is among the Civil Code provisions generally dealing with
contracts. As this case particularly involves a simple loan, the speci c rule spelled out
in Security Bank and Spouses Toring nds preferential application as against Article
1371.
Contrary to petitioners' assertions, there is no room for entertaining extraneous
(or parol) evidence. In Spouses Bonifacio and Lucia Paras v. Kimwa Construction and
Development Corporation, 47 we spelled out the requisites for the admission of parol
evidence:
In sum, two (2) things must be established for parol evidence to be
admitted: rst, that the existence of any of the four (4) exceptions has been put
in issue in a party's pleading or has not been objected to by the adverse party;
and second, that the parol evidence sought to be presented serves to form the
basis of the conclusion proposed by the presenting party. 48
The issue of admitting parol evidence is a matter that is proper to the trial, not
the appellate, stage of a case. Petitioners raised the issue of applying the exceptions to
the Parol Evidence Rule only in the Reply they led before this court. This is the last
pleading that either of the parties has led in the entire string of proceedings
culminating in this Decision. It is, therefore, too late for petitioners to harp on this rule.
In any case, what is at issue is not admission of evidence per se, but the appreciation
given to the evidence adduced by the parties. In the Petition they led before this court,
petitioners themselves acknowledged that checks supposedly attesting to payment of
monthly interest at the rate of 2.5% were admitted by the trial court (and marked as
Exhibits "2," "3," "4," "5," "6," "7," and "8"). 49 What petitioners have an issue with is not the
admission of these pieces of evidence but how these have not been appreciated in a
manner consistent with the conclusions they advance.
Even if it can be shown that the parties have agreed to monthly interest at the
rate of 2.5%, this is unconscionable. As emphasized in Castro v. Tan , 50 the willingness
of the parties to enter into a relation involving an unconscionable interest rate is
inconsequential to the validity of the stipulated rate:
The imposition of an unconscionable rate of interest on a money debt,
even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason whatsoever which
may justify such imposition as righteous and as one that may be sustained
within the sphere of public or private morals. 51
The imposition of an unconscionable interest rate is void ab initio for being
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"contrary to morals, and the law." 52
In determining whether the rate of interest is unconscionable, the mechanical
application of pre-established oors would be wanting. The lowest rates that have
previously been considered unconscionable need not be an impenetrable minimum.
What is more crucial is a consideration of the parties' contexts. Moreover, interest rates
must be appreciated in light of the fundamental nature of interest as compensation to
the creditor for money lent to another, which he or she could otherwise have used for
his or her own purposes at the time it was lent. It is not the default vehicle for predatory
gain. As such, interest need only be reasonable. It ought not be a supine mechanism for
the creditor's unjust enrichment at the expense of another. AIDSTE
Petitioners here insist upon the imposition of 2.5% monthly or 30% annual
interest. Compounded at this rate, respondents' obligation would have more than
doubled — increased to 219.7% of the principal — by the end of the third year after
which the loan was contracted if the entire principal remained unpaid. By the end of the
ninth year, it would have multiplied more than tenfold (or increased to 1,060.45%). In
2015, this would have multiplied by more than 66 times (or increased to 6,654.17%).
Thus, from an initial loan of only P500,000.00, respondents would be obliged to pay
more than P33 million. This is grossly unfair, especially since up to the fourth year from
when the loan was obtained, respondents had been assiduously delivering payment.
This reduces their best efforts to satisfy their obligation into a protracted servicing of a
rapacious loan.
The legal rate of interest is the presumptive reasonable compensation for
borrowed money. While parties are free to deviate from this, any deviation must be
reasonable and fair. Any deviation that is far-removed is suspect. Thus, in cases where
stipulated interest is more than twice the prevailing legal rate of interest, it is for the
creditor to prove that this rate is required by prevailing market conditions. Here,
petitioners have articulated no such justification.
In sum, Article 1956 of the Civil Code, read in light of established jurisprudence,
prevents the application of any interest rate other than that speci cally provided for by
the parties in their loan document or, in lieu of it, the legal rate. Here, as the contracting
parties failed to make a speci c stipulation, the legal rate must apply. Moreover, the
rate that petitioners adverted to is unconscionable. The conventional interest due on
the principal amount loaned by respondents from petitioners is held to be 12% per
annum.
III
Apart from respondents' liability for conventional interest at the rate of 12% per
annum, outstanding conventional interest — if any is due from respondents — shall itself
earn legal interest from the time judicial demand was made by petitioners, i.e., on July
31, 2002, when they led their Complaint. This is consistent with Article 2212 of the
Civil Code, which provides:
Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
So, too, Nacar states that "the interest due shall itself earn legal interest from the
time it is judicially demanded." 53
Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua , 54 the
interest due on conventional interest shall be at the rate of 12% per annum from July 31,
2002 to June 30, 2013. Thereafter, or starting July 1, 2013, this shall be at the rate of
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6% per annum.
IV
Proceeding from these premises, we nd that respondents made an
overpayment in the amount of P3,379.17.
As acknowledged by petitioner Salvador Abella, respondents paid a total of
P200,000.00, which was charged against the principal amount of P500,000.00. The
rst payment of P100,000.00 was made on June 30, 2001, 55 while the second
payment of P100,000.00 was made on December 30, 2001. 56
The Court of Appeals' September 30, 2010 Decision stated that respondents
paid P6,000.00 in March 1999. 57
The Pre-Trial Order dated December 2, 2002, 58 stated that the parties admitted
that "from the time the principal sum of P500,000.00 was borrowed from [petitioners],
[respondents] ha[d] been religiously paying" 59 what was supposedly interest "at the
rate of 2.5% per month." 60
From March 22, 1999 (after the loan was perfected) to June 22, 2001 (before
respondents' payment of P100,000.00 on June 30, 2001, which was deducted from the
principal amount of P500,000.00), the 2.5% monthly "interest" was pegged to the
principal amount of P500,000.00. These monthly interests, thus, amounted to
P12,500.00 per month. Considering that the period from March 1999 to June 2001
spanned twenty-seven (27) months, respondents paid a total of P337,500.00. 61
From June 22, 2001 up to December 22, 2001 (before respondents' payment of
another P100,000.00 on December 30, 2001, which was deducted from the remaining
principal amount of P400,000.00), the 2.5% monthly "interest" was pegged to the
remaining principal amount of P400,000.00. These monthly interests, thus, amounted
to P10,000.00 per month. Considering that this period spanned six (6) months,
respondents paid a total of P60,000.00. 62
From after December 22, 2001 up to June 2002 (when petitioners led their
Complaint), the 2.5% monthly "interest" was pegged to the remaining principal amount
of P300,000.00. These monthly interests, thus, amounted to P7,500.00 per month.
Considering that this period spanned six (6) months, respondents paid a total of
P45,000.00. 63
Applying these facts and the properly applicable interest rate (for conventional
interest, 12% per annum; for interest on conventional interest, 12% per annum from July
31, 2002 up to June 30, 2013 and 6% per annum henceforth), the following conclusions
may be drawn:
By the end of the rst year following the perfection of the loan, or as of March 21,
2000, P560,000.00 was due from respondents. This consisted of the principal of
P500,000.00 and conventional interest of P60,000.00.
Within this rst year, respondents made twelve (12) monthly payments totalling
P150,000.00 (P12,500.00 each from April 1999 to March 2000). This was in addition to
their initial payment of P6,000.00 in March 1999.
Application of payments must be in accordance with Article 1253 of the Civil
Code, which reads:
Art. 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
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Thus, the payments respondents made must rst be reckoned as interest
payments. Thereafter, any excess payments shall be charged against the principal. As
respondents paid a total of P156,000.00 within the rst year, the conventional interest
of P60,000.00 must be deemed fully paid and the remaining amount that respondents
paid (i.e., P96,000.00) is to be charged against the principal. This yields a balance of
P404,000.00.
By the end of the second year following the perfection of the loan, or as of March
21, 2001, P452,480.00 was due from respondents. This consisted of the outstanding
principal of P404,000.00 and conventional interest of P48,480.00.
Within this second year, respondents completed another round of twelve (12)
monthly payments totaling P150,000.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of
P156,000.00 within the second year, the conventional interest of P48,480.00 must be
deemed fully paid and the remaining amount that respondents paid (i.e., P101,520.00)
is to be charged against the principal. This yields a balance of P302,480.00.
By the end of the third year following the perfection of the loan, or as of March
21, 2002, P338,777.60 was due from respondents. This consists of the outstanding
principal of P302,480.00 and conventional interest of P36,297.60.
Within this third year, respondents paid a total of P320,000.00, as follows:
(a) Between March 22, 2001 and June 30, 2001, respondents completed three
(3) monthly payments of P12,500.00 each, totaling P37,500.00.
(b) On June 30, 2001, respondents paid P100,000.00, which was charged as
principal payment.
(c) Between June 30, 2001 and December 30, 2001, respondents delivered
monthly payments of P10,000.00 each. At this point, the monthly
payments no longer amounted to P12,500.00 each because the supposed
monthly interest payments were pegged to the supposedly remaining
principal of P400,000.00. Thus, during this period, they paid a total of six
(6) monthly payments totaling P60,000.00.
(d) On December 30, 2001, respondents paid P100,000.00, which, like the June
30, 2001 payment, was charged against the principal.
(e) From the end of December 2002 to the end of February 2002, respondents
delivered monthly payments of P7,500.00 each. At this point, the
supposed monthly interest payments were now pegged to the supposedly
remaining principal of P300,000.00. Thus, during this period, they delivered
three (3) monthly payments totaling P22,500.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of
P320,000.00 within the third year, the conventional interest of P36,927.50 must be
deemed fully paid and the remaining amount that respondents paid (i.e., P283,702.40)
is to be charged against the principal. This yields a balance of P18,777.60. EcTCAD
By the end of the fourth year following the perfection of the loan, or as of March
21, 2003, P21,203.51 would have been due from respondents. This consists of: (a) the
outstanding principal of P18,777.60, (b) conventional interest of P2,253.31, and (c)
interest due on conventional interest starting from July 31, 2002, the date of judicial
demand, in the amount of P172.60. The last (i.e., interest on interest) must be pro-
rated. There were only 233 days from July 31, 2002 (the date of judicial demand) to
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March 21, 2003 (the end of the fourth year); this left 63.83% of the fourth year, within
which interest on interest might have accrued. Thus, the full annual interest on interest
of 12% per annum could not have been completed, and only the proportional amount of
7.66% per annum may be properly imposed for the remainder of the fourth year.
From the end of March 2002 to June 2002, respondents delivered three (3) more
monthly payments of P7,500.00 each. Thus, during this period, they delivered three (3)
monthly payments totalling P22,500.00.
At this rate, however, payment would have been completed by respondents even
before the end of the fourth year. Thus, for precision, it is more appropriate to
reckon the amounts due as against payments made on a monthly, rather than
an annual, basis .
By April 21, 2002, P18,965.38 (i.e., remaining principal of P18,777.60 plus pro-
rated monthly conventional interest at 1%, amounting to P187.78) would have been due
from respondents. Deducting the monthly payment of P7,500.00 for the preceding
month in a manner consistent with Article 1253 of the Civil Code would yield a balance
of P11,465.38.
By May 21, 2002, P11,580.03 (i.e., remaining principal of P11,465.38 plus pro-
rated monthly conventional interest at 1%, amounting to P114.65) would have been due
from respondents. Deducting the monthly payment of P7,500.00 for the preceding
month in a manner consistent with Article 1253 of the Civil Code would yield a balance
of P4,080.03.
By June 21, 2002, P4,120.83 (i.e., remaining principal of P4,080.03 plus pro-rated
monthly conventional interest at 1%, amounting to P40.80) would have been due from
respondents. Deducting the monthly payment of P7,500.00 for the preceding month in
a manner consistent with Article 1253 of the Civil Code would yield a negative balance
of P3,379.17.
Thus, by June 21, 2002, respondents had not only fully paid the principal and all
the conventional interest that had accrued on their loan. By this date, they also overpaid
P3,379.17. Moreover, while hypothetically, interest on conventional interest would not
have run from July 31, 2002, no such interest accrued since there was no longer any
conventional interest due from respondents by then.
V
As respondents made an overpayment, the principle of solutio indebiti as
provided by Article 2154 of the Civil Code 64 applies. Article 2154 reads:
Article 2154. If something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.
In Moreno-Lentfer v. Wolff , 65 this court explained the application of solutio
indebiti:
The quasi-contract of solutio indebiti harks back to the ancient principle
that no one shall enrich himself unjustly at the expense of another. It applies
where (1) a payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the payment, and
(2) the payment is made through mistake, and not through liberality or some
other cause. 66
As respondents had already fully paid the principal and all conventional interest
that had accrued, they were no longer obliged to make further payments. Any further
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payment they made was only because of a mistaken impression that they were still
due. Accordingly, petitioners are now bound by a quasi-contractual obligation to return
any and all excess payments delivered by respondents.
Nacar provides that "[w]hen an obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum." 67 This applies to
obligations arising from quasi-contracts such as solutio indebiti.
Further, Article 2159 of the Civil Code provides:
Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal
interest if a sum of money is involved, or shall be liable for fruits received or
which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the
thing from any cause, and for damages to the person who delivered the thing,
until it is recovered.
Consistent however, with our nding that the excess payment made by
respondents were borne out of a mere mistake that it was due, we nd it in the better
interest of equity to no longer hold petitioners liable for interest arising from their
quasi-contractual obligation.
Nevertheless, Nacar also provides:
3. When the judgment of the court awarding a sum of money becomes nal and
executory, the rate of legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 6% per annum from such nality until its
satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit. 68
Thus, interest at the rate of 6% per annum may be properly imposed on the total
judgment award. This shall be reckoned from the nality of this Decision until its full
satisfaction. HSAcaE
WHEREFORE , the assailed September 30, 2010 Decision and the January 4,
2011 Resolution of the Court of Appeals Nineteenth Division in CA-G.R. CV No. 01388
a r e SET ASIDE . Petitioners Spouses Salvador and Alma Abella are DIRECTED to
jointly and severally reimburse respondents Spouses Romeo and Annie Abella the
amount of P3,379.17, which respondents have overpaid.
A legal interest of 6% per annum shall likewise be imposed on the total judgment
award from the finality of this Decision until its full satisfaction.
SO ORDERED .
Peralta, * Bersamin, ** Del Castillo *** and Mendoza, JJ., concur.
Footnotes
* Designated Acting Member per S.O. No. 2088 dated July 1, 2015.
** Designated Acting Member per S.O. No. 2079 dated June 29, 2015.
*** Designated Acting Chairperson per S.O. No. 2087 (Revised) dated July 1, 2015.
1. Rollo, pp. 28-42. The Decision was penned by Associate Justice Ramon A. Cruz and
concurred in by Associate Justices Pampio A. Abarintos and Myra V. Garcia-
Fernandez of the Court of Appeals Cebu.
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2. Id. at 50-51.
3. Id. at 102-112. The Decision was penned by Judge Eustaquio G. Terencio.
4. Id. at 112.
5. Id. at 53-55.
6. Id. at 29.
7. Id. at 53-55.
8. Id. at 58-63.
9. Id. at 59.
10. Id.
17. Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.
18. Rollo, p. 39.
22. Id.
23. Id. at 41.
34. Cf. interest on interest (i.e., interest due on conventional interest) and compensatory
interest/penalty interest/indemnity interest (i.e., damages paid arising from delay in
paying a fixed sum of money or delay in assessing and paying damages).
36. Id. at 368, citing CIVIL CODE, art. 1956 and Security Bank and Trust Company v. RTC of
Makati, Br. 61, 331 Phil. 787 (1996) [Per J. Hermosisima, Jr., First Division], emphasis
supplied.
37. 331 Phil. 787, 794 (1996) [Per J. Hermosisima, Jr., First Division], citing Eastern Shipping
Lines, Inc. v. Court of Appeals , G.R. No. 97412, July 12, 1994, 234 SCRA 78 [Per J.
Vitug, En Banc], emphasis supplied.
38. G.R. No. 97412, July 12, 1994, 234 SCRA 78 [Per J. Vitug, En Banc].
39. Id. at 95, citing CIVIL CODE, art. 2195, 1956, and 1169.
40. See Philippine Registered Electrical Practitioners, Inc. v. Francia, Jr. , 379 Phil. 634 (2000)
[Per J. Quisumbing, Second Division]; University of Mindanao, Inc. v. Court of
Appeals, 659 Phil. 1 (2011) [Per J. Peralta, Second Division]; and Bersabal v.
Salvador, 173 Phil. 379 (1978) [Per J. Makasiar, First Division].
41. G.R. No. 189871, August 13, 2013, 703 SCRA 439 [Per J. Peralta, En Banc].
45. Section 9. Evidence of written agreements. — When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there
can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the
parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after
the execution of the written agreement.
The term "agreement" includes wills.
46. See National Power Corporation v. Presiding Judge, RTC, 10th Judicial Region, Br. XXV,
Cagayan De Oro City, 268 Phil. 507 (1990) [Per C.J. Fernan, Third Division].
47. G.R. No. 171601, April 8, 2015, <http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2015/april2015/171601.pdf> [Per J. Leonen, Second Division].
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48. Id.
50. 620 Phil. 239, (2009) [Per J. Del Castillo, Second Division].
51. Id. at 242-243, citing Ibarra v. Aveyro , 37 Phil. 273, 282 (1917) [Per J. Torres, First
Division].
56. Id.
57. Id. at 40.
63. Id.
64. Art. 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
65. 484 Phil. 552 (2004) [Per J. Quisumbing, First Division].
66. Id. at 559-560, citing Power Commercial and Industrial Corp. v. Court of Appeals , 340 Phil.
705 (1997) [Per J. Panganiban, Third Division]; and National Commercial Bank of
Saudi Arabia v. Court of Appeals , 480 Phil. 391 (2003) [Per J. Carpio-Morales, Third
Division].
67. Nacar v. Gallery Frames , G.R. No. 189871, August 13, 2013, 703 SCRA 439, 458 [Per J.
Peralta, En Banc].
68. Id.
SYLLABUS
REMEDIAL LAW; JUDGMENT; RES JUDICATA.— The ndings of the trial court
a rmed by the appellate court that the private respondent's predecessor were
possessors of the lots in dispute with claim of ownership from 1906 to 1951 while the
petitioner was in possession as borrower in commodatum up to 1951 are res judicata
between the parties.
DECISION
GANCAYCO , J : p
The principal issue in this case is whether or not a decision of the Court of
Appeals promulgated a long time ago can properly be considered res judicata by
respondent Court of Appeals in the present two cases between petitioner and two
private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987
of the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case
No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery
of Possession, which a rmed the Decision of the Honorable Nicodemo T. Ferrer,
Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419)
and Civil Case No. 3655 (429), with the dispositive portion as follows:
"WHEREFORE, Judgment is hereby rendered ordering the defendant,
Catholic Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of
Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same
Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo
Valdez, et al.). For lack or insu ciency of evidence, the plaintiffs' claim or
damages is hereby denied. Said defendant is ordered to pay costs." (p 36, Rollo)
Respondent Court of Appeals, in a rming the trial court's decision, sustained the
trial court's conclusions that the Decision of the Court of Appeals, dated May 4, 1977 in
CA-G.R. No. 38830-R, in the two cases a rmed by the Supreme Court, touched on the
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ownership of lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good faith
from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in
commodatum up to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as owner for eleven
years, hence there is no possibility of acquisitive prescription which requires 10 years
possession with just title and 30 years of possession without; that the principle of res
judicata on these ndings by the Court of Appeals will bar a reopening of these
questions of fact; and that those facts may no longer be altered. cdll
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 rst lot being presently occupied by the convent and
the second by the women's dormitory and the sisters' convent.
Thereupon, the VICAR led 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.'
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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, led 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 Amable O. Valdez.
On February 7, 1979, the Heirs of Octaviano led with the Court of Appeals
a petition for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled
'Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar.' In its
decision dated May 16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were led. The Heirs of Egmidio
Octaviano led Civil Case No. 3607 (419) on July 24, 1979, for recovery of
possession of Lot 3; and the Heirs of Juan Valdez led Civil Case No. 3655 (429)
on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp.
199-201, Orig. Rec.).
"In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio
Octaviano presented one (1) witness, Fructuoso Valdez, who testi ed on the
alleged ownership of the land in question (Lot 3) by their predecessor-in-interest,
Egmidio Octaviano (Exh. C); his written demand (Exh. B - B-4) to defendant Vicar
for the return of the land to them; and the reasonable rentals for the use of the
land at P10,000.00 per month. On the other hand, defendant Vicar presented the
Register of Deeds for the Province of Benguet, Atty. Nicanor Sison, who testi ed
that the land in question is not covered by any title in the name of Egmidio
Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with the
testimony of Mons. William Brasseur when the plaintiffs admitted that the
witness if called to the witness stand, would testify that defendant Vicar has been
in possession of Lot 3, for seventy- ve (75) years continuously and peacefully
and has constructed permanent structures thereon.
"In Civil Case No. 3655, the parties admitting that the material facts are not
in dispute, submitted the case on the sole issue of whether or not the decisions of
the Court of Appeals and the Supreme Court touching on the ownership of Lot 2,
which in effect declared the plaintiffs the owners of the land constitute res
judicata.
"In these two cases, the plaintiffs argue that the defendant Vicar is barred
from setting up the defense of ownership and or long and continuous possession
of the two lots in question since this is barred by prior judgment of the Court of
Appeals in CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs
contend that the question of possession and ownership have already been
determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and
a rmed by the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court).
On his part, defendant Vicar maintains that the principle of res judicata would not
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prevent them from litigating the issues of long possession and ownership.
Because the dispositive portion of the prior judgment in CA-G.R. No. 038830-R
merely dismissed their application for registration and titling of lots 2 and 3.
Defendant Vicar contends that only the dispositive portion of the decision, and
not its body, is the controlling pronouncement of the Court of Appeals." 2
When petitioner Vicar was noti ed 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
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part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the
lots for taxation purposes. The action of petitioner Vicar by such adverse claim could
not ripen into title by way of ordinary acquisitive prescription because of the absence of
just title.
The Court of Appeals found that the predecessors-in-interest and private
respondents were possessors under claim of ownership in good faith from 1906; that
petitioner Vicar was only a bailee in commodatum; and that the adverse claim and
repudiation of trust came only in 1951.
We nd no reason to disregard or reverse the ruling of the Court of Appeals in
CA-G.R. No. 38830-R. Its ndings of fact have become incontestible. This Court
declined to review said decision, thereby in effect, a rming it. It has become nal 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. LibLex
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.
Footnotes
1. Associate Justices Conrado T. Limcaoco, Jose C. Campos, Jr. and Gloria C. Paras.
2. Decision in CA-G.R. No. CV Nos. 05148 and 05149 dated August 31, 1987; pp. 112-117,
Rollo.
SYLLABUS
CIVIL LAW; POSSESSION; REAL RIGHT TO POSSESS EXTINGUISHED AFTER THE LAPSE
OF TEN (10) YEARS. — Article 555 of the Civil Code provides as follows: "Art. 555. A
possessor may lose his possession: (1) By the abandonment of the thing; (2) By an
assignment made to another either by onerous or gratuitous title; (3) By the destruction or
total loss of the thing or because it goes out of commerce; (4) By the possession of
another, subject to the provisions of Article 537, if the new possession has lasted longer
than one year. But the real right of possession is not lost till after the lapse of ten years.
(460a)" From the foregoing provision of the law, particularly paragraph 4 thereof, it is clear
that the real right of possession of private respondents over the property was lost or no
longer exists after the lapse of 10 years that petitioner had been in adverse possession
thereof. Thus, the action for recovery of possession of said property led by private
respondents against petitioner must fail.
RESOLUTION
GANCAYCO , J : p
Before the Court are a motion for reconsideration and a supplemental motion for
reconsideration led by petitioner relating to the decision of the Court dated September
21, 1988. The comment and opposition thereto have been led by the private respondents
and a reply was filed by petitioner.
Petitioner argues that the ndings of facts of the Court of Appeals in CA-G.R. No. 38830-R
are: (1) contrary to the law; (2) contrary to the ndings of the trial court; (3) contrary to the
ndings of the Court of Appeals in CA-G.R. No. 08890-R; (4) contrary to the admissions of
the parties; and (5) based on a clear misapprehension of historical and ecclesiastical facts
made of judicial notice, which are well within the exceptions consistently adhered to by this
Court as in Republic vs. Court of Appeals. 1
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The Court nds no merit in this contention. The said decision of the Court of Appeals
dated May 4, 1977 in CA-G.R. No. 38830-R was already elevated to this Court by petitioner
through a petition for review in G.R. No. L-46832 entitled Catholic Vicar Apostolic of the
Mountain Province vs. Court of Appeals and Heirs of Egmidio Octaviano, while the heirs of
Juan Valdez and Pacita Valdez also led a petition for review of the same decision in this
Court docketed as G.R. No. L-46872 entitled Heirs of Juan Valdez and Pacita Valdez vs.
CA, et al. In a minute resolution dated January 13, 1978, this Court denied both petitions
for lack of merit. cdrep
It is in said petition for review wherein the petitioner should have questioned the ndings
of facts of the appellate court in CA-G.R. No. 38830-R but since said petition had been
denied outright, the aforestated decision of the appellate court which has long become
nal and executory, is res judicata as between the parties and the ndings of facts therein
are conclusive. Thus, the factual ndings in said nal judgment cannot be reviewed anew in
the present proceedings.
The relevant question that should now be asked is, considering the aforestated decision of
the appellate court and guided by the ndings of facts therein, who is entitled to the
possession of the lots in question? Who owns these lots?
CA-G.R. No. 38830-R was a land registration case where petitioner and private
respondents were asking for con rmation of their alleged imperfect titles to the lots in
question under Section 49 (b) of the Public Land Act. 2
In the said decision, the appellate court found that the petitioner was not entitled to
con rmation of its imperfect title to Lots 2 and 3. In separate motions for reconsideration
led by private respondents Heirs of Octaviano and Heirs of Juan Valdez relating to the
same decision, they also asked that said two lots be registered in their names. On August
12, 1977, the Court of Appeals denied both motions. Effectively, therefore, in the said
decision the appellate court ruled that neither the petitioner nor the private respondents
are entitled to the con rmation of imperfect title over said two lots. That is now res
judicata.
What is the nature of these two lots? Pursuant to the said decision in CA-G.R. No. 38830-R,
the two lots in question remained part of the public lands. This is the only logical
conclusion when the appellate court found that neither the petitioner nor private
respondents are entitled to confirmation of imperfect title over said lots. LLpr
Hence, the Court nds the contention of petitioner to be well-taken in that the trial court
and the appellate court have no lawful basis in ordering petitioner to return and surrender
possession of said lots to private respondents. Said property being a public land its
disposition is subject to the provision of the Public Land Act, as amended. 3
The present actions that were instituted in the Regional Trial Court by private respondents
are actions for recovery of possession (accion publiciana) and not for recovery of
ownership (accion reivindicatoria).
In the aforestated decision of the appellate court in CA-G.R. No. 38830-R, the following are
among the findings of facts:
"9th. The totality of foregoing together with evidence of oppositors must convince
this Court that as to lots 2 and 3, it was oppositors who were possessors under
bona de claim of ownership thru their predecessors since around 1906; and that
appellee came in only in the concept of a borrower in commodatum, but that
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appellee took it upon itself to claim and repudiate the trust sometime in 1951, and
since from that time at least, possession of oppositors had been interrupted,
neither can they claim registration under Sec. 48, par. b of the Public Land Law,
Com. Act 141, as amended by R.A. 1942; this must be the nal result, and there
would be no more need to rule on the errors impugning the personality of appellee
to secure registration;" 4
From the foregoing, it appears that the petitioner was in possession of the said property
as borrower in commodatum from private respondents since 1906 but in 1951 petitioner
repudiated the trust when it declared the property for tax purposes under its name. When it
led its application for registration of the said property in 1962, petitioner had been in
adverse possession of the same for at least 11 years. prLL
(3) By the destruction or total loss of the thing or because it goes out of
commerce;
(4) By the possession of another, subject to the provisions of Article 537, if the
new possession has lasted longer than one year. But the real right of possession
is not lost till after the lapse of ten years. (460a)" (Emphasis supplied.).
From the foregoing provision of the law, particularly paragraph 4 thereof, it is clear that the
real right of possession of private respondents over the property was lost or no longer
exists after the lapse of 10 years that petitioner had been in adverse possession thereof.
Thus, the action for recovery of possession of said property led by private respondents
against petitioner must fail.
The Court, therefore, nds that the trial court and the Court of Appeals erred in declaring
the private respondents to be entitled to the possession thereof. Much less can they
pretend to be owners thereof. Said lots are part of the public domain. LLjur
WHEREFORE, the motion for reconsideration is GRANTED and the decision of this Court
dated September 21, 1988 is hereby set aside and another judgment is hereby rendered
reversing and setting aside the decision of the appellate court in CA-G.R. Nos. 05148-49
dated August 31, 1987 and dismissing the complaints for recovery of possession, without
pronouncement as to costs.
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.
Footnotes
SYLLABUS
DECISION
The plaintiff brought this action to compel the defendant to return to her certain
furniture which she lent him for his use. She appealed from the judgment of the Court of
First Instance of Manila which ordered that the defendant return to her the three gas
heaters and the four electric lamps found in the possession of the Sheriff of said city,
that she call for the other furniture from the said Sheriff of Manila at her own expense,
and that the fees which the sheriff may charge for the deposit of the furniture be paid
pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's
house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the
contract of lease between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture described in the third paragraph of the
stipulation of facts, subject to the condition that the defendant would return them to
the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and
Rosario Lopez and on September 14, 1936, these three noti ed the defendant of the
conveyance, giving him sixty days to vacate the premises under one of the clauses of
the contract of lease. There after the plaintiff required the defendant to return all the
furniture transferred to him for his use. The defendant answered that she may call for
them in the house where they are found. On November 5, 1936, the defendant, through
another person, wrote to the plaintiff reiterating that she may call for the furniture in the
ground oor of the house. On the 7th of the same month, the defendant wrote another
letter to the plaintiff informing her that he could not give up the three gas heaters and
the four electric lamps because he would use them until the 15th of the same month
when the lease is due to expire. The plaintiff refused to get the furniture in view of the
fact that the defendant had declined to make delivers of all of them. On November 15th,
before vacating the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse situated at No.
1521, Rizal Avenue. in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly
applied the law: in holding that they violated the contract by not calling for all the
furniture on November 5, 1936, when the defendant placed them at their disposal; in
not ordering the defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the sheriff at their
expenses; in ordering them to pay one-half of the expenses claimed by the Sheriff for
the deposit of the furniture; in ruling that both parties should pay their respective legal
expenses or the costs; and in denying the motions for reconsideration and new trial. To
dispose of the case, it is only necessary to decide whether the defendant complied with
his obligation to return the furniture upon the plaintiff's demand; whether the latter is
bound to bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.
The contract entered into between the parties is one of commodatum, because
under it the plaintiff gratuitously granted the use of the furniture to the defendant,
reserving for herself the ownership thereof; by this contract the defendant bound
himself to return the furniture to the plaintiff, upon the latter's demand (clause 7 of the
contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code) The
obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the latter's
residence or house. The defendant did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his bene t the three gas
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heaters and the four electric lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely applicable. The trial court, therefore,
erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to bear the
expenses occasioned by the deposit of the furniture at the defendant's behest. The
latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff
under a duty to accept the offer to return the furniture, because the defendant wanted
to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to
the payment thereof by the defendant in case of his inability to return some of the
furniture, because under paragraph 6 of the stipulation of facts, the defendant has
neither agreed to nor admitted the correctness of the said value. Should the defendant
fail to deliver some of the furniture, the value thereof should be later determined by the
trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the
plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The
defendant was the one who breached the contract of commodatum, and without any
reason he refused to return and deliver all the furniture upon the plaintiff's demand. In
these circumstances, it is just and equitable that he pay the legal expenses and other
judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modi ed and the defendant is ordered to return and
deliver to the plaintiff, in the residence or house of the latter, all the furniture described
in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be
occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for
the account of the defendant. The defendant shall pay the costs in both instances. So
ordered.
Avanceña, C.J., Villa-Real, Diaz, Laurel, Concepcionand Moran, JJ., concur.
SYNOPSIS
The Supreme Court held that deduction by BPI of the amount of the check issued to
Alegre from petitioner's current account did not operate as a discharge or payment of the
instrument as the value of the check was not delivered to the payee; that a compromise
agreement which has the effect and authority of res judicata could not bind a party who
did not sign the agreement or avail of its bene ts; and that there is identity of parties and
identity of rights asserted in both the third party complaint and petitioner's ancillary claim
in the two cases, and, therefore, any judgment that may be rendered in one case will
amount to res judicata in another.
SYLLABUS
DECISION
QUISUMBING , J : p
This petition for review on certiorari assails respondent appellate court's Decision, 1
dated December 8, 1995, in CA G.R. CV No. 44085, which a rmed the ruling of the
Regional Trial Court of Makati, Branch 132. The dispositive portion of the trial court's
decision reads: cdrep
SO ORDERED." 2
Based on the records, the following are the pertinent facts of the case:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is
engaged in money market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, ve
hundred thousand (P500,000.00) pesos, in cash. Petitioner issued a promissory note to
mature on May 27, 1991. The note for ve hundred sixteen thousand, two hundred thirty-
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eight pesos and sixty-seven centavos (P516,238.67) covered private respondent's
placement plus interest at twenty and a half (20.5%) percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for
ve hundred fourteen thousand, three hundred ninety pesos and ninety-four centavos
(P514,390.94) in favor of the private respondent as proceeds of his matured investment
plus interest. The CHECK was drawn from petitioner's current account number 0011-0803-
59, maintained with the Bank of the Philippine Islands (BPI), main branch at Makati City.
On June 17, 1991, private respondent's wife deposited the CHECK with Rizal
Commercial Banking Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored the
CHECK with the annotation, that the "Check (is) Subject of an Investigation." BPI took
custody of the CHECK pending an investigation of several counterfeit checks drawn
against CIFC's aforestated checking account. BPI used the check to trace the perpetrators
of the forgery.
Immediately, private respondent noti ed CIFC of the dishonored CHECK and
demanded, on several occasions, that he be paid in cash. CIFC refused the request, and
instead instructed private respondent to wait for its ongoing bank reconciliation with BPI.
Thereafter, private respondent, through counsel, made a formal demand for the payment
of his money market placement. In turn, CIFC promised to replace the CHECK but required
an impossible condition that the original must first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint 3 for recovery of a
sum of money against the petitioner with the Regional Trial Court of Makati (RTC-Makati),
Branch 132.
On July 13, 1992, CIFC sought to recover its lost funds and formally led against
BPI, a separate civil action 4 for collection of a sum of money with the RTC-Makati, Branch
147. The collection suit alleged that BPI unlawfully deducted from CIFC's checking
account, counterfeit checks amounting to one million, seven hundred twenty-four
thousand, three hundred sixty-four pesos and fty-eight centavos (P1,724,364.58). The
action included the prayer to collect the amount of the CHECK paid to Vicente Alegre but
dishonored by BPI.
Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC
led a motion for leave of court to le a third-party complaint against BPI. BPI was
impleaded by CIFC to enforce a right, for contribution and indemnity, with respect to
Alegre's claim. CIFC asserted that the CHECK it issued in favor of Alegre was genuine, valid
and sufficiently funded.
On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to
dismiss the third-party complaint on the ground of pendency of another action with RTC-
Makati, Branch 147. Acting on the motion, the trial court dismissed the third-party
complaint on November 4, 1992, after nding that the third party complaint led by CIFC
against BPI is similar to its ancillary claim against the bank, led with RTC-Makati Branch
147. prcd
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June
22, 1993, Vito Arieta, Bank Manager of BPI, testi ed that the bank, indeed, dishonored the
CHECK, retained the original copy and forwarded only a certi ed true copy to RCBC. When
Arieta was recalled on July 20, 1993, he testi ed that on July 16, 1993, BPI encashed and
deducted the said amount from the account of CIFC, but the proceeds, as well as the
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CHECK remained in BPI's custody. The bank's move was in accordance with the
Compromise Agreement 5 it entered with CIFC to end the litigation in RTC-Makati, Branch
147. The compromise agreement, which was submitted for the approval of the said court,
provided that:
"1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of
P1,724,364.58 plus P20,000 litigation expenses as full and nal settlement
of all of plaintiff's claims as contained in the Amended Complaint dated
September 10, 1992. The aforementioned amount shall be credited to
plaintiff's current account No. 0011-0803-59 maintained at defendant's
Main Branch upon execution of this Compromise Agreement.
"2. Thereupon, defendant shall debit the sum of P514,390.94 from the
aforesaid current account representing payment/discharge of BPI Check
No. 513397 payable to Vicente Alegre.
"3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-
515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff
cannot go after the defendant: otherwise stated, the defendant shall not be
liable to the plaintiff. Plaintiff [CIFC] may however set-up the defense of
payment/discharge stipulated in par. 2 above." 6
On July 27, 1993, BPI led a separate collection suit 7 against Vicente Alegre with
the RTC-Makati, Branch 62. The complaint alleged that Vicente Alegre connived with
certain Lina A. Pena and Lita A. Anda and forged several checks of BPI's client, CIFC. The
total amount of counterfeit checks was P1,724,364.58. BPI prevented the encashment of
some checks amounting to two hundred ninety ve thousand, seven hundred seventy- ve
pesos and seven centavos (P295,775.07). BPI admitted that the CHECK, payable to
Vicente Alegre for P514,390.94, was deducted from BPI's claim, hence, the balance of the
loss incurred by BPI was nine hundred fourteen thousand, one hundred ninety-eight pesos
and fty-seven centavos (P914,198.57), plus costs of suit for twenty thousand
(P20,000.00) pesos. The records are silent on the outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of
Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The respondent court
affirmed the decision of the trial court.
Hence this appeal, 8 in which petitioner interposes the following assignments of
errors:
1. The Honorable Court of Appeals erred in a rming the nding of the
Honorable Trial Court holding that petitioner was not discharged from the
liability of paying the value of the subject check to private respondent after
BPI has debited the value thereof against petitioner's current account.
On the rst issue , petitioner contends that the provisions of the Negotiable
Instruments Law (NIL) are the pertinent laws to govern its money market transaction with
private respondent, and not paragraph 2 of Article 1249 of the Civil Code. Petitioner
stresses that it had already been discharged from the liability of paying the value of the
CHECK due to the following circumstances:
"1) There was "ACCEPTANCE" of the subject check by BPI, the drawee bank,
as de ned under the Negotiable Instruments Law, and therefore, BPI, the
drawee bank, became primarily liable for the payment of the check, and
consequently, the drawer, herein petitioner, was discharged from its liability
thereon;
2) Moreover, BPI, the drawee bank, has not validly DISHONORED the subject
check; and,
3) The act of BPI, the drawee bank of debiting/deducting the value of the
check from petitioner's account amounted to and/or constituted a
discharge of the drawer's (petitioner's) liability under the
instrument/subject check." 9
Petitioner cites Section 137 of the Negotiable Instruments Law, which states:
"Liability of drawee retaining or destroying bill — Where a drawee to whom
a bill is delivered for acceptance destroys the same, or refuses within twenty-four
hours after such delivery or such other period as the holder may allow, to return
the bill accepted or non-accepted to the Holder, he will be deemed to have
accepted the same."
Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable
for the payment of the CHECK. Consequently, when BPI offset the value of CHECK against
the losses from the forged checks allegedly committed by the private respondent, the
check was deemed paid.
Article 1249 of the New Civil Code deals with a mode of extinction of an obligation
and expressly provides for the medium in the "payment of debts." It provides that:
"The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency, which is
legal tender in the Philippines.
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The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance."
In the case at bar, the money market transaction between the petitioner and the
private respondent is in the nature of a loan. The private respondent accepted the CHECK,
instead of requiring payment in money. Yet, when he presented it to RCBC for encashment,
as early as June 17, 1991, the same was dishonored by non-acceptance, with BPI's
annotation: "Check (is) subject of an investigation." These facts were testi ed to by BPI's
manager. Under these circumstances, and after the notice of dishonor, 1 2 the holder has an
immediate right of recourse against the drawer, 1 3 and consequently could immediately file
an action for the recovery of the value of the check.
In a loan transaction, the obligation to pay a sum certain in money may be paid in
money, which is the legal tender or, by the use of a check. A check is not a legal tender, and
therefore cannot constitute valid tender of payment. In the case of Philippine Airlines, Inc.
vs. Court of Appeals, 1 4 this Court held:
"Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as payment
(citation omitted). A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor. Mere delivery of
checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document
is actually realized (Art. 1249, Civil Code, par. 3.)" 1 5
Turning now to the second issue, when the bank deducted the amount of the CHECK
from CIFC's current account, this did not ipso facto operate as a discharge or payment of
the instrument. Although the value of the CHECK was deducted from the funds of CIFC, it
was not delivered to the payee, Vicente Alegre. Instead, BPI offset the amount against the
losses it incurred from forgeries of CIFC checks, allegedly committed by Alegre. The
con scation of the value of the check was agreed upon by CIFC and BPI. The parties
intended to amicably settle the collection suit led by CIFC with the RTC-Makati, Branch
147, by entering into a compromise agreement, which reads:
xxx xxx xxx
"2. Thereupon, defendant shall debit the sum of P514,390.94 from the
aforesaid current account representing payment/discharge of BPI Check
No. 513397 payable to Vicente Alegre. cdtai
"3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-
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515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff
cannot go after the defendant; otherwise stated, the defendant shall not be
liable to the plaintiff. Plaintiff however (sic) set-up the defense of
payment/discharge stipulated in par. 2 above." 16
"No one may contract in the name of another without being authorized by
the latter, or unless he has by law a right to represent him.
"A Contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is rati ed, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party." 20
BPI's con scation of Alegre's money constitutes garnishment without the parties
going through a valid proceeding in court. Garnishment is an attachment by means of
which the plaintiff seeks to subject to his claim the property of the defendant in the hands
of a third person or money owed to such third person or a garnishee to the defendant. 2 1
The garnishment procedure must be upon proper order of RTC-Makati, Branch 62, the
court who had jurisdiction over the collection suit led by BPI against Alegre. In effect,
CIFC has not yet tendered a valid payment of its obligation to the private respondent.
Tender of payment involves a positive and unconditional act by the obligor of offering legal
tender currency as payment to the obligee for the former's obligation and demanding that
the latter accept the same. 2 2 Tender of payment cannot be presumed by a mere inference
from surrounding circumstances.
With regard to the third issue, for litis pendentia to be a ground for the dismissal of
an action, the following requisites must concur: (a) identity of parties or at least such as to
represent the same interest in both actions; (b) identity of rights asserted and relief prayed
for, the relief being founded on the same acts; and (c) the identity in the two cases should
be such that the judgment which may be rendered in one would, regardless of which party
is successful, amount to res judicata in the other. 2 3
The trial court's ruling as adopted by the respondent court states, thus:
"A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu
International Finance Corporation vs. Bank of the Philippine Islands now pending
before Branch 147 of this Court and the Third Party Complaint in the instant case
would readily show that the parties are not only identical but also the cause of
action being asserted, which is the recovery of the value of BPI Check No. 513397
is the same. In Civil Case No. 92-1940 and in the Third Party Complaint the rights
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asserted and relief prayed for, the reliefs being founded on the facts, are identical.
xxx xxx xxx
WHEREFORE, the motion to dismiss is granted and consequently, the Third
Party Complaint is hereby ordered dismissed on ground of lis pendens." 2 4
We agree with the observation of the respondent court that, as between the third
party claim led by the petitioner against BPI in Civil Case No. 92-515 and petitioner's
ancillary claim against the bank in Civil Case No. 92-1940, there is identity of parties as
well as identity of rights asserted, and that any judgment that may be rendered in one case
will amount to res judicata in another. LibLex
The compromise agreement between CIFC and BPI, categorically provided that "In
case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the
alleged dishonor of BPI Check No. 513397, plaintiff (CIFC) cannot go after the defendant
(BPI); otherwise stated, the defendant shall not be liable to the plaintiff." 2 5 Clearly, this
stipulation expressed that CIFC had already abandoned any further claim against BPI with
respect to the value of BPI Check No. 513397. To ask this Court to allow BPI to be a party
in the case at bar, would amount to res judicata and would violate terms of the
compromise agreement between CIFC and BPI. The general rule is that a compromise has
upon the parties the effect and authority of res judicata, with respect to the matter
de nitely stated therein, or which by implication from its terms should be deemed to have
been included therein. 2 6 This holds true even if the agreement has not been judicially
approved. 2 7
WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 44085 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Mendoza and Buena, JJ., concur.
Bellosillo, J., is on official leave.
Footnotes
1. Rollo, pp. 46-52.
2. Court of Appeals Rollo, p. 65.
3. Vicente Alegre vs. Cebu International Finance, Corporation, Civil Case No. 92-515; Record,
Regional Trial Court, pp. 1-12.
4. Cebu International Finance Corporation vs. Bank of the Philippine Islands, Civil Case No.
92-1940; Court of Appeals, Rollo pp. 67-77.
SYLLABUS
DECISION
JOHNSON , J : p
"Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en
el Municipio de Tarlac. Linda por el O. y N. con propiedad de Manuel Urquico; por
el E. con propiedad de la Manila Railroad Co.; y por el S. con un camino. Partiendo
de un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17' E.
859.42 m. del mojon de localizacion No. 2 de la O cina de Terrenos en Tarlac; y
desde dicho punto 1 N. 81 gds. 31' O., 77 m. al punto 2; desde.este punto N. 4
gds. 22' E.; 54.70 m. al punto 3; desde este punto S. 86 gds. 17' E.; 69.25 m. al
punto 4; desde este punto S. 2 gds. 42' E., 61.48 m. al punto de partida; midiendo
una extension super cial de cuatro mil doscientos diez y seis metros cuadrados
(4,216) mas o menos. Todos los puntos nombrados se hallan marcados en el
plano y sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L.
S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.; la
orientacion seguida es la verdadera, siendo la declinacion magnetica de 0 gds.
45' E. y la fecha de la medicion, 1.º de febrero de 1913.
"Segundo. Que es condicion de esta venta la de que si en el plazo de cinco
(5) anos contados desde el dia l.o de diciembre de 1922, devolvemos al
expresado Don Benito Gonzalez Sy Chiam el referido precio de diecisiete mil
quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez Sy Chiam
a retrovendernos la nca arriba descrita; pero si transcurre dicho plazo de cinco
años sin ejercitar el derecho de retracto que nos hemos reservado, entonces
quedara esta venta absoluta e irrevocable.
"Tercero. Que durante el expresado termino del retracto tendremos en
arrendamiento la finca arriba descrita, sujeto a condiciones siguientes:
"(a) El alquiler que nos obligamos a pagar por mensualidades
vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, sera de trescientos
setenta y cinco pesos (P375) moneda filipina, cada mes.
"(b) El amillaramiento de la nca arrendada sera por cuenta de dicho
Don Benito Gonzalez Sy Chiam, asi como tambien la prima del seguro contra
incendios, si le conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar
dicha finca.
"(c) La falta de pago del alquiler aqui estipulado por dos meses
consecutivos dara lugar a la terminacion de este arrendamiento y a la perdida del
derecho de retracto que nos hemos reservado, como si naturalmente hubiera
expirado el termino para ello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam
tomar posesion de la finca y desahuciarnos de la misma.
"Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto
esta escritura en los precisos terminos en que la dejan otorgada los conyuges
Severino Tolentino y Potenciana Manio.
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"En testimonio de todo lo cual, rmamos la presente de nuestra mano en
Manila, por cuadruplicado en Manila, hoy a 28 de noviemhre 1922
(Fdo.) "SEVERINO TOLENTINO
(Fda.) "POTENCIANA MANIO
(Fdo.) "BENITO GONZALEZ SY CHIAM
"Firmado en presencia de:
(Fdos.) "MOISES M. BUHAIN
"B. S. BANAAG
An examination of said contract of sale with to the rst question above, shows
clearly that it is a pacto de retro and not a mortgage. There is no pretension on the part
of the appellant that said contract, standing alone, is a mortgage. The pertinent
language of the contract is:
"Segundo. Que es condicion de esta venta la de que si en el plazo de cinco
(5) aiios contados desde el dia l.o de diciembre de 1922, devolvemos al
expresado Don Benito Gonzalez Sy Chiam el referido precio de diecisiete mil
quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez Sy Chiam
a retrovendernos la finca arriba descrita; pero si transcurre dicho plazo de cinco
(5) anos sin ejercitar el derecho de retracto que nos hemos reservado, entonces
quedara esta venta absoluta e irrevocable."
Language cannot be clearer. The purpose of the contract is expressed clearly in
said quotation that there can certainly be no doubt as to the purpose of the plaintiff to
sell the property in question, reserving the right only to repurchase the same. The
intention to sell with the right to repurchase cannot be more clearly expressed.
It will be noted from a reading of said sale of pacto de retro, that the vendor,
recognizing the absolute sale of the property, entered into a contract with the
purchaser by virtue of which she became the "tenant" of the purchaser. That contract of
rent appears in said quoted document above as follows:
"Tercero. Que durante el expresado termino del retracto tendremos en
arrendamiento la finca arriba descrita, sujeto a condiciones siguientes:
"(a) El alquiler que nos obligamos a pagar por mensualidades
vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, sera de trescientos
setenta y cinco pesos (P375) moneda filipina, cada mes.
"(b) El amillaramiento de la nca arrendada sera por cuenta de dicho
Don Benito Gonzalez Sy Chiam, asi como tambien la prima del seguro contra
incendios, si le conviniera al referido ISr. Benito Gonzalez Sy Chiam asegurar
dicha finca."
From the foregoing, we are driven to the following conclusions: First, that the
contract of pacto de retro is an absolute sale of the property with the right to
repurchase and not a mortgage; and, second, that by virtue of the said contract the
vendor became the tenant of the purchaser, under the conditions mentioned in
paragraph 3 of said contract quoted above.
It has been the uniform theory of this court, due to the severity of a contract of
pacto de retro, to declare the same to be a mortgage and not a sale whenever the
interpretation of such a contract justi es that conclusion. There must be something,
however, in the language of the contract or in the conduct of the parties which shows
clearly and beyond doubt that they intended the contract to be a "mortgage" and not a
pacto de retro. (International Banking Corporation vs. Martinez, 10 Phil. 252; Padilla vs.
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Linsangan, 19 Phil., 65; Cumagun vs. Allingay, 19 Phil., 415; Olino vs. Medina, 13 Phil.,
379; Manalo vs. Gueco, 42 Phil., 925; Velazquez vs. Teodoro, 46 Phil., 757; Villa vs.
Santiago, 38 Phil., 157.)
We are not unmindful of the fact that sales with pacto de retro are not favored,
and that the court will not construe an instrument to be one of sale with pacto de retro,
with the stringent and onerous effect which follows, unless the terms of the document
and the surrounding circumstances require it. (Manalo vs. Gueco, supra.)
While it is a general rule that parol evidence is not admissible for the purpose of
varying the terms of a contract, but when an issue is squarely presented that a contract
does not express the intention of the parties, courts will, when a proper foundation is
laid therefor, hear evidence for the purpose of ascertaining the true intention of the
parties. (Manalo vs. Gueco, supra.)
In the present case the plaintiffs allege in their complaint that the contract in,
question is a pacto de retro. They admit that they signed it. They admit that they sold
the property in question with the right to repurchase it. The terms of the contract
quoted above clearly show that the transfer of the land in question by the plaintiffs to
the defendant was a "sale" with pacto de retro, and the plaintiffs have shown no
circumstance whatever which would justify us in construing said contract to be a mere
"loan" with guaranty. In every case in which this court has construed a contract to be a
mortgage or a loan instead of a sale with pacto de retro, it has done so, either because
the terms of such contract are ambiguous or because the circumstances surrounding
the execution or the performance of the contract were incompatible or inconsistent
with the theory that said contract was one of purchase and sale. (Olino vs. Medina,
supra; Padilla vs. Linsangan, supra; Manlagnit vs. Dy Puico, 34 Phil., 325; Rodriguez vs.
Pamintuan and De Jesus, 37 Phil., 876.)
In the case of Padilla vs. Linsangan the term employed in the contract to indicate
the nature of the conveyance of the land was "pledged" instead of "sold." In the case of
Manlagnit vs. Dy Puico, while the vendor used the terms "sale and transfer with the right
to repurchase," yet in said contract he described himself as a "debtor," the purchaser as
a "creditor" and the contract as a "mortgage." In the case of Rodriguez vs. Pamintuan
and De Jesus the person who executed the instrument, purporting on its face to be a
deed of sale of certain parcels of land, had merely acted under a power of attorney
from the owner of said land, "authorizing him to 'borrow' money in such amount and
upon such terms and conditions as he might deem proper, and to secure payment of
the loan by a mortgage." In the case of Villa vs. Santiago (38 Phil., 157), although a
contract purporting to be a deed of sale was executed, the supposed vendor remained
in possession of the land and invested the money he had obtained from the supposed
vendee in making improvements thereon, which fact justi ed the court in holding that
the transaction was a mere loan and not a sale. In the case of Cuyugan vs. Santos (39
Phil., 970), the purchaser accepted partial payments from the vendor, and such
acceptance of partial payments "is absolutely incompatible with the idea of
irrevocability of the title of ownership of the purchaser at the expiration of the term
stipulated in the original contract for the exercise of the right of repurchase."
Referring again to the right of the parties to vary the terms of a written contract,
we quote from the dissenting opinion of Chief Justice Cayetano S. Arellano in the case
of Government of the Philippine Islands vs. Philippine Sugar Estates Development Co.
(30 Phil., 27, 38), which case was appealed to the Supreme Court of the United States
and the contention of the Chief Justice in his dissenting opinion was a rmed and the
decision of the Supreme Court of the Philippine Islands was reversed. (See decision of
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the Supreme Court of the United States, June 3, 1918.) 1 The Chief Justice said in
discussing that question:
"According to article 1282 of the Civil Code, in order to judge of the
intention of the contracting parties, consideration must chie y be paid to those
acts executed by said parties which are contemporary with and subsequent to the
contract. And according to article 1283, however general the terms of a contract
may be, they must not be held to include things and cases different from those
with regard to which the interested parties agreed to contract." The Supreme Court
of the Philippine Islands held that parol evidence was admissible in that case to
vary the terms of the contract between the Government of the Philippine Islands
and the Philippine Sugar Estates Development Co. In the course of the opinion of
the Supreme Court of the United States Mr. Justice Brandeis, speaking for the
court, said:
"It is well settled that courts of equity will reform a written contract where,
owing to mutual mistake, the language used therein did not fully or accurately
express the agreement and intention of the parties. The fact that interpretation or
construction of a contract presents a question of law and that, therefore, the
mistake was one of law is not a bar to granting relief. . . . This court is always
disposed to accept the construction which the highest court of a territory or
possession has placed upon a local statute. But that disposition may not be
yielded to where the lower court has clearly erred. Here the construction adopted
was rested upon a clearly erroneous assumption as to an established rule of
equity. . . . The burden of proof resting upon the appellant cannot be satis ed by
mere preponderance of the evidence. It is settled that relief by way of reformation
will not be granted unless the proof of mutual mistake be 'of the clearest and
most satisfactory character."'
The evidence introduced by the appellant in the present case does not meet with
that stringent requirement. There is not a word, a phrase, a sentence or a paragraph in
the entire record, which justi es this court in holding that the said contract of pacto de
retro is a mortgage and not a sale with the right to repurchase. Article 1281 of the Civil
Code provides: "If the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal sense of its stipulations shall be
followed." Article 1282 provides: "In order to judge as to the intention of the contracting
parties, attention must be paid principally to their conduct at the time of making the
contract and subsequently thereto."
We cannot conclude this branch of our discussion of the question involved,
without quoting from that very well reasoned decision of the late Chief Justice Arellano,
one of the greatest jurists of his time. He said, in discussing the question whether or
not the contract, in the case of Lichauco vs. Berenguer (20 Phil., 12), was a pacto de
retro or a mortgage:
"The public instrument, Exhibit C, in part reads as follows: 'Don Macario
Berenguer declares and states that he is the proprietor in fee simple of two
parcels of fallow unappropriated crown land situated within the district of his
pueblo. The rst has an area of 73 quiñones, 8 balitas, and 8 loanes, located in
the sitio of Batasan, and its boundaries are, etc., etc. The second is in the sitio of
Panantaglay, barrio of Calumpang, has an area of 73 hectares, 22 ares, and 6
centares, and is bounded on the north, etc., etc.'
"In the executory part of the said instrument, it is stated:
" 'That under condition of right to repurchase (pacto de retro) he sells the
said properties to the aforementioned Dona Cornelia Laochangco for P4,000 and
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upon the following conditions: First, the sale stipulated shall be for the period of
two years, counting from this date, within which time the deponent shall be
entitled to repurchase the land sold upon payment of its price; second, the lands
sold shall, during the term of the present contract, be held in lease by the
undersigned who shall pay, as rental therefor, the sum of 400 pesos per annum,
or the equivalent in sugar at the option of the vendor; third, all the fruits of the
said lands shall be deposited in the sugar depository of the vendee, situated in the
district of Quiapo of this city, and the value of which shall be applied on account
of the price of this sale; fourth, the deponent acknowledges that he has received
from the vendor the purchase price of P4,000 already paid, and in legal tender
currency of this country . . .; fth, all the taxes which may be assessed against the
lands surveyed by competent authority, shall be payable by and constitute a
charge against the vendor; sixth, if, through any unusual event, such as ood,
tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly
or in part, it shall be incumbent upon the vendor to repair the damage thereto at
his own expense and to put them into a good state of cultivation, and should he
fail to do so he binds himself to give to the vendee other lands of the same area,
quality and value.'
xxx xxx xxx
"The opponent maintained, and his theory was accepted by the trial court,
that Berenguer's contract with Laochangco was not one of sale with right of
repurchase, but merely one of loan secured by those properties, and,
consequently, that the ownership of the lands in question could not have been
conveyed to Laochangco, inasmuch as it continued to be held by Berenguer, as
well as their possession, which he had not ceased to enjoy.
"Such a theory is, as argued by the appellants, erroneous. The instrument
executed by Macario Berenguer, the text of which has been transcribed in this
decision, is very clear. Berenguer's heirs may not go counter to the literal tenor of
the obligation, the exact expression of the consent of the contracting parties
contained in the instrument, Exhibit C. Not because the lands may have continued
in possession of the vendor, not because the latter may have assumed the
payment of the taxes on such properties, nor yet because the same party may
have bound himself to substitute by another any one of the properties which
might be destroyed, does the contract cease to be what it is, as set forth in detail
in the public instrument. The vendor continued in the possession of the lands, not
at the owner thereof as before their sale, but as the lessee which he became after
its consummation, by virtue of a contract executed in his favor by the vendee in
the deed itself, Exhibit C. Right of ownership is not implied by the circumstance of
the lessee's assuming the responsibility of the payment of the taxes on the
property leased, for their payment is not peculiarly incumbent upon the owner, nor
is such right implied by the obligation to substitute the thing sold for another
while in his possession under lease, since that obligation came from him and he
continues under another character in its possession— a reason why he
guarantees its integrity and obligates himself to return the thing even in a case of
force majeure. Such liability, as a general rule, is foreign to contracts of lease and,
if required, is exorbitant, but possible and lawful, if voluntarily agreed to, and such
agreement does not on this account involve any sign of ownership, nor other
meaning than the will to impose upon oneself scrupulous diligence in the care of
a thing belonging to another.
"The purchase and sale, once consummated, is a contract which by its
nature transfers the ownership and other rights in the thing sold. A pacto de retro,
or sale with right to repurchase, is nothing but a personal right stipulated between
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the vendee and the vendor, to the end that the latter may again acquire the
ownership of the thing alienated.
"'It is true, very true indeed, that the sale with right of repurchase is
employed as a method of loan; it is like wise true that in practice many cases
occur where the consummation of a pacto de retro sale means the nancial ruin
of a person; it is also, unquestionable that in pacto de retro sales very important
interests often intervene, in the form of the price of the lease of the thing sold,
which is stipulated as an additional covenant.' (Manresa, Civil Code, p. 274.)
"But in the present case, unlike others heard by this court, there is no proof
that the sale with right of repurchase, made by Berenguer in favor of Laochangco
is rather a mortgage to secure a loan."
We come now to a discussion of the second question presented above, and that
is, stating the same in another form: May a tenant charge his landlord with a violation of
the Usury Law upon the ground that the amount of rent he pays, based upon the real
value of the property, amounts to a usurious rate of interest? When the vendor of
property under a pacto de retro rents the property and agrees to pay a rental value for
the property during the period of his right to repurchase, he thereby becomes a "tenant"
and in all respects stands in the same relation with the purchaser as a tenant under any
other contract of lease.
The appellant contends that the rental price paid during the period of the
existence of the right to repurchase, or the sum of P375 per month, based upon the
value of the property, amounted to usury. Usury, generally speaking, may be de ned as
contracting for or receiving something in excess of the amount allowed by law for the
loan or forbearance of money — the taking of more interest for the use of money than
the law allows. It seems that the taking of interest for the loan of money, at least the
taking of excessive interest has been regarded with abhorrence from the earliest times.
(Dunham vs. Gould, 16 Johnson [N. Y.], 367.) During the middle ages the people of
England, and especially the English Church, entertained' the opinion, then current in
Europe, that the taking of any interest for the loan of money was a detestable vice,
hateful to man and contrary to the laws of God. (3 Coke's Institute, 150; Tayler on
Usury, 44.)
Chancellor Kent, in the case of Dunham vs. Gould, supra, said: "If we look back
upon history, we shall nd that there is scarcely any people, ancient or modern, that
have not had usury laws. . . . The Romans, through the greater part of their history, had
the deepest abhorrence of usury. . . . It will be deemed a little singular, that the same
voice against usury should have been raised in the laws of China, in the Hindu institutes
of Menu, in the Koran of Mahomet, and perhaps, we may say, in the laws of all nations
that we know of, whether Greek or Barbarian."
The collection of a rate of interest higher than that allowed by law is condemned
by the Philippine Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the
owner of a property to enter into a contract with the tenant for the payment of a
speci c amount of rent for the use and occupation of said property, even though the
amount paid as "rent," based upon the value of the property, might exceed the rate of
interest allowed by law? That question has never been decided in this jurisdiction. It is
one of rst impression. No cases have been found in this jurisdiction answering that
question. Act No. 2655 is "An Act xing rates of interest upon 'loans' and declaring the
effect of receiving or taking usurious rates."
It will be noted that said statute imposes a penalty upon a "loan" or forbearance
of any money, goods, chattels or credits, etc. The central idea of said statute is to
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prohibit a rate of interest on "loans." A contract of "loan" is a very different contract
from that of "rent". A "loan," as that term is used in the statute, signi es the giving of a
sum of money, goods or credits to another, with a promise to repay, but not a promise
to return the same thing. To "loan," in general parlance, is to deliver to another for
temporary use, on condition that the thing or its equivalent be returned; or to deliver for
temporary use on condition that an equivalent in kind shall be returned with a
compensation for its use. The word "loan," however, as used in the statute, has a
technical meaning. It never means the return of the same thing. It means the return of
an equivalent only, but never the same thing loaned. A "loan" has been properly de ned
as an advancement of money, goods or credits upon a contract or stipulation to repay,
not to return, the thing loaned at some future day in accordance with the terms of the
contract. Under the contract of "loan," as used in said statute, the moment the contract
is completed the money, goods or chattels given cease to be the property of the former
owner and becomes the property of the obligor to be used according to his own will,
unless the contract itself expressly provides for a special or speci c use of the same.
At all events, the money, goods or chattels, the moment the contract is executed, cease
to be the property of the former owner and becomes the absolute property of the
obligor.
A contract of "loan" differs materially from a contract of "rent." ln a contract of
"rent" the owner of the property does not lose his ownership. He simply loses his
control over the property rented during the period of the contract. In a contract of "loan"
the thing loaned becomes the property of the obligor. In a contract of "rent" the thing
still remains the property of the lessor. He simply loses control of the same in a limited
way during the period of the contract of "rent" or lease. In a contract of "rent" the
relation between the contractors is that of landlord and tenant. In a contract of "loan" of
money, goods, chattels or credits, the relation between the parties is that of obligor and
obligee. "Rent" may be de ned as the compensation either in money, provisions,
chattels, or labor, received by the owner of the soil from the occupant thereof. It is
de ned as the return or compensation for the possession of some corporeal
inheritance, and is a pro t issuing out of lands or tenements, in return for their use. It is
that, which is to be paid for the use of land, whether in money, labor or other thing
agreed upon. A contract of "rent" is a contract by which one of the parties delivers to
the other some nonconsumable thing, in order that the latter may use it during a certain
period and return it to the former; whereas a contract of "loan," as that word is used in
the statute, signi es the delivery of money or other consumable things upon condition
of returning an equivalent amount of the same kind or quantity, in which cases it is
called merely a "loan." In the case of a contract of "rent," under the civil law, it is called a
"commodatum."
From the foregoing it will be seen that there is a wide distinction between a
contract of "loan," as that word is used in the statute, and a contract of "rent" even
though those words are used in ordinary parlance as interchangeable terms.
The value of money, goods or credits is easily ascertained while the amount of
rent to be paid for the use and occupation of the property may depend upon a thousand
different conditions; as for example, farm lands of exactly equal productive capacity
and of the same physical value may have a different rental value, depending upon
location, prices of commodities, proximity to the market, etc. Houses may have a
different rental value due to location, conditions of business, general prosperity or
depression, adaptability to particular purposes, even though they have exactly the same
original cost. A store on the Escolta, in the center of business, constructed exactly like a
store located outside of the business center, will have a much higher rental value than
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the other. Two places of business located in different sections of the city may be
constructed exactly on the same architectural plan and yet one, due to particular
location or adaptability to a particular business which the lessor desires to conduct,
may have a very much higher rental value than one not so located and not so well
adapted to the particular business. A very cheap building on the carnival ground may
rent for more money, due to the particular circumstances and surroundings, than a
much more valuable property located elsewhere. It will thus be seen that the rent to be
paid for the use and occupation of property is not necessarily xed upon the value of
the property. The amount of rent is xed, based upon a thousand different conditions
and may or may not have any direct reference to the value of the property rented. To
hold that "usury" can be based upon the comparative actual rental value and the actual
value of the property, is to subject every landlord to an annoyance not contemplated by
the law, and would create a very great disturbance in every business or rural
community. We cannot bring ourselves to believe that the Legislature contemplated any
such disturbance in the equilibrium of the business of the country.
In the present case the property in question was sold. It was an absolute sale
with the right only to repurchase. During the period of redemption the purchaser was
the absolute owner of the property. During the period of redemption the vendor was not
the owner of the property. During the period of redemption the vendor was a tenant of
the purchaser. During the period of redemption the relation which existed between the
vendor and the vendee was that of landlord and tenant. That relation can only be
terminated by a repurchase of the property by the vendor in accordance with the terms
of the said contract. The contract was one of rent. The contract was not a loan, as that
word is used in Act No. 2655.
As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts
have no right to make contracts for parties. They made their own contract in the
present case. There is not a word, a phrase, a sentence or para- graph, which in the
slightest way indicates that the parties to the contract in question did not intend to sell
the property in question absolutely, simply with the right to repurchase. People who
make their own beds must lie thereon.
What has been said above with reference to the right to modify contracts by
parol evidence, su ciently answers the third question presented above. The language
of the contract is explicit, clear, unambiguous and beyond question. It expresses the
exact intention of the parties at the time it was made. There is not a word, a phrase, a
sentence or paragraph found in said contract which needs explanation. The parties
thereto entered into said contract with the full understanding of its terms and should
not now be permitted to change or modify it by parol evidence.
With reference to the improvements made upon said property by the plaintiffs
during the life of the contract, Exhibit C, there is hereby reserved to the plaintiffs the
right to exercise in a separate action the right guaranteed to them under article 361 of
the Civil Code.
For all of the foregoing reasons, we are fully persuaded from the facts of the
record, in relation with the law applicable thereto, that the judgment appealed from
should be and is hereby affirmed, with costs. So ordered.
Avanceña, C. J., Street, Villamor, Romualdez, and Villa-Real. JJ.. concur.
Separate Opinions
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MALCOLM , J., dissenting :
SYNOPSIS
In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted by the
Carmelite Sisters of Cagayan de Oro City to renovate the latter's convent at Camaman-an,
Cagayan de Oro City. On 30 October 1979, petitioners obtained various construction
materials from CM Builders Centre for the said project. The following day, petitioners
applied for a commercial letter of credit with the Philippine Banking Corporation (PBC),
Cagayan de Oro City Branch in favor of CM Builders Centre. PBC approved the letter of
credit to cover the full invoice value of the goods. Petitioners signed the pro-forma trust
receipt as security. The said loan was due on 29 January 1980. However, petitioners failed
to pay the whole amount on its due date. Several demand letters were sent to them.
Petitioners proposed that the terms of payment of the loan shall be modi ed. Pending
approval of the said proposal, petitioners paid some amounts. Concurrently with the
separate demand for attorney's fees by PBC's legal counsel, PBC continued to demand
payment of the balance. On 14 January 1983, petitioners were charged with violation of
P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code.
During trial, petitioners insisted that the transaction was that of an ordinary loan.
Subsequently, the trial court convicted the petitioners for the offense charged. On appeal,
the Court of Appeals a rmed the conviction of petitioners and increased the penalty
imposed. Thus, petitioners raised the issue to this Court. Pending resolution, petitioners
led a Motion to Dismiss on the ground that they had already fully paid PBC. Attached
thereto was the affidavit of desistance executed by PBC. HCSDca
This Court ruled that a thorough examination of the facts obtaining in the case at bar
revealed that the transaction intended by the parties was a simple loan, not a trust receipt
agreement. Petitioners are not importers acquiring the good for re-sale, contrary to the
express provision embodied in the trust receipt. They are contractors who obtained the
fungible goods for their construction project. At no time did title over the construction
materials pass to the bank, but directly to the petitioners from CM Builders Centre. This
impressed upon, the trust receipt in question vagueness and ambiguity, which should not
be the basis for criminal prosecution in the event of violation of its provisions. The practice
of banks of making borrowers sign trust receipts to facilitate collection of loans and place
them under the threats of criminal prosecution should they be unable to pay it, may be
unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion
which borrowers have no option but to sign lest their loan be disapproved. The resort to
this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to
misinterpretation, as had happened in this case. Eventually, PBC showed its true colors
and admitted that it was only after collection of the money, as manifested by its A davit
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of Desistance.
Petitioners were ACQUITTED.
SYLLABUS
5. ID.; ID.; ID.; TWO POSSIBLE SITUATIONS. — There are two possible situations
in a trust receipt transaction. The rst is covered by the provision which refers to money
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received under the obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to merchandise
received under the obligation to "return" it (devolvera) to the owner.HDaACI
11. ID.; ID.; ID.; FACT THAT THE GOODS WERE DELIVERED PREVIOUS TO THE
EXECUTION OF THE LETTER OF CREDIT AND TRUST RECEIPT SHOWS THAT THE
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TRANSACTION WAS INDEED A LOAN. — PBC attempted to cover up the true delivery date
of the merchandise, yet the trial court took notice even though it failed to attach any
signi cance to such fact in the judgment. Despite the Court of Appeals' contrary view that
the goods were delivered to Petitioners previous to the execution of the letter of credit and
trust receipt, we nd that the records of the case speak volubly and this fact remains
uncontroverted. It is not uncommon for us to peruse through the transcript of the
stenographic notes of the proceedings to be satis ed that the records of the case do
support the conclusions of the trial court.
12. ID.; ID.; DISHONESTY AND ABUSE OF CONFIDENCE IN THE HANDLING OF
MONEY OR GOODS TO THE PREJUDICE OF ANOTHER, NOT PRESENT IN CASE AT BAR. —
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes
the dishonesty and abuse of confidence in the handling of money or goods to the prejudice
of another regardless of whether the latter is the owner. Here, it is crystal clear that on the
part of Petitioners there was neither dishonesty nor abuse of con dence in the handling of
money to the prejudice of PBC. Petitioners continually endeavored to meet their
obligations, as shown by several receipts issued by PBC acknowledging payment of the
loan.
13. ID.; ID.; PRACTICE OF BANKS REQUIRING BORROWERS TO SIGN TRUST
RECEIPTS UNDER THREAT OF CRIMINAL PROSECUTION SHOULD THEY BE UNABLE TO
PAY THEIR LOANS, REPREHENSIBLE AS THEY ARE CONTRACTS OF ADHESION. — The
practice of banks of making borrowers sign trust receipts to facilitate collection of loans
and place them under the threats of criminal prosecution should they be unable to pay it
may be unjust and inequitable, if not reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest their loan be disapproved. The
resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is
prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true
colors and admitted that it was only after collection of the money, as manifested by its
Affidavit of Resistance. DSETac
DECISION
On 2 December 1980, Petitioners proposed 1 0 that the terms of payment of the loan
be modi ed as follows: P2,000 on or before 3 December 1980, and P1,000 per month
starting 31 January 1980 until the account is fully paid. Pending approval of the proposal,
Petitioners paid P1,000 to PBC on 4 December 1980, 1 1 and thereafter P500 on 11
February 1981, 1 2 16 March 1981, 1 3 and 20 April 1981. 1 4 Concurrently with the separate
demand for attorney's fees by PBC's legal counsel, PBC continued to demand payment of
the balance. 1 5
On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115
(Trust Receipts Law) in relation to Article 315 of the Revised Penal Code in an Information
which was led with Branch 18, Regional Trial Court of Cagayan de Oro City. The
accusatory portion of the Information reads:
That on or about October 31, 1979, in the City of Cagayan de Oro,
Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused entered into a trust receipt agreement with the Philippine Banking
Corporation at Cagayan de Oro City wherein the accused, as entrustee, received
from the entruster the following goods to wit:
Solatone Acoustical board
The grant or denial of a motion for new trial rests upon the discretion of the judge.
New trial may be granted if: (1) errors of law or irregularities have been committed during
the trial prejudicial to the substantial rights of the accused; or (2) new and material
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evidence has been discovered which the accused could not with reasonable diligence have
discovered and produced at the trial, and which, if introduced and admitted, would
probably change the judgment. 2 6
For newly discovered evidence to be a ground for new trial, such evidence must be
(1) discovered after trial; (2) could not have been discovered and produced at the trial even
with the exercise of reasonable diligence; and (3) material, not merely cumulative,
corroborative, or impeaching, and of such weight that, if admitted, would probably change
the judgment. 2 7 It is essential that the offering party exercised reasonable diligence in
seeking to locate the evidence before or during trial but nonetheless failed to secure it. 2 8
We nd no indication in the pleadings that the Disclosure Statement is a newly
discovered evidence.
Petitioners could not have been unaware that the two-page document exists. The
Disclosure Statement itself states, "NOTICE TO BORROWER: YOU ARE ENTITLED TO A
COPY OF THIS PAPER WHICH YOU SHALL SIGN." 2 9 Assuming Petitioners' copy was then
unavailable, they could have compelled its production in court, 3 0 which they never did.
Petitioners have miserably failed to establish the second requisite of the rule on newly
discovered evidence.
Petitioners themselves admitted that "they searched again their voluminous records,
meticulously and patiently, until they discovered this new and material evidence" only upon
learning of the Court of Appeals' decision and after they were "shocked by the penalty
imposed." 3 1 Clearly, the alleged newly discovered evidence is mere forgotten evidence
that jurisprudence excludes as a ground for new trial. 3 2
However, the second issue should be resolved in favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, de nes a trust receipt transaction
as any transaction by and between a person referred to as the entruster, and another
person referred to as the entrustee, whereby the entruster who owns or holds absolute
title or security interest over certain speci ed goods, documents or instruments, releases
the same to the possession of the entrustee upon the latter's execution and delivery to the
entruster of a signed document called a "trust receipt" wherein the entrustee binds himself
to hold the designated goods, documents or instruments with the obligation to turn over
to the entruster the proceeds thereof to the extent of the amount owing to the entruster or
as appears in the trust receipt or the goods, documents or instruments themselves if they
are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The rst is covered
by the provision which refers to money received under the obligation involving the duty to
deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the
provision which refers to merchandise received under the obligation to "return" it
(devolvera) to the owner. 3 3
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered
by the trust receipt to the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be punishable as estafa under Article
315 (1) of the Revised Penal Code, 3 4 without need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that the
transaction intended by the parties was a simple loan, not a trust receipt agreement.
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Petitioners received the merchandise from CM Builders Centre on 30 October 1979.
On that day, ownership over the merchandise was already transferred to Petitioners who
were to use the materials for their construction project. It was only a day later, 31 October
1979, that they went to the bank to apply for a loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where
goods are owned by the bank and only released to the importer in trust subsequent to the
grant of the loan. The bank acquires a "security interest" in the goods as holder of a
security title for the advances it had made to the entrustee. 3 5 The ownership of the
merchandise continues to be vested in the person who had advanced payment until he has
been paid in full, or if the merchandise has already been sold, the proceeds of the sale
should be turned over to him by the importer or by his representative or successor-in-
interest. 3 6 To secure that the bank shall be paid, it takes full title to the goods at the very
beginning and continues to hold that title as his indispensable security until the goods are
sold and the vendee is called upon to pay for them; hence, the importer has never owned
the goods and is not able to deliver possession. 3 7 In a certain manner, trust receipts
partake of the nature of a conditional sale where the importer becomes absolute owner of
the imported merchandise as soon as he has paid its price. 3 8 aSTA HD
Trust receipt transactions are intended to aid in nancing importers and retail
dealers who do not have su cient funds or resources to nance the importation or
purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. 3 9
The antecedent acts in a trust receipt transaction consist of the application and
approval of the letter of credit, the making of the marginal deposit and the effective
importation of goods through the efforts of the importer. 4 0
PBC attempted to cover up the true delivery date of the merchandise, yet the trial
court took notice even though it failed to attach any signi cance to such fact in the
judgment. Despite the Court of Appeals' contrary view that the goods were delivered to
Petitioners previous to the execution of the letter of credit and trust receipt, we nd that
the records of the case speak volubly and this fact remains uncontroverted. It is not
uncommon for us to peruse through the transcript of the stenographic notes of the
proceedings to be satis ed that the records of the case do support the conclusions of the
trial court. 4 1 After such perusal Grego Mutia, PBC's credit investigator, admitted thus:
ATTY. CABANLET: (continuing)
Q Do you know if the goods subject matter of this letter of credit and trust
receipt agreement were received by the accused?
A Yes, sir.
Q Do you have evidence to show that these goods subject matter of this letter
of credit and trust receipt were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this
document?
A Yes, sir.
xxx xxx xxx
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Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the zero in 30 has been
superimposed with numeral 1. 4 2
During the cross and re-direct examinations he also impliedly admitted that the
transaction was indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to
the accused you admit that?
A Loan is a promise of a borrower from the value received. The borrower will
pay the bank on a certain specified date with interest. 4 3
PBC could have presented its former bank manager, Cayo Garcia Tuiza, who
contracted with Petitioners, to refute Veloso's testimony, yet it only presented credit
investigator Grego Mutia. Nowhere from Mutia's testimony can it be gleaned that PBC
represented to Petitioners that the transaction they were entering into was not a pure
loan but had trust receipt implications.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of con dence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner. 4 5 Here, it is crystal clear
that on the part of Petitioners there was neither dishonesty nor abuse of con dence in the
handling of money to the prejudice of PBC. Petitioners continually endeavored to meet
their obligations, as shown by several receipts issued by PBC acknowledging payment of
the loan.
The Information charges Petitioners with intent to defraud and misappropriating the
money for their personal use. The mala prohibita nature of the alleged offense
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notwithstanding, intent as a state of mind was not proved to be present in Petitioners'
situation. Petitioners employed no arti ce in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable
terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods
for re-sale, contrary to the express provision embodied in the trust receipt. They are
contractors who obtained the fungible goods for their construction project. At no time did
title over the construction materials pass to the bank, but directly to the Petitioners from
CM Builders Centre. This impresses upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal prosecution in the event of violation
of its provisions. 4 6
The practice of banks of making borrowers sign trust receipts to facilitate
collection of loans and place them under the threats of criminal prosecution should they
be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements
are contracts of adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy
of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC
showed its true colors and admitted that it was only after collection of the money, as
manifested by its Affidavit of Desistance.
WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16
October 1989 of the Court of Appeals in CA-G.R. No. 05408 are REVERSED and SET ASIDE.
Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in
relation to Article 315 of the Revised Penal Code.
No costs.
SO ORDERED.
Kapunan and Pardo, JJ., concur.
Puno, J., took no part.
Ynares-Santiago, J., is on leave.
Footnotes
28. Tumang v. Court of Appeals, et al., 172 SCRA 328, 334 [1989]. See Garrido v. CA, et al.,
236 SCRA 450, 456 [1994].
29. Rollo, 178.
30. People v. Ducay, et al., 225 SCRA 1 [1993].
31. Motion for New Trial/Reconsideration; Rollo, 28.
32. People v. Hernando, et al., 108 SCRA 121 [1981]; People v. Ducay, supra note 30; People
v. Penones, 200 SCRA 624 [1991].
33. People v. Cuevo, 104 SCRA 312, 318 [1981].
34. Section 13, P.D. No. 115.
SYLLABUS
DECISION
ZALDIVAR , J : p
In the year 1943 appellant Jose Grijaldo obtained ve loans from the branch
o ce of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with
interest at the rate of 6% per annum, compounded quarterly. These loans are evidenced
by ve promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd.,
as follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943,
P22.86; on August 9, 1943, P300.00; on August 13, 1943, P200.00, all notes without
due dates, but because the loans were crop loans it was considered that the loans were
due one year after they were incurred. To secure the payment of the loans the appellant
executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as
Hacienda Campugas in Hinigaran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the
authority provided for in the Trading with the Enemy Act, as amended, the assets in the
Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United
States. Pursuant to the Philippine Property Act of 1946 of the United States, these
assets, including the loans in question, were subsequently transferred to the Republic
of the Philippines by the Government of the United States under Transfer Agreement
dated July 20, 1954. These assets were among the properties that were placed under
the administration of the Board of Liquidators created under Executive Order No. 372,
dated November 24, 1950, and in accordance with Republic Act Nos. 8 and 477 and
other pertinent laws.
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On September 29, 1954 the appellee, Republic of the Philippines, represented by
the Chairman of the Board of Liquidators, made a written extra-judicial demand upon
the appellant for the payment of the account in question. The record shows that the
appellant had actually received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the ve loans in question, computed
under the Ballantyne scale of values as of the time that the loans were incurred in 1943,
was P889.64; and the interest due thereon at the rate of 6% per annum compounded
quarterly, computed as of December 31, 1959 was P1,457.39; so that the total account
as of December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee led a complaint in the Justice of the Peace
Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid account
in question. The Justice of the Peace of Hinigaran, after hearing, dismissed the case on
the ground that the action had prescribed. The appellee appealed to the Court of First
Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a
decision ordering the appellant to pay the appellee the sum of P2,377.23 as of
December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly
from the date of the ling of the complaint until full payment was made. The appellant
was also ordered to pay the sum equivalent to 10% of the amount due as attorney's
fees and the costs.
The appellant appealed directly to this Court. During the pendency of this appeal
the appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a
resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben
Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo, to appear and be
substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause
of action against the appellant; (2) that if the appellee has cause of action at all, that
action had prescribed; and (3) that the lower court erred in ordering the appellant to
pay the amount of P2,377.23.
In discussing his rst point of contention, the appellant maintains that the
appellee has no privity of contract with the appellant. It is claimed that the transaction
involved in this case was a private transaction between the Taiwan Bank, Ltd. and the
appellant, so that the appellee, Republic of the Philippines, could not legally bring action
against the appellant for the enforcement of the obligation involved in said transaction.
This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original
creditor and the transaction between the appellant and the Bank of Taiwan was a
private contract of loan. However, pursuant to the Trading with the Enemy Act, as
amended, and Executive Order No. 9095 of the United States; and under Vesting Order
No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity
which was declared to be under the jurisdiction of the enemy country (Japan), were
vested in the United States Government. Pursuant, further, to the Philippine Property
Act of 1946 and Transfer Agreements dated July 20, 1954 and June 1957, between the
United States Government and the Republic of the Philippines, the assets of the Bank of
Taiwan, Ltd. were transferred to and vested in the Republic of the Philippines. The
successive transfers of the rights over the loans in question from the Bank of Taiwan,
Ltd. to the United States Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of the Philippines the
successor of the rights, title and interests in said loans, thereby creating a privity of
contract between the appellee and the appellant. In de ning the word "privy" this Court,
in a case, said:
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"The word `privy' denotes the idea of succession . . . hence, an
assignee of a credit, and one subrogated to it, etc. will be privies; in short, he
who, by succession is placed in the position of one of those who contracted
the juridical relation and executed the private document and appears to be
substituting him in his personal rights and obligation is a privy" (Alpuerto vs.
Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of
the Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the
assets of the Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by
international law, the United States succeeded to the rights and interests of said Bank of
Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of, the
property rights of the United States of America over the loans in question, the Republic of
the Philippines had thereby become a privy to the original contracts of loan between the
Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the
Philippines has a legal right to bring the present action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee
has no cause of action, that because the loans were secured by a chattel mortgage on
the standing crops on a land owned by him and those crops were lost or destroyed
through enemy action his obligation to pay the loans was thereby extinguished. This
argument is untenable. The terms of the promissory notes and the chattel mortgage
that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim
of appellant. The obligation of the appellant under the ve promissory notes was not to
deliver a determinate thing; namely, the crops to be harvested from his land, or the
value of the crops that would be harvested from his land. Rather, his obligation was to
pay a generic thing the amount of money representing the total sum of the ve loans,
with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a
series of ve contracts of simple loan of sums of money. "By a contract of (simple)
loan, one of the parties delivers to another . . . money or other consumable thing upon
the condition that the same amount of the same kind and quality shall be paid." (Article
1933, Civil Code.) The obligation of the appellant under the ve promissory notes
evidencing the loans in question is to pay the value thereof; that is, to deliver a sum of
money — a clear case of an obligation to deliver a generic thing. Article 1263 of the Civil
Code provides:
"In an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation."
The chattel mortgage on the crops growing on appellant's land simply stood as a
security for the ful llment of appellant's obligation covered by the ve promissory
notes, and the loss of the crops did not extinguish his obligation to pay, because the
account could still be paid from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the
appellee had prescribed. The appellant points out that the loans became due on June 1,
1944; and when the complaint was led on January 17, 1961 a period of more than 16
years had already elapsed — far beyond the period of ten years when an action based
on a written contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that
the complaint in the present case was brought by the Republic of the Philippines not as
a nominal party but in the exercise of its sovereign functions, to protect the interests of
the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code
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prescription, both acquisitive and extinctive, does not run against the State. This Court
has held that the statute of limitations does not run against the right of action of the
Government of the Philippines (Government of the Philippine Islands vs. Monte de
Piedad, etc. 35 Phil. 738-751). Secondly, the running of the period of prescription of the
action to collect the loan from the appellant was interrupted by the moratorium laws
(Executive Order No. 25, dated November 18, 1944; Executive Order No. 32, dated
March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in
question, as evidenced by the ve promissory notes, were incurred in the year 1943, or
during the period of Japanese occupation of the Philippines. This case is squarely
covered by Executive Order No. 25, which became effective on November 18, 1944,
providing for the suspension of payments of debts incurred after December 31, 1941.
The period of prescription was, therefore, suspended beginning November 18, 1944.
This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953; 93 Phil. 68),
declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Order
Nos. 25 and 32, are unconstitutional; but in that case this Court ruled that the
moratorium laws had suspended the prescriptive period until May 18, 1953. This ruling
was categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-
9396, August 16, 1956. It follows, therefore, that the prescriptive period in the case
now before Us was suspended from November 18, 1944, when Executive Order No. 25
took effect, until May 18, 1953 when R.A. 342 along with Executive Order Nos. 25 and
32 were declared unconstitutional by this Court. Computed accordingly, the
prescriptive period was suspended for 8 years and 6 months. By the appellant's own
admission, the cause of action on the ve promissory notes in question arose on June
1, 1944. The complaint in the present case was led on January 17, 1961, or after a
period of 16 years 6 months and 16 days when the cause of action arose. If the
prescriptive period was not interrupted by the moratorium laws, the action would have
prescribed already; but, as We have stated, the prescriptive period was suspended by
the moratorium laws for a period of 8 years and 6 months. If we deduct the period of
suspension (8 years and 6 months) from the period that elapsed from the time the
cause of action arose to the time when the complaint was led (16 years, 6 months and
16 days) there remains a period of 8 years and 16 days. In other words, the prescriptive
period run for only 8 years and 16 days. There still remained a period of one year, 11
months and 14 days of the prescriptive period when the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred
in ordering him to pay the amount of P2,377.23. It is claimed by the appellant that it
was an error on the part of the lower court to apply the Ballantyne Scale of values in
evaluating the Japanese war notes as of June 1943 when the loans were incurred,
because what should be done is to evaluate the loans on the basis of the Ballantyne
scale as of the time the loans became due, and that was in June 1944. This contention
of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of
P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum
compounded quarterly from the date of the ling of the complaint, The sum total of the
ve loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in
Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943,
this sum of P1,281.97 in Japanese war notes in June 1943 is equivalent to P889.64 in
genuine Philippine Currency. It is this amount of P889.64 in genuine Philippine Currency
which was considered the aggregate amount due as principal of the ve loans, and the
amount of P2,377.23 as of December 31, 1959 was arrived at after computing the
interest on the principal sum of P889.64 compounded quarterly from the time the
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obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of value should be applied
as of the time the obligation was incurred, and that was in June 1943. This stand of the
appellee was upheld by the lower court; and the decision of the lower court is
supported by the ruling of this Court in the case of Hilado vs. De la Costa (83 Phil. 471;
46 O. G., 5472), which states:
". . . Contracts stipulating for payments presumably in Japanese war
notes may be enforced in our Courts after the liberation to the extent of the
just obligation of the contracting parties and, as said notes have become
worthless, in order that justice may be done and the party entitled to be paid
can recover their actual value in Philippine Currency, what the debtor or
defendant bank should return or pay is the value of the Japanese military
notes in relation to the peso in Philippine Currency obtaining on the date
when and at the place where the obligation was incurred unless the parties
had agreed otherwise. . . ." (italics supplied)
IN VIEW OF THE VIEW FOREGOING, the decision appealed from is a rmed, with
costs against the appellant. Inasmuch as the appellant Jose Grijaldo died during the
pendency of this appeal, his estate must answer in the execution of the judgment in the
present case.
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Dizon,
Makalintal and Bengzon, J.P., JJ., concur.
Gervacio Diaz, Joaquin Azarraga, Sumulomg, Lavidez & Sumulomg, and Laurel, Del
Rosario & Sabido for defendants and appellants.
Josue Soncuyu in his own behalf.
SYLLABUS
DECISION
DIAZ , J : p
This case is now before us on appeal from the Court of First Instance of Capiz.
After trial, the plaintiff led a second amended complaint, which the lower court at rst
refused to consider, but later on admitted after it was convinced that the allowance
thereof was proper in order to make the allegations conform to the established facts.
This was done without the defendants interposing any exception, notwithstanding that
they had previously opposed the admission of the amendment. They did not afterwards
and do not now, in their brief on appeal, question the aforesaid amendment.
It appears from the allegations of the complaint thus amended that the plaintiff
has four causes of action. Under the rst cause he seeks to recover from the
defendants the sum of P118,635.68 as damages, which he alleges to have been caused
by the defendants in fraudulently depriving him of the possession of four parcels of
land with a total area of 296 hectares, 58 ares and 92 centares, which they, with
knowledge that said real properties belonged to him exclusively, registered in their
names in the registry of property and mortgaged in favor of "Hijos de I. de la Rama" to
pay a certain obligation which they had contracted with the Panay Municipal Cadastre.
Under the second cause, plaintiff seeks to recover P6,080 as the supposed value of the
heads of cattle belonging to him, which the tenants of the defendants had slaughtered.
Under the third cause, he seeks payment of the sum of P5,575 as the supposed value
of 1,115 coconut trees which he had planted on the four parcels of land in question.
Under the fourth and last cause of action, plaintiff prays that the defendants surnamed
Azarraga, with the exception of Joaquin Azarraga, be ordered to make up to 123
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hectares, 13 ares and 99 centares the land which the latter had sold to him, because
plaintiff did not take possession of the land, except a portion thereof, having an area of
72 hectares, 83 ares and 5 centares. In other words, the defendants should deliver to
the plaintiff an additional 50 hectares, 30 ares and 94 centares inasmuch as the
participation of said Joaquin Azarraga in the estate left to him and his brothers, his co-
defendants herein, by their common grandfather, Juan Azarraga y Galvez, which Joaquin
Azarraga sold to plaintiff, had that area according to the deed of partition, executed by
all of them, and the plan of said estate which was subsequently drawn up.
In their answer of February 26, 1931, the defendants Azarraga interposed a
general denial of each and all the allegations of the plaintiff's complaint, excepting
those relating to their personal circumstances. They, in turn, alleged the following
special defenses: First, that the complaint does not allege facts constituting causes of
action,; second, that the plaintiff and his predecessor in interest were negligent in failing
to inscribe in the o ce of the register of deeds the supposed encumbrances in their
favor over the lands in question, granting that said encumbrances had ever existed;
third, that the plaintiff knew and was personally informed that the lands aforesaid
would be surveyed at their instance and inscribed in their names as their own property,
but that he did nothing to defend or protect his rights either during the pendency of the
proceedings for the registration of the lands in question or during the period prescribed
by law after the issuance of a decree and title, within which the validity of the same may
be assailed; fourth, that at the time of ling their application for registration as well as
of the issuance of the decree ordering the inscription in their names in the registry of
property of the lands in question, they were the sole owners of the same, and that
admitting for the sake of argument the theory of the plaintiff that he had a right to said
lands, it was nothing more than an expectation that he would be someday their owner;
fth, that the plaintiff had no right to apply for or obtain from the court a writ of
preliminary injunction, wherefore, that obtained was illegal; and sixth, that the right of
action of the plaintiff, if any, had prescribed.
The defendants Azarraga further alleged the following counterclaims:
(a) That plaintiff is liable to them in damages in the sum of P100,000
because while the contract which the defendants had entered into with Leodegario
Azarraga was still in force, the plaintiff took possession of their lands not covered by
the said contract; that he set loose therein his cattle, utilizing the same as grazing
ground in a negligent manner and without taking the necessary steps to avoid damages
to their plantations; that notwithstanding repeated requests, the plaintiff refused to
fence the lands in which he had set loose his animals, thereby causing damages and
destruction to their plantations; that the animals belonging to the plaintiff not only
destroyed and damaged the coconut, palay and corn plantations existing already on the
lands before said animals were brought thereto, but also destroyed their farms and
plantations on their enclosed lands; that all this was due to the neglect and
carelessness of the plaintiff; that by reason of his refusal to enclose the lands
converted into grazing grounds, the defendants were unable to derive any bene ts from
their lands or to sell or rent them to those who desired to do so.
(b ) That the plaintiff is further liable and should be sentenced to pay them in
damages the sum of P15,000 for having caused the annotation in the corresponding
registry book of the o ce of the register of deeds of the Province of Capiz of a notice
of lis pendens not only with regard to the 150 hectares, 48 ares and 50 centares which
he claims in his complaint, but also with regard to the whole area of 246 hectares, 27
ares and 98 centares, described in the original certi cate of title No. 9785 issued in the
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name of the defendants; that as a result of this act of the plaintiff, they could not enter
into any transactions over that unquestioned portion of the land to which said title
relates.
( c) That the plaintiff is likewise liable and the defendants pray that he should
be sentenced to pay them the sum of P30,000 also in damages, for having sought and
secured the issuance of an order of preliminary attachment of their properties
described in certificates of title Nos. 9804 and 10361.
(d ) That the plaintiff is liable and should be sentenced to pay them in
damages the sum of P10,000 for having asked and secured from the court on February
7, 1931 a writ of preliminary injunction in the same case, thereby preventing the
defendants from exercising acts of ownership not only on the four parcels in question,
but also on all the other lands belonging to them.
( e) That in case it is adjudged that the lands in controversy had been
improperly inscribed by the defendants in their names in the registry of property, they
pray that the plaintiff be ordered to reimburse them in the sum of P5,000 which
represent the taxes paid by them on said lands, plus interest from the dates said taxes
were paid;
( f) The defendants lastly pray that upon the dissolution of the writ of
preliminary injunction issued against them on the date above-stated and the
cancellation of the annotation of said writ in the corresponding book of the office of the
register of deeds of Capiz, the plaintiff be sentenced to pay the costs of the suit.
"Hijos de I. de la Rama" and Panay Municipal Cadastre were included in the
complaint only for the purpose of enjoining the former from increasing to P25,000
the credit it had extended to the defendants Azarraga, who had already obtained
P16,000 on a mortgage of the lands in question executed by them in its favor; and
of restraining the latter from collecting from said loan of P25,000, extended by
"Hijos de I. de la Rama" to the defendants, the credit which it claims to have
against them under a contract whereby they abound themselves to provide it with
funds to carry on the enterprise for which it has been organized.
"Hijos de I. de la Rama" showed very little interest in the case, for,
according to the lower court, it merely filed an answer with a general denial.
Panay Municipal Cadastre, in its answer, denied all the allegations of the
complaint in so far as it might be affected thereby, and alleged as special defense that
the plaintiff had no right to ask for, and much less obtain, a writ of preliminary injunction
against it. It further alleged as a counterclaim that the said plaintiff has become liable
to it in damages in the sum of P15,000, plus P5,000 every month, beginning February 7,
1931, because the plaintiff prevented it from receiving from the defendants Azarraga or
from "Hijos de I. de la Rama" the sums which they had bound themselves to deliver
under a contract which they had executed on September 20, 1929. After trial, the court
rendered judgment as follows:
"Wherefore, the defendants Juan, Jose, Salvador, Joaquin, Emilio, Luis,
Rosario, Julio, all surnamed Azarraga, are hereby sentenced to pay the plaintiff,
jointly and severally, the sum of P24,627.98, with legal interest from November
10, 1926, as damages because they fraudulently deprived the plaintiff of his
lands in Bay-ang, and likewise to pay the plaintiff, jointly and severally, the sum of
P5,575 with legal interest from November 10, 1926, representing the value of
1,115 coconut trees as improvements on said lands, and, with the exception of
Joaquin Azarraga, to pay the plaintiff, jointly and severally, the sum of P5,030.94
with interest at the legal rate from November 10, 1926 for eviction and warranty.
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"In case the defendants Azarraga have no unencumbered properties or can
not redeem the mortgage over their properties, with which to satisfy the indemnity
for damages, the payment of said indemnity shall be charged against the bond of
the sureties, who secured the lifting of the attachment on the properties of the
defendants.
"The writ of preliminary injunction issued in this case on February 7, 1931
against the defendants Azarraga, Hijos de I. de la Rama and Panay Municipal
Cadastre is hereby made nal, with the exception of that portion which enjoins
Hijos de I. de la Rama from delivering to the defendants surnamed Azarraga and
Panay Municipal Cadastre more than the sum of P16,000, which had already
been delivered, and which likewise enjoins the latter from demanding from said
entity more than the above-mentioned sum of P16,000, which portion is hereby
declared dissolved.
"The plaintiff is absolved from the counterclaims interposed by the
defendants Azarraga and by the Panay Municipal Cadastre. The defendants
Azarraga shall pay the costs."
From the foregoing judgment the defendants as well as the plaintiff appealed,
and in their respective briefs they assign the following errors:
ASSIGNMENTS OF ERROR OF THE DEFENDANTS.
"I. The trial court erred in holding that the true nature of the stipulation
between Attorney Leodegario Azarraga and the heirs of Don Juan Azarraga y
Galvez as contained in the plan of partition Exhibit 'A' is one of cession of
property in payment of a debt known in Spanish law as 'dacion en pago.'
"II. The trial court erred in not holding that the stipulation between
Attorney Leodegario Azarraga and the heirs of the deceased Juan Azarraga y
Galvez to the effect that the lands were to become the property of Attorney
Leodegario Azarraga in case the defendants failed to pay his fees within ve
years and that during this period the said attorney had the usufruct and
possession of the lands, as contained in Exhibit 'A', is one of pacto comisorio,
which is prohibited by article 1884 of the Civil Code.
"III. The trial court erred in nding that the three parcels of land in
question, lots Nos. 81, 82, and 83, were sold by Attorney Leodegario Azarraga to
the plaintiff herein.
"IV. The trial court erred in not holding that the right established by
Attorney Leodegario Azarraga by virtue of Exhibit 'A' and transferred to the
plaintiff is at most an attorney's lien over the properties in question and that the
action of the plaintiff as transferee of this lien should be to compel the
defendants to recognize it as a lien.
"V. The trial court erred in holding that the defendants procured the
registration of the lands in question by fraudulent means.
"VI. The trial court erred in not holding that the plaintiff, having no real
right over the lands in question, the omission of his name from the application is
not fraudulent and not fatal to the registration of the lands.
"VII. The trial court erred in not holding that the plaintiff, being a mere
usufructuary of the lands in question for a limited period of time by grace of the
owners, was not entitled to be mentioned in the application for registration and to be
notified personally of its proceedings.
"VIII. The trial court erred in not holding that the plaintiff had been
negligent in not asking for the review of the decree within one year, and in not
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holding that the plaintiff purposely allowed the one-year period, within which he
could petition for review of the decree, to elapse in order that he might have a
cause of action for damages against the defendants.
"IX. The trial court erred in permitting the plaintiff to prove the market
value of the lands in question although there was absolutely no allegation to that
effect in the complaint notwithstanding the objection thereto and the exception
taken by the defendants.
"X. The trial court erred in not holding that Joaquin Azarraga has not
intervened in the registration of the lands in question, he being only a coowner pro
indiviso and as such has not been guilty of fraud in connection with the
registration of the lands.
"XI. The trial court erred in not holding that the plaintiff had no real
right over the land referred to in Exhibit 'E' in view of the fact that the said
document had not been registered.
"XII. The trial court erred in holding that the land referred to in Exhibit
'E' contains an area of 164 hectares instead of 63 hectares only.
"XIII. The trial court erred in nding that the total area of lots 81, 82,
and 83, which are the subject matter of the 'pactum commissorium' between
Attorney Leodegario Azarraga and the defendants, is 243 hectares instead of 87
hectares only.
"XIV. The trial court erred in sentencing the defendants to pay to the
plaintiff the sum of P35,233.92 and in not absolving them from the complaint.
"XV. The trial court erred in disallowing all the five counterclaims of the
defendants amounting to P58,000."
ASSIGNMENTS OF ERROR OF THE PLAINTIFF
"(a) he lower court erred in not nding that the market value of the
lands in litigation in 1926 was P118,635.68;
"(b) he lower court erred in not sentencing the defendants to pay the
plaintiff the sum of P6,080 as indemnity for the wrongful slaughter of his
animals; and
"(c) he lower court erred in not sentencing the defendants to pay the
plaintiff, jointly and severally, the sum of P130,290.68 as indemnity, plus legal
interest from November 10, 1926."
The salient facts established at the trial which may serve as a basis for an
intelligent discussion of the questions raised by the parties and for a proper decision of
the same, may be briefly stated as follows:
By reason of the proceedings had in case No. 11489 of the Court of First
Instance of Manila, entitled "Testate Estate of the Deceased Juan Azarraga y Galvez",
the defendants surnamed Azarraga became indebted to Attorney Leodegario Azarraga,
who represented them in said case, for attorney's fees, which on October 21, 1919 the
court, which took cognizance of the case, fixed at P3,000 (Exhibit B).
The defendants Azarraga had previously agreed among themselves to pay
Attorney Leodegario Azarraga attorney's fees in the manner set out in Exhibit A, which
they executed on January 20, 1919 and approved by the court on August 29, of the
same year. (Exhibit C.) The pertinent part of the aforesaid Exhibit A reads as follows:
"The parties also agree that the parcels of land located in Bay-ang, New
Washington, Capiz, P. I., which are enumerated in the inventory of this partition as
Nos. 81, 82 and 83, are specially mortgaged and subject to the payment of the
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fees of said attorney of the testate estate, which fees shall be xed by the court,
and said attorney may hold said lands under no obligation to pay any rent until
his fees shall have been fully paid: Provided, however, that if, at the end of the
period of ve years from the date of the approval of this project of partition, said
parties shall not have been able to pay in full the fees of said attorney, then said
parcels of land, Nos. 81, 82 and 83, located in Bay-ang, shall be de nitely
adjudicated to said attorney, Mr. Leodegario Azarraga, as his property, in payment
of his fees, and all sums which he may have received from time to time from the
interested parties in these testate proceedings, within the said period, shall be
returned to said parties: Provided, further, that in case said interested parties in
the testate proceedings shall be able to pay in full the fees of the attorney for the
testate estate before the expiration of said period of ve years, then said parcels
of land situated in Bay-ang shall continue in the possession of said attorney for
an additional period of three years from the date of the last payment in the event
that said attorney may have kept livestock in said lands."
About nine months after the court approved Exhibit A, or to be exact, on June 9,
1920, which was long before the expiration of the period of ve years within which the
defendants Azarraga were bound to pay Attorney Leodegario Azarraga his fees, which
had been xed at P3,000, said attorney decided to sell and did sell to the plaintiff his
credit against the defendants for the sum of P2,500 with all the rights inherent therein
in accordance with the agreements and stipulations appearing in said document
(Exhibit C). One of said agreements was that Attorney Leodegario Azarraga would take
possession of the said parcels of land and, occupy the same, if he so desired, without
paying any rent or annuity, until his fees shall have been fully paid. Said parcels were
identical with lots Nos. 81, 82 and 83 described in paragraph II of the plaintiff's second
amended complaint.
When the plaintiff became the creditor of the defendants Azarraga by virtue of
the sale and cession which Attorney Azarraga had made in his favor of the rights which
said attorney had under Exhibit A, he .Allowed the defendants an extension of a few
years over the ve years within which they would have to pay him his credit, or up to
February 16, 1926, but with the express condition that they would pay him interest at
the rate of 12 per cent per annum, from August 30, 1924 (Exhibit 5). This term was later
extended to April 26, 1926 on the request of the defendants, but also with the condition
that they would pay the plaintiff the same interest of 12 per cent. (Exhibits L and M.)
The plaintiff granted another extension to expire on October 31, 1928, but subject to
the condition that instead of seven thousand and odd pesos, which undoubtedly
referred to the interest of 12 per cent per annum charged the defendants, they should
pay him P12,000 (Exhibit 2). In said two amounts of P7,000 and P12,000 the sum of
P4,000 which the plaintiff had given to the defendant Joaquin Azarraga and which will
be dealt with further in detail, was included.
Aside from the above transactions between the plaintiff and the defendants
Azarraga, one of the latter, Joaquin Azarraga, executed in favor of the former, the deed
known as Exhibit E of the record and dated October 14, 1922, by which he sold to the
plaintiff, for the sum of P4,000, his portion of the inheritance in the testate estate of the
late Juan Azarraga y Galvez, consisting of an undivided tract of land containing an
estimated area of 63 hectares and located in Bay-ang Chico, New Washington, Capiz. It
is further stated therein that the period of redemption would be ve years to be
counted from February 16, 1921, which was later extended to April 26, 1926. In
granting him this extension, the plaintiff imposed on Joaquin Azarraga the condition
that he should pay him interest at the rate of 12 per cent from the expiration of the rst
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term (Exhibit M; par. III of the second amended complaint of plaintiff; and page 5 of the
brief of the plaintiff as appellant). A second extension was further granted, but under
the condition that he should, together with his brothers, pay the plaintiff instead of
seven thousand and odd pesos, representing the interest referred to in the preceding
paragraph, in which the P3,000 mentioned in Exhibit A were included, P12,000 (Exhibit
2). The deed referred to was never annotated or inscribed in any register in the o ce of
the register of deeds of said province.
By virtue of the transfer made to him by Joaquin Azarraga and also of the terms
and conditions enumerated in said Exhibit A, the plaintiff took possession of practically
the whole land of the defendants Azarraga, located in Bay-ang, placing therein livestock
from the month of August, 1920 and in the same year built sheepfolds therein, besides
erecting some wire fences. When the plaintiff took possession of part of the land in
question in August, 1920 and another part thereof in February, 1922, after the execution
in his favor of the deed of transfer, which is a clari cation of Exhibit E, he found fruit-
bearing and young coconut trees, the latter being more numerous. In 1925, 1926 and
1927, Joaquin Azarraga, either by himself or his laborers, planted therein hundreds of
coconut trees of which but a few hundreds, as was the case with the old ones,
remained on account of the long droughts or of destructive animals or other causes.
There is nothing de nite in the record to show the exact number of animals which the
plaintiff had brought to Bay-ang or the cause of the death of some of them. It seems
that some had been wounded, by whom it is not known, much less is it known whether
they were wounded by men of the defendants Azarraga. The plaintiff himself has not
spoken with certainty; his statements on this point are mere conjectures
uncorroborated by anybody or anything (transcript of stenographic notes, pages 145-
147). There have been also no exact accounts as to whether the animals of the plaintiff
were those which destroyed the coconut trees planted on the land by Joaquin Azarraga
during the years 1925, 1926 and 1927 above-mentioned, or were the animals of other
persons.
Sometime in May, 1928, the plaintiff went to the house of the defendant Joaquin
Azarraga to collect not only his credit against all the defendants Azarraga, but also the
special credit which, according to him, he had against Joaquin Azarraga. And on
October 9, 1928, he addressed a letter to each and every one of the defendants
including Joaquin Azarraga whom he expressly mentioned therein, and, among other
things, told them that:
"Last May, Messrs. Salvador and Joaquin came to an agreement with me
whereby they were to redeem the land in Bay-ang for seven thousand and odd
pesos last September, and in default thereof to transfer in my name the Torrens
title of the portion belonging to me; but until now neither of these has been done.
"For this reason and in view of the fact that you have not stated in the
Torrens title of the land in Bay-ang when you applied for the same, the two
encumbrances thereon in my favor, I am compelled by this omission, which is a
clear disregard of my rights, to seek redress therefor in the courts, if you refuse the
same to me. Therefore, if you desire to redeem the land, you may do so for the
sum of twelve thousand pesos (P12,000) until the 31st of this month of October;
but should you not wish to redeem it, then in order to avoid the inconvenience of a
law suit, I would request that on the same day or prior thereto that you shall have
at least submitted to the court your motion praying for an order approving the
segregation and transfer of the portion of said land which belongs to me, together
with the corresponding plan, namely, that corresponding to the land which shall
be in my name in the Torrens title. In the understanding that if said date, October
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31st, arrives, and you have not done anything either one way or the other, then
through your own fault, I would be compelled to resort to the courts to ask
protection of my rights before I lose them, urging the court to order you to pay me
by reason of such fraudulent omission a sum more than double the amount
above- mentioned." (Exhibit 2.)
The land in Bay-ang to which the above-transcribed letter refers is the same land
made up by the four parcels mentioned in paragraph II of the second amended
complaint of the plaintiff, as parcels 81, 82, 83 and that having an area of 63 hectares.
Between the date of the execution of the document Exhibit A [January 20, 1919)
and the date of said letter; Exhibit 2 (October 9, 1928), the defendants secured the
inscription in the registry of property and the issuance in their favor of the
corresponding certi cate of title of the lands described in original certi cate of title
Nos. 9785, by virtue of the decree of registration of October 27, 1925 (Exhibit Q). Of
this fact the plaintiff had full knowledge by reason of the letter dated July 9, 1924,
which was sent to him by the defendant Juan Azarraga, wherein the latter, besides
asking for an extension of three years, informed him (plaintiff) of the registration
proceedings which were then going on. (Exhibit 1.) The plaintiff did not then nor
thereafter take any step to oppose the same, or to ask at least for the revision of the
decree of registration, which was issued later, within the period of one year prescribed
by law. To this letter, the plaintiff replied on the 30th of the same month and year,
stating, among other things:
"Now that I am somewhat relieved from the pressure of work, I am writing
to inform you that, although I need cash to meet my pressing nancial
obligations, your requests have compelled me to grant you, as administrator of
the undivided properties of the Azarraga brothers, an extension of the term for the
payment of the credit which encumbers the land in Bay-ang, and, consequently, of
the redemption of the same, up to February 16, 1926. Said land and its
encumbrances are described in the deed of sale of the said credit with all the
rights inherent therein, executed by Mr. Leodegario Azarraga in favor of the
undersigned on July 9, 1920.
"As the granting of this extension is causing me a real sacri ce and a great
nancial strain, in justice and equity, I also ask from you, as administrator of the
undivided properties of the Azarraga brothers, the lucrum cessans so that from
August 30, 1924 the aforesaid credit of P3,000 shall earn 12 per cent annual
interest.
"This letter will serve you as evidence of the granting of the extension of
the term for redemption of the said land in Bay-ang, and, therefore, there is no
necessity for executing another document to that effect." (Exhibit 5.).
At the time of the ling of the original complaint, plaintiff simultaneously asked
for and obtained on February 7, 1931, upon posting a bond in the amount of P2,000, a
writ of preliminary injunction against the defendants (Exh. 15), and in the time caused
the annotation in the o ce of the register of deeds of the Province of Capiz of a notice
of lis pendens not only with regard to the portion having an area of 150 hectares, 48
ares and 50 centares of the lands of the defendants Azarraga, but also with regard to
the whole area of 246 hectares, 27 ares and 98 centares described in original
certificate of title No. 9785.
The plaintiff also secured from the Court of First Instance a preliminary
attachment of the properties of the defendants, described in certi cates of title Nos.
9804 and 10351, on February 5, 1929 (Exhibit R); and the same was annotated in the
registry of property in the same month. Seven months after, or on September 9, of said
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year, the aforementioned attachment was lifted by order of September 7, 1929 (Exhibit
X) upon the ling of a bond required by the court in the sum of P12,500 by the
interested parties. Said bond having been led by the defendants, the court, on the
same day, ordered the cancellation of the notice of lis pendens annotated in the o ce
of the register of deeds and the inscription of all the necessary annotations. (Exhibit Y.)
As clearly proven as the foregoing are the facts that the defendant "Hijos de I. de
la Rama" entered into a contract with its co-defendants Azarraga for the purpose of
granting them a credit of P25,000, having delivered to them on different occasions
after the execution by said defendants of a deed of mortgage Exhibit 16 in its favor on
September 20, 1929, as part of the aforementioned sum, the total amount of P16,000.
The Azarragas needed said amount for carrying on the business for which the
defendant Panay Municipal Cadastre, Inc., had been organized, as set forth in said
Exhibit 16 and clarified in Exhibit 17.
By virtue of the writ of injunction issued by the lower court on February 7, 1931,
enjoining the defendants Azarraga and the Panay Municipal Cadastre from obtaining
from their co-defendant "Hijos de I. de la Rama" another loan, aside from the P16,000
which they had previously obtained (Exhibit 14), said defendant "Hijos de I. de la Rama"
did not extend the credit, which it had opened to its co- defendants, to P25,000 as
required by the contracts Exhibits 16 and 17 above-referred to. In connection with the
issuance of the writ of preliminary injunction, the following facts must be mentioned:
After the plaintiff commenced the present case against the defendants Azarraga on
January 28, 1929 by means of his original complaint, he instituted another action
against them, which was civil case No. 2643, for the purpose of obtaining a writ of
injunction to prevent them from securing the aforementioned loan of P25,000 from
"Hijos de I. de la Rama". This latter case reached this court on certiorari led on March
22, 1930. As its sole object was the issuance of a writ of preliminary injunction, this
court, reiterating once more the ruling that said remedy is purely subsidiary available
only in aid of the right sought to be enforced in the action wherein the same is issued,
and that a separate action to secure the same does not lie as it would permit of
multiplicity of suits with the consequent needless expenses (Panay Municipal Cadastre
vs. Garduño and Soncuya, 55 Phil., 574, 578), granted the certiorari prayed for on
January 22, 1931, thus setting aside the writ of preliminary injunction issued by the
court of Capiz on October 21, 1929, hence, it was in being for not more than one year,
three months and one day.
The writ of preliminary injunction subsequently issued on February 7, 1931, has
remained in force up to the present, as the lower court declared in its judgment that it
shall be nal with respect to the P9,000 still owing from "Hijos de I. de la Rama" on
account of the loan which it had agreed to extend to the other defendants.
The works for which the Panay Municipal Cadastre had been organized were
begun in October, 1929. According to the testimony of Gaspar Ferraren, for all the work
which they intended to undertake, they needed a capital of not more than P40,000 to
make a gross pro t of P100,000. Of this estimated capital they invested the P16,000,
obtained from "Hijos de I. de la Rama", which immediately yielded a return of P6,000. He
also stated that the Panay Municipal Cadastre completed half of its works with only the
capital obtained from "Hijos de I. de la Rama" (P16,000), plus its rst pro t of P6,000
and that it made a pro t of P24,277.15, meaning thereby that with the aforementioned
P16,000 it obtained P30,277.15, or a net profit of P14,277.15.
Another fact which has been clearly established by the testimony of the plaintiff
himself is that he decided to sell all the animals which he had placed on the land in
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question because he became discouraged by the destruction of said animals by the
tenants of the defendants Azarraga. This fact, however, has been established not by
competent evidence, but by hearsay testimony, which was of course timely objected to;
and, although he testi ed in the same breath that he had still some cattle there, he
could not state their exact number, but limited himself to saying "I cannot tell whether
there were fifty of them." (Transcript, page 14.)
In his subsequent dealings with the defendants Azarraga, including Joaquin
Azarraga, as in his pleadings and testimony, the plaintiff, in referring to the amount of
P2,700 or P3,000, the value of the credit which he had purchased from Attorney
Leodegario Azarraga, and to that of P4,000 which he gave to Joaquin Azarraga on the
date and under the circumstances stated in Exhibit E, he alluded to, and considered
them as his "credit". Thus, on page 176 of the transcript of the stenographic notes, he
said: ". . .land mortgaged to me . . .;" and on pages 192 and 194 of said transcript, he
also said: "Now I am not collecting the credit; I am collecting the damages. Although
they may have sold that property to me for P1, if its commercial value has increased
after they have deprived me of the same, I should collect from them such value;" and ". .
. I want to say again that what I am collecting now is not the credit which I have against
them, but the damages they have caused me by depriving me of the property."
The facts of the case being as above set out, the questions raised by the parties
in their respective assignments of error, should now be considered. In fact, the most
important or those discussed in the rst fourteen errors attributed by the defendants
to the lower court, and in the rst and last errors, which plaintiff, in turn, assigned, may
be reduced to the following:
I. Was the contract entered into by the Azarraga brothers, the defendants
herein, with Attorney Leodegario Azarraga from whom the plaintiff derived his right, a
sale with pacto de retro, or an assignment in payment of a debt, or was it an antichresis
partaking of the nature of what was anciently known as pacto comisorio, or a
mortgage, or was it merely a loan with real estate security?
II. Was the contract executed by the defendant Joaquin Azarraga, on the one
hand, and the plaintiff, on the other, embodied in Exhibit E, a sale with pacto de retro or
simply a loan with real estate security?
The rst question offers no di culty if account is taken of the established facts
and the conduct of the interested parties after the expiration of the term of ve years
xed in Exhibit A. When the plaintiff extended the period to February 16, 1926 within
which the defendants Azarraga could pay him his credit, but imposed on them the
condition that they pay him 12 per cent annual interest from August 30, 1924 on the
principal of P3,000 (Exh. 5) and gave them another extension up to April 26, 1926,
under the same conditions as regard interest (Exh. M), what perhaps could have been
considered as an antichresis or pacto comisorio — not an assignment in payment of a
debt, or a sale with pacto de retro because there is nothing in Exhibit A to indicate that
such was the intention of the defendants Azarraga or, at least, that they bound
themselves to deliver the land in question to the plaintiff and that the latter should pay
them the value thereof; and because there was what may be considered the resolutory
condition of ve years — was converted into a simple loan by the decisive circumstance
that plaintiff chose to collect thereafter, and the obligors agreed to pay him, 12 per cent
annual interest. It is only in contracts of loan, with or without guaranty, that interest may
be demanded (articles 1108, 1740, 1755, 1868, 1876, and 1881 of the Civil Code). As a
matter of fact, the contract embodied in Exhibit A was novated by Exhibits 5 and M, and
the plaintiff wanted to have it novated for the third time by means of Exhibit 2. It does
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not appear of record, however, that the defendants Azarraga ever assented to the latter
novation. Perhaps, their refusal to agree to the same was due to the fact that the
plaintiff wanted to raise their old obligation (P3,000 or P2,700 of all the Azarraga
brothers, plus P4,000 which Joaquin Azarraga alone owed, which two accounts both
the plaintiff and the defendants considered as amounting to P7,000, exclusive of the
annual interest of 12 per cent) to the round sum of P12,000. From all this it may easily
be inferred that the obligation which the defendants had imposed upon themselves by
Exhibit A had ceased to exist and became a simple loan with security, if so desired, of
the lands in question, but without prejudice to third parties as neither Exhibit A nor the
deed of assignment Exhibit C, executed by Leodegario Azarraga in favor of the plaintiff,
was inscribed in the registry of deeds.
There is also no di culty in disposing of the second question, considering the
various novations which, as has been said, had taken place and had been extended not
only to the Azarraga brothers with respect to their obligation of P3,000 or P2,700, but
also to the defendant Joaquin Azarraga as regard his personal debt of P4,000. We
must not lose sight of the fact that the plaintiff never considered the contract entered
into by him with Joaquin Azarraga as, strictly speaking, a sale with pacto de retro. And if
he had ever considered it as such, it is, nevertheless, true that he novated it on February
16, 1926, considering it from that time on as a simple loan, inasmuch as on that date he
began to charge the said defendant 12 per cent annual interest with the latter's assent
and conformity. This clearly appears in Exhibit M which must be considered together
with paragraphs 7 and 8 of Exhibit E, as the plaintiff himself does in his brief (brief for
the plaintiff as appellant, pages 4 and 5), because the term of ve years to which said
Exhibit E refers and which should have expired on February 16, 1926 was extended by
the said plaintiff, by Exhibit M, up to April 26, 1926 under the aforementioned condition
that he should be paid 12 per cent annual interest.
Consequently, the contention of the defendants that the plaintiff did not and
could never receive the lands in question as an assignment in payment of a debt, and
much less did he acquire them by purchase with pacto de retro, is well taken. It must
also be noted that at no time did the plaintiff claim any rights of dominion over the
lands since he did not even intimate to the defendants, either directly or indirectly, that
for their failure to pay him his credit within the time provided therefor, he became the
absolute owner thereof. Notwithstanding the fact that all the extensions he had given
defendants had expired, he did not, even only for tax declaration purposes, declare the
lands as his property. Having reached this conclusion, it is needless to state that the
plaintiff has no right to the various sums which he seeks in his complaint and to which
he refers in the rst and last errors assigned by him. If, as has been shown, he never
became the owner of the lands in question, he can neither claim payment of the value of
the same nor ask to be indemnified for the deprivation of their possession. The plaintiff,
moreover, has no reason to complain that his lien, if his right over said lands could be
termed as such, was not annotated in the certi cate of title which the defendants
Azarraga had obtained, or that the latter did not ask that it be stated therein that the
lands to which it refers are charged with his credit against them; inasmuch as he was
himself negligent in that he did not ask the court, while the registration case relating to
said lands was being heard, for the annotation of what he considered necessary to
protect his rights, and in not seeking the revision or modi cation of the decree of
registration within the period of one year provided for that purpose.
As to the fteenth error attributed to the lower court by the defendants Azarraga,
we hold that, in view of the established facts above-related, they have failed to show
satisfactorily that they have any right under all or any of their several counterclaims. If
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the coconut trees planted by Joaquin Azarraga on a portion of the land in question were
indeed lost or destroyed, it was due more to his own negligence than to that of the
plaintiff; for he well knew on planting them in 1925, 1926 and 1927 that the plaintiff
maintained therein, with his (Joaquin Azarraga's) approval, livestock which might
destroy them, and he did not take the necessary precautions against such occurrence.
This is, of course, upon the supposition that his coconut plantations died by reason of
the devastation caused by the animals of the plaintiff. The preponderance of the
evidence, however, has shown that they died on account of the drought alone.
We likewise hold that the issuance of the writs of preliminary injunction and
attachment at the instance of the plaintiff did not prejudice the defendants, inasmuch
as there is no competent evidence of record to the contrary. On the other hand, there is
evidence to show that from the loan which the defendants Azarraga had obtained from
"Hijos de I. de la Rama" they derived a net pro t of P14,277.15 within the short period
of one year and a few months.
There is no support for the contention of the defendants that they suffered
damages by reason of the preliminary attachment ordered by the lower court because
they were unable to sell one of their houses to the Calibo Institute for the price agreed
upon by them and said entity. The record shows that they lost nothing because the
Calibo Institute is at present occupying a portion of said house and they may, if they so
desire, sell it even now to the occupant. It does not appear, on the other hand, that the
latter desisted from buying it on finding a better building.
As to the second error assigned by the plaintiff, it su ces to recall that the
established facts do not show that the tenants of the defendants were responsible for
the killing and wounding of the animals belonging to him or that said tenants acted
upon the instigation of the defendants. Consequently, the plaintiff's claim to this effect
is entirely without merit.
In view of all the foregoing and in resume, we hold that the plaintiff alone has the
right (1) to recover from the defendants Azarraga, by virtue of the assignment and sale
made to him by Attorney Leodegario Azarraga of the latter's credit P2,700 against the
said defendants, the aforesaid sum plus interest at the rate of 12 per cent per annum
from August 30, 1924; (2) to recover from the defendant Joaquin Azarraga, in
particular, the sum of P4,000 plus interest at the rate of 12 per cent per annum from
April 26, 1926. We also hold that the defendants are not entitled to anything under their
counterclaims.
Wherefore, reversing the appealed judgment,
(a) All the defendants are hereby sentenced to pay jointly the sum of P2,700
to the plaintiff, with 12 per cent annual interest from August 30, 1924 until said sum is
fully paid; and
(b ) The defendant Joaquin Azarraga is sentenced to pay the plaintiff the sum
of P4,000 plus interest at the rate of 12 per cent per annum from April 26, 1926, until
fully paid.
The plaintiff absolved from defendants' counterclaims and the writ of preliminary
injunction issued by the lower court on February 7, 1931, is hereby dissolved. There is
no special pronouncement as to costs. So ordered.
Avanceña, C. J., Villa-Real, Abad Santos, Imperial and Concepcion, JJ., concur.
SYLLABUS
DECISION
FELICIANO , J : p
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain
shares of stock to petitioner State Investment House, Inc. ("State") in order to secure a
loan of P120,000.00 designated as Account No. IF 82-0631-AA. Prior to the execution
of the pledge, respondent spouses, as an accommodation to and together with the
spouses Jose and Marcelina Aquino, signed an agreement (Account No. IF-82-1375-
AA) with petitioner State for the latter's purchase of receivables amounting to
P375,000.00. When Account No. IF-82-0631-AA fell due, respondent spouses paid the
same partly with their own funds and partly from the proceeds of another loan which
they obtained also from petitioner State designated as Account No. IF-82-0904-AA.
This new loan was secured by the same pledge agreement executed in relation to
Account No. IF-820631-AA. When the new loan matured, State demanded payment.
Respondents expressed willingness to pay, requesting that upon payment, the shares
of stock pledged be released. Petitioner State denied the request on the ground that
the loan which it had extended to the spouses Jose and Marcelina Aquino (Account No.
IF-82-1379-AA) had remained unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of
Notarial Sale stating that upon request of State and by virtue of the pledge agreement,
he would sell at public auction the shares of stock pledged to State. This prompted
respondents to le a case before the Regional Trial Court of Quezon City alleging that
the intended foreclosure sale was illegal because from the time the obligation under
Account No. IF-82-0904-AA became due, they had been able and willing to pay the
same, but petitioner had insisted that respondents pay even the loan account of Jose
and Marcelina Aquino which had not been secured by the pledge. It was further alleged
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that their failure to pay their loan (Account No. IF-82-0904-AA) was excused because
the petitioner State itself had prevented the satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984 rendered by Judge
Willelmo Fortun, initially dismissed the complaint. Respondent spouses led a motion
for reconsideration praying for a new decision ordering petitioner State to release the
shares upon payment of respondents' loan "without interest," as the latter had not been
in delay in the performance of their obligation. State countered that the pledge
executed by respondent spouses also covered the loan extended to Jose and
Marcelina Aquino, which too should be paid before the shares may be released.
Acting on the motion for reconsideration, Judge Fortun set aside his original
decision and rendered a new judgment dated 29 January 1985, ordering State to
immediately release the pledge and to deliver to respondents the share of stock "upon
payment of the loan under Code No. 82-0904-AA."
On appeal, the Court of Appeals a rmed in toto the new decision of the trial
court, holding that the loan extended to Jose and Marcelina Aquino, having been
executed prior to the pledge was not covered by the pledge which secured only loans
executed subsequently. Thus, upon payment of the loan under Code No. IF-0904-AA, the
shares of stock should be released. The decisions of the Court of Appeals and of
Judge Fortun became final and executory.
Upon remand of the records of the case to the trial court for execution, there
developed disagreement over the amount which respondent spouses Rafael and
Refugio Aquino should pay to secure the release of the shares of stock — petitioner
State contending that respondents should also pay interest and respondents arguing
they should not. Respondent spouses then led a motion with the trial court to clarify
the Fortun decision praying that an order issue clarifying the phrase "upon payment of
plaintiffs' loan" to mean upon payment of plaintiff loan in the principal amount of
P100,000.00 alone, "without interest, penalties and other charges."
On 17 February 1989, the trial court, speaking this time through Judge Perlita
Tria Tirona, rendered a decision purporting to clarify the decision of Judge Fortun and
ruling that petitioner State shall release respondents' shares of stock upon payment by
respondents of the principal of the loan as set forth in PN No. 82-0904-AA in the
amount of P100,000.00, without interest, penalties and other charges.
Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the
appeal was dismissed. The Court of Appeals agreed with Judge Tirona that no interest
need be paid and added that the clari catory (Tirona) decision of the trial court merely
restated what had been provided for in the earlier (Fortun) decision; that the Tirona
decision did not go beyond what had been adjudged in the earlier decision. The motion
for reconsideration filed by petitioner was accordingly denied.
Hence, this Petition for Review contending that no manifest ambiguity existed in
the decision penned by Judge Fortun; that the trial court through Judge Tirona, erred in
clarifying the decision of Judge Fortun; and that the amendment sought to be
introduced in the Fortun decision by respondents may not be made as the same was
substantial in nature and the Fortun decision had become final.
We begin by noting that the trial court has asserted authority to issue the
clari catory order in respect of the decision of Judge Fortun, even though that
judgment had become nal and executory. In Reinsurance Company of the Orient, Inc. v.
Court of Appeals, 1 this Court had occasion to deal with the applicable doctrine to
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some extent:
"[E]ven a judgment which has become nal and executory may be
clari ed under certain circumstances. The dispositive portion of the judgment
may, for instance, contain an error clearly clerical in nature (perhaps best
illustrated by an error in arithmetical computation) or an ambiguity arising from
inadvertent omission, which error may be recti ed or ambiguity clari ed and the
omission supplied by reference primarily to the body of the decision itself.
Supplementary reference to the pleadings previously led in the case may also
be resorted to by way of corroboration of the existence of the error or of the
ambiguity in the dispositive part of the judgment. In Locsin et al. v. Paredes, et
al., this Court allowed a judgment which had become nal and executory to be
clari ed by supplying a word which had been inadvertently omitted and which,
when supplied, in effect changed the literal import of the original phraseology:
'. . . it clearly appears from the allegations of the complaint, the
promissory note reproduced therein and made a part thereof, the prayer
and the conclusions of fact and of law contained in the decision of the
respondent judge, that the obligation contracted by the petitioners is joint
and several and that the parties as well as the trial judge so understood it.
Under the juridical rule that the judgment should be in accordance with the
allegations, the evidence and the conclusions of fact and law, the
dispositive part of the judgment under consideration should have ordered
that the debt be paid 'severally' and in omitting the word or adverb
'severally' inadvertently, said judgment became ambiguous. This
ambiguity may be clari ed at any time after the decision is rendered and
even after it had become final (34 Corpus Juris, 235, 326). This respondent
judge did not, therefore, exceed his jurisdiction in clarifying the dispositive
part of the judgment by supplying the omission.' (Emphasis supplied)
In Filipino Legion Corporation vs. Court of Appeals, et al., the applicable principle
was set out in the following terms:
'[W]here there is ambiguity caused by an omission or mistake in the
dispositive portion of a decision, the court may clarify such ambiguity by
an amendment even after the judgment had become nal, and for this
purpose it may resort to the pleadings led by the parties, the court's
ndings of facts and conclusions of law as expressed in the body of the
decision.' (Emphasis supplied)
We believe and so hold that since respondent Aquino spouses were held not to
have been in delay, they were properly liable only for: (a) the principal of the loan or
P110,000.00; and (b) regular or monetary interest in the amount of seventeen percent
(17%) per annum. They were not liable for penalty or compensatory interest, xed by
the promissory note in Account No. IF-82-0904-AA at two percent (2%) per month or
twenty-four (24%) per annum. It must be stressed in this connection that under Article
2209 of the Civil Code which provides that.
". . . [i]f the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum."
the appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum or money, is the payment of penalty interest at the
rate agreed upon; and in the absence of a stipulation of a particular rate of penalty
interest, then the payment of additional interest at a rate equal to the regular monetary
interest; and if no regular interest had been agreed upon, then payment of legal interest
or six percent (6%) per annum. 4
The fact that the respondent Aquino spouses were not in default did not mean
that they, as a matter of law, were relieved from the payment not only of penalty or
compensatory interest at the rate of twenty-four percent (24%) per annum but also of
regular or monetary interest of seventeen percent (17%) per annum. The regular or
monetary interest continued to accrue under the terms of the relevant promissory note
until actual payment is effected. The payment of regular interest constitutes the price
or cost of the use of money and thus, until the principal sum due is returned to the
creditor, regular interest continues to accrue since the debtor continues to use such
principal amount. The relevant rule is set out in Article 1256 of the Civil Code which
provides as follows:
"Art. 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the
place of payment;
(2) When he is incapacitated to receive the payment at the time it is
due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost." (Emphasis
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supplied)
Where the creditor unjustly refuses to accept payment, the debtor desirous of being
released from his obligation must comply with two (2) conditions: (a) tender of
payment; and (b) consignation of the sum due. Tender of payment must be
accompanied or followed by consignation in order that the effects of payment may be
produced. Thus, in Llamas v. Abaya , 5 the Supreme Court stressed that a written tender
of payment alone, without consignation in court of the sum due, does not suspend the
accruing of regular or monetary interest.
In the instant case, respondent spouses Aquino, while they are properly regarded
as having made a written tender of payment to petitioner State, failed to consign in
court the amount due at the time of the maturity of Account No. IF-820904-AA. It
follows that their obligation to pay principal-cum-regular or monetary interest under the
terms and conditions of Account No. IF-82-0904-AA was not extinguished by such
tender of payment alone.
For the respondent spouses to continue in possession of the principal of the loan
amounting to P110,000.00 and to continue to use the same after maturity of the loan
without payment of regular or monetary interest, would constitute unjust enrichment on
the part of the respondent spouses at the expense of petitioner State even though the
spouses had not been guilty of mora. It is precisely this unjust enrichment which Article
1256 of the Civil Code prevents by requiring, in addition to tender of payment, the
consignation of the amount due in court which amount would thereafter be deposited
by the Clerk of Court in a bank and earn interest to which the creditor would be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED DUE COURSE. The
Decision of the Court of Appeals dated 30 August 1989 in C.A.-G.R. No. 17954 and the
Decision of the Regional Trial Court dated 17 February 1989 in Civil Case No. Q-42188
are hereby REVERSED and SET ASIDE. The dispositive portion of the decision of Judge
Fortun is hereby clarified so as to read as follows: Cdpr
Footnotes
1. G.R. No. 61250, 3 June 1991.
DECISION
PERALTA , J : p
This is an appeal from the Decision 1 of the Court of Appeals, Cebu City (CA)
dated March 29, 2012 and its Resolution 2 dated December 19, 2012 in CA-G.R. CV No.
01339 which set aside the Decision 3 of the Cebu Regional Trial Court (RTC), Branch 57,
dated January 9, 2006, dismissing respondent Carmen Encomienda's claim for sum of
money. HTcADC
When Jalandoni came back to Cebu on July 14, 1997, she never informed
Encomienda. Encomienda then later gave Jalandoni six (6) weeks to settle her debts.
Despite several demands, no payment was made. Jalandoni insisted that the amounts
given were not in the form of loans. When they had to appear before the Barangay for
conciliation, no settlement was reached. But a member of the Lupong Tagapamayapa
of Barangay Kasambagan, Laureano Rogero, attested that Jalandoni admitted having
borrowed money from Encomienda and that she was willing to return it. Jalandoni said
she would talk to her lawyer rst, but she never came back. Hence, Encomienda led a
complaint. She impleaded Luis as a necessary party, being Georgia's husband.
For her defense, Jalandoni claimed that there was never a discussion or even just
an allusion about a loan. She con rmed that Encomienda would indeed deposit money
in her bank account and pay her bills in Cebu. But when asked, Encomienda would tell
her that she just wanted to extend some help and that it was not a loan. When Jalandoni
returned to Cebu, Encomienda wanted to fetch her at the airport but the former refused.
This allegedly made Encomienda upset, causing her to eventually demand payment for
the amounts originally intended to be gratuitous.
On January 9, 2006, the RTC of Cebu City dismissed Encomienda's complaint, the
dispositive portion of which states:
WHEREFORE, in view of the foregoing, this case is hereby dismissed.
SO ORDERED. 5
Therefore, Encomienda brought the case to the CA. On March 29, 2012, the
appellate court granted the appeal and reversed the RTC Decision, to wit:
WHEREFORE , the defendant-appellant's appeal is GRANTED . The
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decision of the trial court dated January 9, 2006 is hereby REVERSED and SET
ASIDE and in its stead render judgment against defendant-appellee Georgia
Osmeña-Jalandoni ordering the latter to pay plaintiff-appellant Carmen A.
Encomienda the following:
1. The sum of Three Million Two Hundred Forty-Five Thousand Eight
Hundred Thirty-Six (P3,245,836.02) Pesos and 02/100 and Six
Thousand Six Hundred Thirty-Eight (US$6,638.20) US Dollars and
20/100;
2. Legal interest of Twelve (12%) Percent from August 14, 1997 the
date of extrajudicial demand.
HEITAD
7. Id. at 55-56.
8. Emphasis ours.
9. Rollo, p. 19.
10. Spouses Publico v. Bautista, 639 Phil. 147, 154 (2010).
13. Pursuant to the Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013; Nacar v.
Gallery Frames, 716 Phil. 267 (2013).
DECISION
MENDOZA , J : p
This is a Petition for Review on Certiorari seeking to reverse and set aside the
August 4, 2011 Decision 1 and the March 19, 2012 Resolution 2 of the Court of Appeals
(CA) in CA-G.R. CV No. 90425, which af rmed the November 9, 2007 Decision 3 and
February 6, 2008 Order 4 of the Regional Trial Court, Branch 12, Manila (RTC) in Civil
Case No. 99-95945.
The Facts
The present case stemmed from a Complaint for Sum of Money, 5 dated August
30, 1999, led by respondent Westmont Bank (Westmont), now United Overseas Bank
Philippines (UOBP), against petitioners Spouses Ramon Sy and Anita Ng, Richard Sy,
Josie Ong, William Sy, and Jackeline de Lucia (petitioners) before the RTC.
Westmont alleged that on October 21, 1997, petitioners, doing business under
the trade name of Moondrops General Merchandising (Moondrops), obtained a loan in
the amount of P2,429,500.00, evidenced by Promissory Note No. GP-5280 6 (PN 5280),
payable on November 20, 1997. Barely a month after, or on November 25, 1997,
petitioners obtained another loan from Westmont Bank in the amount of
P4,000,000.00, evidenced by Promissory Note No. GP-5285 7 (PN 5285), payable on
December 26, 1997. Disclosure Statements on the Loan/Credit Transactions 8 were
signed by the parties. Earlier, a Continuing Suretyship Agreement, 9 dated February 4,
1997, was executed between Westmont and petitioners for the purpose of securing
any future indebtedness of Moondrops.
Westmont averred that petitioners defaulted in the payment of their loan
obligations. It sent a Demand Letter, 10 dated August 27, 1999, to petitioners, but it was
unheeded. Hence, Westmont filed the subject complaint. caITAC
3. The sum equivalent to twenty (20) percent of the total amount due
(referred to in Items 1 and 2 hereof), by way of attorney's fees; and costs of
suit.
SO ORDERED. 17
Aggrieved, petitioners elevated an appeal before the CA.
The CA Ruling
In its assailed August 4, 2011 decision, the CA affirmed the ruling of the RTC. It
wrote that petitioners failed to speci cally deny the genuineness and due execution of
the promissory notes in their answer before the trial court. Accordingly, the CA ruled
that under Section 8, Rule 8 of the Rules of Court (Section 8 of Rule 8), the genuineness
and due execution of the promissory notes were deemed admitted by petitioners. It
added that the admission of the said actionable documents created a prima facie case
in favor of Westmont which dispensed with the necessity of presenting evidence that
petitioners actually received the loan proceeds. The CA disposed the case in this wise:
WHEREFORE, the instant appeal is DENIED. The assailed Decision dated
November 9, 2007 as amended by the assailed Order dated February 6, 2008 of
the Regional Trial Court of Manila, Branch 12, is hereby AFFIRMED.
SO ORDERED. 18
Petitioners led a motion for reconsideration, but it was denied by the CA in its
assailed decision, dated March 19, 2012.
Hence, this petition, raising the following:
ISSUES
1. Penned by Associate Justice Samuel H. Gaerlan with Associate Justice Ramon R. Garcia
and Associate Justice Socorro B. Inting, concurring; rollo, pp. 34-43.
2. Id. at 44-45.
3. Penned by Judge Ruben Reynaldo G. Roxas; id. at 157-164.
4. Id. at 198-204.
5. Id. at 57-61.
6. Id. at 62.
7. Id. at 64.
8. Id. at 63 and 65.
9. Id. at 66-68.
10. Id. at 69-70.
41. TSN, pp. 27-29, January 11, 2002; rollo, pp. 103 and 175.
42. Id. at 105 and 155-156.
n Note from the Publisher: Copied verbatim from the official copy.
n Note from the Publisher: Copied verbatim from the of cial copy. Formerly “39. De Leon v.
Bank of the Philippines, Phil. 839 (2013).”