G.R. No.

L-24968 April 27, 1972 on the factory building to be constructed, the land site thereof, and
the machinery and equipment to be installed. Among the other
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs. terms spelled out in the resolution were the following:
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
1. That the proceeds of the loan shall be utilized exclusively for
MAKALINTAL, J.:p the following purposes:
In Civil Case No. 55908 of the Court of First Instance of Manila,
 For construction of factory building P250,000.00
judgment was rendered on June 28, 1965 sentencing defendant
 For payment of the balance of purchase price of
Development Bank of the Philippines (DBP) to pay actual and
machinery and equipment 240,900.00
consequential damages to plaintiff Saura Import and Export Co., Inc.
 For working capital 9,100.00
in the amount of P383,343.68, plus interest at the legal rate from
the date the complaint was filed and attorney's fees in the amount TOTAL P500,000.00
of P5,000.00. The present appeal is from that judgment.
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano,
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd.
applied to the Rehabilitation Finance Corporation (RFC), before its shall sign the promissory notes jointly with the borrower-
conversion into DBP, for an industrial loan of P500,000.00, to be corporation;
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 5. That release shall be made at the discretion of the
balance of the purchase price of the jute mill machinery and Rehabilitation Finance Corporation, subject to availability of funds,
equipment; and P9,100.00 as additional working capital. and as the construction of the factory buildings progresses, to be
certified to by an appraiser of this Corporation;"
Parenthetically, it may be mentioned that the jute mill machinery
had already been purchased by Saura on the strength of a letter of Saura, Inc. was officially notified of the resolution on January 9,
credit extended by the Prudential Bank and Trust Co., and arrived in 1954. The day before, however, evidently having otherwise been
Davao City in July 1953; and that to secure its release without first informed of its approval, Saura, Inc. wrote a letter to RFC,
paying the draft, Saura, Inc. executed a trust receipt in favor of the requesting a modification of the terms laid down by it, namely: that
said bank. in lieu of having China Engineers, Ltd. (which was willing to assume
liability only to the extent of its stock subscription with Saura, Inc.)
On January 7, 1954 RFC passed Resolution No. 145 approving the sign as co-maker on the corresponding promissory notes, Saura, Inc.
loan application for P500,000.00, to be secured by a first mortgage would put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for It appears, however, that despite the formal execution of the loan
Inocencia Arellano as one of the other co-makers, having acquired agreement the reexamination contemplated in Resolution No. 736
the latter's shares in Saura, Inc. proceeded. In a meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc., was present,
In view of such request RFC approved Resolution No. 736 on it was decided to reduce the loan from P500,000.00 to P300,000.00.
February 4, 1954, designating of the members of its Board of Resolution No. 3989 was approved as follows:
Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan ... with special RESOLUTION No. 3989. Reducing the Loan Granted Saura Import &
reference as to the advisability of financing this particular project Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
based on present conditions obtaining in the operations of jute P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
mills, and to submit his findings thereon at the next meeting of the examination of all the various aspects of the loan granted the Saura
Board." Import & Export Co. under Resolution No. 145, c.s., for the purpose
of financing the manufacture of jute sacks in Davao, with special
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. reference as to the advisability of financing this particular project
had again agreed to act as co-signer for the loan, and asked that the based on present conditions obtaining in the operation of jute mills,
necessary documents be prepared in accordance with the terms and after having heard Ramon E. Saura and after extensive
and conditions specified in Resolution No. 145. In connection with
discussion on the subject the Board, upon recommendation of the
the reexamination of the project to be financed with the loan Chairman, RESOLVED that the loan granted the Saura Import &
applied for, as stated in Resolution No. 736, the parties named their Export Co. be REDUCED from P500,000 to P300,000 and that
respective committees of engineers and technical men to meet with releases up to P100,000 may be authorized as may be necessary
each other and undertake the necessary studies, although in from time to time to place the factory in actual operation:
appointing its own committee Saura, Inc. made the observation that PROVIDED that all terms and conditions of Resolution No. 145, c.s.,
the same "should not be taken as an acquiescence on (its) part to
not inconsistent herewith, shall remain in full force and effect."
novate, or accept new conditions to, the agreement already)
entered into," referring to its acceptance of the terms and On June 19, 1954 another hitch developed. F.R. Halling, who had
conditions mentioned in Resolution No. 145. signed the promissory note for China Engineers Ltd. jointly and
severally with the other RFC that his company no longer to of the
On April 13, 1954 the loan documents were executed: the loan and therefore considered the same as cancelled as far as it was
promissory note, with F.R. Halling, representing China Engineers, concerned. A follow-up letter dated July 2 requested RFC that the
Ltd., as one of the co-signers; and the corresponding deed of registration of the mortgage be withdrawn.
mortgage, which was duly registered on the following April 17.
In the meantime Saura, Inc. had written RFC requesting that the Resources was required "as the intention of the original approval (of
loan of P500,000.00 be granted. The request was denied by RFC, the loan) is to develop the manufacture of sacks on the basis of
which added in its letter-reply that it was "constrained to consider locally available raw materials." This point is important, and sheds
as cancelled the loan of P300,000.00 ... in view of a notification ... light on the subsequent actuations of the parties. Saura, Inc. does
from the China Engineers Ltd., expressing their desire to consider not deny that the factory he was building in Davao was for the
the loan insofar as they are concerned." manufacture of bags from local raw materials. The cover page of its
brochure (Exh. M) describes the project as a "Joint venture by and
On July 24, 1954 Saura, Inc. took exception to the cancellation of
between the Mindanao Industry Corporation and the Saura Import
the loan and informed RFC that China Engineers, Ltd. "will at any and Export Co., Inc. to finance, manage and operate a Kenaf mill
time reinstate their signature as co-signer of the note if RFC releases plant, to manufacture copra and corn bags, runners, floor mattings,
to us the P500,000.00 originally approved by you.". carpets, draperies; out of 100% local raw materials, principal kenaf."
On December 17, 1954 RFC passed Resolution No. 9083, restoring The explanatory note on page 1 of the same brochure states that,
the loan to the original amount of P500,000.00, "it appearing that the venture "is the first serious attempt in this country to use 100%
China Engineers, Ltd. is now willing to sign the promissory notes locally grown raw materials notably kenaf which is presently grown
jointly with the borrower-corporation," but with the following commercially in theIsland of Mindanao where the proposed jutemill
proviso: is located ..."

That in view of observations made of the shortage and high cost of This fact, according to defendant DBP, is what moved RFC to
imported raw materials, the Department of Agriculture and Natural approve the loan application in the first place, and to require, in its
Resources shall certify to the following: Resolution No. 9083, a certification from the Department of
Agriculture and Natural Resources as to the availability of local raw
1. That the raw materials needed by the borrower-corporation materials to provide adequately for the requirements of the factory.
to carry out its operation are available in the immediate vicinity; Saura, Inc. itself confirmed the defendant's stand impliedly in its
and letter of January 21, 1955: (1) stating that according to a special
study made by the Bureau of Forestry "kenaf will not be available in
2. That there is prospect of increased production thereof to
sufficient quantity this year or probably even next year;" (2)
provide adequately for the requirements of the factory."
requesting "assurances (from RFC) that my company and associates
The action thus taken was communicated to Saura, Inc. in a letter of will be able to bring in sufficient jute materials as may be necessary
RFC dated December 22, 1954, wherein it was explained that the for the full operation of the jute mill;" and (3) asking that releases of
certification by the Department of Agriculture and Natural the loan be made as follows:
a) For the payment of the receipt for jute mill machineries available in the immediate vicinity and that there is prospect of
with the Prudential Bank & Trust Company P250,000.00 increased production thereof to provide adequately the
requirements of the factory, we wish to reiterate that the basis of
(For immediate release) the original approval is to develop the manufacture of sacks on the
b) For the purchase of materials and equipment per attached basis of the locally available raw materials. Your statement that you
list to enable the jute mill to operate 182,413.91 will have to rely on the importation of jute and your request that we
give you assurance that your company will be able to bring in
c) For raw materials and labor 67,586.09 sufficient jute materials as may be necessary for the operation of
your factory, would not be in line with our principle in approving the
1) P25,000.00 to be released on the opening of the letter of
loan.
credit for raw jute for $25,000.00.
With the foregoing letter the negotiations came to a standstill.
2) P25,000.00 to be released upon arrival of raw jute.
Saura, Inc. did not pursue the matter further. Instead, it requested
3) P17,586.09 to be released as soon as the mill is ready to RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed
operate. the corresponding deed of cancellation and delivered it to Ramon F.
Saura himself as president of Saura, Inc.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
It appears that the cancellation was requested to make way for the
Dear Sirs: registration of a mortgage contract, executed on August 6, 1954,
over the same property in favor of the Prudential Bank and Trust
This is with reference to your letter of January 21, 1955, regarding
Co., under which contract Saura, Inc. had up to December 31 of the
the release of your loan under consideration of P500,000. As stated
same year within which to pay its obligation on the trust receipt
in our letter of December 22, 1954, the releases of the loan, if
heretofore mentioned. It appears further that for failure to pay the
revived, are proposed to be made from time to time, subject to
said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on
availability of funds towards the end that the sack factory shall be
May 15, 1955.
placed in actual operating status. We shall be able to act on your
request for revised purpose and manner of releases upon re- On January 9, 1964, ahnost 9 years after the mortgage in favor of
appraisal of the securities offered for the loan. RFC was cancelled at the request of Saura, Inc., the latter
commenced the present suit for damages, alleging failure of RFC (as
With respect to our requirement that the Department of Agriculture
predecessor of the defendant DBP) to comply with its obligation to
and Natural Resources certify that the raw materials needed are
release the proceeds of the loan applied for and approved, thereby
preventing the plaintiff from completing or paying contractual that when RFC, by Resolution No. 9083 approved on December 17,
commitments it had entered into, in connection with its jute mill 1954, restored the loan to the original amount of P500,000.00. it
project. imposed two conditions, to wit: "(1) that the raw materials needed
by the borrower-corporation to carry out its operation are available
The trial court rendered judgment for the plaintiff, ruling that there in the immediate vicinity; and (2) that there is prospect of increased
was a perfected contract between the parties and that the production thereof to provide adequately for the requirements of
defendant was guilty of breach thereof. The defendant pleaded the factory." The imposition of those conditions was by no means a
below, and reiterates in this appeal: (1) that the plaintiff's cause of
deviation from the terms of the agreement, but rather a step in its
action had prescribed, or that its claim had been waived or implementation. There was nothing in said conditions that
abandoned; (2) that there was no perfected contract; and (3) that contradicted the terms laid down in RFC Resolution No. 145, passed
assuming there was, the plaintiff itself did not comply with the on January 7, 1954, namely — "that the proceeds of the loan shall
terms thereof. be utilized exclusively for the following purposes: for construction of
We hold that there was indeed a perfected consensual contract, as factory building — P250,000.00; for payment of the balance of
recognized in Article 1934 of the Civil Code, which provides: purchase price of machinery and equipment — P240,900.00; for
working capital — P9,100.00." Evidently Saura, Inc. realized that it
ART. 1954. An accepted promise to deliver something, by way could not meet the conditions required by RFC, and so wrote its
of commodatum or simple loan is binding upon the parties, but the letter of January 21, 1955, stating that local jute "will not be able in
commodatum or simple loan itself shall not be perferted until the sufficient quantity this year or probably next year," and asking that
delivery of the object of the contract. 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
There was undoubtedly offer and acceptance in this case: the
down in Resolution No. 145 and embodied in the mortgage
application of Saura, Inc. for a loan of P500,000.00 was approved by
contract, implying as it did a diversion of part of the proceeds of the
resolution of the defendant, and the corresponding mortgage was
loan to purposes other than those agreed upon.
executed and registered. But this fact alone falls short of resolving
the basic claim that the defendant failed to fulfill its obligation and When RFC turned down the request in its letter of January 25, 1955
the plaintiff is therefore entitled to recover damages. the negotiations which had been going on for the implementation
of the agreement reached an impasse. Saura, Inc. obviously was in
It should be noted that RFC entertained the loan application of
no position to comply with RFC's conditions. So instead of doing so
Saura, Inc. on the assumption that the factory to be constructed
and insisting that the loan be released as agreed upon, Saura, Inc.
would utilize locally grown raw materials, principally kenaf. There is
asked that the mortgage be cancelled, which was done on June 15,
no serious dispute about this. It was in line with such assumption
1955. The action thus taken by both parties was in the nature cf
mutual desistance — what Manresa terms "mutuo disenso"1 —
which is a mode of extinguishing obligations. It is a concept that
derives from the principle that since mutual agreement can create a
contract, mutual disagreement by the parties can cause its
extinguishment.2

The subsequent conduct of Saura, Inc. confirms this desistance. It

did not protest against any alleged breach of contract by RFC, or
even point out that the latter's stand was legally unjustified. Its
request for cancellation of the mortgage carried no reservation of
whatever rights it believed it might have against RFC for the latter's
non-compliance. In 1962 it even applied with DBP for another loan
to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan
agreement had been cancelled at its own request, that Saura, Inc.
brought this action for damages.All these circumstances
demonstrate beyond doubt that the said agreement had been
extinguished by mutual desistance — and that on the initiative of
the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to

consider and resolve the other issues raised in the respective briefs
of the parties.

WHEREFORE, the judgment appealed from is reversed and the

complaint dismissed, with costs against the plaintiff-appellee.
G.R. No. L-49101 October 24, 1983 complaint and raised the following affirmative defenses: (a) that the
defendant has not given its consent, much less the requisite written
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners, consent, to the sale of the mortgaged property to plaintiff and the
vs. THE HONORABLE COURT OF APPEALS and THE PHILIPPINE assumption by the latter of the loan secured thereby; (b) that the
BANK OF COMMERCE, respondents. demand letters and notice of foreclosure were sent to Jose Lozano
GUERRERO, J: at his address; (c) that it was notified for the first time about the
alleged sale after it had foreclosed the Lozano mortgage; (d) that
Petition for review on certiorari seeking the reversal of the decision the law on contracts requires defendant's consent before Jose
of the defunct Court of Appeals, now Intermediate Appellate Court, Lozano can be released from his bilateral agreement with the
in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs. Philippine former and doubly so, before plaintiff may be substituted for Jose
Bank of Commerce, et al.," promulgated August 11, 1978 1 as well Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was
as the Resolution denying the motion for reconsideration. secured by mortgage, after two renewals remain unpaid despite
countless reminders and demands; of that the property in question
The complaint filed on January 26, 1971 by petitioner Honesto
remained registered in the name of Jose M. Lozano in the land
Bonnevie with the Court of First Instance of Rizal against
records of Rizal and there was no entry, notation or indication of
respondent Philippine Bank of Commerce sought the annulment of
the alleged sale to plaintiff; (g) that it is an established banking
the Deed of Mortgage dated December 6, 1966 executed in favor of
practice that payments against accounts need not be personally
the Philippine Bank of Commerce by the spouses Jose M. Lozano
made by the debtor himself; and (h) that it is not true that the
and Josefa P. Lozano as well as the extrajudicial foreclosure made
mortgage, at the time of its execution and registration, was without
on September 4, 1968. It alleged among others that (a) the Deed of
consideration as alleged because the execution and registration of
Mortgage lacks consideration and (b) the mortgage was executed by
the securing mortgage, the signing and delivery of the promissory
one who was not the owner of the mortgaged property. It further
note and the disbursement of the proceeds of the loan are mere
alleged that the property in question was foreclosed pursuant to Act
implementation of the basic consensual contract of loan.
No. 3135 as amended, without, however, complying with the
condition imposed for a valid foreclosure. Granting the validity of After petitioner Honesto V. Bonnevie had rested his case, petitioner
the mortgage and the extrajudicial foreclosure, it finally alleged that Raoul SV Bonnevie filed a motion for intervention. The intervention
respondent Bank should have accepted petitioner's offer to redeem was premised on the Deed of Assignment executed by petitioner
the property under the principle of equity said justice. Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering
the rights and interests of petitioner Honesto Bonnevie over the
On the other hand, the answer of defendant Bank, now private
subject property. The intervention was ultimately granted in order
respondent herein, specifically denied most of the allegations in the
that all issues be resolved in one proceeding to avoid multiplicity of
suits.
The factual findings of respondent Court of Appeals being
On March 29, 1976, the lower court rendered its decision, the conclusive upon this Court, We hereby adopt the facts found the
dispositive portion of which reads as follows: trial court and found by the Court of Appeals to be consistent with
the evidence adduced during trial, to wit:
WHEREFORE, all the foregoing premises considered, judgment is
hereby rendered dismissing the complaint with costs against the It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano
plaintiff and the intervenor. were the owners of the property which they mortgaged on
December 6, 1966, to secure the payment of the loan in the
After the motion for reconsideration of the lower court's decision principal amount of P75,000.00 they were about to obtain from
was denied, petitioners appealed to respondent Court of Appeals
defendant-appellee Philippine Bank of Commerce; that on
assigning the following errors: December 8, 1966, executed in favor of plaintiff-appellant the Deed
1. The lower court erred in not finding that the real estate of Sale with Mortgage ,, for and in consideration of the sum of
mortgage executed by Jose Lozano was null and void; P100,000.00, P25,000.00 of which amount being payable to the
Lozano spouses upon the execution of the document, and the
2. The lower court erred in not finding that the auction sale balance of P75,000.00 being payable to defendant- appellee; that
decide on August 19, 1968 was null and void; on December 6, 1966, when the mortgage was executed by the
Lozano spouses in favor of defendant-appellee, the loan of
3. The lower court erred in not allowing the plaintiff and the
P75,000.00 was not yet received them, as it was on December 12,
intervenor to redeem the property;
1966 when they and their co-maker Alfonso Lim signed the
4. The lower court erred in not finding that the defendant promissory note for that amount; that from April 28, 1967 to July
acted in bad faith; and 12, 1968, plaintiff-appellant made payments to defendant-appellee
on the mortgage in the total amount of P18,944.22; that on May 4,
5. The lower court erred in dismissing the complaint. 1968, plaintiff-appellant assigned all his rights under the Deed of
Sale with Assumption of Mortgage to his brother, intervenor Raoul
On August 11, 1978, the respondent court promulgated its decision
Bonnevie; that on June 10, 1968, defendant-appellee applied for the
affirming the decision of the lower court, and on October 3. 1978
foreclosure of the mortgage, and notice of sale was published in the
denied the motion for reconsideration. Hence, the present petition
Luzon Weekly Courier on June 30, July 7, and July 14, 1968; that
for review.
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 This contention is patently devoid of merit. From the recitals of the
October 9, 1969, he caused an adverse claim to be annotated on the mortgage deed itself, it is clearly seen that the mortgage deed was
title of the property. (Decision of the Court of Appeals, p. 5). executed for and on condition of the loan granted to the Lozano
spouses. The fact that the latter did not collect from the respondent
Presented for resolution in this review are the following issues: Bank the consideration of the mortgage on the date it was executed
I Whether the real estate mortgage executed by the spouses is immaterial. A contract of loan being a consensual contract, the
Lozano in favor of respondent bank was validly and legally executed. herein contract of loan was perfected at the same time the contract
of mortgage was executed. The promissory note executed on
II Whether the extrajudicial foreclosure of the said mortgage December 12, 1966 is only an evidence of indebtedness and does
was validly and legally effected. not indicate lack of consideration of the mortgage at the time of its
execution.
III Whether petitioners had a right to redeem the foreclosed
property. Petitioners also argued that granting the validity of the mortgage,
the subsequent renewals of the original loan, using as security the
IV Granting that petitioners had such a right, whether
same property which the Lozano spouses had already sold to
respondent was justified in refusing their offers to repurchase the
petitioners, rendered the mortgage null and void,
property.
This argument failed to consider the provision 2 of the contract of
As clearly seen from the foregoing issues raised, petitioners' course
mortgage which prohibits the sale, disposition of, mortgage and
of action is three-fold. They primarily attack the validity of the
encumbrance of the mortgaged properties, without the written
mortgage executed by the Lozano spouses in favor of respondent
consent of the mortgagee, as well as the additional proviso that if in
Bank. Next, they attack the validity of the extrajudicial foreclosure
spite of said stipulation, the mortgaged property is sold, the vendee
and finally, appeal to justice and equity. In attacking the validity of
shall assume the mortgage in the terms and conditions under which
the deed of mortgage, they contended that when it was executed
it is constituted. These provisions are expressly made part and
on December 6, 1966, there was yet no principal obligation to
parcel of the Deed of Sale with Assumption of Mortgage.
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, Petitioners admit that they did not secure the consent of
there is want of consideration in the accessory contract, which respondent Bank to the sale with assumption of mortgage. Coupled
consequently impairs its validity and fatally affects its very with the fact that the sale/assignment was not registered so that
existence." (Petitioners' Brief, par. 1, p. 7). 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 Raoul Bonnevie and respondent Bank not likewise informed of the
every right to rely on the certificate of title. It was not bound to go same. For the same reason, Raoul Bonnevie is not entitled to notice.
behind the same to look for flaws in the mortgagor's title, the Most importantly, Act No. 3135 does not require personal notice on
doctrine of innocent purchaser for value being applicable to an the mortgagor. The requirement on notice is that:
innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430;
Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the Section 3. Notice shall be given by posting notices of the sale
respondent Bank is that a mortgage follows the property whoever for not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such
the possessor may be and subjects the fulfillment of the obligation
for whose security it was constituted. Finally, it can also be said that property is worth more than four hundred pesos, such notice shall
petitioners voluntarily assumed the mortgage when they entered also be published once a week for at least three consecutive weeks
into the Deed of Sale with Assumption of Mortgage. They are, in a newspaper of general circulation in the municipality or city
therefore, estopped from impugning its validity whether on the In the case at bar, the notice of sale was published in the Luzon
original loan or renewals thereof. Courier on June 30, July 7 and July 14, 1968 and notices of the sale
Petitioners next assail the validity and legality of the extrajudicial were posted for not less than twenty days in at least three (3) public
foreclosure on the following grounds: places in the Municipality where the property is located. Petitioners
were thus placed on constructive notice.
a) petitioners were never notified of the foreclosure sale.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is
b) The notice of auction sale was not posted for the period inapplicable because said case involved a judicial foreclosure and
required by law. the sale to the vendee of the mortgaged property was duly
registered making the mortgaged privy to the sale.
c) publication of the notice of auction sale in the Luzon Weekly
Courier was not in accordance with law. 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
The lack of notice of the foreclosure sale on petitioners is a flimsy
for at least three consecutive weeks, the Court of Appeals ruled that
ground. Respondent Bank not being a party to the Deed of Sale with the publication of notice on June 30, July 7 and July 14, 1968
Assumption of Mortgage, it can validly claim that it was not aware satisfies the publication requirement under Act No. 3135
of the same and hence, it may not be obliged to notify petitioners.
notwithstanding the fact that June 30 to July 14 is only 14 days. We
Secondly, petitioner Honesto Bonnevie was not entitled to any agree. Act No. 3135 merely requires that such notice shall be
notice because as of May 14, 1968, he had transferred and assigned published once a week for at least three consecutive weeks." Such
all his rights and interests over the property in favor of intervenor
phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. Municipal Hall. In the same manner, copies of said notice were also
632, does not mean that notice should be published for three full posted in the place where the property was located, namely: the
weeks. Municipal Building of San Juan, Rizal; the Municipal Market and on
Benitez Street. The following statement of Atty. Santiago Pastor,
The argument that the publication of the notice in the "Luzon
head of the legal department of respondent bank, namely:
Weekly Courier" was not in accordance with law as said newspaper
is not of general circulation must likewise be disregarded. The Q How many days were the notices posted in these two
affidavit of publication, executed by the Publisher, places, if you know?
business/advertising manager of the Luzon Weekly Courier, stares
that it is "a newspaper of general circulation in ... Rizal, and that the A We posted them only once in one day. (TSN, p. 45, July 25,
Notice of Sheriff's sale was published in said paper on June 30, July 1973)
7 and July 14, 1968. This constitutes prima facie evidence of is not a sufficient countervailing evidence to prove that there was
compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA no compliance with the posting requirement in the absence of proof
491). or even of allegation that the notices were removed before the
expiration of the twenty- day period. A single act of posting (which
To be a newspaper of general circulation, it is enough that "it is
published for the dissemination of local news and general may even extend beyond the period required by law) satisfies the
information; that it has a bona fide subscription list of paying requirement of law. The burden of proving that the posting
requirement was not complied with is now shifted to the one who
subscribers; that it is published at regular intervals." (Basa vs.
Mercado, 61 Phil. 632). The newspaper need not have the largest alleges non-compliance.
circulation so long as it is of general circulation. Banta vs. Pacheco, On the question of whether or not the petitioners had a right to
74 Phil. 67). The testimony of three witnesses that they do read the redeem the property, We hold that the Court of Appeals did not err
Luzon Weekly Courier is no proof that said newspaper is not a in ruling that they had no right to redeem. No consent having been
newspaper of general circulation in the province of Rizal. secured from respondent Bank to the sale with assumption of
Whether or not the notice of auction sale was posted for the period mortgage by petitioners, the latter were not validly substituted as
required by law is a question of fact. It can no longer be entertained debtors. In fact, their rights were never recorded and hence,
by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126). respondent Bank is charged with the obligation to recognize the
Nevertheless, the records show that copies of said notice were right of redemption only of the Lozano spouses. But even granting
posted in three conspicuous places in the municipality of Pasig, Rizal that as purchaser or assignee of the property, as the case may be,
namely: the Hall of Justice, the Pasig Municipal Market and Pasig the petitioners had acquired a right to redeem the property,
petitioners failed to exercise said right within the period granted by six months overdue. Petitioners' payment of interest on July 12,
law. Thru certificate of sale in favor of appellee was registered on 1968 does not thereby make the earlier act of respondent Bank
September 2, 1968 and the one year redemption period expired on inequitous nor does it ipso facto result in the renewal of the loan. In
September 3, 1969. It was not until September 29, 1969 that order that a renewal of a loan may be effected, not only the
petitioner Honesto Bonnevie first wrote respondent and offered to payment of the accrued interest is necessary but also the payment
redeem the property. Moreover, on September 29, 1969, Honesto of interest for the proposed period of renewal as well. Besides,
had at that time already transferred his rights to intervenor Raoul whether or not a loan may be renewed does not solely depend on
Bonnevie. the debtor but more so on the discretion of the bank. Respondent
Bank may not be, therefore, charged of bad faith.
On the question of whether or not respondent Court of Appeals
erred in holding that respondent Bank did not act in bad faith, WHEREFORE, the appeal being devoid of merit, the decision of the
petitioners rely on Exhibit "B" which is the letter of lose Lozano to Court of Appeals is hereby AFFIRMED. Costs against petitioners.
respondent Bank dated December 8, 1966 advising the latter that
Honesto Bonnevie was authorized to make payments for the SO ORDERED.
amount secured by the mortgage on the subject property, to
receive acknowledgment of payments, obtain the Release of the
Mortgage after full payment of the obligation and to take delivery
of the title of said property. On the assumption that the letter was
received by respondent Bank, a careful reading of the same shows
that the plaintiff was merely authorized to do acts mentioned
therein and does not mention that petitioner is the new owner of
the property nor request that all correspondence and notice should
be sent to him.

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

up to July 12, 1968 extends the maturity of said loan up to said date
and accordingly on June 10, 1968 when defendant applied for the
foreclosure of the mortgage, the loan was not yet due and
demandable, is totally incorrect and misleading. The undeniable fact
is that the loan matured on December 26, 1967. On June 10, 1968,
when respondent Bank applied for foreclosure, the loan was already
G.R. No. 133632 February 15, 2002 his lot in New Alabang Village, Muntinlupa. Said house and lot were
mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF the house and lot to private respondents ALS and Antonio Litonjua
APPEALS and ALS MANAGEMENT & DEVELOPMENT for ₱850,000. They paid ₱350,000 in cash and assumed the
CORPORATION, respondents. ₱500,000 balance of Roa’s indebtedness with AIDC. The latter,
QUISUMBING, J.: however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of ₱500,000 to
This petition for certiorari assails the decision dated February 28, be applied to Roa’s debt and secured by the same property, at an
1997, of the Court of Appeals and its resolution dated April 21, interest rate of 20% per annum and service fee of 1% per annum on
1998, in CA-G.R. CV No. 38887. The appellate court affirmed the the outstanding principal balance payable within ten years in equal
judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) monthly amortization of ₱9,996.58 and penalty interest at the rate
Civil Case No. 11831, for foreclosure of mortgage by petitioner BPI of 21% per annum per day from the date the amortization became
Investment Corporation (BPIIC for brevity) against private due and payable.
respondents ALS Management and Development Corporation and
Antonio K. Litonjua,1 consolidated with (b) Civil Case No. 52093, for Consequently, in March 1981, private respondents executed a
damages with prayer for the issuance of a writ of preliminary mortgage deed containing the above stipulations with the provision
injunction by the private respondents against said petitioner. that payment of the monthly amortization shall commence on May
1, 1981.
The trial court had held that private respondents were not in default
in the payment of their monthly amortization, hence, the On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by
extrajudicial foreclosure conducted by BPIIC was premature and paying BPIIC the sum of ₱190,601.35. This reduced Roa’s principal
made in bad faith. It awarded private respondents the amount of balance to ₱457,204.90 which, in turn, was liquidated when BPIIC
₱300,000 for moral damages, ₱50,000 for exemplary damages, and applied thereto the proceeds of private respondents’ loan of
₱50,000 for attorney’s fees and expenses for litigation. It likewise ₱500,000.
dismissed the foreclosure suit for being premature. On September 13, 1982, BPIIC released to private respondents
The facts are as follows: ₱7,146.87, purporting to be what was left of their loan after full
payment of Roa’s loan.
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum
from Ayala Investment and Development Corporation (AIDC), the In June 1984, BPIIC instituted foreclosure proceedings against
predecessor of petitioner BPIIC, for the construction of a house on private respondents on the ground that they failed to pay the
mortgage indebtedness which from May 1, 1981 to June 30, 1984, general circulation as defaulting debtors, and therefore orders BPI
amounted to Four Hundred Seventy Five Thousand Five Hundred to pay ALS and Litonjua the following sums:
Eighty Five and 31/100 Pesos (₱475,585.31). A notice of sheriff’s
sale was published on August 13, 1984. a) P300,000.00 for and as moral damages;

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 b) P50,000.00 as and for exemplary damages;
against BPIIC. They alleged, among others, that they were not in c) P50,000.00 as and for attorney’s fees and expenses of litigation.
arrears in their payment, but in fact made an overpayment as of
June 30, 1984. They maintained that they should not be made to The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for
pay amortization before the actual release of the ₱500,000 loan in being premature.
August and September 1982. Further, out of the ₱500,000 loan,
Costs against BPI.
only the total amount of ₱464,351.77 was released to private
respondents. Hence, applying the effects of legal compensation, the SO ORDERED.
balance of ₱35,648.23 should be applied to the initial monthly
amortization for the loan. Both parties appealed to the Court of Appeals. However, private
respondents’ appeal was dismissed for non-payment of docket fees.
On August 31, 1988, the trial court rendered its judgment in Civil
Case Nos. 11831 and 52093, thus: On February 28, 1997, the Court of Appeals promulgated its
decision, the dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of ALS
Management and Development Corporation and Antonio K. Litonjua WHEREFORE, finding no error in the appealed decision the same is
and against BPI Investment Corporation, holding that the amount of hereby AFFIRMED in toto.
loan granted by BPI to ALS and Litonjua was only in the principal
SO ORDERED.
sum of P464,351.77, with interest at 20% plus service charge of 1%
per annum, payable on equal monthly and successive amortizations In its decision, the Court of Appeals reasoned that a simple loan is
at P9,283.83 for ten (10) years or one hundred twenty (120) perfected only upon the delivery of the object of the contract. The
months. The amortization schedule attached as Annex "A" to the contract of loan between BPIIC and ALS & Litonjua was perfected
"Deed of Mortgage" is correspondingly reformed as aforestated. only on September 13, 1982, the date when BPIIC released the
purported balance of the ₱500,000 loan after deducting therefrom
The Court further finds that ALS and Litonjua suffered compensable
the value of Roa’s indebtedness. Thus, payment of the monthly
damages when BPI caused their publication in a newspaper of
amortization should commence only a month after the said date, as
can be inferred from the stipulations in the contract. This, despite perfected at the time the contract of mortgage is executed
the express agreement of the parties that payment shall commence conformably with our ruling in Bonnevie v. Court of Appeals, 125
on May 1, 1981. From October 1982 to June 1984, the total SCRA 122. In the present case, the loan contract was perfected on
amortization due was only ₱194,960.43. Evidence showed that March 31, 1981, the date when the mortgage deed was executed,
private respondents had an overpayment, because as of June 1984, hence, the amortization and interests on the loan should be
they already paid a total amount of ₱201,791.96. Therefore, there computed from said date.
was no basis for BPIIC to extrajudicially foreclose the mortgage and
Petitioner also argues that while the documents showed that the
cause the publication in newspapers concerning private
respondents’ delinquency in the payment of their loan. This fact loan was released only on August 1982, the loan was actually
constituted sufficient ground for moral damages in favor of private released on March 31, 1981, when BPIIC issued a cancellation of
mortgage of Frank Roa’s loan. This finds support in the registration
respondents.
on March 31, 1981 of the Deed of Absolute Sale executed by Roa in
The motion for reconsideration filed by petitioner BPIIC was favor of ALS, transferring the title of the property to ALS, and ALS
likewise denied, hence this petition, where BPIIC submits for executing the Mortgage Deed in favor of BPIIC. Moreover,
resolution the following issues: petitioner claims, the delay in the release of the loan should be
attributed to private respondents. As BPIIC only agreed to extend a
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL
₱500,000 loan, private respondents were required to reduce Frank
CONTRACT IN THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE Roa’s loan below said amount. According to petitioner, private
VS. COURT OF APPEALS, 125 SCRA 122. respondents were only able to do so in August 1982.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND In their comment, private respondents assert that based on Article
EXEMPLARY DAMAGES AND ATTORNEY’S FEES IN THE FACE OF
1934 of the Civil Code,4 a simple loan is perfected upon the delivery
IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE of the object of the contract, hence a real contract. In this case,
LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, even though the loan contract was signed on March 31, 1981, it was
120 SCRA 707. perfected only on September 13, 1982, when the full loan was
On the first issue, petitioner contends that the Court of Appeals released to private respondents. They submit that petitioner
erred in ruling that because a simple loan is perfected upon the misread Bonnevie. To give meaning to Article 1934, according to
delivery of the object of the contract, the loan contract in this case private respondents, Bonnevie must be construed to mean that the
was perfected only on September 13, 1982. Petitioner claims that a contract to extend the loan was perfected on March 31, 1981 but
contract of loan is a consensual contract, and a loan contract is the contract of loan itself was only perfected upon the delivery of
the full loan to private respondents on September 13, 1982.
Private respondents further maintain that even granting, arguendo, action for damages. We recognized in this case, a perfected
that the loan contract was perfected on March 31, 1981, and their consensual contract which under normal circumstances could have
payment did not start a month thereafter, still no default took made the bank liable for not releasing the loan. However, since the
place. According to private respondents, a perfected loan fault was attributable to petitioner therein, the court did not award
agreement imposes reciprocal obligations, where the obligation or it damages.
promise of each party is the consideration of the other party. In this
case, the consideration for BPIIC in entering into the loan contract is A perfected consensual contract, as shown above, can give rise to
an action for damages. However, said contract does not constitute
the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to deliver the the real contract of loan which requires the delivery of the object of
money. In reciprocal obligations, neither party incurs in delay if the the contract for its perfection and which gives rise to obligations
other does not comply or is not ready to comply in a proper manner only on the part of the borrower.
with what is incumbent upon him. Therefore, private respondents In the present case, the loan contract between BPI, on the one
conclude, they did not incur in delay when they did not commence hand, and ALS and Litonjua, on the other, was perfected only on
paying the monthly amortization on May 1, 1981, as it was only on September 13, 1982, the date of the second release of the loan.
September 13, 1982 when petitioner fully complied with its Following the intentions of the parties on the commencement of
obligation under the loan contract. the monthly amortization, as found by the Court of Appeals, private
We agree with private respondents. A loan contract is not a respondents’ obligation to pay commenced only on October 13,
consensual contract but a real contract. It is perfected only upon 1982, a month after the perfection of the contract.7
the delivery of the object of the contract.5 Petitioner misapplied We also agree with private respondents that a contract of loan
Bonnevie. The contract in Bonnevie declared by this Court as a involves a reciprocal obligation, wherein the obligation or promise
perfected consensual contract falls under the first clause of Article of each party is the consideration for that of the other.8 As averred
1934, Civil Code. It is an accepted promise to deliver something by by private respondents, the promise of BPIIC to extend and deliver
way of simple loan. the loan is upon the consideration that ALS and Litonjua shall pay
In Saura Import and Export Co. Inc. vs. Development Bank of the the monthly amortization commencing on May 1, 1981, one month
Philippines, 44 SCRA 445, petitioner applied for a loan of ₱500,000 after the supposed release of the loan. It is a basic principle in
with respondent bank. The latter approved the application through reciprocal obligations that neither party incurs in delay, if the other
a board resolution. Thereafter, the corresponding mortgage was does not comply or is not ready to comply in a proper manner with
executed and registered. However, because of acts attributable to what is incumbent upon him.9 Only when a party has performed his
petitioner, the loan was not released. Later, petitioner instituted an part of the contract can he demand that the other party also fulfills
his own obligation and if the latter fails, default sets in. maliciously or in bad faith. The SSS was of the belief that it was
Consequently, petitioner could only demand for the payment of the acting in the legitimate exercise of its right under the mortgage
monthly amortization after September 13, 1982 for it was only then contract in the face of irregular payments made by private
when it complied with its obligation under the loan contract. respondents and placed reliance on the automatic acceleration
Therefore, in computing the amount due as of the date when BPIIC clause in the contract. The filing alone of the foreclosure application
extrajudicially caused the foreclosure of the mortgage, the starting should not be a ground for an award of moral damages in the same
date is October 13, 1982 and not May 1, 1981. way that a clearly unfounded civil action is not among the grounds
for moral damages.
Other points raised by petitioner in connection with the first issue,
such as the date of actual release of the loan and whether private Private respondents counter that BPIIC was guilty of bad faith and
respondents were the cause of the delay in the release of the loan, should be liable for said damages because it insisted on the
are factual. Since petitioner has not shown that the instant case is payment of amortization on the loan even before it was released.
one of the exceptions to the basic rule that only questions of law Further, it did not make the corresponding deduction in the
can be raised in a petition for review under Rule 45 of the Rules of monthly amortization to conform to the actual amount of loan
Court,10 factual matters need not tarry us now. On these points we released, and it immediately initiated foreclosure proceedings when
are bound by the findings of the appellate and trial courts. private respondents failed to make timely payment.

On the second issue, petitioner claims that it should not be held But as admitted by private respondents themselves, they were
liable for moral and exemplary damages for it did not act irregular in their payment of monthly amortization. Conformably
maliciously when it initiated the foreclosure proceedings. It merely with our ruling in SSS, we can not properly declare BPIIC in bad
exercised its right under the mortgage contract because private faith. Consequently, we should rule out the award of moral and
respondents were irregular in their monthly amortization.1âwphi1 exemplary damages.
It invoked our ruling in Social Security System vs. Court of Appeals,
However, in our view, BPIIC was negligent in relying merely on the
120 SCRA 707, where we said:
entries found in the deed of mortgage, without checking and
Nor can the SSS be held liable for moral and temperate damages. As correspondingly adjusting its records on the amount actually
concluded by the Court of Appeals "the negligence of the appellant released to private respondents and the date when it was released.
is not so gross as to warrant moral and temperate damages," except Such negligence resulted in damage to private respondents, for
that, said Court reduced those damages by only P5,000.00 instead which an award of nominal damages should be given in recognition
of eliminating them. Neither can we agree with the findings of both of their rights which were violated by BPIIC.12 For this purpose, the
the Trial Court and respondent Court that the SSS had acted amount of ₱25,000 is sufficient.
Lastly, as in SSS where we awarded attorney’s fees because private
respondents were compelled to litigate, we sustain the award of
₱50,000 in favor of private respondents as attorney’s fees.

WHEREFORE, the decision dated February 28, 1997, of the Court of

Appeals and its resolution dated April 21, 1998, are AFFIRMED WITH
MODIFICATION as to the award of damages. The award of moral
and exemplary damages in favor of private respondents is DELETED,
but the award to them of attorney’s fees in the amount of ₱50,000
is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents ₱25,000 as nominal damages. Costs against petitioner.

SO ORDERED.
G.R. No. 118375 October 3, 2003 Thousand Pesos (₱95,000.00). The proceeds of these checks were to
constitute the loan granted by Naguiat to Queaño.
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and
AURORA QUEAÑO, respondents. To secure the loan, Queaño executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and
TINGA, J.: surrendered to the latter the owner’s duplicates of the titles
Before us is a Petition for Review on Certiorari under Rule 45, covering the mortgaged properties.4 On the same day, the
assailing the decision of the Sixteenth Division of the respondent mortgage deed was notarized, and Queaño issued to Naguiat a
Court of Appeals promulgated on 21 December 19941 , which promissory note for the amount of TWO HUNDRED THOUSAND
affirmed in toto the decision handed down by the Regional Trial PESOS (₱200,000.00), with interest at 12% per annum, payable on
Court (RTC) of Pasay City. 11 September 1980.5 Queaño also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of
The case arose when on 11 August 1981, private respondent Aurora TWO HUNDRED THOUSAND PESOS (₱200,000.00) and payable to
Queaño (Queaño) filed a complaint before the Pasay City RTC for the order of Naguiat.
cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, Upon presentment on its maturity date, the Security Bank check
declaring the questioned Real Estate Mortgage void, which Naguiat was dishonored for insufficiency of funds. On the following day, 12
appealed to the Court of Appeals. After the Court of Appeals upheld September 1980, Queaño requested Security Bank to stop payment
the RTC decision, Naguiat instituted the present petition. of her postdated check, but the bank rejected the request pursuant
to its policy not to honor such requests if the check is drawn against
The operative facts follow: insufficient funds.

Queaño applied with Naguiat for a loan in the amount of Two On 16 October 1980, Queaño received a letter from Naguiat’s
Hundred Thousand Pesos (₱200,000.00), which Naguiat granted. On lawyer, demanding settlement of the loan. Shortly thereafter,
11 August 1980, Naguiat indorsed to Queaño Associated Bank Check Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.
No. 090990 (dated 11 August 1980) for the amount of Ninety Five At the meeting, Queaño told Naguiat that she did not receive the
Thousand Pesos (₱95,000.00), which was earlier issued to Naguiat proceeds of the loan, adding that the checks were retained by
by the Corporate Resources Financing Corporation. She also issued Ruebenfeldt, who purportedly was Naguiat’s agent.
her own Filmanbank Check No. 065314, to the order of Queaño,
also dated 11 August 1980 and for the amount of Ninety Five Naguiat applied for the extrajudicial foreclosure of the mortgage
with the Sheriff of Rizal Province, who then scheduled the
foreclosure sale on 14 August 1981. Three days before the pass upon must not involve an examination of the probative value
scheduled sale, Queaño filed the case before the Pasay City RTC,8 of the evidence presented by the litigants.15 There is a question of
seeking the annulment of the mortgage deed. The trial court law in a given case when the doubt or difference arises as to what
eventually stopped the auction sale. the law is on a certain state of facts; there is a question of fact when
the doubt or difference arises as to the truth or the falsehood of
On 8 March 1991, the RTC rendered judgment, declaring the Deed alleged facts.
of Real Estate Mortgage null and void, and ordering Naguiat to
return to Queaño the owner’s duplicates of her titles to the Surely, there are established exceptions to the rule on the
mortgaged lots.10 Naguiat appealed the decision before the Court conclusiveness of the findings of facts of the lower courts.17 But
of Appeals, making no less than eleven assignments of error. The Naguiat’s case does not fall under any of the exceptions. In any
Court of Appeals promulgated the decision now assailed before us event, both the decisions of the appellate and trial courts are
that affirmed in toto the RTC decision. Hence, the present petition. supported by the evidence on record and the applicable laws.

Naguiat questions the findings of facts made by the Court of Against the common finding of the courts below, Naguiat vigorously
Appeals, especially on the issue of whether Queaño had actually insists that Queaño received the loan proceeds. Capitalizing on the
received the loan proceeds which were supposed to be covered by status of the mortgage deed as a public document, she cites the rule
the two checks Naguiat had issued or indorsed. Naguiat claims that that a public document enjoys the presumption of validity and
being a notarial instrument or public document, the mortgage deed truthfulness of its contents. The Court of Appeals, however, is
enjoys the presumption that the recitals therein are true. Naguiat correct in ruling that the presumption of truthfulness of the recitals
also questions the admissibility of various representations and in a public document was defeated by the clear and convincing
pronouncements of Ruebenfeldt, invoking the rule on the non- evidence in this case that pointed to the absence of
binding effect of the admissions of third persons. consideration.18 This Court has held that the presumption of
truthfulness engendered by notarized documents is rebuttable,
The resolution of the issues presented before this Court by Naguiat yielding as it does to clear and convincing evidence to the contrary,
involves the determination of facts, a function which this Court does
as in this case.
not exercise in an appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be raised12 as the On the other hand, absolutely no evidence was submitted by
Supreme Court is not a trier of facts.13 The resolution of factual Naguiat that the checks she issued or endorsed were actually
issues is the function of lower courts, whose findings on these encashed or deposited. The mere issuance of the checks did not
matters are received with respect and are in fact generally binding result in the perfection of the contract of loan. For the Civil Code
on the Supreme Court.14 A question of law which the Court may provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only As correctly pointed out by the Court of Appeals, Ruebenfeldt was
when they have been cashed.20 It is only after the checks have not a stranger or an unauthorized person. Naguiat instructed
produced the effect of payment that the contract of loan may be Ruebenfeldt to withhold from Queaño the checks she issued or
deemed perfected. Art. 1934 of the Civil Code provides: indorsed to Queaño, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan
"An accepted promise to deliver something by way of commodatum application of Queaño’s friend, Marilou Farralese, and it was in
or simple loan is binding upon the parties, but the commodatum or connection with that transaction that Queaño came to know
simple loan itself shall not be perfected until the delivery of the
Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in
object of the contract." her meeting with Naguiat and on that occasion, on her own and
A loan contract is a real contract, not consensual, and, as such, is without Queaño asking for it, Reubenfeldt actually drew a check for
perfected only upon the delivery of the object of the contract.21 In the sum of ₱220,000.00 payable to Naguiat, to cover for Queaño’s
this case, the objects of the contract are the loan proceeds which alleged liability to Naguiat under the loan agreement.24
Queaño would enjoy only upon the encashment of the checks The Court of Appeals recognized the existence of an "agency by
signed or indorsed by Naguiat. If indeed the checks were encashed estoppel25 citing Article 1873 of the Civil Code.26 Apparently, it
or deposited, Naguiat would have certainly presented the considered that at the very least, as a consequence of the
corresponding documentary evidence, such as the returned checks
interaction between Naguiat and Ruebenfeldt, Queaño got the
and the pertinent bank records. Since Naguiat presented no such impression that Ruebenfeldt was the agent of Naguiat, but Naguiat
proof, it follows that the checks were not encashed or credited to did nothing to correct Queaño’s impression. In that situation, the
Queaño’s account. rule is clear. One who clothes another with apparent authority as
Naguiat questions the admissibility of the various written his agent, and holds him out to the public as such, cannot be
representations made by Ruebenfeldt on the ground that they permitted to deny the authority of such person to act as his agent,
could not bind her following the res inter alia acta alteri nocere non to the prejudice of innocent third parties dealing with such person
debet rule. The Court of Appeals rejected the argument, holding in good faith, and in the honest belief that he is what he appears to
that since Ruebenfeldt was an authorized representative or agent of be.27 The Court of Appeals is correct in invoking the said rule on
Naguiat the situation falls under a recognized exception to the agency by estoppel.
rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent. More fundamentally, whatever was the true relationship between
Suffice to say, however, the existence of an agency relationship Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
between Naguiat and Ruebenfeldt is supported by ample evidence. checks issued or indorsed to Queaño were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the
courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that
the mortgage which is supposed to secure the loan is null and void.
The consideration of the mortgage contract is the same as that of
the principal contract from which it receives life, and without which
it cannot exist as an independent contract.28 A mortgage contract
being a mere accessory contract, its validity would depend on the
validity of the loan secured by it.

WHEREFORE, the petition is denied and the assailed decision is

affirmed. Costs against petitioner.

SO ORDERED.
G.R. No. 154878 March 16, 2007 interest thereon at 3% a month from October 26, 1995 and
₱500,000, with interest thereon at 4% a month from November 5,
CAROLYN M. GARCIA, Petitioner, vs. RICA MARIE S. THIO, 1995, plus attorney’s fees and actual damages.12
Respondent.
Petitioner alleged that on February 24, 1995, respondent borrowed
CORONA, J.: from her the amount of US$100,000 with interest thereon at the
Assailed in this petition for review on certiorari1 are the June 19, rate of 3% per month, which loan would mature on October 26,
2002 decision2 and August 20, 2002 resolution3 of the Court of 1995.13 The amount of this loan was covered by the first check. On
Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February June 29, 1995, respondent again borrowed the amount of ₱500,000
28, 1997 decision of the Regional Trial Court (RTC) of Makati City, at an agreed monthly interest of 4%, the maturity date of which was
Branch 58. on November 5, 1995.14 The amount of this loan was covered by
the second check. For both loans, no promissory note was executed
Sometime in February 1995, respondent Rica Marie S. Thio received since petitioner and respondent were close friends at the time.15
from petitioner Carolyn M. Garcia a crossed check4 dated February Respondent paid the stipulated monthly interest for both loans but
24, 1995 in the amount of US$100,000 payable to the order of a on their maturity dates, she failed to pay the principal amounts
certain Marilou Santiago.5 Thereafter, petitioner received from despite repeated demands.
respondent every month (specifically, on March 24, April 26, June
26 and July 26, all in 1995) the amount of US$3,0006 and ₱76,5007 Respondent denied that she contracted the two loans with
on July 26,8 August 26, September 26 and October 26, 1995. petitioner and countered that it was Marilou Santiago to whom
petitioner lent the money. She claimed she was merely asked by
In June 1995, respondent received from petitioner another crossed petitioner to give the crossed checks to Santiago.17 She issued the
check9 dated June 29, 1995 in the amount of ₱500,000, also checks for ₱76,000 and ₱20,000 not as payment of interest but to
payable to the order of Marilou Santiago.10 Consequently, accommodate petitioner’s request that respondent use her own
petitioner received from respondent the amount of ₱20,000 every checks instead of Santiago’s.
month on August 5, September 5, October 5 and November 5, 1995.
In a decision dated February 28, 1997, the RTC ruled in favor of
According to petitioner, respondent failed to pay the principal petitioner.19 It found that respondent borrowed from petitioner
amounts of the loans (US$100,000 and ₱500,000) when they fell the amounts of US$100,000 with monthly interest of 3% and
due. Thus, on February 22, 1996, petitioner filed a complaint for ₱500,000 at a monthly interest of 4%:
sum of money and damages in the RTC of Makati City, Branch 58
against respondent, seeking to collect the sums of US$100,000, with
WHEREFORE, finding preponderance of evidence to sustain the [petitioner]. The checks received by [respondent], being crossed,
instant complaint, judgment is hereby rendered in favor of may not be encashed but only deposited in the bank by the payee
[petitioner], sentencing [respondent] to pay the former the amount thereof, that is, by Marilou Santiago herself.
of:
It must be noted that crossing a check has the following effects: (a)
1. [US$100,000.00] or its peso equivalent with interest thereon at the check may not be encashed but only deposited in the bank; (b)
3% per month from October 26, 1995 until fully paid; the check may be negotiated only once—to one who has an account
with the bank; (c) and the act of crossing the check serves as
2. ₱500,000.00 with interest thereon at 4% per month from warning to the holder that the check has been issued for a definite
November 5, 1995 until fully paid. purpose so that he must inquire if he has received the check
3. ₱100,000.00 as and for attorney’s fees; and pursuant to that purpose, otherwise, he is not a holder in due
course.
4. ₱50,000.00 as and for actual damages.
Consequently, the receipt of the [crossed] check by [respondent] is
For lack of merit, [respondent’s] counterclaim is perforce dismissed. not the issuance and delivery to the payee in contemplation of law
since the latter is not the person who could take the checks as a
With costs against [respondent].
holder, i.e., as a payee or indorsee thereof, with intent to transfer
IT IS SO ORDERED. title thereto. Neither could she be deemed as an agent of Marilou
Santiago with respect to the checks because she was merely
On appeal, the CA reversed the decision of the RTC and ruled that facilitating the transactions between the former and [petitioner].
there was no contract of loan between the parties:
With the foregoing circumstances, it may be fairly inferred that
A perusal of the record of the case shows that [petitioner] failed to there were really no contracts of loan that existed between the
substantiate her claim that [respondent] indeed borrowed money parties. x x x (emphasis supplied)22
from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is Hence this petition.
the fact that [respondent] received a MetroBank [crossed] check
As a rule, only questions of law may be raised in a petition for
dated February 24, 1995 in the sum of US$100,000.00, payable to
review on certiorari under Rule 45 of the Rules of Court. However,
the order of Marilou Santiago and a CityTrust [crossed] check dated
this case falls under one of the exceptions, i.e., when the factual
June 29, 1995 in the amount of ₱500,000.00, again payable to the
findings of the CA (which held that there were no contracts of loan
order of Marilou Santiago, both of which were issued by
between petitioner and respondent) and the RTC (which held that (who was already her debtor), to retain them or to return them to
there were contracts of loan) are contradictory. petitioner.

The petition is impressed with merit. We agree with petitioner. Delivery is the act by which the res or
substance thereof is placed within the actual or constructive
A loan is a real contract, not consensual, and as such is perfected possession or control of another.30 Although respondent did not
only upon the delivery of the object of the contract.25 This is
physically receive the proceeds of the checks, these instruments
evident in Art. 1934 of the Civil Code which provides: were placed in her control and possession under an arrangement
An accepted promise to deliver something by way of commodatum whereby she actually re-lent the amounts to Santiago.
or simple loan is binding upon the parties, but the commodatum or
Several factors support this conclusion.
simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied) First, respondent admitted that petitioner did not personally know
Santiago. It was highly improbable that petitioner would grant two
Upon delivery of the object of the contract of loan (in this case the loans to a complete stranger without requiring as much as
money received by the debtor when the checks were encashed) the promissory notes or any written acknowledgment of the debt
debtor acquires ownership of such money or loan proceeds and is considering that the amounts involved were quite big. Respondent,
bound to pay the creditor an equal amount. on the other hand, already had transactions with Santiago at that
It is undisputed that the checks were delivered to respondent. time.
However, these checks were crossed and payable not to the order Second, Leticia Ruiz, a friend of both petitioner and respondent (and
of respondent but to the order of a certain Marilou Santiago. Thus whose name appeared in both parties’ list of witnesses) testified
the main question to be answered is: who borrowed money from that respondent’s plan was for petitioner to lend her money at a
petitioner — respondent or Santiago? monthly interest rate of 3%, after which respondent would lend the
Petitioner insists that it was upon respondent’s instruction that same amount to Santiago at a higher rate of 5% and realize a profit
both checks were made payable to Santiago.27 She maintains that it of 2%.33 This explained why respondent instructed petitioner to
was also upon respondent’s instruction that both checks were make the checks payable to Santiago. Respondent has not shown
delivered to her (respondent) so that she could, in turn, deliver the any reason why Ruiz’ testimony should not be believed.
same to Santiago.28 Furthermore, she argues that once respondent Third, for the US$100,000 loan, respondent admitted issuing her
received the checks, the latter had possession and control of them own checks in the amount of ₱76,000 each (peso equivalent of
such that she had the choice to either forward them to Santiago US$3,000) for eight months to cover the monthly interest. For the
₱500,000 loan, she also issued her own checks in the amount of ₱500,000 from petitioner. We instead agree with the ruling of the
₱20,000 each for four months.34 According to respondent, she RTC making respondent liable for the principal amounts of the
merely accommodated petitioner’s request for her to issue her own loans.
checks to cover the interest payments since petitioner was not
personally acquainted with Santiago.35 She claimed, however, that We do not, however, agree that respondent is liable for the 3% and
Santiago would replace the checks with cash.36 Her explanation is 4% monthly interest for the US$100,000 and ₱500,000 loans
simply incredible. It is difficult to believe that respondent would put respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and
herself in a position where she would be compelled to pay interest,
from her own funds, for loans she allegedly did not contract. We 4% interest per month. Article 1956 of the Civil Code provides that
declared in one case that: "[n]o interest shall be due unless it has been expressly stipulated in
writing."
In the assessment of the testimonies of witnesses, this Court is
guided by the rule that for evidence to be believed, it must not only Be that as it may, while there can be no stipulated interest, there
proceed from the mouth of a credible witness, but must be credible can be legal interest pursuant to Article 2209 of the Civil Code. It is
in itself such as the common experience of mankind can approve as well-settled that:
probable under the circumstances. We have no test of the truth of When the obligation is breached, and it consists in the payment of a
human testimony except its conformity to our knowledge, sum of money, i.e., a loan or forbearance of money, the interest due
observation, and experience. Whatever is repugnant to these should be that which may have been stipulated in writing.
belongs to the miraculous, and is outside of juridical cognizance. Furthermore, the interest due shall itself earn legal interest from
Fourth, in the petition for insolvency sworn to and filed by Santiago, the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from
it was respondent, not petitioner, who was listed as one of her
(Santiago’s) ceditors. default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
Last, respondent inexplicably never presented Santiago as a witness
to corroborate her story.39 The presumption is that "evidence Hence, respondent is liable for the payment of legal interest per
willfully suppressed would be adverse if produced."40 Respondent annum to be computed from November 21, 1995, the date when
she received petitioner’s demand letter. From the finality of the
was not able to overturn this presumption.
decision until it is fully paid, the amount due shall earn interest at
We hold that the CA committed reversible error when it ruled that 12% per annum, the interim period being deemed equivalent to a
respondent did not borrow the amounts of US$100,000 and forbearance of credit.
The award of actual damages in the amount of ₱50,000 and
₱100,000 attorney’s fees is deleted since the RTC decision did not
explain the factual bases for these damages.

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

SO ORDERED.
POLO S. PANTALEON, Petitioner, vs. AMERICAN EXPRESS departure scheduled on that day, the tour group planned to leave
INTERNATIONAL, INC., Respondent. Coster by 9:30 a.m. at the latest.

G.R. No. 174269 August 25, 2010 While at Coster, Mrs. Pantaleon decided to purchase some diamond
pieces worth a total of US$13,826.00. Pantaleon presented his
BRION, J.: American Express credit card to the sales clerk to pay for this
We resolve the motion for reconsideration filed by respondent purchase. He did this at around 9:15 a.m. The sales clerk swiped the
American Express International, Inc. (AMEX) dated June 8, 2009,[1] credit card and asked Pantaleon to sign the charge slip, which was
seeking to reverse our Decision dated May 8, 2009 where we ruled then electronically referred to AMEXs Amsterdam office at 9:20
that AMEX was guilty of culpable delay in fulfilling its obligation to a.m.
its cardholder petitioner Polo Pantaleon. Based on this conclusion,
At around 9:40 a.m., Coster had not received approval from AMEX
we held AMEX liable for moral and exemplary damages, as well as for the purchase so Pantaleon asked the store clerk to cancel the
attorneys fees and costs of litigation. sale. The store manager, however, convinced Pantaleon to wait a
FACTUAL ANTECEDENTS few more minutes. Subsequently, the store manager informed
Pantaleon that AMEX was asking for bank references; Pantaleon
The established antecedents of the case are narrated below. responded by giving the names of his Philippine depository banks.

AMEX is a resident foreign corporation engaged in the business of At around 10 a.m., or 45 minutes after Pantaleon presented his
providing credit services through the operation of a charge card credit card, AMEX still had not approved the purchase. Since the city
system. Pantaleon has been an AMEX cardholder since 1980.[3] tour could not begin until the Pantaleons were onboard the tour
bus, Coster decided to release at around 10:05 a.m. the purchased
In October 1991, Pantaleon, together with his wife (Julialinda),
items to Pantaleon even without AMEXs approval.
daughter (Regina), and son (Adrian Roberto), went on a guided
European tour. On October 25, 1991, the tour group arrived in When the Pantaleons finally returned to the tour bus, they found
Amsterdam. Due to their late arrival, they postponed the tour of the their travel companions visibly irritated. This irritation intensified
city for the following day. when the tour guide announced that they would have to cancel the
tour because of lack of time as they all had to be in Calais, Belgium
The next day, the group began their sightseeing at around 8:50 a.m.
by 3 p.m. to catch the ferry to London.
with a trip to the Coster Diamond House (Coster). To have enough
time for take a guided city tour of Amsterdam before their From the records, it appears that after Pantaleons purchase was
transmitted for approval to AMEXs Amsterdam office at 9:20 a.m.;
was referred to AMEXs Manila office at 9:33 a.m.; and was On appeal, the CA reversed the awards.[8] While the CA recognized
approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs that delay in the nature of mora accipiendi or creditors default
Manila office finally transmitted the Approval Code to AMEXs attended AMEXs approval of Pantaleons purchases, it disagreed
Amsterdam office. In all, it took AMEX a total of 78 minutes to with the RTCs finding that AMEX had breached its contract, noting
approve Pantaleons purchase and to transmit the approval to the that the delay was not attended by bad faith, malice or gross
jewelry store. negligence. The appellate court found that AMEX exercised diligent
efforts to effect the approval of Pantaleons purchases; the purchase
After the trip to Europe, the Pantaleon family proceeded to the
at Coster posed particularly a problem because it was at variance
United States. Again, Pantaleon experienced delay in securing with Pantaleons established charge pattern. As there was no proof
approval for purchases using his American Express credit card on that AMEX breached its contract, or that it acted in a wanton,
two separate occasions. He experienced the first delay when he fraudulent or malevolent manner, the appellate court ruled that
wanted to purchase golf equipment in the amount of US$1,475.00
AMEX could not be held liable for any form of damages.
at the Richard Metz Golf Studio in New York on October 30, 1991.
Another delay occurred when he wanted to purchase childrens Pantaleon questioned this decision via a petition for review on
shoes worth US$87.00 at the Quiency Market in Boston on certiorari with this Court.
November 3, 1991.
In our May 8, 2009 decision, we reversed the appellate courts
Upon return to Manila, Pantaleon sent AMEX a letter demanding an decision and held that AMEX was guilty of mora solvendi, or debtors
apology for the humiliation and inconvenience he and his family default. AMEX, as debtor, had an obligation as the credit provider to
experienced due to the delays in obtaining approval for his credit act on Pantaleons purchase requests, whether to approve or
card purchases. AMEX responded by explaining that the delay in disapprove them, with timely dispatch. Based on the evidence on
Amsterdam was due to the amount involved the charged purchase record, we found that AMEX failed to timely act on Pantaleons
of US$13,826.00 deviated from Pantaleons established charge purchases.
purchase pattern. Dissatisfied with this explanation, Pantaleon filed
an action for damages against the credit card company with the Based on the testimony of AMEXs credit authorizer Edgardo
Makati City Regional Trial Court (RTC). Jaurique, the approval time for credit card charges would be three
to four seconds under regular circumstances. In Pantaleons case, it
On August 5, 1996, the RTC found AMEX guilty of delay, and took AMEX 78 minutes to approve the Amsterdam purchase. We
awarded Pantaleon P500,000.00 as moral damages, P300,000.00 as attributed this delay to AMEXs Manila credit authorizer, Edgardo
exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 Jaurique, who had to go over Pantaleons past credit history, his
as litigation expenses. payment record and his credit and bank references before he
approved the purchase. Finding this delay unwarranted, we credit record was motivated by legitimate concerns and could not
reinstated the RTC decision and awarded Pantaleon moral and be evidence of any ill will, fraud, or negligence by AMEX.
exemplary damages, as well as attorneys fees and costs of litigation.
AMEX further points out that the proximate cause of Pantaleons
THE MOTION FOR RECONSIDERATION humiliation and embarrassment was his own decision to proceed
with the purchase despite his awareness that the tour group was
In its motion for reconsideration, AMEX argues that this Court erred
waiting for him and his wife. Pantaleon could have prevented the
when it found AMEX guilty of culpable delay in complying with its humiliation had he cancelled the sale when he noticed that the
obligation to act with timely dispatch on Pantaleons purchases.
credit approval for the Coster purchase was unusually delayed.
While AMEX admits that it normally takes seconds to approve
charge purchases, it emphasizes that Pantaleon experienced delay In his Comment dated February 24, 2010, Pantaleon maintains that
in Amsterdam because his transaction was not a normal one. To AMEX was guilty of mora solvendi, or delay on the part of the
recall, Pantaleon sought to charge in a single transaction jewelry debtor, in complying with its obligation to him. Based on
items purchased from Coster in the total amount of US$13,826.00 jurisprudence, a just cause for delay does not relieve the debtor in
or P383,746.16. While the total amount of Pantaleons previous delay from the consequences of delay; thus, even if AMEX had a
purchases using his AMEX credit card did exceed US$13,826.00, justifiable reason for the delay, this reason would not relieve it from
AMEX points out that these purchases were made in a span of more the liability arising from its failure to timely act on Pantaleons
than 10 years, not in a single transaction. purchase.

Because this was the biggest single transaction that Pantaleon ever In response to AMEXs assertion that the delay was in keeping with
made using his AMEX credit card, AMEX argues that the transaction its duty to perform its obligation with extraordinary diligence,
necessarily required the credit authorizer to carefully review Pantaleon claims that this duty includes the timely or prompt
Pantaleons credit history and bank references. AMEX maintains that performance of its obligation.
it did this not only to ensure Pantaleons protection (to minimize the
possibility that a third party was fraudulently using his credit card), As to AMEXs contention that moral or exemplary damages cannot
but also to protect itself from the risk that Pantaleon might not be be awarded absent a finding of malice, Pantaleon argues that evil
able to pay for his purchases on credit. This careful review, motive or design is not always necessary to support a finding of bad
according to AMEX, is also in keeping with the extraordinary degree faith; gross negligence or wanton disregard of contractual
of diligence required of banks in handling its transactions. AMEX obligations is sufficient basis for the award of moral and exemplary
concluded that in these lights, the thorough review of Pantaleons damages.

OUR RULING
We GRANT the motion for reconsideration. cardholders obligation to pay the bank shall not be affected or
impaired by any dispute, claim, or demand by the cardholder with
Brief historical background respect to any merchandise or service purchased.
A credit card is defined as any card, plate, coupon book, or other The merchants participating in the system agree to honor the banks
credit device existing for the purpose of obtaining money, goods, credit cards. The bank irrevocably agrees to honor and pay the sales
property, labor or services or anything of value on credit.[9] It traces
slips presented by the merchant if the merchant performs his
its roots to the charge card first introduced by the Diners Club in undertakings such as checking the list of revoked cards before
New York City in 1950.[10] American Express followed suit by
accepting the card. x x x.
introducing its own charge card to the American market in 1958. In
the Philippines, the now defunct Pacific Bank was responsible for These slips are forwarded to the member bank which originally
bringing the first credit card into the country in the 1970s.[12] issued the card. The cardholder receives a statement from the bank
However, it was only in the early 2000s that credit card use gained periodically and may then decide whether to make payment to the
wide acceptance in the country, as evidenced by the surge in the bank in full within a specified period, free of interest, or to defer
number of credit card holders then. payment and ultimately incur an interest charge.

Nature of Credit Card Transactions We adopted a similar view in CIR v. American Express International,
Inc. (Philippine branch), where we also recognized that credit card
To better understand the dynamics involved in credit card issuers are not limited to banks. We said:
transactions, we turn to the United States case of Harris Trust &
Savings Bank v. McCray[14] which explains: Under RA 8484, the credit card that is issued by banks in general, or
by non-banks in particular, refers to any card x x x or other credit
The bank credit card system involves a tripartite relationship device existing for the purpose of obtaining x x x goods x x x or
between the issuer bank, the cardholder, and merchants services x x x on credit; and is being used usually on a revolving
participating in the system. The issuer bank establishes an account basis. This means that the consumer-credit arrangement that exists
on behalf of the person to whom the card is issued, and the two
between the issuer and the holder of the credit card enables the
parties enter into an agreement which governs their relationship. latter to procure goods or services on a continuing basis as long as
This agreement provides that the bank will pay for cardholders the outstanding balance does not exceed a specified limit. The card
account the amount of merchandise or services purchased through
holder is, therefore, given the power to obtain present control of
the use of the credit card and will also make cash loans available to goods or service on a promise to pay for them in the future.
the cardholder. It also states that the cardholder shall be liable to
the bank for advances and payments made by the bank and that the
Business establishments may extend credit sales through the use of begin? There are two diverging views on the matter. In City Stores
the credit card facilities of a non-bank credit card company to avoid Co. v. Henderson,[18] another U.S. decision, held that:
the risk of uncollectible accounts from their customers. Under this
system, the establishments do not deposit in their bank accounts The issuance of a credit card is but an offer to extend a line of open
the credit card drafts that arise from the credit sales. Instead, they account credit. It is unilateral and supported by no consideration.
merely record their receivables from the credit card company and The offer may be withdrawn at any time, without prior notice, for
periodically send the drafts evidencing those receivables to the any reason or, indeed, for no reason at all, and its withdrawal
breaches no duty for there is no duty to continue it and violates no
latter.
rights.
The credit card company, in turn, sends checks as payment to
these business establishments, but it does not redeem the drafts at Thus, under this view, each credit card transaction is considered a
full price. The agreement between them usually provides for separate offer and acceptance.
discounts to be taken by the company upon its redemption of the Novack v. Cities Service Oil Co.[19] echoed this view, with the court
drafts. At the end of each month, it then bills its credit card holders ruling that the mere issuance of a credit card did not create a
for their respective drafts redeemed during the previous month. If contractual relationship with the cardholder.
the holders fail to pay the amounts owed, the company sustains the
loss. On the other end of the spectrum is Gray v. American Express
Company[20] which recognized the card membership agreement
Simply put, every credit card transaction involves three contracts, itself as a binding contract between the credit card issuer and the
namely: (a) the sales contract between the credit card holder and card holder. Unlike in the Novack and the City Stores cases,
the merchant or the business establishment which accepted the however, the cardholder in Gray paid an annual fee for the privilege
credit card; (b) the loan agreement between the credit card issuer of being an American Express cardholder.
and the credit card holder; and lastly, (c) the promise to pay
between the credit card issuer and the merchant or business In our jurisdiction, we generally adhere to the Gray ruling,
establishment. recognizing the relationship between the credit card issuer and the
credit card holder as a contractual one that is governed by the
Credit card issuer cardholder relationship terms and conditions found in the card membership agreement.[21]
This contract provides the rights and liabilities of a credit card
When a credit card company gives the holder the privilege of
charging items at establishments associated with the issuer,[17] a company to its cardholders and vice versa.
necessary question in a legal analysis is when does this relationship
We note that a card membership agreement is a contract of on loan agreement involving three contracts, namely: the sales
adhesion as its terms are prepared solely by the credit card issuer, contract between the credit card holder and the merchant or the
with the cardholder merely affixing his signature signifying his business establishment which accepted the credit card; the loan
adhesion to these terms. This circumstance, however, does not agreement between the credit card issuer and the credit card
render the agreement void; we have uniformly held that contracts holder; and the promise to pay between the credit card issuer and
of adhesion are as binding as ordinary contracts, the reason being the merchant or business establishment.
that the party who adheres to the contract is free to reject it
From the loan agreement perspective, the contractual relationship
entirely. The only effect is that the terms of the contract are
begins to exist only upon the meeting of the offer[25] and
construed strictly against the party who drafted it.
acceptance of the parties involved. In more concrete terms, when
On AMEXs obligations to Pantaleon cardholders use their credit cards to pay for their purchases, they
merely offer to enter into loan agreements with the credit card
We begin by identifying the two privileges that Pantaleon assumes company. Only after the latter approves the purchase requests that
he is entitled to with the issuance of his AMEX credit card, and on the parties enter into binding loan contracts, in keeping with Article
which he anchors his claims. First, Pantaleon presumes that since
1319 of the Civil Code, which provides:
his credit card has no pre-set spending limit, AMEX has the
obligation to approve all his charge requests. Conversely, even if Article 1319. Consent is manifested by the meeting of the offer and
AMEX has no such obligation, at the very least it is obliged to act on the acceptance upon the thing and the cause which are to
his charge requests within a specific period of time. constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-
i. Use of credit card a mere offer to enter into loan agreements offer.
Although we recognize the existence of a relationship between the This view finds support in the reservation found in the card
credit card issuer and the credit card holder upon the acceptance by membership agreement itself, particularly paragraph 10, which
the cardholder of the terms of the card membership agreement clearly states that AMEX reserve[s] the right to deny authorization
(customarily signified by the act of the cardholder in signing the for any requested Charge. By so providing, AMEX made its position
back of the credit card), we have to distinguish this contractual clear that it has no obligation to approve any and all charge
relationship from the creditor-debtor relationship which only arises
requests made by its card holders.
after the credit card issuer has approved the cardholders purchase
request. The first relates merely to an agreement providing for ii. AMEX not guilty of culpable delay
credit facility to the cardholder. The latter involves the actual credit
Since AMEX has no obligation to approve the purchase requests of Thus, every time that Pantaleon used his AMEX credit card to pay
its credit cardholders, Pantaleon cannot claim that AMEX defaulted for his purchases, what the stores transmitted to AMEX were his
in its obligation. Article 1169 of the Civil Code, which provides the offers to execute loan contracts. These obviously could not be
requisites to hold a debtor guilty of culpable delay, states: classified as the demand required by law to make the debtor in
default, given that no obligation could arise on the part of AMEX
Article 1169. Those obliged to deliver or to do something incur in until after AMEX transmitted its acceptance of Pantaleons offers.
delay from the time the obligee judicially or extrajudicially demands Pantaleons act of insisting on and waiting for the charge purchases
from them the fulfillment of their obligation. x x x. to be approved by AMEX[28] is not the demand contemplated by
The three requisites for a finding of default are: (a) that the Article 1169 of the Civil Code.
obligation is demandable and liquidated; (b) the debtor delays For failing to comply with the requisites of Article 1169, Pantaleons
performance; and (c) the creditor judicially or extrajudicially charge that AMEX is guilty of culpable delay in approving his
requires the debtors performance.[26]
purchase requests must fail.
Based on the above, the first requisite is no longer met because iii. On AMEXs obligation to act on the offer within a specific period
AMEX, by the express terms of the credit card agreement, is not
of time
obligated to approve Pantaleons purchase request. Without a
demandable obligation, there can be no finding of default. Even assuming that AMEX had the right to review his credit card
history before it approved his purchase requests, Pantaleon insists
Apart from the lack of any demandable obligation, we also find that that AMEX had an obligation to act on his purchase requests, either
Pantaleon failed to make the demand required by Article 1169 of to approve or deny, in a matter of seconds or in timely dispatch.
the Civil Code. Pantaleon impresses upon us the existence of this obligation by
As previously established, the use of a credit card to pay for a emphasizing two points: (a) his card has no pre-set spending limit;
purchase is only an offer to the credit card company to enter a loan and (b) in his twelve years of using his AMEX card, AMEX had always
agreement with the credit card holder. Before the credit card issuer approved his charges in a matter of seconds.
accepts this offer, no obligation relating to the loan agreement
Pantaleons assertions fail to convince us.
exists between them. On the other hand, a demand is defined as
the assertion of a legal right; xxx an asking with authority, claiming We originally held that AMEX was in culpable delay when it acted on
or challenging as due.[27] A demand presupposes the existence of the Coster transaction, as well as the two other transactions in the
an obligation between the parties. United States which took AMEX approximately 15 to 20 minutes to
approve. This conclusion appears valid and reasonable at first
glance, comparing the time it took to finally get the Coster purchase rule, a practice or custom is not a source of a legally demandable or
approved (a total of 78 minutes), to AMEXs normal approval time of enforceable right.
three to four seconds (based on the testimony of Edgardo Jaurigue,
as well as Pantaleons previous experience). We come to a different We next examine the credit card membership agreement, the
result, however, after a closer look at the factual and legal contract that primarily governs the relationship between AMEX and
circumstances of the case. Pantaleon. Significantly, there is no provision in this agreement that
obligates AMEX to act on all cardholder purchase requests within a
AMEXs credit authorizer, Edgardo Jaurigue, explained that having specifically defined period of time. Thus, regardless of whether the
no pre-set spending limit in a credit card simply means that the obligation is worded was to act in a matter of seconds or to act in
charges made by the cardholder are approved based on his ability timely dispatch, the fact remains that no obligation exists on the
to pay, as demonstrated by his past spending, payment patterns, part of AMEX to act within a specific period of time. Even Pantaleon
and personal resources.[29] Nevertheless, every time Pantaleon admits in his testimony that he could not recall any provision in the
charges a purchase on his credit card, the credit card company still Agreement that guaranteed AMEXs approval of his charge requests
has to determine whether it will allow this charge, based on his past within a matter of minutes.
credit history. This right to review a card holders credit history,
although not specifically set out in the card membership agreement, Nor can Pantaleon look to the law or government issuances as the
source of AMEXs alleged obligation to act upon his credit card
is a necessary implication of AMEXs right to deny authorization for
any requested charge. purchases within a matter of seconds. As the following survey of
Philippine law on credit card transactions demonstrates, the State
As for Pantaleons previous experiences with AMEX (i.e., that in the does not require credit card companies to act upon its cardholders
past 12 years, AMEX has always approved his charge requests in purchase requests within a specific period of time.
three or four seconds), this record does not establish that Pantaleon
had a legally enforceable obligation to expect AMEX to act on his Republic Act No. 8484 (RA 8484), or the Access Devices Regulation
charge requests within a matter of seconds. For one, Pantaleon Act of 1998, approved on February 11, 1998, is the controlling
failed to present any evidence to support his assertion that AMEX legislation
acted on purchase requests in a matter of three or four seconds as that regulates the issuance and use of access devices,[32] including
an established practice. More importantly, even if Pantaleon did credit cards. The more salient portions of this law include the
prove that AMEX, as a matter of practice or custom, acted on its imposition of the obligation on a credit card company to disclose
customers purchase requests in a matter of seconds, this would still certain important financial information[33] to credit card applicants,
not be enough to establish a legally demandable right; as a general as well as a definition of the acts that constitute access device fraud.
As financial institutions engaged in the business of providing credit, based on fairness and reasonableness, read in relation to the Civil
credit card companies fall under the supervisory powers of the Code provisions on human relations, as will be discussed below.
Bangko Sentral ng Pilipinas (BSP).[34] BSP Circular No. 398 dated
August 21, 2003 embodies the BSPs policy when it comes to credit AMEX acted with good faith
cards Thus far, we have already established that: (a) AMEX had neither a
contractual nor a legal obligation to act upon Pantaleons purchases
The Bangko Sentral ng Pilipinas (BSP) shall foster the development
of consumer credit through innovative products such as credit cards within a specific period of time; and (b) AMEX has a right to review a
under conditions of fair and sound consumer credit practices. The cardholders credit card history. Our recognition of these
BSP likewise encourages competition and transparency to ensure entitlements, however, does not give AMEX an unlimited right to
more efficient delivery of services and fair dealings with customers. put off action on cardholders purchase requests for indefinite
(Emphasis supplied) periods of time. In acting on cardholders purchase requests, AMEX
must take care not to abuse its rights and cause injury to its clients
Based on this Circular, x x x [b]efore issuing credit cards, banks and/or third persons. We cite in this regard Article 19, in
and/or their subsidiary credit card companies must exercise proper conjunction with Article 21, of the Civil Code, which provide:
diligence by ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their credit Article 19. Every person must, in the exercise of his rights and in the
commitments.[35] As the above-quoted policy expressly states, the performance of his duties, act with justice, give everyone his due
general intent is to foster fair and sound consumer credit practices. and observe honesty and good faith.

Other than BSP Circular No. 398, a related circular is BSP Circular Article 21. Any person who willfully causes loss or injury to another
No. 454, issued on September 24, 2004, but this circular merely in a manner that is contrary to morals, good customs or public
enumerates the unfair collection practices of credit card companies policy shall compensate the latter for the damage.
a matter not relevant to the issue at hand. Article 19 pervades the entire legal system and ensures that a
person suffering damage in the course of anothers exercise of right
In light of the foregoing, we find and so hold that AMEX is neither
contractually bound nor legally obligated to act on its cardholders or performance of duty, should find himself without relief.[36] It
purchase requests within any specific period of time, much less a sets the standard for the conduct of all persons, whether artificial or
natural, and requires that everyone, in the exercise of rights and the
period of a matter of seconds that Pantaleon uses as his standard.
The standard therefore is implicit and, as in all contracts, must be performance of obligations, must: (a) act with justice, (b) give
everyone his due, and (c) observe honesty and good faith. It is not
because a person invokes his rights that he can do anything, even to of time, these principles provide the standard by which to judge
the prejudice and disadvantage of another.[37] AMEXs actions.

While Article 19 enumerates the standards of conduct, Article 21 According to Pantaleon, even if AMEX did have a right to review his
provides the remedy for the person injured by the willful act, an charge purchases, it abused this right when it unreasonably delayed
action for damages. We explained how these two provisions the processing of the Coster charge purchase, as well as his
correlate with each other in GF Equity, Inc. v. Valenzona: purchase requests at the Richard Metz Golf Studio and Kids
Unlimited Store; AMEX should have known that its failure to act
[Article 19], known to contain what is commonly referred to as the immediately on charge referrals would entail inconvenience and
principle of abuse of rights, sets certain standards which must be result in humiliation, embarrassment, anxiety and distress to its
observed not only in the exercise of one's rights but also in the cardholders who would be required to wait before closing their
performance of one's duties. These standards are the following: to transactions.
act with justice; to give everyone his due; and to observe honesty
and good faith. The law, therefore, recognizes a primordial It is an elementary rule in our jurisdiction that good faith is
limitation on all rights; that in their exercise, the norms of human presumed and that the burden of proving bad faith rests upon the
conduct set forth in Article 19 must be observed. A right, though by party alleging it.[40] Although it took AMEX some time before it
itself legal because recognized or granted by law as such, may approved Pantaleons three charge requests, we find no evidence to
nevertheless become the source of some illegality. When a right is suggest that it acted with deliberate intent to cause Pantaleon any
exercised in a manner which does not conform with the norms loss or injury, or acted in a manner that was contrary to morals,
enshrined in Article 19 and results in damage to another, a legal good customs or public policy. We give credence to AMEXs claim
wrong is thereby committed for which the wrongdoer must be held that its review procedure was done to ensure Pantaleons own
responsible. But while Article 19 lays down a rule of conduct for the protection as a cardholder and to prevent the possibility that the
government of human relations and for the maintenance of social credit card was being fraudulently used by a third person.
order, it does not provide a remedy for its violation. Generally, an
action for damages under either Article 20 or Article 21 would be Pantaleon countered that this review procedure is primarily
proper. intended to protect AMEXs interests, to make sure that the
cardholder making the purchase has enough means to pay for the
In the context of a credit card relationship, although there is neither credit extended. Even if this were the case, however, we do not find
a contractual stipulation nor a specific law requiring the credit card any taint of bad faith in such motive. It is but natural for AMEX to
issuer to act on the credit card holders offer within a definite period want to ensure that it will extend credit only to people who will
have sufficient means to pay for their purchases. AMEX, after all, is
running a business, not a charity, and it would simply be ludicrous xxxx
to suggest that it would not want to earn profit for its services.
Thus, so long as AMEX exercises its rights, performs its obligations, Q: Why did it take so long?
and generally acts with good faith, with no intent to cause harm, A: It took time to review the account on credit, so, if there is any
even if it may occasionally inconvenience others, it cannot be held delinquencies [sic] of the cardmember. There are factors on
liable for damages. deciding the charge itself which are standard measures in approving
We also cannot turn a blind eye to the circumstances surrounding the authorization. Now in the case of Mr. Pantaleon although his
the Coster transaction which, in our opinion, justified the wait. In account is single charge purchase of US$13,826. [sic] this is below
the US$16,000. plus actually billed x x x we would have already
Edgardo Jaurigues own words:
declined the charge outright and asked him his bank account to
Q 21: With reference to the transaction at the Coster Diamond support his charge. But due to the length of his membership as
House covered by Exhibit H, also Exhibit 4 for the defendant, the cardholder we had to make a decision on hand.
approval came at 2:19 a.m. after the request was relayed at 1:33
a.m., can you explain why the approval came after about 46 As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait
for AMEXs approval was because he had to go over Pantaleons
minutes, more or less?
credit card history for the past twelve months. It would certainly be
A21: Because we have to make certain considerations and unjust for us to penalize AMEX for merely exercising its right to
evaluations of [Pantaleons] past spending pattern with [AMEX] at review Pantaleons credit history meticulously.
that time before approving plaintiffs request because [Pantaleon]
was at that time making his very first single charge purchase of Finally, we said in Garciano v. Court of Appeals that the right to
US$13,826 [this is below the US$16,112.58 actually billed and paid recover [moral damages] under Article 21 is based on equity, and he
for by the plaintiff because the difference was already automatically who comes to court to demand equity, must come with clean
approved by [AMEX] office in Netherland[s] and the record of hands. Article 21 should be construed as granting the right to
[Pantaleons] past spending with [AMEX] at that time does not recover damages to injured persons who are not themselves at
favorably support his ability to pay for such purchase. In fact, if the fault.[44] As will be discussed below, Pantaleon is not a blameless
foregoing internal policy of [AMEX] had been strictly followed, the party in all this.
transaction would not have been approved at all considering that Pantaleon’s action was the proximate cause for his injury
the past spending pattern of the plaintiff with [AMEX] at that time
does not support his ability to pay for such purchase.[41] Pantaleon mainly anchors his claim for moral and exemplary
damages on the embarrassment and humiliation that he felt when
the European tour group had to wait for him and his wife for This doctrine, in our view, is wholly applicable to this case.
approximately 35 minutes, and eventually had to cancel the Pantaleon himself testified that the most basic rule when travelling
Amsterdam city tour. After thoroughly reviewing the records of this in a tour group is that you must never be a cause of any delay
case, we have come to the conclusion that Pantaleon is the because the schedule is very strict.[46] When Pantaleon made up
proximate cause for this embarrassment and humiliation. his mind to push through with his purchase, he must have known
that the group would become annoyed and irritated with him. This
As borne by the records, Pantaleon knew even before entering was the natural, foreseeable consequence of his decision to make
Coster that the tour group would have to leave the store by 9:30
them all wait.
a.m. to have enough time to take the city tour of Amsterdam before
they left the country. After 9:30 a.m., Pantaleons son, who had We do not discount the fact that Pantaleon and his family did feel
boarded the bus ahead of his family, returned to the store to inform humiliated and embarrassed when they had to wait for AMEX to
his family that they were the only ones not on the bus and that the approve the Coster purchase in Amsterdam. We have to
entire tour group was waiting for them. Significantly, Pantaleon acknowledge, however, that Pantaleon was not a helpless victim in
tried to cancel the sale at 9:40 a.m. because he did not want to this scenario at any time, he could have cancelled the sale so that
cause any inconvenience to the tour group. However, when Costers the group could go on with the city tour. But he did not.
sale manager asked him to wait a few more minutes for the credit
More importantly, AMEX did not violate any legal duty to Pantaleon
card approval, he agreed, despite the knowledge that he had
already caused a 10-minute delay and that the city tour could not under the circumstances under the principle of damnum absque
start without him. injuria, or damages without legal wrong, loss without injury.[47] As
we held in BPI Express Card v. CA:
In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person
We do not dispute the findings of the lower court that private
who knowingly and voluntarily exposes himself to danger cannot
claim damages for the resulting injury: respondent suffered damages as a result of the cancellation of his
credit card. However, there is a material distinction between
The doctrine of volenti non fit injuria (to which a person assents is damages and injury. Injury is the illegal invasion of a legal right;
not esteemed in law as injury) refers to self-inflicted injury or to the damage is the loss, hurt, or harm which results from the injury; and
consent to injury which precludes the recovery of damages by one damages are the recompense or compensation awarded for the
who has knowingly and voluntarily exposed himself to danger, even damage suffered. Thus, there can be damage without injury in those
if he is not negligent in doing so. instances in which the loss or harm was not the result of a violation
of a legal duty. In such cases, the consequences must be borne by
the injured person alone, the law affords no remedy for damages
resulting from an act which does not amount to a legal injury or here. In the absence of any other damages, the award of exemplary
wrong. These situations are often called damnum absque injuria. damages clearly lacks legal basis.

In other words, in order that a plaintiff may maintain an action for Neither do we find any basis for the award of attorneys fees and
the injuries of which he complains, he must establish that such costs of litigation. No premium should be placed on the right to
injuries resulted from a breach of duty which the defendant owed litigate and not every winning party is entitled to an automatic grant
to the plaintiff - a concurrence of injury to the plaintiff and legal of attorney's fees. To be entitled to attorneys fees and litigation
responsibility by the person causing it. The underlying basis for the costs, a party must show that he falls under one of the instances
award of tort damages is the premise that an individual was injured enumerated in Article 2208 of the Civil Code.[52] This, Pantaleon
in contemplation of law. Thus, there must first be a breach of some failed to do. Since we eliminated the award of moral and exemplary
duty and the imposition of liability for that breach before damages damages, so must we delete the award for attorney's fees and
may be awarded; and the breach of such duty should be the litigation expenses.
proximate cause of the injury.
Lastly, although we affirm the result of the CA decision, we do so for
Pantaleon is not entitled to damages the reasons stated in this Resolution and not for those found in the
CA decision.
Because AMEX neither breached its contract with Pantaleon, nor
acted with culpable delay or the willful intent to cause harm, we WHEREFORE, premises considered, we SET ASIDE our May 8, 2009
find the award of moral damages to Pantaleon unwarranted. Decision and GRANT the present motion for reconsideration. The
Court of Appeals Decision dated August 18, 2006 is hereby
Similarly, we find no basis to award exemplary damages. In
AFFIRMED. No costs.
contracts, exemplary damages can only be awarded if a defendant
acted in a wanton, fraudulent, reckless, oppressive or malevolent SO ORDERED.
manner. The plaintiff must also show that he is entitled to moral,
temperate, or compensatory damages before the court may
consider the question of whether or not exemplary damages should
be awarded.

As previously discussed, it took AMEX some time to approve

Pantaleons purchase requests because it had legitimate concerns on
the amount being charged; no malicious intent was ever established
G.R. No. L-8321 October 14, 1913 defendants are virtually, to all appearance, the owners of the
warehouse; while the plaintiffs are undoubtedly, the owners of the
ALEJANDRA MINA, ET AL., plaintiffs-appellants, vs. RUPERTA part of the lot occupied by that building, as well as of the remainder
PASCUAL, ET AL., defendants-appellees. thereof.
ARELLANO, C.J.: This was the state of affairs, when, on May 6, 1909, Ruperta
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Pascual, as the guardian of her minor children, the herein
Fontanilla acquired during his lifetime, on March 12, 1874, a lot in defendants, petitioned the Curt of First Instance of Ilocos Norte for
the center of the town of Laoag, the capital of the Province of Ilocos authorization to sell "the six-sevenths of the one-half of the
Norte, the property having been awarded to him through its warehouse, of 14 by 11 meters, together with its lot." The plaintiffs
purchase at a public auction held by the alcalde mayor of that — that is Alejandra Mina, et al. — opposed the petition of Ruperta
province. The lot has a frontage of 120 meters and a depth of 15. Pascual for the reason that the latter had included therein the lot
occupied by the warehouse, which they claimed was their exclusive
Andres Fontanilla, with the consent of his brother Francisco, property. All this action was taken in a special proceeding in re
erected a warehouse on a part of the said lot, embracing 14 meters guardianship.
of its frontage by 11 meters of its depth.
The plaintiffs did more than oppose Pascual's petition; they
requested the court, through motion, to decide the question of the
ownership of the lot before it pass upon the petition for the sale of
Francisco Fontanilla, the former owner of the lot, being dead, the
the warehouse. But the court before determining the matter of the
herein plaintiffs, Alejandro Mina, et al., were recognized without
ownership of the lot occupied by the warehouse, ordered the sale
discussion as his heirs.
of this building, saying:
Andres Fontanilla, the former owner of the warehouse, also having
While the trial continues with respect to the ownership of the lot,
died, the children of Ruperta Pascual were recognized likes without
the court orders the sale at public auction of the said warehouse
discussion, though it is not said how, and consequently are entitled
and of the lot on which it is built, with the present boundaries of the
to the said building, or rather, as Ruperta Pascual herself stated, to
land and condition of the building, at a price of not less than P2,890
only six-sevenths of one-half of it, the other half belonging, as it
Philippine currency . . . .
appears, to the plaintiffs themselves, and the remaining one-
seventh of the first one-half to the children of one of the plaintiffs,
Elena de Villanueva. The fact is that the plaintiffs and the
So, the warehouse, together with the lot on which it stands, was the plaintiffs the ownership, of the property, with no finding
sold to Cu Joco, the other defendant in this case, for the price concerning the decree of the lower court that ordered the sale.
mentioned.
The obvious purport of the cause "although there existed and still
The plaintiffs insisted upon a decision of the question of the exists a commodatum," etc., appears to be that it is a part of the
ownership of the lot, and the court decided it by holding that this decision of the Supreme Court and that, while finding the plaintiffs
land belonged to the owner of the warehouse which had been built to be the owners of the lot, we recognized in principle the existence
thereon thirty years before. of a commodatum under which the defendants held the lot.
Nothing could be more inexact. Possibly, also, the meaning of that
The plaintiffs appealed and this court reversed the judgment of the clause is that, notwithstanding the finding made by the Supreme
lower court and held that the appellants were the owners of the lot Court that the plaintiffs were the owners, these former and the
in question. defendants agree that there existed, and still exists, a
When the judgment became final and executory, a writ of execution commodatum, etc. But such an agreement would not affect the
issued and the plaintiffs were given possession of the lot; but soon truth of the contents of the decision of this court, and the opinions
thereafter the trial court annulled this possession for the reason held by the litigants in regard to this point could have no bearing
that it affected Cu Joco, who had not been a party to the suit in whatever on the present decision.
which that writ was served. Nor did the decree of the lower court that ordered the sale have the
It was then that the plaintiffs commenced the present action for the least influence in our previous decision to require our making any
purpose of having the sale of the said lot declared null and void and finding in regard thereto, for, with or without that decree, the
of no force and effect. Supreme Court had to decide the ownership of the lot consistently
with its titles and not in accordance with the judicial acts or
An agreement was had ad to the facts, the ninth paragraph of which proceedings had prior to the setting up of the issue in respect to the
is as follows: ownership of the property that was the subject of the judicial
decree.
9. That the herein plaintiffs excepted to the judgment and
appealed therefrom to the Supreme Court which found for them by What is essentially pertinent to the case is the fact that the
holding that they are the owners of the lot in question, although defendant agree that the plaintiffs have the ownership, and they
there existed and still exists a commodatum by virtue of which the themselves only the use, of the said lot.
guardianship (meaning the defendants) had and has the use, and
On this premise, the nullity of the sale of the lot is in all respects vendor might be sold, for at a judicial auction nothing else is
quite evident, whatsoever be the manner in which the sale was disposed of. What the minor children of Ruperta Pascual had in
effected, whether judicially or extrajudicially. their possession was the ownership of the six-sevenths part of one-
half of the warehouse and the use of the lot occupied by his
He who has only the use of a thing cannot validly sell the thing itself. building. This, and nothing more, could the Chinaman Cu Joco
The effect of the sale being a transfer of the ownership of the thing, acquire at that sale: not the ownership of the lot; neither the other
it is evident that he who has only the mere use of the thing cannot half, nor the remaining one-seventh of the said first half, of the
transfer its ownership. The sale of a thing effected by one who is
warehouse. Consequently, the sale made to him of this one-seventh
not its owner is null and void. The defendants never were the of one-half and the entire other half of the building was null and
owners of the lot sold. The sale of it by them is necessarily null and void, and likewise with still more reason the sale of the lot the
void. On cannot convey to another what he has never had himself. building occupies.
The returns of the auction contain the following statements: The purchaser could and should have known what it was that was
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the offered for sale and what it was that he purchased. There is nothing
authorization conferred upon me on the 31st of July, 1909, by the that can justify the acquisition by the purchaser of the warehouse of
Court of First Instance of Ilocos Norte, proceeded with the sale at the ownership of the lot that this building occupies, since the
public auction of the six-sevenths part of the one-half of the minors represented by Ruperta Pascual never were the owners of
warehouse constructed of rubble stone, etc. the said lot, nor were they ever considered to be such.

Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at The trial court, in the judgment rendered, held that there were no
public auction all the land and all the rights title, interest, and grounds for the requested annulment of the sale, and that the
ownership in the said property to Cu Joco, who was the highest plaintiffs were entitled to the P600 deposited with the clerk of the
bidder, etc. court as the value of the lot in question. The defendants, Ruperta
Pascual and the Chinaman Cu Joco, were absolved from the
Therefore, . . . I cede and deliver forever to the said purchaser, Cu complaint, without express finding as to costs.
Joco, his heirs and assigns, all the interest, ownership and
inheritance rights and others that, as the guardian of the said The plaintiffs cannot be obliged to acquiesce in or allow the sale
minors, I have and may have in the said property, etc. made and be compelled to accept the price set on the lot by expert
appraisers, not even though the plaintiffs be considered as coowner
The purchaser could not acquire anything more than the interest of the warehouse. It would be much indeed that, on the ground of
that might be held by a person to whom realty in possession of the coownership, they should have to abide by and tolerate the sale of
the said building, which point this court does not decide as it is not a predecessor in interest, erected the warehouse on the lot, some
question submitted to us for decision, but, as regards the sale of the thirty years ago, with the explicit consent of his brother Francisco
lot, it is in all respects impossible to hold that the plaintiffs must Fontanilla, the plaintiff's predecessor in interest.
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 2. That it also appears to be an admitted fact that the plaintiffs and
the contracting parties who have given it are obliged to comply (art. the defendants are the coowners of the warehouse.
1091, idem). 3. That it is a fact explicitly admitted in the agreement, that neither
The sole purpose of the action in the beginning was to obtain an Andres Fontanilla nor his successors paid any consideration or price
annulment of the sale of the lot; but subsequently the plaintiffs, whatever for the use of the lot occupied by the said building;
through motion, asked for an amendment by their complaint in the whence it is, perhaps, that both parties have denominated that use
sense that the action should be deemed to be one for the recovery a commodatum.
of possession of a lot and for the annulment of its sale. The Upon the premise of these facts, or even merely upon that of the
plaintiff's petition was opposed by the defendant's attorney, but first of them, the sentencing of the defendants to deliver the lot to
was allowed by the court; therefore the complaint seeks, after the the plaintiffs does not follow as a necessary corollary of the judicial
judicial annulment of the sale of the lot, to have the defendants declaration of ownership made in the previous suit, nor of that of
sentenced immediately to deliver the same to the plaintiffs. the nullity of the sale of the lot, made in the present case.
Such a finding appears to be in harmony with the decision rendered The defendants do not hold lawful possession of the lot in question.
by the Supreme Court in previous suit, wherein it was held that the
ownership of the lot lay in the plaintiffs, and for this reason steps But, although both litigating parties may have agreed in their idea of
were taken to give possession thereof to the defendants; but, as the the commodatum, on account of its not being, as indeed it is not, a
purchaser Cu Joco was not a party to that suit, the present action is question of fact but of law, yet that denomination given by them to
strictly one for recover against Cu Joco to compel him, once the sale the use of the lot granted by Francisco Fontanilla to his brother,
has been annulled, to deliver the lot to its lawful owners, the Andres Fontanilla, is not acceptable. Contracts are not to be
plaintiffs. interpreted in conformity with the name that the parties thereto
agree to give them, but must be construed, duly considering their
As respects this action for recovery, this Supreme Court finds: constitutive elements, as they are defined and denominated by law.
1. That it is a fact admitted by the litigating parties, both in this and By the contract of loan, one of the parties delivers to the other,
in the previous suit, that Andres Fontanilla, the defendants' either anything not perishable, in order that the latter may use it
during the certain period and return it to the former, in which case 361 and 362 of the Civil Code. So, then, pursuant to article 361, the
it is called commodatum . . . (art. 1740, Civil Code). owner of the land on which a building is erected in good faith has a
right to appropriate such edifice to himself, after payment of the
It is, therefore, an essential feature of the commodatum that the indemnity prescribed in articles 453 and 454, or to oblige the
use of the thing belonging to another shall for a certain period. builder to pay him the value of the land. Such, and no other, is the
Francisco Fontanilla did not fix any definite period or time during right to which the plaintiff are entitled.
which Andres Fontanilla could have the use of the lot whereon the
latter was to erect a stone warehouse of considerable value, and so For the foregoing reasons, it is only necessary to annul the sale of
it is that for the past thirty years of the lot has been used by both the said lot which was made by Ruperta Pascual, in representation
Andres and his successors in interest. The present contention of the of her minor children, to Cu Joco, and to maintain the latter in the
plaintiffs that Cu Joco, now in possession of the lot, should pay rent use of the lot until the plaintiffs shall choose one or the other of the
for it at the rate of P5 a month, would destroy the theory of the two rights granted them by article 361 of the Civil Code.1awphil.net
commodatum sustained by them, since, according to the second
paragraph of the aforecited article 1740, "commodatum is The judgment appealed from is reversed and the sale of the lot in
essentially gratuitous," and, if what the plaintiffs themselves aver question is held to be null and void and of no force or effect. No
on page 7 of their brief is to be believed, it never entered special finding is made as to the costs of both instances.
Francisco's mind to limit the period during which his brother Andres SO ORDERED.
was to have the use of the lot, because he expected that the
warehouse would eventually fall into the hands of his son,
Fructuoso Fontanilla, called the adopted son of Andres, which did
not come to pass for the reason that Fructuoso died before his
uncle Andres. With that expectation in view, it appears more likely
that Francisco intended to allow his brother Andres a surface right;
but this right supposes the payment of an annual rent, and Andres
had the gratuitous use of the lot.

Hence, as the facts aforestated only show that a building was

erected on another's ground, the question should be decided in
accordance with the statutes that, thirty years ago, governed
accessions to real estate, and which were Laws 41 and 42, title 28,
of the third Partida, nearly identical with the provisions of articles
G.R. No. L-46240 November 3, 1939 plaintiff reiterating that she may call for the furniture in the ground
floor of the house. On the 7th of the same month, the defendant
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs- wrote another letter to the plaintiff informing her that he could not
appellants, vs. BECK, defendant-appellee. give up the three gas heaters and the four electric lamps because he
IMPERIAL, J.: would use them until the 15th of the same month when the lease in
due to expire. The plaintiff refused to get the furniture in view of
The plaintiff brought this action to compel the defendant to return the fact that the defendant had declined to make delivery of all of
her certain furniture which she lent him for his use. She appealed them. On November 15th, before vacating the house, the
from the judgment of the Court of First Instance of Manila which defendant deposited with the Sheriff all the furniture belonging to
ordered that the defendant return to her the three has heaters and the plaintiff and they are now on deposit in the warehouse situated
the four electric lamps found in the possession of the Sheriff of said at No. 1521, Rizal Avenue, in the custody of the said sheriff.
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 In their seven assigned errors the plaintiffs contend that the trial
charge for the deposit of the furniture be paid pro rata by both court incorrectly applied the law: in holding that they violated the
parties, without pronouncement as to the costs. 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 was a tenant of the plaintiff and as such occupied the defendant to pay them the value of the furniture in case they
the latter's house on M. H. del Pilar street, No. 1175. On January 14, are not delivered; in holding that they should get all the furniture
1936, upon the novation of the contract of lease between the from the Sheriff at their expenses; in ordering them to pay-half of
plaintiff and the defendant, the former gratuitously granted to the the expenses claimed by the Sheriff for the deposit of the furniture;
latter the use of the furniture described in the third paragraph of in ruling that both parties should pay their respective legal expenses
the stipulation of facts, subject to the condition that the defendant or the costs; and in denying pay their respective legal expenses or
would return them to the plaintiff upon the latter's demand. The the costs; and in denying the motions for reconsideration and new
plaintiff sold the property to Maria Lopez and Rosario Lopez and on trial. To dispose of the case, it is only necessary to decide whether
September 14, 1936, these three notified the defendant of the the defendant complied with his obligation to return the furniture
conveyance, giving him sixty days to vacate the premises under one upon the plaintiff's demand; whether the latter is bound to bear the
of the clauses of the contract of lease. There after the plaintiff deposit fees thereof, and whether she is entitled to the costs of
required the defendant to return all the furniture transferred to him litigation.
for them in the house where they were found. On November
5, 1936, the defendant, through another person, wrote to the The contract entered into between the parties is one of
commadatum, because under it the plaintiff gratuitously granted
the use of the furniture to the defendant, reserving for herself the latter determined by the trial Court through evidence which the
ownership thereof; by this contract the defendant bound himself to parties may desire to present.
return the furniture to the plaintiff, upon the latters demand (clause
7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of The costs in both instances should be borne by the defendant
the Civil Code). The obligation voluntarily assumed by the defendant because the plaintiff is the prevailing party (section 487 of the Code
to return the furniture upon the plaintiff's demand, means that he of Civil Procedure). The defendant was the one who breached the
should return all of them to the plaintiff at the latter's residence or contract of commodatum, and without any reason he refused to
return and deliver all the furniture upon the plaintiff's demand. In
house. The defendant did not comply with this obligation when he
merely placed them at the disposal of the plaintiff, retaining for his these circumstances, it is just and equitable that he pay the legal
benefit the three gas heaters and the four eletric lamps. The expenses and other judicial costs which the plaintiff would not have
provisions of article 1169 of the Civil Code cited by counsel for the otherwise defrayed.
parties are not squarely applicable. The trial court, therefore, erred The appealed judgment is modified and the defendant is ordered to
when it came to the legal conclusion that the plaintiff failed to return and deliver to the plaintiff, in the residence to return and
comply with her obligation to get the furniture when they were deliver to the plaintiff, in the residence or house of the latter, all the
offered to her. furniture described in paragraph 3 of the stipulation of facts Exhibit
A. The expenses which may be occasioned by the delivery to and
As the defendant had voluntarily undertaken to return all the
furniture to the plaintiff, upon the latter's demand, the Court could deposit of the furniture with the Sheriff shall be for the account of
not legally compel her to bear the expenses occasioned by the the defendant. the defendant shall pay the costs in both instances.
deposit of the furniture at the defendant's behest. The latter, as So ordered.
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
G.R. No. L-46145 November 26, 1986 acquired by applicants' predecessor, Domingo Baloy, under the
provisions of the Spanish Mortgage Law. Applicants presented their
REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner, vs. tax declaration on said lands on April 8, 1965.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY,
represented by RICARDO BALOY, ET AL., respondents. The Director of Lands opposed the registration alleging that this
land had become public land thru the operation of Act 627 of the
PARAS, J.: Philippine Commission. On November 26, 1902 pursuant to the
This case originally emanated from a decision of the then Court of executive order of the President of the U.S., the area was declared
First Instance of Zambales in LRC Case No. 11-0, LRC Record No. N- within the U.S. Naval Reservation. Under Act 627 as amended by Act
29355, denying respondents' application for registration. From said 1138, a period was fixed within which persons affected thereby
order of denial the applicants, heirs of Domingo Baloy, represented could file their application, (that is within 6 months from July 8,
by Ricardo P. Baloy, (herein private respondents) interposed on 1905) otherwise "the said lands or interest therein will be
appeal to the Court of Appeals which was docketed as CA-G.R. No. conclusively adjudged to be public lands and all claims on the part
52039-R. The appellate court, thru its Fifth Division with the Hon. of private individuals for such lands or interests therein not to
Justice Magno Gatmaitan as ponente, rendered a decision dated presented will be forever barred." Petitioner argues that since
February 3, 1977 reversing the decision appealed from and thus Domingo Baloy failed to file his claim within the prescribed period,
approving the application for registration. Oppositors (petitioners the land had become irrevocably public and could not be the
herein) filed their Motion for Reconsideration alleging among other subject of a valid registration for private ownership.
things that applicants' possessory information title can no longer be Considering the foregoing facts respondents Court of Appeals ruled
invoked and that they were not able to prove a registerable title
as follows:
over the land. Said Motion for Reconsideration was denied, hence
this petition for review on certiorari. ... perhaps, the consequence was that upon failure of Domingo
Baloy to have filed his application within that period the land had
Applicants' claim is anchored on their possessory information title become irrevocably public; but perhaps also, for the reason that
(Exhibit F which had been translated in Exhibit F-1) coupled with warning was from the Clerk of the Court of Land Registration,
their continuous, adverse and public possession over the land in named J.R. Wilson and there has not been presented a formal order
question. An examination of the possessory information title shows or decision of the said Court of Land Registration so declaring the
that the description and the area of the land stated therein land public because of that failure, it can with plausibility be said
substantially coincides with the land applied for and that said that after all, there was no judicial declaration to that effect, it is
possessory information title had been regularly issued having been true that the U.S. Navy did occupy it apparently for some time, as a
recreation area, as this Court understands from the communication ASSIGNMENT OF ERRORS:
of the Department of Foreign Affairs to the U.S. Embassy exhibited
in the record, but the very tenor of the communication apparently 1. Respondent court erred in holding that to bar private
seeks to justify the title of herein applicants, in other words, what respondents from asserting any right under their possessory
this Court has taken from the occupation by the U.S. Navy is that information title there is need for a court order to that effect.
during the interim, the title of applicants was in a state of 2. Respondent court erred in not holding that private respondents'
suspended animation so to speak but it had not died either; and the rights by virtue of their possessory information title was lost by
fact being that this land was really originally private from and after prescription.
the issuance and inscription of the possessory information Exh. F
during the Spanish times, it would be most difficult to sustain 3. Respondent court erred in concluding that applicants have
position of Director of Lands that it was land of no private owner; registerable title.
open to public disposition, and over which he has control; and since
A cursory reading of Sec. 3, Act 627 reveals that several steps are to
immediately after U.S. Navy had abandoned the area, applicant
be followed before any affected land can "be conclusively adjudged
came in and asserted title once again, only to be troubled by first
to be public land." Sec. 3, Act 627 reads as follows:
Crispiniano Blanco who however in due time, quitclaimed in favor of
applicants, and then by private oppositors now, apparently SEC. 3. Immediately upon receipt of the notice from the civil
originally tenants of Blanco, but that entry of private oppositors Governor in the preceeding section mentioned it shall be the duty
sought to be given color of ownership when they sought to and did of the judge of the Court of Land Registration to issue a notice,
file tax declaration in 1965, should not prejudice the original rights stating that the lands within the limits aforesaid have been reserved
of applicants thru their possessory information secured regularly so for military purposes, and announced and declared to be military
long ago, the conclusion must have to be that after all, applicants reservations, and that claims for all private lands, buildings, and
had succeeded in bringing themselves within the provisions of Sec. interests therein, within the limits aforesaid, must be presented for
19 of Act 496, the land should be registered in their favor; registration under the Land Registration Act within six calendar
months from the date of issuing the notice, and that all lands,
IN VIEW WHEREOF, this Court is constrained to reverse, as it now
buildings, and interests therein within the limits aforesaid not so
reverses, judgment appealed from the application is approved, and
presented within the time therein limited will be conclusively
once this decision shall have become final, if ever it would be, let
adjudged to be public lands and all claims on the part of private
decree issue in favor of applicants with the personal circumstances
individuals for such lands, buildings, or an interest therein not so
outlined in the application, costs against private oppositors.
presented will be forever barred. The clerk of the Court of Land
Petitioner now comes to Us with the following: Registration shall immediately upon the issuing of such notice by
the judge cause the same to be published once a week for three Sec. 4 of Act 627 alone. But in construing a statute the entire
successive weeks in two newspapers, one of which newspapers provisions of the law must be considered in order to establish the
shall be in the English Language, and one in the Spanish language in correct interpretation as intended by the law-making body. Act 627
the city or province where the land lies, if there be no such Spanish by its terms is not self-executory and requires implementation by
or English newspapers having a general circulation in the city or the Court of Land Registration. Act 627, to the extent that it creates
province wherein the land lies, then it shall be a sufficient a forfeiture, is a penal statute in derogation of private rights, so it
compliance with this section if the notice be published as herein must be strictly construed so as to safeguard private respondents'
provided, in a daily newspaper in the Spanish language and one in rights. Significantly, petitioner does not even allege the existence of
the English language, in the City of Manila, having a general any judgment of the Land Registration court with respect to the
circulation. The clerk shall also cause a duly attested copy of the land in question. Without a judgment or order declaring the land to
notice in the Spanish language to be posted in conspicuous place at be public, its private character and the possessory information title
each angle formed by the lines of the limits of the land reserved. over it must be respected. Since no such order has been rendered
The clerk shall also issue and cause to be personally served the by the Land Registration Court it necessarily follows that it never
notice in the Spanish language upon every person living upon or in became public land thru the operation of Act 627. To assume
visible possession of any part of the military reservation. If the otherwise is to deprive private respondents of their property
person in possession is the head of the family living upon the hand, without due process of law. In fact it can be presumed that the
it shall be sufficient to serve the notice upon him, and if he is absent notice required by law to be given by publication and by personal
it shall be sufficient to leave a copy at his usual place of residence. service did not include the name of Domingo Baloy and the subject
The clerk shall certify the manner in which the notices have been land, and hence he and his lane were never brought within the
published, posted, and served, and his certificate shall be conclusive operation of Act 627 as amended. The procedure laid down in Sec. 3
proof of such publication, posting, and service, but the court shall is a requirement of due process. "Due process requires that the
have the power to cause such further notice to be given as in its statutes which under it is attempted to deprive a citizen of private
opinion may be necessary. property without or against his consent must, as in expropriation
cases, be strictly complied with, because such statutes are in
Clearly under said provisions, private land could be deemed to have derogation of general rights." (Arriete vs. Director of Public Works,
become public land only by virtue of a judicial declaration after due 58 Phil. 507, 508, 511).
notice and hearing. It runs contrary therefore to the contention of
petitioners that failure to present claims set forth under Sec. 2 of We also find with favor private respondents' views that court
Act 627 made the land ipso facto public without any deed of judicial judgments are not to be presumed. It would be absurd to speak of a
pronouncement. Petitioner in making such declaration relied on judgment by presumption. If it could be contended that such a
judgment may be presumed, it could equally be contended that intended to be transient, as in the case of the U.S. Navy's
applicants' predecessor Domingo Baloy presumably seasonably filed occupation of the land concerned, in which case the owner is not
a claim, in accordance with the legal presumption that a person divested of his title, although it cannot be exercised in the
takes ordinary care of his concerns, and that a judgment in his favor meantime.
was rendered.
WHEREFORE, premises considered, finding no merit in the petition
The finding of respondent court that during the interim of 57 years the appealed decision is hereby AFFIRMED.
from November 26, 1902 to December 17, 1959 (when the U.S.
Navy possessed the area) the possessory rights of Baloy or heirs SO ORDERED.
were merely suspended and not lost by prescription, is supported
by Exhibit "U," a communication or letter No. 1108-63, dated June
24, 1963, which contains an official statement of the position of the
Republic of the Philippines with regard to the status of the land in
question. Said letter recognizes the fact that Domingo Baloy and/or
his heirs have been in continuous possession of said land since 1894
as attested by an "Informacion Possessoria" Title, which was
granted by the Spanish Government. Hence, the disputed property
is private land and this possession was interrupted only by the
occupation of the land by the U.S. Navy in 1945 for recreational
purposes. The U.S. Navy eventually abandoned the premises. The
heirs of the late Domingo P. Baloy, are now in actual possession,
and this has been so since the abandonment by the U.S. Navy. A
new recreation area is now being used by the U.S. Navy personnel
and this place is remote from the land in question.

Clearly, the occupancy of the U.S. Navy was not in the concept of
owner. It partakes of the character of a commodatum. It cannot
therefore militate against the title of Domingo Baloy and his
successors-in-interest. One's ownership of a thing may be lost by
prescription by reason of another's possession if such possession be
under claim of ownership, not where the possession is only
G.R. No. 115324 February 19, 2003 opening a savings account in the name of Sterela in the Buendia,
Makati branch of Producers Bank of the Philippines. However, only
PRODUCERS BANK OF THE PHILIPPINES (now FIRST Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the
INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS check. They had with them an authorization letter from Doronilla
AND FRANKLIN VIVES, respondents. authorizing Sanchez and her companions, "in coordination with Mr.
CALLEJO, SR., J.: Rufo Atienza," to open an account for Sterela Marketing Services in
the amount of ₱200,000.00. In opening the account, the authorized
This is a petition for review on certiorari of the Decision1 of the signatories were Inocencia Vives and/or Angeles Sanchez. A
Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and passbook for Savings Account No. 10-1567 was thereafter issued to
of its Resolution2 dated May 5, 1994, denying the motion for Mrs. Vives.
reconsideration of said decision filed by petitioner Producers Bank
of the Philippines. Subsequently, private respondent learned that Sterela was no
longer holding office in the address previously given to him.
Sometime in 1979, private respondent Franklin Vives was asked by Alarmed, he and his wife went to the Bank to verify if their money
his neighbor and friend Angeles Sanchez to help her friend and was still intact. The bank manager referred them to Mr. Rufo
townmate, Col. Arturo Doronilla, in incorporating his business, the Atienza, the assistant manager, who informed them that part of the
Sterela Marketing and Services ("Sterela" for brevity). Specifically, money in Savings Account No. 10-1567 had been withdrawn by
Sanchez asked private respondent to deposit in a bank a certain Doronilla, and that only ₱90,000.00 remained therein. He likewise
amount of money in the bank account of Sterela for purposes of its told them that Mrs. Vives could not withdraw said remaining
incorporation. She assured private respondent that he could amount because it had to answer for some postdated checks issued
withdraw his money from said account within a month’s time. by Doronilla. According to Atienza, after Mrs. Vives and Sanchez
Private respondent asked Sanchez to bring Doronilla to their house opened Savings Account No. 10-1567, Doronilla opened Current
so that they could discuss Sanchez’s request. Account No. 10-0320 for Sterela and authorized the Bank to debit
Savings Account No. 10-1567 for the amounts necessary to cover
On May 9, 1979, private respondent, Sanchez, Doronilla and a
overdrawings in Current Account No. 10-0320. In opening said
certain Estrella Dumagpi, Doronilla’s private secretary, met and
current account, Sterela, through Doronilla, obtained a loan of
discussed the matter. Thereafter, relying on the assurances and
₱175,000.00 from the Bank. To cover payment thereof, Doronilla
representations of Sanchez and Doronilla, private respondent issued
issued three postdated checks, all of which were dishonored.
a check in the amount of Two Hundred Thousand Pesos
Atienza also said that Doronilla could assign or withdraw the money
(₱200,000.00) in favor of Sterela. Private respondent instructed his
wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in
in Savings Account No. 10-1567 because he was the sole proprietor IN VIEW OF THE FOREGOING, judgment is hereby rendered
of Sterela. sentencing defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff Franklin Vives
Private respondent tried to get in touch with Doronilla through
jointly and severally –
Sanchez. On June 29, 1979, he received a letter from Doronilla,
assuring him that his money was intact and would be returned to (a) the amount of ₱200,000.00, representing the money deposited,
him. On August 13, 1979, Doronilla issued a postdated check for with interest at the legal rate from the filing of the complaint until
Two Hundred Twelve Thousand Pesos (₱212,000.00) in favor of the same is fully paid;
private respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored. (b) the sum of ₱50,000.00 for moral damages and a similar amount
Doronilla requested private respondent to present the same check for exemplary damages;
on September 15, 1979 but when the latter presented the check, it (c) the amount of ₱40,000.00 for attorney’s fees; and
was again dishonored.
(d) the costs of the suit.
Private respondent referred the matter to a lawyer, who made a
written demand upon Doronilla for the return of his client’s money. SO ORDERED.
Doronilla issued another check for ₱212,000.00 in private
Petitioner appealed the trial court’s decision to the Court of
respondent’s favor but the check was again dishonored for
Appeals. In its Decision dated June 25, 1991, the appellate court
insufficiency of funds.
affirmed in toto the decision of the RTC.9 It likewise denied with
Private respondent instituted an action for recovery of sum of finality petitioner’s motion for reconsideration in its Resolution
money in the Regional Trial Court (RTC) in Pasig, Metro Manila dated May 5, 1994.
against Doronilla, Sanchez, Dumagpi and petitioner. The case was
On June 30, 1994, petitioner filed the present petition, arguing that
docketed as Civil Case No. 44485. He also filed criminal actions
–
against Doronilla, Sanchez and Dumagpi in the RTC. However,
Sanchez passed away on March 16, 1985 while the case was I. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
pending before the trial court. On October 3, 1995, the RTC of Pasig, THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA
Branch 157, promulgated its Decision in Civil Case No. 44485, the AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
dispositive portion of which reads: ACCOMMODATION;
II. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING petitioner’s delay in furnishing private respondent with copy of the
THAT PETITIONER’S BANK MANAGER, MR. RUFO ATIENZA, reply12 and several substitutions of counsel on the part of private
CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING respondent.13 On January 17, 2001, the Court resolved to give due
PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A course to the petition and required the parties to submit their
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER respective memoranda.14 Petitioner filed its memorandum on April
THE PRINCIPLE OF NATURAL JUSTICE; 16, 2001 while private respondent submitted his memorandum on
March 22, 2001.

Petitioner contends that the transaction between private

III. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING respondent and Doronilla is a simple loan (mutuum) since all the
THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND elements of a mutuum are present: first, what was delivered by
AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF private respondent to Doronilla was money, a consumable thing;
THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION and second, the transaction was onerous as Doronilla was obliged
OF FACTS; to pay interest, as evidenced by the check issued by Doronilla in the
IV. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING amount of ₱212,000.00, or ₱12,000 more than what private
THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA respondent deposited in Sterela’s bank account.15 Moreover, the
745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS fact that private respondent sued his good friend Sanchez for his
COMMITTED BY AN EMPLOYEE IS APPLICABLE; failure to recover his money from Doronilla shows that the
transaction was not merely gratuitous but "had a business angle" to
V. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING it. Hence, petitioner argues that it cannot be held liable for the
THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER return of private respondent’s ₱200,000.00 because it is not privy to
BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER the transaction between the latter and Doronilla.16
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL It argues further that petitioner’s Assistant Manager, Mr. Rufo
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR Atienza, could not be faulted for allowing Doronilla to withdraw
ATTORNEY’S FEES AND THE COSTS OF SUIT. from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronilla’s May
Private respondent filed his Comment on September 23, 1994. 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and
Petitioner filed its Reply thereto on September 25, 1995. The Court Sanchez to open a savings account for Sterela, did not contain any
then required private respondent to submit a rejoinder to the reply. authorization for these two to withdraw from said account. Hence,
However, said rejoinder was filed only on April 21, 1997, due to the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone He likewise asserts that the trial court did not err in finding that
had legal title to the savings account.17 Petitioner points out that petitioner, Atienza’s employer, is liable for the return of his money.
no evidence other than the testimonies of private respondent and He insists that Atienza, petitioner’s assistant manager, connived
Mrs. Vives was presented during trial to prove that private with Doronilla in defrauding private respondent since it was Atienza
respondent deposited his ₱200,000.00 in Sterela’s account for who facilitated the opening of Sterela’s current account three days
purposes of its incorporation.18 Hence, petitioner should not be after Mrs. Vives and Sanchez opened a savings account with
held liable for allowing Doronilla to withdraw from Sterela’s savings petitioner for said company, as well as the approval of the authority
account. to debit Sterela’s savings account to cover any overdrawings in its
current account.23
Petitioner also asserts that the Court of Appeals erred in affirming
the trial court’s decision since the findings of fact therein were not There is no merit in the petition.
accord with the evidence presented by petitioner during trial to
prove that the transaction between private respondent and At the outset, it must be emphasized that only questions of law may
Doronilla was a mutuum, and that it committed no wrong in be raised in a petition for review filed with this Court. The Court has
repeatedly held that it is not its function to analyze and weigh all
allowing Doronilla to withdraw from Sterela’s savings account.
over again the evidence presented by the parties during trial.24 The
Finally, petitioner claims that since there is no wrongful act or Court’s jurisdiction is in principle limited to reviewing errors of law
omission on its part, it is not liable for the actual damages suffered that might have been committed by the Court of Appeals.25
by private respondent, and neither may it be held liable for moral Moreover, factual findings of courts, when adopted and confirmed
and exemplary damages as well as attorney’s fees. by the Court of Appeals, are final and conclusive on this Court
unless these findings are not supported by the evidence on
Private respondent, on the other hand, argues that the transaction
record.26 There is no showing of any misapprehension of facts on
between him and Doronilla is not a mutuum but an the part of the Court of Appeals in the case at bar that would
accommodation,21 since he did not actually part with the require this Court to review and overturn the factual findings of that
ownership of his ₱200,000.00 and in fact asked his wife to deposit court, especially since the conclusions of fact of the Court of
said amount in the account of Sterela so that a certification can be Appeals and the trial court are not only consistent but are also
issued to the effect that Sterela had sufficient funds for purposes of amply supported by the evidence on record.
its incorporation but at the same time, he retained some degree of
control over his money through his wife who was made a signatory No error was committed by the Court of Appeals when it ruled that
to the savings account and in whose possession the savings account the transaction between private respondent and Doronilla was a
passbook was given. commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was a end of the period agreed upon, the loan is a commodatum and not
commodatum. Article 1933 of the Civil Code distinguishes between a mutuum.
the two kinds of loans in this wise:
The rule is that the intention of the parties thereto shall be
By the contract of loan, one of the parties delivers to another, either accorded primordial consideration in determining the actual
something not consumable so that the latter may use the same for character of a contract.27 In case of doubt, the contemporaneous
a certain time and return it, in which case the contract is called a and subsequent acts of the parties shall be considered in such
commodatum; or money or other consumable thing, upon the determination.
condition that the same amount of the same kind and quality shall
be paid, in which case the contract is simply called a loan or As correctly pointed out by both the Court of Appeals and the trial
court, the evidence shows that private respondent agreed to
mutuum.
deposit his money in the savings account of Sterela specifically for
Commodatum is essentially gratuitous. the purpose of making it appear "that said firm had sufficient
capitalization for incorporation, with the promise that the amount
Simple loan may be gratuitous or with a stipulation to pay interest. shall be returned within thirty (30) days."29 Private respondent
In commodatum, the bailor retains the ownership of the thing merely "accommodated" Doronilla by lending his money without
loaned, while in simple loan, ownership passes to the borrower. consideration, as a favor to his good friend Sanchez. It was however
clear to the parties to the transaction that the money would not be
The foregoing provision seems to imply that if the subject of the removed from Sterela’s savings account and would be returned to
contract is a consumable thing, such as money, the contract would private respondent after thirty (30) days.
be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article Doronilla’s attempts to return to private respondent the amount of
1936 of the Civil Code provides: ₱200,000.00 which the latter deposited in Sterela’s account
together with an additional ₱12,000.00, allegedly representing
Consumable goods may be the subject of commodatum if the interest on the mutuum, did not convert the transaction from a
purpose of the contract is not the consumption of the object, as commodatum into a mutuum because such was not the intent of
when it is merely for exhibition. the parties and because the additional ₱12,000.00 corresponds to
the fruits of the lending of the ₱200,000.00. Article 1935 of the Civil
Thus, if consumable goods are loaned only for purposes of
Code expressly states that "[t]he bailee in commodatum acquires
exhibition, or when the intention of the parties is to lend
the use of the thing loaned but not its fruits." Hence, it was only
consumable goods and to have the very same goods returned at the
proper for Doronilla to remit to private respondent the interest withdrawals because he was party to Doronilla’s "scheme" of
accruing to the latter’s money deposited with petitioner. defrauding private respondent:

XXX

Neither does the Court agree with petitioner’s contention that it is But the scheme could not have been executed successfully without
not solidarily liable for the return of private respondent’s money the knowledge, help and cooperation of Rufo Atienza, assistant
because it was not privy to the transaction between Doronilla and manager and cashier of the Makati (Buendia) branch of the
private respondent. The nature of said transaction, that is, whether defendant bank. Indeed, the evidence indicates that Atienza had
it is a mutuum or a commodatum, has no bearing on the question of not only facilitated the commission of the fraud but he likewise
petitioner’s liability for the return of private respondent’s money helped in devising the means by which it can be done in such
because the factual circumstances of the case clearly show that manner as to make it appear that the transaction was in accordance
petitioner, through its employee Mr. Atienza, was partly responsible with banking procedure.
for the loss of private respondent’s money and is liable for its
restitution. To begin with, the deposit was made in defendant’s Buendia branch
precisely because Atienza was a key officer therein. The records
Petitioner’s rules for savings deposits written on the passbook it show that plaintiff had suggested that the ₱200,000.00 be
issued Mrs. Vives on behalf of Sterela for Savings Account No. 10- deposited in his bank, the Manila Banking Corporation, but
1567 expressly states that— Doronilla and Dumagpi insisted that it must be in defendant’s
branch in Makati for "it will be easier for them to get a
"2. Deposits and withdrawals must be made by the depositor certification". In fact before he was introduced to plaintiff, Doronilla
personally or upon his written authority duly authenticated, and had already prepared a letter addressed to the Buendia branch
neither a deposit nor a withdrawal will be permitted except upon manager authorizing Angeles B. Sanchez and company to open a
the production of the depositor savings bank book in which will be savings account for Sterela in the amount of ₱200,000.00, as "per
entered by the Bank the amount deposited or withdrawn."30 coordination with Mr. Rufo Atienza, Assistant Manager of the Bank
Said rule notwithstanding, Doronilla was permitted by petitioner, x x x" (Exh. 1). This is a clear manifestation that the other
through Atienza, the Assistant Branch Manager for the Buendia defendants had been in consultation with Atienza from the
Branch of petitioner, to withdraw therefrom even without inception of the scheme. Significantly, there were testimonies and
presenting the passbook (which Atienza very well knew was in the admission that Atienza is the brother-in-law of a certain Romeo
possession of Mrs. Vives), not just once, but several times. Both the Mirasol, a friend and business associate of Doronilla.1awphi1.nét
Court of Appeals and the trial court found that Atienza allowed said
Then there is the matter of the ownership of the fund. Because of Moreover, the transfer of fund was done without the passbook
the "coordination" between Doronilla and Atienza, the latter knew having been presented. It is an accepted practice that whenever a
before hand that the money deposited did not belong to Doronilla withdrawal is made in a savings deposit, the bank requires the
nor to Sterela. Aside from such foreknowledge, he was explicitly presentation of the passbook. In this case, such recognized practice
told by Inocencia Vives that the money belonged to her and her was dispensed with. The transfer from the savings account to the
husband and the deposit was merely to accommodate Doronilla. current account was without the submission of the passbook which
Atienza even declared that the money came from Mrs. Vives. Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook
Although the savings account was in the name of Sterela, the bank was issued to Sterela because the original passbook had been
records disclose that the only ones empowered to withdraw the surrendered to the Makati branch in view of a loan accommodation
same were Inocencia Vives and Angeles B. Sanchez. In the signature assigning the savings account (Exh. C). Atienza, who undoubtedly
card pertaining to this account (Exh. J), the authorized signatories had a hand in the execution of this certification, was aware that the
were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it contents of the same are not true. He knew that the passbook was
is the usual banking procedure that withdrawals of savings deposits in the hands of Mrs. Vives for he was the one who gave it to her.
could only be made by persons whose authorized signatures are in Besides, as assistant manager of the branch and the bank official
the signature cards on file with the bank. He, however, said that this servicing the savings and current accounts in question, he also was
procedure was not followed here because Sterela was owned by aware that the original passbook was never surrendered. He was
Doronilla. He explained that Doronilla had the full authority to also cognizant that Estrella Dumagpi was not among those
withdraw by virtue of such ownership. The Court is not inclined to authorized to withdraw so her certification had no effect
agree with Atienza. In the first place, he was all the time aware that whatsoever.
the money came from Vives and did not belong to Sterela. He was
also told by Mrs. Vives that they were only accommodating The circumstance surrounding the opening of the current account
Doronilla so that a certification can be issued to the effect that also demonstrate that Atienza’s active participation in the
Sterela had a deposit of so much amount to be sued in the perpetration of the fraud and deception that caused the loss. The
incorporation of the firm. In the second place, the signature of records indicate that this account was opened three days later after
Doronilla was not authorized in so far as that account is concerned the ₱200,000.00 was deposited. In spite of his disclaimer, the Court
inasmuch as he had not signed the signature card provided by the believes that Atienza was mindful and posted regarding the opening
bank whenever a deposit is opened. In the third place, neither Mrs. of the current account considering that Doronilla was all the while
Vives nor Sanchez had given Doronilla the authority to withdraw. in "coordination" with him. That it was he who facilitated the
approval of the authority to debit the savings account to cover any
overdrawings in the current account (Exh. 2) is not hard to transfer of funds from Sterela’s savings account to its current
comprehend. account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance
Clearly Atienza had committed wrongful acts that had resulted to
which was the cause of private respondent’s loss.
the loss subject of this case. x x x.
The foregoing shows that the Court of Appeals correctly held that
Under Article 2180 of the Civil Code, employers shall be held
under Article 2180 of the Civil Code, petitioner is liable for private
primarily and solidarily liable for damages caused by their respondent’s loss and is solidarily liable with Doronilla and Dumagpi
employees acting within the scope of their assigned tasks. To hold for the return of the ₱200,000.00 since it is clear that petitioner
the employer liable under this provision, it must be shown that an failed to prove that it exercised due diligence to prevent the
employer-employee relationship exists, and that the employee was unauthorized withdrawals from Sterela’s savings account, and that
acting within the scope of his assigned task when the act it was not negligent in the selection and supervision of Atienza.
complained of was committed.32 Case law in the United States of Accordingly, no error was committed by the appellate court in the
America has it that a corporation that entrusts a general duty to its award of actual, moral and exemplary damages, attorney’s fees and
employee is responsible to the injured party for damages flowing
costs of suit to private respondent.
from the employee’s wrongful act done in the course of his general
authority, even though in doing such act, the employee may have WHEREFORE, the petition is hereby DENIED. The assailed Decision
failed in its duty to the employer and disobeyed the latter’s and Resolution of the Court of Appeals are AFFIRMED.
instructions.
SO ORDERED.
There is no dispute that Atienza was an employee of petitioner.
Furthermore, petitioner did not deny that Atienza was acting within
the scope of his authority as Assistant Branch Manager when he
assisted Doronilla in withdrawing funds from Sterela’s Savings
Account No. 10-1567, in which account private respondent’s money
was deposited, and in transferring the money withdrawn to
Sterela’s Current Account with petitioner. Atienza’s acts of helping
Doronilla, a customer of the petitioner, were obviously done in
furtherance of petitioner’s interests34 even though in the process,
Atienza violated some of petitioner’s rules such as those stipulated
in its savings account passbook.35 It was established that the
G.R. No. L-4150 February 10, 1910 The defendant was duly summoned, and on the 25th of September,
1906, she demurred in writing to the complaint on the ground that
FELIX DE LOS SANTOS, plaintiff-appelle, vs. AGUSTINA JARRA, it was vague; but on the 2d of October of the same year, in answer
administratrix of the estate of Magdaleno Jimenea, deceased, to the complaint, she said that it was true that the late Magdaleno
defendant-appellant. Jimenea asked the plaintiff to loan him ten carabaos, but that he
TORRES, J.: only obtained three second-class animals, which were afterwards
transferred by sale by the plaintiff to the said Jimenea; that she
On the 1st of September, 1906, Felix de los Santos brought suit denied the allegations contained in paragraph 3 of the complaint;
against Agustina Jarra, the administratrix of the estate of for all of which she asked the court to absolve her of the complaint
Magdaleno Jimenea, alleging that in the latter part of 1901 Jimenea with the cost against the plaintiff.
borrowed and obtained from the plaintiff ten first-class carabaos, to
be used at the animal-power mill of his hacienda during the season By a writing dated the 11th of December, 1906, Attorney Jose Felix
of 1901-2, without recompense or remuneration whatever for the Martinez notified the defendant and her counsel, Matias Hilado,
use thereof, under the sole condition that they should be returned that he had made an agreement with the plaintiff to the effect that
to the owner as soon as the work at the mill was terminated; that the latter would not compromise the controversy without his
Magdaleno Jimenea, however, did not return the carabaos, consent, and that as fees for his professional services he was to
notwithstanding the fact that the plaintiff claimed their return after receive one half of the amount allowed in the judgment if the same
the work at the mill was finished; that Magdaleno Jimenea died on were entered in favor of the plaintiff.
the 28th of October, 1904, and the defendant herein was appointed The case came up for trial, evidence was adduced by both parties,
by the Court of First Instance of Occidental Negros administratrix of and either exhibits were made of record. On the 10th of January,
his estate and she took over the administration of the same and is
1907, the court below entered judgment sentencing Agustina Jarra,
still performing her duties as such administratrix; that the plaintiff as administratrix of the estate of Magdaleno Jimenea, to return to
presented his claim to the commissioners of the estate of Jimenea, the plaintiff, Felix de los Santos, the remaining six second and third
within the legal term, for the return of the said ten carabaos, but class carabaos, or the value thereof at the rate of P120 each, or a
the said commissioners rejected his claim as appears in their report; total of P720 with the costs.
therefore, the plaintiff prayed that judgment be entered against the
defendant as administratrix of the estate of the deceased, ordering Counsel for the defendant excepted to the foregoing judgment,
her to return the ten first-class carabaos loaned to the late Jimenea, and, by a writing dated January 19, moved for anew trial on the
or their present value, and to pay the costs. ground that the findings of fact were openly and manifestly
contrary to the weight of the evidence. The motion was overruled,
the defendant duly excepted, and in due course submitted the on loan from his son-in-law, and that he afterwards kept them
corresponding bill of exceptions, which was approved and definitely by virtue of the purchase.
submitted to this court.
By the laws in force the transfer of large cattle was and is still made
The defendant has admitted that Magdaleno Jimenea asked the by means of official documents issued by the local authorities; these
plaintiff for the loan of ten carabaos which are now claimed by the documents constitute the title of ownership of the carabao or horse
latter, as shown by two letters addressed by the said Jimenea to so acquired. Furthermore, not only should the purchaser be
Felix de los Santos; but in her answer the said defendant alleged provided with a new certificate or credential, a document which has
that the late Jimenea only obtained three second-class carabaos, not been produced in evidence by the defendant, nor has the loss of
which were subsequently sold to him by the owner, Santos; the same been shown in the case, but the old documents ought to
therefore, in order to decide this litigation it is indispensable that be on file in the municipality, or they should have been delivered to
proof be forthcoming that Jimenea only received three carabaos the new purchaser, and in the case at bar neither did the defendant
from his son-in-law Santos, and that they were sold by the latter to present the old credential on which should be stated the name of
him. the previous owner of each of the three carabaos said to have been
sold by the plaintiff.
The record discloses that it has been fully proven from the
testimony of a sufficient number of witnesses that the plaintiff, From the foregoing it may be logically inferred that the carabaos
Santos, sent in charge of various persons the ten carabaos loaned or given on commodatum to the now deceased Magdaleno
requested by his father-in-law, Magdaleno Jimenea, in the two Jimenea were ten in number; that they, or at any rate the six
letters produced at the trial by the plaintiff, and that Jimenea surviving ones, have not been returned to the owner thereof, Felix
received them in the presence of some of said persons, one being a de los Santos, and that it is not true that the latter sold to the
brother of said Jimenea, who saw the animals arrive at the hacienda former three carabaos that the purchaser was already using;
where it was proposed to employ them. Four died of rinderpest, therefore, as the said six carabaos were not the property of the
and it is for this reason that the judgment appealed from only deals deceased nor of any of his descendants, it is the duty of the
with six surviving carabaos. administratrix of the estate to return them or indemnify the owner
for their value.
The alleged purchase of three carabaos by Jimenea from his son-in-
law Santos is not evidenced by any trustworthy documents such as The Civil Code, in dealing with loans in general, from which generic
those of transfer, nor were the declarations of the witnesses denomination the specific one of commodatum is derived,
presented by the defendant affirming it satisfactory; for said reason establishes prescriptions in relation to the last-mentioned contract
it can not be considered that Jimenea only received three carabaos by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the in contravention of the stipulations of the same, shall be subjected
other, either anything not perishable, in order that the latter may to indemnify for the losses and damages caused thereby.
use it during a certain period and return it to the former, in which
case it is called commodatum, or money or any other perishable The obligation of the bailee or of his successors to return either the
thing, under the condition to return an equal amount of the same thing loaned or its value, is sustained by the supreme tribunal of
kind and quality, in which case it is merely called a loan. Sapin. In its decision of March 21, 1895, it sets out with precision
the legal doctrine touching commodatum as follows:
Commodatum is essentially gratuitous.
Although it is true that in a contract of commodatum the bailor
A simple loan may be gratuitous, or made under a stipulation to pay retains the ownership of the thing loaned, and at the expiration of
interest. the period, or after the use for which it was loaned has been
accomplished, it is the imperative duty of the bailee to return the
ART. 1741. The bailee acquires retains the ownership of the thing thing itself to its owner, or to pay him damages if through the fault
loaned. The bailee acquires the use thereof, but not its fruits; if any of the bailee the thing should have been lost or injured, it is clear
compensation is involved, to be paid by the person requiring the that where public securities are involved, the trial court, in deferring
use, the agreement ceases to be a commodatum. to the claim of the bailor that the amount loaned be returned him
ART. 1742. The obligations and rights which arise from the by the bailee in bonds of the same class as those which constituted
commodatum pass to the heirs of both contracting parties, unless the contract, thereby properly applies law 9 of title 11 of partida 5.
the loan has been in consideration for the person of the bailee, in With regard to the third assignment of error, based on the fact that
which case his heirs shall not have the right to continue using the the plaintiff Santos had not appealed from the decision of the
thing loaned. commissioners rejecting his claim for the recovery of his carabaos, it
The carabaos delivered to be used not being returned by the is sufficient to estate that we are not dealing with a claim for the
defendant upon demand, there is no doubt that she is under payment of a certain sum, the collection of a debt from the estate,
obligation to indemnify the owner thereof by paying him their or payment for losses and damages (sec. 119, Code of Civil
value. Procedure), but with the exclusion from the inventory of the
property of the late Jimenea, or from his capital, of six carabaos
Article 1101 of said code reads: which did not belong to him, and which formed no part of the
inheritance.
Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever act
The demand for the exclusion of the said carabaos belonging to a
third party and which did not form part of the property of the
deceased, must be the subject of a direct decision of the court in an
ordinary action, wherein the right of the third party to the property
which he seeks to have excluded from the inheritance and the right
of the deceased has been discussed, and rendered in view of the
result of the evidence adduced by the administrator of the estate
and of the claimant, since it is so provided by the second part of
section 699 and by section 703 of the Code of Civil Procedure; the
refusal of the commissioners before whom the plaintiff
unnecessarily appeared can not affect nor reduce the
unquestionable right of ownership of the latter, inasmuch as there
is no law nor principle of justice authorizing the successors of the
late Jimenea to enrich themselves at the cost and to the prejudice
of Felix de los Santos.

For the reasons above set forth, by which the errors assigned to the
judgment appealed from have been refuted, and considering that
the same is in accordance with the law and the merits of the case, it
is our opinion that it should be affirmed and we do hereby affirm it
with the costs against the appellant. So ordered.
G.R. No. 80294-95 September 21, 1988 of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two
cases affirmed by the Supreme Court, touched on the ownership of
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, lots 2 and 3 in question; that the two lots were possessed by the
petitioner, vs. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO predecessors-in-interest of private respondents under claim of
AND JUAN VALDEZ, respondents. ownership in good faith from 1906 to 1951; that petitioner had
GANCAYCO, J.: been in possession of the same lots as bailee in commodatum up to
1951, when petitioner repudiated the trust and when it applied for
The principal issue in this case is whether or not a decision of the registration in 1962; that petitioner had just been in possession as
Court of Appeals promulgated a long time ago can properly be owner for eleven years, hence there is no possibility of acquisitive
considered res judicata by respondent Court of Appeals in the prescription which requires 10 years possession with just title and
present two cases between petitioner and two private respondents. 30 years of possession without; that the principle of res judicata on
these findings by the Court of Appeals will bar a reopening of these
Petitioner questions as allegedly erroneous the Decision dated
questions of facts; and that those facts may no longer be altered.
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- Petitioner's motion for reconsideation of the respondent appellate
G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of court's Decision in the two aforementioned cases (CA G.R. No. CV-
Possession, which affirmed the Decision of the Honorable Nicodemo 05418 and 05419) was denied.
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 The facts and background of these cases as narrated by the trail
dispositive portion as follows: court are as follows —

WHEREFORE, Judgment is hereby rendered ordering the defendant, ... The documents and records presented reveal that the whole
Catholic Vicar Apostolic of the Mountain Province to return and controversy started when the defendant Catholic Vicar Apostolic of
surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan the Mountain Province (VICAR for brevity) filed with the Court of
Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the First Instance of Baguio Benguet on September 5, 1962 an
Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or application for registration of title over Lots 1, 2, 3, and 4 in Psu-
insufficiency of evidence, the plaintiffs' claim or damages is hereby 194357, situated at Poblacion Central, La Trinidad, Benguet,
denied. Said defendant is ordered to pay costs. (p. 36, Rollo) docketed as LRC N-91, said Lots being the sites of the Catholic
Church building, convents, high school building, school gymnasium,
Respondent Court of Appeals, in affirming the trial court's decision, school dormitories, social hall, stonewalls, etc. On March 22, 1963
sustained the trial court's conclusions that the Decision of the Court the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed
their Answer/Opposition on Lots Nos. 2 and 3, respectively, Thereupon, the VICAR filed with the Supreme Court a petition for
asserting ownership and title thereto. After trial on the merits, the review on certiorari of the decision of the Court of Appeals
land registration court promulgated its Decision, dated November dismissing his (its) application for registration of Lots 2 and 3,
17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of
and 4. the Mountain Province vs. Court of Appeals and Heirs of Egmidio
Octaviano.'
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655)
and the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil From the denial by the Court of Appeals of their motion for
Case No. 3607) appealed the decision of the land registration court reconsideration the Heirs of Juan Valdez and Pacita Valdez, on
to the then Court of Appeals, docketed as CA-G.R. No. 38830-R. The September 8, 1977, filed with the Supreme Court a petition for
Court of Appeals rendered its decision, dated May 9, 1977, review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez
reversing the decision of the land registration court and dismissing and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio
the VICAR's application as to Lots 2 and 3, the lots claimed by the Octaviano and Annable O. Valdez.
two sets of oppositors in the land registration case (and two sets of
plaintiffs in the two cases now at bar), the first lot being presently On January 13, 1978, the Supreme Court denied in a minute
occupied by the convent and the second by the women's dormitory resolution both petitions (of VICAR on the one hand and the Heirs of
Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon
and the sister's convent.
the finality of both Supreme Court resolutions in G.R. No. L-46832
On May 9, 1977, the Heirs of Octaviano filed a motion for and G.R. No. L- 46872, the Heirs of Octaviano filed with the then
reconsideration praying the Court of Appeals to order the Court of First Instance of Baguio, Branch II, a Motion For Execution
registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, of Judgment praying that the Heirs of Octaviano be placed in
and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez possession of Lot 3. The Court, presided over by Hon. Salvador J.
filed their motion for reconsideration praying that both Lots 2 and 3 Valdez, on December 7, 1978, denied the motion on the ground
be ordered registered in the names of the Heirs of Juan Valdez and that the Court of Appeals decision in CA-G.R. No. 38870 did not
Pacita Valdez. On August 12,1977, the Court of Appeals denied the grant the Heirs of Octaviano any affirmative relief.
motion for reconsideration filed by the Heirs of Juan Valdez on the
ground that there was "no sufficient merit to justify reconsideration On February 7, 1979, the Heirs of Octaviano filed with the Court of
one way or the other ...," and likewise denied that of the Heirs of Appeals a petitioner for certiorari and mandamus, docketed as CA-
G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon.
Egmidio Octaviano.
Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979,
the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of continuous possession of the two lots in question since this is
Egmidio Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, barred by prior judgment of the Court of Appeals in CA-G.R. No.
for recovery of possession of Lot 3; and the Heirs of Juan Valdez 038830-R under the principle of res judicata. Plaintiffs contend that
filed Civil Case No. 3655 (429) on September 24, 1979, likewise for the question of possession and ownership have already been
recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.). determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No.
038830-R) and affirmed by the Supreme Court (Exh. 1, Minute
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Resolution of the Supreme Court). On his part, defendant Vicar
Egmidio Octaviano presented one (1) witness, Fructuoso Valdez,
maintains that the principle of res judicata would not prevent them
who testified on the alleged ownership of the land in question (Lot from litigating the issues of long possession and ownership because
3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C ); his the dispositive portion of the prior judgment in CA-G.R. No. 038830-
written demand (Exh. B—B-4 ) to defendant Vicar for the return of R merely dismissed their application for registration and titling of
the land to them; and the reasonable rentals for the use of the land lots 2 and 3. Defendant Vicar contends that only the dispositive
at P10,000.00 per month. On the other hand, defendant Vicar portion of the decision, and not its body, is the controlling
presented the Register of Deeds for the Province of Benguet, Atty. pronouncement of the Court of Appeals. 2
Nicanor Sison, who testified that the land in question is not covered
by any title in the name of Egmidio Octaviano or any of the plaintiffs The alleged errors committed by respondent Court of Appeals
(Exh. 8). The defendant dispensed with the testimony of according to petitioner are as follows:
Mons.William Brasseur when the plaintiffs admitted that the
witness if called to the witness stand, would testify that defendant 1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
Vicar has been in possession of Lot 3, for seventy-five (75) years 2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT
continuously and peacefully and has constructed permanent LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT
structures thereon. DOCUMENTARY EVIDENCE PRESENTED;
In Civil Case No. 3655, the parties admitting that the material facts 3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT
are not in dispute, submitted the case on the sole issue of whether PURCHASED LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN
or not the decisions of the Court of Appeals and the Supreme Court IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ
touching on the ownership of Lot 2, which in effect declared the AND OCTAVIANO;
plaintiffs the owners of the land constitute res judicata.
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF
In these two cases , the plaintiffs arque that the defendant Vicar is PRIVATE RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND
barred from setting up the defense of ownership and/or long and 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD Petitioner questions the ruling of respondent Court of Appeals in
FREE PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE CA-G.R. Nos. 05148 and 05149, when it clearly held that it was in
RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE agreement with the findings of the trial court that the Decision of
1906; the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on
the question of ownership of Lots 2 and 3, declared that the said
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 Court of Appeals Decision CA-G.R. No. 38830-R) did not positively
AND 3 ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER declare private respondents as owners of the land, neither was it
ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR
declared that they were not owners of the land, but it held that the
ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS; predecessors of private respondents were possessors of Lots 2 and
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF 3, with claim of ownership in good faith from 1906 to 1951.
APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME Petitioner was in possession as borrower in commodatum up to
COURT; 1951, when it repudiated the trust by declaring the properties in its
name for taxation purposes. When petitioner applied for
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. registration of Lots 2 and 3 in 1962, it had been in possession in
038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT concept of owner only for eleven years. Ordinary acquisitive
PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN prescription requires possession for ten years, but always with just
POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN title. Extraordinary acquisitive prescription requires 30 years. 4
GOOD FAITH FROM 1906 TO 1951;
On the above findings of facts supported by evidence and evaluated
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN by the Court of Appeals in CA-G.R. No. 38830-R, affirmed by this
POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN Court, We see no error in respondent appellate court's ruling that
COMMODATUM, A GRATUITOUS LOAN FOR USE; said findings are res judicata between the parties. They can no
longer be altered by presentation of evidence because those issues
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND
were resolved with finality a long time ago. To ignore the principle
BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND
of res judicata would be to open the door to endless litigations by
REIMBURSEMENT AND IS BARRED BY THE FINALITY AND
continuous determination of issues without end.
CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
An examination of the Court of Appeals Decision dated May 4, 1977,
The petition is bereft of merit.
First Division 5 in CA-G.R. No. 38830-R, shows that it reversed the
trial court's Decision 6 finding petitioner to be entitled to register
the lands in question under its ownership, on its evaluation of When petitioner Vicar was notified of the oppositor's claims, the
evidence and conclusion of facts. parish priest offered to buy the lot from Fructuoso Valdez. Lots 2
and 3 were surveyed by request of petitioner Vicar only in 1962.
The Court of Appeals found that petitioner did not meet the
requirement of 30 years possession for acquisitive prescription over Private respondents were able to prove that their predecessors'
Lots 2 and 3. Neither did it satisfy the requirement of 10 years house was borrowed by petitioner Vicar after the church and the
possession for ordinary acquisitive prescription because of the convent were destroyed. They never asked for the return of the
absence of just title. The appellate court did not believe the findings house, but when they allowed its free use, they became bailors in
of the trial court that Lot 2 was acquired from Juan Valdez by commodatum and the petitioner the bailee. The bailees' failure to
purchase and Lot 3 was acquired also by purchase from Egmidio return the subject matter of commodatum to the bailor did not
Octaviano by petitioner Vicar because there was absolutely no mean adverse possession on the part of the borrower. The bailee
documentary evidence to support the same and the alleged held in trust the property subject matter of commodatum. The
purchases were never mentioned in the application for registration. adverse claim of petitioner came only in 1951 when it declared the
lots for taxation purposes. The action of petitioner Vicar by such
By the very admission of petitioner Vicar, Lots 2 and 3 were owned adverse claim could not ripen into title by way of ordinary
by Valdez and Octaviano. Both Valdez and Octaviano had Free acquisitive prescription because of the absence of just title.
Patent Application for those lots since 1906. The predecessors of
private respondents, not petitioner Vicar, were in possession of the The Court of Appeals found that the predecessors-in-interest and
questioned lots since 1906. private respondents were possessors under claim of ownership in
good faith from 1906; that petitioner Vicar was only a bailee in
There is evidence that petitioner Vicar occupied Lots 1 and 4, which commodatum; and that the adverse claim and repudiation of trust
are not in question, but not Lots 2 and 3, because the buildings
came only in 1951.
standing thereon were only constructed after liberation in 1945.
Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in We find no reason to disregard or reverse the ruling of the Court of
1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Appeals in CA-G.R. No. 38830-R. Its findings of fact have become
Bishop but said Bishop was appointed only in 1947, the church was incontestible. This Court declined to review said decision, thereby in
constructed only in 1951 and the new convent only 2 years before effect, affirming it. It has become final and executory a long time
the trial in 1963. ago.

Respondent appellate court did not commit any reversible error,

much less grave abuse of discretion, when it held that the Decision
of the Court of Appeals in CA-G.R. No. 38830-R is governing, under
the principle of res judicata, hence the rule, in the present cases CA-
G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by
evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is

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

SO ORDERED.
G.R. No. 146364 June 3, 2004 In September 1994, Pajuyo informed Guevarra of his need of the
house and demanded that Guevarra vacate the house. Guevarra
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE refused.
GUEVARRA, respondents.
Pajuyo filed an ejectment case against Guevarra with the
CARPIO, J.: Metropolitan Trial Court of Quezon City, Branch 31 ("MTC").
The Case In his Answer, Guevarra claimed that Pajuyo had no valid title or
Before us is a petition for review1 of the 21 June 2000 Decision2 right of possession over the lot where the house stands because the
and 14 December 2000 Resolution of the Court of Appeals in CA- lot is within the 150 hectares set aside by Proclamation No. 137 for
G.R. SP No. 43129. The Court of Appeals set aside the 11 November socialized housing. Guevarra pointed out that from December 1985
1996 decision3 of the Regional Trial Court of Quezon City, Branch to September 1994, Pajuyo did not show up or communicate with
81,4 affirming the 15 December 1995 decision5 of the Metropolitan him. Guevarra insisted that neither he nor Pajuyo has valid title to
Trial Court of Quezon City, Branch 31.6 the lot.

The Antecedents On 15 December 1995, the MTC rendered its decision in favor of
Pajuyo. The dispositive portion of the MTC decision reads:
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid ₱400 to a
certain Pedro Perez for the rights over a 250-square meter lot in WHEREFORE, premises considered, judgment is hereby rendered for
Barrio Payatas, Quezon City. Pajuyo then constructed a house made the plaintiff and against defendant, ordering the latter to:
of light materials on the lot. Pajuyo and his family lived in the house A) vacate the house and lot occupied by the defendant or any other
from 1979 to 7 December 1985. person or persons claiming any right under him;
On 8 December 1985, Pajuyo and private respondent Eddie B) pay unto plaintiff the sum of THREE HUNDRED PESOS (₱300.00)
Guevarra ("Guevarra") executed a Kasunduan or agreement. Pajuyo, monthly as reasonable compensation for the use of the premises
as owner of the house, allowed Guevarra to live in the house for
starting from the last demand;
free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would C) pay plaintiff the sum of ₱3,000.00 as and by way of attorney’s
voluntarily vacate the premises on Pajuyo’s demand. fees; and

D) pay the cost of suit.

SO ORDERED. On 28 January 1997, the Thirteenth Division of the Court of Appeals
issued a Resolution10 granting the motion for extension
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon conditioned on the timeliness of the filing of the motion.
City, Branch 81 ("RTC").
On 27 February 1997, the Court of Appeals ordered Pajuyo to
On 11 November 1996, the RTC affirmed the MTC decision. The comment on Guevara’s petition for review. On 11 April 1997, Pajuyo
dispositive portion of the RTC decision reads: filed his Comment.
WHEREFORE, premises considered, the Court finds no reversible
On 21 June 2000, the Court of Appeals issued its decision reversing
error in the decision appealed from, being in accord with the law the RTC decision. The dispositive portion of the decision reads:
and evidence presented, and the same is hereby affirmed en toto.
WHEREFORE, premises considered, the assailed Decision of the
SO ORDERED. court a quo in Civil Case No. Q-96-26943 is REVERSED and SET
Guevarra received the RTC decision on 29 November 1996. ASIDE; and it is hereby declared that the ejectment case filed
Guevarra had only until 14 December 1996 to file his appeal with against defendant-appellant is without factual and legal basis.
the Court of Appeals. Instead of filing his appeal with the Court of
SO ORDERED.
Appeals, Guevarra filed with the Supreme Court a "Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42" Pajuyo filed a motion for reconsideration of the decision. Pajuyo
("motion for extension"). Guevarra theorized that his appeal raised pointed out that the Court of Appeals should have dismissed
pure questions of law. The Receiving Clerk of the Supreme Court outright Guevarra’s petition for review because it was filed out of
received the motion for extension on 13 December 1996 or one day time. Moreover, it was Guevarra’s counsel and not Guevarra who
before the right to appeal expired. signed the certification against forum-shopping.

On 3 January 1997, Guevarra filed his petition for review with the On 14 December 2000, the Court of Appeals issued a resolution
Supreme Court. denying Pajuyo’s motion for reconsideration. The dispositive
portion of the resolution reads:
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution9 referring the motion for extension to the Court of WHEREFORE, for lack of merit, the motion for reconsideration is
Appeals which has concurrent jurisdiction over the case. The case hereby DENIED. No costs.
presented no special and important matter for the Supreme Court
SO ORDERED.
to take cognizance of at the first instance.
The Ruling of the MTC Kasunduan between Pajuyo and Guevarra, did not have any legal
effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The
The MTC ruled that the subject of the agreement between Pajuyo court will leave them where they are.
and Guevarra is the house and not the lot. Pajuyo is the owner of
the house, and he allowed Guevarra to use the house only by The Court of Appeals reversed the MTC and RTC rulings, which held
tolerance. Thus, Guevarra’s refusal to vacate the house on Pajuyo’s that the Kasunduan between Pajuyo and Guevarra created a legal
demand made Guevarra’s continued possession of the house illegal. tie akin to that of a landlord and tenant relationship. The Court of
Appeals ruled that the Kasunduan is not a lease contract but a
The Ruling of the RTC commodatum because the agreement is not for a price certain.
The RTC upheld the Kasunduan, which established the landlord and Since Pajuyo admitted that he resurfaced only in 1994 to claim the
tenant relationship between Pajuyo and Guevarra. The terms of the
property, the appellate court held that Guevarra has a better right
Kasunduan bound Guevarra to return possession of the house on over the property under Proclamation No. 137. President Corazon C.
demand. Aquino ("President Aquino") issued Proclamation No. 137 on 7
The RTC rejected Guevarra’s claim of a better right under September 1987. At that time, Guevarra was in physical possession
Proclamation No. 137, the Revised National Government Center of the property. Under Article VI of the Code of Policies Beneficiary
Housing Project Code of Policies and other pertinent laws. In an Selection and Disposition of Homelots and Structures in the
ejectment suit, the RTC has no power to decide Guevarra’s rights National Housing Project ("the Code"), the actual occupant or
under these laws. The RTC declared that in an ejectment case, the caretaker of the lot shall have first priority as beneficiary of the
only issue for resolution is material or physical possession, not project. The Court of Appeals concluded that Guevarra is first in the
ownership. hierarchy of priority.

The Ruling of the Court of Appeals In denying Pajuyo’s motion for reconsideration, the appellate court
debunked Pajuyo’s claim that Guevarra filed his motion for
The Court of Appeals declared that Pajuyo and Guevarra are extension beyond the period to appeal.
squatters. Pajuyo and Guevarra illegally occupied the contested lot
which the government owned. The Court of Appeals pointed out that Guevarra’s motion for
extension filed before the Supreme Court was stamped "13
Perez, the person from whom Pajuyo acquired his rights, was also a December 1996 at 4:09 PM" by the Supreme Court’s Receiving
squatter. Perez had no right or title over the lot because it is public Clerk. The Court of Appeals concluded that the motion for extension
land. The assignment of rights between Perez and Pajuyo, and the bore a date, contrary to Pajuyo’s claim that the motion for
extension was undated. Guevarra filed the motion for extension on 2) in giving due course, instead of dismissing, private respondent’s
time on 13 December 1996 since he filed the motion one day before Petition for Review even though the certification against forum-
the expiration of the reglementary period on 14 December 1996. shopping was signed only by counsel instead of by petitioner
Thus, the motion for extension properly complied with the himself.
condition imposed by the Court of Appeals in its 28 January 1997
Resolution. The Court of Appeals explained that the thirty-day 3) in ruling that the Kasunduan voluntarily entered into by the
extension to file the petition for review was deemed granted parties was in fact a commodatum, instead of a Contract of Lease as
found by the Metropolitan Trial Court and in holding that "the
because of such compliance.
ejectment case filed against defendant-appellant is without legal
The Court of Appeals rejected Pajuyo’s argument that the appellate and factual basis".
court should have dismissed the petition for review because it was
Guevarra’s counsel and not Guevarra who signed the certification 4) in reversing and setting aside the Decision of the Regional Trial
against forum-shopping. The Court of Appeals pointed out that Court in Civil Case No. Q-96-26943 and in holding that the parties
Pajuyo did not raise this issue in his Comment. The Court of Appeals are in pari delicto being both squatters, therefore, illegal occupants
held that Pajuyo could not now seek the dismissal of the case after of the contested parcel of land.
he had extensively argued on the merits of the case. This 5) in deciding the unlawful detainer case based on the so-called
technicality, the appellate court opined, was clearly an Code of Policies of the National Government Center Housing Project
afterthought. instead of deciding the same under the Kasunduan voluntarily
The Issues executed by the parties, the terms and conditions of which are the
laws between themselves.
Pajuyo raises the following issues for resolution:
The Ruling of the Court
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS
AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF The procedural issues Pajuyo is raising are baseless. However, we
find merit in the substantive issues Pajuyo is submitting for
JURISDICTION:
resolution.
1) in GRANTING, instead of denying, Private Respondent’s Motion
for an Extension of thirty days to file petition for review at the time Procedural Issues
when there was no more period to extend as the decision of the Pajuyo insists that the Court of Appeals should have dismissed
Regional Trial Court had already become final and executory. outright Guevarra’s petition for review because the RTC decision
had already become final and executory when the appellate court when the doubt or difference is on the truth or falsity of the facts
acted on Guevarra’s motion for extension to file the petition. Pajuyo alleged.
points out that Guevarra had only one day before the expiry of his
period to appeal the RTC decision. Instead of filing the petition for In his petition for review before this Court, Guevarra no longer
review with the Court of Appeals, Guevarra filed with this Court an disputed the facts. Guevarra’s petition for review raised these
undated motion for extension of 30 days to file a petition for questions: (1) Do ejectment cases pertain only to possession of a
review. This Court merely referred the motion to the Court of structure, and not the lot on which the structure stands? (2) Does a
suit by a squatter against a fellow squatter constitute a valid case
Appeals. Pajuyo believes that the filing of the motion for extension
with this Court did not toll the running of the period to perfect the for ejectment? (3) Should a Presidential Proclamation governing the
appeal. Hence, when the Court of Appeals received the motion, the lot on which a squatter’s structure stands be considered in an
period to appeal had already expired. ejectment suit filed by the owner of the structure?

These questions call for the evaluation of the rights of the parties
We are not persuaded.
under the law on ejectment and the Presidential Proclamation. At
Decisions of the regional trial courts in the exercise of their first glance, the questions Guevarra raised appeared purely legal.
appellate jurisdiction are appealable to the Court of Appeals by However, some factual questions still have to be resolved because
petition for review in cases involving questions of fact or mixed they have a bearing on the legal questions raised in the petition for
questions of fact and law.14 Decisions of the regional trial courts review. These factual matters refer to the metes and bounds of the
involving pure questions of law are appealable directly to this Court disputed property and the application of Guevarra as beneficiary of
by petition for review.15 These modes of appeal are now embodied Proclamation No. 137.
in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
The Court of Appeals has the power to grant an extension of time to
Guevarra believed that his appeal of the RTC decision involved only file a petition for review. In Lacsamana v. Second Special Cases
questions of law. Guevarra thus filed his motion for extension to file Division of the Intermediate Appellate Court,18 we declared that
petition for review before this Court on 14 December 1996. On 3 the Court of Appeals could grant extension of time in appeals by
January 1997, Guevarra then filed his petition for review with this petition for review. In Liboro v. Court of Appeals,19 we clarified that
Court. A perusal of Guevarra’s petition for review gives the the prohibition against granting an extension of time applies only in
impression that the issues he raised were pure questions of law. a case where ordinary appeal is perfected by a mere notice of
There is a question of law when the doubt or difference is on what appeal. The prohibition does not apply in a petition for review
the law is on a certain state of facts.16 There is a question of fact where the pleading needs verification. A petition for review, unlike
an ordinary appeal, requires preparation and research to present a
persuasive position.20 The drafting of the petition for review entails judgment or final order or resolution subject of the petition, and (2)
more time and effort than filing a notice of appeal.21 Hence, the the date of filing of the motion for extension.24 It is the date of the
Court of Appeals may allow an extension of time to file a petition filing of the motion or pleading, and not the date of execution, that
for review. determines the timeliness of the filing of that motion or pleading.
Thus, even if the motion for extension bears no date, the date of
In the more recent case of Commissioner of Internal Revenue v. filing stamped on it is the reckoning point for determining the
Court of Appeals,22 we held that Liboro’s clarification of Lacsamana timeliness of its filing.
is consistent with the Revised Internal Rules of the Court of Appeals
and Supreme Court Circular No. 1-91. They all allow an extension of Guevarra had until 14 December 1996 to file an appeal from the
time for filing petitions for review with the Court of Appeals. The RTC decision. Guevarra filed his motion for extension before this
extension, however, should be limited to only fifteen days save in Court on 13 December 1996, the date stamped by this Court’s
exceptionally meritorious cases where the Court of Appeals may Receiving Clerk on the motion for extension. Clearly, Guevarra filed
grant a longer period. the motion for extension exactly one day before the lapse of the
reglementary period to appeal.
A judgment becomes "final and executory" by operation of law.
Finality of judgment becomes a fact on the lapse of the Assuming that the Court of Appeals should have dismissed
reglementary period to appeal if no appeal is perfected.23 The RTC Guevarra’s appeal on technical grounds, Pajuyo did not ask the
decision could not have gained finality because the Court of Appeals appellate court to deny the motion for extension and dismiss the
granted the 30-day extension to Guevarra. petition for review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only when the
The Court of Appeals did not commit grave abuse of discretion Court of Appeals ruled in Guevarra’s favor that Pajuyo raised the
when it approved Guevarra’s motion for extension. The Court of
procedural issues against Guevarra’s petition for review.
Appeals gave due course to the motion for extension because it
complied with the condition set by the appellate court in its A party who, after voluntarily submitting a dispute for resolution,
resolution dated 28 January 1997. The resolution stated that the receives an adverse decision on the merits, is estopped from
Court of Appeals would only give due course to the motion for attacking the jurisdiction of the court.25 Estoppel sets in not
extension if filed on time. The motion for extension met this because the judgment of the court is a valid and conclusive
condition. adjudication, but because the practice of attacking the court’s
jurisdiction after voluntarily submitting to it is against public policy.
The material dates to consider in determining the timeliness of the
filing of the motion for extension are (1) the date of receipt of the
In his Comment before the Court of Appeals, Pajuyo also failed to over the ejectment case.32 Even if the pleadings raise the issue of
discuss Guevarra’s failure to sign the certification against forum ownership, the court may pass on such issue to determine only the
shopping. Instead, Pajuyo harped on Guevarra’s counsel signing the question of possession, especially if the ownership is inseparably
verification, claiming that the counsel’s verification is insufficient linked with the possession.33 The adjudication on the issue of
since it is based only on "mere information." ownership is only provisional and will not bar an action between the
same parties involving title to the land.34 This doctrine is a
A party’s failure to sign the certification against forum shopping is necessary consequence of the nature of the two summary actions
different from the party’s failure to sign personally the verification.
of ejectment, forcible entry and unlawful detainer, where the only
The certificate of non-forum shopping must be signed by the party, issue for adjudication is the physical or material possession over the
and not by counsel. The certification of counsel renders the petition real property.
defective.
In this case, what Guevarra raised before the courts was that he and
On the other hand, the requirement on verification of a pleading is a Pajuyo are not the owners of the contested property and that they
formal and not a jurisdictional requisite.29 It is intended simply to are mere squatters. Will the defense that the parties to the
secure an assurance that what are alleged in the pleading are true ejectment case are not the owners of the disputed lot allow the
and correct and not the product of the imagination or a matter of courts to renounce their jurisdiction over the case? The Court of
speculation, and that the pleading is filed in good faith.30 The party
Appeals believed so and held that it would just leave the parties
need not sign the verification. A party’s representative, lawyer or where they are since they are in pari delicto.
any person who personally knows the truth of the facts alleged in
the pleading may sign the verification. We do not agree with the Court of Appeals.

We agree with the Court of Appeals that the issue on the certificate Ownership or the right to possess arising from ownership is not at
against forum shopping was merely an afterthought. Pajuyo did not issue in an action for recovery of possession. The parties cannot
call the Court of Appeals’ attention to this defect at the early stage present evidence to prove ownership or right to legal possession
of the proceedings. Pajuyo raised this procedural issue too late in except to prove the nature of the possession when necessary to
the proceedings. resolve the issue of physical possession.36 The same is true when
the defendant asserts the absence of title over the property. The
Absence of Title over the Disputed Property will not Divest the absence of title over the contested lot is not a ground for the courts
Courts of Jurisdiction to Resolve the Issue of Possession to withhold relief from the parties in an ejectment case.
Settled is the rule that the defendant’s claim of ownership of the
disputed property will not divest the inferior court of its jurisdiction
The only question that the courts must resolve in ejectment The defendant questioned the jurisdiction of the courts to settle the
proceedings is - who is entitled to the physical possession of the issue of possession because while the application of the plaintiff
premises, that is, to the possession de facto and not to the was still pending, title remained with the government, and the
possession de jure.37 It does not even matter if a party’s title to the Bureau of Public Lands had jurisdiction over the case. We disagreed
property is questionable,38 or when both parties intruded into with the defendant. We ruled that courts have jurisdiction to
public land and their applications to own the land have yet to be entertain ejectment suits even before the resolution of the
approved by the proper government agency.39 Regardless of the application. The plaintiff, by priority of his application and of his
actual condition of the title to the property, the party in peaceable entry, acquired prior physical possession over the public land
quiet possession shall not be thrown out by a strong hand, violence applied for as against other private claimants. That prior physical
or terror.40 Neither is the unlawful withholding of property possession enjoys legal protection against other private claimants
allowed. Courts will always uphold respect for prior possession. because only a court can take away such physical possession in an
ejectment case.

While the Court did not brand the plaintiff and the defendant in
Thus, a party who can prove prior possession can recover such Pitargue44 as squatters, strictly speaking, their entry into the
possession even against the owner himself.41 Whatever may be the disputed land was illegal. Both the plaintiff and defendant entered
character of his possession, if he has in his favor prior possession in
the public land without the owner’s permission. Title to the land
time, he has the security that entitles him to remain on the property remained with the government because it had not awarded to
until a person with a better right lawfully ejects him.42 To repeat, anyone ownership of the contested public land. Both the plaintiff
the only issue that the court has to settle in an ejectment suit is the and the defendant were in effect squatting on government
right to physical possession. property. Yet, we upheld the courts’ jurisdiction to resolve the issue
In Pitargue v. Sorilla, the government owned the land in dispute. of possession even if the plaintiff and the defendant in the
The government did not authorize either the plaintiff or the ejectment case did not have any title over the contested land.
defendant in the case of forcible entry case to occupy the land. The Courts must not abdicate their jurisdiction to resolve the issue of
plaintiff had prior possession and had already introduced physical possession because of the public need to preserve the basic
improvements on the public land. The plaintiff had a pending policy behind the summary actions of forcible entry and unlawful
application for the land with the Bureau of Lands when the detainer. The underlying philosophy behind ejectment suits is to
defendant ousted him from possession. The plaintiff filed the action prevent breach of the peace and criminal disorder and to compel
of forcible entry against the defendant. The government was not a the party out of possession to respect and resort to the law alone to
party in the case of forcible entry. obtain what he claims is his.45 The party deprived of possession
must not take the law into his own hands.46 Ejectment proceedings the Philippine Commission) we implanted the common law action of
are summary in nature so the authorities can settle speedily actions forcible entry (section 80 of Act No. 190), the object of which has
to recover possession because of the overriding need to quell social been stated by this Court to be "to prevent breaches of the peace
disturbances.47 and criminal disorder which would ensue from the withdrawal of
the remedy, and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons who, believing
We further explained in Pitargue the greater interest that is at stake themselves entitled to the possession of property, resort to force to
in actions for recovery of possession. We made the following gain possession rather than to some appropriate action in the court
pronouncements in Pitargue: to assert their claims." (Supia and Batioco vs. Quintero and Ayala, 59
Phil. 312, 314.) So before the enactment of the first Public Land Act
The question that is before this Court is: Are courts without (Act No. 926) the action of forcible entry was already available in
jurisdiction to take cognizance of possessory actions involving these the courts of the country. So the question to be resolved is, Did the
public lands before final award is made by the Lands Department, Legislature intend, when it vested the power and authority to
and before title is given any of the conflicting claimants? It is one of alienate and dispose of the public lands in the Lands Department, to
utmost importance, as there are public lands everywhere and there exclude the courts from entertaining the possessory action of
are thousands of settlers, especially in newly opened regions. It also forcible entry between rival claimants or occupants of any land
involves a matter of policy, as it requires the determination of the before award thereof to any of the parties? Did Congress intend
respective authorities and functions of two coordinate branches of that the lands applied for, or all public lands for that matter, be
the Government in connection with public land conflicts. removed from the jurisdiction of the judicial Branch of the
Government, so that any troubles arising therefrom, or any
Our problem is made simple by the fact that under the Civil Code,
breaches of the peace or disorders caused by rival claimants, could
either in the old, which was in force in this country before the
be inquired into only by the Lands Department to the exclusion of
American occupation, or in the new, we have a possessory action,
the courts? The answer to this question seems to us evident. The
the aim and purpose of which is the recovery of the physical
Lands Department does not have the means to police public lands;
possession of real property, irrespective of the question as to who
neither does it have the means to prevent disorders arising
has the title thereto. Under the Spanish Civil Code we had the
therefrom, or contain breaches of the peace among settlers; or to
accion interdictal, a summary proceeding which could be brought
pass promptly upon conflicts of possession. Then its power is clearly
within one year from dispossession (Roman Catholic Bishop of Cebu
limited to disposition and alienation, and while it may decide
vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901,
conflicts of possession in order to make proper award, the
upon the enactment of the Code of Civil Procedure (Act No. 190 of
settlement of conflicts of possession which is recognized in the
court herein has another ultimate purpose, i.e., the protection of other illegal manner, can never be "prejudicial interference" with
actual possessors and occupants with a view to the prevention of the disposition or alienation of public lands. On the other hand, if
breaches of the peace. The power to dispose and alienate could not courts were deprived of jurisdiction of cases involving conflicts of
have been intended to include the power to prevent or settle possession, that threat of judicial action against breaches of the
disorders or breaches of the peace among rival settlers or claimants peace committed on public lands would be eliminated, and a state
prior to the final award. As to this, therefore, the corresponding of lawlessness would probably be produced between applicants,
branches of the Government must continue to exercise power and occupants or squatters, where force or might, not right or justice,
jurisdiction within the limits of their respective functions. The would rule.
vesting of the Lands Department with authority to administer,
dispose, and alienate public lands, therefore, must not be It must be borne in mind that the action that would be used to solve
understood as depriving the other branches of the Government of conflicts of possession between rivals or conflicting applicants or
the exercise of the respective functions or powers thereon, such as claimants would be no other than that of forcible entry. This action,
the authority to stop disorders and quell breaches of the peace by both in England and the United States and in our jurisdiction, is a
the police, the authority on the part of the courts to take summary and expeditious remedy whereby one in peaceful and
jurisdiction over possessory actions arising therefrom not involving, quiet possession may recover the possession of which he has been
directly or indirectly, alienation and disposition. deprived by a stronger hand, by violence or terror; its ultimate
object being to prevent breach of the peace and criminal disorder.
Our attention has been called to a principle enunciated in American (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The
courts to the effect that courts have no jurisdiction to determine basis of the remedy is mere possession as a fact, of physical
the rights of claimants to public lands, and that until the disposition possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil.
of the land has passed from the control of the Federal Government, 752.) The title or right to possession is never in issue in an action of
the courts will not interfere with the administration of matters forcible entry; as a matter of fact, evidence thereof is expressly
concerning the same. (50 C. J. 1093-1094.) We have no quarrel with banned, except to prove the nature of the possession. (Second 4,
this principle. The determination of the respective rights of rival Rule 72, Rules of Court.) With this nature of the action in mind, by
claimants to public lands is different from the determination of who no stretch of the imagination can conclusion be arrived at that the
has the actual physical possession or occupation with a view to use of the remedy in the courts of justice would constitute an
protecting the same and preventing disorder and breaches of the interference with the alienation, disposition, and control of public
peace. A judgment of the court ordering restitution of the lands. To limit ourselves to the case at bar can it be pretended at all
possession of a parcel of land to the actual occupant, who has been that its result would in any way interfere with the manner of the
deprived thereof by another through the use of force or in any alienation or disposition of the land contested? On the contrary, it
would facilitate adjudication, for the question of priority of remedy of restitution the object of the statute is to prevent
possession having been decided in a final manner by the courts, said breaches of the peace and criminal disorder which would ensue
question need no longer waste the time of the land officers making from the withdrawal of the remedy, and the reasonable hope such
the adjudication or award. (Emphasis ours) withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of
The Principle of Pari Delicto is not Applicable to Ejectment Cases property, resort to force to gain possession rather than to some
The Court of Appeals erroneously applied the principle of pari appropriate action in the courts to assert their claims. This is the
delicto to this case. philosophy at the foundation of all these actions of forcible entry
and detainer which are designed to compel the party out of
Articles 1411 and 1412 of the Civil Code48 embody the principle of possession to respect and resort to the law alone to obtain what he
pari delicto. We explained the principle of pari delicto in these claims is his.
words:
Clearly, the application of the principle of pari delicto to a case of
The rule of pari delicto is expressed in the maxims ‘ex dolo malo non ejectment between squatters is fraught with danger. To shut out
eritur actio’ and ‘in pari delicto potior est conditio defedentis.’ The relief to squatters on the ground of pari delicto would openly invite
law will not aid either party to an illegal agreement. It leaves the mayhem and lawlessness. A squatter would oust another squatter
parties where it finds them. from possession of the lot that the latter had illegally occupied,
emboldened by the knowledge that the courts would leave them
The application of the pari delicto principle is not absolute, as there
where they are. Nothing would then stand in the way of the ousted
are exceptions to its application. One of these exceptions is where
squatter from re-claiming his prior possession at all cost.
the application of the pari delicto rule would violate well-
established public policy. Petty warfare over possession of properties is precisely what
ejectment cases or actions for recovery of possession seek to
In Drilon v. Gaurana, we reiterated the basic policy behind the
prevent. Even the owner who has title over the disputed property
summary actions of forcible entry and unlawful detainer. We held
cannot take the law into his own hands to regain possession of his
that:
property. The owner must go to court.
It must be stated that the purpose of an action of forcible entry and
Courts must resolve the issue of possession even if the parties to
detainer is that, regardless of the actual condition of the title to the
the ejectment suit are squatters. The determination of priority and
property, the party in peaceable quiet possession shall not be
superiority of possession is a serious and urgent matter that cannot
turned out by strong hand, violence or terror. In affording this
be left to the squatters to decide. To do so would make squatters
receive better treatment under the law. The law restrains property Second. The Court of Appeals should not have given credence to
owners from taking the law into their own hands. However, the Guevarra’s unsubstantiated claim that he is the beneficiary of
principle of pari delicto as applied by the Court of Appeals would Proclamation No. 137. Guevarra merely alleged that in the survey
give squatters free rein to dispossess fellow squatters or violently the project administrator conducted, he and not Pajuyo appeared
retake possession of properties usurped from them. Courts should as the actual occupant of the lot.
not leave squatters to their own devices in cases involving recovery
of possession. There is no proof that Guevarra actually availed of the benefits of
Proclamation No. 137. Pajuyo allowed Guevarra to occupy the
Possession is the only Issue for Resolution in an Ejectment Case disputed property in 1985. President Aquino signed Proclamation
No. 137 into law on 11 March 1986. Pajuyo made his earliest
The case for review before the Court of Appeals was a simple case
demand for Guevarra to vacate the property in September 1994.
of ejectment. The Court of Appeals refused to rule on the issue of
physical possession. Nevertheless, the appellate court held that the During the time that Guevarra temporarily held the property up to
pivotal issue in this case is who between Pajuyo and Guevarra has the time that Proclamation No. 137 allegedly segregated the
the "priority right as beneficiary of the contested land under disputed lot, Guevarra never applied as beneficiary of Proclamation
Proclamation No. 137."54 According to the Court of Appeals, No. 137. Even when Guevarra already knew that Pajuyo was
Guevarra enjoys preferential right under Proclamation No. 137 reclaiming possession of the property, Guevarra did not take any
because Article VI of the Code declares that the actual occupant or step to comply with the requirements of Proclamation No. 137.
caretaker is the one qualified to apply for socialized housing.
Third. Even assuming that the disputed lot is within the coverage of
The ruling of the Court of Appeals has no factual and legal basis. Proclamation No. 137 and Guevarra has a pending application over
the lot, courts should still assume jurisdiction and resolve the issue
First. Guevarra did not present evidence to show that the contested of possession. However, the jurisdiction of the courts would be
lot is part of a relocation site under Proclamation No. 137.
limited to the issue of physical possession only.
Proclamation No. 137 laid down the metes and bounds of the land
that it declared open for disposition to bona fide residents. In Pitargue,55 we ruled that courts have jurisdiction over possessory
actions involving public land to determine the issue of physical
The records do not show that the contested lot is within the land possession. The determination of the respective rights of rival
specified by Proclamation No. 137. Guevarra had the burden to
claimants to public land is, however, distinct from the
prove that the disputed lot is within the coverage of Proclamation determination of who has the actual physical possession or who has
No. 137. He failed to do so. a better right of physical possession.56 The administrative
disposition and alienation of public lands should be threshed out in maintain the premises in good condition. Guevarra promised to
the proper government agency. vacate the premises on Pajuyo’s demand but Guevarra broke his
promise and refused to heed Pajuyo’s demand to vacate.
The Court of Appeals’ determination of Pajuyo and Guevarra’s rights
under Proclamation No. 137 was premature. Pajuyo and Guevarra These facts make out a case for unlawful detainer. Unlawful
were at most merely potential beneficiaries of the law. Courts detainer involves the withholding by a person from another of the
should not preempt the decision of the administrative agency possession of real property to which the latter is entitled after the
mandated by law to determine the qualifications of applicants for expiration or termination of the former’s right to hold possession
the acquisition of public lands. Instead, courts should expeditiously under a contract, express or implied.
resolve the issue of physical possession in ejectment cases to
Where the plaintiff allows the defendant to use his property by
prevent disorder and breaches of peace.58
tolerance without any contract, the defendant is necessarily bound
Pajuyo is Entitled to Physical Possession of the Disputed Property by an implied promise that he will vacate on demand, failing which,
an action for unlawful detainer will lie.60 The defendant’s refusal to
Guevarra does not dispute Pajuyo’s prior possession of the lot and comply with the demand makes his continued possession of the
ownership of the house built on it. Guevarra expressly admitted the
property unlawful.61 The status of the defendant in such a case is
existence and due execution of the Kasunduan. The Kasunduan similar to that of a lessee or tenant whose term of lease has expired
reads: but whose occupancy continues by tolerance of the owner.62
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, This principle should apply with greater force in cases where a
Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na contract embodies the permission or tolerance to use the property.
pansamantalang manirahan sa nasabing bahay at lote ng "walang The Kasunduan expressly articulated Pajuyo’s forbearance. Pajuyo
bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at did not require Guevarra to pay any rent but only to maintain the
kaayusan ng bahay at lote. house and lot in good condition. Guevarra expressly vowed in the
Sa sandaling kailangan na namin ang bahay at lote, sila’y kusang Kasunduan that he would vacate the property on demand.
aalis ng walang reklamo. Guevarra’s refusal to comply with Pajuyo’s demand to vacate made
Guevarra’s continued possession of the property unlawful.

We do not subscribe to the Court of Appeals’ theory that the

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in Kasunduan is one of commodatum.
the house and lot free of rent, but Guevarra was under obligation to
In a contract of commodatum, one of the parties delivers to another administration and commodatum.70 These contracts certainly
something not consumable so that the latter may use the same for involve the obligation to deliver or return the thing received.71
a certain time and return it.63 An essential feature of commodatum
is that it is gratuitous. Another feature of commodatum is that the Guevarra turned his back on the Kasunduan on the sole ground that
use of the thing belonging to another is for a certain period.64 Thus, like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out,
the bailor cannot demand the return of the thing loaned until after cannot enter into a contract involving the land they illegally occupy.
expiration of the period stipulated, or after accomplishment of the Guevarra insists that the contract is void.
use for which the commodatum is constituted.65 If the bailor Guevarra should know that there must be honor even between
should have urgent need of the thing, he may demand its return for squatters. Guevarra freely entered into the Kasunduan. Guevarra
temporary use.66 If the use of the thing is merely tolerated by the cannot now impugn the Kasunduan after he had benefited from it.
bailor, he can demand the return of the thing at will, in which case The Kasunduan binds Guevarra.
the contractual relation is called a precarium.67 Under the Civil
Code, precarium is a kind of commodatum.68 The Kasunduan is not void for purposes of determining who
between Pajuyo and Guevarra has a right to physical possession of
The Kasunduan reveals that the accommodation accorded by Pajuyo the contested property. The Kasunduan is the undeniable evidence
to Guevarra was not essentially gratuitous. While the Kasunduan did of Guevarra’s recognition of Pajuyo’s better right of physical
not require Guevarra to pay rent, it obligated him to maintain the possession. Guevarra is clearly a possessor in bad faith. The absence
property in good condition. The imposition of this obligation makes of a contract would not yield a different result, as there would still
the Kasunduan a contract different from a commodatum. The be an implied promise to vacate.
effects of the Kasunduan are also different from that of a
commodatum. Case law on ejectment has treated relationship Guevarra contends that there is "a pernicious evil that is sought to
based on tolerance as one that is akin to a landlord-tenant be avoided, and that is allowing an absentee squatter who (sic)
relationship where the withdrawal of permission would result in the makes (sic) a profit out of his illegal act."72 Guevarra bases his
termination of the lease.69 The tenant’s withholding of the argument on the preferential right given to the actual occupant or
property would then be unlawful. This is settled jurisprudence. caretaker under Proclamation No. 137 on socialized housing.

Even assuming that the relationship between Pajuyo and Guevarra We are not convinced.
is one of commodatum, Guevarra as bailee would still have the duty
Pajuyo did not profit from his arrangement with Guevarra because
to turn over possession of the property to Pajuyo, the bailor. The
Guevarra stayed in the property without paying any rent. There is
obligation to deliver or to return the thing received attaches to
also no proof that Pajuyo is a professional squatter who rents out
contracts for safekeeping, or contracts of commission,
usurped properties to other squatters. Moreover, it is for the proper subject to the action of one’s will. Actual or physical occupation is
government agency to decide who between Pajuyo and Guevarra not always necessary.
qualifies for socialized housing. The only issue that we are
addressing is physical possession. Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared

that "squatters and intruders who clandestinely enter into titled
Prior possession is not always a condition sine qua non in government property cannot, by such act, acquire any legal right to
ejectment.73 This is one of the distinctions between forcible entry said property."80 We made this declaration because the person
and unlawful detainer.74 In forcible entry, the plaintiff is deprived who had title or who had the right to legal possession over the
of physical possession of his land or building by means of force, disputed property was a party in the ejectment suit and that party
intimidation, threat, strategy or stealth. Thus, he must allege and instituted the case against squatters or usurpers.
prove prior possession.75 But in unlawful detainer, the defendant
unlawfully withholds possession after the expiration or termination In this case, the owner of the land, which is the government, is not a
of his right to possess under any contract, express or implied. In party to the ejectment case. This case is between squatters. Had the
government participated in this case, the courts could have evicted
such a case, prior physical possession is not required.76
the contending squatters, Pajuyo and Guevarra.
Pajuyo’s withdrawal of his permission to Guevarra terminated the
Kasunduan. Guevarra’s transient right to possess the property Since the party that has title or a better right over the property is
ended as well. Moreover, it was Pajuyo who was in actual not impleaded in this case, we cannot evict on our own the parties.
possession of the property because Guevarra had to seek Pajuyo’s Such a ruling would discourage squatters from seeking the aid of
permission to temporarily hold the property and Guevarra had to the courts in settling the issue of physical possession. Stripping both
follow the conditions set by Pajuyo in the Kasunduan. Control over the plaintiff and the defendant of possession just because they are
the property still rested with Pajuyo and this is evidence of actual squatters would have the same dangerous implications as the
possession. application of the principle of pari delicto. Squatters would then
rather settle the issue of physical possession among themselves
Pajuyo’s absence did not affect his actual possession of the disputed than seek relief from the courts if the plaintiff and defendant in the
property. Possession in the eyes of the law does not mean that a ejectment case would both stand to lose possession of the disputed
man has to have his feet on every square meter of the ground property. This would subvert the policy underlying actions for
before he is deemed in possession.77 One may acquire possession recovery of possession.
not only by physical occupation, but also by the fact that a thing is
Since Pajuyo has in his favor priority in time in holding the property, the two courts. We find the amount reasonable compensation to
he is entitled to remain on the property until a person who has title Pajuyo. The ₱300 monthly rental is counted from the last demand
or a better right lawfully ejects him. Guevarra is certainly not that to vacate, which was on 16 February 1995.
person. The ruling in this case, however, does not preclude Pajuyo
and Guevarra from introducing evidence and presenting arguments WHEREFORE, we GRANT the petition. The Decision dated 21 June
before the proper administrative agency to establish any right to 2000 and Resolution dated 14 December 2000 of the Court of
which they may be entitled under the law.81 Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated
11 November 1996 of the Regional Trial Court of Quezon City,
In no way should our ruling in this case be interpreted to condone Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated
squatting. The ruling on the issue of physical possession does not 15 December 1995 of the Metropolitan Trial Court of Quezon City,
affect title to the property nor constitute a binding and conclusive Branch 31 in Civil Case No. 12432, is REINSTATED with
adjudication on the merits on the issue of ownership.82 The owner MODIFICATION. The award of attorney’s fees is deleted. No costs.
can still go to court to recover lawfully the property from the person
who holds the property without legal title. Our ruling here does not SO ORDERED.
diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or
unauthorized structures in accordance with existing laws.

Attorney’s Fees and Rentals

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

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

Special proceedings for the administration and settlement of the

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

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

without pronouncement as to costs.