Republic of the Philippines

SUPREME COURT
Manila

The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion,
to decide the question of the ownership of the lot before it pass upon the petition for the sale of the
warehouse. But the court before determining the matter of the ownership of the lot occupied by the
warehouse, ordered the sale of this building, saying:

EN BANC
G.R. No. L-8321

October 14, 1913

ALEJANDRA MINA, ET AL., plaintiffs-appellants,

vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
N. Segundo for appellants.
Iigo Bitanga for appellees.

While the trial continues with respect to the ownership of the lot, the court orders the
sale at public auction of the said warehouse and of the lot on which it is built, with the present
boundaries of the land and condition of the building, at a price of not less than P2,890
Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the other
defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court
decided it by holding that this land belonged to the owner of the warehouse which had been built
thereon thirty years before.

ARELLANO, C.J.:

The plaintiffs appealed and this court reversed the judgment of the lower court and held that the
1
appellants were the owners of the lot in question.

Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during
his lifetime, on March 12, 1874, a lot in the center of the town of Laoag, the capital of the Province of
Ilocos Norte, the property having been awarded to him through its purchase at a public auction held by
the alcalde mayor of that province. The lot has a frontage of 120 meters and a depth of 15.

When the judgment became final and executory, a writ of execution issued and the plaintiffs were
given possession of the lot; but soon thereafter the trial court annulled this possession for the reason
that it affected Cu Joco, who had not been a party to the suit in which that writ was served.

Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the
said lot, embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro Mina,
et al., were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta
Pascual were recognized likes without discussion, though it is not said how, and consequently are
entitled to the said building, or rather, as Ruperta Pascual herself stated, to only six-sevenths of onehalf of it, the other half belonging, as it appears, to the plaintiffs themselves, and the remaining oneseventh of the first one-half to the children of one of the plaintiffs, Elena de Villanueva. The fact is that
the plaintiffs and the defendants are virtually, to all appearance, the owners of the warehouse; while the
plaintiffs are undoubtedly, the owners of the part of the lot occupied by that building, as well as of the
remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian of her
minor children, the herein defendants, petitioned the Curt of First Instance of Ilocos Norte for
authorization to sell "the six-sevenths of the one-half of the warehouse, of 14 by 11 meters, together
with its lot." The plaintiffs that is Alejandra Mina, et al. opposed the petition of Ruperta Pascual for
the reason that the latter had included therein the lot occupied by the warehouse, which they claimed
was their exclusive property. All this action was taken in a special proceeding in re guardianship.

It was then that the plaintiffs commenced the present action for the purpose of having the sale of
the said lot declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as follows:
9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the
Supreme Court which found for them by holding that they are the owners of the lot in question,
although there existed and still exists a commodatum by virtue of which the guardianship
(meaning the defendants) had and has the use, and the plaintiffs the ownership, of the
property, with no finding concerning the decree of the lower court that ordered the sale.
The obvious purport of the cause "although there existed and still exists a commodatum," etc.,
appears to be that it is a part of the decision of the Supreme Court and that, while finding the plaintiffs to
be the owners of the lot, we recognized in principle the existence of a commodatum under which the
defendants held the lot. Nothing could be more inexact. Possibly, also, the meaning of that clause is
that, notwithstanding the finding made by the Supreme Court that the plaintiffs were the owners, these
former and the defendants agree that there existed, and still exists, a commodatum, etc. But such an
agreement would not affect the truth of the contents of the decision of this court, and the opinions held
by the litigants in regard to this point could have no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least influence in our
previous decision to require our making any finding in regard thereto, for, with or without that decree,
the Supreme Court had to decide the ownership of the lot consistently with its titles and not in

accordance with the judicial acts or proceedings had prior to the setting up of the issue in respect to the
ownership of the property that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs
have the ownership, and they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the
manner in which the sale was effected, whether judicially or extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being
a transfer of the ownership of the thing, it is evident that he who has only the mere use of the thing
cannot transfer its ownership. The sale of a thing effected by one who is not its owner is null and void.
The defendants never were the owners of the lot sold. The sale of it by them is necessarily null and
void. On cannot convey to another what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization
conferred upon me on the 31st of July, 1909, by the Court of First Instance of Ilocos Norte,
proceeded with the sale at public auction of the six-sevenths part of the one-half of the
warehouse constructed of rubble stone, etc.

The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to
accept the price set on the lot by expert appraisers, not even though the plaintiffs be considered as
coowner of the warehouse. It would be much indeed that, on the ground of coownership, they should
have to abide by and tolerate the sale of the said building, which point this court does not decide as it is
not a question submitted to us for decision, but, as regards the sale of the lot, it is in all respects
impossible to hold that the plaintiffs must abide by it and tolerate, it, and this conclusion is based on the
fact that they did not give their consent (art. 1261, Civil Code), and only the contracting parties who
have given it are obliged to comply (art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot;
but subsequently the plaintiffs, through motion, asked for an amendment by their complaint in the sense
that the action should be deemed to be one for the recovery of possession of a lot and for the
annulment of its sale. The plaintiff's petition was opposed by the defendant's attorney, but was allowed
by the court; therefore the complaint seeks, after the judicial annulment of the sale of the lot, to have the
defendants sentenced immediately to deliver the same to the plaintiffs.
Such a finding appears to be in harmony with the decision rendered by the Supreme Court in
previous suit, wherein it was held that the ownership of the lot lay in the plaintiffs, and for this reason
steps were taken to give possession thereof to the defendants; but, as the purchaser Cu Joco was not a
party to that suit, the present action is strictly one for recover against Cu Joco to compel him, once the
sale has been annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:

Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all
the land and all the rights title, interest, and ownership in the said property to Cu Joco, who
was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and
assigns, all the interest, ownership and inheritance rights and others that, as the guardian of
the said minors, I have and may have in the said property, etc.
The purchaser could not acquire anything more than the interest that might be held by a person
to whom realty in possession of the vendor might be sold, for at a judicial auction nothing else is
disposed of. What the minor children of Ruperta Pascual had in their possession was the ownership of
the six-sevenths part of one-half of the warehouse and the use of the lot occupied by his building. This,
and nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of the lot;
neither the other half, nor the remaining one-seventh of the said first half, of the warehouse.
Consequently, the sale made to him of this one-seventh of one-half and the entire other half of the
building was null and void, and likewise with still more reason the sale of the lot the building occupies.
The purchaser could and should have known what it was that was offered for sale and what it
was that he purchased. There is nothing that can justify the acquisition by the purchaser of the
warehouse of the ownership of the lot that this building occupies, since the minors represented by
Ruperta Pascual never were the owners of the said lot, nor were they ever considered to be such.
The trial court, in the judgment rendered, held that there were no grounds for the requested
annulment of the sale, and that the plaintiffs were entitled to the P600 deposited with the clerk of the
court as the value of the lot in question. The defendants, Ruperta Pascual and the Chinaman Cu Joco,
were absolved from the complaint, without express finding as to costs.

1. That it is a fact admitted by the litigating parties, both in this and in the previous suit, that
Andres Fontanilla, the defendants' predecessor in interest, erected the warehouse on the lot,
some thirty years ago, with the explicit consent of his brother Francisco Fontanilla, the
plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the defendants are the
coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla nor his
successors paid any consideration or price whatever for the use of the lot occupied by the said
building; whence it is, perhaps, that both parties have denominated that use a commodatum.
Upon the premise of these facts, or even merely upon that of the first of them, the sentencing of
the defendants to deliver the lot to the plaintiffs does not follow as a necessary corollary of the judicial
declaration of ownership made in the previous suit, nor of that of the nullity of the sale of the lot, made
in the present case.
The defendants do not hold lawful possession of the lot in question.1awphil.net
But, although both litigating parties may have agreed in their idea of the commodatum, on
account of its not being, as indeed it is not, a question of fact but of law, yet that denomination given by
them to the use of the lot granted by Francisco Fontanilla to his brother, Andres Fontanilla, is not
acceptable. Contracts are not to be interpreted in conformity with the name that the parties thereto
agree to give them, but must be construed, duly considering their constitutive elements, as they are
defined and denominated by law.

By the contract of loan, one of the parties delivers to the other, either anything not
perishable, in order that the latter may use it during the certain period and return it to the
former, in which case it is called commodatum . . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing belonging to
another shall for a certain period. Francisco Fontanilla did not fix any definite period or time during
which Andres Fontanilla could have the use of the lot whereon the latter was to erect a stone
warehouse of considerable value, and so it is that for the past thirty years of the lot has been used by
both Andres and his successors in interest. The present contention of the plaintiffs that Cu Joco, now in
possession of the lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the
commodatum sustained by them, since, according to the second paragraph of the aforecited article
1740, "commodatum is essentially gratuitous," and, if what the plaintiffs themselves aver on page 7 of
their brief is to be believed, it never entered Francisco's mind to limit the period during which his brother
Andres was to have the use of the lot, because he expected that the warehouse would eventually fall
into the hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not come to
pass for the reason that Fructuoso died before his uncle Andres. With that expectation in view, it
appears more likely that Francisco intended to allow his brother Andres a surface right; but this right
supposes the payment of an annual rent, and Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on another's ground, the
question should be decided in accordance with the statutes that, thirty years ago, governed accessions
to real estate, and which were Laws 41 and 42, title 28, of the third Partida, nearly identical with the
provisions of articles 361 and 362 of the Civil Code. So, then, pursuant to article 361, the owner of the
land on which a building is erected in good faith has a right to appropriate such edifice to himself, after
payment of the indemnity prescribed in articles 453 and 454, or to oblige the builder to pay him the
value of the land. Such, and no other, is the right to which the plaintiff are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made
by Ruperta Pascual, in representation of her minor children, to Cu Joco, and to maintain the latter in the
use of the lot until the plaintiffs shall choose one or the other of the two rights granted them by article
361 of the Civil Code.1awphil.net
The judgment appealed from is reversed and the sale of the lot in question is held to be null and
void and of no force or effect. No special finding is made as to the costs of both instances.
Torres, Johnson, Carson, Moreland and Trent, JJ., concur.

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

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17474

October 25, 1962

. . . 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
1
commodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the
contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to
the responsibilities of a possessor in bad faith, because she had continued possession of the bull after
the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because
article 1942 of the Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed
for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and
delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with:
the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt
from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the
payment of its value being a money claim should be presented or filed in the intestate proceedings of

the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his
civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the
deceased, within a period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule
3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the
court promptly of such death . . . and to give the name and residence of the executory
administrator, guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had
been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having
claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied,
whether the same be due, not due, or contingent, for funeral expenses and expenses of the last
sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk
of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the
first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the
appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee
who were to be notified of the defendant's death in accordance with the above-quoted rule, and there
was no reason for such failure to notify, because the attorney who appeared for the defendant was the
same who represented the administratrix in the special proceedings instituted for the administration and
settlement of his estate. The appellee or its attorney or representative could not be expected to know of
the death of the defendant or of the administration proceedings of his estate instituted in another court
that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as
required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is
only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee,
because it was killed while in the custody of the administratrix of his estate. This is the amount prayed
for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the
appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas
having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in
favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Barrera, J., concurs in the result.

Republic of the Philippines

SUPREME COURT
Manila

registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there
is no possibility of acquisitive prescription which requires 10 years possession with just title and 30
years of possession without; that the principle of res judicata on these findings by the Court of Appeals
will bar a reopening of these questions of facts; and that those facts may no longer be altered.

FIRST DIVISION
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long
time ago can properly be considered res judicata by respondent Court of Appeals in the present two
cases between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of
1
Respondent Court of Appeals in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No.
05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case
No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar
Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357
to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in
the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question; that
the two lots were possessed by the predecessors-in-interest of private respondents under claim of
ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as
bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows
... The documents and records presented reveal that the whole
controversy started when the defendant Catholic Vicar Apostolic of
the Mountain Province (VICAR for brevity) filed with the Court of
First Instance of Baguio Benguet on September 5, 1962 an
application for registration of title over Lots 1, 2, 3, and 4 in Psu194357, situated at Poblacion Central, La Trinidad, Benguet,
docketed as LRC N-91, said Lots being the sites of the Catholic
Church building, convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. On March 22, 1963
the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed
their Answer/Opposition on Lots Nos. 2 and 3, respectively,
asserting ownership and title thereto. After trial on the merits, the
land registration court promulgated its Decision, dated November
17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3,
and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No.
3655) and the Heirs of Egmidio Octaviano (plaintiffs in the herein
Civil Case No. 3607) appealed the decision of the land registration
court to the then Court of Appeals, docketed as CA-G.R. No.
38830-R. The Court of Appeals rendered its decision, dated May 9,
1977, reversing the decision of the land registration court and
dismissing the VICAR's application as to Lots 2 and 3, the lots
claimed by the two sets of oppositors in the land registration case
(and two sets of plaintiffs in the two cases now at bar), the first lot
being presently occupied by the convent and the second by the
women's dormitory and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for
reconsideration praying the Court of Appeals to order the
registration of Lot 3 in the names of the Heirs of Egmidio
Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and
Pacita Valdez filed their motion for reconsideration praying that
both Lots 2 and 3 be ordered registered in the names of the Heirs
of Juan Valdez and Pacita Valdez. On August 12,1977, the Court of
Appeals denied the motion for reconsideration filed by the Heirs of
Juan Valdez on the ground that there was "no sufficient merit to
justify reconsideration one way or the other ...," and likewise denied
that of the Heirs of Egmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for
review on certiorari of the decision of the Court of Appeals
dismissing his (its) application for registration of Lots 2 and 3,
docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of
the Mountain Province vs. Court of Appeals and Heirs of Egmidio
Octaviano.'
From the denial by the Court of Appeals of their motion for
reconsideration the Heirs of Juan Valdez and Pacita Valdez, on
September 8, 1977, filed with the Supreme Court a petition for
review, docketed as G.R. No. L-46872, entitled, Heirs of Juan
Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of
Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute
resolution both petitions (of VICAR on the one hand and the Heirs
of Juan Valdez and Pacita Valdez on the other) for lack of merit.
Upon the finality of both Supreme Court resolutions in G.R. No. L46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the
then Court of First Instance of Baguio, Branch II, a Motion For
Execution of Judgment praying that the Heirs of Octaviano be
placed in possession of Lot 3. The Court, presided over by Hon.
Salvador J. Valdez, on December 7, 1978, denied the motion on
the ground that the Court of Appeals decision in CA-G.R. No.
38870 did not grant the Heirs of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of
Appeals a petitioner for certiorari and mandamus, docketed as CAG.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon.
Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16,
1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of
Egmidio Octaviano filed Civil Case No. 3607 (419) on July 24,
1979, for recovery of possession of Lot 3; and the Heirs of Juan
Valdez filed Civil Case No. 3655 (429) on September 24, 1979,
likewise for recovery of possession of Lot 2 (Decision, pp. 199-201,
Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano
presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano
(Exh. C ); his written demand (Exh. BB-4 ) to defendant Vicar for the return of the
land to them; and the reasonable rentals for the use of the land at P10,000.00 per
month. On the other hand, defendant Vicar presented the Register of Deeds for the
Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8).
The defendant dispensed with the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the witness stand, would testify that

defendant Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in dispute,
submitted the case on the sole issue of whether or not the decisions of the Court of
Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect
declared the plaintiffs the owners of the land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting
up the defense of ownership and/or long and continuous possession of the two lots in
question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs contend that the question of
possession and ownership have already been determined by the Court of Appeals
(Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh.
1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains
that the principle of res judicata would not prevent them from litigating the issues of
long possession and ownership because the dispositive portion of the prior judgment
in CA-G.R. No. 038830-R merely dismissed their application for registration and titling
of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the
2
decision, and not its body, is the controlling pronouncement of the Court of Appeals.
The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED
BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ
AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ
AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO WERE
IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND
THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT
APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST
TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL
CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO. 038830
WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON OWNERSHIP
OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN

POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906
TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3
MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH
WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY
3
AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830.
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when
it clearly held that it was in agreement with the findings of the trial court that the Decision of the Court of
Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3,
declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively declare
private respondents as owners of the land, neither was it declared that they were not owners of the
land, but it held that the predecessors of private respondents were possessors of Lots 2 and 3, with
claim of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for
taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30
4
years.
On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R.
No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that said
findings are res judicata between the parties. They can no longer be altered by presentation of evidence
because those issues were resolved with finality a long time ago. To ignore the principle of res judicata
would be to open the door to endless litigations by continuous determination of issues without end.
5

An examination of the Court of Appeals Decision dated May 4, 1977, First Division in CA-G.R. No.
6
38830-R, shows that it reversed the trial court's Decision finding petitioner to be entitled to register the
lands in question under its ownership, on its evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession
for ordinary acquisitive prescription because of the absence of just title. The appellate court did not
believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3
was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.

Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4
were paid for by the Bishop but said Bishop was appointed only in 1947, the church was constructed
only in 1951 and the new convent only 2 years before the trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from
Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They never asked for the return of the house, but
when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The
bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were possessors
under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in
commodatum; and that the adverse claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R.
Its findings of fact have become incontestible. This Court declined to review said decision, thereby in
effect, affirming it. It has become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of discretion,
when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the
principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No.
05149. The facts as supported by evidence established in that decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the
Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is
AFFIRMED, with costs against petitioner.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both
Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of
private respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2
and 3, because the buildings standing thereon were only constructed after liberation in 1945. Petitioner

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.

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.
Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law:
in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when
the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the
furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at
their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the
furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in
denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration
and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied
with his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear
the deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net

G.R. No. L-50550-52 October 31, 1979

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

CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD YAM, petitioners,
vs.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE PEOPLE OF THE
PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL. AGOSTO SAJOR respondents.

same amount filed by respondent Rosalinda M. Amin with the Court of First Instance of Sulu on
September 11, 1975, likewise states that the P50,000.00 was a "simple business loan" which earned
interest and was originally demandable six (6) months from July 12, 1973. (Annex E of the petition.)

Tomas P. Matic, Jr. for petitioners.

Jose E. Fernandez for private respondent.
Office of the Solicitor General for respondent the People of the Philippines.

ABAD SANTOS, J.:

This is a petition for certiorari, prohibition, and mandamus with preliminary injunction. Petitioners alleged
that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted without jurisdiction, in excess of
jurisdiction and with grave abuse of discretion when:
(a) he held in the preliminary investigation of the charges of estafa filed by respondents Rosalinda
Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima facie case against the
latter;
(b) he issued warrants of arrest against petitioners after making the above determination; and
(c) he undertook to conduct trial on the merits of the charges which were docketed in his court as
Criminal Cases No. M-111, M-183 and M-208.

In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee Kiong, Jose Y.C.
Yam, Ampang Mah and Anita Yam, alias Yong Tay, with estafa through misappropriation of the amount
of P30,000.00. Likewise, the complaint states on its face that the P30,000.00 was "a simple loan." So
does the complaint in Civil Case No. N-8 filed by respondent Tan Chu Kao on April 6, 1976 with the
Court of First Instance of Sulu for the collection of the same amount. (Annex D of the petition.).
In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C. Yam, Anita Yam
alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa through misappropriation of the
amount of P20,000.00. Unlike the complaints in the other two cases, the complaint in Criminal Case No.
M-208 does not state that the amount was received as loan. However, in a sworn statement dated
September 29, 1976, submitted to respondent judge to support the complaint, respondent Augusto
Sajor states that the amount was a "loan." (Annex G of the petition.).
We agree with the petitioners that the facts alleged in the three criminal complaints do not constitute
estafa through misappropriation.
Estafa through misappropriation is committed according to Article 315, paragraph 1, subparagraph (b),
of the Revised Penal Code as follows:
Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the
means mentioned herein below shall be punished by:
xxx xxx xxx

Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and with grave
abuse of discretion because the facts recited in the complaints did not constitute the crime of estafa,
and assuming they did, they were not within the jurisdiction of the respondent judge.

1. With unfaithfulness or abuse of confidence namely:

xxx xxx xxx

In a resolution dated May 23, 1979, we required respondents to comment in the petition and issued a
temporary restraining order against the respondent judge from further proceeding with Criminal Cases
Nos. M-111, M-183 and M-208 or from enforcing the warrants of arrest he had issued in connection with
said cases.
Comments by the respondent judge and the private respondents pray for the dismissal of the petition
but the Solicitor General has manifested that the People of the Philippines have no objection to the
grant of the reliefs prayed for, except the damages. We considered the comments as answers and gave
due course to the petition.
The position of the Solicitor General is well taken. We have to grant the petition in order to prevent
manifest injustice and the exercise of palpable excess of authority.
In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam Chee Kiong and
Yam Yap Kieng with estafa through misappropriation of the amount of P50,000.00. But the complaint
states on its face that said petitioners received the amount from respondent Rosalinda M. Amin "as a
loan." Moreover, the complaint in Civil Case No. N-5, an independent action for the collection of the

b) By misappropriating or converting, to the prejudice of another, money, goods, or

any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or
to return the same, even though such obligation be totally or partially guaranteed by a
bond; or by denying having received such money, goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be proven that he has
the obligation to deliver or return the same money, goods or personal property that he received.
Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received
from private respondents. This is so because as clearly stated in criminal complaints, the related civil
complaints and the supporting sworn statements, the sums of money that petitioners received were
loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

Art. 1933. 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
loam ownership passes to the borrower.

With respect to the other respondents, this Court is not the proper forum for the consideration of the
claim for damages against them.
WHEREFORE, the petition is hereby granted; the temporary restraining order previously issued is
hereby made permanent; the criminal complaints against petitioners are hereby declared null and void;
respondent judge is hereby ordered to dismiss said criminal cases and to recall the warrants of arrest
he had issued in connection therewith. Moreover, respondent judge is hereby rebuked for manifest
ignorance of elementary law. Let a copy of this decision be included in his personal life. Costs against
private respondents.
SO ORDERED.
Barredo, Antonio and Santos, JJ., concur.

Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount
of the same kind and quality.
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to
commodatum, the borrower acquires ownership of the money, goods or personal property borrowed.
Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act
will not be considered misappropriation thereof.

Concepcion Jr. ,J., is on leave.

Separate Opinions

In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to
nay his debt or to deny its existence.
We are of the opinion and so decide that when the relation is purely that of debtor and
creditor, the debtor can not be held liable for the crime of estafa, under said article, by
merely refusing to pay or by denying the indebtedness.
It appears that respondent judge failed to appreciate the distinction between the two types of loan,
mutuum and commodatum, when he performed the questioned acts, He mistook the transaction
between petitioners and respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor to be
commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the
duty to return the same thing to the lender.
Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the Municipal Court
of Jolo is, has jurisdiction over criminal cases where the penalty provided by law does not exceed
prision correccional or imprisonment for not more than six (6) years, or fine not exceeding P6,000.00 or
both, The amounts allegedly misappropriated by petitioners range from P20,000.00 to P50,000.00. The
penalty for misappropriation of this magnitude exceeds prision correccional or 6 year imprisonment.
(Article 315, Revised Penal Code), Assuming then that the acts recited in the complaints constitute the
crime of estafa, the Municipal Court of Jolo has no jurisdiction to try them on the merits. The alleged
offenses are under the jurisdiction of the Court of First Instance.
Respondents People of the Philippines being the sovereign authority can not be sued for damages.
They are immune from such type of suit.

AQUINO, J., concurring:

The claim for damages in this certiorari, mandamus and prohibition case is not warranted under section
3, Rule 65 of the Rules of Court.

# Separate Opinions
AQUINO, J., concurring:
The claim for damages in this certiorari, mandamus and prohibition case is not warranted under section
3, Rule 65 of the Rules of Court.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

For working capital 9,100.00

G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.

T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and
China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to
availability of funds, and as the construction of the factory buildings progresses, to be certified to by an
appraiser of this Corporation;"

Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28,
1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68,
plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of
P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as
follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura
on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao
City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a
trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to
be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the
machinery and equipment to be installed. Among the other terms spelled out in the resolution were the
following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however,
evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a
modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was
willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker
on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount
equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as
one of the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the
members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the
aspects of this approved loan ... with special reference as to the advisability of financing this particular
project based on present conditions obtaining in the operations of jute mills, and to submit his findings
thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as cosigner for the loan, and asked that the necessary documents be prepared in accordance with the terms
and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be
financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other and undertake the necessary
studies, although in appointing its own committee Saura, Inc. made the observation that the same
"should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in
Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage,
which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June
10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the
loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution
No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the reexamination of all the various aspects of the loan granted the Saura Import & Export Co. under
Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with
special reference as to the advisability of financing this particular project based on present conditions

obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan
granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up
to P100,000 may be authorized as may be necessary from time to time to place the factory in actual
operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent
herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China
Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and
therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2
requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The
request was denied by RFC, which added in its letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd.,
expressing their desire to consider the loan insofar as they are concerned."

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first
place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and
Natural Resources as to the availability of local raw materials to provide adequately for the
requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of
January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf
will not be available in sufficient quantity this year or probably even next year;" (2) requesting
"assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials
as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be
made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China
Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us
the P500,000.00 originally approved by you.".

b) For the purchase of materials and equipment per attached list to enable the jute
mill to operate 182,413.91

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of
P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly
with the borrower-corporation," but with the following proviso:

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the opening of the letter of credit for raw jute
for $25,000.00.

That in view of observations made of the shortage and high cost of imported raw
materials, the Department of Agriculture and Natural Resources shall certify to the
following:

2) P25,000.00 to be released upon arrival

of raw jute.

1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the
requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954,
wherein it was explained that the certification by the Department of Agriculture and Natural Resources
was required "as the intention of the original approval (of the loan) is to develop the manufacture of
sacks on the basis of locally available raw materials." This point is important, and sheds light on the
subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in
Davao was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh.
M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the
Saura Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture
copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials,
principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the
first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is
presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."

3) P17,586.09 to be released as soon as the

mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding
the release of your loan under consideration of P500,000. As stated
in our letter of December 22, 1954, the releases of the loan, if
revived, are proposed to be made from time to time, subject to
availability of funds towards the end that the sack factory shall be
placed in actual operating status. We shall be able to act on your
request for revised purpose and manner of releases upon reappraisal of the securities offered for the loan.

With respect to our requirement that the Department of Agriculture

and Natural Resources certify that the raw materials needed are
available in the immediate vicinity and that there is prospect of
increased production thereof to provide adequately the
requirements of the factory, we wish to reiterate that the basis of
the original approval is to develop the manufacture of sacks on the
basis of the locally available raw materials. Your statement that you
will have to rely on the importation of jute and your request that we
give you assurance that your company will be able to bring in
sufficient jute materials as may be necessary for the operation of
your factory, would not be in line with our principle in approving the
loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the
corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura,
Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract,
executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co.,
under which contract Saura, Inc. had up to December 31 of the same year within which to pay its
obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said
obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of
Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor
of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious
dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083
approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed
two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and (2) that there is prospect of increased production
thereof to provide adequately for the requirements of the factory." The imposition of those conditions
was by no means a deviation from the terms of the agreement, but rather a step in its implementation.
There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145,
passed on January 7, 1954, namely "that the proceeds of the loan shall be utilized exclusively for the
following purposes: for construction of factory building P250,000.00; for payment of the balance of
purchase price of machinery and equipment P240,900.00; for working capital P9,100.00."
Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its
letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or
probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released
"for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and
embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to
purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been
going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released
as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955.
The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms
1
"mutuo disenso" which is a mode of extinguishing obligations. It is a concept that derives from the
principle that since mutual agreement can create a contract, mutual disagreement by the parties can
2
cause its extinguishment.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the
parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been
waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the
plaintiff itself did not comply with the terms thereof.

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

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the
Civil Code, which provides:

With this view we take of the case, we find it unnecessary to consider and resolve the other issues
raised in the respective briefs of the parties.

ART. 1954. An accepted promise to deliver something, by way of commodatum or

simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of
P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short of resolving the basic claim that the defendant
failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs
against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
Republic of the Philippines
Supreme Court

Baguio City

computed from the time the judgment becomes final and executory until it is fully satisfied. The
award of attorneys fees is hereby reduced to P100,000.00. Costs against the defendantsappellants.

FIRST DIVISION
HERMOJINA ESTORES,

G.R. No. 175139

Petitioner,

SO ORDERED.
4
Also assailed is the August 31, 2006 Resolution denying the motion for reconsideration.

Present:
Factual Antecedents
CORONA, C.J., Chairperson,
- versus -

LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and

On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan
5

entered into a Conditional Deed of Sale whereby petitioner offered to sell, and respondent-spouses offered to buy,
a parcel of land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum of
P4.7 million. The parties likewise stipulated, among others, to wit:

VILLARAMA, JR., JJ.

SPOUSES ARTURO and

xxxx

LAURA SUPANGAN,

Promulgated:

Respondents.

April 18, 2012

1.

x-------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
The only issue posed before us is the propriety of the imposition of interest and attorneys fees.
1

Assailed in this Petition for Review filed under Rule 45 of the Rules of Court is the May 12, 2006

Vendor will secure approved clearance from DAR requirements of which are (sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings of Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale

xxxx
4.

Vendee shall be informed as to the status of DAR clearance within 10 days upon signing
of the documents.

Decision of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads:
xxxx
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six
percent (6%) per annum, computed from September 27, 2000 until its full payment before
finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain
unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum,

10

spouses were constrained to file a Complaint for sum of money before the Regional Trial Court (RTC) of Malabon
6.

7.

Regarding the house located within the perimeter of the subject [lot] owned by spouses
[Magbago], said house shall be moved outside the perimeter of this subject property to the
300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it
that such agreement is carried out before full payment of the sale is made by vendee.
If and after the vendor has completed all necessary documents for registration of the title
and the vendee fails to complete payment as per agreement, a forfeiture fee of 25% or
downpayment, shall be applied. However, if the vendor fails to complete necessary
documents within thirty days without any sufficient reason, or without informing the vendee
of its status, vendee has the right to demand return of full amount of down payment.

xxxx
9.

As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall
be informed immediately of its approval by the LRC.

10. The vendor assures the vendee of a peaceful transfer of ownership.

xxxx

against herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioners agent. The case
was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint, respondent-spouses
prayed that petitioner and Arias be ordered to:

1.

Pay the principal amount of P3,500,000.00 plus interest of 12% compounded

annually starting October 1, 1993 or an estimated amount of P8,558,591.65;

2.

Pay the following items of damages:

a)

Moral damages in the amount of P100,000.00;

b)

Actual damages in the amount of P100,000.00;

c)

Exemplary damages in the amount of P100,000.00;

d)

[Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable

amount from the [petitioner].

e)

[C]ost of suit.

11

After almost seven years from the time of the execution of the contract and notwithstanding payment of
P3.5 million on the part of respondent-spouses, petitioner still failed to comply with her obligation as expressly
7

12

In their Answer with Counterclaim,

petitioner and Arias averred that they are willing to return the
13

provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter dated September 27, 2000,

principal amount of P3.5 million but without any interest as the same was not agreed upon. In their Pre-Trial Brief,

respondent-spouses demanded the return of the amount of P3.5 million within 15 days from receipt of the letter. In

they reiterated that the only remaining issue between the parties is the imposition of interest. They argued that

reply, petitioner acknowledged receipt of the P3.5 million and promised to return the same within 120 days.
Respondent-spouses were amenable to the proposal provided an interest of 12% compounded annually shall be
9

imposed on the P3.5 million.

When petitioner still failed to return the amount despite demand, respondent-

since the Conditional Deed of Sale provided only for the return of the downpayment in case of breach, they cannot
14

19

On May 7, 2004, the RTC rendered its Decision finding respondent-spouses entitled to interest but only
20

be held liable to pay legal interest as well.

at the rate of 6% per annum and not 12% as prayed by them.

It also found respondent-spouses entitled to

21

attorneys fees as they were compelled to litigate to protect their interest.

15

In its Pre-Trial Order

dated June 29, 2001, the RTC noted that the parties agreed that the principal

amount of 3.5 million pesos should be returned to the [respondent-spouses] by the [petitioner] and the issue

The dispositive portion of the RTC Decision reads:

remaining [is] whether x x x [respondent-spouses] are entitled to legal interest thereon, damages and attorneys
16

fees.

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

[respondent-spouses] and ordering the [petitioner and Roberto Arias] to jointly and severally:
Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial court set the
17

presentation of Arias and petitioners evidence on September 3, 2003.

However, despite several postponements,

petitioner and Arias failed to appear hence they were deemed to have waived the presentation of their evidence.

1. Pay [respondent-spouses] the principal amount of Three Million Five Hundred

Thousand pesos (P3,500,000.00) with an interest of 6% compounded annually starting
October 1, 1993 and attorneys fee in the amount of Fifty Thousand pesos (P50,000.00) plus
20% of the recoverable amount from the defendants and cost of the suit.

18

Consequently, the case was deemed submitted for decision.

The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.
22

Ruling of the Regional Trial Court

SO ORDERED.

Ruling of the Court of Appeals

23

Aggrieved, petitioner and Arias filed their notice of appeal. The CA noted that the only issue submitted

for its resolution is whether it is proper to impose interest for an obligation that does not involve a loan or

unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum,
computed from the time the judgment becomes final and executory until it is fully satisfied. The
award of attorneys fees is hereby reduced to P100,000.00. Costs against the [petitioner].

24

forbearance of money in the absence of stipulation of the parties.

29

SO ORDERED.

On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the
25

imposition of 6% interest proper.

However, the same shall start to run only from September 27, 2000 when
Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA.

respondent-spouses formally demanded the return of their money and not from October 1993 when the contract
was executed as held by the RTC. The CA also modified the RTCs ruling as regards the liability of Arias. It held

Hence, this petition raising the sole issue of whether the imposition of interest and attorneys fees is

that Arias could not be held solidarily liable with petitioner because he merely acted as agent of the latter.
Moreover, there was no showing that he expressly bound himself to be personally liable or that he exceeded the

proper.

limits of his authority. More importantly, there was even no showing that Arias was authorized to act as agent of
26

petitioner.

Anent the award of attorneys fees, the CA found the award by the trial court (P50,000.00 plus 20% of
27

the recoverable amount) excessive

Petitioners Arguments

28

and thus reduced the same to P100,000.00.

Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of
The dispositive portion of the CA Decision reads:

Sale only provided for the return of the downpayment in case of failure to comply with her obligations. Petitioner
also argues that the award of attorneys fees in favor of the respondent-spouses is unwarranted because it cannot

WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six
percent (6%) per annum, computed from September 27, 2000 until its full payment before
finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain[s]

be said that the latter won over the former since the CA even sustained her contention that the imposition of 12%
interest compounded annually is totally uncalled for.
Respondent-spouses Arguments

Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering
that petitioner failed to return the amount upon demand and had been using the P3.5 million for her benefit.
Moreover, it is undisputed that petitioner failed to perform her obligations to relocate the house outside the
perimeter of the subject property and to complete the necessary documents. As regards the attorneys fees, they
claim that they are entitled to the same because they were forced to litigate when petitioner unjustly withheld the
amount. Besides, the amount awarded by the CA is even smaller compared to the filing fees they paid.

Our Ruling

The petition lacks merit.

Interest may be imposed even in the

absence of stipulation in the contract.

admitted this. Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has failed to
return the money and

We sustain the ruling of both the RTC and the CA that it is proper to impose interest notwithstanding the

should be considered in default from the time that demand was made on September 27, 2000.

absence of stipulation in the contract. Article 2210 of the Civil Code expressly provides that [i]nterest may, in the
discretion of the court, be allowed upon damages awarded for breach of contract.

In this case, there is no

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the

question that petitioner is legally obligated to return the P3.5 million because of her failure to fulfill the obligation

money be considered as a forbearance of money which required payment of interest at the rate of 12%? We

under the Conditional Deed of Sale, despite demand. She has in fact admitted that the conditions were not fulfilled

believe so.

and that she was willing to return the full amount of P3.5 million but has not actually done so. Petitioner enjoyed the
30

use of the money from the time it was given to her until now. Thus, she is already in default of her obligation from
the date of demand, i.e., on September 27, 2000.

33

In Crismina Garments, Inc. v. Court of Appeals, forbearance was defined as a contractual obligation
of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or
debt then due and payable. This definition describes a loan where a debtor is given a period within which to pay a
loan or debt. In such case, forbearance of money, goods or credits will have no distinct definition from a loan. We

The interest at the rate of 12% is

applicable in the instant case.

believe however, that the phrase forbearance of money, goods or credits is meant to have a separate meaning
from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in

Anent the interest rate, the general rule is that the applicable rate of interest shall be computed in
31

accordance with the stipulation of the parties.

Absent any stipulation, the applicable rate of interest shall be 12%

per annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it
32

shall be six percent (6%).

In this case, the parties did not stipulate as to the applicable rate of interest. The only

question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under
Central Bank Circular No. 416, is due.

34

the Civil Code.

Forbearance of money, goods or credits should therefore refer to arrangements other than loan

agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening
of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money
even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller
(petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of their money
for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not
only to the return of the principal amount paid, but also to compensation for the use of their money. And the

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the
contract provides that the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the

compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable
to a loan since the use or deprivation of funds is similar to a loan.

conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller (petitioner) has
Petitioners unwarranted withholding of the money which rightfully pertains to respondent-spouses
amounts to forbearance of money which can be considered as an involuntary loan. Thus, the applicable rate of

35

37

interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of Appeals, cited in Crismina Garments, Inc. v.
36

Court of Appeals,

an equivalent to a forbearance of credit.

the Court suggested the following guidelines:

38

39

Eastern Shipping Lines, Inc. v. Court of Appeals and its predecessor case, Reformina v. Tongol both
I.

II.

When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on Damages of the Civil Code
govern in determining the measure of recoverable damages.
With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1.

2.

3.

When the obligation is breached, and it consists in the payment of a

sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then

involved torts cases and hence, there was no forbearance of money, goods, or credits. Further, the amount
claimed (i.e., damages) could not be established with reasonable certainty at the time the claim was made. Hence,
we arrived at a different ruling in those cases.

Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then
the interest rate of 12% should be reckoned from said date of demand until the principal amount and the interest
thereon is fully satisfied.
The award
warranted.

of

attorneys

fees

is

Under Article 2208 of the Civil Code, attorneys fees may be recovered:

xxxx
(2)

When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

xxxx
(11)

In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses entitled to recover

attorneys fees. There is no doubt that they were forced to litigate to protect their interest, i.e., to recover their
money. However, we find the amount of P50,000.00 more appropriate in line with the policy enunciated in Article
2208 of the Civil Code that the award of attorneys fees must always be reasonable.

WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of Appeals
in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent
(12%) per annum, computed from September 27, 2000 until fully satisfied. The award of attorneys fees is further
reduced to P50,000.00.

per centum compounded monthly payable in . . . (120)equal monthly installments of . .

3
. (P 127.65) each.
On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of
Mortgage" under which they obligated themselves to assume the aforesaid obligation to the GSIS and
to secure the release of the mortgage covering that portion of the land belonging to herein private
4
5
respondents and which was mortgaged to the GSIS. This undertaking was not fulfilled.
Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment
of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged
6
property to be sold at public auction on December 3, 1962.
More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint
against the petitioner and the Lagasca spouses in the former Court of

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

First Instance of Quezon City, praying that the extrajudicial foreclosure "made on, their property and all
other documents executed in relation thereto in favor of the Government Service Insurance System" be
declared null and void. It was further prayed that they be allowed to recover said property, and/or the
GSIS be ordered to pay them the value thereof, and/or they be allowed to repurchase the land.
Additionally, they asked for actual and moral damages and attorney's fees.

SECOND DIVISION
G.R. No. L-40824 February 23, 1989

In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not as
sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said
co-owners who were solely benefited by the loans from the GSIS.

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,

vs.
COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.

The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish
8
a cause of action.
9

The Government Corporate Counsel for petitioner.

Lorenzo A. Sales for private respondents.

Said decision was reversed by the respondent Court of Appeals which held that:
... although formally they are co-mortgagors, they are so only for accomodation (sic)
in that the GSIS required their consent to the mortgage of the entire parcel of land
which was covered with only one certificate of title, with full knowledge that the loans
secured thereby were solely for the benefit of the appellant (sic) spouses who alone
applied for the loan.

REGALADO , J.:
xxxx
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano
Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner Government
Service Insurance System (hereinafter referred to as GSIS) and subsequently, another deed of
mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the sums of P
1
11,500.00 and P 3,000.00, respectively. A parcel of land covered by Transfer Certificate of Title No.
38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as
2
security under the aforesaid two deeds. They also executed a 'promissory note" which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY and
SOLIDARILY, promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM
the sum of . . . (P 11,500.00) Philippine Currency, with interest at the rate of six (6%)

'It is, therefore, clear that as against the GSIS, appellants have a valid cause for
having foreclosed the mortgage without having given sufficient notice to them as
required either as to their delinquency in the payment of amortization or as to the
subsequent foreclosure of the mortgage by reason of any default in such payment.
The notice published in the newspaper, 'Daily Record (Exh. 12) and posted pursuant
to Sec 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the
10
application being made for an extrajudicial foreclosure. ...
On the foregoing findings, the respondent court consequently decreed that-

In view of all the foregoing, the judgment appealed from is hereby reversed, and
another one entered (1) declaring the foreclosure of the mortgage void insofar as it
affects the share of the appellants; (2) directing the GSIS to reconvey to appellants
their share of the mortgaged property, or the value thereof if already sold to third
party, in the sum of P 35,000.00, and (3) ordering the appellees Flaviano Lagasca
and Esther Lagasca to pay the appellants the sum of P 10,00.00 as moral damages,
11
P 5,000.00 as attorney's fees, and costs.
The case is now before us in this petition for review.
In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No. 2031,
otherwise known as the Negotiable Instruments Law, which provide that an accommodation party is one
who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor,
but is held liable on the instrument to a holder for value although the latter knew him to be only an
accommodation party.
This approach of both parties appears to be misdirected and their reliance misplaced. The promissory
note hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly not negotiable
instruments. These documents do not comply with the fourth requisite to be considered as such under
Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable
to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on
mortgages.
As earlier indicated, the factual findings of respondent court are that private respondents signed the
documents "only to give their consent to the mortgage as required by GSIS", with the latter having full
12
knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. This
appears to be duly supported by sufficient evidence on record. Indeed, it would be unusual for the GSIS
to arrange for and deduct the monthly amortizations on the loans from the salary as an army officer of
Flaviano Lagasca without likewise affecting deductions from the salary of Isabelo Racho who was also
an army sergeant. Then there is also the undisputed fact, as already stated, that the Lagasca spouses
executed a so-called "Assumption of Mortgage" promising to exclude private respondents and their
share of the mortgaged property from liability to the mortgagee. There is no intimation that the former
executed such instrument for a consideration, thus confirming that they did so pursuant to their original
agreement.

So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca
spouses would not invalidate the mortgage with respect to private respondents' share in the property. In
consenting thereto, even assuming that private respondents may not be assuming personal liability for
the debt, their share in the property shall nevertheless secure and respond for the performance of the
principal obligation. The parties to the mortgage could not have intended that the same would apply
only to the aliquot portion of the Lagasca spouses in the property, otherwise the consent of the private
respondents would not have been required.
The supposed requirement of prior demand on the private respondents would not be in point here since
the mortgage contracts created obligations with specific terms for the compliance thereof. The facts
further show that the private respondents expressly bound themselves as solidary debtors in the
promissory note hereinbefore quoted.
Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of
respondent court that lack of notice to the private respondents of the extrajudicial foreclosure sale
15
impairs the validity thereof. In Bonnevie, et al. vs. Court of appeals, et al., the Court ruled that Act No.
3135, as amended, does not require personal notice on the mortgagor, quoting the requirement on
notice in such cases as follows:
Section 3. Notice shall be given by posting notices of sale for not less than twenty
days in at least three public places of the municipality 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.
There is no showing that the foregoing requirement on notice was not complied with in the foreclosure
sale complained of .
The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of
private respondents or in directing reconveyance of their property or the payment of the value thereof
Indubitably, whether or not private respondents herein benefited from the loan, the mortgage and the
extrajudicial foreclosure proceedings were valid.
WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of
Appeals and REINSTATING the decision of the court a quo in Civil Case No. Q-9418 thereof.

13

The parol evidence rule cannot be used by petitioner as a shield in this case for it is clear that there
was no objection in the court below regarding the admissibility of the testimony and documents that
were presented to prove that the private respondents signed the mortgage papers just to accommodate
their co-owners, the Lagasca spouses. Besides, the introduction of such evidence falls under the
exception to said rule, there being allegations in the complaint of private respondents in the court below
14
regarding the failure of the mortgage contracts to express the true agreement of the parties.
However, contrary to the holding of the respondent court, it cannot be said that private respondents are
without liability under the aforesaid mortgage contracts. The factual context of this case is precisely
what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third
persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging
their own property

SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 84719 January 25, 1991

charged and collected by petitioner under Travel Order No. 2222, when he did not actually and
physically travel as represented by his liquidation papers, was P1,230.00.

YONG CHAN KIM, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge, RTC, 6th Judicial
Region, Branch 28 Iloilo City and Court of Appeals (13th Division) respondents.

Petitioner was required to comment on the internal auditor's report regarding the alleged anomalous
claim for per diems. In his reply, petitioner denied the alleged anomaly, claiming that he made make-up
trips to compensate for the trips he failed to undertake under T.O. 2222 because he was recalled to the
head office and given another assignment.

Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.

In September 1983, two (2) complaints for Estafa were filed against the petitioner before the Municipal
Circuit Trial Court at Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and 631.

Hector P. Teodosio for private respondent.

After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision, the dispositive
part of which reads as follows:
PADILLA, J.:p
This petition seeks the review on certiorari of the following:
1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court (Guimbal-Igbaras1
Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal Case No. 628, and the affirming decision of the
Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July
2
1987;
3

2. The decision of the Court of Appeals, dated 29 April 1988, dismissing petitioner's appeal/petition for
review for having been filed out of time, and the resolution, dated 19 August 1988, denying petitioner's
4
motion for reconsideration.
The antecedent facts are as follows:
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the
Southeast Asian Fisheries Development Center (SEAFDEC) with head station at Tigbauan, Province of
Iloilo. As Head of the Economics Unit of the Research Division, he conducted prawn surveys which
required him to travel to various selected provinces in the country where there are potentials for prawn
culture.
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different
places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days. Under this travel order,
he received P6,438.00 as cash advance to defray his travel expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel
from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5)
days. For this travel order, petitioner received a cash advance of P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense
Reports to the Accounting Section. When the Travel Expense Reports were audited, it was discovered
that there was an overlap of four (4) days (30 June to 3 July 1982) in the two (2) travel orders for which
petitioner collected per diems twice. In sum, the total amount in the form of per diems and allowances

IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused,

Yong Chan Kim, guilty beyond reasonable doubt for the crime of Estafa penalized
under paragraph l(b) of Article 315, Revised Penal Code. Records disclose there is
no aggravating circumstance proven by the prosecution. Neither there is any
mitigating circumstance proven by the accused. Considering the amount subject of
the present complaint, the imposable penalty should be in the medium period of
arresto mayor in its maximum period to prision correccional in its minimum period in
accordance with Article 315, No. 3, Revised Penal Code. Consonantly, the Court
hereby sentences the accused to suffer an imprisonment ranging from four (4)
months as the minimum to one (1) year and six (6) months as the maximum in
accordance with the Indeterminate Sentence Law and to reimburse the amount of
P1,230.00 to SEAFDEC.
The surety bond of the accused shall remain valid until final judgment in accordance
herewith.
Costs against the accused.

Criminal Case No. 631 was subsequently dismissed for failure to prosecute.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case No. 628. On
30 July 1987, the Regional Trial Court in Iloilo City in Criminal Case No. 20958 affirmed in toto the trial
6
court's decision.
The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On 11 August
1987, petitioner, thru counsel, filed a notice of appeal with the Regional Trial Court which ordered the
elevation of the records of the case to the then Intermediate Appellate Court on the following day, 12
August 1987. The records of the case were received by the Intermediate Appellate Court on 8 October
1987, and the appeal was docketed as CA-G.R. No. 05035.
On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier stated, on
29 April 1988, the Court of Appeals dismissed the petition for having been filed out of time. Petitioner's
motion for reconsideration was denied for lack of merit.

Hence, the present recourse.

On 19 October 1988, the Court resolved to require the respondents to comment on the petition for
review. The Solicitor General filed his Comment on 20 January 1989, after several grants of extensions
of time to file the same.
In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the ground that,
as provided for under Section 22, Batas Pambansa 129, Section 22 of the Interim Rules and
Guidelines, and Section 3, Rule 123 of the 1985 Rules of Criminal Procedure, the petitioner should
have filed a petition for review with the then Intermediate Appellate Court instead of a notice of appeal
with the Regional Trial Court, in perfecting his appeal from the RTC to the Intermediate Appellate Court,
since the RTC judge was rendered in the exercise of its appellate jurisdiction over municipal trial courts.
The failure of petitioner to file the proper petition rendered the decision of the Regional Trial Court final
and executory, according to the Solicitor General.
7

Petitioner's counsel submitted a Reply (erroneously termed Comment) wherein she contended that the
peculiar circumstances of a case, such as this, should be considered in order that the principle barring a
petitioner's right of review can be made flexible in the interest of justice and equity.
In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to sufficiently
show that the Court of Appeals had committed any reversible error in its questioned judgment which
8
had dismissed petitioner's petition for review for having been filed out of time.
Petitioner filed a motion for reconsideration maintaining that his petition for review did not limit itself to
the issue upon which the appellate court's decision of 29 April 1988 was based, but rather it delved into
9
the substance and merits of the case.
On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave due course
to the petition. In the said resolution, we stated:

be sure, recognized by law but made inapplicable to his case, under altered rules of
procedure. While the Court of Appeals can not be faulted and, in fact, it has to be
lauded for correctly applying the rules of procedure in appeals to the Court of Appeals
from decisions of the RTC rendered in the exercise of its appellate jurisdiction, yet,
this Court, as the ultimate bulwark of human rights and individual liberty, will not allow
10
substantial justice to be sacrified at the altar of procedural rigor.
In the same resolution, the parties were required to file their respective memoranda, and in
compliance with said resolution, petitioner filed his memorandum on 25 October 1989, while
private respondent SEAFDEC filed its required memorandum on 10 April 1990. On the other
hand, the Solicitor General filed on 13 March 1990 a Recommendation for Acquittal in lieu of
the required memorandum.
Two (2) issues are raised by petitioner to wit:
I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL
COURT (GUIMBAL, ILOILO) AND THE REGIONAL TRIAL COURT, BRANCH 28
(ILOILO CITY) ARE SUPPORTED BY THE FACTS AND EVIDENCE OR
CONTRARY TO LAW AND THAT THE TWO COURTS A QUO HAVE ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION OR
HAVE ACTED WITHOUT OR IN EXCESS OF JURISDICTION.
II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF
APPEALS IS CONTRARY TO LAW, ESTABLISHED JURISPRUDENCE, EQUITY
AND DUE PROCESS.
The second issue has been resolved in our Resolution dated 10 August 1990, when we granted
petitioner's second motion for reconsideration. We shall now proceed to the first issue.
We find merit in the petition.

In several cases decided by this Court, it had set aside technicalities in the Rules in
order to give way to justice and equity. In the present case, we note that the
petitioner, in filing his Notice of Appeal the very next day after receiving the decision
of the court a quo lost no time in showing his intention to appeal, although the
procedure taken was not correct. The Court can overlook the wrong pleading filed, if
strict compliance with the rules would mean sacrificing justice to technicality. The
imminence of a person being deprived unjustly of his liberty due to procedural lapse
of counsel is a strong and compelling reason to warrant suspension of the Rules.
Hence, we shall consider the petition for review filed in the Court of Appeals as a
Supplement to the Notice of Appeal. As the Court declared in a recent decision, '. . .
there is nothing sacred about the procedure of pleadings. This Court may go beyond
the pleadings when the interest of justice so warrants. It has the prerogative to
suspend its rules for the same purpose. . . . Technicality, when it deserts its proper
office as an aid to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]

It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to defray his
travel expenses under T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222,
petitioner was recalled to the head station in Iloilo and given another assignment which was covered by
T.O. 2268. The dispute arose when petitioner allegedly failed to return P1,230.00 out of the cash
advance which he received under T.O. 2222. For the alleged failure of petitioner to return the amount of
P1,230.00, he was charged with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal
Code, which reads as follows:
Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the
means mentioned herein below shall be punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence, namely:

Conscience cannot rest in allowing a man to go straight to jail, closing the door to his
every entreaty for a full opportunity to be heard, even as he has made a prima facie
showing of a meritorious cause, simply because he had chosen an appeal route, to

(a) xxx xxx xxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or

any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of; or
to return, the same, even though such obligation be fatally or partially guaranteed by
a bond; or by denying having received such money, goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be proven that he had
11
the obligation to deliver or return the same money, good or personal property that he had received.
Was petitioner under obligation to return the same money (cash advance) which he had received? We
belive not. Executive Order No. 10, dated 12 February 1980 provides as follows:
B. Cash Advance for Travel
xxx xxx xxx
4. All cash advances must be liquidated within 30 days after date of projected return
of the person. Otherwise, corresponding salary deduction shall be made immediately
following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner, who
liquidates a cash advance is in fact paying back his debt in the form of a loan of money advanced to him
by his employer, as per diems and allowances. Similarly, as stated in the assailed decision of the lower
court, "if the amount of the cash advance he received is less than the amount he spent for actual travel .
. . he has the right to demand reimbursement from his employer the amount he spent coming from his
12
personal funds. In other words, the money advanced by either party is actually a loan to the other.
Hence, petitioner was under no legal obligation to return the same cash or money, i.e., the bills or coins,
13
which he received from the private respondent.

The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent
was not transferred to the latter is erroneous. Ownership of the money was transferred to the petitioner.
Even the prosecution witness, Virgilio Hierro, testified thus:
Q When you gave cash advance to the accused in this Travel
Order No. 2222 subject to liquidation, who owns the funds, accused
or SEAFDEC? How do you consider the funds in the possession of
the accused at the time when there is an actual transfer of cash? . .
.
A The one drawing cash advance already owns the money but
subject to liquidation. If he will not liquidate, be is obliged to return
the amount.
Q xxx xxx xxx
So why do you treat the itinerary of travel temporary when in fact as
of that time the accused owned already the cash advance. You said
the cash advance given to the accused is his own money. In other
words, at the time you departed with the money it belongs already
to the accused?
A Yes, but subject for liquidation. He will be only entitled for that
credence if he liquidates.
Q If other words, it is a transfer of ownership subject to a
suspensive condition that he liquidates the amount of cash advance
upon return to station and completion of the travel?
A Yes, sir.

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
(pp. 26-28, tsn, May 8, 1985).
Art. 1933. 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.
Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount
of the same kind and quality.

14

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relationship
was created. Absent this fiduciary relationship between petitioner and private respondent, which is an
essential element of the crime of estafa by misappropriation or conversion, petitioner could not have
15
committed estafa.
Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be
deducted correspondingly from the salary of the employee concerned. The evidence shows that the
corresponding salary deduction was made in the case of petitioner vis-a-vis the cash advance in
question.
WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court in
Guimbal, Iloilo in Criminal Case No. 628, finding petitioner guilty of estafa under Article 315, par. 1 (b) of
the Revised Penal Code and the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo
City, in Criminal Case No. 20958, promulgated on 30 July 1987 are both hereby SET ASIDE. Petitioner
is ACQUITTED of criminal charge filed against him.

SO ORDERED.

"1.
The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service
charge and 5% per month penalty charge, commencing on 20 May 1982 until fully paid;

Melencio-Herrera, Paras, Sarmiento and Regalado JJ., concur.

THIRD DIVISION

"2.
To pay the further sum equivalent to 10% of the total amount of indebtedness for and as
attorneys fees; and

[G.R. No. 138677. February 12, 2002]

"3.

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS &
SECURITY BANK & TRUST COMPANY, respondents.

Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court of
their motion to present evidence and assailing the imposition of the 2% service charge, the 5% per
month penalty charge and 10% attorney's fees. In its decisioniii of 7 March 1996, the appellate court
affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted
pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court,
both parties filed their respective motions for reconsideration.iv Petitioners prayed for the reduction of
the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the
payment of interest and penalty be commenced not from the date of filing of complaint but from the time
of default as so stipulated in the contract of the parties.

DECISION
VITUG, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and
Trust Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of
P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory
note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per
annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest
in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of
attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce
payment. The obligation matured on 8 September 1981; the bank, however, granted an extension but
only up until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982,
amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners
informing them that they had five days within which to make full payment. Since petitioners still
defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of
Makati, Branch 143, a complaint for recovery of the due amount.
After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27
March 1985, rested its case. Petitioners, instead of introducing their own evidence, had the hearing of
the case reset on two consecutive occasions. In view of the absence of petitioners and their counsel on
28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to consider the
case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the
trial court declaring them as having waived their right to present evidence and prayed that they be
allowed to prove their case. The court a quo denied the motion in an order, dated 5 September 1988,
and on 20 October 1989, it rendered its decision,i the dispositive portion of which read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants,
ordering the latter to pay, jointly and severally, to the plaintiff, as follows:

To pay the costs of the suit.ii

On 28 October 1998, the Court of Appeals resolved the two motions thusly:
We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest thereon
must commence not on the date of filing of the complaint as we have previously held in our decision but
on the date when the obligation became due.
Default generally begins from the moment the creditor demands the performance of the obligation.
However, demand is not necessary to render the obligor in default when the obligation or the law so
provides.
In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the
obligation on its maturity date 'without necessity of demand.' They also agreed to pay the interest in
case of non-payment from the date of default.
x x x

xxx

xxx

While we maintain that defendants-appellants must be bound by the contract which they acknowledged
and signed, we take cognizance of their plea for the application of the provisions of Article 1229 x x x.
Considering that defendants-appellants partially complied with their obligation under the promissory
note by the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will
finally settle their obligation, it is our view and we so hold that in the interest of justice and public policy,
a penalty of 3% per month or 36% per annum would suffice.
x x x

xxx

xxx

WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendantsappellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee
Security Bank and Trust Company the following:

1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and
3% per month penalty charge commencing May 20, 1982 until fully paid;
2. The sum equivalent to 10% of the total amount of the indebtedness as and for
attorneys fees.v
On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly
discovered evidence,vi alleging that while the case was pending before the trial court, petitioner
Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate mortgage on 18 January 1984
to secure the existing indebtedness of petitioners Ligutan and dela Llana with the bank. Petitioners
contended that the execution of the real estate mortgage had the effect of novating the contract
between them and the bank. Petitioners further averred that the mortgage was extrajudicially
foreclosed on 26 August 1986, that they were not informed about it, and the bank did not credit them
with the proceeds of the sale. The appellate court denied the omnibus motion for reconsideration and
to admit newly discovered evidence, ratiocinating that such a second motion for reconsideration cannot
be entertained under Section 2, Rule 52, of the 1997 Rules of Civil Procedure. Furthermore, the
appellate court said, the newly-discovered evidence being invoked by petitioners had actually been
known to them when the case was brought on appeal and when the first motion for reconsideration was
filed.vii
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this
Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court,
submitting thusly I.

The respondent Court of Appeals seriously erred in not holding that the 15.189%
interest and the penalty of three (3%) percent per month or thirty-six (36%) percent
per annum imposed by private respondent bank on petitioners loan obligation are still
manifestly exorbitant, iniquitous and unconscionable.

II.

The respondent Court of Appeals gravely erred in not reducing to a reasonable level
the ten (10%) percent award of attorneys fees which is highly and grossly excessive,
unreasonable and unconscionable.

III.

The respondent Court of Appeals gravely erred in not admitting petitioners newly
discovered evidence which could not have been timely produced during the trial of
this case.

IV.

The respondent Court of Appeals seriously erred in not holding that there was a
novation of the cause of action of private respondents complaint in the instant case
due to the subsequent execution of the real estate mortgage during the pendency of
this case and the subsequent foreclosure of the mortgage.viii

Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be
deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought
about by the radical devaluation and decrease in the purchasing power of the peso, particularly vis-a-vis
the U.S. dollar, taking into account the time frame of its occurrence. The Bank would stress that only
the amount of P5,584.00 had been remitted out of the entire loan of P120,000.00.ix

A penalty clause, expressly recognized by law,x is an accessory undertaking to assume greater liability
on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force
of the obligationxi and to provide, in effect, for what could be the liquidated damages resulting from such
a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of
proof on the existence and on the measure of damages caused by the breach.xii Although a court may
not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the
principal obligation has been partly or irregularly complied with.xiii
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily confined to, the type,
extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the
application of which, by and large, is addressed to the sound discretion of the court. In Rizal
Commercial Banking Corp. vs. Court of Appeals,xiv just an example, the Court has tempered the
penalty charges after taking into account the debtors pitiful situation and its offer to settle the entire
obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or
irregular performance is made by the debtor.xv The stipulated penalty might even be deleted such as
when there has been substantial performance in good faith by the obligor,xvi when the penalty clause
itself suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it.xvii
The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest
from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not to mention
the repeated acts of breach by petitioners of their contractual obligation, the Court sees no cogent
ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its
reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has
not been raised and ventilated before the courts below. In any event, the interest stipulation, on its
face, does not appear as being that excessive. The essence or rationale for the payment of interest,
quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the
two being distinct concepts which may separately be demanded.xviii What may justify a court in not
allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a
valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest
prescribed in loan financing arrangements is a fundamental part of the banking business and the core of
a bank's existence.xix
Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees
for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of
services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of
attorneys fees has been agreed to by the parties and intended to answer not only for litigation
expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of
10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to
admit newly discovered evidence. As the appellate court so held in its resolution of 14 May 1999 -

Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of
a judgment or final resolution by the same party shall be entertained. Considering that the instant
motion is already a second motion for reconsideration, the same must therefore be denied.
Furthermore, it would appear from the records available to this court that the newly-discovered
evidence being invoked by defendants-appellants have actually been existent when the case was
brought on appeal to this court as well as when the first motion for reconsideration was filed. Hence, it
is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this
stage when they could have done so in the earlier pleadings filed before this court.
The propriety or acceptability of such a second motion for reconsideration is not contingent upon the
averment of 'new' grounds to assail the judgment, i.e., grounds other than those theretofore presented
and rejected. Otherwise, attainment of finality of a judgment might be stayed off indefinitely, depending
on the partys ingenuousness or cleverness in conceiving and formulating 'additional flaws' or 'newly
discovered errors' therein, or thinking up some injury or prejudice to the rights of the movant for
reconsideration.xx

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

VITUG, J.:

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would
not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners
acknowledge that the real estate mortgage contract does not contain any express stipulation by the
parties intending it to supersede the existing loan agreement between the petitioners and the bank.xxi
Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the
loan in the promissory note.

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date the decision appealed
from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent
(12%) or six percent (6%).

Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to
the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one.xxii
In order that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligation be on every point
incompatible with each other.xxiii An obligation to pay a sum of money is not extinctively novated by a
new instrument which merely changes the terms of payment or adding compatible covenants or where
the old contract is merely supplemented by the new one.xxiv When not expressed, incompatibility is
required so as to ensure that the parties have indeed intended such novation despite their failure to
express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential
elements of the obligation, i.e., (1) the juridical relation or tie, such as from a mere commodatum to
lease of things, or from negotiorum gestio to agency, or from a mortgage to antichresis,xxv or from a
sale to one of loan;xxvi (2) the object or principal conditions, such as a change of the nature of the
prestation; or (3) the subjects, such as the substitution of a debtorxxvii or the subrogation of the creditor.
Extinctive novation does not necessarily imply that the new agreement should be complete by itself;
certain terms and conditions may be carried, expressly or by implication, over to the new obligation.

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:

WHEREFORE, the petition is DENIED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

This is an action against defendants shipping company, arrastre operator and brokerforwarder for damages sustained by a shipment while in defendants' custody, filed by
the insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama,
Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern
Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance
Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto
the custody of defendant Metro Port Service, Inc. The latter excepted to one drum,
said to be in bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment
from defendant Metro Port Service, Inc., one drum opened and without seal (per
"Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries
of the shipment to the consignee's warehouse. The latter excepted to one drum which

contained spillages, while the rest of the contents was adulterated/fake (per "Bad
Order Waybill" No. 10649, Exh. E).

shipment was delivered to defendant Metro Port Service, Inc., it

excepted to one drum in bad order.

Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants who failed and refused to pay
the same (Exhs. H, I, J, K, L).

Correspondingly, as to the second issue, it follows that the

losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier (Eastern),
arrastre operator (Metro Port) and broker (Allied Brokerage). This
becomes evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the latter
notes, it is stated that when the shipment was "landed on vessel" to
dock of Pier # 15, South Harbor, Manila on December 12, 1981, it
was observed that "one (1) fiber drum (was) in damaged condition,
covered by the vessel's Agent's Bad Order Tally Sheet No. 86427."
The report further states that when defendant Allied Brokerage
withdrew the shipment from defendant arrastre operator's custody
on January 7, 1982, one drum was found opened without seal, cello
bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached
the consignee, one drum was found with adulterated/faked
contents. It is obvious, therefore, that these losses/damages
occurred before the shipment reached the consignee while under
the successive custodies of defendants. Under Art. 1737 of the
New Civil Code, the common carrier's duty to observe extraordinary
diligence in the vigilance of goods remains in full force and effect
even if the goods are temporarily unloaded and stored in transit in
the warehouse of the carrier at the place of destination, until the
consignee has been advised and has had reasonable opportunity
to remove or dispose of the goods (Art. 1738, NCC). Defendant
Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad
Order Cargoes" (Exhs. 3-Eastern) states that on December 12,
1981 one drum was found "open".

As a consequence of the losses sustained, plaintiff was compelled to pay the

consignee P19,032.95 under the aforestated marine insurance policy, so that it
became subrogated to all the rights of action of said consignee against defendants
(per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O).
(pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the
complaint contending that: As for defendant Eastern Shipping it alleged that the
shipment was discharged in good order from the vessel unto the custody of Metro
Port Service so that any damage/losses incurred after the shipment was incurred
after the shipment was turned over to the latter, is no longer its liability (p. 17,
Record); Metroport averred that although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p. 11, Record); Allied
Brokerage alleged that plaintiff has no cause of action against it, not having negligent
or at fault for the shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary care and diligence in
the handling/delivery of the cargo to consignee in the same condition shipment was
received by it.
From the evidence the court found the following:
and thus held:

The issues are:

1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in
the custody of defendants (in whose respective custody, if
determinable);
3. Whether or not defendant(s) should be held liable for the
losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34;
Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment
sustained losses/damages. The two drums were shipped in good
order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum that
was shipped (Exhs. B and C). But when on December 12, 1981 the

WHEREFORE, PREMISES CONSIDERED, judgment is hereby

rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12%
per annum from October 1, 1982, the date of filing of this
complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value
of the loss, whichever is lesser, while the liability of defendant
Metro Port Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case to exceed
P5,000.00 each, pursuant to Section 6.01 of the Management
Contract);
2. P3,000.00 as attorney's fees, and

3. Costs.
B. Dismissing the counterclaims and crossclaim
of defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn
therefrom is correct. As there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants, and therefore they are
liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89,
Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE
ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE
COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF
FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE
RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by, the
carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161
SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;

Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of
Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is
1
not observed but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of
which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that
of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5
[1967]. The relationship between the consignee and the common carrier is similar to
that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line,
et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care
of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver
the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo
and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a
passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
2
3
Service, decided on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred
in its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In
the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was
agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port
Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with
legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants,
this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation,
is the legal rate. Such interest normally is allowable from the date of demand, judicial
or extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." And as was held by this Court in Rivera vs.
4
Perez, L-6998, February 29, 1956, if the suit were for damages, "unliquidated and
not known until definitely ascertained, assessed and determined by the courts after
proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis
supplied)
5

The case of Reformina vs. Tomol, rendered on 11 October 1985, was for "Recovery of Damages for
Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay
jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00
which is the value of the boat F B Pacita III together with its accessories, fishing gear
and equipment minus P80,000.00 which is the value of the insurance recovered and
the amount of P10,000.00 a month as the estimated monthly loss suffered by them as
a result of the fire of May 6, 1969 up to the time they are actually paid or already the
total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully
paid. When the appellate court's decision became final, the case was remanded to the lower
court for execution, and this was when the trial court issued its assailed resolution which
applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition
for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that
the rate of interest for the loan, or forbearance of any money, goods, or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be twelve (12%) percent per annum. This Circular shall take effect
immediately. (Emphasis found in the text)
6

should have, instead, been applied. This Court ruled:

The judgments spoken of and referred to are judgments in litigations involving loans
or forbearance of any money, goods or credits. Any other kind of monetary judgment
which has nothing to do with, nor involving loans or forbearance of any money, goods
or credits does not fall within the coverage of the said law for it is not within the ambit
of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered
in an Action for Damages for injury to persons and loss of property and does not
involve any loan, much less forbearances of any money, goods or credits. As
correctly argued by the private respondents, the law applicable to the said case is
Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of stipulation, the legal
interest which is six percent per annum.
7

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, promulgated on 28 July
1986. The case was for damages occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory damages in the amount of
P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the
8
Reformina v. Tomol case, this Court modified the interest award from 12% to 6% interest per annum
but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.
9

In Nakpil and Sons vs. Court of Appeals, the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the
amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken
to this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
special and environmental circumstances of this case, we deem it reasonable to
render a decision imposing, as We do hereby impose, upon the defendant and the
third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723,
Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees)
occasioned by the loss of the building (including interest charges and lost rentals) and
an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until paid. Solidary costs against
the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis
supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of
twelve (12%) per cent per annum imposed on the total amount of the monetary award was in
10
contravention of law." The Court ruled out the applicability of the Reformina and Philippine
Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central
Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans
or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v.
Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It
is true that in the instant case, there is neither a loan or a forbearance, but then no
interest is actually imposed provided the sums referred to in the judgment are paid
upon the finality of the judgment. It is delay in the payment of such final judgment,
that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on
the total sum, from the filing of the complaint until paid; in other words, as part of the
judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis
supplied.)
11

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00
as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of
suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent
to recover damages, held the award, however, for moral damages by the trial court, later sustained by
12
the IAC, to be inconceivably large. The Court thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
13

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the
trial court moral and exemplary damages without, however, providing any legal interest thereon. When
the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is affirmed in all respects, with the modification that
defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay,
jointly and severally, the amounts stated in the dispositive portion of the decision,
including the sum of P1,400.00 in concept of compensatory damages, with interest at
the legal rate from the date of the filing of the complaint until fully paid (Emphasis
supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the
trial court, and an entry of judgment was made. The writ of execution issued by the trial court

directed that only compensatory damages should earn interest at 6% per annum from the date
of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a
petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the
legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank
Circular No. 416] does not apply to actions based on a breach of employment
contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from
the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs.
14
Angas, decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay
the private respondents certain sums of money as just compensation for their lands so expropriated
"with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under
15
the Civil Code, the Court declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods
or credits but expropriation of certain parcels of land for a public purpose, the
payment of which is without stipulation regarding interest, and the interest adjudged
by the trial court is in the nature of indemnity for damages. The legal interest required
to be paid on the amount of just compensation for the properties expropriated is
manifestly in the form of indemnity for damages for the delay in the payment thereof.
Therefore, since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding
rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985),
Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance
Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American
Express International v. Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that
there has been a consistent holding that the Central Bank Circular imposing the 12% interest per
16
annum applies only to loans or forbearance of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of indemnities in the concept of damage
arising from the breach or a delay in the performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the 6% interest per annum has been applied,
i.e., from the time the complaint is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
17
annum, depending on whether or not the amount involved is a loan or forbearance, on the one hand,

or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained
consistent in holding that the running of the legal interest should be from the time of the filing of the
complaint until fully paid, the "second group" varied on the commencement of the running of the legal
interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the
court a quo, explaining that "if the suit were for damages, 'unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date
of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning
the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil
and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision
until the judgment amount is paid.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed
from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT
(6%), shall be imposed on such amount upon finality of this decision until the payment thereof.
SO ORDERED.
SECOND DIVISION

[G.R. No. 115324. February 19, 2003]

The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi18
19
delicts is breached, the contravenor can be held liable for damages. The provisions under Title
20
XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
21
forbearance of money, the interest due should be that which may have been stipulated in writing.
22
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
23
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
24
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
25
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
26
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
40

This is a petition for review on certiorari of the Decision of the Court of Appeals dated June 25,
41
1991 in CA-G.R. CV No. 11791 and of its Resolution 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
42
that they could discuss Sanchezs request.

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 assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) 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 P200,000.00. In opening the
account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for
43
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.
Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still
intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed
them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that
only P90,000.00 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. 101567 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 P175,000.00 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
44
he was the sole proprietor of Sterela.
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned to him.
On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos
(P212,000.00) 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
45
dishonored.
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 P212,000.00 in private respondents

favor but the check was again dishonored for insufficiency of funds.

46

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 P200,000.00, representing the money deposited, with interest at
the legal rate from the filing of the complaint until the same is fully paid;
(b)
damages;

the sum of P50,000.00 for moral damages and a similar amount for exemplary

(c)

the amount of P40,000.00 for attorneys fees; and

(d)

the costs of the suit.

SO ORDERED.

47

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June
48
25, 1991, the appellate court affirmed in toto the decision of the RTC. It likewise denied with finality
49
petitioners motion for reconsideration in its Resolution dated May 5, 1994.
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE

53

TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES

WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;

the parties to submit their respective memoranda. Petitioner filed its memorandum on April 16, 2001
while private respondent submitted his memorandum on March 22, 2001.

II.

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
54
P212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank account.
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
55
P200,000.00 because it is not privy to the transaction between the latter and Doronilla.

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.
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
50
FEES AND THE COSTS OF SUIT.
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on
September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply.
However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing private
51
respondent with copy of the reply and several substitutions of counsel on the part of private
52
respondent. On January 17, 2001, the Court resolved to give due course to the petition and required

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
56
title to the savings account. 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
57
P200,000.00 in Sterelas account for purposes of its incorporation. Hence, petitioner should not be
held liable for allowing Doronilla to withdraw from Sterelas savings account.
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.

58

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
59
exemplary damages as well as attorneys fees.
Private respondent, on the other hand, argues that the transaction between him and Doronilla is
60
not a mutuum but an accommodation, since he did not actually part with the ownership of his
P200,000.00 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
61
given.
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
62
overdrawings in its current account.
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
63
weigh all over again the evidence presented by the parties during trial. The Courts jurisdiction is in

64

principle limited to reviewing errors of law that might have been committed by the Court of Appeals.
Moreover, factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and
65
conclusive on this Court unless these findings are not supported by the evidence on record. There is
no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that
would require this Court to review and overturn the factual findings of that court, especially since the
conclusions of fact of the Court of Appeals and the trial court are not only consistent but are also amply
supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private
respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case
the contract is called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing,
such as money, the contract would be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is
not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
66
determining the actual character of a contract. In case of doubt, the contemporaneous and

subsequent acts of the parties shall be considered in such determination.

67

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
68
promise that the amount shall be returned within thirty (30) days. 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 P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, 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 P12,000.00 corresponds to the fruits of the lending
of the P200,000.00. 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
69
be entered by the Bank the amount deposited or withdrawn.
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:
X

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
P200,000.00 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 P200,000.00, 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.
Then there is the matter of the ownership of the fund. Because of the coordination
between Doronilla and Atienza, the latter knew before hand that the money deposited did not
belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by
Inocencia Vives that the money belonged to her and her husband and the deposit was
merely to accommodate Doronilla. Atienza even declared that the money came from Mrs.
Vives.
Although the savings account was in the name of Sterela, the bank records disclose
that the only ones empowered to withdraw the same were Inocencia Vives and Angeles B.
Sanchez. In the signature card pertaining to this account (Exh. J), the authorized signatories
were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking
procedure that withdrawals of savings deposits could only be made by persons whose
authorized signatures are in the signature cards on file with the bank. He, however, said that
this procedure was not followed here because Sterela was owned by Doronilla. He
explained that Doronilla had the full authority to withdraw by virtue of such ownership. The
Court is not inclined to agree with Atienza. In the first place, he was all the time aware that
the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives
that they were only accommodating Doronilla so that a certification can be issued to the
effect that Sterela had a deposit of so much amount to be sued in the incorporation of the
firm. In the second place, the signature of Doronilla was not authorized in so far as that
account is concerned inasmuch as he had not signed the signature card provided by the
bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had
given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented.
It is an accepted practice that whenever a withdrawal is made in a savings deposit, the bank
requires the presentation of the passbook. In this case, such recognized practice was
dispensed with. The transfer from the savings account to the current account was without
the submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was made

to appear in a certification signed by Estrella Dumagpi that a duplicate passbook was issued
to Sterela because the original passbook had been surrendered to the Makati branch in view
of a loan accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly
had a hand in the execution of this certification, was aware that the contents of the same are
not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who
gave it to her. Besides, as assistant manager of the branch and the bank official servicing
the savings and current accounts in question, he also was aware that the original passbook
was never surrendered. He was also cognizant that Estrella Dumagpi was not among those
authorized to withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate
that 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
P200,000.00 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.

73

obviously done in furtherance of petitioners interests even though in the process, Atienza violated
74
some of petitioners rules such as those stipulated in its savings account passbook. 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 P200,000.00 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.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this
70
case. x x x.
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
71
committed. 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
72
may have failed in its duty to the employer and disobeyed the latters instructions.
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

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 154878

March 16, 2007

CAROLYN M. GARCIA, Petitioner,

vs.
RICA MARIE S. THIO, Respondent.
DECISION
CORONA, J.:

Assailed in this petition for review on certiorari are the June 19, 2002 decision and August 20, 2002
3
resolution of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28,
1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia
4
a crossed check dated February 24, 1995 in the amount of US$100,000 payable to the order of a
5
certain Marilou Santiago. Thereafter, petitioner received from respondent every month (specifically, on
6
7
March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,000 and P76,500 on July
8
26, August 26, September 26 and October 26, 1995.

3. P100,000.00 as and for attorneys fees; and

4. P50,000.00 as and for actual damages.
For lack of merit, [respondents] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.

21

In June 1995, respondent received from petitioner another crossed check dated June 29, 1995 in the
10
amount of P500,000, also payable to the order of Marilou Santiago. Consequently, petitioner received
from respondent the amount of P20,000 every month on August 5, September 5, October 5 and
11
November 5, 1995.
According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and
P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of
money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the
sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with
12
interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000
13
with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995. The
amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the
amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November
14
5, 1995. The amount of this loan was covered by the second check. For both loans, no promissory
15
note was executed since petitioner and respondent were close friends at the time. Respondent paid
the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal
16
amounts despite repeated demands. 1awphi1.nt
Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give
17
the crossed checks to Santiago. She issued the checks for P76,000 and P20,000 not as payment of
interest but to accommodate petitioners request that respondent use her own checks instead of
18
Santiagos.
19

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a
20
monthly interest of 4%:
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October
26, 1995 until fully paid;

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan
between the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent] received
a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the
order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of
P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner].
The checks received by [respondent], being crossed, may not be encashed but only deposited
in the bank by the payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only onceto one who has an account
with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the
payee in contemplation of law since the latter is not the person who could take the checks as a holder,
i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as
an agent of Marilou Santiago with respect to the checks because she was merely facilitating the
transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan
22
that existed between the parties. x x x (emphasis supplied)
Hence this petition.

23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of
the CA (which held that there were no contracts of loan between petitioner and respondent) and the
24
RTC (which held that there were contracts of loan) are contradictory.
The petition is impressed with merit.

2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of
25
the contract. This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor when
the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is
26
bound to pay the creditor an equal amount.
It is undisputed that the checks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main
question to be answered is: who borrowed money from petitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made payable to
27
Santiago. She maintains that it was also upon respondents instruction that both checks were
28
delivered to her (respondent) so that she could, in turn, deliver the same to Santiago. Furthermore,
she argues that once respondent received the checks, the latter had possession and control of them
such that she had the choice to either forward them to Santiago (who was already her debtor), to retain
29
them or to return them to petitioner.
We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the
30
actual or constructive possession or control of another. Although respondent did not physically receive
the proceeds of the checks, these instruments were placed in her control and possession under an
arrangement whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
31

First, respondent admitted that petitioner did not personally know Santiago. It was highly improbable
that petitioner would grant two loans to a complete stranger without requiring as much as promissory
notes or any written acknowledgment of the debt considering that the amounts involved were quite big.
32
Respondent, on the other hand, already had transactions with Santiago at that time.
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both
parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher
33
rate of 5% and realize a profit of 2%. This explained why respondent instructed petitioner to make the
checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should not be
believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000
each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000
34
loan, she also issued her own checks in the amount of P20,000 each for four months. According to
respondent, she merely accommodated petitioners request for her to issue her own checks to cover the
35
interest payments since petitioner was not personally acquainted with Santiago. She claimed,
36
however, that Santiago would replace the checks with cash. Her explanation is simply incredible. It is
difficult to believe that respondent would put herself in a position where she would be compelled to pay
interest, from her own funds, for loans she allegedly did not contract. We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to
be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself
such as the common experience of mankind can approve as probable under the circumstances. We
have no test of the truth of human testimony except its conformity to our knowledge, observation, and
experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical
37
cognizance.
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner,
38
who was listed as one of her (Santiagos) creditors.
39

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story. The
40
presumption is that "evidence willfully suppressed would be adverse if produced." Respondent was
not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the
amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC
making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 and P500,000 loans respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956
of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in
writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
41
Code.
Hence, respondent is liable for the payment of legal interest per annum to be computed from November
42
21, 1995, the date when she received petitioners demand letter. From the finality of the decision until
it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed
43
equivalent to a forbearance of credit.
The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since
the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002
resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The
February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the
MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and
P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total
amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of
actual damages and attorneys fees is deleted.

SO ORDERED.

The Antecedents
FIRST DIVISION

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 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.

[G.R. No. 146364. June 3, 2004]

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.

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.

DECISION

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City,
Branch 31 (MTC).

CARPIO, J.:

The Case
75

76

Before us is a petition for review of the 21 June 2000 Decision 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
77
78
November 1996 decision of the Regional Trial Court of Quezon City, Branch 81, affirming the 15
79
80
December 1995 decision of the Metropolitan Trial Court of Quezon City, Branch 31.

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 (P300.00) monthly as reasonable
compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.

81

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.

82

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.

85

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 forumshopping.
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.

86

The Ruling of the MTC

83

On 8 January 1997, the First Division of the Supreme Court issued a Resolution 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 Resolution
granting the motion for extension conditioned on the timeliness of the filing of the motion.

SO ORDERED.

84

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.

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

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.

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.

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 defendantappellant is without legal and factual basis.
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil
Case No. Q-96-26943 and in holding that the parties are in pari delicto being
both squatters, therefore, illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies
of the National Government Center Housing Project instead of deciding the
same under the Kasunduan voluntarily executed by the parties, the terms and
87
conditions of which are the laws between themselves.

The Ruling of the Court

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 thirtyday 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.

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
88
and law. Decisions of the regional trial courts involving pure questions of law are appealable directly to

89

this Court by petition for review. 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
90
question of law when the doubt or difference is on what the law is on a certain state of facts. There is
91
a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.
In his petition for review before this Court, Guevarra no longer disputed the facts. 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
92
Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court, we declared
that the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v.
93
Court of Appeals, 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
94
appeal, requires preparation and research to present a persuasive position. The drafting of the petition
95
for review entails more time and effort than filing a notice of appeal. Hence, the Court of Appeals may
allow an extension of time to file a petition for review.
96

In the more recent case of Commissioner of Internal Revenue v. Court of Appeals, 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
97
fact on the lapse of the reglementary period to appeal if no appeal is perfected. 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
98
date of filing of the motion for extension. 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.

and correct and not the product of the imagination or a matter of speculation, and that the pleading is
104
filed in good faith.
The party need not sign the verification. A partys representative, lawyer or any
105
person who personally knows the truth of the facts alleged in the pleading may sign the verification.

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.

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.

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 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
99
the merits, is estopped from attacking the jurisdiction of the court. Estoppel sets in not because the
judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the
100
courts jurisdiction after voluntarily submitting to it is against public policy.
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,
101
102
and not by counsel. The certification of counsel renders the petition defective.
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
103
requisite. It is intended simply to secure an assurance that what are alleged in the pleading are true

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
106
the inferior court of its jurisdiction over the ejectment case.
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
107
the ownership is inseparably linked with the possession. The adjudication on the issue of ownership
108
is only provisional and will not bar an action between the same parties involving title to the land. 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
109
over the real property.

In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of
the contested property and that they are mere squatters. Will the defense that the parties to the
ejectment case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over
the case? The Court of Appeals believed so and held that it would just leave the parties where they are
since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery
of possession. The parties cannot present evidence to prove ownership or right to legal possession
except to prove the nature of the possession when necessary to resolve the issue of physical
110
possession. 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
111
112
jure. It does not even matter if a partys title to the property is questionable,
or when both parties
intruded into public land and their applications to own the land have yet to be approved by the proper
113
government agency.
Regardless of the actual condition of the title to the property, the party in
114
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.
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

115

owner himself.
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
116
better right lawfully ejects him.
To repeat, the only issue that the court has to settle in an ejectment
suit is the right to physical possession.
117

In Pitargue v. Sorilla,
the government owned the land in dispute. The government did not
authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The
plaintiff had prior possession and had already introduced improvements on the public land. The plaintiff
had a pending application for the land with the Bureau of Lands when the defendant ousted him from
possession. The plaintiff filed the action of forcible entry against the defendant. The government was
not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because
while the application of the plaintiff was still pending, title remained with the government, and the
Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that
courts have jurisdiction to entertain ejectment suits even before the resolution of the application. The
plaintiff, by priority of his application and of his entry, acquired prior physical possession over the public
land applied for as against other private claimants. That prior physical possession enjoys legal
protection against other private claimants because only a court can take away such physical possession
in an ejectment case.
118

While the Court did not brand the plaintiff and the defendant in Pitargue
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 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
119
obtain what he claims is his.
The party deprived of possession must not take the law into his own
120
hands. Ejectment proceedings are summary in nature so the authorities can settle speedily actions to
121
recover possession because of the overriding need to quell social disturbances.
We further explained in Pitargue the greater interest that is at stake in actions for recovery of
possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take
cognizance of possessory actions involving these public lands before final award is made by
the Lands Department, and before title is given any of the conflicting claimants? It is one of
utmost importance, as there are public lands everywhere and there are thousands of settlers,
especially in newly opened regions. It also involves a matter of policy, as it requires the
determination of the respective authorities and functions of two coordinate branches of the
Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old,
which was in force in this country before the American occupation, or in the new, we have a
possessory action, the aim and purpose of which is the recovery of the physical possession
of real property, irrespective of the question as to who has the title thereto. Under the
Spanish Civil Code we had the accion interdictal, a summary proceeding which could be
brought within one year from dispossession (Roman Catholic Bishop of Cebu vs. Mangaron,
6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted the common law action
of forcible entry (section 80 of Act No. 190), the object of which has been stated by this Court
to be to prevent breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons who, believing themselves entitled
to the possession of property, resort to force to gain possession rather than to some
appropriate action in the court to assert their claims. (Supia and Batioco vs. Quintero
and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No.
926) the action of forcible entry was already available in the courts of the country. So the
question to be resolved is, Did the Legislature intend, when it vested the power and authority
to alienate and dispose of the public lands in the Lands Department, to exclude the courts
from entertaining the possessory action of forcible entry between rival claimants or
occupants of any land before award thereof to any of the parties? Did Congress intend that
the lands applied for, or all public lands for that matter, be removed from the jurisdiction of

the judicial Branch of the Government, so that any troubles arising therefrom, or any
breaches of the peace or disorders caused by rival claimants, could be inquired into only by
the Lands Department to the exclusion of the courts? The answer to this question seems to
us evident. The Lands Department does not have the means to police public lands; neither
does it have the means to prevent disorders arising therefrom, or contain breaches of the
peace among settlers; or to pass promptly upon conflicts of possession. Then its power is
clearly limited to disposition and alienation, and while it may decide conflicts of
possession in order to make proper award, the settlement of conflicts of possession
which is recognized in the court herein has another ultimate purpose, i.e., the
protection of actual possessors and occupants with a view to the prevention of
breaches of the peace. The power to dispose and alienate could not have been
intended to include the power to prevent or settle disorders or breaches of the peace
among rival settlers or claimants prior to the final award. As to this, therefore, the
corresponding branches of the Government must continue to exercise power and jurisdiction
within the limits of their respective functions. The vesting of the Lands Department with
authority to administer, dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of the exercise of the
respective functions or powers thereon, such as the authority to stop disorders and
quell breaches of the peace by the police, the authority on the part of the courts to
take jurisdiction over possessory actions arising therefrom not involving, directly or
indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect
that courts have no jurisdiction to determine the rights of claimants to public lands, and that
until the disposition of the land has passed from the control of the Federal Government, the
courts will not interfere with the administration of matters concerning the same. (50 C. J.
1093-1094.) We have no quarrel with this principle. The determination of the respective
rights of rival claimants to public lands is different from the determination of who has the
actual physical possession or occupation with a view to protecting the same and preventing
disorder and breaches of the peace. A judgment of the court ordering restitution of the
possession of a parcel of land to the actual occupant, who has been deprived thereof by
another through the use of force or in any other illegal manner, can never be prejudicial
interference with the disposition or alienation of public lands. On the other hand, if courts
were deprived of jurisdiction of cases involving conflicts of possession, that threat of
judicial action against breaches of the peace committed on public lands would be
eliminated, and a state of lawlessness would probably be produced between
applicants, occupants or squatters, where force or might, not right or justice, would
rule.
It must be borne in mind that the action that would be used to solve conflicts of
possession between rivals or conflicting applicants or claimants would be no other than that
of forcible entry. This action, both in England and the United States and in our jurisdiction, is
a summary and expeditious remedy whereby one in peaceful and quiet possession may
recover the possession of which he has been deprived by a stronger hand, by violence or
terror; its ultimate object being to prevent breach of the peace and criminal disorder. (Supia
and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere
possession as a fact, of physical possession, not a legal possession. (Mediran vs.
Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of
forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the
nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action
in mind, by no stretch of the imagination can conclusion be arrived at that the use of the
remedy in the courts of justice would constitute an interference with the alienation,

disposition, and control of public lands. To limit ourselves to the case at bar can it be
pretended at all that its result would in any way interfere with the manner of the alienation or
disposition of the land contested? On the contrary, it would facilitate adjudication, for the
question of priority of possession having been decided in a final manner by the courts, said
question need no longer waste the time of the land officers making the adjudication or award.
(Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code
principle of pari delicto in these words:

122

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
126
obtain what he claims is his.
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is
fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the
latter had illegally occupied, emboldened by the knowledge that the courts would leave them where they
are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior possession at
all cost.

embody the principle of pari delicto. We explained the

The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in
pari delicto potior est conditio defedentis. The law will not aid either party to an illegal
123
agreement. It leaves the parties where it finds them.
The application of the pari delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the pari delicto rule would violate well124
established public policy.
125

In Drilon v. Gaurana,
we reiterated the basic policy behind the summary actions of forcible
entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that,
regardless of the actual condition of the title to the property, the party in peaceable quiet
possession shall not be turned out by strong hand, violence or terror. In affording this remedy
of restitution the object of the statute is to prevent breaches of the peace and criminal

Petty warfare over possession of properties is precisely what ejectment cases or actions for
127
recovery of possession seek to prevent.
Even the owner who has title over the disputed property
cannot take the law into his own hands to regain possession of his property. The owner must go to
court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters.
The determination of priority and superiority of possession is a serious and urgent matter that cannot be
left to the squatters to decide. To do so would make squatters receive better treatment under the law.
The law restrains property owners from taking the law into their own hands. However, the principle of
pari delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow
squatters or violently retake possession of properties usurped from them. Courts should not leave
squatters to their own devices in cases involving recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of ejectment. The Court of
Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court held that
the pivotal issue in this case is who between Pajuyo and Guevarra has the priority right as beneficiary
128
of the contested land under Proclamation No. 137.
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 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
132
peace.

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.

Pajuyo is Entitled to Physical Possession of the Disputed Property

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.

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 Kasunduan. The Kasunduan
reads:

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.

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.

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.

Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang
reklamo.

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.
129

In Pitargue, 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
130
possession or who has a better right of physical possession.
The administrative disposition and
131
alienation of public lands should be threshed out in the proper government agency.

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
133
or termination of the formers right to hold possession under a contract, express or implied.
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the
defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an
134
action for unlawful detainer will lie.
The defendants refusal to comply with the demand makes his

135

continued possession of the property unlawful. 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
136
tolerance of the owner.
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
137
that the latter may use the same for a certain time and return it. An essential feature of commodatum
is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another
138
is for a certain period.
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
139
constituted.
If the bailor should have urgent need of the thing, he may demand its return for
140
temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of
141
the thing at will, in which case the contractual relation is called a precarium. Under the Civil Code,

precarium is a kind of commodatum.

142

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
143
lease. 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
144
contracts of commission, administration and commodatum.
These contracts certainly involve the
145
obligation to deliver or return the thing received.
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
146
an absentee squatter who (sic) makes (sic) a profit out of his illegal act.
Guevarra bases his
argument on the preferential right given to the actual occupant or caretaker under Proclamation No. 137
on socialized housing.

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
151
before he is deemed in possession.
One may acquire possession not only by physical occupation,
152
but also by the fact that a thing is subject to the action of ones will. Actual or physical occupation is
153
not always necessary.

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.
147

Prior possession is not always a condition sine qua non in ejectment.

This is one of the
148
distinctions between forcible entry and unlawful detainer. In forcible entry, the plaintiff is deprived of
physical possession of his land or building by means of force, intimidation, threat, strategy or stealth.
149
Thus, he must allege and prove prior possession. But in unlawful detainer, the defendant unlawfully
withholds possession after the expiration or termination of his right to possess under any contract,
150
express or implied. In such a case, prior physical possession is not required.
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

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
154
said property. 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
155
which they may be entitled under the law.
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
156
adjudication on the merits on the issue of ownership.
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.

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-9626943, 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.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees
157
as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.
158
Thus, the award of attorneys fees is the exception rather than the rule.
Attorneys fees are not
awarded every time a party prevails in a suit because of the policy that no premium should be placed on
159
the right to litigate. We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 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 P300 monthly rental is counted from the last demand to vacate, which was on 16 February

THIRD DIVISION
G.R. Nos. 173654-765

August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
TERESITA PUIG and ROMEO PORRAS, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the
Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders
th
dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6 Judicial Region,
Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents
Teresita Puig and Romeo Porras, and denying petitioners Motion for Reconsideration, in Criminal
Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before Branch 68 of the RTC in
Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo
Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank
of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.
1

The allegations in the Informations filed before the RTC were uniform and pro-forma, except for the
amounts, date and time of commission, to wit:
INFORMATION

st

That on or about the 1 day of August, 2002, in the Municipality of Pototan, Province
of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, above-named
[respondents], conspiring, confederating, and helping one another, with grave abuse
of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan,
Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the
Bank and with intent of gain, did then and there willfully, unlawfully and feloniously
take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00),
Philippine Currency, to the damage and prejudice of the said bank in the aforesaid
amount.
After perusing the Informations in these cases, the trial court did not find the existence of probable
cause that would have necessitated the issuance of a warrant of arrest based on the following grounds:

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January
2006 and 9 June 2006 issued by the trial court, and that it be directed to proceed with Criminal Cases
No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits
of money in banks and similar institutions shall be governed by the provisions concerning simple loans."
Corollary thereto, Article 1953 of the same Code provides that "a person who receives a loan of money
or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality." Thus, it posits that the depositors who place their money with the
bank are considered creditors of the bank. The bank acquires ownership of the money deposited by its
clients, making the money taken by respondents as belonging to the bank.

(1) the element of taking without the consent of the owners was missing on the
ground that it is the depositors-clients, and not the Bank, which filed the complaint in
these cases, who are the owners of the money allegedly taken by respondents and
hence, are the real parties-in-interest; and

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified
theft, citing that a perusal of the Informations will show that they specifically allege that the respondents
were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took
various amounts of money with grave abuse of confidence, and without the knowledge and consent of
the bank, to the damage and prejudice of the bank.

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or
vigilance between the respondents and the offended party that would have
created a high degree of confidence between them which the respondents
could have abused."

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a
Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable
cause for the issuance of a warrant of arrest presupposes evaluation of facts and circumstances, which
is not proper under said Rule.

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through
would be violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution
which states that in all criminal prosecutions, the accused shall enjoy the right to be informed of the
nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of
Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant
of arrest against Puig and Porras.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the
principal party to file a Petition for Review on Certiorari, considering that the incident was indorsed by
the DOJ.

A Motion for Reconsideration was filed on 17 April 2006, by the petitioner.

3

On 9 June 2006, an Order denying petitioners Motion for Reconsideration was issued by the RTC,
finding as follows:
Accordingly, the prosecutions Motion for Reconsideration should be, as it hereby,
DENIED. The Order dated January 30, 2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole
legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT
SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT
OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE
OF CONFIDENCE.

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations
and, therefore, because of this defect, there is no basis for the existence of probable cause which will
justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that the
Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of
grave abuse of confidence; and (b) the element of taking, with intent to gain and without the consent of
the owner, which is the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the
allegations in the Information inadequate. He ruled that the Information failed to state facts constituting
the qualifying circumstance of grave abuse of confidence and the element of taking without the consent
of the owner, since the owner of the money is not the Bank, but the depositors therein. He also cites
4
People v. Koc Song, in which this Court held:
There must be allegation in the information and proof of a relation, by reason of
dependence, guardianship or vigilance, between the respondents and the offended
party that has created a high degree of confidence between them, which the
respondents abused.
At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable
cause simply on the insufficiency of the allegations in the Informations concerning the facts constitutive

of the elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations
in the Informations the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as
follows, viz:
ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next
higher by two degrees than those respectively specified in the next preceding article,
if committed by a domestic servant, or with grave abuse of confidence, or if the
property stolen is motor vehicle, mail matter or large cattle or consists of coconuts
taken from the premises of a plantation, fish taken from a fishpond or fishery or if
property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or
any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Section 9. Cause of the accusation. The acts or omissions complained of as

constituting the offense and the qualifying and aggravating circumstances must be
stated in ordinary and concise language and not necessarily in the language used in
the statute but in terms sufficient to enable a person of common understanding to
know what offense is being charged as well as its qualifying and aggravating
circumstances and for the court to pronounce judgment.
It is evident that the Information need not use the exact language of the statute in alleging the acts or
omissions complained of as constituting the offense. The test is whether it enables a person of common
5
understanding to know the charge against him, and the court to render judgment properly.
The portion of the Information relevant to this discussion reads:
A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers
property without violence or intimidation against persons or force upon things. The elements of the
crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.

Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the
management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into
possession of the monies deposited therein enjoy the confidence reposed in them by their employer.
Banks, on the other hand, where monies are deposited, are considered the owners thereof. This is very
clear not only from the express provisions of the law, but from established jurisprudence. The
relationship between banks and depositors has been held to be that of creditor and debtor. Articles
1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount
of the same kind and quality.

To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or intimidation against persons,
nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that
the information must state the acts or omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is
enlightening:

Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the allegations in the Information that such employees acted with grave abuse
of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of
the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we
6
cite Roque v. People, where the accused teller was convicted for Qualified Theft based on this
Information:
That on or about the 16th day of November, 1989, in the municipality of
Floridablanca, province of Pampanga, Philippines and within the jurisdiction of his
Honorable Court, the above-named accused ASUNCION GALANG ROQUE, being
then employed as teller of the Basa Air Base Savings and Loan Association Inc.
(BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as
such was authorized and reposed with the responsibility to receive and collect capital
contributions from its member/contributors of said corporation, and having collected
and received in her capacity as teller of the BABSLA the sum of TEN THOUSAND
PESOS (P10,000.00), said accused, with intent of gain, with grave abuse of

confidence and without the knowledge and consent of said corporation, did
then and there willfully, unlawfully and feloniously take, steal and carry away the
amount of P10,000.00, Philippine currency, by making it appear that a certain
depositor by the name of Antonio Salazar withdrew from his Savings Account No.
1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said
amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of
P10,000.00, Philippine currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the bank places money in the
tellers possession due to the confidence reposed on the teller, the felony of qualified
7
theft would be committed.
8

Also in People v. Sison, the Branch Operations Officer was convicted of the crime of Qualified Theft
based on the Information as herein cited:
That in or about and during the period compressed between January 24, 1992 and
February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the said
accused did then and there wilfully, unlawfully and feloniously, with intent of gain and
without the knowledge and consent of the owner thereof, take, steal and carry away
the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging to the
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta
Branch, Manila represented by its Branch Manager, HELEN U. FARGAS, to the
damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00,
Philippine Currency.
That in the commission of the said offense, herein accused acted with grave abuse of
confidence and unfaithfulness, he being the Branch Operation Officer of the said
complainant and as such he had free access to the place where the said amount of
money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the Philippine Commercial
and Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the
crime had he not been holding the position of Luneta Branch Operation Officer which
gave him not only sole access to the bank vault xxx. The management of the PCIB
reposed its trust and confidence in the appellant as its Luneta Branch Operation
Officer, and it was this trust and confidence which he exploited to enrich himself to the
9
damage and prejudice of PCIB x x x.
10

From another end, People v. Locson, in addition to People v. Sison, described the nature of
possession by the Bank. The money in this case was in the possession of the defendant as receiving
teller of the bank, and the possession of the defendant was the possession of the Bank. The Court held
therein that when the defendant, with grave abuse of confidence, removed the money and appropriated

it to his own use without the consent of the Bank, there was taking as contemplated in the crime of
11
Qualified Theft.
Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the
respondents; that the crime was committed with grave abuse of confidence, with intent to gain and
without the knowledge and consent of the Bank, without necessarily stating the phrase being
assiduously insisted upon by respondents, "of a relation by reason of dependence, guardianship or
vigilance, between the respondents and the offended party that has created a high degree of
12
confidence between them, which respondents abused," and without employing the word "owner"
in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case,
there is even no reason to quibble on the allegation in the Informations that they acted with grave abuse
of confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is
even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.
In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of
the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed
in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file the instant petition, the
13
ruling in Mobilia Products, Inc. v. Hajime Umezawa is instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State, the interest of the private
complainant or the offended party is limited to the civil liability arising therefrom.
Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a
reconsideration of the order of dismissal or acquittal may be undertaken, whenever
legally feasible, insofar as the criminal aspect thereof is concerned and may be made
only by the public prosecutor; or in the case of an appeal, by the State only, through
the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in
14
appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised, and herein
petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at
the records of the preliminary investigation conducted will show that, indeed, probable cause exists for
the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge
shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating the
15
resolution of the prosecutor and its supporting evidence. Soliven v. Makasiar, as reiterated in Allado
16
v. Driokno, explained that probable cause for the issuance of a warrant of arrest is the existence of
such facts and circumstances that would lead a reasonably discreet and prudent person to believe that
17
an offense has been committed by the person sought to be arrested. The records reasonably indicate
that the respondents may have, indeed, committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case
may be, to relieve the respondents from the pain of going through a trial once it is ascertained that no
probable cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is also

equally imperative upon the judge to proceed with the case upon a showing that there is a prima facie
case against the respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The
Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to
05-3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against
herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in
Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165,
inclusive, with reasonable dispatch. No pronouncement as to costs.
SO ORDERED.