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G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late
Jose V. Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are
raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through
the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46,
a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8
May 1948 to 7 May 1949 for breeding purposes subject to a government charge of
breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949
of the contract, the borrower asked for a renewal for another period of one year. However,
the Secretary of Agriculture and Natural Resources approved a renewal thereof of only
one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the
other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry
that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire
to buy them at a value with a deduction of yearly depreciation to be approved by the
Auditor General. On 19 October 1950 the Director of Animal Industry advised him that
the book value of the three bulls could not be reduced and that they either be returned or
their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the
book value of the three bulls or to return them. So, on 20 December 1950 in the Court of
First Instance of Manila the Republic of the Philippines commenced an action against
him praying that he be ordered to return the three bulls loaned to him or to pay their book
value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62,
both with interests, and costs; and that other just and equitable relief be granted in (civil
No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered
that because of the bad peace and order situation in Cagayan Valley, particularly in the
barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture
and Natural Resources and the President of the Philippines from the refusal by the
Director of Animal Industry to deduct from the book value of the bulls corresponding
yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor
General did not object, he could not return the animals nor pay their value and prayed for
the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the
three bulls plus the breeding fees in the amount of P626.17 with interest on both sums of
(at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court
granted on 18 October and issued on 11 November 1958. On 2 December 1958 granted
an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a
special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff,
on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose
Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. On
7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and
Bhagnari were returned to the Bureau Animal of Industry and that sometime in November
1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid
on Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a
writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her
motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the
Court denied her motion. Hence, this appeal certified by the Court of Appeals to this
Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late
defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of
the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced
by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of
31 January 1959 to the appellant's motion to quash the writ of execution the appellee
prays "that another writ of execution in the sum of P859.53 be issued against the estate
of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which
already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by
the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal,
Baggao, Cagayan, where the animal was kept, and that as such death was due to force
majeure she is relieved from the duty of returning the bull or paying its value to the
appellee. The contention is without merit. The loan by the appellee to the late defendant
Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8
May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was
subject to the payment by the borrower of breeding fee of 10% of the book value of the
bulls. The appellant contends that the contract was commodatum and that, for that reason,
as the appellee retained ownership or title to the bull it should suffer its loss due to force
majeure. A contract of commodatum is essentially gratuitous.1 If the breeding fee be
considered a compensation, then the contract would be a lease of the bull. Under article
1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor
in bad faith, because she had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still the appellant is liable, because
article 1942 of the Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there
is a stipulation exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one
bull was renewed for another period of one year to end on 8 May 1950. But the appellant
kept and used the bull until November 1953 when during a Huk raid it was killed by stray
1
bullets. Furthermore, when lent and delivered to the deceased husband of the appellant
the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari
at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the
bull due to fortuitous event the late husband of the appellant would be exempt from
liability.
The appellant's contention that the demand or prayer by the appellee for the return of the
bull or the payment of its value being a money claim should be presented or filed in the
intestate proceedings of the defendant who died on 23 October 1951, is not altogether
without merit. However, the claim that his civil personality having ceased to exist the
trial court lost jurisdiction over the case against him, is untenable, because section 17 of
Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon
proper notice, the legal representative of the deceased to appear and to be substituted for
the deceased, within a period of thirty (30) days, or within such time as may be granted.
...
and after the defendant's death on 23 October 1951 his counsel failed to comply with
section 16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform
the court promptly of such death . . . and to give the name and residence of the executory
administrator, guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad
M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas
and that "all persons having claims for monopoly against the deceased Jose V. Bagtas,
arising from contract express or implied, whether the same be due, not due, or contingent,
for funeral expenses and expenses of the last sickness of the said decedent, and judgment
for monopoly against him, to file said claims with the Clerk of this Court at the City Hall
Bldg., Highway 54, Quezon City, within six (6) months from the date of the first
publication of this order, serving a copy thereof upon the aforementioned Felicidad M.
Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to
the court and the appellee who were to be notified of the defendant's death in accordance
with the above-quoted rule, and there was no reason for such failure to notify, because
the attorney who appeared for the defendant was the same who represented the
administratrix in the special proceedings instituted for the administration and settlement
of his estate. The appellee or its attorney or representative could not be expected to know
of the death of the defendant or of the administration proceedings of his estate instituted
in another court that if the attorney for the deceased defendant did not notify the plaintiff
or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late
defendant is only liable for the sum of P859.63, the value of the bull which has not been
returned to the appellee, because it was killed while in the custody of the administratrix
of his estate. This is the amount prayed for by the appellee in its objection on 31 January
1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ
of execution.
Special proceedings for the administration and settlement of the estate of the deceased
Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the
money judgment rendered in favor of the appellee cannot be enforced by means of a writ
of execution but must be presented to the probate court for payment by the appellant, the
administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture
which she lent him for his use. She appealed from the judgment of the Court of First
Instance of Manila which ordered that the defendant return to her the three has heaters
and the four electric lamps found in the possession of the Sheriff of said city, that she call
for the other furniture from the said sheriff of Manila at her own expense, and that the
fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both
parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M.
H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of
lease between the plaintiff and the defendant, the former gratuitously granted to the latter
the use of the furniture described in the third paragraph of the stipulation of facts, subject
to the condition that the defendant would return them to the plaintiff upon the latter's
demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the defendant of the conveyance, giving him
sixty days to vacate the premises under one of the clauses of the contract of lease. There
after the plaintiff required the defendant to return all the furniture transferred to him for
them in the house where they were found. On November 5, 1936, the defendant,
through another person, wrote to the plaintiff reiterating that she may call for the furniture
in the ground floor of the house. On the 7th of the same month, the defendant wrote
another letter to the plaintiff informing her that he could not give up the three gas heaters
and the four electric lamps because he would use them until the 15th of the same month
when the lease in due to expire. The plaintiff refused to get the furniture in view of the
fact that the defendant had declined to make delivery of all of them. On November
15th, before vacating the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse situated at No.
1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied
the law: in holding that they violated the contract by not calling for all the furniture on
November 5, 1936, when the defendant placed them at their disposal; in not ordering the
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defendant to pay them the value of the furniture in case they are not delivered; in holding
that they should get all the furniture from the Sheriff at their expenses; in ordering them
to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling
that both parties should pay their respective legal expenses or the costs; and in denying
pay their respective legal expenses or the costs; and in denying the motions for
reconsideration and new trial. To dispose of the case, it is only necessary to decide
whether the defendant complied with his obligation to return the furniture upon the
plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and
whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself
the ownership thereof; by this contract the defendant bound himself to return the furniture
to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740,
paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the
defendant to return the furniture upon the plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence or house. The defendant did not comply
with this obligation when he merely placed them at the disposal of the plaintiff, retaining
for his benefit the three gas heaters and the four eletric lamps. The provisions of article
1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The
trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to
comply with her obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee,
was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to
accept the offer to return the furniture, because the defendant wanted to retain the three
gas heaters and the four electric lamps.
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 latter determined by the trial Court through
evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one
who breached the contract of commodatum, and without any reason he refused to return
and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just
and equitable that he pay the legal expenses and other judicial costs which the plaintiff
would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to
the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or
house of the latter, all the furniture described in paragraph 3 of the stipulation of facts
Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the
furniture with the Sheriff shall be for the account of the defendant. the defendant shall
pay the costs in both instances. So ordered.
G.R. No. 26085 August 12, 1927
SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants,
vs.
BENITO GONZALEZ SY CHIAM, defendants-appellee.
Araneta and Zaragoza for appellants.
Eusebio Orense for appelle.
JOHNSON, J.:
PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL
The principal questions presented by this appeal are:
(a) Is the contract in question a pacto de retro or a mortgage?
(b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees
to pay a certain amount per month as rent, may such rent render such a contract usurious
when the amount paid as rent, computed upon the purchase price, amounts to a higher
rate of interest upon said amount than that allowed by law?
(c) May the contract in the present case may be modified by parol evidence?
ANTECEDENT FACTS
Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon
Rice Mills, Inc., a piece or parcel of land with the camarin located thereon, situated in the
municipality of Tarlac of the Province of Tarlac for the price of P25,000, promising to
pay therefor in three installments. The first installment of P2,000 was due on or before
the 2d day of May, 1921; the second installment of P8,000 was due on or before 31st day
of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable on or
about the 30th day of November, 1922. One of the conditions of that contract of purchase
was that on failure of the purchaser (plaintiffs and appellants) to pay the balance of said
purchase price or any of the installments on the date agreed upon, the property bought
would revert to the original owner.
The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so
far as the record shows upon the due dates. The balance of P15,000 due on said contract
of purchase was paid on or about the 1st day of December, 1922, in the manner which
will be explained below. On the date when the balance of P15,000 with interest was paid,
the vendor of said property had issued to the purchasers transfer certificate of title to said
property, No. 528. Said transfer certificate of title (No. 528) was transfer certificate of
title from No. 40, which shows that said land was originally registered in the name of the
vendor on the 7th day of November, 1913.
PRESENT FACTS
On the 7th day of November, 1922 the representative of the vendor of the property in
question wrote a letter to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the
latter that if the balance of said indebtedness was not paid, an action would be brought
2
for the purpose of recovering the property, together with damages for non compliance
with the condition of the contract of purchase. The pertinent parts of said letter read as
follows:
Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos
judicialmente contra Vd. para reclamar la devolucion del camarin y los daos y perjuicios
ocasionados a la compaia por su incumplimiento al contrato.
Somos de Vd. atentos y S. S.
SMITH, BELL & CO., LTD.
By (Sgd.) F. I. HIGHAM
Treasurer.
General Managers
LUZON RICE MILLS INC.
According to Exhibits B and D, which represent the account rendered by the vendor, there
was due and payable upon said contract of purchase on the 30th day of November, 1922,
the sum P16,965.09. Upon receiving the letter of the vendor of said property of November
7, 1922, the purchasers, the appellants herein, realizing that they would be unable to pay
the balance due, began to make an effort to borrow money with which to pay the balance
due, began to make an effort to borrow money with which to pay the balance of their
indebtedness on the purchase price of the property involved. Finally an application was
made to the defendant for a loan for the purpose of satisfying their indebtedness to the
vendor of said property. After some negotiations the defendants agreed to loan the
plaintiffs to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs
execute and deliver to him a pacto de retro of said property.
In accordance with that agreement the defendant paid to the plaintiffs by means of a check
the sum of P16,965.09. The defendant, in addition to said amount paid by check,
delivered to the plaintiffs the sum of P354.91 together with the sum of P180 which the
plaintiffs paid to the attorneys for drafting said contract of pacto de retro, making a total
paid by the defendant to the plaintiffs and for the plaintiffs of P17,500 upon the execution
and delivery of said contract. Said contracts was dated the 28th day of November, 1922,
and is in the words and figures following:
Sepan todos por la presente:
Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de
edad, residentes en el Municipio de Calumpit, Provincia de Bulacan, propietarios y
transeuntes en esta Ciudad de Manila, de una parte, y de otra, Benito Gonzalez Sy Chiam,
mayor de edad, casado con Maria Santiago, comerciante y vecinos de esta Ciudad de
Manila.
MANIFESTAMOS Y HACEMOS CONSTAR:
Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideracion
a la cantidad de diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este
acto hemos recibido a nuestra entera satisfaccion de Don Benito Gonzalez Sy Chiam,
cedemos, vendemos y traspasamos a favor de dicho Don Benito Gonzalez Sy Chiam, sus
herederos y causahabientes, una finca que, segun el Certificado de Transferencia de
Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de Tarlac a favor de
"Luzon Rice Mills Company Limited" que al incorporarse se donomino y se denomina
"Luzon Rice Mills Inc.," y que esta corporacion nos ha transferido en venta absoluta, se
describe como sigue:
Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio
de Tarlac. Linda por el O. y N. con propiedad de Manuel Urquico; por el E. con propiedad
de la Manila Railroad Co.; y por el S. con un camino. Partiendo de un punto marcado 1
en el plano, cuyo punto se halla al N. 41 gds. 17' E.859.42 m. del mojon de localizacion
No. 2 de la Oficina de Terrenos en Tarlac; y desde dicho punto 1 N. 81 gds. 31' O., 77 m.
al punto 2; desde este punto N. 4 gds. 22' E.; 54.70 m. al punto 3; desde este punto S. 86
gds. 17' E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42' E., 61.48 m. al punto de
partida; midiendo una extension superficcial de cuatro mil doscientos diez y seis metros
cuadrados (4,216) mas o menos. Todos los puntos nombrados se hallan marcados en el
plano y sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L. S. de
20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.: la orientacion
seguida es la verdadera, siendo la declinacion magnetica de 0 gds. 45' E. y la fecha de la
medicion, 1. de febrero de 1913.
Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos
contados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don Benito
Gonzalez Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500) queda
obligado dicho Sr. Benito Gonzalez y Chiam a retrovendernos la finca arriba descrita;
pero si transcurre dicho plazo de cinco aos sin ejercitar el derecho de retracto que nos
hemos reservado, entonces quedara esta venta absoluta e irrevocable.
Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la
finca arriba descrita, sujeto a condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito
Gonzalez Sy Chiam y en su domicilio, era de trescientos setenta y cinco pesos (P375)
moneda filipina, cada mes.
(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez
Sy Chiam, asi como tambien la prima del seguro contra incendios, si el conviniera al
referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.
(c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a
la terminacion de este arrendamieno y a la perdida del derecho de retracto que nos hemos
reservado, como si naturalmente hubiera expirado el termino para ello, pudiendo en su
virtud dicho Sr. Gonzalez Sy Chiam tomar posesion de la finca y desahuciarnos de la
misma.
Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura en
los precisos terminos en que la dejan otorgada los conyuges Severino Tolentino y
Potenciana Manio.
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En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por
cuadruplicado en Manila, hoy a 28 de noviembre de 1922.
(Fdo.) SEVERINO TOLENTINO
(Fda.) POTENCIANA MANIO
(Fdo.) BENITO GONZALEZ SY CHIAM
Firmado en presencia de:
(Fdos.) MOISES M. BUHAIN
B. S. BANAAG
An examination of said contract of sale with reference to the first question above, shows
clearly that it is a pacto de retro and not a mortgage. There is no pretension on the part of
the appellant that said contract, standing alone, is a mortgage. The pertinent language of
the contract is:
Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos
contados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don Benito
Gonzales Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500) queda
obligado dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arriba descrita;
pero si transcurre dicho plazo de cinco (5) aos sin ejercitar al derecho de retracto que
nos hemos reservado, entonces quedara esta venta absoluta e irrevocable.
Language cannot be clearer. The purpose of the contract is expressed clearly in said
quotation that there can certainly be not doubt as to the purpose of the plaintiff to sell the
property in question, reserving the right only to repurchase the same. The intention to sell
with the right to repurchase cannot be more clearly expressed.
It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing
the absolute sale of the property, entered into a contract with the purchaser by virtue of
which she became the "tenant" of the purchaser. That contract of rent appears in said
quoted document above as follows:
Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la
finca arriba descrita, sujeto a condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito
Gonzalez Sy Chiam y en su domicilio, sera de trescientos setenta y cinco pesos (P375)
moneda filipina, cada mes.
(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez
Sy Chiam, asi como tambien la prima del seguro contra incendios, si le conviniera al
referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.
From the foregoing, we are driven to the following conclusions: First, that the contract of
pacto de retro is an absolute sale of the property with the right to repurchase and not a
mortgage; and, second, that by virtue of the said contract the vendor became the tenant
of the purchaser, under the conditions mentioned in paragraph 3 of said contact quoted
above.
It has been the uniform theory of this court, due to the severity of a contract of pacto de
retro, to declare the same to be a mortgage and not a sale whenever the interpretation of
such a contract justifies that conclusion. There must be something, however, in the
language of the contract or in the conduct of the parties which shows clearly and beyond
doubt that they intended the contract to be a "mortgage" and not a pacto de retro.
(International Banking Corporation vs. Martinez, 10 Phil., 252; Padilla vs. Linsangan, 19
Phil., 65; Cumagun vs. Alingay, 19 Phil., 415; Olino vs. Medina, 13 Phil., 379; Manalo
vs. Gueco, 42 Phil., 925; Velazquez vs. Teodoro, 46 Phil., 757; Villa vs. Santiago, 38
Phil., 157.)
We are not unmindful of the fact that sales with pacto de retro are not favored and that
the court will not construe an instrument to one of sale with pacto de retro, with the
stringent and onerous effect which follows, unless the terms of the document and the
surrounding circumstances require it.
While it is general rule that parol evidence is not admissible for the purpose of varying
the terms of a contract, but when an issue is squarely presented that a contract does not
express the intention of the parties, courts will, when a proper foundation is laid therefor,
hear evidence for the purpose of ascertaining the true intention of the parties.
In the present case the plaintiffs allege in their complaint that the contract in question is
a pacto de retro. They admit that they signed it. They admit they sold the property in
question with the right to repurchase it. The terms of the contract quoted by the plaintiffs
to the defendant was a "sale" with pacto de retro, and the plaintiffs have shown no
circumstance whatever which would justify us in construing said contract to be a mere
"loan" with guaranty. In every case in which this court has construed a contract to be a
mortgage or a loan instead of a sale with pacto de retro, it has done so, either because the
terms of such contract were incompatible or inconsistent with the theory that said contract
was one of purchase and sale. (Olino vs. Medina, supra; Padilla vs. Linsangan, supra;
Manlagnit vs. Dy Puico, 34 Phil., 325; Rodriguez vs. Pamintuan and De Jesus, 37 Phil.,
876.)
In the case of Padilla vs. Linsangan the term employed in the contract to indicate the
nature of the conveyance of the land was "pledged" instead of "sold". In the case of
Manlagnit vs. Dy Puico, while the vendor used to the terms "sale and transfer with the
right to repurchase," yet in said contract he described himself as a "debtor" the purchaser
as a "creditor" and the contract as a "mortgage". In the case of Rodriguez vs. Pamintuan
and De Jesus the person who executed the instrument, purporting on its face to be a deed
of sale of certain parcels of land, had merely acted under a power of attorney from the
owner of said land, "authorizing him to borrow money in such amount and upon such
terms and conditions as he might deem proper, and to secure payment of the loan by a
mortgage." In the case of Villa vs. Santiago (38 Phil., 157), although a contract purporting
to be a deed of sale was executed, the supposed vendor remained in possession of the
land and invested the money he had obtained from the supposed vendee in making
improvements thereon, which fact justified the court in holding that the transaction was
a mere loan and not a sale. In the case of Cuyugan vs. Santos (39 Phil., 970), the purchaser
accepted partial payments from the vendor, and such acceptance of partial payments is
absolutely incompatible with the idea of irrevocability of the title of ownership of the
3
purchaser at the expiration of the term stipulated in the original contract for the exercise
of the right of repurchase."
Referring again to the right of the parties to vary the terms of written contract, we quote
from the dissenting opinion of Chief Justice Cayetano S. Arellano in the case of
Government of the Philippine Islands vs. Philippine Sugar Estates Development Co.,
which case was appealed to the Supreme Court of the United States and the contention of
the Chief Justice in his dissenting opinion was affirmed and the decision of the Supreme
Court of the Philippine Islands was reversed. (See decision of the Supreme Court of the
United States, June 3, 1918.)1 The Chief Justice said in discussing that question:
According to article 1282 of the Civil Code, in order to judge of the intention of the
contracting parties, consideration must chiefly be paid to those acts executed by said
parties which are contemporary with and subsequent to the contract. And according to
article 1283, however general the terms of a contract may be, they must not be held to
include things and cases different from those with regard to which the interested parties
agreed to contract. "The Supreme Court of the Philippine Islands held the parol evidence
was admissible in that case to vary the terms of the contract between the Government of
the Philippine Islands and the Philippine Sugar Estates Development Co. In the course of
the opinion of the Supreme Court of the United States Mr. Justice Brandeis, speaking for
the court, said:
It is well settled that courts of equity will reform a written contract where, owing to
mutual mistake, the language used therein did not fully or accurately express the
agreement and intention of the parties. The fact that interpretation or construction of a
contract presents a question of law and that, therefore, the mistake was one of law is not
a bar to granting relief. . . . This court is always disposed to accept the construction which
the highest court of a territory or possession has placed upon a local statute. But that
disposition may not be yielded to where the lower court has clearly erred. Here the
construction adopted was rested upon a clearly erroneous assumption as to an established
rule of equity. . . . The burden of proof resting upon the appellant cannot be satisfied by
mere preponderance of the evidence. It is settled that relief by way of reformation will
not be granted unless the proof of mutual mistake be of the clearest and most satisfactory
character.
The evidence introduced by the appellant in the present case does not meet with that
stringent requirement. There is not a word, a phrase, a sentence or a paragraph in the
entire record, which justifies this court in holding that the said contract of pacto de retro
is a mortgage and not a sale with the right to repurchase. Article 1281 of the Civil Code
provides: "If the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal sense of its stipulations shall be followed." Article 1282
provides: "in order to judge as to the intention of the contracting parties, attention must
be paid principally to their conduct at the time of making the contract and subsequently
thereto."
We cannot thereto conclude this branch of our discussion of the question involved,
without quoting from that very well reasoned decision of the late Chief Justice Arellano,
one of the greatest jurists of his time. He said, in discussing the question whether or not
the contract, in the case of Lichauco vs. Berenguer (20 Phil., 12), was a pacto de retro or
a mortgage:
The public instrument, Exhibit C, in part reads as follows: "Don Macarion Berenguer
declares and states that he is the proprietor in fee simple of two parcels of fallow
unappropriated crown land situated within the district of his pueblo. The first has an area
of 73 quiones, 8 balitas and 8 loanes, located in the sitio of Batasan, and its boundaries
are, etc., etc. The second is in the sitio of Panantaglay, barrio of Calumpang has as area
of 73 hectares, 22 ares, and 6 centares, and is bounded on the north, etc., etc."
In the executory part of the said instrument, it is stated:
'That under condition of right to repurchase (pacto de retro) he sells the said properties to
the aforementioned Doa Cornelia Laochangco for P4,000 and upon the following
conditions: First, the sale stipulated shall be for the period of two years, counting from
this date, within which time the deponent shall be entitled to repurchase the land sold
upon payment of its price; second, the lands sold shall, during the term of the present
contract, be held in lease by the undersigned who shall pay, as rental therefor, the sum of
400 pesos per annum, or the equivalent in sugar at the option of the vendor; third, all the
fruits of the said lands shall be deposited in the sugar depository of the vendee, situated
in the district of Quiapo of this city, and the value of which shall be applied on account
of the price of this sale; fourth, the deponent acknowledges that he has received from the
vendor the purchase price of P4,000 already paid, and in legal tender currency of this
country . . .; fifth, all the taxes which may be assessed against the lands surveyed by
competent authority, shall be payable by and constitute a charge against the vendor; sixth,
if, through any unusual event, such as flood, tempest, etc., the properties hereinbefore
enumerated should be destroyed, wholly or in part, it shall be incumbent upon the vendor
to repair the damage thereto at his own expense and to put them into a good state of
cultivation, and should he fail to do so he binds himself to give to the vendee other lands
of the same area, quality and value.'
xxx xxx xxx
The opponent maintained, and his theory was accepted by the trial court, that Berenguer's
contract with Laochangco was not one of sale with right of repurchase, but merely one of
loan secured by those properties, and, consequently, that the ownership of the lands in
questions could not have been conveyed to Laochangco, inasmuch as it continued to be
held by Berenguer, as well as their possession, which he had not ceased to enjoy.
Such a theory is, as argued by the appellant, erroneous. The instrument executed by
Macario Berenguer, the text of which has been transcribed in this decision, is very clear.
Berenguer's heirs may not go counter to the literal tenor of the obligation, the exact
expression of the consent of the contracting contained in the instrument, Exhibit C. Not
because the lands may have continued in possession of the vendor, not because the latter
may have assumed the payment of the taxes on such properties, nor yet because the same
party may have bound himself to substitute by another any one of the properties which
might be destroyed, does the contract cease to be what it is, as set forth in detail in the
public instrument. The vendor continued in the possession of the lands, not as the owner
thereof as before their sale, but as the lessee which he became after its consummation, by
virtue of a contract executed in his favor by the vendee in the deed itself, Exhibit C. Right
of ownership is not implied by the circumstance of the lessee's assuming the
responsibility of the payment is of the taxes on the property leased, for their payment is
not peculiarly incumbent upon the owner, nor is such right implied by the obligation to
substitute the thing sold for another while in his possession under lease, since that
obligation came from him and he continues under another character in its possessiona
Credit - 111016
reason why he guarantees its integrity and obligates himself to return the thing even in a
case of force majeure. Such liability, as a general rule, is foreign to contracts of lease and,
if required, is exorbitant, but possible and lawful, if voluntarily agreed to and such
agreement does not on this account involve any sign of ownership, nor other meaning
than the will to impose upon oneself scrupulous diligence in the care of a thing belonging
to another.
The purchase and sale, once consummated, is a contract which by its nature transfers the
ownership and other rights in the thing sold. A pacto de retro, or sale with right to
repurchase, is nothing but a personal right stipulated between the vendee and the vendor,
to the end that the latter may again acquire the ownership of the thing alienated.
It is true, very true indeed, that the sale with right of repurchase is employed as a method
of loan; it is likewise true that in practice many cases occur where the consummation of
a pacto de retro sale means the financial ruin of a person; it is also, unquestionable that
in pacto de retro sales very important interests often intervene, in the form of the price of
the lease of the thing sold, which is stipulated as an additional covenant. (Manresa, Civil
Code, p. 274.)
But in the present case, unlike others heard by this court, there is no proof that the sale
with right of repurchase, made by Berenguer in favor of Laonchangco is rather a mortgage
to secure a loan.
We come now to a discussion of the second question presented above, and that is, stating
the same in another form: May a tenant charge his landlord with a violation of the Usury
Law upon the ground that the amount of rent he pays, based upon the real value of the
property, amounts to a usurious rate of interest? When the vendor of property under a
pacto de retro rents the property and agrees to pay a rental value for the property during
the period of his right to repurchase, he thereby becomes a "tenant" and in all respects
stands in the same relation with the purchaser as a tenant under any other contract of
lease.
The appellant contends that the rental price paid during the period of the existence of the
right to repurchase, or the sum of P375 per month, based upon the value of the property,
amounted to usury. Usury, generally speaking, may be defined as contracting for or
receiving something in excess of the amount allowed by law for the loan or forbearance
of moneythe taking of more interest for the use of money than the law allows. It seems
that the taking of interest for the loan of money, at least the taking of excessive interest
has been regarded with abhorrence from the earliest times. (Dunham vs. Gould, 16
Johnson [N. Y.], 367.) During the middle ages the people of England, and especially the
English Church, entertained the opinion, then, current in Europe, that the taking of any
interest for the loan of money was a detestable vice, hateful to man and contrary to the
laws of God. (3 Coke's Institute, 150; Tayler on Usury, 44.)
Chancellor Kent, in the case of Dunham vs. Gould, supra, said: "If we look back upon
history, we shall find that there is scarcely any people, ancient or modern, that have not
had usury laws. . . . The Romans, through the greater part of their history, had the deepest
abhorrence of usury. . . . It will be deemed a little singular, that the same voice against
usury should have been raised in the laws of China, in the Hindu institutes of Menu, in
the Koran of Mahomet, and perhaps, we may say, in the laws of all nations that we know
of, whether Greek or Barbarian."
The collection of a rate of interest higher than that allowed by law is condemned by the
Philippine Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner
of a property to enter into a contract with the tenant for the payment of a specific amount
of rent for the use and occupation of said property, even though the amount paid as "rent,"
based upon the value of the property, might exceed the rate of interest allowed by law?
That question has never been decided in this jurisdiction. It is one of first impression. No
cases have been found in this jurisdiction answering that question. Act No. 2655 is "An
Act fixing rates of interest upon 'loans' and declaring the effect of receiving or taking
usurious rates."
It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any
money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate
of interest on "loans." A contract of "loan," is very different contract from that of "rent".
A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods
or credits to another, with a promise to repay, but not a promise to return the same thing.
To "loan," in general parlance, is to deliver to another for temporary use, on condition
that the thing or its equivalent be returned; or to deliver for temporary use on condition
that an equivalent in kind shall be returned with a compensation for its use. The word
"loan," however, as used in the statute, has a technical meaning. It never means the return
of the same thing. It means the return of an equivalent only, but never the same thing
loaned. A "loan" has been properly defined as an advance payment of money, goods or
credits upon a contract or stipulation to repay, not to return, the thing loaned at some
future day in accordance with the terms of the contract. Under the contract of "loan," as
used in said statute, the moment the contract is completed the money, goods or chattels
given cease to be the property of the former owner and becomes the property of the
obligor to be used according to his own will, unless the contract itself expressly provides
for a special or specific use of the same. At all events, the money, goods or chattels, the
moment the contract is executed, cease to be the property of the former owner and
becomes the absolute property of the obligor.
A contract of "loan" differs materially from a contract of "rent." In a contract of "rent"
the owner of the property does not lose his ownership. He simply loses his control over
the property rented during the period of the contract. In a contract of "loan" the thing
loaned becomes the property of the obligor. In a contract of "rent" the thing still remains
the property of the lessor. He simply loses control of the same in a limited way during
the period of the contract of "rent" or lease. In a contract of "rent" the relation between
the contractors is that of landlord and tenant. In a contract of "loan" of money, goods,
chattels or credits, the relation between the parties is that of obligor and obligee. "Rent"
may be defined as the compensation either in money, provisions, chattels, or labor,
received by the owner of the soil from the occupant thereof. It is defined as the return or
compensation for the possession of some corporeal inheritance, and is a profit issuing out
of lands or tenements, in return for their use. It is that, which is to paid for the use of land,
whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by
which one of the parties delivers to the other some nonconsumable thing, in order that
the latter may use it during a certain period and return it to the former; whereas a contract
of "loan", as that word is used in the statute, signifies the delivery of money or other
consumable things upon condition of returning an equivalent amount of the same kind or
quantity, in which cases it is called merely a "loan." In the case of a contract of "rent,"
under the civil law, it is called a "commodatum."
4
From the foregoing it will be seen that there is a while distinction between a contract of
"loan," as that word is used in the statute, and a contract of "rent" even though those
words are used in ordinary parlance as interchangeable terms.
The value of money, goods or credits is easily ascertained while the amount of rent to be
paid for the use and occupation of the property may depend upon a thousand different
conditions; as for example, farm lands of exactly equal productive capacity and of the
same physical value may have a different rental value, depending upon location, prices
of commodities, proximity to the market, etc. Houses may have a different rental value
due to location, conditions of business, general prosperity or depression, adaptability to
particular purposes, even though they have exactly the same original cost. A store on the
Escolta, in the center of business, constructed exactly like a store located outside of the
business center, will have a much higher rental value than the other. Two places of
business located in different sections of the city may be constructed exactly on the same
architectural plan and yet one, due to particular location or adaptability to a particular
business which the lessor desires to conduct, may have a very much higher rental value
than one not so located and not so well adapted to the particular business. A very cheap
building on the carnival ground may rent for more money, due to the particular
circumstances and surroundings, than a much more valuable property located elsewhere.
It will thus be seen that the rent to be paid for the use and occupation of property is not
necessarily fixed upon the value of the property. The amount of rent is fixed, based upon
a thousand different conditions and may or may not have any direct reference to the value
of the property rented. To hold that "usury" can be based upon the comparative actual
rental value and the actual value of the property, is to subject every landlord to an
annoyance not contemplated by the law, and would create a very great disturbance in
every business or rural community. We cannot bring ourselves to believe that the
Legislature contemplated any such disturbance in the equilibrium of the business of the
country.
In the present case the property in question was sold. It was an absolute sale with the right
only to repurchase. During the period of redemption the purchaser was the absolute owner
of the property. During the period of redemption the vendor was not the owner of the
property. During the period of redemption the vendor was a tenant of the purchaser.
During the period of redemption the relation which existed between the vendor and the
vendee was that of landlord and tenant. That relation can only be terminated by a
repurchase of the property by the vendor in accordance with the terms of the said contract.
The contract was one of rent. The contract was not a loan, as that word is used in Act No.
2655.
As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right
to make contracts for parties. They made their own contract in the present case. There is
not a word, a phrase, a sentence or paragraph, which in the slightest way indicates that
the parties to the contract in question did not intend to sell the property in question
absolutely, simply with the right to repurchase. People who make their own beds must lie
thereon.
What has been said above with reference to the right to modify contracts by parol
evidence, sufficiently answers the third questions presented above. The language of the
contract is explicit, clear, unambiguous and beyond question. It expresses the exact
intention of the parties at the time it was made. There is not a word, a phrase, a sentence
or paragraph found in said contract which needs explanation. The parties thereto entered
into said contract with the full understanding of its terms and should not now be permitted
to change or modify it by parol evidence.
With reference to the improvements made upon said property by the plaintiffs during the
life of the contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise
in a separate action the right guaranteed to them under article 361 of the Civil Code.
For all of the foregoing reasons, we are fully persuaded from the facts of the record, in
relation with the law applicable thereto, that the judgment appealed from should be and
is hereby affirmed, with costs. So ordered.
Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
MALCOLM, J., dissenting:
I regret to have to dissent from the comprehensive majority decision. I stand squarely on
the proposition that the contract executed by the parties was merely a clever device to
cover up the payment of usurious interest. The fact that the document purports to be a
true sale with right of repurchase means nothing. The fact that the instrument includes a
contract of lease on the property whereby the lessees as vendors apparently bind
themselves to pay rent at the rate of P375 per month and whereby "Default in the payment
of the rent agreed for two consecutive months will terminate this lease and will forfeit
our right of repurchase, as though the term had expired naturally" does mean something,
and taken together with the oral testimony is indicative of a subterfuge hiding a usurious
loan. (Usury Law, Act No. 2655, sec. 7, as amended; Padilla vs. Linsangan [1911], 19
Phil., 65; U. S. vs. Tan Quingco Chua [1919], 39 Phil., 552; Russel vs. Southard [1851],
53 U. S., 139 Monagas vs. Albertucci y Alvarez [1914], 235 U. S., 81; 10 Manresa,
Codigo Civil Espaol, 3rd ed., p. 318.) The transaction should be considered as in the
nature of an equitable mortgage. My vote is for a modification of the judgment of the trial
court.
G.R. No. 112485 August 9, 2001
EMILIA MANZANO, petitioner,
vs.
MIGUEL PEREZ SR., LEONCIO PEREZ, MACARIO PEREZ, FLORENCIO
PEREZ, NESTOR PEREZ, MIGUEL PEREZ JR. and GLORIA PEREZ,
respondents.
PANGANIBAN, J.:
Courts decide cases on the basis of the evidence presented by the parties. In the
assessment of the facts, reason and logic are used. In civil cases, the party that presents a
preponderance of convincing evidence wins.
The Case
Credit - 111016
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the March 31, 1993 Decision1 of the Court of Appeals (CA)2 in CA-GR CY
No. 32594. The dispositive part of the Decision reads:
"WHEREFORE, the judgment appealed from is hereby REVERSED and another one is
entered dismissing plaintiff's complaint."
On the other hand, the Judgment3 reversed by the CA ruled in this wise:
"WHEREFORE, premises considered, judgment is hereby rendered:
1) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the properties
in question void or simulated;
2) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the properties
in question rescinded;
3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez, Florencio
Perez, Miguel Perez, Jr., Nestor Perez and Gloria Perez to execute an Extra Judicial
Partition with transfer over the said residential lot and house, now covered and described
in Tax Declaration Nos. 1993 and 1994, respectively in the name of Nieves Manzano
(Exh. 'Q' & 'P'), subject matter of this case, in favor of plaintiff Emilia Manzano;
4) Ordering the defendants to pay plaintiff:
a) P25,000.00 as moral damages;
b) P10,000.00 as exemplary damages;
c) P15,000.00 as and for [a]ttorney's fees; and
d) to pay the cost of the suit."4
The Motion for Reconsideration filed by petitioner before the CA was denied in a
Resolution dated October 28, 1993.5
The Facts
The facts of the case are summarized by the Court of Appeals as follows:
"[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of a
residential house and lot, more particularly described hereunder:
'A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan),
together with all the improvements thereon, situated at General Luna Street, Siniloan,
Laguna. Bounded on the North by Callejon; on the East, by [a] town river; on the South
by Constancia Adofina; and on the West by Gen. Luna Street. Containing an area of 130
square meters more or less, covered by Tax Dec. No. 9583 and assessed at P1,330.00.
'A residential house of strong mixed materials and G.I. iron roofing, with a floor area of
40 square meters, more or less. Also covered by Tax No. 9583.'
"In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of the
herein [private respondents], allegedly borrowed the aforementioned property as
collateral for a projected loan. The [petitioner] acceded to the request of her sister upon
the latter's promise that she [would] return the property immediately upon payment of her
loan.
"Pursuant to their understanding, the [petitioner] executed two deeds of conveyance for
the sale of the residential lot on 22 January 1979 (Exhibit 'J') and the sale of the house
erected thereon on 2 February 1979 (Exhibit 'K'), both for a consideration of P1.00 plus
other valuables allegedly received by her from Nieves Manzano.
"On 2 April 1979, Nieves Manzano, together with her husband, [respondent] Miguel
Perez, Sr., and her son, [respondent] Macario Perez, obtained a loan from the Rural Bank
of Infanta, Inc. in the sum of P30,000.00. To secure payment of their indebtedness, they
executed a Real Estate Mortgage (Exhibit 'A') over the subject property in favor of the
bank.
"Nieves Manzano died on 18 December 1979 leaving her husband and children as heirs.
These heirs, [respondents] herein, allegedly refused to return the subject property to the
[petitioner] even after the payment of their loan with the Rural Bank (Exhibit 'B').
"The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and that
the unwarranted refusal of the [respondents] to return the property caused her sleepless
nights, mental shock and social humiliation. She was, likewise, allegedly constrained to
engage the services of a counsel to protect her proprietary rights.
"The [petitioner] sought the annulment of the deeds of sale and execution of a deed of
transfer or reconveyance of the subject property in her favor, the award of moral damages
of not less than P50,000.00, exemplary damages of P10,000.00, attorney's fees of
P10,000.00 plus P500.00 per court appearance, and costs of suit.
"In seeking the dismissal of the complaint, the [respondents] countered that they are the
owners of the property in question being the legal heirs of Nieves Manzano who
purchased the same from the [petitioner] for value and in good faith, as shown by the
deeds of sale which contain the true agreements between the parties therein; that except
for the [petitioner's] bare allegations, she failed to show any proof that the transaction she
entered into with her sister was a loan and not a sale.
"By way of special and affirmative defense, the [respondents] argued that what the parties
to the [sale] agreed upon was to resell the property to the [petitioner] after the payment
of the loan with the Rural Bank. But since the [respondents] felt that the property is the
only memory left by their predecessor-in-interest, they politely informed the [petitioner]
of their refusal to sell the same. The [respondents] also argued that the [petitioner] is now
estopped from questioning their ownership after seven (7) years from the consummation
of the sale.
"As a proximate result of the filing of this alleged baseless and malicious suit, the
[respondents] prayed as counterclaim the award of moral damages in the amount of
P10,000.00 each, exemplary damages in an amount as may be warranted by the evidence
on record, attorney's fees of P10,000.00 plus P500.00 per appearance in court and costs
of suit.
5
"In ruling for the [petitioner], the court a guo considered the following:
'First, the properties in question after [they have] been transferred to Nieves Manzano,
the same were mortgaged in favor of the Rural Bank of Infante, Inc. (Exh. 'A') to secure
payment of the loan extended to Macario Perez.'
'Second, the documents covering said properties which were given to the bank as
collateral of said loan, upon payment and [release] to the [private respondents], were
returned to [petitioner] by Florencio Perez, one of the [private respondents].'
'[These] uncontroverted facts [are] a clear recognition [by private respondents] that
[petitioner] is the owner of the properties in question.'
xxx xxx xxx "'
'Third, [respondents'] pretense of ownership of the properties in question is belied by their
failure to present payment of real estate taxes [for] said properties, and it is on [record]
that [petitioner] has been paying the real estate taxes [on] the same (Exh. 'T', 'V', 'V-1',
'V-2' & 'V- 3')."
xxx xxx xxx
'Fourth, [respondents] confirmed the fact that [petitioner] went to the house in question
and hacked the stairs. According to [petitioner] she did it for failure of the [respondents]
to return and vacate the premises. [Respondents] did not file any action against her.'
'This is a clear indication also that they (respondents) recognized [petitioner] as owner of
said properties.'
xxx xxx xxx
'Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and the
same was sent to her (Exh. 'F' & 'G').
xxx xxx xxx
'Sixth, upon request of the [petitioner] to return said properties to her, [respondents] did
promise and prepare an Extra Judicial Partition with Sale over said properties in question,
however the same did not materialize. The other heirs of Nieves Manzano did not sign."
xxx xxx xxx
'Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of the
properties in question is P1.00 and other things of value. [Petitioner] denies she has
received any consideration for the transfer of said properties, and the [respondents] have
not presented evidence to belie her testimony."6
Ruling of the Court of Appeals
The Court of Appeals was not convinced by petitioner's claim that there was a supposed
oral agreement of commodatum over the disputed house and lot. Neither was it persuaded
by her allegation that respondents' predecessor-in-interest had given no consideration for
the sale of the property in the latter's favor. It explained as follows:
"To begin with, if the plaintiff-appellee remained as the rightful owner of the subject
property, she would not have agreed to reacquire one-half thereof for a consideration of
P10,000.00 (Exhibit 'U-1'). This is especially true if we are to accept her assertion that
Nieves Manzano did not purchase the property for value. More importantly, if the
agreement was to merely use plaintiff's property as collateral in a mortgage loan, it was
not explained why physical possession of the house and lot had to be with the supposed
vendee and her family who even built a pigpen on the lot (p. 6, TSN, June 11, 1990). A
mere execution of the document transferring title in the latter's name would suffice for
the purpose.
"The alleged failure of the defendants-appellants to present evidence of payment of real
estate taxes cannot prejudice their cause. Realty tax payment of property is not conclusive
evidence of ownership (Director of Lands vs. Intermediate Appellate Court, 195 SCRA
38). Tax receipts only become strong evidence of ownership when accompanied by proof
of actual possession of the property (Tabuena vs. Court of Appeals, 196 SCRA 650).
"In this case, plaintiff-appell[ee] was not in possession of the subject property. The
defendant-appellants were the ones in actual occupation of the house and lot which as
aforestated was unnecessary if the real agreement was merely to lend the property to be
used as collateral. Moreover, the plaintiff-appellee began paying her taxes only in 1986
after the instant complaint ha[d] been instituted (Exhibits 'V', 'V-1', 'V-2', 'V-3' and 'T'),
and are, therefore, self-serving.
"Significantly, while plaintiff-appellee was still the owner of the subject property in 1979
(Exhibit 'I'), the Certificate of Tax Declaration issued by the Office of the Municipal
Treasurer on 8 August 1990 upon the request of the plaintiff-appellee herself (Exhibit
'W') named Nieves Manzano as the owner and possessor of the property in question.
Moreover, Tax Declaration No. 9589 in the name of Nieves Manzano (Exhibits 'D' and
'D-1 ') indicates that the transfer of the subject property was based on the Absolute Sale
executed before Notary Public Alfonso Sanvictores, duly recorded in his notarial book as
Document No. 3157, Page 157, Book No. II. Tax Declaration No[s]. 9633 (Exhibit 'H'),
1994 (Exhibit 'P'), 1993 (Exhibit 'Q') are all in the name of Nieves Manzano.
"There is always the presumption that a written contract [is] for a valuable consideration
(Section 5 (r), Rule 131 of the Rules of Court; Gamaitan vs. Court of Appeals, 200 SCRA
37). The execution of a deed purporting to convey ownership of a realty is in itself prima
facie evidence of the existence of a valuable consideration and xxx the party alleging lack
of consideration has the burden of proving such allegation (Caballero, et al. vs. Caballero,
et al., C.A. 45 O.G. 2536).
"The consideration [for] the questioned [sale] is not the One (P1.00) Peso alone but also
the other valuable considerations. Assuming that such consideration is suspiciously
insufficient, this circumstance alone, is not sufficient to invalidate the sale. The
inadequacy of the monetary consideration does not render a conveyance null and void,
for the vendor's liberality may be a sufficient cause for a valid contract (Ong vs. Ong, 139
SCRA 133)."7
Hence, this Petition.8
Credit - 111016
Issues
Petitioner submits the following grounds in support of her cause:9
"1. The Court of Appeals erred in failing to consider that:
A) The introduction of petitioner's evidence is proper under the parol evidence rule.
B) The rules on admission by silence apply in the case at bar.
C) Petitioner is entitled to the reliefs prayed for.
"2. The Court of Appeals erred in reversing the decision of the trial court whose factual
findings are entitled to great respect since it was able to observe and evaluate the
demeanor of the witnesses."10
In sum, the main issue is whether the agreement between the parties was a commodatum
or an absolute sale.
The Court's Ruling
The Petition has no merit.
Main Issue: Sale or Commodatum
Obviously, the issue in this case is enveloped by a conflict in factual perception, which
is ordinarily not reviewable in a petition under Rule 45. But the Court is constrained to
resolve it, because the factual findings of the Court of Appeals are contrary to those of
the trial court.11
Preliminarily, petitioner contends that the CA erred in rejecting the introduction of her
parol evidence. A reading of the assailed Decision shows, however, that an elaborate
discussion of the parol evidence rule and its exceptions was merely given as a preface by
the appellate court. Nowhere therein did it consider petitioner's evidence as improper
under the said rule. On the contrary, it considered and weighed each and every piece
thereof. Nonetheless, it was not persuaded, as explained in the multitude of reasons
explicitly stated in its Decision.
This Court finds no cogent reason to disturb the findings and conclusions of the Court of
Appeals. Upon close examination of the records, we find that petitioner has failed to
discharge her burden of proving her case by a preponderance of evidence. This concept
refers to evidence that has greater weight or is more convincing than that which is offered
in opposition; at bottom, it means probability of truth.12
In the case at bar, petitioner has presented no convincing proof of her continued
ownership of the subject property. In addition to her own oral testimony, she submitted
proof of payment of real property taxes. But that payment, which was made only after
her Complaint had already been lodged before the trial court, cannot be considered in her
favor for being self-serving, as aptly explained by the CA. Neither can we give weight to
her allegation that respondent's possession of the subject property was merely by virtue
of her tolerance. Bare allegations, unsubstantiated by evidence, are not equivalent to
proof under our Rules.13
On the other hand, respondents presented two Deeds of Sale, which petitioner executed
in favor of the former's predecessor-in-interest. Both Deeds - for the residential lot and
for the house erected thereon - were each in consideration of P1.00 "plus other valuables."
Having been notarized, they are presumed to have been duly executed. Also, issued in
favor of respondents' predecessor-in-interest the day after the sale was Tax Declaration
No. 9589, which covered the property.
The facts alleged by petitioner in her favor are the following: (1) she inherited the subject
house and lot from her parents, with her siblings waiving in her favor their claim over the
same; (2) the property was mortgaged to secure a loan of P30,000 taken in the names of
Nieves Manzano Perez and Respondent Miguel Perez; (3) upon full payment of the loan,
the documents pertaining to the house and lot were returned by Respondent Florencio
Perez to petitioner; (4) three of the respondents were signatories to a document
transferring one half of the property to Emilia Manzano in consideration of the sum of
ten thousand pesos, although the transfer did not materialize because of the refusal of the
other respondents to sign the document; and (5) petitioner hacked the stairs of the subject
house, yet no case was filed against her. 1wphi1.nt
These matters are not, however, convincing indicators of petitioner's ownership of the
house and lot. On the contrary, they even support the claim of respondents. Indeed, how
could one of them have obtained a mortgage over the property, without having dominion
over it? Why would they execute a reconveyance of one half of it in favor of petitioner?
Why would the latter have to pay P10,000 for that portion if, as she claims, she owns the
whole?
Pitted against respondents' evidence, that of petitioner awfully pales. Oral testimony
cannot, as a rule, prevail over a written agreement of the parties.14 In order to contradict
the facts contained in a notarial document, such as the two "Kasulatan ng Bilihang
Tuluyan" in this case, as well as the presumption of regularity in the execution thereof,
there must be clear and convincing evidence that is more than merely preponderant.15
Here, petitioner has failed to come up with even a preponderance of evidence to prove
her claim.
Courts are not blessed with the ability to read what goes on in the minds of people. That
is why parties to a case are given all the opportunity to present evidence to help the courts
decide on who are telling the truth and who are lying, who are entitled to their claim and
who are not. The Supreme Court cannot depart from these guidelines and decide on the
basis of compassion alone because, aside from being contrary to the rule of law and our
judicial system, this course of action would ultimately lead to anarchy.
We reiterate, the evidence offered by petitioner to prove her claim is sadly lacking.
Jurisprudence on the subject matter, when applied thereto, points to the existence of a
sale, not a commodatum over the subject house and lot.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
SO ORDERED.
6
G.R. No. 146364 June 3, 2004
COLITO T. PAJUYO, petitioner,
vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 December 2000
Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set
aside the 11 November 1996 decision3 of the Regional Trial Court of Quezon City,
Branch 81,4 affirming the 15 December 1995 decision5 of the Metropolitan Trial Court
of Quezon City, Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid 400 to a certain Pedro Perez
for the rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then
constructed a house made of light materials on the lot. Pajuyo and his family lived in the
house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra")
executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to
live in the house for free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded
that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of
Quezon City, Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over
the lot where the house stands because the lot is within the 150 hectares set aside by
Proclamation No. 137 for socialized housing. Guevarra pointed out that from December
1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra
insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive
portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and
against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons
claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (300.00) monthly as
reasonable compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of 3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81
("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of
the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision
appealed from, being in accord with the law and evidence presented, and the same is
hereby affirmed en toto.
SO ORDERED.8
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14
December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal
with the Court of Appeals, Guevarra filed with the Supreme Court a "Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42" ("motion for
extension"). Guevarra theorized that his appeal raised pure questions of law. The
Receiving Clerk of the Supreme Court received the motion for extension on 13 December
1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution9
referring the motion for extension to the Court of Appeals which has concurrent
jurisdiction over the case. The case presented no special and important matter for the
Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution10 granting the motion for extension conditioned on the timeliness of the filing
of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras
petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision.
The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil
Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the
ejectment case filed against defendant-appellant is without factual and legal basis.
Credit - 111016
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the
Court of Appeals should have dismissed outright Guevarras petition for review because
it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion
for reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No
costs.
SO ORDERED.12
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the
house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use
the house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos
demand made Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship
between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return
possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the
Revised National Government Center Housing Project Code of Policies and other
pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights
under these laws. The RTC declared that in an ejectment case, the only issue for resolution
is material or physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and
Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had
no right or title over the lot because it is public land. The assignment of rights between
Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any
legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave
them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan
between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant
relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but a
commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate
court held that Guevarra has a better right over the property under Proclamation No. 137.
President Corazon C. Aquino ("President Aquino") issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical possession of the property. Under
Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and
Structures in the National Housing Project ("the Code"), the actual occupant or caretaker
of the lot shall have first priority as beneficiary of the project. The Court of Appeals
concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos
claim that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the
Supreme Court was stamped "13 December 1996 at 4:09 PM" by the Supreme Courts
Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a
date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra filed
the motion for extension on time on 13 December 1996 since he filed the motion one day
before the expiration of the reglementary period on 14 December 1996. Thus, the motion
for extension properly complied with the condition imposed by the Court of Appeals in
its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day
extension to file the petition for review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have
dismissed the petition for review because it was Guevarras counsel and not Guevarra
who signed the certification against forum-shopping. The Court of Appeals pointed out
that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo
could not now seek the dismissal of the case after he had extensively argued on the merits
of the case. This technicality, the appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY
AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of
thirty days to file petition for review at the time when there was no more period to extend
as the decision of the Regional Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review
even though the certification against forum-shopping was signed only by counsel instead
of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a
commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court
and in holding that "the ejectment case filed against defendant-appellant is without legal
and factual basis".
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case
No. Q-96-26943 and in holding that the parties are in pari delicto being both squatters,
therefore, illegal occupants of the contested parcel of land.
7
5) in deciding the unlawful detainer case based on the so-called Code of Policies of the
National Government Center Housing Project instead of deciding the same under the
Kasunduan voluntarily executed by the parties, the terms and conditions of which are the
laws between themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the
substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras
petition for review because the RTC decision had already become final and executory
when the appellate court acted on Guevarras motion for extension to file the petition.
Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal
the RTC decision. Instead of filing the petition for review with the Court of Appeals,
Guevarra filed with this Court an undated motion for extension of 30 days to file a petition
for review. This Court merely referred the motion to the Court of Appeals. Pajuyo
believes that the filing of the motion for extension with this Court did not toll the running
of the period to perfect the appeal. Hence, when the Court of Appeals received the motion,
the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are
appealable to the Court of Appeals by petition for review in cases involving questions of
fact or mixed questions of fact and law.14 Decisions of the regional trial courts involving
pure questions of law are appealable directly to this Court by petition for review.15 These
modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil
Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law.
Guevarra thus filed his motion for extension to file petition for review before this Court
on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for review
with this Court. A perusal of Guevarras petition for review gives the impression that the
issues he raised were pure questions of law. There is a question of law when the doubt or
difference is on what the law is on a certain state of facts.16 There is a question of fact
when the doubt or difference is on the truth or falsity of the facts alleged.17
In his petition for review before this Court, Guevarra no longer disputed the facts.
Guevarras petition for review raised these questions: (1) Do ejectment cases pertain only
to possession of a structure, and not the lot on which the structure stands? (2) Does a suit
by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a
Presidential Proclamation governing the lot on which a squatters structure stands be
considered in an ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on
ejectment and the Presidential Proclamation. At first glance, the questions Guevarra
raised appeared purely legal. However, some factual questions still have to be resolved
because they have a bearing on the legal questions raised in the petition for review. These
factual matters refer to the metes and bounds of the disputed property and the application
of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for
review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate
Court,18 we declared that the Court of Appeals could grant extension of time in appeals
by petition for review. In Liboro v. Court of Appeals,19 we clarified that the prohibition
against granting an extension of time applies only in a case where ordinary appeal is
perfected by a mere notice of appeal. The prohibition does not apply in a petition for
review where the pleading needs verification. A petition for review, unlike an ordinary
appeal, requires preparation and research to present a persuasive position.20 The drafting
of the petition for review entails more time and effort than filing a notice of appeal.21
Hence, the Court of Appeals may allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we
held that Liboros clarification of Lacsamana is consistent with the Revised Internal Rules
of the Court of Appeals and Supreme Court Circular No. 1-91. They all allow an
extension of time for filing petitions for review with the Court of Appeals. The extension,
however, should be limited to only fifteen days save in exceptionally meritorious cases
where the Court of Appeals may grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment
becomes a fact on the lapse of the reglementary period to appeal if no appeal is
perfected.23 The RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarras motion for extension. The Court of Appeals gave due course to the motion
for extension because it complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that the Court of Appeals would
only give due course to the motion for extension if filed on time. The motion for extension
met this condition.
The material dates to consider in determining the timeliness of the filing of the motion
for extension are (1) the date of receipt of the judgment or final order or resolution subject
of the petition, and (2) the date of filing of the motion for extension.24 It is the date of
the filing of the motion or pleading, and not the date of execution, that determines the
timeliness of the filing of that motion or pleading. Thus, even if the motion for extension
bears no date, the date of filing stamped on it is the reckoning point for determining the
timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra
filed his motion for extension before this Court on 13 December 1996, the date stamped
by this Courts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the
motion for extension exactly one day before the lapse of the reglementary period to
appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on
technical grounds, Pajuyo did not ask the appellate court to deny the motion for extension
and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo vigorously
discussed the merits of the case. It was only when the Court of Appeals ruled in
Credit - 111016
Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for
review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse
decision on the merits, is estopped from attacking the jurisdiction of the court.25 Estoppel
sets in not because the judgment of the court is a valid and conclusive adjudication, but
because the practice of attacking the courts jurisdiction after voluntarily submitting to it
is against public policy.26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras
failure to sign the certification against forum shopping. Instead, Pajuyo harped on
Guevarras counsel signing the verification, claiming that the counsels verification is
insufficient since it is based only on "mere information."
A partys failure to sign the certification against forum shopping is different from the
partys failure to sign personally the verification. The certificate of non-forum shopping
must be signed by the party, and not by counsel.27 The certification of counsel renders
the petition defective.28
On the other hand, the requirement on verification of a pleading is a formal and not a
jurisdictional requisite.29 It is intended simply to secure an assurance that what are
alleged in the pleading are true and correct and not the product of the imagination or a
matter of speculation, and that the pleading is filed in good faith.30 The party need not
sign the verification. A partys representative, lawyer or any person who personally
knows the truth of the facts alleged in the pleading may sign the verification.31
We agree with the Court of Appeals that the issue on the certificate against forum
shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention
to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue too
late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to
Resolve the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will
not divest the inferior court of its jurisdiction over the ejectment case.32 Even if the
pleadings raise the issue of ownership, the court may pass on such issue to determine only
the question of possession, especially if the ownership is inseparably linked with the
possession.33 The adjudication on the issue of ownership is only provisional and will not
bar an action between the same parties involving title to the land.34 This doctrine is a
necessary consequence of the nature of the two summary actions of ejectment, forcible
entry and unlawful detainer, where the only issue for adjudication is the physical or
material possession over the real property.35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the
owners of the contested property and that they are mere squatters. Will the defense that
the parties to the ejectment case are not the owners of the disputed lot allow the courts to
renounce their jurisdiction over the case? The Court of Appeals believed so and held that
it would just leave the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for
recovery of possession. The parties cannot present evidence to prove ownership or right
to legal possession except to prove the nature of the possession when necessary to resolve
the issue of physical possession.36 The same is true when the defendant asserts the
absence of title over the property. The absence of title over the contested lot is not a
ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is
entitled to the physical possession of the premises, that is, to the possession de facto and
not to the possession de jure.37 It does not even matter if a partys title to the property is
questionable,38 or when both parties intruded into public land and their applications to
own the land have yet to be approved by the proper government agency.39 Regardless of
the actual condition of the title to the property, the party in peaceable quiet possession
shall not be thrown out by a strong hand, violence or terror.40 Neither is the unlawful
withholding of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against
the owner himself.41 Whatever may be the character of his possession, if he has in his
favor prior possession in time, he has the security that entitles him to remain on the
property until a person with a better right lawfully ejects him.42 To repeat, the only issue
that the court has to settle in an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did
not authorize either the plaintiff or the defendant in the case of forcible entry case to
occupy the land. The plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending application for the land
with the Bureau of Lands when the defendant ousted him from possession. The plaintiff
filed the action of forcible entry against the defendant. The government was not a party
in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession
because while the application of the plaintiff was still pending, title remained with the
government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed
with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits
even before the resolution of the application. The plaintiff, by priority of his application
and of his entry, acquired prior physical possession over the public land applied for as
against other private claimants. That prior physical possession enjoys legal protection
against other private claimants because only a court can take away such physical
possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as squatters,
strictly speaking, their entry into the disputed land was illegal. Both the plaintiff and
defendant entered the public land without the owners permission. Title to the land
remained with the government because it had not awarded to anyone ownership of the
contested public land. Both the plaintiff and the defendant were in effect squatting on
government property. Yet, we upheld the courts jurisdiction to resolve the issue of
possession even if the plaintiff and the defendant in the ejectment case did not have any
title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession
because of the public need to preserve the basic policy behind the summary actions of
8
forcible entry and unlawful detainer. The underlying philosophy behind ejectment suits
is to prevent breach of the peace and criminal disorder and to compel the party out of
possession to respect and resort to the law alone to obtain what he claims is his.45 The
party deprived of possession must not take the law into his own hands.46 Ejectment
proceedings are summary in nature so the authorities can settle speedily actions to recover
possession because of the overriding need to quell social disturbances.47
We further explained in Pitargue the greater interest that is at stake in actions for recovery
of possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take
cognizance of possessory actions involving these public lands before final award is made
by the Lands Department, and before title is given any of the conflicting claimants? It is
one of utmost importance, as there are public lands everywhere and there are thousands
of settlers, especially in newly opened regions. It also involves a matter of policy, as it
requires the determination of the respective authorities and functions of two coordinate
branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which
was in force in this country before the American occupation, or in the new, we have a
possessory action, the aim and purpose of which is the recovery of the physical possession
of real property, irrespective of the question as to who has the title thereto. Under the
Spanish Civil Code we had the accion interdictal, a summary proceeding which could be
brought within one year from dispossession (Roman Catholic Bishop of Cebu vs.
Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the
Code of Civil Procedure (Act No. 190 of the Philippine Commission) we implanted the
common law action of forcible entry (section 80 of Act No. 190), the object of which has
been stated by this Court to be "to prevent breaches of the peace and criminal disorder
which would ensue from the withdrawal of the remedy, and the reasonable hope such
withdrawal would create that some advantage must accrue to those persons who,
believing themselves entitled to the possession of property, resort to force to gain
possession rather than to some appropriate action in the court to assert their claims."
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment
of the first Public Land Act (Act No. 926) the action of forcible entry was already
available in the courts of the country. So the question to be resolved is, Did the Legislature
intend, when it vested the power and authority to alienate and dispose of the public lands
in the Lands Department, to exclude the courts from entertaining the possessory action
of forcible entry between rival claimants or occupants of any land before award thereof
to any of the parties? Did Congress intend that the lands applied for, or all public lands
for that matter, be removed from the jurisdiction of the judicial Branch of the
Government, so that any troubles arising therefrom, or any breaches of the peace or
disorders caused by rival claimants, could be inquired into only by the Lands Department
to the exclusion of the courts? The answer to this question seems to us evident. The Lands
Department does not have the means to police public lands; neither does it have the means
to prevent disorders arising therefrom, or contain breaches of the peace among settlers;
or to pass promptly upon conflicts of possession. Then its power is clearly limited to
disposition and alienation, and while it may decide conflicts of possession in order to
make proper award, the settlement of conflicts of possession which is recognized in the
court herein has another ultimate purpose, i.e., the protection of actual possessors and
occupants with a view to the prevention of breaches of the peace. The power to dispose
and alienate could not have been intended to include the power to prevent or settle
disorders or breaches of the peace among rival settlers or claimants prior to the final
award. As to this, therefore, the corresponding branches of the Government must continue
to exercise power and jurisdiction within the limits of their respective functions. The
vesting of the Lands Department with authority to administer, dispose, and alienate public
lands, therefore, must not be understood as depriving the other branches of the
Government of the exercise of the respective functions or powers thereon, such as the
authority to stop disorders and quell breaches of the peace by the police, the authority on
the part of the courts to take jurisdiction over possessory actions arising therefrom not
involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect
that courts have no jurisdiction to determine the rights of claimants to public lands, and
that until the disposition of the land has passed from the control of the Federal
Government, the courts will not interfere with the administration of matters concerning
the same. (50 C. J. 1093-1094.) We have no quarrel with this principle. The determination
of the respective rights of rival claimants to public lands is different from the
determination of who has the actual physical possession or occupation with a view to
protecting the same and preventing disorder and breaches of the peace. A judgment of
the court ordering restitution of the possession of a parcel of land to the actual occupant,
who has been deprived thereof by another through the use of force or in any other illegal
manner, can never be "prejudicial interference" with the disposition or alienation of
public lands. On the other hand, if courts were deprived of jurisdiction of cases involving
conflicts of possession, that threat of judicial action against breaches of the peace
committed on public lands would be eliminated, and a state of lawlessness would
probably be produced between applicants, occupants or squatters, where force or might,
not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession
between rivals or conflicting applicants or claimants would be no other than that of
forcible entry. This action, both in England and the United States and in our jurisdiction,
is a summary and expeditious remedy whereby one in peaceful and quiet possession may
recover the possession of which he has been deprived by a stronger hand, by violence or
terror; its ultimate object being to prevent breach of the peace and criminal disorder.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy
is mere possession as a fact, of physical possession, not a legal possession. (Mediran vs.
Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of
forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove
the nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the
action in mind, by no stretch of the imagination can conclusion be arrived at that the use
of the remedy in the courts of justice would constitute an interference with the alienation,
disposition, and control of public lands. To limit ourselves to the case at bar can it be
pretended at all that its result would in any way interfere with the manner of the alienation
or disposition of the land contested? On the contrary, it would facilitate adjudication, for
the question of priority of possession having been decided in a final manner by the courts,
said question need no longer waste the time of the land officers making the adjudication
or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
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Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto. We
explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in Kasunduan. The Kasunduan reads:
pari delicto potior est conditio defedentis. The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them.49
The application of the pari delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the pari delicto rule would
violate well-established public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions of
forcible entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that,
regardless of the actual condition of the title to the property, the party in peaceable quiet
possession shall not be turned out by strong hand, violence or terror. In affording this
remedy of restitution the object of the statute is to prevent breaches of the peace and
criminal disorder which would ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of property, resort to force
to gain possession rather than to some appropriate action in the courts to assert their
claims. This is the philosophy at the foundation of all these actions of forcible entry and
detainer which are designed to compel the party out of possession to respect and resort to
the law alone to obtain what he claims is his.52
Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of pari
delicto would openly invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally occupied, emboldened by
the knowledge that the courts would leave them where they are. Nothing would then stand
in the way of the ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions
for recovery of possession seek to prevent.53 Even the owner who has title over the
disputed property cannot take the law into his own hands to regain possession of his
property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are
squatters. The determination of priority and superiority of possession is a serious and
urgent matter that cannot be left to the squatters to decide. To do so would make squatters
receive better treatment under the law. The law restrains property owners from taking the
law into their own hands. However, the principle of pari delicto as applied by the Court
of Appeals would give squatters free rein to dispossess fellow squatters or violently retake
possession of properties usurped from them. Courts should not leave squatters to their
own devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The
Court of Appeals refused to rule on the issue of physical possession. Nevertheless, the
appellate court held that the pivotal issue in this case is who between Pajuyo and Guevarra
has the "priority right as beneficiary of the contested land under Proclamation No.
137."54 According to the Court of Appeals, Guevarra enjoys preferential right under
Proclamation No. 137 because Article VI of the Code declares that the actual occupant
or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a
relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes
and bounds of the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation
No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage of
Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra
merely alleged that in the survey the project administrator conducted, he and not Pajuyo
appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137.
Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino
signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest
demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as
beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was
reclaiming possession of the property, Guevarra did not take any step to comply with the
requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No.
137 and Guevarra has a pending application over the lot, courts should still assume
jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts
would be limited to the issue of physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving
public land to determine the issue of physical possession. The determination of the
respective rights of rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has a better right of
physical possession.56 The administrative disposition and alienation of public lands
should be threshed out in the proper government agency.57
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation
No. 137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries
of the law. Courts should not preempt the decision of the administrative agency mandated
by law to determine the qualifications of applicants for the acquisition of public lands.
Instead, courts should expeditiously resolve the issue of physical possession in ejectment
cases to prevent disorder and breaches of peace.58
Pajuyo is Entitled to Physical Possession of the Disputed Property
9
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house
built on it. Guevarra expressly admitted the existence and due execution of the
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay
nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing
bahay at lote ng "walang bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan
at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang
reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free
of rent, but Guevarra was under obligation to maintain the premises in good condition.
Guevarra promised to vacate the premises on Pajuyos demand but Guevarra broke his
promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which the
latter is entitled after the expiration or termination of the formers right to hold possession
under a contract, express or implied.59
Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate on
demand, failing which, an action for unlawful detainer will lie.60 The defendants refusal
to comply with the demand makes his continued possession of the property unlawful.61
The status of the defendant in such a case is similar to that of a lessee or tenant whose
term of lease has expired but whose occupancy continues by tolerance of the owner.62
This principle should apply with greater force in cases where a contract embodies the
permission or tolerance to use the property. The Kasunduan expressly articulated
Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to
maintain the house and lot in good condition. Guevarra expressly vowed in the
Kasunduan that he would vacate the property on demand. Guevarras refusal to comply
with Pajuyos demand to vacate made Guevarras continued possession of the property
unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of
commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it.63 An
essential feature of commodatum is that it is gratuitous. Another feature of commodatum
is that the use of the thing belonging to another is for a certain period.64 Thus, the bailor
cannot demand the return of the thing loaned until after expiration of the period stipulated,
or after accomplishment of the use for which the commodatum is constituted.65 If the
bailor should have urgent need of the thing, he may demand its return for temporary
use.66 If the use of the thing is merely tolerated by the bailor, he can demand the return
of the thing at will, in which case the contractual relation is called a precarium.67 Under
the Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it
obligated him to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a commodatum. The effects of
the Kasunduan are also different from that of a commodatum. Case law on ejectment has
treated relationship based on tolerance as one that is akin to a landlord-tenant relationship
where the withdrawal of permission would result in the termination of the lease.69 The
tenants withholding of the property would then be unlawful. This is settled
jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as bailee would still have the duty to turn over possession of the
property to Pajuyo, the bailor. The obligation to deliver or to return the thing received
attaches to contracts for safekeeping, or contracts of commission, administration and
commodatum.70 These contracts certainly involve the obligation to deliver or return the
thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is
also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the
land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely
entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested property. The Kasunduan is
the undeniable evidence of Guevarras recognition of Pajuyos better right of physical
possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would
not yield a different result, as there would still be an implied promise to vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is
allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act."72
Guevarra bases his argument on the preferential right given to the actual occupant or
caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the
property without paying any rent. There is also no proof that Pajuyo is a professional
squatter who rents out usurped properties to other squatters. Moreover, it is for the proper
government agency to decide who between Pajuyo and Guevarra qualifies for socialized
housing. The only issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.73 This is one of the
distinctions between forcible entry and unlawful detainer.74 In forcible entry, the plaintiff
is deprived of physical possession of his land or building by means of force, intimidation,
threat, strategy or stealth. Thus, he must allege and prove prior possession.75 But in
unlawful detainer, the defendant unlawfully withholds possession after the expiration or
termination of his right to possess under any contract, express or implied. In such a case,
prior physical possession is not required.76
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Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan.
Guevarras transient right to possess the property ended as well. Moreover, it was Pajuyo
who was in actual possession of the property because Guevarra had to seek Pajuyos
permission to temporarily hold the property and Guevarra had to follow the conditions
set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo and
this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession
in the eyes of the law does not mean that a man has to have his feet on every square meter
of the ground before he is deemed in possession.77 One may acquire possession not only
by physical occupation, but also by the fact that a thing is subject to the action of ones
will.78 Actual or physical occupation is not always necessary.79
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and
intruders who clandestinely enter into titled government property cannot, by such act,
acquire any legal right to said property."80 We made this declaration because the person
who had title or who had the right to legal possession over the disputed property was a
party in the ejectment suit and that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment
case. This case is between squatters. Had the government participated in this case, the
courts could have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this
case, we cannot evict on our own the parties. Such a ruling would discourage squatters
from seeking the aid of the courts in settling the issue of physical possession. Stripping
both the plaintiff and the defendant of possession just because they are squatters would
have the same dangerous implications as the application of the principle of pari delicto.
Squatters would then rather settle the issue of physical possession among themselves than
seek relief from the courts if the plaintiff and defendant in the ejectment case would both
stand to lose possession of the disputed property. This would subvert the policy
underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to
remain on the property until a person who has title or a better right lawfully ejects him.
Guevarra is certainly not that person. The ruling in this case, however, does not preclude
Pajuyo and Guevarra from introducing evidence and presenting arguments before the
proper administrative agency to establish any right to which they may be entitled under
the law.81
In no way should our ruling in this case be interpreted to condone squatting. The ruling
on the issue of physical possession does not affect title to the property nor constitute a
binding and conclusive adjudication on the merits on the issue of ownership.82 The
owner can still go to court to recover lawfully the property from the person who holds
the property without legal title. Our ruling here does not diminish the power of
government agencies, including local governments, to condemn, abate, remove or
demolish illegal or unauthorized structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of 3,000 attorneys fees to Pajuyo.
Attorneys fees as part of damages are awarded only in the instances enumerated in
Article 2208 of the Civil Code.83 Thus, the award of attorneys fees is the exception
rather than the rule.84 Attorneys 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 attorneys 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 the two courts. We find the amount
reasonable compensation to Pajuyo. The 300 monthly rental is counted from the last
demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and
Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129
are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of
Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15
December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case
No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is
deleted. No costs.
SO ORDERED.
G.R. No. 115324 February 19, 2003
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL
BANK), petitioner,
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated
June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution2 dated May 5, 1994,
denying the motion for reconsideration of said decision filed by petitioner Producers
Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and
friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and Services ("Sterela" for brevity).
Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of
money in the bank account of Sterela for purposes of its incorporation. She assured
private respondent that he could withdraw his money from said account within a months
time. Private respondent asked Sanchez to bring Doronilla to their house so that they
could discuss Sanchezs request.3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the
10
assurances and representations of Sanchez and Doronilla, private respondent issued a
check in the amount of Two Hundred Thousand Pesos (200,000.00) in favor of Sterela.
Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla
and Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati
branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and
Dumagpi went to the bank to deposit the check. They had with them an authorization
letter from Doronilla authorizing Sanchez and her companions, "in coordination with Mr.
Rufo Atienza," to open an account for Sterela Marketing Services in the amount of
200,000.00. In opening the account, the authorized signatories were Inocencia Vives
and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter
issued to Mrs. Vives.4
Subsequently, private respondent learned that Sterela was no longer holding office in the
address previously given to him. Alarmed, he and his wife went to the Bank to verify if
their money was still intact. The bank manager referred them to Mr. Rufo Atienza, the
assistant manager, who informed them that part of the money in Savings Account No.
10-1567 had been withdrawn by Doronilla, and that only 90,000.00 remained therein.
He likewise told them that Mrs. Vives could not withdraw said remaining amount because
it had to answer for some postdated checks issued by Doronilla. According to Atienza,
after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened
Current Account No. 10-0320 for Sterela and authorized the Bank to debit Savings
Account No. 10-1567 for the amounts necessary to cover overdrawings in Current
Account No. 10-0320. In opening said current account, Sterela, through Doronilla,
obtained a loan of 175,000.00 from the Bank. To cover payment thereof, Doronilla
issued three postdated checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because
he was the sole proprietor of Sterela.5
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29,
1979, he received a letter from Doronilla, assuring him that his money was intact and
would be returned to him. On August 13, 1979, Doronilla issued a postdated check for
Two Hundred Twelve Thousand Pesos (212,000.00) in favor of private respondent.
However, upon presentment thereof by private respondent to the drawee bank, the check
was dishonored. Doronilla requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was again dishonored.6
Private respondent referred the matter to a lawyer, who made a written demand upon
Doronilla for the return of his clients money. Doronilla issued another check for
212,000.00 in private respondents favor but the check was again dishonored for
insufficiency of funds.7
Private respondent instituted an action for recovery of sum of money in the Regional Trial
Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner.
The case was docketed as Civil Case No. 44485. He also filed criminal actions against
Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March
16, 1985 while the case was pending before the trial court. On October 3, 1995, the RTC
of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the dispositive
portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants
Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay
plaintiff Franklin Vives jointly and severally
(a) the amount of 200,000.00, representing the money deposited, with interest at the
legal rate from the filing of the complaint until the same is fully paid;
(b) the sum of 50,000.00 for moral damages and a similar amount for exemplary
damages;
(c) the amount of 40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.8
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated
June 25, 1991, the appellate court affirmed in toto the decision of the RTC.9 It likewise
denied with finality petitioners motion for reconsideration in its Resolution dated May
5, 1994.10
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE
TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE
OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE
HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE
RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE
JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL
COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE
CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING
THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN
EMPLOYEE IS APPLICABLE;
V.
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THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE
DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS
JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR
THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT
DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY
DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply
thereto on September 25, 1995. The Court then required private respondent to submit a
rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to
petitioners delay in furnishing private respondent with copy of the reply12 and several
substitutions of counsel on the part of private respondent.13 On January 17, 2001, the
Court resolved to give due course to the petition and required the parties to submit their
respective memoranda.14 Petitioner filed its memorandum on April 16, 2001 while
private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a
simple loan (mutuum) since all the elements of a mutuum are present: first, what was
delivered by private respondent to Doronilla was money, a consumable thing; and second,
the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the
check issued by Doronilla in the amount of 212,000.00, or 12,000 more than what
private respondent deposited in Sterelas bank account.15 Moreover, the fact that private
respondent sued his good friend Sanchez for his failure to recover his money from
Doronilla shows that the transaction was not merely gratuitous but "had a business angle"
to it. Hence, petitioner argues that it cannot be held liable for the return of private
respondents 200,000.00 because it is not privy to the transaction between the latter and
Doronilla.16
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be
faulted for allowing Doronilla to withdraw from the savings account of Sterela since the
latter was the sole proprietor of said company. Petitioner asserts that Doronillas May 8,
1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings
account for Sterela, did not contain any authorization for these two to withdraw from said
account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the
savings account.17 Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that private
respondent deposited his 200,000.00 in Sterelas account for purposes of its
incorporation.18 Hence, petitioner should not be held liable for allowing Doronilla to
withdraw from Sterelas savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts
decision since the findings of fact therein were not accord with the evidence presented by
petitioner during trial to prove that the transaction between private respondent and
Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to
withdraw from Sterelas savings account.19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is
not liable for the actual damages suffered by private respondent, and neither may it be
held liable for moral and exemplary damages as well as attorneys fees.20
Private respondent, on the other hand, argues that the transaction between him and
Doronilla is not a mutuum but an accommodation,21 since he did not actually part with
the ownership of his 200,000.00 and in fact asked his wife to deposit said amount in the
account of Sterela so that a certification can be issued to the effect that Sterela had
sufficient funds for purposes of its incorporation but at the same time, he retained some
degree of control over his money through his wife who was made a signatory to the
savings account and in whose possession the savings account passbook was given.22
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas
employer, is liable for the return of his money. He insists that Atienza, petitioners
assistant manager, connived with Doronilla in defrauding private respondent since it was
Atienza who facilitated the opening of Sterelas current account three days after Mrs.
Vives and Sanchez opened a savings account with petitioner for said company, as well as
the approval of the authority to debit Sterelas savings account to cover any overdrawings
in its current account.23
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition
for review filed with this Court. The Court has repeatedly held that it is not its function
to analyze and weigh all over again the evidence presented by the parties during trial.24
The Courts jurisdiction is in principle limited to reviewing errors of law that might have
been committed by the Court of Appeals.25 Moreover, factual findings of courts, when
adopted and confirmed by the Court of Appeals, are final and conclusive on this Court
unless these findings are not supported by the evidence on record.26 There is no showing
of any misapprehension of facts on the part of the Court of Appeals in the case at bar that
would require this Court to review and overturn the factual findings of that court,
especially since the conclusions of fact of the Court of Appeals and the trial court are not
only consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction
between private respondent and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them was a
commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which
case the contract is called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid, in which case
the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable
thing, such as money, the contract would be a mutuum. However, there are some
11
instances where a commodatum may have for its object a consumable thing. Article 1936
of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is
not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not a
mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract.27 In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such
determination.28
As correctly pointed out by both the Court of Appeals and the trial court, the evidence
shows that private respondent agreed to deposit his money in the savings account of
Sterela specifically for the purpose of making it appear "that said firm had sufficient
capitalization for incorporation, with the promise that the amount shall be returned within
thirty (30) days."29 Private respondent merely "accommodated" Doronilla by lending his
money without consideration, as a favor to his good friend Sanchez. It was however clear
to the parties to the transaction that the money would not be removed from Sterelas
savings account and would be returned to private respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of 200,000.00 which the
latter deposited in Sterelas account together with an additional 12,000.00, allegedly
representing interest on the mutuum, did not convert the transaction from a commodatum
into a mutuum because such was not the intent of the parties and because the additional
12,000.00 corresponds to the fruits of the lending of the 200,000.00. Article 1935 of
the Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the
thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private
respondent the interest accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for
the return of private respondents money because it was not privy to the transaction
between Doronilla and private respondent. The nature of said transaction, that is, whether
it is a mutuum or a commodatum, has no bearing on the question of petitioners liability
for the return of private respondents money because the factual circumstances of the case
clearly show that petitioner, through its employee Mr. Atienza, was partly responsible for
the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on
behalf of Sterela for Savings Account No. 10-1567 expressly states that
"2. Deposits and withdrawals must be made by the depositor personally or upon his
written authority duly authenticated, and neither a deposit nor a withdrawal will be
permitted except upon the production of the depositor savings bank book in which will
be entered by the Bank the amount deposited or withdrawn."30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the
Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom
even without presenting the passbook (which Atienza very well knew was in the
possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals
and the trial court found that Atienza allowed said withdrawals because he was party to
Doronillas "scheme" of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the knowledge, help
and cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia)
branch of the defendant bank. Indeed, the evidence indicates that Atienza had not only
facilitated the commission of the fraud but he likewise helped in devising the means by
which it can be done in such manner as to make it appear that the transaction was in
accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because
Atienza was a key officer therein. The records show that plaintiff had suggested that the
200,000.00 be deposited in his bank, the Manila Banking Corporation, but Doronilla
and Dumagpi insisted that it must be in defendants branch in Makati for "it will be easier
for them to get a certification". In fact before he was introduced to plaintiff, Doronilla
had already prepared a letter addressed to the Buendia branch manager authorizing
Angeles B. Sanchez and company to open a savings account for Sterela in the amount of
200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank
x x x" (Exh. 1). This is a clear manifestation that the other defendants had been in
consultation with Atienza from the inception of the scheme. Significantly, there were
testimonies and admission that Atienza is the brother-in-law of a certain Romeo Mirasol,
a friend and business associate of Doronilla.1awphi1.nt
Then there is the matter of the ownership of the fund. Because of the "coordination"
between Doronilla and Atienza, the latter knew before hand that the money deposited did
not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly
told by Inocencia Vives that the money belonged to her and her husband and the deposit
was merely to accommodate Doronilla. Atienza even declared that the money came from
Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that
the only ones empowered to withdraw the same were Inocencia Vives and Angeles B.
Sanchez. In the signature card pertaining to this account (Exh. J), the authorized
signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the
usual banking procedure that withdrawals of savings deposits could only be made by
persons whose authorized signatures are in the signature cards on file with the bank. He,
however, said that this procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of
such ownership. The Court is not inclined to agree with Atienza. In the first place, he was
all the time aware that the money came from Vives and did not belong to Sterela. He was
also told by Mrs. Vives that they were only accommodating Doronilla so that a
certification can be issued to the effect that Sterela had a deposit of so much amount to
be sued in the incorporation of the firm. In the second place, the signature of Doronilla
was not authorized in so far as that account is concerned inasmuch as he had not signed
the signature card provided by the bank whenever a deposit is opened. In the third place,
neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.
Credit - 111016
Moreover, the transfer of fund was done without the passbook having been presented. It
is an accepted practice that whenever a withdrawal is made in a savings deposit, the bank
requires the presentation of the passbook. In this case, such recognized practice was
dispensed with. The transfer from the savings account to the current account was without
the submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was
made to appear in a certification signed by Estrella Dumagpi that a duplicate passbook
was issued to Sterela because the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza,
who undoubtedly had a hand in the execution of this certification, was aware that the
contents of the same are not true. He knew that the passbook was in the hands of Mrs.
Vives for he was the one who gave it to her. Besides, as assistant manager of the branch
and the bank official servicing the savings and current accounts in question, he also was
aware that the original passbook was never surrendered. He was also cognizant that
Estrella Dumagpi was not among those authorized to withdraw so her certification had
no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that
Atienzas active participation in the perpetration of the fraud and deception that caused
the loss. The records indicate that this account was opened three days later after the
200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza
was mindful and posted regarding the opening of the current account considering that
Doronilla was all the while in "coordination" with him. That it was he who facilitated the
approval of the authority to debit the savings account to cover any overdrawings in the
current account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this
case. x x x.31
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily
liable for damages caused by their employees acting within the scope of their assigned
tasks. To hold the employer liable under this provision, it must be shown that an
employer-employee relationship exists, and that the employee was acting within the
scope of his assigned task when the act complained of was committed.32 Case law in the
United States of America has it that a corporation that entrusts a general duty to its
employee is responsible to the injured party for damages flowing from the employees
wrongful act done in the course of his general authority, even though in doing such act,
the employee may have failed in its duty to the employer and disobeyed the latters
instructions.33
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 Sterelas Savings
Account No. 10-1567, in which account private respondents money was deposited, and
in transferring the money withdrawn to Sterelas Current Account with petitioner.
Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in
furtherance of petitioners interests34 even though in the process, Atienza violated some
of petitioners rules such as those stipulated in its savings account passbook.35 It was
established that the transfer of funds from Sterelas savings account to its current account
could not have been accomplished by Doronilla without the invaluable assistance of
Atienza, and that it was their connivance which was the cause of private respondents
loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of
the Civil Code, petitioner is liable for private respondents loss and is solidarily liable
with Doronilla and Dumagpi for the return of the 200,000.00 since it is clear that
petitioner failed to prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterelas savings account, and that it was not negligent in the selection
and supervision of Atienza. Accordingly, no error was committed by the appellate court
in the award of actual, moral and exemplary damages, attorneys fees and costs of suit to
private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals are AFFIRMED.
SO ORDERED.
C. SIMPLE LOAN or MUTUUM
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the
Philippine National Bank, Venancio Concepcion, President of the Philippine National
Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in
favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special
authorization was essential in view of the memorandum order of President Concepcion
dated May 17, 1918, limiting the discretional power of the local manager at Aparri,
Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain
cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating
P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security
required consisting of six demand notes. The notes, together with the interest, were taken
up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto
Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S.
Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con
Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the
administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National
Bank and as member of the board of directors of this bank, was charged in the Court of
First Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found
12
guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced
to imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary
imprisonment in case of insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which
reference must hereafter repeatedly be made, reads as follows: "The National Bank shall
not, directly or indirectly, grant loans to any of the members of the board of directors of
the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any
person who shall violate any of the provisions of this Act shall be punished by a fine not
to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both
such fine and imprisonment." These two sections were in effect in 1919 when the alleged
unlawful acts took place, but were repealed by Act No. 2938, approved on January 30,
1921.
Counsel for the defense assign ten errors as having been committed by the trial court.
These errors they have argued adroitly and exhaustively in their printed brief, and again
in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and
comprehensive brief, answers the proposition of appellant one by one.
The question presented are reduced to their simplest elements in the opinion which
follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S.
en C." by Venancio Concepcion, President of the Philippine National Bank, a "loan"
within the meaning of section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to make a loan
was given, but only show the concession of a credit. In this statement of fact, counsel is
correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo"
(loan).
The "credit" of an individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he may promise. (Donnell
vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery
by one party and the receipt by the other party of a given sum of money, upon an
agreement, express or implied, to repay the sum loaned, with or without interest. (Payne
vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily
involves the granting of "loans" up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S.
en C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or
a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it
does not prohibit what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank,
inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply
to discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August
11, 1916, was to the effect that said section referred to loans alone, and placed no
restriction upon discount transactions. It becomes material, therefore, to discover the
distinction between a "loan" and a "discount," and to ascertain if the instant transaction
comes under the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature, growing, as they do, out
of an actual, live, transaction. But in its last analysis, to discount a paper is only a mode
of loaning money, with, however, these distinctions: (1) In a discount, interest is deducted
in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is
always on double-name paper; a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans
and not discounts, yet the conclusion is inevitable that the demand notes signed by the
firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of
indebtedness, because (1) interest was not deducted from the face of the notes, but was
paid when the notes fell due; and (2) they were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the argument are not
essentially different from the facts in the Binalbagan Estate case. Just as there it was
declared that the operations constituted a loan and not a discount, so should we here lay
down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion,
S. en C." by Venancio Concepcion, President of the Philippine National Bank, an
"indirect loan" within the meaning of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an
"indirect loan." In this connection, it should be recalled that the wife of the defendant
held one-half of the capital of this partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain and give
effect to the intention of the Legislature. In this instance, the purpose of the Legislature
is plainly to erect a wall of safety against temptation for a director of the bank. The
prohibition against indirect loans is a recognition of the familiar maxim that no man may
serve two masters that where personal interest clashes with fidelity to duty the latter
almost always suffers. If, therefore, it is shown that the husband is financially interested
in the success or failure of his wife's business venture, a loan to partnership of which the
wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a
conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially
noted.) A loan, therefore, to a partnership of which the wife of a director of a bank is a
member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown
by the acknowledged fact that in this instance the defendant was tempted to mingle his
personal and family affairs with his official duties, and to permit the loan P300,000 to a
partnership of no established reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211),
the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no director or officer should
borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or
Credit - 111016
indirectly violating this section he shall be punished by fine and imprisonment?" We say
to protect the stockholders, depositors and creditors of the bank, against the temptation
to which the directors and officers might be exposed, and the power which as such they
must necessarily possess in the control and management of the bank, and the legislature
unwilling to rely upon the implied understanding that in assuming this relation they would
not acquire any interest hostile or adverse to the most exact and faithful discharge of duty,
declared in express terms that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan
Estate decision, it was said:
We are of opinion the statute forbade the loan to his copartnership firm as well as to
himself directly. The loan was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted
of a violation of section 35 of Act No. 2747 in relation with section 49 of the same Act,
when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding
of the information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in
relation to section 35 of the same Act, provides a punishment for any person who shall
violate any of the provisions of the Act. It is contended, however, by the appellant, that
the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the
basis for criminal prosecution.
This same question has been previously submitted and has received an answer adverse to
such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs.
Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United
States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding,
and it must again be the holding, that where an Act of the Legislature which penalizes an
offense, such repeals a former Act which penalized the same offense, such repeal does
not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and
sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S.
en C." by Venancio Concepcion, President of the Philippine National Bank, in violation
of section 35 of Act No. 2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the
bank, and since section 49 of said Act provides a punishment not on the bank when it
violates any provisions of the law, but on a person violating any provisions of the same,
and imposing imprisonment as a part of the penalty, the prohibition contained in said
section 35 is without penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the prohibition
extends to the board of directors, and to each director separately and individually. (People
vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine
National Bank, in extending the credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C." constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was
because he was misled by rulings coming from the Insular Auditor. It is furthermore
stated that since the loans made to the copartnership "Puno y Concepcion, S. en C." have
been paid, no loss has been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the
defendant has violated, criminal intent is not necessarily material. The doing of the
inhibited act, inhibited on account of public policy and public interest, constitutes the
crime. And, in this instance, as previously demonstrated, the acts of the President of the
Philippine National Bank do not fall within the purview of the rulings of the Insular
Auditor, even conceding that such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and advantage not common to
the other stockholders. The law will not allow private profit from a trust, and will not
listen to any proof of honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial court,
and the errors assigned by the appellant, and with reference to previous decisions of this
court on the same subject, we are irresistibly led to the conclusion that no reversible error
was committed in the trial of this case, and that the defendant has been proved guilty
beyond a reasonable doubt of the crime charged in the information. The penalty imposed
by the trial judge falls within the limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.
G.R. No. L-49101 October 24, 1983
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF
COMMERCE, respondents.
Edgardo I. De Leon for petitioners.
Siguion Reyna, Montecillo & Associates for private respondent.
GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court
of Appeals, now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled
"Honesto Bonnevie vs. Philippine Bank of Commerce, et al.," promulgated August 11,
1978 1 as well as the Resolution denying the motion for reconsideration.
13
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court
of First Instance of Rizal against respondent Philippine Bank of Commerce sought the
annulment of the Deed of Mortgage dated December 6, 1966 executed in favor of the
Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as
well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others
that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was executed by
one who was not the owner of the mortgaged property. It further alleged that the property
in question was foreclosed pursuant to Act No. 3135 as amended, without, however,
complying with the condition imposed for a valid foreclosure. Granting the validity of
the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank
should have accepted petitioner's offer to redeem the property under the principle of
equity said justice.
On the other hand, the answer of defendant Bank, now private respondent herein,
specifically denied most of the allegations in the complaint and raised the following
affirmative defenses: (a) that the defendant has not given its consent, much less the
requisite written consent, to the sale of the mortgaged property to plaintiff and the
assumption by the latter of the loan secured thereby; (b) that the demand letters and notice
of foreclosure were sent to Jose Lozano at his address; (c) that it was notified for the first
time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law
on contracts requires defendant's consent before Jose Lozano can be released from his
bilateral agreement with the former and doubly so, before plaintiff may be substituted for
Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by
mortgage, after two renewals remain unpaid despite countless reminders and demands;
of that the property in question remained registered in the name of Jose M. Lozano in the
land records of Rizal and there was no entry, notation or indication of the alleged sale to
plaintiff; (g) that it is an established banking practice that payments against accounts need
not be personally made by the debtor himself; and (h) that it is not true that the mortgage,
at the time of its execution and registration, was without consideration as alleged because
the execution and registration of the securing mortgage, the signing and delivery of the
promissory note and the disbursement of the proceeds of the loan are mere
implementation of the basic consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie
filed a motion for intervention. The intervention was premised on the Deed of Assignment
executed by petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie
covering the rights and interests of petitioner Honesto Bonnevie over the subject property.
The intervention was ultimately granted in order that all issues be resolved in one
proceeding to avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which
reads as follows:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered
dismissing the complaint with costs against the plaintiff and the intervenor.
After the motion for reconsideration of the lower court's decision was denied, petitioners
appealed to respondent Court of Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage executed by
Jose Lozano was null and void;
2. The lower court erred in not finding that the auction sale decide on August 19,
1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to
redeem the property;
4. The lower court erred in not finding that the defendant acted in bad faith; and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the decision
of the lower court, and on October 3. 1978 denied the motion for reconsideration. Hence,
the present petition for review.
The factual findings of respondent Court of Appeals being conclusive upon this Court,
We hereby adopt the facts found the trial court and found by the Court of Appeals to be
consistent with the evidence adduced during trial, to wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of
the property which they mortgaged on December 6, 1966, to secure the payment of the
loan in the principal amount of P75,000.00 they were about to obtain from defendant-
appellee Philippine Bank of Commerce; that on December 8, 1966, executed in favor of
plaintiff-appellant the Deed of Sale with Mortgage ,, for and in consideration of the sum
of P100,000.00, P25,000.00 of which amount being payable to the Lozano spouses upon
the execution of the document, and the balance of P75,000.00 being payable to defendant-
appellee; that on December 6, 1966, when the mortgage was executed by the Lozano
spouses in favor of defendant-appellee, the loan of P75,000.00 was not yet received them,
as it was on December 12, 1966 when they and their co-maker Alfonso Lim signed the
promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiff-
appellant made payments to defendant-appellee on the mortgage in the total amount of
P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all his rights under the Deed
of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on
June 10, 1968, defendant-appellee applied for the foreclosure of the mortgage, and notice
of sale was published in the Luzon Weekly Courier on June 30, July 7, and July 14, 1968;
that auction sale was conducted on August 19, 1968, and the property was sold to
defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to repurchase
the property failed, and on October 9, 1969, he caused an adverse claim to be annotated
on the title of the property. (Decision of the Court of Appeals, p. 5).
Presented for resolution in this review are the following issues:
I
Whether the real estate mortgage executed by the spouses Lozano in favor of respondent
bank was validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
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III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in refusing
their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-
fold. They primarily attack the validity of the mortgage executed by the Lozano spouses
in favor of respondent Bank. Next, they attack the validity of the extrajudicial foreclosure
and finally, appeal to justice and equity. In attacking the validity of the deed of mortgage,
they contended that when it was executed on December 6, 1966, there was yet no
principal obligation to secure as the loan of P75,000.00 was not received by the Lozano
spouses "So much so that in the absence of a principal obligation, there is want of
consideration in the accessory contract, which consequently impairs its validity and
fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed itself,
it is clearly seen that the mortgage deed was executed for and on condition of the loan
granted to the Lozano spouses. The fact that the latter did not collect from the respondent
Bank the consideration of the mortgage on the date it was executed is immaterial. A
contract of loan being a consensual contract, the herein contract of loan was perfected at
the same time the contract of mortgage was executed. The promissory note executed on
December 12, 1966 is only an evidence of indebtedness and does not indicate lack of
consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals
of the original loan, using as security the same property which the Lozano spouses had
already sold to petitioners, rendered the mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which
prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged properties,
without the written consent of the mortgagee, as well as the additional proviso that if in
spite of said stipulation, the mortgaged property is sold, the vendee shall assume the
mortgage in the terms and conditions under which it is constituted. These provisions are
expressly made part and parcel of the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with
assumption of mortgage. Coupled with the fact that the sale/assignment was not
registered so that the title remained in the name of the Lozano spouses, insofar as
respondent Bank was concerned, the Lozano spouses could rightfully and validly
mortgage the property. Respondent Bank had every right to rely on the certificate of title.
It was not bound to go behind the same to look for flaws in the mortgagor's title, the
doctrine of innocent purchaser for value being applicable to an innocent mortgagee for
value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48).
Another argument for the respondent Bank is that a mortgage follows the property
whoever the possessor may be and subjects the fulfillment of the obligation for whose
security it was constituted. Finally, it can also be said that petitioners voluntarily assumed
the mortgage when they entered into the Deed of Sale with Assumption of Mortgage.
They are, therefore, estopped from impugning its validity whether on the original loan or
renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the
following grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was not
in accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent
Bank not being a party to the Deed of Sale with Assumption of Mortgage, it can validly
claim that it was not aware of the same and hence, it may not be obliged to notify
petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice because
as of May 14, 1968, he had transferred and assigned all his rights and interests over the
property in favor of intervenor Raoul Bonnevie and respondent Bank not likewise
informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most
importantly, Act No. 3135 does not require personal notice on the mortgagor. The
requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice shall
also be published once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July
7 and July 14, 1968 and notices of the sale were posted for not less than twenty days in
at least three (3) public places in the Municipality where the property is located.
Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable
because said case involved a judicial foreclosure and the sale to the vendee of the
mortgaged property was duly registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not
in accordance with law, namely: once a week for at least three consecutive weeks, the
Court of Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968
satisfies the publication requirement under Act No. 3135 notwithstanding the fact that
June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that such
notice shall be published once a week for at least three consecutive weeks." Such phrase,
as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice
should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not
in accordance with law as said newspaper is not of general circulation must likewise be
disregarded. The affidavit of publication, executed by the Publisher, business/advertising
manager of the Luzon Weekly Courier, stares that it is "a newspaper of general circulation
in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30,
14
July 7 and July 14, 1968. This constitutes prima facie evidence of compliance with the
requisite publication. Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide subscription
list of paying subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61
Phil. 632). The newspaper need not have the largest circulation so long as it is of general
circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they
do read the Luzon Weekly Courier is no proof that said newspaper is not a newspaper of
general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a
question of fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA,
et al., 107 SCRA 126). Nevertheless, the records show that copies of said notice were
posted in three conspicuous places in the municipality of Pasig, Rizal namely: the Hall of
Justice, the Pasig Municipal Market and Pasig Municipal Hall. In the same manner,
copies of said notice were also posted in the place where the property was located,
namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez
Street. The following statement of Atty. Santiago Pastor, head of the legal department of
respondent bank, namely:
Q How many days were the notices posted in these two places, if you know?
A We posted them only once in one day. (TSN, p. 45, July 25, 1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the
posting requirement in the absence of proof or even of allegation that the notices were
removed before the expiration of the twenty- day period. A single act of posting (which
may even extend beyond the period required by law) satisfies the requirement of law. The
burden of proving that the posting requirement was not complied with is now shifted to
the one who alleges non-compliance.
On the question of whether or not the petitioners had a right to redeem the property, We
hold that the Court of Appeals did not err in ruling that they had no right to redeem. No
consent having been secured from respondent Bank to the sale with assumption of
mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their
rights were never recorded and hence, respondent Bank is charged with the obligation to
recognize the right of redemption only of the Lozano spouses. But even granting that as
purchaser or assignee of the property, as the case may be, the petitioners had acquired a
right to redeem the property, petitioners failed to exercise said right within the period
granted by law. Thru certificate of sale in favor of appellee was registered on September
2, 1968 and the one year redemption period expired on September 3, 1969. It was not
until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and
offered to redeem the property. Moreover, on September 29, 1969, Honesto had at that
time already transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that
respondent Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter
of lose Lozano to respondent Bank dated December 8, 1966 advising the latter that
Honesto Bonnevie was authorized to make payments for the amount secured by the
mortgage on the subject property, 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 six months overdue. Petitioners' payment of interest on
July 12, 1968 does not thereby make the earlier act of respondent Bank inequitous nor
does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may
be effected, not only the payment of the accrued interest is necessary but also the payment
of interest for the proposed period of renewal as well. Besides, whether or not a loan may
be renewed does not solely depend on the debtor but more so on the discretion of the
bank. Respondent Bank may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is
hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. L-20240 December 31, 1965
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE GRIJALDO, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
Isabelo P. Samson for defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the
rate of 6% per annum, compounded quarterly. These loans are evidenced by five
promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as
follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86;
on August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes without due dates,
but because the loans were due one year after they were incurred. To secure the payment
of the loans the appellant executed a chattel mortgage on the standing crops on his land,
Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority
provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines
of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant
to the Philippine Property Act of 1946 of the United States, these assets, including the
loans in question, were subsequently transferred to the Republic of the Philippines by the
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Government of the United States under Transfer Agreement dated July 20, 1954. These
assets were among the properties that were placed under the administration of the Board
of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in
accordance with Republic Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the
Chairman of the Board of Liquidators, made a written extrajudicial demand upon the
appellant for the payment of the account in question. The record shows that the appellant
had actually received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question, computed under the
Ballantyne scale of values as of the time that the loans were incurred in 1943, was
P889.64; and the interest due thereon at the rate of 6% per annum compounded quarterly,
computed as of December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of
Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in
question. The Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the
ground that the action had prescribed. The appellee appealed to the Court of First Instance
of Negros Occidental and on March 26, 1962 the court a quo rendered a decision ordering
the appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus
interest at the rate of 6% per annum compounded quarterly from the date of the filing of
the complaint until full payment was made. The appellant was also ordered to pay the
sum equivalent to 10% of the amount due as attorney's fees and costs.
The appellant appealed directly to this Court. During the pendency of this appeal the
appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a
resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben
Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be
substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause of action
against the appellant; (2) that if the appellee has a cause of action at all, that action had
prescribed; and (3) that the lower court erred in ordering the appellant to pay the amount
of P2,377.23.
In discussing the first point of contention, the appellant maintains that the appellee has
no privity of contract with the appellant. It is claimed that the transaction between the
Taiwan Bank, Ltd. and the appellant, so that the appellee, Republic of the Philippines,
could not legally bring action against the appellant for the enforcement of the obligation
involved in said transaction. This contention has no merit. It is true that the Bank of
Taiwan, Ltd. was the original creditor and the transaction between the appellant and the
Bank of Taiwan was a private contract of loan. However, pursuant to the Trading with
the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and
under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of
Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the enemy
country (Japan), were vested in the United States Government and the Republic of the
Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the
Republic of the Philippines. The successive transfer of the rights over the loans in
question from the Bank of Taiwan, Ltd. to the United States Government, and from the
United States Government to the government of the Republic of the Philippines, made
the Republic of the Philippines the successor of the rights, title and interest in said loans,
thereby creating a privity of contract between the appellee and the appellant. In defining
the word "privy" this Court, in a case, said:
The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one
subrogated to it, etc. will be privies; in short, he who by succession is placed in the
position of one of those who contracted the judicial relation and executed the private
document and appears to be substituting him in the personal rights and obligation is a
privy (Alpurto vs. Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of
the Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the
assets of the Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by
international law, the United States succeeded to the rights and interests of said Bank of
Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of,
the property rights of the United States of America over the loans in question, the
Republic of the Philippines had thereby become a privy to the original contracts of loan
between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the
Republic of the Philippines has a legal right to bring the present action against the
appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee has no
cause of action, that because the loans were secured by a chattel mortgage on the standing
crops on a land owned by him and these crops were lost or destroyed through enemy
action his obligation to pay the loans was thereby extinguished. This argument is
untenable. The terms of the promissory notes and the chattel mortgage that the appellant
executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The
obligation of the appellant under the five promissory notes was not to deliver a
determinate thing namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five loans, with interest.
The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five
contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the
parties delivers to another ... money or other consumable thing upon the condition that
the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code)
The obligation of the appellant under the five promissory notes evidencing the loans in
questions is to pay the value thereof; that is, to deliver a sum of money a clear case of
an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security
for the fulfillment of appellant's obligation covered by the five promissory notes, and the
loss of the crops did not extinguish his obligation to pay, because the account could still
be paid from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the appellee
had prescribed. The appellant points out that the loans became due on June 1, 1944; and
when the complaint was filed on January 17,1961 a period of more than 16 years had
already elapsed far beyond the period of ten years when an action based on a written
contract should be brought to court.
15
This contention of the appellant has no merit. Firstly, it should be considered that the
complaint in the present case was brought by the Republic of the Philippines not as a
nominal party but in the exercise of its sovereign functions, to protect the interests of the
State over a public property. Under paragraph 4 of Article 1108 of the Civil Code
prescription, both acquisitive and extinctive, does not run against the State. This Court
has held that the statute of limitations does not run against the right of action of the
Government of the Philippines (Government of the Philippine Islands vs. Monte de
Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of prescription of the
action to collect the loan from the appellant was interrupted by the moratorium laws
(Executive Orders No. 25, dated November 18, 1944; Executive Order No. 32. dated
March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in
question, as evidenced by the five promissory notes, were incurred in the year 1943, or
during the period of Japanese occupation of the Philippines. This case is squarely covered
by Executive Order No. 25, which became effective on November 18, 1944, providing
for the suspension of payments of debts incurred after December 31, 1941. The period of
prescription was, therefore, suspended beginning November 18, 1944. This Court, in the
case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68), declared on May 18, 1953
that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are
unconstitutional; but in that case this Court ruled that the moratorium laws had suspended
the prescriptive period until May 18, 1953. This ruling was categorically reiterated in the
decision in the case of Manila Motors vs. Flores, L-9396, August 16, 1956. It follows,
therefore, that the prescriptive period in the case now before US was suspended from
November 18,1944, when Executive Orders Nos. 25 and 32 were declared
unconstitutional by this Court. Computed accordingly, the prescriptive period was
suspended for 8 years and 6 months. By the appellant's own admission, the cause of action
on the five promissory notes in question arose on June 1, 1944. The complaint in the
present case was filed on January 17, 1961, or after a period of 16 years, 6 months and
16 days when the cause of action arose. If the prescriptive period was not interrupted by
the moratorium laws, the action would have prescribed already; but, as We have stated,
the prescriptive period was suspended by the moratorium laws for a period of 8 years and
6 months. If we deduct the period of suspension (8 years and 6 months) from the period
that elapsed from the time the cause of action arose to the time when the complaint was
filed (16 years, 6 months and 16 days) there remains a period of 8 years and 16 days. In
other words, the prescriptive period ran for only 8 years and 16 days. There still remained
a period of one year, 11 months and 14 days of the prescriptive period when the complaint
was filed.
In his third point of contention the appellant maintains that the lower court erred in
ordering him to pay the amount of P2,377.23. It is claimed by the appellant that it was
error on the part of the lower court to apply the Ballantyne Scale of values in evaluating
the Japanese war notes as of June 1943 when the loans were incurred, because what
should be done is to evaluate the loans on the basis of the Ballantyne Scale as of the time
the loans became due, and that was in June 1944. This contention of the appellant is also
without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of
December 31, 1959, plus interest rate of 6% per annum compounded quarterly from the
date of the filing of the complaint. The sum total of the five loans obtained by the
appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed
under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese
war notes in June 1943 is equivalent to P889.64 in genuine Philippine currency which
was considered the aggregate amount due as principal of the five loans, and the amount
of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on the
principal sum of P889.64 compounded quarterly from the time the obligations were
incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be applied as of
the time the obligation was incurred, and that was in June 1943. This stand of the appellee
was upheld by the lower court; and the decision of the lower court is supported by the
ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April 30, 1949;
46 O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese war notes may be enforced
in our Courts after the liberation to the extent of the just obligation of the contracting
parties and, as said notes have become worthless, in order that justice may be done and
the party entitled to be paid can recover their actual value in Philippine Currency, what
the debtor or defendant bank should return or pay is the value of the Japanese military
notes in relation to the peso in Philippine Currency obtaining on the date when and at the
place where the obligation was incurred unless the parties had agreed otherwise. ... .
(italics supplied)
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs
against the appellant. Inasmuch as the appellant Jose Grijaldo died during the pendency
of this appeal, his estate must answer in the execution of the judgment in the present case.
G.R. No. L-19189 November 27, 1922
FROILAN LOPEZ, plaintiff-appellant,
vs.
SALVADOR V. DEL ROSARIO and BENITA QUIOGUE DE V. DEL ROSARIO,
defendants-appellants.
Araneta and Zaragoza for plaintiff-appellant.
Jose Espiritu and Gibbs, McDonough and Johnson for defendants-appellants.
MALCOLM, J.:
Both parties to this action appeal from the judgment of Judge Simplicio del Rosario of
the Court of First Instance of Manila awarding the plaintiff the sum of 88,495.21 with
legal interest from May 13, 1921, without special finding as to costs.
The many points pressed by contending counsel can be best disposed of by, first, making
a statement of the facts; next, considering plaintiff's appeal; next, considering defendant's
appeal; and, lastly, rendering judgment.
STATEMENT OF THE FACTS
Credit - 111016
On and prior to June 6, 1920, Benita Quiogue de V. del Rosario, whom we will hereafter
call Mrs. Del Rosario, was the owner of a bonded warehouse situated in the City of
Manila. She was engaged in the business of a warehouse keeper, and stored copra and
other merchandise in the said building. Among the persons who had copra deposited in
the Del Rosario warehouse was Froilan Lopez, the holder of fourteen warehouse receipts
in his own name, and the name of Elias T. Zamora. (Exhibits C, D, and R.)
The warehouse receipts, or negotiable warrants, or quedans (as they are variously termed)
of Lopez named a declared value of P107,990.40 (Exhibits L-1 to L-13). The warehouse
receipts provided: (1) For insurance at the rate of 1 per cent per month on the declared
value; (2) the company reserves to itself the right to raise and/or lower the rates of storage
and/or of insurance on giving one calendar month's notice in writing; (3) this warrant
carries no insurance unless so noted on the face hereof, cost of which is in addition to
storage; (4) the time for which storage and/or insurance is charged is thirty (30) days; (5)
payment for storage and/or insurance, etc., shall be made in advance, and/or within five
(5) days after presentation of bill. It is admitted that insurance was paid by Lopez to May
18, 1920, but not thereafter.
Mrs. Del Rosario secured insurance on the warehouse and its contents with the National
Insurance Co., Inc., the Commercial Union Insurance Company, the Alliance Insurance
Company, the South British Insurance Co., Ltd., and the British Traders Insurance Co.,
Ltd., in the amount of P404,800. All the policies were in the name of Sra. Benita Quiogue
de V. del Rosario, with the exception of one of the National Insurance Company, Inc.,
for P40,000, in favor of the Compaia Coprera de Tayabas. (Exhibits N, O, P, R-1 to R-
4.)
The warehouse of Mrs. Del Rosario and its contents were destroyed by fire on June 6,
1920. The warehouse was a total loss, while of the copra stored therein, only an amount
equal to P49,985 was salvaged.
Following an unsuccessful attempt by Henry Hunter Bayne, Fire Loss Adjuster, to effect
a settlement between the insurance companies and Mrs. Del Rosario, the latter, on August
24, 1920, authorized Attorney F. C. Fisher to negotiate with the various insurance
companies. (Exhibit A.) As a result, an agreement between Mrs. Del Rosario and the
insurance companies to submit the matter to administration was executed in September,
1920. (Exhibit B.) Mrs. Del Rosario laid claim before the arbitrators, Messrs. Muir and
Campbell, to P419,683.95, and the proceeds of the salvage sale. The arbitrators in their
report allowed Mrs. Del Rosario P363,610, which, with the addition of the money
received from the salvaged copra amounting to P49,985, and interest, made a total of
P414,258, collected by her from the companies. (Exhibits E, F, G, H, and Q.)
Mrs. Del Rosario seems to have satisfied all of the persons who had copra stored in her
warehouse, including the stockholders in the Compaia Coprera de Tayabas (whose stock
she took over), with the exception of Froilan Lopez, the plaintiff. Ineffectual attempts by
Mrs. Del Rosario to effect a compromise with Lopez first for P71,994, later raised to
P72,724, and finally reduced to P17,000, were made. (Exhibits Y, 1, 3, 4, 6, 7, 8, 12.) But
Lopez stubbornly contended, or, at least, his attorney contended for him, that he should
receive not a centavo less than P88,595.43. (Exhibits 4, 5.)
PLAINTIFF'S APPEAL
Plaintiff, by means of his assignment of error, lays claim to P88,595.43 in lieu of
P88,495.21 allowed by the trial court. The slight difference of P100.22 is asked for so
that plaintiff can participate in the interest money which accrued on the amount received
for the salvaged copra. (Exhibits EE and FF.) Defendant makes no specific denial of this
claim. We think the additional sum should accrue to the plaintiff.
Plaintiff's second and third assignment of error present the point that the defendant has
fraudulently and even criminally refrained from paying the plaintiff, and that the
plaintiff should recover interest at the rate of 12 per cent per annum. We fail to grasp
plaintiff's point of view. The defendant has not sought to elude her moral and legal
obligations. The controversy is merely one which unfortunately all too often arises
between litigious persons. Plaintiff has exactly the rights of any litigant, equally situated,
and no more.
It has been the constant practice of the court to make article 1108 of the Civil Code the
basis for the calculation of interest. Damages in the form of interest at the rate of 12 per
cent, as claimed by the plaintiff, are too remote and speculative to be allowed. The
deprivation of an opportunity for making money which might have proved beneficial or
might have been ruinous is of too uncertain character to be weighed in the even balances
of the law. (Civil Code, art. 1108; Gonzales Quiros vs. Palanca Tan-Guinlay [1906], 5
Phil., 675; Tin Fian vs. Tan [1909], 14 Phil., 126; Sun Life Insurance Co. of Canada vs.
Rueda Hermanos & Co. and Delgado [1918], 37 Phil., 844; Scvola, Codigo Civil, vol.
19, p. 576; 8 R. C. L., 463; 17 C. J., 864.)
DEFENDANT'S APPEAL
Counsel for defendant have adroitly and ingeniously attempted to avoid all liability.
However, we remain unimpressed by many of these arguments.lawph!l.net
Much time has been spent by counsel for both parties in discussing the question, of
whether the defendant acted as the agent of the plaintiff, in taking out insurance on the
contents of the bodega, or whether the defendant acted as a reinsurer of the copra. Giving
a natural expression to the terms of the warehouse receipts, the first hypothesis is the
correct one. The agency can be deduced from the warehouse receipts, the insurance
policies, and the circumstances surrounding the transaction.
After all, however, this is not so vitally important, for it might well be although we do
not have to decide that under any aspect of the case, the defendant would be liable.
The law is that a policy effected by bailee and covering by its terms his own property and
property held in trust; inures, in the event of a loss, equally and proportionately to the
benefit of all the owners of the property insured. Even if one secured insurance covering
his own goods and goods stored with him, and even if the owner of the stored goods did
not request or know of the insurance, and did not ratify it before the payment of the loss,
yet it has been held by a reputable court that the warehouseman is liable to the owner of
such stored goods for his share. (Snow vs. Carr [1878], 61 Ala., 363; 32 Am. Rep., 3;
Broussard vs. South Texas Rice Co., [1910], 103 Tex., 535; Ann. Cas., 1913-A, 142, and
note; Home Insurance Co. of New York vs. Baltimore Warehouse Co. [1876], 93 U. S.,
527.)
Moreover, it has not escaped our notice that in two documents, one the agreement for
arbitration, and the other the statement of claim of Mrs. Del Rosario, against the insurance
companies, she acknowledged her responsibility to the owners of the stored merchandise,
16
against risk of loss by fire. (Exhibits B and C-3.) The award of the arbitrators covered not
alone Mrs. Del Rosario's warehouse but the products stored in the warehouse by Lopez
and others.
Plaintiff's rights to the insurance money have not been forfeited by failure to pay the
insurance provided for in the warehouse receipts. A preponderance of the proof does not
demonstrate that the plaintiff ever ordered the cancellation of his insurance with the
defendant. Nor is it shown that the plaintiff ever refused to pay the insurance when the
bills were presented to him, and that notice of an intention to cancel the insurance was
ever given the plaintiff.
The record of the proceedings before the board of arbitrators, and its report and findings,
were properly taken into consideration by the trial court as a basis for the determination
of the amount due from the defendant to the plaintiff. In a case of contributing policies,
adjustments of loss made by an expert or by a board of arbitrators may be submitted to
the court not as evidence of the facts stated therein, or as obligatory, but for the purpose
of assisting the court in calculating the amount of liability. (Home Insurance Co. vs.
Baltimore Warehouse Co., supra.)
Counsel for the defendant have dwelt at length on the phraseology of the policies of the
National Insurance Company, Inc. Special emphasis has been laid upon one policy
(Exhibit 9) in the name of the Compaia Coprera de Tayabas. In this connection it may
be said that three members of the court, including the writer of this opinion, have been
favorable impressed by this argument, and would have preferred at least to eliminate the
policy for which premiums were paid, not by Mrs. Del Rosario on behalf of Lopez and
others, but by Compaia Coprera de Tayabas. A majority of the court, however, believe
that all the assets should be marshalled and that the plaintiff should receive the benefit
accruing from the gross amount realized from all the policies. Consequently, no deduction
for this claim can be made.
The remaining contention of the defendant that the plaintiff cannot claim the benefits of
the agency without sharing in the expenses, is well taken. Although the plaintiff did not
expressly authorize the agreement to submit the matter to arbitration, yet on his own
theory of the case, Mrs. Del Rosario was acting as his agent in securing insurance, while
he benefits from the amicable adjustment of the insurance claims. As no intimation is
made that the expenses were exorbitant, we necessarily accept the statement of the same
appearing in Exhibits Q and 8.
Of the insurance money, totalling P414,258, P382,558 was for copra and the remainder
for buildings, corn, etc. The expenses for collecting the P414,258 totalled P33,600.
382,558/414,258 of 33,600 equals P31,028.85, the proportionate part of the expenses
with reference to the copra. Of the expenses amounting, as we have said, to P31,028.85,
plaintiff would be liable for his proportionate share or 88,595.43/382,558.00 of
P31,028.85 or P7,185.875.
The parties finally agree that the plaintiff at the time of the fire was indebted to the
defendant for storage and insurance in the sum of P315.90.
JUDGMENT
In resume, the result is to sustain plaintiff's first assignment of error and to overrule his
second and third assignments of error, to overrule defendant's assignment of error 1, 2, 3,
and 4 in toto and to accede to defendant's assignments of error, 5, 6, and 7 in part. If our
mathematics are correct, and the amounts can be figured in several different ways,
plaintiff is entitled to P88,595.43 minus P7,185.88, his share of the expenses, minus
P315.90, due for insurance and storage, or approximately a net amount of P81,093.65,
with legal interest. This sum the defendant must disgorge.
Wherefore, judgment is modified and the plaintiff shall have and recover from the
defendants the sum of P81,093.65, with interest at 6 per cent per annum from May 13,
1921, until paid. Without special finding as to costs in either instance, it is so ordered.
G.R. No. L-32644 October 4, 1930
CU UNJIENG E HIJOS, plaintiff-appelle,
vs.
THE MABALACAT SUGAR CO., ET AL., defendants.
THE MABALACAT SUGAR CO., appellant.
Romeo Mercado for appellant.
Araneta and Zaragoza for plaintiff-appellee.
Duran and Lim for defendant-appellee Siuliong and Co.
STREET, J.:
This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e
Hijos, for the purpose of recovering from the Mabalacat Sugar Company an indebtedness
amounting to more than P163,00, with interest, and to foreclose a mortgage given by the
debtor to secure the same, as well as to recover stipulated attorney's fee and the sum of
P1,206, paid by the plaintiff for insurance upon the mortgaged property, with incidental
relief. In the complaint Siuliong & Co., Inc., was joined as defendant, as a surety of the
Mabalacat Sugar Company, and as having a third mortgage on the mortgaged property.
The Philippine National Bank was also joined by reason of its interest as second
mortgagee of the land covered by the mortgage to the plaintiff. After the cause had been
brought to issue by the answers of the several defendants, the cause was heard and
judgment rendered, the dispositive portion of the decision being as follows:
Por las consideraciones expuestas, el Juzgado condena a The Mabalacat Sugar Company
a pagar a la demandante la suma de P163,534.73, con sus intereses de 12 por ciento al
ano, compuestos mensualmente desde el 1. de mayo de 1929. Tambien se le condena a
pagar a dicha demandante la suma de P2,412 por las primas de seguros abonadas por esta,
con sus intereses de 12 por ciento al ano, compuestos tambien mensualmente desde el 15
de mayo de 1928, mas la de P7,500 por honorarios de abogados y las costas del juicio. Y
si esta deuda no se pagare dentro del plazo de tres meses, se ejecutaran los bienes
hipotecados de acuerdo con la ley.
Si del producto de la venta hubiese algun remanente, este se destinara al pago del credito
del Banco Nacional, o sea de P32,704.69, con sus intereses de 9 por ciento al ano desde
el 7 de junio de 1929, sin perjuicio de la orden de ejecucion que pudiera expedirse en el
asundo No. 26435 del Juzgado de Primera Instancia de Manila.
Credit - 111016
Se condena ademas a The Mabalacat Sugar Company al pago de la suma de P3,205.78
reclamada por Siuliong & Co., con sus intereses de 9 por ciento al ano desde el 29 de
julio de 1926 hasta su completo pago, ordenandola que rinda cuentas del azucar por ella
producido y pague la comision correspondiente bajo la base de 5 por ciento de su valor,
descontandose, desde luego, las cantidades ya pagadas.
Se absuelve de la demanda de Cu Unjieng e Hijos a Siuliong & Co., Inc.1awph!l.net
From this judgment the defendant, the Mabalacat Sugar Company, appealed.
The first point assigned as error has relation to the question whether the action was
prematurely stated. In this connection we note that the mortgage executed by the
Mabalacat Sugar Company contains, in paragraph 5, a provision to the effect that non-
compliance on the part of the mortgage debtor with any of the obligations assumed in
virtue of this contract will cause the entire debt to become due and give occasion for the
foreclosure of the mortgage. The debtor party failed to comply with the obligation,
imposed upon it in the mortgage, to pay the mortgage debt in the stipulated installments
at the time specified in the contract. It results that the creditor was justified in treating the
entire mortgage debt as having been accelerated by such failure of the debtor in paying
the installments.
It appears, however, that on or about October 20, 1928, the mortgage creditor, Cu Unjieng
e Hijos, agreed to extend the time for payment of the mortgage indebtedness until June
30, 1929, with certain interim payments to be made upon specified dates prior to the
contemplated final liquidation of the whole indebtedness. But the debtor party failed to
make the interim payments due on February 25, 1929, March 25, 1929, and April 25,
1929, and failed altogether to pay the balance due, according to the terms of this
extension, on June 30, 1929. Notwithstanding the failure of the debtor to comply with the
terms of this extension, it is insisted for the appellant that this agreement for the extension
of the time of payment had the effect of abrogating the stipulation of the original contract
with respect to the acceleration of the maturity of the debt by non-compliance with the
terms of the mortgage. As the trial court pointed out, this contention is untenable. The
agreement to extend the time of payment was voluntary and without consideration so far
as the creditor is concerned; and the failure of the debtor to comply with the terms of the
extension justified the creditor in treating it as of no effect. The first error is therefore
without merit.
The second error is directed to the propriety of the interest charges made by the plaintiff
in estimating the amount of the indebtedness. In this connection we note that, under the
second clause of the mortgage, interest should be calculated upon the indebtedness at the
rate of 12 per cent per annum. In the same clause, but in a separate paragraph, there is
another provision with respect to the payment of interest expressed in Spanish in the
following words:
Los intereses seran pagados mensualmente a fin de cada mes, computados teniendo en
cuenta el capital del prestamo aun no pagado.
Translated into English this provision reads substantially as follows: "Interest, to be
computed upon the still unpaid capital of the loan, shall be paid monthly, at the end of
each month."
It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of
the Usury Law (Act No. 2655), the parties may stipulate that interest shall be
compounded; and rests for the computation of compound interest can certainly be made
monthly, as well as quarterly, semiannually, or annually. But in the absence of express
stipulation for the accumulation of compound interest, no interest can be collected upon
interest until the debt is judicially claimed, and then the rate at which interest upon
accrued interest must be computed is fixed at 6 per cent per annum.
In the present case, however, the language which we have quoted above does not justify
the charging of interest upon interest, so far as interest on the capital is concerned. The
provision quoted merely requires the debtor to pay interest monthly at the end of each
month, such interest to be computed upon the capital of the loan not already paid. Clearly
this provision does not justify the charging of compound interest upon the interest
accruing upon the capital monthly. It is true that in subsections (a), (b) and (c) of article
IV of the mortgage, it is stipulated that the interest can be thus computed upon sums
which the creditor would have to pay out (a) to maintain insurance upon the mortgaged
property, (b) to pay the land tax upon the same property, and (c) upon disbursements that
might be made by the mortgagee to maintain the property in good condition. But the chief
thing is that interest cannot be thus accumulated on unpaid interest accruing upon the
capital of the debt.
The trial court was of the opinion that interest could be so charged, because of the Exhibit
1 of the Mabalacat Sugar Company, which the court considered as an interpretation by
the parties to the contract and a recognition by the debtor of the propriety of compounding
the interest earned by the capital. But the exhibit referred to is merely a receipt showing
that the sum of P256.28 was, on March 19, 1928, paid by the debtor to the plaintiff as
interest upon interest. But where interest is improperly charged, at an unlawful rate, the
mere voluntary payment of it to the creditor by the debtor is not binding. Such payment,
in the case before us, was usurious, being in excess of 12 per cent which is allowed to be
charged, under section 2 of the Usury Law, when a debt is secured by mortgage upon real
property. The Exhibit 1 therefore adds no support to the contention of the plaintiff that
interest upon interest can be accumulated in the manner adopter by the creditor in this
case. The point here ruled is in exact conformity with the decision of this court in
Bachrach Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held that
interest cannot be allowed in the absence of stipulation, or in default thereof, except when
the debt is judicially claimed; and when the debt is judicially claimed, the interest upon
the interest can only be computed at the rate of 6 per cent per annum.
It results that the appellant's second assignment of error is well taken, and the compound
interest must be eliminated from the judgment. With respect to the amount improperly
charged, we accept the estimate submitted by the president and manager of the Mabalacat
Sugar Company, who says that the amount improperly included in the computation made
by the plaintiff's bookkeeper is P879.84, in addition to the amount of P256.28 covered by
Exhibit 1 of the Mabalacat Sugar Company. But the plaintiff creditor had the right to
charge interest, in the manner adopted by it, upon insurance premiums which it had paid
out; and if any discrepancy of importance is discoverable by the plaintiff in the result here
reached, it will be at liberty to submit a revised computation in this court, upon motion
for reconsideration, wherein interest shall be computed in accordance with this opinion,
that is to say, that no accumulation of interest will be permitted at monthly intervals, as
regards the capital of the debt, but such unpaid interest shall draw interest at the rate of 6
per cent from the date of the institution of the action.
17
In the third assignment of error the appellant complains, as excessive, of the attorney's
fees allowed by the court in accordance with stipulation in the mortgage. The allowance
made on the principal debt was around 4 per cent, and about the same upon the fee
allowed to the bank. Under the circumstances we think the debtor has no just cause for
complaint upon this score.
The fourth assignment of error complains of the failure of the trial court to permit an
amendment to be filed by the debtor to its answer, the application therefore having been
made on the day when the cause had been set for trial, with notice that the period was
non-extendible. The point was a matter in the discretion of the court, and no abuse of
discretion is shown.
From what has been stated, it follows that the appealed judgment must be modified by
deducting the sum of P1,136.12 from the principal debt, so that the amount of said
indebtedness shall be P162,398.61, with interest at 12 per cent per annum, from May 1,
1929. In other respects the judgment will be affirmed, and it is so ordered, with cost
against the appellant.
Hodges vs. Regalado 69 Phil. 588 , February 14, 1940
(in spanish)
G.R. No. 175381 February 26, 2008
JAMES SVENDSEN, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
CARPIO MORALES, J.:
Assailed via Petition for Review on Certiorari is the Court of Appeals Decision1 of
November 16, 2006 denying petitioners appeal from the December 22, 2005 Decision2
of the Regional Trial Court (RTC) of Manila, Branch 14 which affirmed the December
17, 2003 Judgment3 of the Metropolitan Trial Court (MeTC) of Manila, Branch 5, finding
James Svendsen (petitioner) guilty of violation of Batas Pambansa Blg. (B.P. Blg.) 22 or
the Bouncing Checks Law.
In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in the amount of
P200,000, to bear interest at 10% a month. After petitioner had partially paid his
obligation, he failed to settle the balance thereof which had reached P380,000 inclusive
of interest.4
Cristina thus filed a collection suit against petitioner, which was eventually settled when
petitioner paid her P200,0005 and issued in her favor an International Exchange Bank
check postdated February 2, 1999 (the check) in the amount of P160,000 representing
interest.6 The check was co-signed by one Wilhelm Bolton.
When the check was presented for payment on February 9, 1999, it was dishonored for
having been Drawn Against Insufficient Funds (DAIF).7
Cristina, through counsel, thus sent a letter to petitioner by registered mail informing him
that the check was dishonored by the drawee bank, and demanding that he make it good
within five (5) days from receipt thereof.8
No settlement having been made by petitioner, Cristina filed a complaint dated March 1,
1999 against him and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22
before the City Prosecutors Office of Manila. No counter-affidavit was submitted by
petitioner and his co-respondent. An Information dated April 13, 1999 for violation of
B.P. Blg. No. 22 was thus filed on April 29, 1999 before the MeTC of Manila against the
two, the accusatory portion of which reads:
That sometime in December 1998 the said accused did then and there willfully,
unlawfully, and feloniously and jointly make or draw and issue to CRISTINA C. REYES
to apply on account or for value INTERNATIONAL EXCHANGE BANK check no.
0000009118 dated February 2, 1999 payable to CRISTINA REYES in the amount of
P160,000.00 said accused well knowing that at the time of issue she/he/they did not have
sufficient funds and/or credit with the drawee bank for payment of such check in full
upon its presentment, which check after having been deposited in the City of Manila,
Philippines, and upon being presented for payment within ninety (90) days from the date
thereof was subsequently dishonored by the drawee bank for INSUFFICIENCY OF
FUNDS and despite receipt of notice of such dishonor, said accused failed to pay said
CRISTINA C. REYES the amount of the check or to make arrangement for full payment
of the same within five (5) banking days after receiving said notice.
CONTRARY TO LAW.9
Bolton having remained at large, the trial court never acquired jurisdiction over his
person.10
By Judgment of December 17, 2003, Branch 5 of the Manila MeTC found petitioner
guilty as charged, disposing as follows:
WHEREFORE, this Court finds accused James Robert Svendson [sic] GUILTY beyond
reasonable doubt of a violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and
imposes upon him to pay a fine of ONE HUNDRED SIXTY THOUSAND PESOS
(P160,000.00), with subsidiary imprisonment in case of insolvency.
Accused is also made liable to pay private complainant Cristina C. Reyes civil indemnity
in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00)
representing his civil obligation covered by subject check.
Meantime, considering that other accused Wilhelm Bolton remains at large, let a warrant
of arrest against him ISSUE. Pending his apprehension, let the case against him be sent
to the ARCHIVES. (Emphasis in the original; underscoring supplied)
Credit - 111016
As priorly stated, the RTC affirmed the MeTC judgment and the Court of Appeals denied
petitioners appeal.
Hence, the present petition for review.
Petitioner argues that the appellate court erred in finding that the first element of violation
of B.P. Blg. 22 the making, drawing, and issuance of any check "to apply on account
or for value" was present, as the obligation to pay interest is void, the same not being
in writing and the 10% monthly interest is unconscionable; in holding him civilly liable
in the amount of P160,000 to private complainant, notwithstanding the invalidity of the
interest stipulation; and in violating his right to due process when it convicted him,
notwithstanding the absence of proof of receipt by him of a written notice of dishonor.
The petition is impressed with merit.
Section 1 of B.P. Blg. 22 or the Bouncing Checks Law reads:
SECTION 1. Checks without sufficient funds. Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment, which check is subsequently dishonored by the drawee
bank for insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to stop payment,
shall be punished by imprisonment of not less than thirty days but not more than one (1)
year or by fine of not less than but not more than double the amount of the check which
fine shall in no case exceed Two Hundred Thousand pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient funds in or
credit with the drawee bank when he makes or draws and issues a check, shall fail to keep
sufficient funds or to maintain a credit to cover the full amount of the check if presented
within a period of ninety (90) days from the date appearing thereon, for which reason it
is dishonored by the drawee bank. Where the check is drawn by a corporation, company
or entity, the person or persons who actually signed the check in behalf of such drawer
shall be liable under this Act.
For petitioner to be validly convicted of the crime under B.P. Blg. 22, the following
requisites must thus concur: (1) the making, drawing and issuance of any check to apply
for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time
of issue he does not have sufficient funds in or credit with the drawee bank for the
payment of the check in full upon its presentment; and (3) the subsequent dishonor of the
check by the drawee bank for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment.11
Petitioner admits having issued the postdated check to Cristina. The check, however, was
dishonored when deposited for payment in Banco de Oro due to DAIF. Hence, the first
and the third elements obtain in the case.
As for the second element, Section 2 of B.P. Blg. 22 provides that
[t]he making, drawing and issuance of a check payment of which is refused by the drawee
because of insufficient funds in or credit with such bank, when presented within ninety
(90) days from the date of the check, shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer pays the holder thereof the
amount due thereon, or makes arrangements for payment in full by the drawee of such
check within five (5) banking days after receiving notice that such check has not been
paid by the drawee.
In Rico v. People of the Philippines,12 this Court held:
x x x [I]f x x x notice of non-payment by the drawee bank is not sent to the maker or
drawer of the bum check, or if there is no proof as to when such notice was received by
the drawer, then the presumption of knowledge as provided in Section 2 of B.P. 22 cannot
arise, since there would simply be no way of reckoning the crucial five-day period.
x x x In recent cases, we had the occasion to emphasize that not only must there be a
written notice of dishonor or demand letters actually received by the drawer of a
dishonored check, but there must also be proof of receipt thereof that is properly
authenticated, and not mere registered receipt and/or return receipt.
Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of B.P. 22 indeed does
not state that the notice of dishonor be in writing, this must be taken in conjunction with
Section 3 of the law, i.e., "that where there are no sufficient funds in or credit with such
drawee bank, such fact shall always be explicitly stated in the notice of dishonor or
refusal". A mere oral notice or demand to pay would appear to be insufficient for
conviction under the law. In our view, both the spirit and letter of the Bouncing Checks
Law require for the act to be punished thereunder not only that the accused issued a check
that is dishonored, but also that the accused has actually been notified in writing of the
fact of dishonor. This is consistent with the rule that penal statues must be construed
strictly against the state and liberally in favor of the accused. x x x
In fine, the failure of the prosecution to prove the existence and receipt by petitioner of
the requisite written notice of dishonor and that he was given at least five banking days
within which to settle his account constitutes sufficient ground for his acquittal.13 (Italics
in the original; emphasis and underscoring supplied)
The evidence for the prosecution failed to prove the second element. While the registry
receipt,14 which is said to cover the letter-notice of dishonor and of demand sent to
petitioner, was presented, there is no proof that he or a duly authorized agent received the
same. Receipts for registered letters including return receipts do not themselves prove
receipt; they must be properly authenticated to serve as proof of receipt of the letters.15
Thus in Ting v. Court of Appeals,16 this Court observed:
x x x All that we have on record is an illegible signature on the registry receipt as evidence
that someone received the letter. As to whether this signature is that of one of the
petitioners or of their authorized agent remains a mystery. From the registry receipt alone,
it is possible that petitioners or their authorized agent did receive the demand letter.
Possibilities, however, cannot replace proof beyond reasonable doubt.17
For failure then to prove all the elements of violation of B.P. Blg. 22, petitioners acquittal
is in order.
18
Petitioner is civilly liable, however. For in a criminal case, the social injury is sought to
be repaired through the imposition of the corresponding penalty, whereas with respect to
the personal injury of the victim, it is sought to be compensated through indemnity, which
is civil in nature.18
The decision of the MeTC, which was affirmed on appeal by the RTC and the appellate
court, ordering petitioner "to pay private complainant Cristina C. Reyes civil indemnity
in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000)
representing his civil obligation covered by subject check," deserves circumspect
examination, however, given that the obligation of petitioner to pay 10% interest per
month on the loan is unconscionable and against public policy.
The P160,000 check petitioner issued to Cristina admittedly represented unpaid interest.
By Cristinas information, the interest was computed at a fixed rate of 10% per month.19
While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No.
905, nothing therein grants lenders carte blanche to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of their assets.20
Stipulations authorizing such interest are contra bonos mores, if not against the law. They
are, under Article 140921 of the New Civil Code, inexistent and void from the
beginning.22
The interest rate of 10% per month agreed upon by the parties in this case being clearly
excessive, iniquitous and unconscionable cannot thus be sustained. In Macalalag v.
People,23 Dio v. Jardines,24 and in Cuaton v. Salud,25 this Court, finding the 10% per
month interest rate to be unconscionable, reduced it to 12% per annum. And in other
cases26 where the interest rates stipulated were even less than that involved herein, the
Court equitably reduced them.
This Court deems it fair and reasonable then, consistent with existing jurisprudence, to
adjust the civil indemnity to P16,000, the equivalent of petitioners unpaid interest on the
P200,000 loan at 12% percent per annum as of February 2, 1999, the date of the check,
plus 12% per annum interest to be computed from April 29, 1999, the date of judicial
demand (date of the filing of the Information) up to the finality of this judgment. After
the judgment becomes final and executory until the obligation is satisfied, the total
amount due shall bear interest at 12% per annum.27
Respecting petitioners claim that since the promissory note incorporating the stipulated
10% interest per month was not presented, there is no written proof thereof, hence, his
obligation to pay the same must be void, the same fails. As reflected above, Cristina
admitted such stipulation.
In any event, the presentation of the promissory note may be dispensed with in a
prosecution for violation of B.P. Blg. 22 as the purpose for the issuance of such check is
irrelevant in the determination of the accuseds criminal liability. It is for the purpose of
determining his civil liability that the document bears significance. Notably, however,
Section 24 of the Negotiable Instruments Law provides that "Every negotiable instrument
is deemed prima facie to have been issued for a valuable consideration, and every person
whose signature appears thereon to have become a party thereto for value." It was
incumbent then on petitioner to prove that the check was not for a valuable consideration.
This he failed to discharge.
WHEREFORE, the Court of Appeals Decision of November 16, 2006 is REVERSED
and SET ASIDE.
Petitioner, James Svendsen, is acquitted of the crime charged for failure of the
prosecution to prove his guilt beyond reasonable doubt.
He is, however, ordered to pay private complainant, Cristina C. Reyes, the amount of
SIXTEEN THOUSAND PESOS (P16,000) representing civil indemnity, plus 12%
interest per annum computed from April 29, 1999 up to the finality of this judgment.
After the judgment becomes final and executory until the obligation is satisfied, the total
amount due shall earn interest at 12% per annum.
SO ORDERED.
CONCHITA CARPIO MORALES
G.R. No. 171374 April 8, 2008
TEOFILA ILAGAN-MENDOZA and ROSARIO ILAGAN URCIA, petitioners,
vs.
HON. COURT OF APPEALS, CALATAGAN RURAL BANK, INC.,
GEMINIANO T. NOCHE, as President of Calatagan Rural Bank, and REMEDIOS
DE CLARO and EDMUNDO RODRIGUEZ, as Sheriffs, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -- - - x
Spouses ALBERTO URCIA and ROSARIO ILAGAN URCIA, petitioners,
vs.
HON. COURT OF APPEALS, CALATAGAN RURAL BANK, INC.,
GEMINIANO T. NOCHE, as President of Calatagan Rural Bank, and REMEDIOS
DE CLARO and EDMUNDO RODRIGUEZ, as Sheriffs, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court,
with petitioners praying for the reversal of the Decision1 dated 19 July 2005 of the Court
of Appeals dismissing CA-G.R. CV No. 56688 and affirming the Decision2 dated 3
October 1996 of Branch 10 of the Regional Trial Court (RTC) of Batangas which, in turn,
dismissed Special Civil Actions No. 1701 and 1702 for lack of merit.
The following are the factual antecedents:
Petitioners are Teofila Ilagan-Mendoza (Teofila) and Rosario Ilagan-Urcia (Rosario),
daughters of the late Estanislao Ilagan (Estanislao); and Alberto (Alberto) Urcia,
Rosarios husband.
Credit - 111016
The respondent Calatagan Rural Bank, Inc. (CRBI) filed on 9 July 1986 with the Sheriffs
Office two Applications for Extrajudicial Foreclosure of Real Estate Mortgages, pursuant
to Act No. 3135 (as amended by Act No. 4110), for petitioners unpaid loans, to wit:
(a) a Real Estate Mortgage covered by the following properties, to wit: TCT No. 11234,
TCT No. 8465, TCT No. 14493, and TCT No.18772; and allegedly executed on 19
August 1974 by Teofila in favor of CRBI;3 and
(b) a Real Estate Mortgage covered by property under TCT No. 31345, executed by
Alberto, with Teofila as co-maker, to secure a P10,000.00 loan obtained by Alberto on
23 July 1985, maturing on 19 April 1986.4
On 20 August 1986, siblings Teofila and Rosario instituted Special Civil Action No. 1701
before the Regional Trial Court of Balayan, Batangas, while spouses Alberto and Rosario
instituted Special Civil Action No. 1702 before the same court, both for injunction and
damages, with an application for Temporary Restraining Order (TRO) and preliminary
injunction, against respondents CRBI, CRBI President Geminiano Noche (Noche), and
Sheriffs Remedios de Claro and Edmundo Rodriguez of the Batangas RTC, assailing
CRBIs Applications for Extrajudicial Foreclosure of Real Estate Mortgages referred to
in the preceding paragraph, and seeking to enjoin respondents from proceeding with the
auction sale of the mortgaged properties. Special Civil Action Nos. 1701 and 1702 were
consolidated by the RTC.
In Special Civil Action No. 1701,5 Teofila and Rosario identified three crop loans
obtained by their father, the late Estanislao, from CRBI in the amounts of P85,000.00,
P75,000.00 and P25,000.00.6 These loans, covered by a promissory note executed by and
between Estanislao and CRBI, were secured by several Real Estate Mortgages7 over the
properties registered with the Registry of Deeds Batangas and covered by Transfer
Certificates of Title (TCTs) No. 11234, 8465, 14493, and 18772, with Estanislao Ilagan,
married to Leocadia Mercado, as mortgagors and CRBI as mortgagee.
Estanislao was required to sign and submit a Deed of Assignment of all his sugar produce
in favor of CRBI, as payment for the loans.8 CRBI received the proceeds from
Estanislaos sugar produce which it applied to his loans. Teofila and Rosario contend that
the records of the two sugar centrals, Central Azucarera Don Pedro (CADP) and Balayan
Sugar Central, Inc. (BSCI), reveal that sufficient payment had been made on the loans by
Estanislao by 1979, but no document was executed to cancel the mortgages securing the
same. Estanislao passed away on 23 August 1983. It is important to note that the petition
also stated that Estanislao was required to sign promissory notes in blank for the renewal
of the unpaid balances of the original loans, which procedure was followed after
Estanislao died on August 1983, but this time thru Teofila. Thereafter, Teofila suspected
overpayment of the loans and demanded an accounting from CRBI but the latter refused,
constraining her and her sister Rosario to file an administrative case against the bank with
the Central Bank of the Philippines. At the time of filing of the application for foreclosure
of real estate mortgages, CRBI allegedly owed Teofila an outstanding amount
representing the proceeds from the sugar produce for the years 1980 to 1986.
On the other hand, in Special Civil Action No. 1702,9 spouses Alberto and Rosario Urcia
admitted that Alberto obtained two commodity loans from CRBI, one for P10,000.00 and
another for P8,200.00. Alberto stated that to cover said loans, promissory notes and trust
receipts were allegedly signed by him in blank, with Teofila as co-maker. The P10,000.00
loan was covered by a promissory note dated 23 July 1985, which was to become due
and payable on 19 April 1986; while the loan for P8,200.00 was covered by a promissory
note dated 23 December 1985 to mature on 19 September 1986. The said loans were
secured by a real estate mortgage on the house and lot of Alberto and Rosario, covered
by TCT No. 31345 registered in the Registry of Deeds of Batangas. Believing that the
loans had been fully paid, Alberto asked for an accounting thereof, which CRBI ignored,
hence, he sought the aid of the Central Bank. The CRBI further holds sugar quedans in
the name of Rosario, Albertos wife, and such sugar quedans, if negotiated, can fully
answer for whatever outstanding amount they may still owe CRBI.
Purportedly in retaliation to their demands for accounting and their seeking recourse with
the Central Bank, CRBI filed a criminal complaint for libel and a civil action for damages
against petitioners; an administrative charge against Alberto and Rosario; and the assailed
applications for extra-judicial foreclosure of the mortgaged properties.10
The RTC issued a TRO effective until 9 September 1986. The auction sale of the
mortgaged properties, originally scheduled for 25 August 1986, was cancelled. After the
lapse of the TRO, without any other injunction or restraining order having been issued,
the Sheriffs Office of the RTC of Balayan, Batangas, through Deputy Sheriff Edmundo
M. Rodriguez, issued another Notice of Public Auction Sale setting the public auction of
the mortgaged properties for 17 September 1986. The public auction proceeded as
scheduled wherein the mortgaged properties were awarded to the highest bidder,
CRBI,11 for the following amounts:
(a) P111,806.05 for the properties of Estanislao Ilagan; and
(b) P19,295.82 for the properties of Alberto Urcia.
A Certificate of Sale was issued on the same day in favor of CRBI.
Respondents filed on 15 December 1986 Motions to Dismiss Special Civil Actions No.
1701 and 1702.12
In an Order13 issued on 23 December 1986, jointly resolving the two cases, RTC
Executive Judge Alberto Reyes found the Motions to Dismiss meritorious and dismissed
Special Civil Actions No. 1701 and 1702 for being moot and academic.
Aggrieved, petitioners in the two Special Civil Actions assailed the RTC Order dated 23
December 1986 via separate Petitions for Certiorari14 filed with the Court of Appeals
but these petitions were subsequently dismissed.15
From the appellate courts dismissal of their petitions, petitioners sought recourse from
this Court by filing Petitions for Certiorari and Prohibition16 which were granted. In a
Resolution17 dated 28 October 1987, this Court directed the RTC to proceed with the
hearing of Special Civil Actions No. 1701 and 1702, to determine whether there was
indeed overpayment of the loan obligations of petitioners to CRBI.
Hence, the proceedings before the RTC in Special Civil Actions No. 1701 and 1702
resumed.
The RTC summarized the issues in Special Civil Action No. 1701 as follows:
19
(1) whether or not the numerous withdrawals on 21 December 1983 after the death of
Estanislao Ilagan were valid withdrawals;
(2) whether or not the mortgaged properties were validly foreclosed on 17 September
1986;
(3) whether or not deceased Estanislao Ilagan and his heirs had fully paid its [sic]
obligation to respondent.
In Special Civil Action No. 1702, the sole issue was whether or not Albertos loans had
already been paid.
After nine years of trial, the RTC dismissed Special Civil Actions No. 1701 and 1702 for
lack of merit. In a Decision dated 3 October 1996, the RTC ruled in favor of CRBI and
found that the mortgaged properties were validly foreclosed on 17 September 1986. The
RTC held:
WHEREFORE, petitioners instant petitions are hereby DISMISSED, for lack of merit.18
Petitioners filed a joint appeal with the Court of Appeals via Rule 45 of the Revised Rules
of Court, docketed as CA-G.R. CV No. 56688. On 19 July 2005, the Court of Appeals
dismissed CA-G.R. CV No. 56688 and affirmed the RTC Decision dated 3 October 1996.
The Court of Appeals held:
Appellants contend that there was no need for the bank to foreclose the mortgage on the
Urcia spouses property since it could run after either Teofila as co-maker or Rosario
whose quedan was in the banks possession and is sufficient to pay the loans. The
contention is untenable.
Art. 1216 of the New Civil Code gives the creditor the right to "proceed against any one
of the solidary debtors or some or all of them simultaneously." The choice of the solidary
debtor or against whom the solidary creditor will enforce collection is left to the latter
(PNB vs. Independent Planters Association, Inc., 122 SCRA 113). Similarly, the choice
of remedy to effect collection pertains to the creditor. On the other hand, the bank cannot
run after Rosarios quedan because she is not indebted to it. The loan was exclusively
obtained by Alberto. And Rosario did not assign her quedan to the bank as payment for
Albertos obligations.
xxxx
x x x The death of the debtor does not extinguish his civil liability as his estate will answer
for it (Art. 1078, Civil Code). Since the quedans belong to Estanislao, the proceeds
thereof should be applied to his own obligation. In this sense, Estanislao can be
considered a debtor of the bank, even after his death, concerning his unpaid loans.
xxxx
Considering the foregoing, appellants computation of Estanislaos loans from the bank
is, at best, sketchy and self-serving and renders the purported overpayment implausible.
Consequently, We uphold the court a quos finding that Estanislao is indebted to the bank
in the amount of P67,000.00. As aptly observed by the trial court:
"The Central Bank Report speaks for itself. It was adopted by the petitioners as their own
evidence and was marked as Exhibits J, RRR-1 to RRR-3. There is presumption of
regularity in the performance of official duties. And the Court finds the report of the
Central Bank employees as regards the computation of the loans of the late Estanislao
Ilagan to be correct."
In fine, the lower court committed no error in its appealed decision.
WHEREFORE, the appealed decision of the Regional Trial Court of Batangas (Balayan,
Branch 10) is AFFIRMED in toto.
The Court of Appeals denied the Motion for Reconsideration19 filed by petitioners in a
Resolution20 dated 6 February 2006.
Petitioners thus filed on 20 March 2006 this Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court, raising the following issues:
ISSUES FOR SPECIAL CIVIL ACTION NO. 1701
I. WHETHER OR NOT A PERSON CAN VALIDLY CONTRACTED (sic) A LOAN
AFTER HIS DEATH.
II. WHETHER OR NOT THE LOAN OBTAINED AFTER THE DEATH OF A
PERSON WILL FORM PART OF HIS EXISTING OBLIGATION.
III. WHETHER OR NOT THE REAL ESTATE MORTGAGE EXECUTED BY A
DECEASED WILL COVER AN OBLIGATION INCURRED AFTER HIS DEATH.
ISSUES FOR SPECIAL CIVIL ACTION NO. 1702
I. WHETHER OR NOT THE FORECLOSURE PROCEEDINGS IS VALID AFTER
DETERMINING [sic] BY THE LOWER COURT THAT THERE WAS AN
OVERPAYMENT OF OBLIGATION.
II. WHETHER OR NOT THE RESPONDENT BANK CAN VALIDLY PROCEED
WITH THE FORECLOSURE PROCEEDINGS WITHOUT FIRST APPLYING THE
DEPOSITS IN ITS POSSESSION UNDER THE NAME OF THE PETITIONERS IN
PAYMENT OF THE UNPAID OBLIGATIONS.
Petitioners pray that a decision be rendered reversing the earlier Decision of the Court of
Appeals which dismissed CA-G.R. CV No. 56688; declaring the foreclosure of the
mortgaged properties in Special Civil Actions No. 1701 and 1702 as null and void; and
ordering the return of the Transfer Certificates of Titles in the name of the petitioners free
from all liens and encumbrances.
Petitioners challenge the extra-judicial foreclosure of the real estate mortgages by CRBI
for having been done with malice and bad faith.
Petitioners allege that Estanislao could not have possibly entered into a loan obligation
after his death. He died on 23 August 1983. This is in accordance with Article 42 of the
Credit - 111016
New Civil Code which provides that "civil personality is extinguished by death." Thus,
it would have been impossible for Estanislao to incur the loan obligation embodied in the
promissory note dated 3 October 1984 for the sum of P44,000.00, and said promissory
note should not have been included among Estanislaos obligations.
Petitioners also maintain that the loan for P10,000.00, covered by promissory note dated
23 July 1985 executed by Alberto, with Teofila as co-maker, was already paid, thus,
making the foreclosure of real estate mortgage securing the said loan null and void. If
only CRBI submitted an accounting as petitioners requested, there would have been no
more need to resort to the foreclosure proceedings since there was, in fact, an
overpayment of P3,056.13 on the loan.21
Petitioners assert that the sheriffs and the trial and appellate courts failed to look into the
existence and validity of the obligations secured by the mortgage properties that could
have materially affected the foreclosure proceedings.
Respondents, on the other hand, contend that the real matter at issue is whether the
separate loans contracted by Estanislao and Alberto still subsist as to make the foreclosure
of the mortgaged properties valid; or, conversely, whether the loans were already paid,
thus, making the foreclosure of the mortgaged properties null and void. They posit that
these factual matters were already resolved by both the RTC and the Court of Appeals in
their favor. Thus, they argue that the foreclosure of the mortgaged properties was in order
and, consequently, the present Petition should be dismissed for lack of merit.
Clearly, the real issue to be resolved is whether Estanislao and Alberto still had
outstanding loan obligations with CRBI that would justify the foreclosure of the
mortgaged properties.
We rule in the affirmative, and find no reason to disturb the factual findings of the RTC
and the Court of Appeals.
The jurisdiction of this Court in a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court is limited to reviewing only errors of law.22 There is a question
of fact when the doubt or difference arises as to the truth or falsehood of alleged facts or
when the query necessarily solicits calibration of the whole evidence considering mostly
the credibility of witnesses, existence and relevancy of specific surrounding
circumstances, their relation to each other and to the whole and probabilities of the
situation.23 A question of law has been defined as one that does not call for any
examination of the probative value of the evidence presented by the parties.24
We have consistently stressed that in a petition for review on certiorari this Court does
not sit as an arbiter of facts. As such, it is not our function to re-examine every
appreciation of facts made by the trial and appellate courts unless the evidence on record
does not support their findings or the judgment is based on a misappreciation of facts.25
As correctly observed by CRBI, the issues raised by petitioners are purely factual. It
would entail a review and evaluation of the evidence that were already presented before
the trial court.
Factual findings of the trial court, especially when affirmed by the Court of Appeals, as
in this case, are generally binding and conclusive on the Supreme Court, for it is not the
function of this Court to reexamine the lower courts findings of fact. Suffice it to say
that the factual findings and conclusions of the trial court and the Court of Appeals are
entitled to great weight and respect and will not generally be disturbed on appeal in the
absence of a clear showing that the trial court overlooked certain facts or circumstances
that would warrant a different disposition of the case.26
Admittedly, the above rule is not absolute, as it admits of certain exceptions, to wit: (a)
where there is grave abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures; (c) when the inference made is manifestly
mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was based
on a misapprehension of facts; (e) when the factual findings are conflicting; (f) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee; (g) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and, (h) where the
findings of fact of the Court of Appeals are contrary to those of the trial court, or are mere
conclusions without citation of specific evidence, or where the facts set forth by the
petitioners are not disputed by the respondents, or where the findings of fact of the Court
of Appeals are premised on the absence of evidence and are contradicted by the evidence
on record. 27
Petitioners, however, have not shown that any of these circumstances are attendant herein
for us to deviate from the general rule.
A mortgage is a mere accessory contract to the loan obligation, thus, the validity of the
mortgage depends on the validity of the loan it is supposed to secure. The debtor cannot
escape the consequences of the mortgage contract once the validity of the loan is
upheld.28 And when the principal obligation is not paid when due, the mortgagee has the
right to foreclose on the mortgage, have the property seized and sold, and apply the
proceeds to the balance of the loan obligation. Foreclosure is proper if the debtor is in
default in the payment of his loan obligation.
In the Petition at bar, there is substantial evidence to support the facts that petitioners had
existing loan obligations subject of Real Estate Mortgages executed in favor of CRBI and
there was default on the payment thereof.
Special Civil Action No. 1701
It has been established by evidence on record that Estanislao obtained a total of 32 loans
from the bank. Estanislao used the very same properties he mortgaged to secure his first
loan in 1974 as collaterals for his subsequent loans. However, no corresponding entries
on the constituted mortgages were made on TCTs No. 11234, 14493, 8465 and 18772,
except that of the first loan contracted in 1974. As payments for these loans, Estanislao
assigned to CRBI the proceeds from his sugar produce milled at CADP and BSCI. The
said proceeds were applied to the principal, interests and charges of Estanislaos loans.
Per the Central Bank Report, Estanislao still had loans left unpaid:
The rural bank collected from Estanislao Ilagan P678,848.24 which fully paid 30 of his
32 loan accounts thereby leaving 2 loans totaling P67,000 still unpaid (Annex II-A).29
20
Among the 32 loans charged against Estanislao by the CRBI is a loan in the amount of
P44,000.0030 covered by a promissory note dated 3 October 1984, more than a year after
Estanislaos death on 23 August 1983, and signed by Teofila, per testimony of Geminiano
Noche.
Teofila and Rosario urge that the said loan should be excluded from the obligations
secured by Estanislaos four mortgaged properties.
While it is conceded that the promissory note for P44,000.00 was signed by Teofila from
CRBI on 3 October 1984, or after the death of Estanislao, the circumstances and reasons
for this are adequately explained to show that said amount represent existing loans of
Estanislao contracted by him prior to his death.
First, during the RTC trial, the following testimony was elicited from Geminiano Noche:
Estanislao died in August 1983. According to witness, he allowed Teofila Ilagan to sign
the Promissory Note dated 3 October 1984, because the collateral on the loan is a property
in the name of Estanislao Ilagan and because Teofila so requested since it would take
time to settle the estate of Estanislao Ilagan and inasmuch as she would inherit the
property.31 (Emphasis ours.)
Secondly, Teofila and Rosario were definite in their petition in Special Civil Action No.
1701 when they were deemed to have admitted therein that Estanislao was required to
sign promissory notes in blank for the renewal of the unpaid balances of the original
loans, which procedure was followed after Estanislao died on August 1983, but this time
thru Teofila.
Based on the foregoing, it can be established that the Promissory Note dated 3 October
1984 then, although signed after the death of Estanislao on 23 August 1983, reflect an
unpaid balance on the loans obtained by Estanislao from CRBI prior to his death, and
secured by the same properties used as collaterals by him since he obtained the first loan
in 1974.
Hence, payment for said loan, upon default, can be collected by CRBI by foreclosing on
the mortgaged properties.
Teofila and Rosario then raised another point by contending that withdrawals were
fraudulently made from Estanislaos CRBI Savings Account No. 5659 on 21 December
1983, after his death. A study of the testimony of Teofila reveals that Estanislao
maintained four passbooks with CRBI, to wit:
a. Savings Account No. 1382, under the name of Estanislao Ilagan and/or Teofila Ilagan;
b. Savings Account No. 5659, under the name Teofila Ilagan and/or Estanislao Ilagan
c. Savings Account No. 5659, under the name of Estanislao Ilagan
d. Savings Account No. 5659, under the name Estanislao Ilagan and/or Teofila Ilagan
Estanislaos passbook for Savings Account No. 5659 contained entries of withdrawals
made on 21 December 1983, which Estanislao could no longer have made after his death.
If the withdrawals are invalidated, then the fraudulently withdrawn amounts could be
returned to Estanislaos account and applied against the balance of his loans, which could
even result in overpayment.
Julita Marasigan, a former cashier of the bank, testified on the bank procedure with
respect to withdrawals made in the bank. We find that the entries in Savings Account No.
5659, in the name of Estanislao, made on 21 December 1983, after his death, were made
in good faith and did not represent withdrawals made on such date, but on previous dates,
when Estanislao was still alive. Julita Marasigan explained that it is the standard operating
procedure of CRBI to allow withdrawals even without the client presenting the passbook.
The passbook is updated only later on with the appropriate entries once it is presented to
CRBI.
This was further corroborated by CRBI President Germiniano Noche, who testified as
follows:
Q: It appears on this page of Exhibit B that there were several withdrawals made on
December 31, 1983. Will you please tell us how could these withdrawals been made?
A: These withdrawals were in accordance with the standard procedure of the bank when
there is an up-dating.
Q: What do you mean by "up-dating"?
A: By "up-dating," before December 21 comes, the client go (sic) to the bank without the
passbook.
Q: What did the client do without the passbook?
A: Requesting the bank in order for her to withdraw.
Q: And was the withdrawal allowed?
A: Because of the good relationship between the client and the bank, we allowed the
withdrawal without the passbook.
Q: So these withdrawals made on December 21, 1983, to which withdrawal this refers?
A: This refers to withdrawal before December 21, 1983.
Q: How come that the withdrawal had entered only on December 21, 1983?
A: That had been entered only on December 21, 1983 because the representative of the
client arrived on that date with the passbook.
Q: By "client", to whom are you referring to?
A: Estanislao Ilagan and Teofila Ilagan.
Q: Mr. Noche, according to the petition, Mr. Estanislao Ilagan died sometime in August,
1983. Now, according to you, she went to the bank on December 21, 1983. Will you
Credit - 111016
please tell us how come Mr. Estanislao Ilagan was able to go to the bank on December
21, 1983?
ATTY. AGUJO:
Objection, you Honor. In the previous question, your Honor Mr. witness stated that Mr.
Estanislao Ilagan and Teofila Ilagan. Then the next question your Honor has a conflict
because the line of questioning, it appears that it was only Ms. Ilagan by using the word
"she", your Honor.
COURT:
What is the question?
ATTY. CABAL:
Q: My question is: How come Mr. Estanislao Ilagan was able to go to the bank on
December 21, 1983 while he died in August 1983?
COURT: May answer.
A: If there is no Estanislao Ilagan, then there (sic) Teofila Ilagan because this is "and/or".
Q: What is the meaning of "and/or"?
A: We can enter transaction to the passbook either the daughter or the father.32
Witnesses for CRBI have thus sufficiently explained the circumstances behind the
withdrawals entered on Estanislaos passbook even after his death.
Teofila and Rosario failed to rebut the foregoing testimonies. Absent any evidence to the
contrary, the Court finds that the entries made on the passbook of Estanislao were regular
and speak of the correct transactions made by the parties therein.33
Special Civil Action No. 1702.
The evidence on record reveals that Alberto has two unpaid loans with CRBI,
particularly:
(a) loan in the amount of P10,000, covered by promissory note dated 23 July 1985, which
would fall due on 19 April 1986; and
(b) loan in the amount of P8,200.00, covered by promissory note dated 23 December
1985, which would fall due on 19 September 1986.
The Central Bank Reports submitted establish an overpayment34 by Alberto in the
amount of P3,056.13 to CRBI. However, page 2 of Central Bank Memorandum35 dated
1 October 1986 reads:
(a) Alberto Urcia paid to the bank P96,054.23 which fully paid 10 of his 12 loans thereby
leaving 2 loans totaling P18,200 still unpaid (Annex I-A)
(b) The bank charged Mr. Urcia attorneys fees of P1,403.17 instead of P1,2221.15 or an
overcharge of P182.02 (Annex I-A)
(c) The rural bank made a net overcharge in interest of P2,874.11. (Annex I-A)36
Jose Galit, Central Bank Examiner, testified that in computing the overpayment of
P3,056.13 by Alberto, his second loan of P8,200.00 was not yet included therein:
Q: Now, I invite your attention to page two of the report which was marked as Exhibit
A-1 and on the findings of the Central Bank, your department Alberto Urcia, the
respondent stated and I quote "the bank charged xxx" (Please see Exhibit "A-1" record).
If you total this amount the sum would be P3,056.13. Now Annex "1" of that report which
was marked as Exhibit "A-5" for the following findings of your Department and I quote
"Between the petitioner from November 18, 1980 to December 20, 1985, complaint was
xxx" (NOTE: please see Exhibit "A-4" on record). Second, date granted December 23,
1985, date due, September 18, 1986. Amount P8,200.00. When you computed the alleged
overcharge of P3,056.13, did you consider this (sic) outstanding loans of petitioners
Alberto Urcia?
A: No, sir.
Q: What do you mean by that?
A: Because that overcharged (sic) pertains to different loans.
Q: What was the status of loan of Alberto Urcia as of June 12, 1986?
A: The two (2) loans were unpaid as of examination.37
A more thorough review of the Central Bank Report would disclose that the supposed
overpayment refers to Albertos other loans with CRBI, leaving two loans amounting to
P18,000.00 with the same bank still unpaid.
The testimony of Jose Galit, taken together with the Central Bank Reports, indicate that
the principal amounts pertaining to Albertos two outstanding loans, totaling P18,200.00,
plus interests and other charges thereon, exceed the P3,056.13 overpayment on his other
loans with CRBI. Thus, Alberto is still indebted to CRBI for the principal, interest, and
other charges on the said two loans, less the overpaid amount of P3,056.13 on his other
loans.
Alberto further argues that while his loan matured on 19 September 1986, the mortgaged
property covered by TCT No. 31345 was foreclosed two days earlier, on 17 September
1986. It must be stressed, however, that Alberto Urcia had two unpaid loans with CRBI:
one, for P10,000.00, which matured on 19 April 1986; the other, for P8,200.00, which
became due on 19 September 1986.
Alberto insists that the real property covered by TCT No. 32345 stands as security for the
two loans, implying that the obligations are indivisible. We are not persuaded. The
documents show that the loans were obtained and set to mature on two different dates.
They are obviously separate and distinct from each other although secured by the same
property. CRBI may collect payment on the loans as each falls due. CRBI resorted to the
21
foreclosure of the mortgaged property when Alberto failed to pay his P10,000.00 loan
which became due on 19 April 1986. CRBI apparently did not yet move to collect on
Albertos P8,200.00 loan which, at that time, had not matured.
WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED.
Costs against petitioners.
SO ORDERED.
G.R. No. 179901 April 14, 2008
BANCO DE ORO-EPCI, INC.,* petitioner,
vs.
JAPRL DEVELOPMENT CORPORATION, RAPID FORMING
CORPORATION and JOSE U. AROLLADO, respondents.
DECISION
CORONA, J.:
This petition for review on certiorari1 seeks to set aside the decision2 of the Court of
Appeals (CA) in CA-G.R. SP No. 95659 and its resolution3 denying reconsideration.
After evaluating the financial statements of respondent JAPRL Development Corporation
(JAPRL) for fiscal years 1998, 1999 and 2000,4 petitioner Banco de Oro-EPCI, Inc.
extended credit facilities to it amounting to P230,000,0005 on March 28, 2003.
Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRL's
sureties.
Despite its seemingly strong financial position, JAPRL defaulted in the payment of four
trust receipts soon after the approval of its loan.6 Petitioner later learned from MRM
Management, JAPRL's financial adviser, that JAPRL had altered and falsified its
financial statements. It allegedly bloated its sales revenues to post a big income from
operations for the concerned fiscal years to project itself as a viable investment.7 The
information alarmed petitioner. Citing relevant provisions of the Trust Receipt
Agreement,8 it demanded immediate payment of JAPRL's outstanding obligations
amounting to P194,493,388.98.9
SP Proc. No. Q-03-064
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation
in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC).10 It
disclosed that it had been experiencing a decline in sales for the three preceding years
and a staggering loss in 2002.11
Because the petition was sufficient in form and substance, a stay order12 was issued on
September 28, 2003.13 However, the proposed rehabilitation plan for JAPRL and RFC
was eventually rejected by the Quezon City RTC in an order dated May 9, 2005.14
Civil Case No. 03-991
Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of
money with an application for the issuance of a writ of preliminary attachment against
respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003.15
Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered
and falsified its financial statements.16
The Makati RTC subsequently denied the application (for the issuance of a writ of
preliminary attachment) for lack of merit as petitioner was unable to substantiate its
allegations. Nevertheless, it ordered the service of summons on respondents.17 Pursuant
to the said order, summonses were issued against respondents and were served upon
them.
Respondents moved to dismiss the complaint due to an allegedly invalid service of
summons.18 Because the officer's return stated that an "administrative assistant" had
received the summons,19 JAPRL and RFC argued that Section 11, Rule 14 of the Rules
of Court20 contained an exclusive list of persons on whom summons against a
corporation must be served.21 An "administrative assistant" was not one of them.
Arollado, on the other hand, cited Section 6, Rule 14 thereof22 which mandated personal
service of summons on an individual defendant.23
The Makati RTC, in its October 10, 2005 order,24 noted that because corporate officers
are often busy, summonses to corporations are usually received only by administrative
assistants or secretaries of corporate officers in the regular course of business. Hence, it
denied the motion for lack of merit.
Respondents moved for reconsideration25 but withdrew it before the Makati RTC could
resolve the matter.26
RTC SEC Case No. 68-2008-C
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation
in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRL's petition
sufficient in form and in substance, the Calamba RTC issued a stay order27 on March 13,
2006.
In view of the said order, respondents hastily moved to suspend the proceedings in Civil
Case No. 03-991 pending in the Makati RTC.28
On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but
ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily
liable with JAPRL and RFC, the proceedings against him should continue.29
Respondents moved for reconsideration30 but it was denied.31
On August 11, 2006, respondents filed a petition for certiorari32 in the CA alleging that
the Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and
July 7, 2006 orders.33 They asserted that the court did not acquire jurisdiction over their
persons due to defective service of summons. Thus, the Makati RTC could not hear the
complaint for sum of money.34
Credit - 111016
In its June 7, 2007 decision, the CA held that because the summonses were served on a
mere administrative assistant, the Makati RTC never acquired jurisdiction over
respondents. Thus, it granted the petition.35
Petitioner moved for reconsideration but it was denied.36 Hence, this petition.
Petitioner asserts that respondents maliciously evaded the service of summonses to
prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they
employed bad faith to delay proceedings by cunningly exploiting procedural
technicalities to avoid the payment of their obligations.37
We grant the petition.
Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the
Makati RTC over their persons (i.e., whether or not the service of summons was validly
made). Therefore, it was only the October 10, 2005 order of the said trial court which
they in effect assailed.38 However, because they withdrew their motion for
reconsideration of the said order, it became final. Moreover, the petition was filed 10
months and 1 day after the assailed order was issued by the Makati RTC,39 way past the
60 days allowed by the Rules of Court. For these reasons, the said petition should have
been dismissed outright by the CA.
More importantly, when respondents moved for the suspension of proceedings in Civil
Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the
Calamba RTC), they waived whatever defect there was in the service of summons and
were deemed to have submitted themselves voluntarily to the jurisdiction of the Makati
RTC.40
We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC
suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are
concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay
order defers all actions or claims against the corporation seeking rehabilitation41 from
the date of its issuance until the dismissal of the petition or termination of the
rehabilitation proceedings.42
The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if
there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can
demand payment from the surety solidarily liable with the corporation seeking
rehabilitation.43
Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose
of preventing, or at least delaying, the collection of their legitimate obligations. Their
reprehensible scheme impeded the speedy dispensation of justice. More importantly,
however, considering the amount involved, respondents utterly disregarded the
significance of a stable and efficient banking system to the national economy.44
Banks are entities engaged in the lending of funds obtained through deposits45 from the
public.46 They borrow the public's excess money (i.e., deposits) and lend out the same.47
Banks therefore redistribute wealth in the economy by channeling idle savings to
profitable investments.
Banks operate (and earn income) by extending credit facilities financed primarily by
deposits from the public.48 They plough back the bulk of said deposits into the economy
in the form of loans.49 Since banks deal with the public's money, their viability depends
largely on their ability to return those deposits on demand. For this reason, banking is
undeniably imbued with public interest. Consequently, much importance is given to
sound lending practices and good corporate governance.50
Protecting the integrity of the banking system has become, by large, the responsibility of
banks. The role of the public, particularly individual borrowers, has not been emphasized.
Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining
loans without intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial
statements in order to obtain its credit facilities. Considering the amount of petitioner's
exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not
respondents indeed committed fraud in securing the credit accomodation.
A finding of fraud will change the whole picture. In this event, petitioner can use the
finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC.
The protective remedy of rehabilitation was never intended to be a refuge of a debtor
guilty of fraud.
Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the
three respondents guided by Section 40 of the General Banking Law which states:
Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before
granting a loan or other credit accommodation, a bank must ascertain that the debtor is
capable of fulfilling his commitments to the bank.
Towards this end, a bank may demand from its credit applicants a statement of their assets
and liabilities and of their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary Board to enable the bank
to properly evaluate the credit application which includes the corresponding financial
statements submitted for taxation purposes to the Bureau of Internal Revenue. Should
such statements prove to be false or incorrect in any material detail, the bank may
terminate any loan or credit accommodation granted on the basis of said statements and
shall have the right to demand immediate repayment or liquidation of the obligation.
In formulating the rules and regulations under this Section, the Monetary Board shall
recognize the peculiar characteristics of microfinancing, such as cash flow-based lending
to the basic sectors that are not covered by traditional collateral. (emphasis supplied)
Under this provision, banks have the right to annul any credit accommodation or loan,
and demand the immediate payment thereof, from borrowers proven to be guilty of fraud.
Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other
appropriate damages.51
Finally, considering that respondents failed to pay the four trust receipts, the Makati City
Prosecutor should investigate whether or not there is probable cause to indict respondents
for violation of Section 13 of the Trust Receipts Law.52
22
ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and
August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are
REVERSED and SET ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously
with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and
the other respondents if warranted.
SO ORDERED.
G.R. No. 154740 April 16, 2008
HENRY DELA RAMA CO., petitioner,
vs.
ADMIRAL UNITED SAVINGS BANK, respondent.
DECISION
NACHURA, J.:
On appeal is the February 19, 2002 Decision1 of the Court of Appeals (CA) in CA-G.R.
CV No. 42167, setting aside the May 18, 1991 Decision2 of the Regional Trial Court
(RTC) of Quezon City, Branch 100, as well as its subsequent Resolution,3 denying
petitioners motion for reconsideration.
On February 28, 1983, Admiral United Savings Bank (ADMIRAL) extended a loan of
Five Hundred Thousand Pesos (P500,000.00) to petitioner Henry Dela Rama Co (Co),
with Leocadio O. Isip (Isip) as co-maker. The loan was evidenced by Promissory Note
No. A1-0414 dated February 28, 1983 and payable on or before February 23, 1984, with
interest at the rate of 18% per annum and service charge of 10% per annum. The note
also provided for liquidated damages at the rate of 3% per month plus incidental cost of
collection and/or legal fees/cost, in the event of non-payment on due date.
Co and Isip failed to pay the loan when it became due and demandable. Demands for
payment were made by ADMIRAL, but these were not heeded. Consequently,
ADMIRAL filed a collection case against Co and Isip with the RTC of Quezon City,
docketed as Civil Case No. Q-48543.
Co answered the complaint alleging that the promissory note was sham and frivolous;
hence, void ab initio. He denied receiving any benefits from the loan transaction, claiming
that ADMIRAL merely induced him into executing a promissory note. He also claimed
that the obligations, if any, had been paid, waived or otherwise extinguished. Co allegedly
ceded several vehicles to ADMIRAL, the value of which was more than enough to cover
the alleged obligation. He added that there was condonation of debt and novation of the
obligation. ADMIRAL was also guilty of laches in prosecuting the case. Finally, he
argued that the case was prematurely filed and was not prosecuted against the real parties-
in-interest.5
Pending resolution of the case, Isip died. Accordingly, he was dropped from the
complaint.
Co then filed a third party complaint against Metropolitan Rentals & Sales, Inc. (METRO
RENT). He averred that the incorporators and officers of METRO RENT were the ones
who prodded him in obtaining a loan of P500,000.00 from ADMIRAL. The proceeds of
the loan were given to the directors and officers of METRO RENT, who assured him of
prompt payment of the loan obligation. METRO RENT also assured him that he would
be discharged from all liabilities under the promissory note, but it did not make good its
promise. Co, thus, prayed that METRO RENT be adjudged liable to ADMIRAL for the
payment of the obligation under the promissory note.6
Traversing the third party complaint, METRO RENT denied receiving the loan proceeds
from Co. It claimed that the loan was Cos personal loan from which METRO RENT
derived no benefit, thus, it cannot be held liable for the payment of the same.7
In due course and after hearing, the RTC rendered a Decision8 on May 18, 1991,
dismissing the complaint on the ground that the obligation had already been paid or
otherwise extinguished. It primarily relied on the release of mortgage executed by the
officers of ADMIRAL, and on Cos testimony that METRO RENT already paid the loan.
The RTC also dismissed Cos third party complaint against METRO RENT, as well as
his counterclaim against ADMIRAL for lack of basis.
ADMIRAL appealed the dismissal of the complaint to the CA.9 On February 19, 2002,
the CA rendered the assailed decision.10 Reversing the RTC, the CA found
preponderance of evidence to hold Co liable for the payment of his loan obligation to
ADMIRAL. It rejected Cos assertion that he merely acted as an accommodation party
for METRO RENT, declaring that Cos liability under the note was apparent in his
express, absolute and unconditional promise to pay the loan upon maturity. The CA
further held that whatever agreement Co had with METRO RENT cannot bind
ADMIRAL since there is no showing that the latter was aware of the agreement, let alone
consented to it. The CA also rejected Cos alternative defense that METRO RENT
already paid the loan, finding the testimonial evidence in support of the assertion as pure
hearsay.
The CA disposed, thus:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from
must be as it hereby is, REVERSED and SET ASIDE, and a new one entered
CONDEMNING [petitioner] Henry Dela Rama Co to pay [respondent] Admiral United
Savings Bank: (1) the sum of FIVE HUNDRED THOUSAND (P500,000.00) PESOS,
Philippine Currency, with interest at eighteen percent (18%) per annum, and charges of
ten percent (10%) per annum, reckoned from 28 February 1984, until fully paid; (2) the
sum equivalent to three percent (3%) per month from said due date until fully paid, by
way of liquidated damages; and, (3) the sum equivalent to twenty-five percent (25%) of
the total amount due in the concept of attorneys fees.
For insufficiency of evidence, the third party complaint against third party defendant
Metropolitan Rental and Sales, Incorporated, is DISMISSED. Without costs.
SO ORDERED.11
Co filed a motion for reconsideration, but the CA denied the same on August 7, 2002.12
Credit - 111016
Hence, this appeal by Co faulting the CA for reversing the RTC.
The appeal lacks merit.
Co has not denied the authenticity and due execution of the promissory note. He,
however, asserts that he is not legally bound by said document because he merely acted
as an accommodation party for METRO RENT. He claimed the he signed the note only
for the purpose of lending his name to METRO RENT, without receiving value therefor.
The argument fails to persuade.
The document, bearing Cos signature, speaks for itself. To repeat, Co has not questioned
the genuineness and due execution of the note. By signing the promissory note, Co
acknowledged receipt of the loan amounting to P500,000.00, and undertook to pay the
same, plus interest, to ADMIRAL on or before February 28, 1984. Thus, he cannot
validly set up the defense that he did not receive the value of the note or any consideration
therefor.
At any rate, Cos assertion that he merely acted as an accommodation party for METRO
RENT cannot release him from liability under the note. An accommodation party who
lends his name to enable the accommodated party to obtain credit or raise money is liable
on the instrument to a holder for value even if he receives no part of the consideration.13
He assumes the obligation to the other party and binds himself to pay the note on its due
date. By signing the note, Co thus became liable for the debt even if he had no direct
personal interest in the obligation or did not receive any benefit therefrom.
In Sierra v. Court of Appeals,14 we held that:
A promissory note is a solemn acknowledgment of a debt and a formal commitment to
repay it on the date and under the conditions agreed upon by the borrower and the lender.
A person who signs such an instrument is bound to honor it as a legitimate obligation
duly assumed by him through the signature he affixes thereto as a token of his good faith.
If he reneges on his promise without cause, he forfeits the sympathy and assistance of
this Court and deserves instead its sharp repudiation.
Co is not unfamiliar with commercial transactions. He is a certified public accountant,
who obtained his bachelors degree in accountancy from De La Salle University.
Certainly, he fully understood the import and consequences of what he was doing when
he signed the promissory note. He even mortgaged his own properties to secure payment
of the loan. His disclaimer, therefore, does not inspire belief.
Co also offered the alternative defense that the loan had already been extinguished by
payment. He testified that METRO RENT paid the loan a week before April 11, 1983.15
In Alonzo v. San Juan,16 we held that the receipts of payment, although not exclusive,
were deemed to be the best evidence of the fact of payment.
In this case, no receipt was presented to substantiate the claim of payment. Instead, Co
presented a Release of Real Estate Mortgage17 dated April 11, 1983 to prove his
assertion. But a cancellation of mortgage is not conclusive proof of payment of a loan,
even as it may serve as basis for an inference that payment of the principal obligation had
been made.
Unfortunately for Co, no such inference can be made from the deed he presented. The
Release of Real Estate Mortgage reads:
The ADMIRAL UNITED SAVINGS BANK, a banking institution duly organized and
existing under and by virtue of the laws of the Philippines, with offices at S. Medalla
Building, EDSA corner Gen. MacArthur, Cubao, Quezon City, Metro-Manila,
represented in this act by its First Vice-President, MR. EMMANUEL ALMANZOR, and
its Asst. Vice President, MR. ROSSINI PETER G. GAMALINDA, the mortgagee of the
properties described in Transfer Certificates of Title Nos. 3478 and 95759 of the Registry
of Deeds of Laguna in the MORTGAGE executed on February 24, 1983 and
acknowledged on the same date before Atty. Benjamin Baens del Rosario, Notary Public
for and in Quezon City, Metro Manila who entered in his notarial protocol as Doc. No.
70, Page No. 15, Book No. IV, Series of 1983, in favor of the said Bank, by HENRY
DE[LA] RAMA CO, hereby RELEASES and DISCHARGES the mortgage on the
aforesaid Transfer Certificates of Title Nos. 3478 and 95759 of the Registry of Deeds of
Laguna.18
The record is bereft of any showing that the promissory note was secured by a mortgage
over properties covered by TCT Nos. 3478 and 95759. Thus, it cannot be assumed that
the mortgage executed on February 28, 1983, and released on April 11, 1983, was the
security for the subject promissory note.
In addition, TCT Nos. 3478 and 95759, the supposed collaterals for the loan, are still with
the bank.19 If indeed there was payment of the principal obligation and cancellation of
the mortgage in 1983, Co should have immediately demanded for the return of the TCTs.
This he failed to do.20 It was only on June 11, 1987, after the filing of the complaint with
the RTC, that Co demanded for the return of TCT Nos. 3478 and 95759.21 Cos inaction
militates against his assertion.
Jurisprudence is replete with rulings that in civil cases, the party who alleges a fact has
the burden of proving it. Burden of proof is the duty of a party to present evidence on the
facts in issue necessary to prove the truth of his claim or defense by the amount of
evidence required by law.22 Thus, a party who pleads payment as a defense has the
burden of proving that such payment had, in fact, been made. When the plaintiff alleges
nonpayment, still, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment.23
Verily, Co failed to discharge this burden. His bare testimonial assertion that METRO
RENT paid the loan a week before April 11, 1983 or forty-five (45) days after [the]
release of the loan, cannot be characterized as adequate and competent proof of payment.
Accordingly, the CA rightly rejected his alternative defense of payment.
Similarly, Cos protestation that the cancellation of the real estate mortgage extinguished
his obligation to pay the loan cannot be sustained. We perceive it as a strained attempt to
rationalize his untenable position.
A real estate mortgage is but an accessory contract to secure the loan in the promissory
note. Its cancellation does not automatically result in the extinguishment of the loan.
Being the principal contract, the loan is unaffected by the release or cancellation of the
23
mortgage. Certainly, a debt may subsist even without a mortgage. Thus, in the case at
bench, ADMIRAL can still run after Co for the payment of the loan under the promissory
note, even after the release of the mortgage on the properties, especially because there
was no showing that the mortgage was constituted as a security for the loan covered by
the promissory note.
In sum, the CA committed no reversible error in holding Co liable for the payment of the
loan.
However, we find a need to modify the damages awarded in favor of ADMIRAL.
The CA, in conformity with the terms of the promissory note, awarded to ADMIRAL the
amount of P500,000.00 with interest at 18% per annum, and service charge at the rate of
10% per annum, computed from February 28, 1984 until fully paid. It also awarded the
sum equivalent to three percent (3%) per month from said due date until fully paid, by
way of liquidated damages, and the sum equivalent to twenty-five (25%) of the total
amount due in the concept of attorneys fees.24
We sustain the interest rate of 18% per annum for being fair and reasonable. However,
equity dictates that we reduce the service charge, liquidated damages and attorneys fees
awarded in favor of ADMIRAL.
In L.M. Handicraft Manufacturing Corporation v. Court of Appeals,25 we held that a
bank is only entitled to a maximum of 2% per annum service charge for amounts not over
P500,000.00. We, therefore, modify the amount of service charge from 10% to 2%, or
P10,000.00 per annum beginning February 28, 1984 until full payment of the loan
obligation.
As to the awards of liquidated damages and attorneys fees, we acknowledge that the law
allows a party to recover liquidated damages and attorney's fees under a written
agreement, thus:
[T]he attorney's fees here are in the nature of liquidated damages and the stipulation
therefor is aptly called a penal clause. It has been said that so long as such stipulation
does not contravene law, morals, or public order, it is strictly binding upon defendant.
The attorney's fees so provided are awarded in favor of the litigant, not his counsel.
On the other hand, the law also allows parties to a contract to stipulate on liquidated
damages to be paid in case of breach. A stipulation on liquidated damages is a penalty
clause where the obligor assumes a greater liability in case of breach of an obligation.
The obligor is bound to pay the stipulated amount without need for proof on the existence
and on the measure of damages caused by the breach.26
Nonetheless, courts are empowered to reduce such penalty if the same is iniquitous or
unconscionable. Article 1229 of the Civil Code states:
ART. 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
This sentiment is echoed in Article 2227 of the same Code:
ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or unconscionable.
ADMIRAL is more than adequately protected from a possible breach of contract because
of the stipulations on the payment of interest, service fee, liquidated damages and
attorneys fees. Thus, this Court finds the award of liquidated damages and attorneys
fees by the CA exorbitant. After all, liquidated damages and attorneys fees serve the
same purpose, that is, as penalty for breach of contract.27 Accordingly, we reduce the
liquidated damages to P150,000.00, and attorneys fees to 10% of the principal loan or
P50,000.00.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals
in CA-G.R. CV No. 42167 is AFFIRMED with MODIFICATIONS. Petitioner Henry
Dela Rama Co is ordered to pay Admiral United Savings Bank P500,000.00, with interest
at 18% per annum from February 28, 1984 until the loan is fully paid. In addition, Co is
adjudged liable to pay ADMIRAL a service charge equivalent to 2% of the principal loan,
or P10,000.00 per year also from February 28, 1984 until the full payment of the loan;
P150,000.00, as liquidated damages; and P50,000.00, as attorneys fees.
SO ORDERED.
G.R. No. 177886 November 27, 2008
SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA, petitioners,
vs.
EQUITABLE PCI BANK, INC., respondent.
DECISION
CARPIO MORALES, J.:
Via a contract denominated as "CREDIT LINE AND REAL ESTATE MORTGAGE
AGREEMENT FOR PROPERTY LINE"1 (Credit Line Agreement) executed on March
31, 1997, Leo-Mers Commercial, Inc., as the Client, and its officers spouses Leopoldo
and Mercedita Viola (petitioners) obtained a loan through a credit line facility in the
maximum amount of P4,700,000.00 from the Philippine Commercial International Bank
(PCI Bank), which was later merged with Equitable Bank and became known as
Equitable PCI Bank, Inc. (respondent).
The Credit Line Agreement stipulated that the loan would bear interest at the "prevailing
PCIBank lending rate" per annum on the principal obligation and a "penalty fee of three
percent (3%) per month on the outstanding amount."
To secure the payment of the loan, petitioners executed also on March 31, 1997 a "Real
Estate Mortgage"2 in favor of PCIBank over their two parcels of land covered by Transfer
Certificates of Title No. N-113861 (consisting of 300 square meters, more or less ) and
N-129036 (consisting of 446 square meters, more or less) of the Registry of Deeds of
Marikina.
Credit - 111016
Petitioners availed of the full amount of the loan. Subsequently, they made partial
payments which totaled P3,669,210.67. By respondents claim, petitioner had since
November 24, 2000 made no further payments and despite demand, they failed to pay
their outstanding obligation which, as of September 30, 2002, totaled P14,024,623.22,
broken down as follows:
(a)
Principal obligation
P4,783,254.69
(b)
Past due interest from 11/24/00 to 09/30/02 at 15% interest
P1,345,290.38
(c)
Penalty at 3% per month from 03/31/98 to 02/23/02
P7,896,078.15
P14,024,623.223
(Underscoring supplied)
Respondent thus extrajudicially foreclosed the mortgage before the Office of the Clerk
of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court (RTC) of Marikina
City. The mortgaged properties were sold on April 10, 2003 for P4,284,000.00 at public
auction to respondent, after which a Certificate of Sale dated April 21, 20034 was issued.
More than five months later or on October 8, 2003, petitioners filed a complaint5 for
annulment of foreclosure sale, accounting and damages before the Marikina RTC,
docketed as Civil Case No. 2003-905-MK and raffled to Branch 192. Petitioners alleged,
inter alia, that they had made substantial payments of P3,669,210.67 receipts of which
were issued without respondent specifying "whether the payment was for interest, penalty
or the principal obligation;" that based on respondents statement of account, not a single
centavo of their payments was applied to the principal obligation; that every time
respondent sent them a statement of account and demand letters, they requested for a
proper accounting for the purpose of determining their actual obligation, but all their
requests were unjustifiably ignored on account of which they were forced to discontinue
payment; that "the foreclosure proceedings and auction sale were not only irregularly and
prematurely held but were null and void because the mortgage debt is only P2,224,073.31
on the principal obligation and P1,455,137.36 on the interest, or a total of only
P3,679,210.67 as of April 15, 2003, but the mortgaged properties were sold to satisfy an
inflated and erroneous principal obligation of P4,783,254.69, plus 3% penalty fee per
month or 33% per year and 15% interest per year, which amounted to P14,024,623.22 as
of September 30, 2002;" that "the parties never agreed and stipulated in the real estate
mortgage contract" that the 15% interest per annum on the principal loan and the 3%
penalty fee per month on the outstanding amount would be covered or secured by the
mortgage; that assuming respondent could impose such interest and penalty fee, the same
are "exorbitant, unreasonable, iniquitous and unconscionable, hence, must be reduced;"
and that respondent is only allowed to impose the legal rate of interest of 12% per annum
on the principal loan absent any stipulation thereon.6
In its Answer, respondent denied petitioners assertions, contending, inter alia, that the
absence of stipulation in the mortgage contract securing the payment of 15% interest per
annum on the principal loan, as well as the 3% penalty fee per month on the outstanding
amount, is immaterial since the mortgage contract is "a mere accessory contract which
must take its bearings from the principal Credit Line Agreement."7
During the pre-trial conference, the parties defined as sole issue in the case whether the
mortgage contract also secured the payment of 15% interest per annum on the principal
loan of P4,700,000.00 and the 3% penalty fee per month on the outstanding amount,
which interest and penalty fee are stipulated only in the Credit Line Agreement.8
By Decision9 of September 14, 2005, the trial court sustained respondents affirmative
position on the issue but found the questioned interest and penalty fee "excessive and
exorbitant." Thus, it equitably reduced the interest on the principal loan from 15% to 12%
per annum and the penalty fee per month on the outstanding amount from 3% to 1.5%
per month.
Accordingly, the court nullified the foreclosure proceedings and the Certificate of Sale
subsequently issued, "without prejudice" to the holding anew of foreclosure proceedings
based on the "re-computed amount" of the indebtedness, "if the circumstances so
warrant."
The dispositive portion of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1) The interest on the principal loan in the amount of Four Million Seven Hundred
Thousand (P4,700,000.00) Pesos should be recomputed at 12% per annum;
2) The 3% per month penalty on delinquent account as stipulated by the parties in the
Credit Line Contract dated March 31, 1997 is hereby REDUCED to 1.5% per month;
3) The foreclosure sale conducted on April 10, 2003 by the Clerk of Court and Ex-Officio
Sheriff of Marikina, to satisfy the plaintiffs mortgage indebtedness, and the Certificate
of Sale issued as a consequence of the said proceedings, are declared NULL and VOID,
without prejudice to the conduct of another foreclosure proceedings on the basis of the
re-computed amount of the plaintiffs indebtedness, if the circumstances so warrant.
No pronouncement as to costs.
SO ORDERED. (Underscoring supplied)
Petitioners filed a Motion for Partial Reconsideration,10 contending that the penalty fee
per month on the outstanding amount should have been taken out of the coverage of the
24
mortgage contract as it was not stipulated therein. By Order dated December 6, 2005, the
trial court denied the motion.
On appeal by petitioners, the Court of Appeals, by Decision11 of February 21, 2007,
dismissed the same for lack of merit, holding that "the Real Estate Mortgage covers not
only the principal amount [of P4,700,000.00] but also the interest and bank charges,
which [phrase bank charges] refers to the penalty charges stipulated in the Credit Line
Agreement."12
Petitioners Motion for Reconsideration having been denied by Resolution13 of May 16,
2007, they filed the present Petition for Review on Certiorari, alleging that
THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
IN DECIDING THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE
DECISIONS OF THE SUPREME COURT BY RULING THAT THERE IS NO
AMBIGUITY IN CONSTRUING TOGETHER THE CREDIT LINE AND
MORTGAGE CONTRACTS WHICH PROVIDED CONFLICTING PROVISIONS AS
TO INTEREST AND PENALTY.14
The only issue is whether the mortgage contract also secured the penalty fee per month
on the outstanding amount as stipulated in the Credit Line Agreement.
The Court holds not.
A mortgage must "sufficiently describe the debt sought to be secured, which description
must not be such as to mislead or deceive, and an obligation is not secured by a mortgage
unless it comes fairly within the terms of the mortgage.15
In the case at bar, the parties executed two separate documents on March 31, 1997 the
Credit Line Agreement granting the Client a loan through a credit facility in the maximum
amount of P4,700,000.00, and the Real Estate Mortgage contract securing the payment
thereof. Undisputedly, both contracts were prepared by respondent and written in fine
print, single space.
The Credit Line Agreement contains the following stipulations on interest and
delinquency charges:
A. CREDIT FACILITY
9. INTEREST ON AVAILMENTS
The CLIENT shall pay the BANK interest on each availment against the Credit Facility
at the rate of:
PREVAILING PCIBANK LENDING RATE
for the first interest period as defined in A(10) hereof. x x x.
xxxx
15. DELINQUENCY
CLIENTs account shall be considered delinquent if the availments exceed the amount
of the line and/or in case the Account is debited for unpaid interest and the Available
Balance is insufficient to cover the amount debited. In such cases, the Available Balance
shall become negative and the CLIENT shall pay the deficiency immediately in addition
to collection expenses incurred by the BANK and a penalty fee of three percent (3%) per
month of the outstanding amount to be computed from the day deficiency is incurred up
to the date of full payment thereon.
x x x x.16 (Underscoring supplied)
The Real Estate Mortgage contract states its coverage, thus:
That for and in consideration of certain loans, credit and other banking facilities obtained
x x x from the Mortgagee, the principal amount of which is PESOS FOUR MILLION
SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00) Philippine Currency, and
for the purpose of securing the payment thereof, including the interest and bank charges
accruing thereon, the costs of collecting the same and of taking possession of and keeping
the mortgaged propert[ies], and all other expenses to which the Mortgagee may be put in
connection with or as an incident to this mortgage, as well as the faithful compliance with
the terms and conditions of this agreement and of the separate instruments under which
the credits hereby secured were obtained, the Mortgagor does hereby constitute in favor
of the Mortgagee, its successors or assigns, a mortgage on the real property particularly
described, and the location of which is set forth, in the list appearing at the back hereof
and/or appended hereto, of which the Mortgagor declare that he is the absolute owner and
the one in possession thereof, free and clear of any liens, encumbrances and adverse
claims.17 (Emphasis and underscoring supplied)
The immediately-quoted provision of the mortgage contract does not specifically mention
that, aside from the principal loan obligation, it also secures the payment of "a penalty
fee of three percent (3%) per month of the outstanding amount to be computed from the
day deficiency is incurred up to the date of full payment thereon," which penalty as the
above-quoted portion of the Credit Line Agreement expressly stipulates.
Since an action to foreclose "must be limited to the amount mentioned in the mortgage"18
and the penalty fee of 3% per month of the outstanding obligation is not mentioned in the
mortgage, it must be excluded from the computation of the amount secured by the
mortgage.
The ruling of the Court of Appeals in its assailed Decision that the phrase "including the
interest and bank charges" in the mortgage contract "refers to the penalty charges
stipulated in the Credit Line Agreement" is unavailing.
"Penalty fee" is entirely different from "bank charges." The phrase "bank charges" is
normally understood to refer to compensation for services. A "penalty fee" is likened to
a compensation for damages in case of breach of the obligation. Being penal in nature,
such fee must be specific and fixed by the contracting parties, unlike in the present case
which slaps a 3% penalty fee per month of the outstanding amount of the obligation.
Moreover, the "penalty fee" does not belong to the species of obligation enumerated in
the mortgage contract, namely: "loans, credit and other banking facilities obtained x x x
from the Mortgagee, . . . including the interest and bank charges, . . . the costs of collecting
Credit - 111016
the same and of taking possession of and keeping the mortgaged properties, and all other
expenses to which the Mortgagee may be put in connection with or as an incident to this
mortgage . . ."
In Philippine Bank of Communications v. Court of Appeals19 which raised a similar
issue, this Court held:
The sole issue in this case is whether, in the foreclosure of a real estate mortgage, the
penalties stipulated in two promissory notes secured by the mortgage may be charged
against the mortgagors as part of the sums secured, although the mortgage contract does
not mention the said penalties.
xxxx
We immediately discern that the mortgage contract does not at all mention the penalties
stipulated in the promissory notes. However, the petitioner insists that the penalties are
covered by the following provision of the mortgage contract:
This mortgage is given as security for the payment to the MORTGAGEE on demand or
at maturity, as the case may be, of all promissory notes, letters of credit, trust receipts,
bills of exchange, drafts, overdrafts and all other obligations of every kind already
incurred or which hereafter may be incurred.
xxxx
The Court is unconvinced, for the cases relied upon by the petitioner are inapplicable. x
x x.
xxxx
The mortgage contract is also one of adhesion as it was prepared solely by the petitioner
and the only participation of the other party was the affixing of his signature or "adhesion"
thereto. Being a contract of adhesion, the mortgage is to be strictly construed against the
petitioner, the party which prepared the agreement.
A reading, not only of the earlier quoted provision, but of the entire mortgage contract
yields no mention of penalty charges. Construing this silence strictly against the
petitioner, it can fairly be concluded that the petitioner did not intend to include the
penalties on the promissory notes in the secured amount. This explains the finding by the
trial court, as affirmed by the Court of Appeals, that "penalties and charges are not due
for want of stipulation in the mortgage contract."
Indeed, a mortgage must sufficiently describe the debt sought to be secured, which
description must not be such as to mislead or deceive, and an obligation is not secured by
a mortgage unless it comes fairly within the terms of the mortgage. In this case, the
mortgage contract provides that it secures notes and other evidences of indebtedness.
Under the rule of ejusdem generis, where a description of things of a particular class or
kind is "accompanied by words of a generic character, the generic words will usually be
limited to things of a kindred nature with those particularly enumerated . . . " A penalty
charge does not belong to the species of obligations enumerated in the mortgage, hence,
the said contract cannot be understood to secure the penalty.20 (Emphasis and
underscoring supplied)
Respondents contention that the absence in the mortgage contract of a stipulation
securing the payment of the 3% penalty fee per month on the outstanding amount is of
no consequence, the deed of mortgage being merely an "accessory contract" that "must
take its bearings from the principal Credit Line Agreement,"21 fails. Such absence is
significant as it
creates an ambiguity between the two contracts, which ambiguity must be resolved in
favor of petitioners and against respondent who drafted the contracts. Again, as stressed
by the Court in Philippine Bank of Communications:
There is also sufficient authority to declare that any ambiguity in a contract whose terms
are susceptible of different interpretations must be read against the party who drafted it.
A mortgage and a note secured by it are deemed parts of one transaction and are construed
together, thus, an ambiguity is created when the notes provide for the payment of a
penalty but the mortgage contract does not. Construing the ambiguity against the
petitioner, it follows that no penalty was intended to be covered by the mortgage. The
mortgage contract consisted of three pages with no less than seventeen conditions in fine
print; it included provisions for interest and attorneys fees similar to those in the
promissory notes; and it even provided for the payment of taxes and insurance charges.
Plainly, the petitioner can be as specific as it wants to be, yet it simply did not specify nor
even allude to, that the penalty in the promissory notes would be secured by the mortgage.
This can then only be interpreted to mean that the petitioner had no design of including
the penalty in the amount secured.22 (Emphasis and underscoring supplied)
WHEREFORE, the assailed Court of Appeals Decision of February 21, 2007 and
Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No. 86412 affirming the
trial courts decision are, in light of the foregoing disquisition, AFFIRMED with
MODIFICATION in that the "penalty fee" per month of the outstanding obligation is
excluded in the computation of the amount secured by the Real Estate Mortgage executed
by petitioners in respondents favor.
SO ORDERED.
G.R. No. 172592 July 9, 2008
SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO-ONG, Petitioners,
vs.
ROBAN LENDING CORPORATION, Respondent.
AUSTRIA-MARTINEZ,*
DECISION
CARPIO MORALES, J.:
On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo N.
Ong and Edna Sheila Paguio-Ong obtained several loans from Roban Lending
25
Corporation (respondent) in the total amount of 4,000,000.00. These loans were secured
by a real estate mortgage on petitioners parcels of land located in Binauganan, Tarlac
City and covered by TCT No. 297840.1
On February 12, 2001, petitioners and respondent executed an Amendment to Amended
Real Estate Mortgage2 consolidating their loans inclusive of charges thereon which
totaled 5,916,117.50. On even date, the parties executed a Dacion in Payment
Agreement3 wherein petitioners assigned the properties covered by TCT No. 297840 to
respondent in settlement of their total obligation, and a Memorandum of Agreement4
reading:
That the FIRST PARTY [Roban Lending Corporation] and the SECOND PARTY [the
petitioners] agreed to consolidate and restructure all aforementioned loans, which have
been all past due and delinquent since April 19, 2000, and outstanding obligations totaling
P5,916,117.50. The SECOND PARTY hereby sign [sic] another promissory note in the
amount of P5,916,117.50 (a copy of which is hereto attached and forms xxx an integral
part of this document), with a promise to pay the FIRST PARTY in full within one year
from the date of the consolidation and restructuring, otherwise the SECOND PARTY
agree to have their "DACION IN PAYMENT" agreement, which they have executed and
signed today in favor of the FIRST PARTY be enforced[.]5
In April 2002 (the day is illegible), petitioners filed a Complaint,6 docketed as Civil Case
No. 9322, before the Regional Trial Court (RTC) of Tarlac City, for declaration of
mortgage contract as abandoned, annulment of deeds, illegal exaction, unjust enrichment,
accounting, and damages, alleging that the Memorandum of Agreement and the Dacion
in Payment executed are void for being pactum commissorium.7
Petitioners alleged that the loans extended to them from July 14, 1999 to March 20, 2000
were founded on several uniform promissory notes, which provided for 3.5% monthly
interest rates, 5% penalty per month on the total amount due and demandable, and a
further sum of 25% attorneys fees thereon,8 and in addition, respondent exacted certain
sums denominated as "EVAT/AR."9 Petitioners decried these additional charges as
"illegal, iniquitous, unconscionable, and revolting to the conscience as they hardly allow
any borrower any chance of survival in case of default."10
Petitioners further alleged that they had previously made payments on their loan accounts,
but because of the illegal exactions thereon, the total balance appears not to have moved
at all, hence, accounting was in order.11
Petitioners thus prayed for judgment:
a) Declaring the Real Estate Mortgage Contract and its amendments x x x as null and
void and without legal force and effect for having been renounced, abandoned, and given
up;
b) Declaring the "Memorandum of Agreement" xxx and "Dacion in Payment" x x x as
null and void for being pactum commissorium;
c) Declaring the interests, penalties, Evat [sic] and attorneys fees assessed and loaded
into the loan accounts of the plaintiffs with defendant as unjust, iniquitous,
unconscionable and illegal and therefore, stricken out or set aside;
d) Ordering an accounting on plaintiffs loan accounts to determine the true and correct
balances on their obligation against legal charges only; and
e) Ordering defendant to [pay] to the plaintiffs: --
e.1 Moral damages in an amount not less than P100,000.00 and exemplary damages of
P50,000.00;
e.2 Attorneys fees in the amount of P50,000.00 plus P1,000.00 appearance fee per
hearing; and
e.3 The cost of suit.12
as well as other just and equitable reliefs.
In its Answer with Counterclaim,13 respondent maintained the legality of its transactions
with petitioners, alleging that:
xxxx
If the voluntary execution of the Memorandum of Agreement and Dacion in Payment
Agreement novated the Real Estate Mortgage then the allegation of Pactum
Commissorium has no more legal leg to stand on;
The Dacion in Payment Agreement is lawful and valid as it is recognized x x x under Art.
1245 of the Civil Code as a special form of payment whereby the debtor-Plaintiffs
alienates their property to the creditor-Defendant in satisfaction of their monetary
obligation;
The accumulated interest and other charges which were computed for more than two (2)
years would stand reasonable and valid taking into consideration [that] the principal loan
is 4,000,000 and if indeed it became beyond the Plaintiffs capacity to pay then the fault
is attributed to them and not the Defendant[.]14
After pre-trial, the initial hearing of the case, originally set on December 11, 2002, was
reset several times due to, among other things, the parties efforts to settle the case
amicably.151avvphi1
During the scheduled initial hearing of May 7, 2003, the RTC issued the following order:
Considering that the plaintiff Wilfredo Ong is not around on the ground that he is in
Manila and he is attending to a very sick relative, without objection on the part of the
defendants counsel, the initial hearing of this case is reset to June 18, 2003 at 10:00
oclock in the morning.
Just in case [plaintiffs counsel] Atty. Concepcion cannot present his witness in the person
of Mr. Wilfredo Ong in the next scheduled hearing, the counsel manifested that he will
submit the case for summary judgment.16 (Underscoring supplied)
It appears that the June 18, 2003 setting was eventually rescheduled to February 11, 2004
at which both counsels were present17 and the RTC issued the following order:
Credit - 111016
The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 oclock in the
morning. However, the counsels are directed to be ready with their memorand[a] together
with all the exhibits or evidence needed to support their respective positions which should
be the basis for the judgment on the pleadings if the parties fail to settle the case in the
next scheduled setting.
x x x x18 (Underscoring supplied)
At the scheduled April 14, 2004 hearing, both counsels appeared but only the counsel of
respondent filed a memorandum.19
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on the basis
of the pleadings that there was no pactum commissorium, dismissed the complaint.20
On appeal,21 the Court of Appeals22 noted that
x x x [W]hile the trial court in its decision stated that it was rendering judgment on the
pleadings, x x x what it actually rendered was a summary judgment. A judgment on the
pleadings is proper when the answer fails to tender an issue, or otherwise admits the
material allegations of the adverse partys pleading. However, a judgment on the
pleadings would not have been proper in this case as the answer tendered an issue, i.e.
the validity of the MOA and DPA. On the other hand, a summary judgment may be
rendered by the court if the pleadings, supporting affidavits, and other documents show
that, except as to the amount of damages, there is no genuine issue as to any material
fact.23
Nevertheless, finding the error in nomenclature "to be mere semantics with no bearing on
the merits of the case",24 the Court of Appeals upheld the RTC decision that there was
no pactum commissorium.25
Their Motion for Reconsideration26 having been denied,27 petitioners filed the instant
Petition for Review on Certiorari,28 faulting the Court of Appeals for having committed
a clear and reversible error
I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL REQUISITES
WHICH WOULD WARRANT THE SETTING ASIDE OF THE SUMMARY
JUDGMENT IN VIOLATION OF APPELLANTS RIGHT TO DUE PROCESS;
II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS
NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE;
III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE MEMORANDUM
OF AGREEMENT (MOA) AND THE DACION EN PAGO AGREEMENT (DPA)
WERE DESIGNED TO CIRCUMVENT THE LAW AGAINST PACTUM
COMMISSORIUM; and
IV. . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF
AGREEMENT (MOA) AND THE DACION EN PAGO (DPA) ARE NULL AND VOID
FOR BEING CONTRARY TO LAW AND PUBLIC POLICY.29
The petition is meritorious.
Both parties admit the execution and contents of the Memorandum of Agreement and
Dacion in Payment. They differ, however, on whether both contracts constitute pactum
commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dacion in Payment constitute
pactum commissorium, which is prohibited under Article 2088 of the Civil Code which
provides:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose
of them. Any stipulation to the contrary is null and void."
The elements of pactum commissorium, which enables the mortgagee to acquire
ownership of the mortgaged property without the need of any foreclosure proceedings,30
are: (1) there should be a property mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation for automatic appropriation by
the creditor of the thing mortgaged in case of non-payment of the principal obligation
within the stipulated period.31
In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no
provisions for foreclosure proceedings nor redemption. Under the Memorandum of
Agreement, the failure by the petitioners to pay their debt within the one-year period gives
respondent the right to enforce the Dacion in Payment transferring to it ownership of the
properties covered by TCT No. 297840. Respondent, in effect, automatically acquires
ownership of the properties upon petitioners failure to pay their debt within the stipulated
period.
Respondent argues that the law recognizes dacion en pago as a special form of payment
whereby the debtor alienates property to the creditor in satisfaction of a monetary
obligation.32 This does not persuade. In a true dacion en pago, the assignment of the
property extinguishes the monetary debt.33 In the case at bar, the alienation of the
properties was by way of security, and not by way of satisfying the debt.34 The Dacion
in Payment did not extinguish petitioners obligation to respondent. On the contrary,
under the Memorandum of Agreement executed on the same day as the Dacion in
Payment, petitioners had to execute a promissory note for 5,916,117.50 which they were
to pay within one year.35
Respondent cites Solid Homes, Inc. v. Court of Appeals36 where this Court upheld a
Memorandum of Agreement/Dacion en Pago.37 That case did not involve the issue of
pactum commissorium.38
That the questioned contracts were freely and voluntarily executed by petitioners and
respondent is of no moment, pactum commissorium being void for being prohibited by
law.39
Respecting the charges on the loans, courts may reduce interest rates, penalty charges,
and attorneys fees if they are iniquitous or unconscionable.40
This Court, based on existing jurisprudence,41 finds the monthly interest rate of 3.5%, or
42% per annum unconscionable and thus reduces it to 12% per annum. This Court finds
too the penalty fee at the monthly rate of 5% (60% per annum) of the total amount due
26
and demandable principal plus interest, with interest not paid when due added to and
becoming part of the principal and likewise bearing interest at the same rate, compounded
monthly42 unconscionable and reduces it to a yearly rate of 12% of the amount due, to
be computed from the time of demand.43 This Court finds the attorneys fees of 25% of
the principal, interests and interests thereon, and the penalty fees unconscionable, and
thus reduces the attorneys fees to 25% of the principal amount only.44
The prayer for accounting in petitioners complaint requires presentation of evidence,
they claiming to have made partial payments on their loans, vis a vis respondents denial
thereof.45 A remand of the case is thus in order.
Prescinding from the above disquisition, the trial court and the Court of Appeals erred in
holding that a summary judgment is proper. A summary judgment is permitted only if
there is no genuine issue as to any material fact and a moving party is entitled to a
judgment as a matter of law.46 A summary judgment is proper if, while the pleadings on
their face appear to raise issues, the affidavits, depositions, and admissions presented by
the moving party show that such issues are not genuine.47 A genuine issue, as opposed
to a fictitious or contrived one, is an issue of fact that requires the presentation of
evidence.48 As mentioned above, petitioners prayer for accounting requires the
presentation of evidence on the issue of partial payment.
But neither is a judgment on the pleadings proper. A judgment on the pleadings may be
rendered only when an answer fails to tender an issue or otherwise admits the material
allegations of the adverse partys pleadings.49 In the case at bar, respondents Answer
with Counterclaim disputed petitioners claims that the Memorandum of Agreement and
Dation in Payment are illegal and that the extra charges on the loans are
unconscionable.50 Respondent disputed too petitioners allegation of bad faith.51
WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET
ASIDE. The Memorandum of Agreement and the Dacion in Payment executed by
petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent Roban
Lending Corporation on February 12, 2001 are declared NULL AND VOID for being
pactum commissorium.
In line with the foregoing findings, the following terms of the loan contracts between the
parties are MODIFIED as follows:
1. The monthly interest rate of 3.5%, or 42% per annum, is reduced to 12% per annum;
2. The monthly penalty fee of 5% of the total amount due and demandable is reduced to
12% per annum, to be computed from the time of demand; and
3. The attorneys fees are reduced to 25% of the principal amount only.
Civil Case No. 9322 is REMANDED to the court of origin only for the purpose of
receiving evidence on petitioners prayer for accounting.
SO ORDERED.
G.R. No. 150931 July 16, 2008
DR. CECILIA DE LOS SANTOS, Petitioner,
vs.
DR. PRISCILA BAUTISTA VIBAR, Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated 29
June 2001 and Resolution3 dated 21 November 2001 of the Court of Appeals in CA-G.R.
CV No. 66605.
The Facts
Petitioner Cecilia de los Santos (Cecilia) and respondent Priscila Bautista Vibar (Priscila)
were former co-workers in the Medical Department of the Social Security System. They
were close and trusted friends for 33 years.
Sometime in 1994, Cecilia introduced Jose de Leon (de Leon) to Priscila. De Leon needed
money and borrowed 100,000 from Priscila. De Leon issued a promissory note dated 2
June 1994 and bound himself to pay the loan three months from date with a monthly
interest rate of 3%.4 Cecilia signed as a guarantor of de Leons loan.
On 28 June 1995, de Leon asked Priscila for another loan. Together with Cecilia and
Avelina Conte, de Leon went to Priscilas house. Priscila and her sister, Atty. Josefina
Bautista (Atty. Bautista), were present in the same gathering. After some discussion, they
all agreed that the outstanding 100,000 loan together with the accrued interest would be
deducted from the new loan of 500,000.5
De Leon signed a typewritten promissory note, which he brought with him,
acknowledging the debt of 500,000 payable within 12 months from 28 August 1995, at
a fixed monthly interest rate of 3% and a penalty of 2% per month in case of default.6
Then, Cecilia signed as a witness under the phrase "signed in the presence of." However,
Atty. Bautista brought up the need for Cecilia to sign as guarantor. Thereupon, de Leon,
in his own handwriting, inserted the word "guarantor" besides Cecilias name, as Cecilia
nodded her head to what de Leon was doing. De Leon also added the phrase, "as security
for this loan this TCT No. T-47375, Registry of Baguio City, is being submitted by way
of mortgage."
On maturity date, de Leon failed to pay any of the monthly installments. Priscila made
several verbal demands on de Leon for payment but to no avail. Priscilas counsel then
sent de Leon a demand letter dated 17 July 1996 asking for payment of the principal loan
with interest and penalties.7 De Leon failed to respond. On 4 September 1996, Priscilas
counsel again sent a demand letter not only to de Leon as principal debtor, but also to
Cecilia.8 Cecilia was being made to answer for de Leons debt as the latters guarantor.
Cecilia then remitted to Priscila 15,000 to pay one months interest on the loan.9
However, this was the only payment Cecilia made to Priscila as Cecilia claimed she had
no money to pay the full amount of the loan.
Credit - 111016
After several failed attempts to collect the loan, Priscila filed with the Registry of Deeds
of Baguio City an adverse claim on the property registered under TCT No. T-47375.
However, the Register of Deeds denied the registration of Priscilas claim on several
grounds:10
(a) the issue involved is a money claim which does not fall within Section 70 of
Presidential Decree No. 1529;11
(b) the annexes were not marked;
(c) the family names of Jose and Evangeline, registered owners, do not tally with those
on the title;12 and
(d) there is no statement that there is no other provision in the Property Registration
Decree for registering the same.
On 20 November 1996, Priscila filed an action for recovery of money with the Regional
Trial Court of Quezon City, Branch 100, against de Leon and Cecilia.13 De Leon did not
file an answer and the trial court declared him in default. Cecilia, on the other hand, filed
an answer denying that she signed as guarantor of de Leons loan.
On 26 November 1999, the trial court ruled in favor of Cecilia and dismissed the
complaint for insufficiency of evidence.14 On 12 January 2000, Priscila filed a Motion
for Reconsideration on the grounds that the trial court erred in (a) dismissing the
complaint against de Leon despite his being declared in default; and (b) finding that
Cecilia was not a guarantor of de Leons loan.
In an Order dated 8 February 2000,15 the trial court modified its decision and ruled that
de Leon acted fraudulently or in bad faith in refusing to pay his debt to Priscila. However,
the trial court affirmed its decision dismissing the complaint against Cecilia. The trial
court ruled that there was no express consent given by Cecilia binding her as guarantor.
The dispositive portion of the Order provides:
WHEREFORE, in view of the foregoing, the Decision of the Court dated November 26,
1999, is hereby amended as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Dra. Priscila Vibar and
against defendant Jose de Leon, and hereby orders the latter to pay the plaintiff the
following amounts:
(1) 500,000.00 representing the total amount of the loan extended with interest at 3%
per month and penalty of 2% per month (due to default) from July 17, 1996 until the
obligation is fully paid;
(2) 30,000.00 representing moral damages;
(3) 20,000.00 representing attorney's fees; and
(4) costs of suit.
Further, the Court hereby DISMISSES the instant complaint against defendant Dra.
Cecilia de los Santos for insufficiency of evidence. No pronouncement as to costs.
SO ORDERED.
Priscila filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 66605.
The Ruling of the Court of Appeals
On 29 June 2001, the appellate court affirmed the trial courts ruling against de Leon but
modified the same with respect to Cecilia.16 The appellate court declared Cecilia as
guarantor of de Leons loan. The relevant portions of the Decision state:
x x x The conduct of defendant-appellee de los Santos during the signing, however, belies
her intention to act merely as a witness. It cannot be gainsaid that she did not react when
she heard Atty. Bautistas protest about her signing the promissory note in the capacity
only of a witness and not as a guarantor. Neither did defendant-appellee de los Santos
object when defendant-appellee de Leon got back the promissory note and wrote the word
"guarantor" after her signature in full view of all those present, including defendant-
appellee de los Santos. In fact, said appellee nodded, signifying approval, when
defendant-appellee de Leon placed the word "guarantor" after her signature on the
promissory note.
xxxx
In this factual milieu, if defendant-appellee de los Santos intended only to sign as a
witness, she should have reacted when the word "guarantor" was written on the note in
her presence. She should have expressed her strong and firm objections to such
imposition of liability. But defendant-appellee de los Santos kept mum. Such silence can
lead to no other conclusion that she has impliedly given her consent to be the guarantor
of de Leons loan.
Moreover, defendant-appellee de los Santos is estopped from claiming otherwise.
Estoppel in pais arises x x x.
Moreover, one can imply from defendant-appellee de los Santos letter dated May 5, 1996
addressed to the Register of Deeds, City of Baguio that defendant-appellee de los Santos
agreed to be bound as guarantor x x x.
It is significant to note that she made no statement therein repudiating her having signed
the same in the capacity of a guarantor, contrary to what she now claims in her defense.
Her failure to correct or refute such statement reinforces the claim that indeed she
guaranteed payment of the loan in question, and that writing was to her interest
considering her liabilities under the note as guarantor.
x x x Thus, defendant-appellee de los Santos can be compelled to pay plaintiff-appellant
Vibar the judgment debt if it remains unsatisfied after execution is enforced against the
properties of the principal debtor, defendant-appellee Jose de Leon. x x x
Cecilia filed a Motion for Reconsideration which the appellate court denied in a
Resolution dated 21 November 2001.17
27
Hence, this petition.
The Issue
The main issue for resolution is whether Cecilia is liable as guarantor of de Leons loan
from Priscila.
Cecilia contends that she is not liable as guarantor. Her behavior, as when she allegedly
"kept mum" or "nodded her head and smiled," was not an implied consent as guarantor.
She insists that the law is clear that a guaranty is not presumed and that there must be a
concrete positive act of acceptance or consent to the guaranty. Thus, without such
knowledge or consent, there is no estoppel in pais.
Priscila, on the other hand, maintains that from the totality of Cecilias acts, she consented
to be bound as guarantor of de Leons loan. Her nod of approval and non-objection to the
insertion of the word "guarantor" at the signing of the second promissory note show that
she agreed to be a guarantor, just like in the first promissory note. Even after discovering
that the loan was unpaid and already overdue, Cecilia did not contest that she was a
guarantor and even paid partially to Priscila. Instead, Cecilia claimed she had no money
to pay the entire loan. It was only after the case was filed that Cecilia challenged the
insertions in the promissory note. Hence, Priscila insists that Cecilia is estopped from
denying that she is a guarantor.
The Courts Ruling
The issue before us is a question of fact, the determination of which is beyond this Courts
power of review for it is not a trier of facts.18 However, there are instances when
questions of fact may be reviewed by this Court, as when the findings of the Court of
Appeals are contrary to those of the trial court.19 In the present case, the trial court and
the Court of Appeals made conflicting findings of fact. Thus, a review of such factual
findings is in order.
Here, the controversy centers on whether there exists a contract of guaranty to hold
Cecilia liable for the loan of de Leon, the principal debtor. The trial court found that
Cecilia had no knowledge of, and did not consent to, the guaranty. On the other hand, the
appellate court ruled that Cecilias conduct during the signing of the promissory note and
her non-objection to the insertion of the word "guarantor" show that she acted as
guarantor. Cecilias nodding of her head upon the insertion of the word "guarantor"
signified her consent to be a guarantor.
We rule that Cecilia was a guarantor of de Leons loan.
Cecilia denies that she had actual knowledge of the guaranty. However, Priscila points to
the promissory note and Cecilias actions as the best evidence to prove that Cecilia signed
as guarantor. The promissory note indicates that Cecilia signed as a witness, as
manifested by the typewritten format. However, the word "guarantor" as handwritten
beside Cecilias name makes Cecilia a guarantor. From the records of the case and the
evidence presented, we are convinced that the insertion was made with the express
consent of Cecilia.
Firstly, Cecilias act of "nodding her head" signified her assent to the insertion of the
word "guarantor." The word "guarantor" could have been inserted by Cecilia herself, or
by someone authorized by Cecilia. In either case, Cecilia would be bound as guarantor.
In this case, Cecilia, by nodding her head, authorized de Leon, who prepared the
promissory note, to insert the word "guarantor." Since de Leon made the insertion only
after Atty. Bautista had raised the need for Cecilia to be a guarantor, a positive or negative
reaction was expected from Cecilia, who responded by giving her nod of approval.
Otherwise, Cecilia should have immediately expressed her objection to the insertion of
the word "guarantor." Cecilias act of nodding her head showed her consent to be a
guarantor.
Secondly, Priscila would not have extended a loan to de Leon without the representations
of Cecilia. Cecilia arranged for de Leon and Priscila to meet so that de Leon could borrow
money from Priscila. Cecilia vouched for de Leons capacity to pay. As a friend and
common link between the borrower and lender, Cecilia took active part in the first loan
of 100,000 and even signed as guarantor. On the second promissory note, the word
"guarantor" again appears, admitted by both Cecilia and Priscila as an insertion made by
de Leon at the time of signing. The first loan of 100,000, which Cecilia guaranteed, was
paid from the proceeds of the second loan. As shown by the intervention of Atty. Bautista
in bringing up the need for Cecilia to act as guarantor, Priscila would not have granted
the second bigger loan of 500,000 without the guaranty of Cecilia. It was only natural
for Priscila to commit to the second bigger loan subject at least to the same guarantee as
the first smaller loan.
Thirdly, Cecilia claimed ignorance of the guaranty only after this case was filed.
However, the records show that Cecilia had several meetings with Priscila and the latters
counsel before the demand letters were sent.20 In these meetings, Cecilia acknowledged
her liability as guarantor but simply claimed that she had no money to pay Priscila.21 In
fact, Cecilia made an initial payment of 15,000 as partial compliance of her obligation
as guarantor. This only shows that Cecilia never denied her liability to Priscila as
guarantor until this case was filed in court.
Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City inquiring on the
status of the property mentioned in the promissory note as a mortgage security for de
Leons loan.22 The letter states:
May 5, 1996
The Register of Deeds
City of Baguio
Sir:
This is relative to a "Promissory Note" dated June 28, 1995 x x x.
In the aforestated "Promissory Note", the undersigned appears to be a "Guarantor" and it
is a condition therein that "as security for this loan this TCT No. 47375, Registry of
Baguio City, is being submitted, by way of mortgage". However, information has been
received that said registered owners, individually or collectively, have executed and filed
with your Office an "affidavit of loss" of said duplicate owners copy. If such information
is correct, may I request for a "certification" to said effect, and possibly, a certified true
copy of such document.
Credit - 111016 28
xxxx

Here, Cecilia clearly stated that she "appears to be a guarantor" in the promissory note.
This serves as a written admission that Cecilia knew she was a guarantor. During the trial,
Cecilia did not impugn the letter or its contents. In fact, Cecilia submitted this letter in
evidence.23 Cecilia wrote the Register of Deeds to protect her interest, hoping that the
property covered by TCT No. T-47375 could answer for de Leons loan and save her
from personally paying as guarantor. This explains Cecilias letter admitting that she
appears as a guarantor in the promissory note.

It is axiomatic that the written word "guarantor" prevails over the typewritten word
"witness." In case of conflict, the written word prevails over the printed word. Section 15
of Rule 130 provides:

Sec. 15. Written words control printed. - When an instrument consists partly of written
words and partly of a printed form, and the two are inconsistent, the former controls the
latter.

The rationale for this rule is that the written words are the latest expression of the will of
the parties.1avvphi1 Thus, in this case, the latest expression of Cecilias will is that she
signed the promissory note as guarantor.

We agree with the Court of Appeals that estoppel in pais arose in this case. Generally,
estoppel is a doctrine that prevents a person from adopting an inconsistent position,
attitude, or action if it will result in injury to another.24 One who, by his acts,
representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to
exist and such other rightfully relies and acts on such belief, can no longer deny the
existence of such fact as it will prejudice the latter.25

Cecilias conduct in the course of the negotiations and contract signing shows that she
consented to be a guarantor of the loan as witnessed by everyone present. Her act of
"nodding her head," and at the same time even smiling, expressed her voluntary assent to
the insertion of the word "guarantor" after her signature. It is the same as saying that she
agreed to the insertion. Also, Cecilias acts of making the partial payment of 15,000 and
writing the letter to the Register of Deeds sustain the ruling that Cecilia affirmed her
obligation as de Leons guarantor to the loan. Thus, Cecilia is now estopped from denying
that she is a guarantor.

WHEREFORE, we DENY the petition. We AFFIRM the 29 June 2001 Decision and 21
November 2001 Resolution of the Court of Appeals in CA-G.R. CV No. 66605.

SO ORDERED.