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G.R. No.

L-19190

November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs.


VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant. Attorney-General Villa-Real for
appellee.

MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the
Aparri branch of the Philippine National Bank, Venancio Concepcion,
President of the Philippine National Bank, between April 10, 1919,
and May 7, 1919, authorized an extension of credit in favor of "Puno
y Concepcion, S. en C." in the amount of P300,000. This special
authorization was essential in view of the memorandum order of
President Concepcion dated May 17, 1918, limiting the discretional
power of the local manager at Aparri, Cagayan, to grant loans and
discount negotiable documents to P5,000, which, in certain cases,
could be increased to P10,000. Pursuant to this authorization, credit
aggregating P300,000, was granted the firm of "Puno y Concepcion,
S. en C.," the only security required consisting of six demand notes.
The notes, together with the interest, were taken up and paid by July
17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized
at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda.
de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente
Puno, P20,000; and Rosario San Agustin, "casada con Gral.
Venancio Concepcion," P50,000. Member Miguel S. Concepcion was
the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of
the Philippine National Bank and as member of the board of directors
of this bank, was charged in the Court of First Instance of Cagayan
with a violation of section 35 of Act No. 2747. He was found guilty by
the Honorable Enrique V. Filamor, Judge of First Instance, and was
sentenced to imprisonment for one year and six months, to pay a

fine of P3,000, with subsidiary imprisonment in case of insolvency,


and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918,
just mentioned, to which reference must hereafter repeatedly be
made, reads as follows: "The National Bank shall not, directly or
indirectly, grant loans to any of the members of the board of directors
of the bank nor to agents of the branch banks." Section 49 of the
same Act provides: "Any person who shall violate any of the
provisions of this Act shall be punished by a fine not to exceed ten
thousand pesos, or by imprisonment not to exceed five years, or by
both such fine and imprisonment." These two sections were in effect
in 1919 when the alleged unlawful acts took place, but were repealed
by Act No. 2938, approved on January 30, 1921.
Counsel for the defense assign ten errors as having been
committed by the trial court. These errors they have argued adroitly
and exhaustively in their printed brief, and again in oral argument.
Attorney-General Villa-Real, in an exceptionally accurate and
comprehensive brief, answers the proposition of appellant one by
one.
The question presented are reduced to their simplest elements
in the opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership
"Puno y Concepcion, S. en C." by Venancio Concepcion, President
of the Philippine National Bank, a "loan" within the meaning of
section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that
authority to make a loan was given, but only show the concession of
a credit. In this statement of fact, counsel is correct, for the exhibits
in question speak of a "credito" (credit) and not of a " prestamo"
(loan).
The "credit" of an individual means his ability to borrow money
by virtue of the confidence or trust reposed by a lender that he will
pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party

and the receipt by the other party of a given sum of money, upon an
agreement, express or implied, to repay the sum loaned, with or
without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The
concession of a "credit" necessarily involves the granting of "loans"
up to the limit of the amount fixed in the "credit,"

The facts of the instant case having relation to this phase of


the argument are not essentially different from the facts in the
Binalbagan Estate case. Just as there it was declared that the
operations constituted a loan and not a discount, so should we here
lay down the same ruling.

II. Was the granting of a credit of P300,000 to the copartnership


"Puno y Concepcion, S. en C.," by Venancio Concepcion, President
of the Philippine National Bank, a "loan" or a "discount"?

III. Was the granting of a credit of P300,000 to the copartnership,


"Puno y Concepcion, S. en C." by Venancio Concepcion, President
of the Philippine National Bank, an "indirect loan" within the meaning
of section 35 of Act No. 2747?

Counsel argue that while section 35 of Act No. 2747 prohibits


the granting of a "loan," it does not prohibit what is commonly known
as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then
President of the National Bank, inquired of the Insular Auditor
whether section 37 of Act No. 2612 was intended to apply to
discounts as well as to loans. The ruling of the Acting Insular Auditor,
dated August 11, 1916, was to the effect that said section referred to
loans alone, and placed no restriction upon discount transactions. It
becomes material, therefore, to discover the distinction between a
"loan" and a "discount," and to ascertain if the instant transaction
comes under the first or the latter denomination.
Discounts are favored by bankers because of their liquid
nature, growing, as they do, out of an actual, live, transaction. But in
its last analysis, to discount a paper is only a mode of loaning money,
with, however, these distinctions: (1) In a discount, interest is
deducted in advance, while in a loan, interest is taken at the
expiration of a credit; (2) a discount is always on double-name paper;
a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular
Auditor, the law covers loans and not discounts, yet the conclusion is
inevitable that the demand notes signed by the firm "Puno y
Concepcion, S. en C." were not discount paper but were mere
evidences of indebtedness, because (1) interest was not deducted
from the face of the notes, but was paid when the notes fell due; and
(2) they were single-name and not double-name paper.

Counsel argue that a loan to the partnership "Puno y


Concepcion, S. en C." was not an "indirect loan." In this connection,
it should be recalled that the wife of the defendant held one-half of
the capital of this partnership.
In the interpretation and construction of statutes, the primary
rule is to ascertain and give effect to the intention of the Legislature.
In this instance, the purpose of the Legislature is plainly to erect a
wall of safety against temptation for a director of the bank. The
prohibition against indirect loans is a recognition of the familiar
maxim that no man may serve two masters that where personal
interest clashes with fidelity to duty the latter almost always suffers.
If, therefore, it is shown that the husband is financially interested in
the success or failure of his wife's business venture, a loan to
partnership of which the wife of a director is a member, falls within
the prohibition.
Various provisions of the Civil serve to establish the familiar
relationship called a conjugal partnership. (Articles 1315, 1393,
1401, 1407, 1408, and 1412 can be specially noted.) A loan,
therefore, to a partnership of which the wife of a director of a bank is
a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly
such an occurrence is shown by the acknowledged fact that in this
instance the defendant was tempted to mingle his personal and
family affairs with his official duties, and to permit the loan P300,000
to a partnership of no established reputation and without asking for
collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33


Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no
director or officer should borrow of the bank, and "if any director,"
etc., "shall be convicted," etc., "of directly or indirectly violating this
section he shall be punished by fine and imprisonment?" We say to
protect the stockholders, depositors and creditors of the bank,
against the temptation to which the directors and officers might be
exposed, and the power which as such they must necessarily
possess in the control and management of the bank, and the
legislature unwilling to rely upon the implied understanding that in
assuming this relation they would not acquire any interest hostile or
adverse to the most exact and faithful discharge of duty, declared in
express terms that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied
upon in the Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his
copartnership firm as well as to himself directly. The loan was made
indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National
Bank, be convicted of a violation of section 35 of Act No. 2747 in
relation with section 49 of the same Act, when these portions of Act
No. 2747 were repealed by Act No. 2938, prior to the finding of the
information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49
of Act No. 2747, in relation to section 35 of the same Act, provides a
punishment for any person who shall violate any of the provisions of
the Act. It is contended, however, by the appellant, that the repeal of
these sections of Act No. 2747 by Act No. 2938 has served to take
away the basis for criminal prosecution.
This same question has been previously submitted and has
received an answer adverse to such contention in the cases of
United Stated vs. Cuna ([1908], 12 Phil., 241); People vs.
Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong

Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In
other words, it has been the holding, and it must again be the
holding, that where an Act of the Legislature which penalizes an
offense, such repeals a former Act which penalized the same
offense, such repeal does not have the effect of thereafter depriving
the courts of jurisdiction to try, convict, and sentenced offenders
charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership
"Puno y Concepcion, S. en C." by Venancio Concepcion, President
of the Philippine National Bank, in violation of section 35 of Act No.
2747, penalized by this law?
Counsel argue that since the prohibition contained in section
35 of Act No. 2747 is on the bank, and since section 49 of said Act
provides a punishment not on the bank when it violates any
provisions of the law, but on a person violating any provisions of the
same, and imposing imprisonment as a part of the penalty, the
prohibition contained in said section 35 is without penal
sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to
do an act, the prohibition extends to the board of directors, and to
each director separately and individually. (People vs. Concepcion,
supra.)
VI. Does the alleged good faith of Venancio Concepcion, President
of the Philippine National Bank, in extending the credit of P300,000
to the copartnership "Puno y Concepcion, S. en C." constitute a legal
defense?
Counsel argue that if defendant committed the acts of which
he was convicted, it was because he was misled by rulings coming
from the Insular Auditor. It is furthermore stated that since the loans
made to the copartnership "Puno y Concepcion, S. en C." have been
paid, no loss has been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive.
Under the statute which the defendant has violated, criminal intent is
not necessarily material. The doing of the inhibited act, inhibited on

account of public policy and public interest, constitutes the crime.


And, in this instance, as previously demonstrated, the acts of the
President of the Philippine National Bank do not fall within the
purview of the rulings of the Insular Auditor, even conceding that
such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and
advantage not common to the other stockholders. The law will not
allow private profit from a trust, and will not listen to any proof of
honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the
decision of the trial court, and the errors assigned by the appellant,
and with reference to previous decisions of this court on the same
subject, we are irresistibly led to the conclusion that no reversible
error was committed in the trial of this case, and that the defendant
has been proved guilty beyond a reasonable doubt of the crime
charged in the information. The penalty imposed by the trial judge
falls within the limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against
the appellant. So ordered.

G.R. No. L-24968 April 27, 1972


SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendantappellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates
for plaintiff-appellee.

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

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


For payment of the balance of purchase
price of machinery and equipment 240,900.00
MAKALINTAL, J.:p
For working capital 9,100.00
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.

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;"
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.

On January 7, 1954 RFC passed Resolution No. 145 approving the

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 co-signer 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
re-examination of all the various aspects of the loan granted the
Saura Import & Export Co. under Resolution No. 145, c.s., for the
purpose of 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."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the
loan and informed RFC that China Engineers, Ltd. "will at any time
reinstate their signature as co-signer of the note if RFC releases to
us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring
the loan to the original amount of P500,000.00, "it appearing that
China Engineers, Ltd. is now willing to sign the promissory notes
jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of
imported raw materials, the Department of Agriculture and Natural
Resources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to


carry out its operation are available in the immediate vicinity; and

a) For the payment of the receipt for jute mill machineries with the
Prudential Bank &

2. That there is prospect of increased production thereof to provide


adequately for the requirements of the factory."

Trust Company P250,000.00


(For immediate release)

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 ..."
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:

b) For the purchase of materials and equip-ment per attached list to


enable the jutemill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-ing of the letter of credit
for raw jutefor $25,000.00.
2) P25,000.00 to be released upon arrivalof raw jute.
3) P17,586.09 to be released as soon as themill 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.
The trial court rendered judgment for the plaintiff, ruling that there
was a perfected contract between the parties and that the defendant
was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that
there was no perfected contract; and (3) that assuming there was,
the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as
recognized in Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of

commodatum or simple loan is binding upon the parties, but the


commodatum or simple loan itself shall not be 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.
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 "mutuo disenso" 1 which is a
mode of extinguishing obligations. It is a concept that derives from
the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this desistance. It
did not protest against any alleged breach of contract by RFC, or
even point out that the latter's stand was legally unjustified. Its
request for cancellation of the mortgage carried no reservation of
whatever rights it believed it might have against RFC for the latter's
non-compliance. In 1962 it even applied with DBP for another loan to
finance a rice and corn project, which application was disapproved. It
was only in 1964, nine years after the loan agreement had been
cancelled at its own request, that Saura, Inc. brought this action for
damages.All these circumstances demonstrate beyond doubt that
the said agreement had been extinguished by mutual desistance
and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to
consider and resolve the other issues raised in the respective briefs
of the parties.
WHEREFORE, the judgment appealed from is reversed and the
complaint dismissed, with costs against the plaintiff-appellee.

G.R. No. L-17474

October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs.JOSE V.


BAGTAS, defendant, FELICIDAD M. BAGTAS, Administratrix of
the Intestate Estate left by the late Jose V. Bagtas, petitionerappellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.Office of
the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only
questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the
Philippines through the Bureau of Animal Industry three bulls: a Red
Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and
a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to
7 May 1949 for breeding purposes subject to a government charge
of breeding fee of 10% of the book value of the bulls. Upon the
expiration on 7 May 1949 of the contract, the borrower asked for a
renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of
only one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V.
Bagtas wrote to the Director of Animal Industry that he would pay the
value of the three bulls. On 17 October 1950 he reiterated his desire
to buy them at a value with a deduction of yearly depreciation to be
approved by the Auditor General. On 19 October 1950 the Director of
Animal Industry advised him that the book value of the three bulls
could not be reduced and that they either be returned or their book
value paid not later than 31 October 1950. Jose V. Bagtas failed to
pay the book value of the three bulls or to return them. So, on 20
December 1950 in the Court of First Instance of Manila the Republic
of the Philippines commenced an action against him praying that he
be ordered to return the three bulls loaned to him or to pay their book
value in the total sum of P3,241.45 and the unpaid breeding fee in
the sum of P199.62, both with interests, and costs; and that other
just and equitable relief be granted in (civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete


and Manalo, answered that because of the bad peace and order
situation in Cagayan Valley, particularly in the barrio of Baggao, and
of the pending appeal he had taken to the Secretary of Agriculture
and Natural Resources and the President of the Philippines from the
refusal by the Director of Animal Industry to deduct from the book
value of the bulls corresponding yearly depreciation of 8% from the
date of acquisition, to which depreciation the Auditor General did not
object, he could not return the animals nor pay their value and
prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the
total value of the three bulls plus the breeding fees in the amount of
P626.17 with interest on both sums of (at) the legal rate from the
filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution
which the court granted on 18 October and issued on 11 November
1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to
serve the writ outside Manila. Of this order appointing a special
sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving
spouse of the defendant Jose Bagtas who died on 23 October 1951
and as administratrix of his estate, was notified. On 7 January 1959
she file a motion alleging that on 26 June 1952 the two bull Sindhi
and Bhagnari were returned to the Bureau Animal of Industry and
that sometime in November 1958 the third bull, the Sahiniwal, died
from gunshot wound inflicted during a Huk raid on Hacienda
Felicidad Intal, and praying that the writ of execution be quashed and
that a writ of preliminary injunction be issued. On 31 January 1959
the plaintiff objected to her motion. On 6 February 1959 she filed a
reply thereto. On the same day, 6 February, the Court denied her
motion. Hence, this appeal certified by the Court of Appeals to this
Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the
appellant by the late defendant, returned the Sindhi and Bhagnari
bulls to Roman Remorin, Superintendent of the NVB Station, Bureau

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of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a


memorandum receipt signed by the latter (Exhibit 2). That is why in
its objection of 31 January 1959 to the appellant's motion to quash
the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of
defendant deceased Jose V. Bagtas." She cannot be held liable for
the two bulls which already had been returned to and received by the
appellee.
The appellant contends that the Sahiniwal bull was accidentally killed
during a raid by the Huk in November 1953 upon the surrounding
barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the
animal was kept, and that as such death was due to force majeure
she is relieved from the duty of returning the bull or paying its value
to the appellee. The contention is without merit. The loan by the
appellee to the late defendant Jose V. Bagtas of the three bulls for
breeding purposes for a period of one year from 8 May 1948 to 7
May 1949, later on renewed for another year as regards one bull,
was subject to the payment by the borrower of breeding fee of 10%
of the book value of the bulls. The appellant contends that the
contract was commodatum and that, for that reason, as the appellee
retained ownership or title to the bull it should suffer its loss due to
force majeure. A contract of commodatum is essentially gratuitous.1 If
the breeding fee be considered a compensation, then the contract
would be a lease of the bull. Under article 1671 of the Civil Code the
lessee would be subject to the responsibilities of a possessor in bad
faith, because she had continued possession of the bull after the
expiry of the contract. And even if the contract be commodatum, still
the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a
fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from responsibility
in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949.
The loan of one bull was renewed for another period of one year to
end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased husband of
the appellant the bulls had each an appraised book value, to with:
the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the
bull due to fortuitous event the late husband of the appellant would
be exempt from liability.
The appellant's contention that the demand or prayer by the appellee
for the return of the bull or the payment of its value being a money
claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without
merit. However, the claim that his civil personality having ceased to
exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court
provides that
After a party dies and the claim is not thereby extinguished, the court
shall order, upon proper notice, the legal representative of the
deceased to appear and to be substituted for the deceased, within a
period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel
failed to comply with section 16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of
his attorney to inform the court promptly of such death . . . and to
give the name and residence of the executory administrator,
guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de
Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all
persons having claims for monopoly against the deceased Jose V.
Bagtas, arising from contract express or implied, whether the same
be due, not due, or contingent, for funeral expenses and expenses of
the last sickness of the said decedent, and judgment for monopoly

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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.

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G.R. No. L-46240

November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffsappellants, vs.BECK, defendant-appellee.


Mauricio Carlos for appellants.Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to
return her certain furniture which she lent him for his use. She
appealed from the judgment of the Court of First Instance of Manila
which ordered that the defendant return to her the three has heaters
and the four electric lamps found in the possession of the Sheriff of
said city, that she call for the other furniture from the said sheriff of
Manila at her own expense, and that the fees which the Sheriff may
charge for the deposit of the furniture be paid pro rata by both
parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such
occupied the latter's house on M. H. del Pilar street, No. 1175. On
January 14, 1936, upon the novation of the contract of lease
between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture described in the third
paragraph of the stipulation of facts, subject to the condition that the
defendant would return them to the plaintiff upon the latter's demand.
The plaintiff sold the property to Maria Lopez and Rosario Lopez and
on September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one
of the clauses of the contract of lease. There after the plaintiff
required the defendant to return all the furniture transferred to him for
them in the house where they were found. On
November 5,
1936, the defendant, through another person, wrote to the plaintiff
reiterating that she may call for the furniture in the ground floor of the
house. On the 7th of the same month, the defendant wrote another
letter to the plaintiff informing her that he could not give up the three
gas heaters and the four electric lamps because he would use them
until the 15th of the same month when the lease in due to expire.

The plaintiff refused to get the furniture in view of the fact that the
defendant had declined to make delivery of all of them. On
November 15th, before vacating the house, the defendant deposited
with the Sheriff all the furniture belonging to the plaintiff and they are
now on deposit in the warehouse situated at No. 1521, Rizal Avenue,
in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the
trial court incorrectly applied the law: in holding that they violated the
contract by not calling for all the furniture on November 5, 1936,
when the defendant placed them at their disposal; in not ordering the
defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the
Sheriff at their expenses; in ordering them to pay-half of the
expenses claimed by the Sheriff for the deposit of the furniture; in
ruling that both parties should pay their respective legal expenses or
the costs; and in denying pay their respective legal expenses or the
costs; and in denying the motions for reconsideration and new trial.
To dispose of the case, it is only necessary to decide whether the
defendant complied with his obligation to return the furniture upon
the plaintiff's demand; whether the latter is bound to bear the deposit
fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of
commadatum, because under it the plaintiff gratuitously granted the
use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself to
return the furniture to the plaintiff, upon the latters demand (clause 7
of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the
Civil Code). The obligation voluntarily assumed by the defendant to
return the furniture upon the plaintiff's demand, means that he should
return all of them to the plaintiff at the latter's residence or house.
The defendant did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his benefit
the three gas heaters and the four eletric lamps. The provisions of
article 1169 of the Civil Code cited by counsel for the parties are not
squarely applicable. The trial court, therefore, erred when it came to
the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.

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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.

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.

The costs in both instances should be borne by the defendant


because the plaintiff is the prevailing party (section 487 of the Code

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