On 15 December 1995, the MTC rendered its decision in favor of Pajuyo.

The dispositive
portion of the MTC decision reads:

FIRST DIVISION

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and
against defendant, ordering the latter to:
[G.R. No. 146364. June 3, 2004]
A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;
COLITO T.
PAJUYO, petitioner,
GUEVARRA, respondents.

vs. COURT

OF

APPEALS

and

EDDIE

DECISION

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.

CARPIO, J.:

SO ORDERED.[7]
The Case

Before us is a petition for review [1] of the 21 June 2000 Decision [2] and 14 December
2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals
set aside the 11 November 1996 decision [3] of the Regional Trial Court of Quezon City,
Branch 81,[4] affirming the 15 December 1995 decision[5] of the Metropolitan Trial Court
of Quezon City, Branch 31.[6]

The Antecedents

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.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra)
executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra
to live in the house for free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded
that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of
Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession
over the lot where the house stands because the lot is within the 150 hectares set
aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from
December 1985 to September 1994, Pajuyo did not show up or communicate with him.
Guevarra insisted that neither he nor Pajuyo has valid title to the lot.

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81
(RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of
the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision
appealed from, being in accord with the law and evidence presented, and the same is
hereby affirmed en toto.
SO ORDERED.[8]
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14
December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal
with the Court of Appeals, Guevarra filed with the Supreme Court a Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for
extension). Guevarra theorized that his appeal raised pure questions of law. The
Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution[9] 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[10] granting the motion for extension conditioned on the timeliness of the
filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras
petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
decision. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil
Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the
ejectment case filed against defendant-appellant is without factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the
Court of Appeals should have dismissed outright Guevarras petition for review because
it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos
motion for reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No
costs.

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 acommodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the
appellate court held that Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino (President Aquino) issued
Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical
possession of the property. Under Article VI of the Code of Policies Beneficiary Selection
and Disposition of Homelots and Structures in the National Housing Project (the Code),
the actual occupant or caretaker of the lot shall have first priority as beneficiary of the
project. The Court of Appeals concluded that Guevarra is first in the hierarchy of
priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos
claim that Guevarra filed his motion for extension beyond the period to appeal.

SO ORDERED.[12]

The Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the
house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to
use the house only by tolerance. Thus, Guevarras refusal to vacate the house on
Pajuyos demand made Guevarras continued possession of the house illegal.

The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant relationship
between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return
possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the
Revised National Government Center Housing Project Code of Policies and other
pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights
under these laws.The RTC declared that in an ejectment case, the only issue for
resolution is material or physical possession, not ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and
Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had
no right or title over the lot because it is public land. The assignment of rights between

The Court of Appeals pointed out that Guevarras motion for extension filed before the
Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts
Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a
date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra
filed the motion for extension on time on 13 December 1996 since he filed the motion
one day before the expiration of the reglementary period on 14 December 1996. Thus,
the motion for extension properly complied with the condition imposed by the Court of
Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the
thirty-day extension to file the petition for review was deemed granted because of such
compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have
dismissed the petition for review because it was Guevarras counsel and not Guevarra
who signed the certification against forum-shopping. The Court of Appeals pointed out
that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that
Pajuyo could not now seek the dismissal of the case after he had extensively argued on
the merits of the case. This technicality, the appellate court opined, was clearly an
afterthought.

The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND
DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an
Extension of thirty days to file petition for review at the time when there
was no more period to extend as the decision of the Regional Trial Court had
already become final and executory.

2) in giving due course, instead of dismissing, private respondents Petition

for Review even though the certification against forum-shopping was signed
only by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in
fact a commodatum, instead of a Contract of Lease as found by the
Metropolitan Trial Court and in holding that the ejectment case filed against
defendant-appellant is without legal and factual basis.
4) in reversing and setting aside the Decision of the Regional Trial Court in
Civil Case No. Q-96-26943 and in holding that the parties are in pari delicto
being both squatters, therefore, illegal occupants of the contested parcel of
land.
5) in deciding the unlawful detainer case based on the so-called Code of
Policies of the National Government Center Housing Project instead of
deciding the same under the Kasunduan voluntarily executed by the
parties, the terms and conditions of which are the laws between
themselves.[13]

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find merit in the
substantive issues Pajuyo is submitting for resolution.

Procedural Issues

Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras
petition for review because the RTC decision had already become final and executory
when the appellate court acted on Guevarras motion for extension to file the
petition. Pajuyo points out that Guevarra had only one day before the expiry of his
period to appeal the RTC decision. Instead of filing the petition for review with the Court
of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days
to file a petition for review. This Court merely referred the motion to the Court of
Appeals. Pajuyo believes that the filing of the motion for extension with this Court did
not toll the running of the period to perfect the appeal. Hence, when the Court of
Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are
appealable to the Court of Appeals by petition for review in cases involving questions
of fact or mixed questions of fact and law. [14] Decisions of the regional trial courts
involving pure questions of law are appealable directly to this Court by petition for
review.[15] These modes of appeal are now embodied in Section 2, Rule 41 of the 1997
Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of
law. Guevarra thus filed his motion for extension to file petition for review before this
Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for
review with this Court. A perusal of Guevarras petition for review gives the impression

that the issues he raised were pure questions of law. There is a question of law when
the doubt or difference is on what the law is on a certain state of facts. [16] There is a
question of fact when the doubt or difference is on the truth or falsity of the facts
alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the
facts. Guevarras petition for review raised these questions:(1) Do ejectment cases
pertain only to possession of a structure, and not the lot on which the structure stands?
(2) Does a suit by a squatter against a fellow squatter constitute a valid case for
ejectment? (3) Should a Presidential Proclamation governing the lot on which a
squatters structure stands be considered in an ejectment suit filed by the owner of the
structure?
These questions call for the evaluation of the rights of the parties under the law on
ejectment and the Presidential Proclamation. At first glance, the questions Guevarra
raised appeared purely legal. However, some factual questions still have to be resolved
because they have a bearing on the legal questions raised in the petition for
review. These factual matters refer to the metes and bounds of the disputed property
and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for
review. In Lacsamana v. Second Special Cases Division of the Intermediate
Appellate Court,[18] we declared that the Court of Appeals could grant extension of
time in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified
that the prohibition against granting an extension of time applies only in a case where
ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply
in a petition for review where the pleading needs verification. A petition for review,
unlike an ordinary appeal, requires preparation and research to present a persuasive
position.[20] The drafting of the petition for review entails more time and effort than
filing a notice of appeal. [21] Hence, the Court of Appeals may allow an extension of time
to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of
Appeals,[22] we held that Liboros clarification ofLacsamana is consistent with the
Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91.
They all allow an extension of time for filing petitions for review with the Court of
Appeals. The extension, however, should be limited to only fifteen days save in
exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment
becomes a fact on the lapse of the reglementary period to appeal if no appeal is
perfected.[23] The RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarras motion for extension. The Court of Appeals gave due course to the motion
for extension because it complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that the Court of Appeals
would only give due course to the motion for extension if filed on time. The motion for
extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion
for extension are (1) the date of receipt of the judgment or final order or resolution
subject of the petition, and (2) the date of filing of the motion for extension. [24] It is the
date of the filing of the motion or pleading, and not the date of execution, that
determines the timeliness of the filing of that motion or pleading. Thus, even if the
motion for extension bears no date, the date of filing stamped on it is the reckoning
point for determining the timeliness of its filing.

Guevarra had until 14 December 1996 to file an appeal from the RTC
decision. Guevarra filed his motion for extension before this Court on 13 December
1996, the date stamped by this Courts Receiving Clerk on the motion for extension.
Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the
reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on
technical grounds, Pajuyo did not ask the appellate court to deny the motion for
extension and dismiss the petition for review at the earliest opportunity. Instead,
Pajuyo vigorously discussed the merits of the case. It was only when the Court of
Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against
Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse
decision on the merits, is estopped from attacking the jurisdiction of the court.
[25]
Estoppel sets in not because the judgment of the court is a valid and conclusive
adjudication, but because the practice of attacking the courts jurisdiction after
voluntarily submitting to it is against public policy. [26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras
failure to sign the certification against forum shopping. Instead, Pajuyo harped on
Guevarras counsel signing the verification, claiming that the counsels verification is
insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the
partys failure to sign personally the verification. The certificate of non-forum shopping
must be signed by the party, and not by counsel. [27] The certification of counsel renders
the petition defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and not a
jurisdictional requisite.[29] It is intended simply to secure an assurance that what are
alleged in the pleading are true and correct and not the product of the imagination or a
matter of speculation, and that the pleading is filed in good faith. [30] The party need not
sign the verification. A partys representative, lawyer or any person who personally
knows the truth of the facts alleged in the pleading may sign the verification. [31]
We agree with the Court of Appeals that the issue on the certificate against forum
shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention
to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue
too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of
Jurisdiction to Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the disputed property will
not divest the inferior court of its jurisdiction over the ejectment case. [32] Even if the
pleadings raise the issue of ownership, the court may pass on such issue to determine
only the question of possession, especially if the ownership is inseparably linked with
the possession.[33] The adjudication on the issue of ownership is only provisional and
will not bar an action between the same parties involving title to the land. [34] This
doctrine is a necessary consequence of the nature of the two summary actions of
ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is
the physical or material possession over the real property. [35]

In this case, what Guevarra raised before the courts was that he and Pajuyo are not the
owners of the contested property and that they are mere squatters. Will the defense
that the parties to the ejectment case are not the owners of the disputed lot allow the
courts to renounce their jurisdiction over the case? The Court of Appeals believed so
and held that it would just leave the parties where they are since they are in pari
delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for
recovery of possession. The parties cannot present evidence to prove ownership or
right to legal possession except to prove the nature of the possession when necessary
to resolve the issue of physical possession. [36] The same is true when the defendant
asserts the absence of title over the property. The absence of title over the contested
lot is not a ground for the courts to withhold relief from the parties in an ejectment
case.
The only question that the courts must resolve in ejectment proceedings is - who is
entitled to the physical possession of the premises, that is, to the possession de
facto and not to the possession de jure.[37] It does not even matter if a partys title to
the property is questionable,[38] or when both parties intruded into public land and their
applications to own the land have yet to be approved by the proper government
agency.[39] Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.
[40]
Neither is the unlawful withholding of property allowed. Courts will always uphold
respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even
against the owner himself. [41] Whatever may be the character of his possession, if he
has in his favor prior possession in time, he has the security that entitles him to remain
on the property until a person with a better right lawfully ejects him. [42] To repeat, the
only issue that the court has to settle in an ejectment suit is the right to physical
possession.
In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government
did not authorize either the plaintiff or the defendant in the case of forcible entry case
to occupy the land. The plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending application for the land
with the Bureau of Lands when the defendant ousted him from possession. The plaintiff
filed the action of forcible entry against the defendant. The government was not a
party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession
because while the application of the plaintiff was still pending, title remained with the
government, and the Bureau of Public Lands had jurisdiction over the case. We
disagreed with the defendant. We ruled that courts have jurisdiction to entertain
ejectment suits even before the resolution of the application. The plaintiff, by priority of
his application and of his entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical possession enjoys
legal protection against other private claimants because only a court can take away
such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue[44] 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 obtain what he claims is his. [45] The
party deprived of possession must not take the law into his own hands. [46] Ejectment
proceedings are summary in nature so the authorities can settle speedily actions to
recover possession because of the overriding need to quell social disturbances. [47]
We further explained in Pitargue the greater interest that is at stake in actions for
recovery of possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take
cognizance of possessory actions involving these public lands before final award is
made by the Lands Department, and before title is given any of the conflicting
claimants? It is one of utmost importance, as there are public lands everywhere and
there are thousands of settlers, especially in newly opened regions. It also involves a
matter of policy, as it requires the determination of the respective authorities and
functions of two coordinate branches of the Government in connection with public land
conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old,
which was in force in this country before the American occupation, or in the new, we
have a possessory action, the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to who has the title thereto.
Under the Spanish Civil Code we had the accion interdictal, a summary proceeding
which could be brought within one year from dispossession (Roman Catholic Bishop of
Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the
enactment of the Code of Civil Procedure (Act No. 190 of the Philippine Commission)
we implanted the common law action of forcible entry (section 80 of Act No. 190), the
object of which has been stated by this Court to be to prevent breaches of the
peace and criminal disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing themselves entitled
to the possession of property, resort to force to gain possession rather than
to some appropriate action in the court to assert their claims. (Supia and
Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first
Public Land Act (Act No. 926) the action of forcible entry was already available in the
courts of the country. So the question to be resolved is, Did the Legislature intend,
when it vested the power and authority to alienate and dispose of the public lands in
the Lands Department, to exclude the courts from entertaining the possessory action
of forcible entry between rival claimants or occupants of any land before award thereof
to any of the parties? Did Congress intend that the lands applied for, or all public lands
for that matter, be removed from the jurisdiction of the judicial Branch of the
Government, so that any troubles arising therefrom, or any breaches of the peace or
disorders caused by rival claimants, could be inquired into only by the Lands
Department to the exclusion of the courts? The answer to this question seems to us
evident. The Lands Department does not have the means to police public lands;
neither does it have the means to prevent disorders arising therefrom, or contain
breaches of the peace among settlers; or to pass promptly upon conflicts of
possession. Then its power is clearly limited to disposition and alienation, and
while it may decide conflicts of possession in order to make proper award,
the settlement of conflicts of possession which is recognized in the court

herein has another ultimate purpose, i.e., the protection of actual possessors
and occupants with a view to the prevention of breaches of the peace. The
power to dispose and alienate could not have been intended to include the
power to prevent or settle disorders or breaches of the peace among rival
settlers or claimants prior to the final award. As to this, therefore, the
corresponding branches of the Government must continue to exercise power and
jurisdiction within the limits of their respective functions. The vesting of the Lands
Department with authority to administer, dispose, and alienate public lands,
therefore, must not be understood as depriving the other branches of the
Government of the exercise of the respective functions or powers thereon,
such as the authority to stop disorders and quell breaches of the peace by
the police, the authority on the part of the courts to take jurisdiction over
possessory actions arising therefrom not involving, directly or indirectly,
alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect
that courts have no jurisdiction to determine the rights of claimants to public lands,
and that until the disposition of the land has passed from the control of the Federal
Government, the courts will not interfere with the administration of matters concerning
the same. (50 C. J. 1093-1094.) We have no quarrel with this principle. The
determination of the respective rights of rival claimants to public lands is different from
the determination of who has the actual physical possession or occupation with a view
to protecting the same and preventing disorder and breaches of the peace. A judgment
of the court ordering restitution of the possession of a parcel of land to the actual
occupant, who has been deprived thereof by another through the use of force or in any
other illegal manner, can never be prejudicial interference with the disposition or
alienation of public lands. On the other hand, if courts were deprived of
jurisdiction of cases involving conflicts of possession, that threat of judicial
action against breaches of the peace committed on public lands would be
eliminated, and a state of lawlessness would probably be produced between
applicants, occupants or squatters, where force or might, not right or justice,
would rule.
It must be borne in mind that the action that would be used to solve conflicts of
possession between rivals or conflicting applicants or claimants would be no other than
that of forcible entry. This action, both in England and the United States and in our
jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet
possession may recover the possession of which he has been deprived by a stronger
hand, by violence or terror; its ultimate object being to prevent breach of the peace
and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.)
The basis of the remedy is mere possession as a fact, of physical possession, not a
legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession
is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is
expressly banned, except to prove the nature of the possession. (Second 4, Rule 72,
Rules of Court.) With this nature of the action in mind, by no stretch of the imagination
can conclusion be arrived at that the use of the remedy in the courts of justice would
constitute an interference with the alienation, disposition, and control of public lands.
To limit ourselves to the case at bar can it be pretended at all that its result would in
any way interfere with the manner of the alienation or disposition of the land
contested? On the contrary, it would facilitate adjudication, for the question of priority
of possession having been decided in a final manner by the courts, said question need
no longer waste the time of the land officers making the adjudication or
award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.
[48]

Articles 1411 and 1412 of the Civil Code

embody the principle of pari delicto. We
explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in
pari delicto potior est conditio defedentis. The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them. [49]

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of ejectment. The
Court of Appeals refused to rule on the issue of physical possession. Nevertheless, the
appellate court held that the pivotal issue in this case is who between Pajuyo and
Guevarra has the priority right as beneficiary of the contested land under Proclamation
No. 137.[54] According to the Court of Appeals, Guevarra enjoys preferential right under
Proclamation No. 137 because Article VI of the Code declares that the actual occupant
or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.

The application of the pari delicto principle is not absolute, as there are exceptions to
its application. One of these exceptions is where the application of the pari delicto rule
would violate well-established public policy.[50]

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.

In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of
forcible entry and unlawful detainer. We held that:

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.

It must be stated that the purpose of an action of forcible entry and detainer is that,
regardless of the actual condition of the title to the property, the party in peaceable
quiet possession shall not be turned out by strong hand, violence or terror. In affording
this remedy of restitution the object of the statute is to prevent breaches of the peace
and criminal disorder which would ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some advantage must accrue to
those persons who, believing themselves entitled to the possession of property, resort
to force to gain possession rather than to some appropriate action in the courts to
assert their claims. This is the philosophy at the foundation of all these actions of
forcible entry and detainer which are designed to compel the party out of possession to
respect and resort to the law alone to obtain what he claims is his. [52]

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.

Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of pari
delicto would openly invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally occupied, emboldened
by the knowledge that the courts would leave them where they are. Nothing would
then stand in the way of the ousted squatter from re-claiming his prior possession at all
cost.
Petty warfare over possession of properties is precisely what ejectment cases or
actions for recovery of possession seek to prevent. [53]Even the owner who has title over
the disputed property cannot take the law into his own hands to regain possession of
his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit
are squatters. The determination of priority and superiority of possession is a serious
and urgent matter that cannot be left to the squatters to decide. To do so would make
squatters receive better treatment under the law. The law restrains property owners
from taking the law into their own hands. However, the principle ofpari 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.

There is no proof that Guevarra actually availed of the benefits of Proclamation No.
137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President
Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his
earliest demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as
beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo
was reclaiming possession of the property, Guevarra did not take any step to comply
with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No.
137 and Guevarra has a pending application over the lot, courts should still assume
jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts
would be limited to the issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving
public land to determine the issue of physical possession. The determination of the
respective rights of rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has a better right of
physical possession.[56] The administrative disposition and alienation of public lands
should be threshed out in the proper government agency. [57]
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation
No. 137 was premature. Pajuyo and Guevarra were at most merely potential
beneficiaries of the law. Courts should not preempt the decision of the administrative
agency mandated by law to determine the qualifications of applicants for the
acquisition of public lands. Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and breaches of peace. [58]

Pajuyo is Entitled to Physical Possession of the Disputed Property

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:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay
nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa
nasabing bahay at lote ng walang bayad. Kaugnay nito, kailangang panatilihin nila ang
kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang
reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free
of rent, but Guevarra was under obligation to maintain the premises in good condition.
Guevarra promised to vacate the premises on Pajuyos demand but Guevarra broke his
promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which the
latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate
on demand, failing which, an action for unlawful detainer will lie. [60] The defendants
refusal to comply with the demand makes his continued possession of the property
unlawful.[61] The status of the defendant in such a case is similar to that of a lessee or
tenant whose term of lease has expired but whose occupancy continues by tolerance of
the owner.[62]
This principle should apply with greater force in cases where a contract embodies the
permission or tolerance to use the property. TheKasunduan expressly articulated
Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to
maintain the house and lot in good condition. Guevarra expressly vowed in
the Kasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the
property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one
of commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. [63] An
essential feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for a certain period.
[64]
Thus, the bailor cannot demand the return of the thing loaned until after expiration
of the period stipulated, or after accomplishment of the use for which
the commodatum is constituted.[65] If the bailor should have urgent need of the thing,
he may demand its return for temporary use. [66] If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium.[67] Under the Civil Code, precarium is a kind
ofcommodatum.[68]

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was
not essentially gratuitous. While the Kasunduandid not require Guevarra to pay rent, it
obligated him to maintain the property in good condition. The imposition of this
obligation makes theKasunduan 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 landlordtenant relationship where the withdrawal of permission would result in the termination
of the lease.[69] The tenants withholding of the property would then be unlawful. This is
settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one
of commodatum, Guevarra as bailee would still have the duty to turn over possession
of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum.[70] These contracts certainly involve the obligation to
deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is
also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving
the land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after
he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra
has
a
right
to
physical
possession
of
the
contested
property. The Kasunduan is the undeniable evidence of Guevarras recognition of
Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad
faith. The absence of a contract would not yield a different result, as there would still
be an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and that
is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act.
[72]
Guevarra bases his argument on the preferential right given to the actual occupant
or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in
the property without paying any rent. There is also no proof that Pajuyo is a
professional squatter who rents out usurped properties to other squatters. Moreover, it
is for the proper government agency to decide who between Pajuyo and Guevarra
qualifies for socialized housing. The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is one of
the distinctions between forcible entry and unlawful detainer. [74] In forcible entry, the
plaintiff is deprived of physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must allege and prove prior
possession.[75] But in unlawful detainer, the defendant unlawfully withholds possession
after the expiration or termination of his right to possess under any contract, express
or implied. In such a case, prior physical possession is not required. [76]
Pajuyos
withdrawal
of
his
permission
to
Guevarra
terminated
the Kasunduan. Guevarras transient right to possess the property ended as
well. Moreover, it was Pajuyo who was in actual possession of the property because
Guevarra had to seek Pajuyos permission to temporarily hold the property and

Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the
property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property.
Possession in the eyes of the law does not mean that a man has to have his feet on
every square meter of the ground before he is deemed in possession. [77] One may
acquire possession not only by physical occupation, but also by the fact that a thing is
subject to the action of ones will. [78] Actual or physical occupation is not always
necessary.[79]

Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared that squatters and
intruders who clandestinely enter into titled government property cannot, by such act,
acquire any legal right to said property. [80] We made this declaration because the
person who had title or who had the right to legal possession over the disputed
property was a party in the ejectment suit and that party instituted the case against
squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the
ejectment case. This case is between squatters. Had the government participated in
this case, the courts could have evicted the contending squatters, Pajuyo and
Guevarra.

The MTC and RTC failed to justify the award of P3,000 attorneys fees to
Pajuyo. Attorneys fees as part of damages are awarded only in the instances
enumerated in Article 2208 of the Civil Code. [83] Thus, the award of attorneys fees is the
exception rather than the rule. [84]Attorneys fees are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right
to litigate.[85] We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the 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 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution
dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET
ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of Quezon
City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15
December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case
No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is deleted.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

Since the party that has title or a better right over the property is not impleaded in this
case, we cannot evict on our own the parties. Such a ruling would discourage squatters
from seeking the aid of the courts in settling the issue of physical possession. Stripping
both the plaintiff and the defendant of possession just because they are squatters
would have the same dangerous implications as the application of the principle of pari
delicto. Squatters would then rather settle the issue of physical possession among
themselves than seek relief from the courts if the plaintiff and defendant in the
ejectment case would both stand to lose possession of the disputed property. This
would subvert the policy underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to
remain on the property until a person who has title or a better right lawfully ejects
him. Guevarra is certainly not that person. The ruling in this case, however, does not
preclude Pajuyo and Guevarra from introducing evidence and presenting arguments
before the proper administrative agency to establish any right to which they may be
entitled under the law. [81]
In no way should our ruling in this case be interpreted to condone squatting. The ruling
on the issue of physical possession does not affect title to the property nor constitute a
binding and conclusive adjudication on the merits on the issue of ownership. [82] The
owner can still go to court to recover lawfully the property from the person who holds
the property without legal title. Our ruling here does not diminish the power of
government agencies, including local governments, to condemn, abate, remove or
demolish illegal or unauthorized structures in accordance with existing laws.

Attorneys Fees and Rentals

THIRD DIVISION

[G.R. No. 112485. August 9, 2001]

EMILIA MANZANO, petitioner, vs. MIGUEL PEREZ SR., LEONCIO PEREZ,

MACARIO PEREZ, FLORENCIO PEREZ, NESTOR PEREZ, MIGUEL PEREZ JR. and
GLORIA PEREZ, respondents.
DECISION

PANGANIBAN, J.:

The facts of the case are summarized by the Court of Appeals as follows:

Courts decide cases on the basis of the evidence presented by the parties. In the
assessment of the facts, reason and logic are used. In civil cases, the party that
presents a preponderance of convincing evidence wins.

[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of a
residential house and lot, more particularly described hereunder:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the March 31, 1993 Decision [1] of the Court of Appeals (CA)[2] in CA-GR CV No.
32594. The dispositive part of the Decision reads:
WHEREFORE, the judgment appealed from is hereby REVERSED and another one is
entered dismissing plaintiffs complaint.
On the other hand, the Judgment[3] reversed by the CA ruled in this wise:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Declaring the two Kasulatan ng Bilihang Tuluyan (Exh. J & K) over the
properties in question void or simulated;
2) Declaring the two Kasulatan ng Bilihang Tuluyan (Exh. J & K) over the
properties in question rescinded;
3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez,
Florencio Perez, Miguel Perez, Jr., Nestor Perez and Gloria Perez to execute an
Extra Judicial Partition with transfer over the said residential lot and house, now
covered and described in Tax Declaration Nos. 1993 and 1994, respectively in the
name of Nieves Manzano (Exh. Q & P), subject matter of this case, in favor of
plaintiff Emilia Manzano;
4) Ordering the defendants to pay plaintiff:

A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan),
together with all the improvements thereon, situated at General Luna Street, Siniloan,
Laguna. Bounded on the North by Callejon; on the East, by [a] town river; on the South
by Constancia Adofina; and on the West by Gen. Luna Street. Containing an area of 130
square meters more or less, covered by Tax Dec. No. 9583 and assessed at P1,330.00.
A residential house of strong mixed materials and G.I. iron roofing, with a floor area of
40 square meters, more or less. Also covered by Tax No. 9583.
In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of the
herein [private respondents], allegedly borrowed the aforementioned property as
collateral for a projected loan. The [petitioner] acceded to the request of her sister
upon the latters promise that she [would] return the property immediately upon
payment of her loan.
Pursuant to their understanding, the [petitioner] executed two deeds of conveyance for
the sale of the residential lot on 22 January 1979 (Exhibit J) and the sale of the house
erected thereon on 2 February 1979 (Exhibit K), both for a consideration of P1.00 plus
other valuables allegedly received by her from Nieves Manzano.
On 2 April 1979, Nieves Manzano together with her husband, [respondent] Miguel
Perez, Sr., and her son, [respondent] Macario Perez, obtained a loan from the Rural
Bank of Infanta, Inc. in the sum of P30,000.00. To secure payment of their
indebtedness, they executed a Real Estate Mortgage (Exhibit A) over the subject
property in favor of the bank.
Nieves Manzano died on 18 December 1979 leaving her husband and children as
heirs. These heirs, [respondents] herein allegedly refused to return the subject property
to the [petitioner] even after the payment of their loan with the Rural Bank (Exhibit B).
The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and
that the unwarranted refusal of the [respondents] to return the property caused her
sleepless nights, mental shock and social humiliation. She was, likewise, allegedly
constrained to engage the services of a counsel to protect her proprietary rights.

a) P25,000.00 as moral damages;

b) P10,000.00 as exemplary damages;

d) To pay the cost of suit.[4]

The [petitioner] sought the annulment of the deeds of sale and execution of a deed of
transfer or reconveyance of the subject property in her favor, the award of moral
damages of not less than P50,000.00, exemplary damages of P10,000.00 attorneys
fees of P10,000.00 plus P500.00 per court appearance, and costs of suit.

The Motion for Reconsideration filed by petitioner before the CA was denied in a
Resolution dated October 28, 1993.[5]

In seeking the dismissal of the complaint, the [respondents] countered that they are
the owners of the property in question being the legal heirs of Nieves Manzano

c) P15,000.00 as and for [a]ttorneys fees; and

The Facts

Who purchased the same from the [petitioner] for value and in good faith, as shown by
the deeds of sale which contain the true agreements between the parties therein; that

except for the [petitioners] bare allegations, she failed to show any proof that the
transaction she entered into with her sister was a loan and not a sale.
By way of special and affirmative defense, the [respondents] argued that what the
parties to the [sale] agreed upon was to resell the property to the [petitioner] after the
payment of the loan with the Rural Bank. But since the [respondents] felt that the
property is the only memory left by their predecessor-in-interest, they politely informed
the [petitioner] of their refusal to sell the same. The [respondents] also argued that the
[petitioner] is now estopped from questioning their ownership after seven (7) years
from the consummation of the sale.
As a proximate result of the filing of this alleged baseless and malicious suit, the
[respondents] prayed as counterclaim the award of moral damages in the amount of
P10,000.00 each, exemplary damages in an amount as may be warranted by the
evidence on record, attorneys fees of P10,000.00 plus P500.00 per appearance in court
and costs of suit.

Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and the
same was sent to her (Exh. F & G).
xxxxxxxxx
Sixth, upon request of the [petitioner] to return said properties to her, [respondents]
did promise and prepare an Extra Judicial Partition with Sale over said properties in
question, however the same did not materialize. The other heirs of Nieves Manzano did
not sign.
xxxxxxxxx
Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of the
properties in question is P1.00 and other things of value. [Petitioner] denies she has
received any consideration for the transfer of said properties, and the [respondents]
have not presented evidence to belie her testimony. [6]

In ruling for the [petitioner], the court a quo considered the following:
First, the properties in question after [they have] been transferred to Nieves Manzano,
the same were mortgaged in favor of the Rural Bank of Infante, Inc. (Exh. A) to secure
payment of the loan extended to Macario Perez.
Second, the documents covering said properties which were given to the bank as
collateral of said loan, upon payment and [release] to the [private respondents], were
returned to [petitioner] by Florencio Perez, one of the [private respondents].
[These] uncontroverted facts [are] clear recognition [by private respondents] that
[petitioner] is the owner of the properties in question.
xxxxxxxxx
Third, [respondents] pretense of ownership of the properties in question is belied by
their failure to present payment of real estate taxes [for] said properties, and it is on
[record] that [petitioner] has been paying the real estate taxes [on] the same (Exh. T,
V, V-1, V-2 & V-3).
xxxxxxxxx
Fourth, [respondents] confirmed the fact that [petitioner] went to the house in question
and hacked the stairs. According to [petitioner] she did it for failure of the
[respondents] to return and vacate the premises. [Respondents] did not file any action
against her.
This is a clear indication also that they (respondents) recognized [petitioner] as owner
of said properties.
xxxxxxxxx

Ruling of the Court of Appeals

The Court of Appeals was not convinced by petitioners claim that there was a supposed
oral agreement of commodatum over the disputed house and lot. Neither was it
persuaded by her allegation that respondents predecessor-in-interest had given no
consideration for the sale of the property in the latters favor. It explained as follows:
To begin with, if the plaintiff-appellee remained as the rightful owner of the subject
property, she would not have agreed to reacquire one-half thereof for a consideration
of P10,000.00 (Exhibit U-1). This is especially true if we are to accept her assertion that
Nieves Manzano did not purchase the property for value. More importantly, if the
agreement was to merely use plaintiffs property as collateral in a mortgage loan, it was
not explained why physical possession of the house and lot had to be with the
supposed vendee and her family who even built a pigpen on the lot (p. 6, TSN, June 11,
1990). A mere execution of the document transferring title in the latters name would
suffice for the purpose.
The alleged failure of the defendants-appellants to present evidence of payment of real
estate taxes cannot prejudice their cause. Realty tax payment of property is not
conclusive evidence of ownership (Director of Lands vs. Intermediate Appellate Court,
195 SCRA 38). Tax receipts only become strong evidence of ownership when
accompanied by proof of actual possession of the property (Tabuena vs. Court of
Appeals, 196 SCRA 650).
In this case, plaintiff-appell[ee] was not in possession of the subject property. The
defendant-appellants were the ones in actual occupation of the house and lot which as
aforestated was unnecessary if the real agreement was merely to lend the property to
be used as collateral. Moreover, the plaintiff-appellee began paying her taxes only in
1986 after the instant complaint ha[d] been instituted (Exhibits V, V-1, V-3 and T), and
are, therefore, self-serving.

Significantly, while plaintiff-appellee was still the owner of the subject property in 1979
(Exhibit I), the Certificate of Tax Declaration issued by the Office of the Municipal
Treasurer on 8 August 1990 upon the request of the plaintiff-appellee herself (Exhibit
W) named Nieves Manzano as the owner and possessor of the property in
question. Moreover, Tax Declaration No. 9589 in the name of Nieves Manzano (Exhibits
D and D-1) indicates that the transfer of the subject property was based on the
Absolute Sale executed before Notary Public Alfonso Sanvictores, duly recorded in his
notarial book as Document No. 3157, Page 157, Book No. II. Tax Declaration No[s].
9633 (Exhibit H), 1994 (Exhibit P), 1993 (Exhibit Q) are all in the name of Nieves
Manzano.
There is always the presumption that a written contract [is] for a valuable
consideration (Section 5 (r), Rule 131 of the Rules of Court; Gamaitan vs. Court of
Appeals, 200 SCRA 37). The execution of a deed purporting to convey ownership of a
realty is in itself prima facie evidence of the existence of a valuable consideration and
x x x the party alleging lack of consideration has the burden of proving such allegation
(Caballero, et al. vs. Caballero, et al., C.A. 45 O.G. 2536).
The consideration [for] the questioned [sale] is not the One (P1.00) Peso alone but also
the other valuable considerations. Assuming that such consideration is suspiciously
insufficient, this circumstance alone, is not sufficient to invalidate the sale. The
inadequacy of the monetary consideration does not render a conveyance null and void,
for the vendors liberality may be a sufficient cause for a valid contract (Ong vs. Ong,
139 SCRA 133).[7]
Hence, this Petition. [8]

Issues

Petitioner submits the following grounds in support of her cause: [9]

1. The Court of Appeals erred in failing to consider that:
A) The introduction of petitioners evidence is proper under the parol evidence rule.
B) The rules on admission by silence apply in the case at bar.
C) Petitioner is entitled to the reliefs prayed for.
2. The Court of Appeals erred in reversing the decision of the trial court whose factual
findings are entitled to great respect since it was able to observe and evaluate the
demeanor of the witnesses.[10]
In sum, the main issue is whether the agreement between the parties was
a commodatum or an absolute sale.

The Courts Ruling

The Petition has no merit.

Main Issue: Sale or Commodatum

Obviously, the issue in this case is enveloped by conflict in factual perception, which is
ordinarily not reviewable in a petition under Rule 45. But the Court is constrained to
resolve it, because the factual findings of the Court of Appeals are contrary to those of
the trial court.[11]
Preliminarily, petitioner contends that the CA erred in rejecting the introduction of her
parol evidence. A reading of the assailed Decision shows, however, that an elaborate
discussion of the parol evidence rule and its exceptions was merely given as a preface
by the appellate court. Nowhere therein did it consider petitioners evidence as
improper under the said rule. On the contrary, it considered and weighed each and
every piece thereof. Nonetheless, it was not persuaded, as explained in the multitude
of reasons explicitly stated in its Decision.
This Court finds no cogent reason to disturb the findings and conclusions of the Court
of Appeals. Upon close examination of the records, we find that petitioner has failed to
discharge her burden of proving her case by preponderance of evidence. This concept
refers to evidence that has greater weight or is more convincing than that which is
offered in opposition; at bottom, it means probability of truth. [12]
In the case at bar, petitioner has presented no convincing proof of her continued
ownership of the subject property. In addition to her own oral testimony, she submitted
proof of payment of real property taxes. But that payment, which was made only after
her Complaint had already been lodged before the trial court, cannot be considered in
her favor for being self-serving, as aptly explained by the CA. Neither can we give
weight to her allegation that respondents possession of the subject property was
merely by virtue of her tolerance. Bare allegations, unsubstantiated by evidence, are
not equivalent to proof under our Rules.[13]
On the other hand, respondents presented two Deeds of Sale, which petitioner
executed in favor of the formers predecessor-in-interest. Both Deeds for the residential
lot and for the house erected thereon were each in consideration of P1.00 plus other
valuable. Having been notarized, they are presumed to have been duly executed. Also,
issued in favor of respondents predecessor-in-interest the day after the sale was Tax
Declaration No. 9589, which covered the property.
The facts alleged by petitioner in her favor are the following:
(1) she inherited the subject house and lot from her parents, with her siblings waiving
in her favor their claim over the same; (2) the property was mortgaged to secure a loan
of P30,000 taken in the names of Nieves Manzano Perez and Respondent Miguel Perez;
(3) upon full payment of the loan, the documents pertaining to the house and lot were
returned by Respondent Florencio Perez to petitioner; (4) three of the respondents were
signatories to a document transferring one half of the property to Emilia Manzano in
consideration of the sum of ten thousand pesos, although the transfer did not
materialize because of the refusal of the other respondents to sign the document; and
(5) petitioner hacked the stairs of the subject house, yet no case was filed against her.

These matters are not, however, convincing indicators of petitioners ownership of the
house and lot. On the contrary, they even support the claim of respondents. Indeed,
how could one of them obtained a mortgage over the property, without having
dominion over it? Why would they execute a reconveyance of one half of it in favor of
petitioner? Why would the latter have to pay P10,000 for that portion if, as she claims,
she owns the whole?
Pitted against respondents evidence, that of petitioner awfully pales. Oral testimony
cannot, as a rule, prevail over a written agreement of the parties. [14] In order to
contradict the facts contained in a notarial document, such as the two Kasulatan ng
Bilihang Tuluyan in this case, as well as the presumption of regularity in the execution
thereof, there must be clear and convincing evidence that is more than merely
preponderant.[15] Here petitioner has failed to come up with even a preponderance of
evidence to prove her claim.
Courts are not blessed with the ability to read what goes on in the minds of
people. That is why parties to a case are given all the opportunity to present evidence
to help the courts decide on who are telling the truth and who are lying, who are
entitled to their claim and who are not. The Supreme Court cannot depart from these
guidelines and decide on the basis of compassion alone because, aside from being
contrary to the rule of law and our judicial system, this course of action would
ultimately lead to anarchy.
We reiterate, the evidence offered by petitioner to prove her claim is sadly
lacking. Jurisprudence on the subject matter, when applied thereto, points to the
existence of a sale, not a commodatum over the subject house and lot.
WHEREFORE, the Petition is hereby
AFFIRMED. Costs against petitioner.

DENIED

Melo, (Chairman), Vitug, and Gonzaga-Reyes, JJ., concur.

Sandoval-Gutierrez, J., on leave.

and

the

assailed

Decision

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 115324

February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL

BANK), petitioner,
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

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. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account, Sterela,
through Doronilla, obtained a loan of 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. 101567 because he was the sole proprietor of Sterela. 5

CALLEJO, SR., J.:

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
dishonored.6

This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated
June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution 2 dated May 5, 1994,
denying the motion for reconsideration of said decision filed by petitioner Producers
Bank of the Philippines.

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.7

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and
friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and Services ("Sterela" for brevity).
Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of
money in the bank account of Sterela for purposes of its incorporation. She assured
private respondent that he could withdraw his money from said account within a
months time. Private respondent asked Sanchez to bring Doronilla to their house so
that they could discuss Sanchezs request.3

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:

DECISION

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
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives. 4

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) the sum of P50,000.00 for moral damages and a similar amount for exemplary
damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.

SO ORDERED.8

their respective memoranda.14 Petitioner filed its memorandum on April 16, 2001 while
private respondent submitted his memorandum on March 22, 2001.

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision
dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC. 9 It
likewise denied with finality petitioners motion for reconsideration in its Resolution
dated May 5, 1994.10
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION
BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE
LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK
MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN
DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF
THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE
FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF
FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION
IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN
EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE
LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH
THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE
SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT. 11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply
thereto on September 25, 1995. The Court then required private respondent to submit
a rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to
petitioners delay in furnishing private respondent with copy of the reply 12 and several
substitutions of counsel on the part of private respondent. 13 On January 17, 2001, the
Court resolved to give due course to the petition and required the parties to submit

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 P212,000.00, or P12,000
more than what private respondent deposited in Sterelas bank account. 15 Moreover,
the fact that private respondent sued his good friend Sanchez for his failure to recover
his money from Doronilla shows that the transaction was not merely gratuitous but
"had a business angle" to it. Hence, petitioner argues that it cannot be held liable for
the return of private respondents P200,000.00 because it is not privy to the
transaction between the latter and Doronilla.16
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be
faulted for allowing Doronilla to withdraw from the savings account of Sterela since the
latter was the sole proprietor of said company. Petitioner asserts that Doronillas May 8,
1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these two to withdraw
from said account. Hence, the authority to withdraw therefrom remained exclusively
with Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to
the savings account.17 Petitioner points out that no evidence other than the testimonies
of private respondent and Mrs. Vives was presented during trial to prove that private
respondent deposited his P200,000.00 in Sterelas account for purposes of its
incorporation.18 Hence, petitioner should not be held liable for allowing Doronilla to
withdraw from Sterelas savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts
decision since the findings of fact therein were not accord with the evidence presented
by petitioner during trial to prove that the transaction between private respondent and
Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to
withdraw from Sterelas savings account.19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is
not liable for the actual damages suffered by private respondent, and neither may it be
held liable for moral and exemplary damages as well as attorneys fees. 20
Private respondent, on the other hand, argues that the transaction between him and
Doronilla is not a mutuum but an accommodation, 21 since he did not actually part with
the ownership of his 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
given.22
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas
employer, is liable for the return of his money. He insists that Atienza, petitioners
assistant manager, connived with Doronilla in defrauding private respondent since it
was Atienza who facilitated the opening of Sterelas current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as
well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.23

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a
petition for review filed with this Court. The Court has repeatedly held that it is not its
function to analyze and weigh all over again the evidence presented by the parties
during trial.24 The Courts jurisdiction is in principle limited to reviewing errors of law
that might have been committed by the Court of Appeals. 25 Moreover, factual findings
of courts, when adopted and confirmed by the Court of Appeals, are final and
conclusive on this Court unless these findings are not supported by the evidence on
record.26 There is no showing of any misapprehension of facts on the part of the Court
of Appeals in the case at bar that would require this Court to review and overturn the
factual findings of that court, especially since the conclusions of fact of the Court of
Appeals and the trial court are not only consistent but are also amply supported by the
evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction
between private respondent and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them was
a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in
which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there
are some instances where a commodatum may have for its object a consumable thing.
Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract
is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not a
mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. 27 In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such
determination.28

As correctly pointed out by both the Court of Appeals and the trial court, the evidence
shows that private respondent agreed to deposit his money in the savings account of
Sterela specifically for the purpose of making it appear "that said firm had sufficient
capitalization for incorporation, with the promise that the amount shall be returned
within thirty (30) days."29 Private respondent merely "accommodated" Doronilla by
lending his money without consideration, as a favor to his good friend Sanchez. It was
however clear to the parties to the transaction that the money would not be removed
from Sterelas savings account and would be returned to private respondent after thirty
(30) days.
Doronillas attempts to return to private respondent the amount of 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
be entered by the Bank the amount deposited or withdrawn." 30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the
Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom
even without presenting the passbook (which Atienza very well knew was in the
possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals
and the trial court found that Atienza allowed said withdrawals because he was party to
Doronillas "scheme" of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the knowledge,
help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati
(Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza
had not only facilitated the commission of the fraud but he likewise helped in devising
the means by which it can be done in such manner as to make it appear that the
transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendants Buendia branch precisely because
Atienza was a key officer therein. The records show that plaintiff had suggested that
the 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.1awphi1.nt
Then there is the matter of the ownership of the fund. Because of the "coordination"
between Doronilla and Atienza, the latter knew before hand that the money deposited
did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was
explicitly told by Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even declared that the
money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose
that the only ones empowered to withdraw the same were Inocencia Vives and Angeles
B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized
signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the
usual banking procedure that withdrawals of savings deposits could only be made by
persons whose authorized signatures are in the signature cards on file with the bank.
He, however, said that this procedure was not followed here because Sterela was
owned by Doronilla. He explained that Doronilla had the full authority to withdraw by
virtue of such ownership. The Court is not inclined to agree with Atienza. In the first
place, he was all the time aware that the money came from Vives and did not belong to
Sterela. He was also told by Mrs. Vives that they were only accommodating Doronilla so
that a certification can be issued to the effect that Sterela had a deposit of so much
amount to be sued in the incorporation of the firm. In the second place, the signature
of Doronilla was not authorized in so far as that account is concerned inasmuch as he
had not signed the signature card provided by the bank whenever a deposit is opened.
In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to
withdraw.
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.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of
this case. x x x.31
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily
liable for damages caused by their employees acting within the scope of their assigned
tasks. To hold the employer liable under this provision, it must be shown that an
employer-employee relationship exists, and that the employee was acting within the
scope of his assigned task when the act complained of was committed. 32 Case law in
the United States of America has it that a corporation that entrusts a general duty to
its employee is responsible to the injured party for damages flowing from the
employees wrongful act done in the course of his general authority, even though in
doing such act, the employee may have failed in its duty to the employer and
disobeyed the latters instructions.33
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner
did not deny that Atienza was acting within the scope of his authority as Assistant
Branch Manager when he assisted Doronilla in withdrawing funds from Sterelas
Savings Account No. 10-1567, in which account private respondents money was
deposited, and in transferring the money withdrawn to Sterelas Current Account with
petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were
obviously done in furtherance of petitioners interests 34 even though in the process,
Atienza violated some of petitioners rules such as those stipulated in its savings
account passbook.35 It was established that the transfer of funds from Sterelas savings
account to its current account could not have been accomplished by Doronilla without
the invaluable assistance of Atienza, and that it was their connivance which was the
cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of
the Civil Code, petitioner is liable for private respondents loss and is solidarily liable
with Doronilla and Dumagpi for the return of theP200,000.00 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.
Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.

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 Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No.
3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of
Possession, which 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)

Republic of the Philippines

SUPREME COURT
Manila

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 CAG.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
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.
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 Psu-194357, 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. L-

46832 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 CA-G.R. No. 08890-R, entitled Heirs of
Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May
16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were 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 CAG.R. No. 038830-R merely dismissed their application for registration and titling of lots
2 and 3. Defendant Vicar contends that only the dispositive portion of the decision, and
not its body, is the controlling pronouncement of the Court of Appeals. 2
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 AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
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. 38830R, 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 years. 4
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.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in
CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding
petitioner to be entitled to register the lands in question under its ownership, on its
evaluation of 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.
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 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
SECOND DIVISION
G.R. No. 84719

January 25, 1991

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.
Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.
Hector P. Teodosio for private respondent.

PADILLA, J.:
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-Igbaras-Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal Case No. 628, 1 and
the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal
Case No. 20958, promulgated on 30 July 1987;2

2. The decision of the Court of Appeals, dated 29 April 1988, 3

dismissing petitioner's appeal/petition for review for having been filed out of time, and
the resolution, dated 19 August 1988, denying petitioner's motion for reconsideration. 4
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 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.
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.
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.
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a
decision, the dispositive part of which reads as follows:
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 toprision 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.5
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 court's decision.6
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.
Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 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 had dismissed petitioner's petition for review for
having been filed out of time.8
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 the substance and merits of the case. 9
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:
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]
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 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
substantial justice to be sacrified at the altar of procedural rigor. 10
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.
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:

(a) x x x

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 the obligation to deliver or return the same money, good or
personal property that he had received. 11
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, asper 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 personal funds. 12 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, which he received from the private
respondent. 13
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
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 acommodatum; 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.
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 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.
(pp. 26-28, tsn, May 8, 1985).

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 committed estafa. 15
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.
Melencio-Herrera, Paras, Sarmiento and Regalado JJ., concur.

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.
Qxxx

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?
SECOND DIVISION
A Yes, but subject for liquidation. He will be only entitled for that credence if he
liquidates.
[G.R. Nos. 128833. April 20, 1998]

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.

LAO, petitioners, vs.
COURT
OF
APPEALS
and
GOYU
&
SONS,
INC., respondents.

[G.R. No. 128834. April 20, 1998]

RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs. COURT OF

APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP,
SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY
GO, respondents.

[G.R. No. 128866. April 20, 1998]

MALAYAN INSURANCE INC., petitioner, vs. GOYU & SONS, INC. respondent.
D EC I S I O N
MELO, J.:

Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU
committed itself to insure the mortgaged property with an insurance company
approved by RCBC, and subsequently, to endorse and deliver the insurance policies to
RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the
Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon
instructions of GOYU (Exhibits 1-Malayan to 9-Malayan).
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity on account of the loss
insured against. MICO denied the claim on the ground that the insurance policies were
either attached pursuant to writs of attachments/garnishments issued by various
courts or that the insurance proceeds were also claimed by other creditors of GOYU
alleging better rights to the proceeds than the insured. GOYU filed a complaint for
specific performance and damages which was docketed at the Regional Trial Court of
the National Capital Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now
subject of the present G.R. No. 128833 and 128866.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds
of the insurance policies, but said claims were also denied for the same reasons that
MICO denied GOYUs claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional
Trial Court of Manila (Branch 3), confirmed that GOYUs other creditors, namely, Urban
Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs
of attachments from various courts, covering an aggregate amount of P14,938,080.23,
and ordered that the proceeds of the ten insurance policies be deposited with the said
court minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994,
MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.

The issues relevant to the herein three consolidated petitions revolve around the fire
loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance
Company, Inc. (MICO) in connection with the mortgage contracts entered into by and
between Rizal Commercial Banking Corporation (RCBC) and GOYU.

In the meantime, another notice of garnishment was handed down by another Manila
RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit 22-Malayan).

The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of
P74,040,518.58, plus 37% interest per annum commencing July 27, 1992. RCBC was
ordered to pay actual and compensatory damages in the amount of
P5,000,000.00. MICO and RCBC were held solidarily liable to pay GOYU P1,500,000.00
as exemplary damages and P1,500,000.00 for attorneys fees. GOYUs obligation to
RCBC was fixed at P68,785,069.04 as of April 1992, without any interest, surcharges,
and penalties. RCBC and MICO appealed separately but, in view of the common facts
and issues involved, their individual petitions were consolidated.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking
Corporation, ordering the latter as follows:

The undisputed facts may be summarized as follows:

GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners
Uy Chun Bing and Eli D. Lao, recommended GOYUs application for approval by RCBCs
executive committee. A credit facility in the amount of P30 million was initially
granted. Upon GOYUs application and Uys and Laos recommendation, RCBCs executive
committee increased GOYUs credit facility to P50 million, then to P90 million, and
finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages
and two chattel mortgages in favor of RCBC, which were registered with the Registry of

After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:

1. For defendant Malayan Insurance Co., Inc.:

a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the
amount of P50,000,000.00 which is deposited with this Court;
b. To pay the plaintiff damages by way of interest for the duration of the delay since
July 27, 1992 (ninety days after defendant insurers receipt of the required proof of loss
and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on
the following amounts:
1) P50,000,000.00 from July 27, 1992 up to the time said amount was deposited with
this Court on January 7, 1994;

2) P24,040,518.58 from July 27, 1992 up to the time when the writs of attachments
were received by defendant Malayan;

a) To pay the plaintiff actual and compensatory damages in the amount of

P5,000,000.00.

2. For defendant Rizal Commercial Banking Corporation:

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING

CORPORATION, UY CHUN BING AND ELI D. LAO:

a. To pay the plaintiff actual and compensatory damages in the amount of

P2,000,000.00;

a) To pay the plaintiff jointly and severally the following amounts:

3. For both defendants Malayan and RCBC:

1. P1,500,000.00 as exemplary damages;

a. To pay the plaintiff, jointly and severally, the following amounts:

2. P1,500,000.00 as and for attorneys fees.

1) P1,000,000.00 as exemplary damages;

4. And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any
interest, surcharges and penalties.

2) P1,000,000.00 as, and for, attorneys fees;

3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan
obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992,
with interest thereon at the rate stipulated in the respective promissory notes (without
surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to
release immediately to the plaintiff the amount of P50,000,000.00 deposited with the
Court by defendant Malayan, together with all the interests earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU was
unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial
courts findings of liability on their part. The Court of Appeals partly granted GOYUs
appeal, but sustained the findings of the trial court with respect to MICO and RCBCs
liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as
follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the
amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and
damages by way of interest commencing July 27, 1992 until the time Goyu receives the
said amount at the rate of thirty-seven (37%) percent per annum which is twice the
ceiling prescribed by the Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:

The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to
immediately release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No.
3649285) deposited with it by Malayan Insurance Co., Inc., together with all the
interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively,
seeking review and consequent reversal of the above dispositions of the Court of
Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376,
which case, by virtue of the Court of Appeals resolution dated August 7, 1996, was
consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue
in said petition is RCBCs right to intervene in the action between Alfredo C. Sebastian
(the creditor) and GOYU (the debtor), where the subject insurance policies were
attached in favor of Sebastian.
After a careful review of the material facts as found by the two courts below in relation
to the pertinent and applicable laws, we find merit in the submissions of RCBC and
MICO.
The several causes of action pursued below by GOYU gave rise to several related
issues which are now submitted in the petitions before us. This Court, however,
discerns one primary and central issue, and this is, whether or not RCBC, as
mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in
case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU,
the latter executed several mortgage contracts in favor of RCBC. It was expressly
stipulated in these mortgage contracts that GOYU shall insure the mortgaged property
with any of the insurance companies acceptable to RCBC. GOYU indeed insured the
mortgaged property with MICO, an insurance company acceptable to RCBC. Based on
their stipulations in the mortgage contracts, GOYU was supposed to endorse these
insurance policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency,
Inc., MICOs underwriter from whom GOYU obtained the subject insurance policies,
prepared the nine endorsements (see Exh. 1-Malayan to 9-Malayan; also Exh. 51-RCBC
to 59-RCBC), copies of which were delivered to GOYU, RCBC, and MICO. However,

because these endorsements do not bear the signature of any officer of GOYU, the trial
court, as well as the Court of Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the
same property for his own sole benefit. There is no question that GOYU could insure the
mortgaged property for its own exclusive benefit. In the present case, although it
appears that GOYU obtained the subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their contemporaneous acts, must be
given due consideration in order to better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor
of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing
any specific insurance policy in favor of any particular beneficiary or payee other than
the insured had not such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject pieces of
property were mortgaged to RCBC had not such information been voluntarily disclosed
by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYUs
intention of obtaining insurance coverage in compliance with its undertaking in the
mortgage contracts with RCBC, and verily, Alchester would not have endorsed the
policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained
to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was
explained in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good
faith and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were directed and
who reasonably relied thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been applied
by this Court wherever and whenever special circumstances of a case so demand.

implied ratification of said endorsements by virtue of GOYUs inaction in this case, GOYU
is at the very least estopped from assailing their operative effects. To permit GOYU to
capitalize on its non-confirmation of these endorsements while it continued to enjoy
the benefits of the credit facilities of RCBC which believed in good faith that there was
due endorsement pursuant to their mortgage contracts, is to countenance grave
contravention of public policy, fair dealing, good faith, and justice. Such an unjust
situation, the Court cannot sanction.Under the peculiar circumstances obtaining in this
case, the Court is bound to recognize RCBCs right to the proceeds of the insurance
policies if not for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that
the proceeds of insurance shall exclusively apply to the interest of the person in whose
name or for whose benefit it is made. The peculiarity of the circumstances obtaining in
the instant case presents a justification to take exception to the strict application of
said provision, it having been sufficiently established that it was the intention of the
parties to designate RCBC as the party for whose benefit the insurance policies were
taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage
contracts entered into between RCBC and GOYU in consideration of and for securing
GOYUs credit facilities from RCBC. The mortgage contracts contained common
provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property
properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property
from MICO, no less than a sister company of RCBC and definitely an acceptable
insurance company to RCBC.
3. Endorsement documents were prepared by MICOs underwriter, Alchester Insurance
Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not
assail, until of late, the validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the
insurance policies to be taken by GOYU to cover the mortgaged properties.

(p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain
Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement
documents for GOYUs nine insurance policies in favor of RCBC. The original copies of
each of these nine endorsement documents were sent to GOYU, and the others were
sent to RCBC and MICO, while the fourth copies were retained for Alchesters file (tsn,
February 23, pp. 7-8). GOYU has not denied having received from Alchester the
originals of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be
justified under the circumstances of the case. GOYU failed to seasonably repudiate the
authority of the person or persons who prepared such endorsements. Over and above
this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss insured against, it was too late
for GOYU to disown the endorsements for any imagined or contrived lack of authority
of Alchester to prepare and issue said endorsements. If there had not been actually an

This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the absence of
its written conformity thereto, obviously considered said endorsement to be sufficient
compliance with its obligation under the mortgage contracts since RCBC accordingly
continued to extend the benefits of its credit facilities and GOYU continued to benefit
therefrom. Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU. The intention of the
parties will have to be given full force and effect in this particular case. The insurance
proceeds may, therefore, be exclusively applied to RCBC, which under the factual
circumstances of the case, is truly the person or entity for whose benefit the policies
were clearly intended.
Moreover, the laws evident intention to protect the interests of the mortgagee upon the
mortgaged property is expressed in Article 2127 of the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes

due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person.
Significantly, the Court notes that out of the 10 insurance policies subject of this case,
only 8 of them appear to have been subject of the endorsements prepared and
delivered by Alchester for and upon instructions of GOYU as shown below:

Expiry Date : (not legible)

Amount : P6,603,586.43
e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan
Issue Date : January 18, 1992
Expiry Date : February 9, 1993

INSURANCE POLICY PARTICULARS ENDORSEMENT

Amount : P9,457,972.76
a. Policy Number : F-114-07795 None
Issue Date : March 18, 1992
f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan
Expiry Date : April 5, 1993
Issue Date : January 13, 1992
Amount : P9,646,224.92
Expiry Date : January 13, 1993
Amount : P24,750,000.00
b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan
Issue Date : January 18, 1992
g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan
Expiry Date : February 9, 1993
Issue Date : May 29, 1991
Amount : P4,307,217.54
Expiry Date : June 27, 1992
Amount : P6,000,000.00

c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan

h. Policy Number : CI/F-128-03341 None
Issue Date : January 18, 1992
Issue Date : May 3, 1991
Expiry Date : February 15, 1993
Expiry Date : May 3, 1992
Amount : P6,603,586.43
Amount : P10,000,000.00

d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan

i. Policy Number : F-114-07402 Exhibit 8-Malayan
Issue Date : January 18, 1992

Issue Date : September 16, 1991

Expiry Date : October 19, 1992
Amount : P32,252,125.20

j. Policy Number : F-114-07525 Exhibit 9-Malayan

Issue Date : November 20, 1991
Expiry Date : December 5, 1992
Amount : P6,603,586.43

(pp. 456-457, Record; Folder of Exhibits for MICO.)

Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted
by MICOs witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record
shows no endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the
endorsement documents, Exhibit 5-Malayan, refers to a certain insurance policy
number ACIA-F-07066, which is not among the insurance policies involved in the
complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the force and effect of an
endorsement by GOYU itself, these 8 policies can not be attached by GOYUs other
creditors up to the extent of the GOYUs outstanding obligation in RCBCs favor.Section
53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies
shall be applied exclusively to the proper interest of the person for whose benefit it was
made. In this case, to the extent of GOYUs obligation with RCBC, the interest of GOYU
in the subject policies had been transferred to RCBC effective as of the time of the
endorsement. These policies may no longer be attached by the other creditors of
GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless
forthwith be dismissed for being moot and academic in view of the results reached
herein. Only the two other policies amounting to P19,646,224.92 may be validly
attached, garnished, and levied upon by GOYUs other creditors. To the extent of GOYUs
outstanding obligation with RCBC, all the rest of the other insurance policies abovelisted which were endorsed to RCBC, are, therefore, to be released from attachment,
garnishment, and levy by the other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the extent of GOYUs
outstanding obligation with RCBC which the proceeds of the 8 insurance policies will
discharge and liquidate, or put differently, the actual amount of GOYUs liability to
RCBC.
The Court of Appeals simply echoed the declaration of the trial court finding that
GOYUS total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus

sanctioning the trial courts exclusion of Promissory Note No. 421-92 (renewal of
Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory
Note No. 952-91) on the ground that their execution is highly questionable for not only
are these dated after the fire, but also because the signatures of either GOYU or any its
representative are conspicuously absent. Accordingly, the Court of Appeals speculated
thusly:
Hence, this Court is inclined to conclude that said promissory notes were pre-signed by
plaintiff in blank terms, as averred by plaintiff, in contemplation of the speedy grant of
future loans, for the same practice of procedure has always been adopted in its
previous dealings with the bank.
(Rollo, pp. 181-182.)
The fact that the promissory notes bear dates posterior to the fire does not necessarily
mean that the documents are spurious, for it is presumed that the ordinary course of
business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All,
Inc., 222 SCRA 486 [1993]). The obligor and not the holder of the negotiable
instrument has the burden of proof of showing that he no longer owes the obligee any
amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private transactions, receipt of the
loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as
indicated in the testimony of Go Song Hiap when he answered the queries of the trial
court:
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the
amounts stated therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the amount I asked which is
correct, Your Honor.
COURT
Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?
A: Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)

Furthermore, aside from its judicial admission of having received all the proceeds of the
29 promissory notes as hereinabove quoted, GOYU also offered and admitted to RCBC
that its obligation be fixed at P116,301,992.60 as shown in its letter dated March 9,
1993, which pertinently reads:
We wish to inform you, therefore that we are ready and willing to pay the current past
due account of this company in the amount of P116,301,992.60 as of 21 January 1993,
specified in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the
Urban case at Makati, Metro Manila and in the Zamboanga case at Zamboanga city,
respectively, less the total of P8,851,519.71 paid from the Seaboard and Equitable
insurance companies and other legitimate deductions. We accept and confirm this
amount of P116,301,992.60 as stated as true and correct.
(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact that the excluded
promissory notes are dated after the fire. It failed to consider that said notes had for
their origin transactions consummated prior to the fire. Thus, careful attention must be
paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of
Promissory Notes No. 908-91 and 952-91, loans already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they ruled
should be excluded for bearing dates which are after that of the fire, are
mere renewals of previous ones. The proceeds of the loan represented by these
promissory notes were admittedly received by GOYU. There is ample factual and legal
basis for giving GOYUs judicial admission of liability in the amount of P116,301,992.60
full force and effect
It should, however, be quickly added that whatever amount RCBC may have recovered
from the other insurers of the mortgaged property will, nonetheless, have to be applied
as payment against GOYUs obligation. But, contrary to the lower courts findings,
payments effected by GOYU prior to January 21, 1993 should no longer be
deducted. Such payments had obviously been duly considered by GOYU, in its
aforequoted letter dated March 9, 1993, wherein it admitted that its past due account
totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of
January 21, 1993, to wit:
Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60
Broken down as follows
Principal[1] Interest
Regular 80,535,946.32
FDU 7,548,025.17
____________ _____________
Total: 108,083,971.49 8,218,021.11[2]

LESS:
1) Proceeds from
Seaboard Eastern
Insurance Company: 6,095,145.81
2) Proceeds from
Equitable Insurance
Company: 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
9,055,104.70[3]
NET AMOUNT as of January 21, 1993: P 107,246,887.90
The need for the payment of interest due upon the principal amount of the obligation,
which is the cost of money to RCBC, the primary end and the ultimate reason for RCBCs
existence and being, was duly recognized by the trial court when it ruled favorably on
RCBCs counterclaim, ordering GOYU to pay its loan obligation with RCBC in the amount
of P68,785,069.04, as of April 27,1992, with interest thereon at the rate stipulated in
the respective promissory notes (without surcharges and penalties) per computation,
pp. 14-A, 14-B, 14-C (Record, p. 479). Inexplicably, the Court of Appeals, without even
laying down the factual or legal justification for its ruling, modified the trial courts
ruling and ordered GOYU to pay the principal amount of P68,785,069.04 without any
interest, surcharges and penalties (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much
uncertainty deleted the payment of additional interest, penalties, and charges, in this
manner:
Regarding defendant RCBCs commitment not to charge additional interest, penalties
and surcharges, the same does not require that it be embodied in a document or some
form of writing to be binding and enforceable. The principle is well known that
generally a verbal agreement or contract is no less binding and effective than a written
one. And the existence of such a verbal agreement has been amply established by the
evidence in this case. In any event, regardless of the existence of such verbal
agreement, it would still be unjust and inequitable for defendant RCBC to charge the
plaintiff with surcharges and penalties considering the latters pitiful situation.
(Emphasis supplied.)
(Record, p. 476)

The essence or rationale for the payment of interest or cost of money is separate and
distinct from that of surcharges and penalties.What may justify a court in not allowing
the creditor to charge surcharges and penalties despite express stipulation therefor in
a valid agreement, may not equally justify non-payment of interest. The charging of
interest for loans forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its existence or
being. It is inconceivable for a bank to grant loans for which it will not charge any
interest at all. We fail to find justification for the Court of Appeals outright deletion of
the payment of interest as agreed upon in the respective promissory notes. This
constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following rules of
thumb laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234
SCRA 78 [1994]), shall apply, to wit:
I. 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.
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 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.
2. 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 of 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.
(pp. 95-97.)

There being written stipulations as to the rate of interest owing on each specific
promissory note as summarized and tabulated by the trial court in its decision (pp.470
and 471, Record) such agreed interest rates must be followed. This is very clear from
paragraph II, sub-paragraph 1 quoted above.
On the issue of payment of surcharges and penalties, we partly agree that GOYUs
pitiful situation must be taken into account. We do not agree, however, that payment of
any amount as surcharges and penalties should altogether be deleted. Even assuming
that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing,
may have relayed its assurance for assistance to GOYU immediately after the
occurrence of the fire, we cannot accept the lower courts finding that RCBC had
thereby ipso facto effectively waived collection of any additional interests, surcharges,
and penalties from GOYU. Assurances of assistance are one thing, but waiver of
additional interests, surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default partake of
the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the
Civil Code. Article 2227 thereof provides:
ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be
equitably reduced if they are iniquitous and unconscionable.
In exercising this vested power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case. It should be stressed that the
Court will not make any sweeping ruling that surcharges and penalties imposed by
banks for non-payment of the loans extended by them are generally iniquitous and
unconscionable. What may be iniquitous and unconscionable in one case, may be
totally just and equitable in another. This provision of law will have to be applied to the
established facts of any given case. Given the circumstances under which GOYU found
itself after the occurrence of the fire, the Court rules the surcharges rates ranging
anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous
and unconscionable. The Court tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of GOYUs offer to pay the amount of
P116,301,992.60 to RCBC as March 1993 (See: Exhibit BB), which RCBC refused, we
find it more in keeping with justice and equity for RCBC not to charge additional
interest, surcharges, and penalties from that time onward.
Given the factual milieu spread hereover, we rule that it was error to hold MICO liable
in damages for denying or withholding the proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the
insurance policies, RCBC has the right to claim the insurance proceeds, in substitution
of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the
beneficiary of the said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably delaying and
withholding payment of insurance proceeds, the delay must be wanton, oppressive, or
malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally
agreed, however, that an insurer may in good faith and honesty entertain a difference
of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of
an insurer to pay a claim should not be inflicted unless the evidence and circumstances
show that such refusal was willful and without reasonable cause as the facts appear to
a reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53,
70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep
307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at
bar does not show that MICO wantonly and in bad faith delayed the release of the
proceeds. The problem in the determination of who is the actual beneficiary of the

insurance policies, aggravated by the claim of various creditors who wanted to partake
of the insurance proceeds, not to mention the importance of the endorsement to RCBC,
to our mind, and as now borne out by the outcome herein, justified MICO in withholding
payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC
cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid
creditor, one for specific performance and the other for foreclosure. In doing so, said
the appellate court, the second action is deemed barred, RCBC having split a single
cause of action (Rollo, pp. 195-199). The Court of Appeals was too accommodating in
giving due consideration to this argument of GOYU, for the foreclosure suit is still
pending appeal before the same Court of Appeals in CA G.R CV No. 46247, the case
having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of
Appeals pre-empted the resolution of said foreclosure case which is not before it. This
is plain reversible error if not grave abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):

3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the
interests earned to Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
Corporation in the principal amount of P107,246,887.90, with interest at the respective
rates stipulated in each promissory note from January 21, 1993 until finality of this
judgment, and surcharges at 2% and penalties at 3% from January 21, 1993 to March
9, 1993, minus payments made by Malayan Insurance Company, Inc. and the proceeds
of the amount deposited with the trial court and its earned interest. The total amount
due RCBC at the time of the finality of this judgment shall earn interest at the legal rate
of 12% in lieu of all other stipulated interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the respondent Court in
CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results
herein arrived at. Respondent Sebastians right as attaching creditor must yield to the
preferential rights of Rizal Commercial Banking Corporation over the Malayan
insurance policies as first mortgagee.
SO ORDERED.

It should have been enough, nonetheless, for the appellate court to merely set aside
the questioned orders of the trial court for having been issued by the latter with grave
abuse of discretion. In likewise enjoining permanently herein petitioner from entering in
and interfering with the use or occupation and enjoyment of petitioners (now private
respondent) residential house and compound, the appellate court in effect,
precipitately resolved with finality the case for injunction that was yet to be heard on
the merits by the lower court. Elevated to the appellate court, it might be stressed,
were mere incidents of the principal case still pending with the trial
court. In Municipality of Bian, Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that
the Court of Appeals would have no jurisdiction in a certiorari proceeding involving an
incident in a case to rule on the merits of the main case itself which was not on appeal
before it.
(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga
Regional Trial Court, since it has been determined that RCBC has the right to the
insurance proceeds, the subject matter of intervention is rendered moot and
academic. Respondent Sebastian must, however, yield to the preferential right of RCBC
over the MICO insurance policies. It is basic and fundamental that the first mortgagee
has superior rights over junior mortgagees or attaching creditors (Alpha Insurance &
Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs.
Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of
December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED
and SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442
before Branch 3 of the Manila Regional Trial Court for lack of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking
Corporation the proceeds of the insurance policies in the amount of P51,862,390.94
(per report of adjuster Toplis & Harding (Far East), Inc., Exhibits 2 and 2-1), less the
amount of P50,505,594.60 (per O.R. No. 3649285);

Regalado, (Chairman), Puno, Mendoza, and Martinez, JJ., concur.

THIRD DIVISION

[G.R. No. 131622. November 27, 1998]

LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,

vs. COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G.
GONZALES, JR., doing lending business under the trade name and style
"GONZALES CREDIT ENTERPRISES", respondents.
DECISION
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of the
Revised Rules of Court, seeking to set aside the decision of the Court of Appeals, [1] and
its resolution denying reconsideration, [2] the dispositive portion of which decision reads
as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective
July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 23, 1986, until the entire amount is fully
paid.
"The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And
so is the imposition of costs against the defendants.
SO ORDERED."[3]
The Court required the respondents to comment on the petition, [4] which was filed on
April 3, 1998,[5] and the petitioners to reply thereto, which was filed on May 29, 1998.
[6]
We now resolve to give due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are
considered binding and conclusive on the parties herein, as the appeal is limited to
questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and
Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was
engaged in the money lending business under the name "Gonzales Credit Enterprises",
in the amount of P50,000.00, payable in two months. Veronica gave only the amount
of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one
month at 6% per month.Servado and Leticia executed a promissory note
for P50,000.00, to evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in
the amount of P90,000.00, payable in two months, at 6% interest per month. They
executed a promissory note to evidence the loan, maturing on January 19, 1986. They
received only P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the
amount of P300,000.00, maturing in one month, secured by a real estate mortgage
over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power
of attorney in favor of Leticia Medel, authorizing her to execute the
mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay
the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum
of P275,000.00, was given to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from
Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a
total of P500,000.00, payable on August 23, 1986.The executed a promissory note,
reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of
VERONICA R. GONZALES doing business in the business style of GONZALES
CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of
Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND .....
(P500,000.00) Philippine
Currency with interest thereon at the rate of 5.5 PER CENT permonth plus 2% serv
ice charge per annum from date hereof until fully paid according to the
amortization schedule contained herein.(Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due, all the other
installments together with all interest accrued shall immediately be due and
payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the amountdu
e and demandable as penalty charges in the form of liquidated damages until fully
paid; and the further sum of TWENTY FIVE PER CENT(25%) thereon in full, without
deductions as Attorney's Fee whether actually incurred or not, of the total amount
due and demandable, exclusive of costs and judicial or extra judicial
expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall have the
option to apply and collect the increased interest charges without notice although
the original interest have already been collected wholly or partially unless the
contrary is required by law.
"It is also a special condition of this contract that the parties herein agree that the
amount of peso-obligation under this agreement is based on the present value of
peso, and if there be any change in the value thereof, due to extraordinary
inflation or deflation, or any other cause or reason, then the peso-obligation
herein contracted shall be adjusted in accordance with the value of the peso then
prevailing at the time of the complete fulfillment of obligation.

"Demand and notice of dishonor waived. Holder may accept partial payments and
grant renewals of this note or extension of payments, reserving rights against
each and all indorsers and all parties to this note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors
waive all his/their rights under the provisions of Section 12, Rule 39, of the
Revised Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00,
plus interests and penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales,
filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a
complaint for collection of the full amount of the loan including interests and other
charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant
Servando alleged that he did not obtain any loan from the plaintiffs; that it was
defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum
of P500,000.00, and actually received the amount and benefited therefrom; that the
loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that
he (Servando Franco) signed the promissory note only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel
alleged that the loan was the transaction of Leticia Yaptinchay, who executed a
mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan,
Batangas; that the interest rate is excessive at 5.5% per month with additional service
charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for
attorney's fees of 25% ofthe amount due is unconscionable, illegal and excessive, and
that substantial payments made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the
four promissory notes had been duly proved, and ruled that although the Usury Law
had been repealed, the interest charged by the plaintiffs on the loans was
unconscionable and "revolting to the conscience".Hence, the trial court applied "the
provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance
of money, goods or credit is 12% per annum." [7]
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive
portion of which reads as follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally,
to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from
November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly
and severally the amount of P84,000.00 with 12% interest per annum and 1% per cent
per month as penalty from November 19,1985 until the whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount
of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July
11, 1986, until the whole amount is fully paid;

"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount
of P50,000.00 as attorney's fees;

consistently held that Circulr No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by the Usury Law [14] and
that the Usury Law is now "legally inexistent". [15]

"5. All counterclaims are hereby dismissed.

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 [16] the
Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law
but simply suspended the latter's effectivity." Indeed, we have held that "a Central
Bank Circular can not repeal a law. Only a law can repeal another law." [17] In the recent
case of Florendo vs. Court of Appeals [18], the Court reiterated the ruling that "by virtue
of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been
legally non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon."[19]

"With costs against the defendants." [8]

In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416 of the Central Bank prescribing the
rate of interest for loans or forbearance of money, goods or credit at 12% per annum,
applies only in the absence of a stipulation on interest rate, but not when the parties
agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the
Usury Law having become 'legally inexistent' with the promulgation by the Central
Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest
that may be charged on the loan". [9]The Court of Appeals further held that "the
imposition of 'an additional amount equivalent to 1% per month of the amount due and
demandable as penalty charges in the form of liquidated damages until fully paid' was
allowed by law".[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing
that of the Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective July
23, 1986, plus 1% per month of the total amount due and demandable as
penalty charges effective August 24, 1986, until the entire amount is fully
paid.
"The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And
so is the imposition of costs against the defendants.
"SO OREDERED."[11]
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said
decision. By resolution dated November 25, 1997, the Court of Appeals denied the
motion.[12]
Hence, defendants interposed the present recourse via petition for review on certiorari.
[13]

We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus,
the question presented is whether or not the stipulated rate of interest at 5.5% per
month on the loan in the sum of P500,000.00, that plaintiffs extended to the
defendants is usurious. In other words, is the Usury Law still effective, or has it been
repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant
to its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on
the P500,000.00
loan
is
excessive,
iniquitous,
unconscionable
and
exorbitant.13 However, we can not consider the rate "usurious" because this Court has

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated
upon by the parties in the promissory note iniquitous or unconscionable, and, hence,
contrary to morals ("contra bonos mores"), if not against the law. [20] The stipulation is
void.[21] The courts shall reduce equitably liquidated damages, whether intended as an
indemnity or a penalty if they are iniquitous or unconscionable. [22]
Consequently, the Court of Appeals erred in upholding the stipulation of the
parties. Rather, we agree with the trial court that, under the circumstances, interest at
12% per annum, and an additional 1% a month penalty charge as liquidated damages
may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of
Appeals promulgated on March 21, 1997, and its resolution dated November 25,
1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated
December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan,
in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance
SO ORDERED.
Narvasa, C.J. (Chairman), Romero, Kapunan, and Purisima, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149004

April 14, 2004

RESTITUTA M. IMPERIAL, petitioner,

vs.
ALEX A. JAUCIAN, respondent.
DECISION
PANGANIBAN, J.:
Iniquitous and unconscionable stipulations on interest rates, penalties and attorneys
fees are contrary to morals. Consequently, courts are granted authority to reduce them
equitably. If reasonably exercised, such authority shall not be disturbed by appellate
courts.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the July
19, 2000 Decision2 and the June 14, 2001 Resolution3 of the Court of Appeals (CA) in
CA-GR CV No. 43635. The decretal portion of the Decision is as follows:
"WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court,
5th Judicial Region, Branch 21, Naga City, dated August 31, 1993, in Civil Case No. 891911 for Sum of Money, is hereby AFFIRMED in toto."4
The assailed Resolution denied petitioners Motion for Reconsideration.

The dispositive portion of the August 31, 1993 Decision, promulgated by the Regional
Trial Court (RTC) of Naga City (Branch 21) and affirmed by the CA, reads as follows:
"Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular No.
905, series of 1982 to be of no force and legal effect, it having been promulgated by
the Monetary Board of the Central Bank of the Philippines with grave abuse of
discretion amounting to excess of jurisdiction; declaring that the rate of interest,
penalty, and charges for attorneys fees agreed upon between the parties are
unconscionable, iniquitous, and in violation of Act No. 2655, otherwise known as the
Usury Law, as amended; and ordering Defendant to pay Plaintiff the amount of FOUR
HUNDRED SEVENTY-EIGHT THOUSAND, ONE HUNDRED NINETY-FOUR and 54/100
(P478,194.54) PESOS, Philippine currency, with regular and compensatory interests
thereon at the rate of twenty-eight (28%) per centum per annum, computed from
August 31, 1993 until full payment of the said amount, and in addition, an amount
equivalent to ten (10%) per centum of the total amount due and payable, for
attorneys fees, without pronouncement as to costs." 5
The Facts
The CA summarized the facts of the case in this wise:
"The present controversy arose from a case for collection of money, filed by Alex A.
Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter
alia, that defendant obtained from plaintiff six (6) separate loans for which the former
executed in favor of the latter six (6) separate promissory notes and issued several
checks as guarantee for payment. When the said loans became overdue and unpaid,
especially when the defendants checks were dishonored, plaintiff made repeated oral
and written demands for payment.
"Specifically, the six (6) separate loans obtained by defendant from plaintiff on various
dates are as follows:
(a) November 13,
1987

P 50,000.
00

(b) December 28,

1987

40,000.00

(c) January 6, 1988

30,000.00

(d) January 11,

1988

50,000.00

(e) January 12,

1988

50,000.00

(f) January 13,

1988

100,000.0
0

Total

P320,000.
00

"The loans were covered by six (6) separate promissory notes executed by defendant.
The face value of each promissory notes is bigger [than] the amount released to
defendant because said face value already include[d] the interest from date of note to
date of maturity. Said promissory notes, which indicate the interest of 16% per month,
date of issue, due date, the corresponding guarantee checks issued by defendant,
penalties and attorneys fees, are the following:
1. Exhibit D for loan of P40,000.00 on December 28, 1987, with face value
of P65,000.00;
2. Exhibit E for loan of P50,000.00 on January 11, 1988, with face value
of P82,000.00;
3. Exhibit F for loan of P50,000.00 on January 12, 1988, with face value
of P82,000.00;
4. Exhibit G for loan of P100,000.00 on January 13, 1988, with face value
of P164,000.00;
5. Exhibit H This particular promissory note covers the second renewal of the
original loan ofP50,000.00 on November 13, 1987, which was renewed for the first time
on March 16, 1988 after certain payments, and which was renewed finally for the
second time on January 4, 1988 also after certain payments, with a face value
of P56,240.00;
6. Exhibit I This particular promissory note covers the second renewal of the original
loan ofP30,000.00 on January 6, 1988, which was renewed for the first time on June 4,
1988 after certain payments, and which was finally renewed for the second time on
August 6, 1988, also after certain payments, with [a] face value of P12,760.00;
"The particulars about the postdated checks, i.e., number, amount, date, etc., are
indicated in each of the promissory notes. Thus, for Exhibit D, four (4) PB checks were
issued; for Exhibit E four (4) checks; for Exhibit F four (4) checks; for Exhibit G four
(4) checks; for Exhibit H one (1) check; for Exhibit I one (1) check;
"The arrangement between plaintiff and defendant regarding these guarantee checks
was that each time a check matures the defendant would exchange it with cash.
"Although, admittedly, defendant made several payments, the same were not enough
and she always defaulted whenever her loans mature[d]. As of August 16, 1991, the
total unpaid amount, including accrued interest, penalties and attorneys fees,
[was] P2,807,784.20.
"On the other hand, defendant claims that she was extended loans by the plaintiff on
several occasions, i.e., from November 13, 1987 to January 13, 1988, in the total sum
of P320,000.00 at the rate of sixteen percent (16%) per month. The notes mature[d]
every four (4) months with unearned interest compounding every four (4) months if the
loan [was] not fully paid. The loan releases [were] as follows:
(a) November 13,

P 50,000.

1987

00

(b) December 28,

1987

40,000.00

(c) January 6, 1988

30,000.00

(d) January 11,

1988

50,000.00

(e) January 12,

1988

50,000.00

(f) January 13,

1988

100,000.0
0

Total

P320,000.
00

.00
"Defendant contends that from all perspectives the above excess payment
of P121,780.00 is more than the interest that could be legally charged, and in fact as of
January 25, 1989, the total releases have been fully paid.
"On 31 August 1993, the trial court rendered the assailed decision." 6
Ruling of the Court of Appeals
On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule
on the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982.
Nonetheless, the appellate court affirmed the judgment of the trial court, holding that
the latters clear and detailed computation of petitioners outstanding obligation to
respondent was convincing and satisfactory.

"The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid including
the usurious interests of 16% per month, this is the reason why these were not
included in the complaint.

Hence, this Petition. 7

The Issues

"Defendant alleges that all the above amounts were released respectively by checks
drawn by the plaintiff, and the latter must produce these checks as these were
returned to him being the drawer if only to serve the truth. The above amount are the
real amount released to the defendant but the plaintiff by masterful machinations
made it appear that the total amount released was P462,600.00. Because in his
computation he made it appear that the true amounts released was not the original
amount, since it include[d] the unconscionable interest for four months.

Petitioner raises the following arguments for our consideration:

"Further, defendant claims that as of January 25, 1989, the total payments made by
defendants [were] as follows:

"3. That charging of excessive attorneys fees is hemorrhagic.

"1. That the petitioner has fully paid her obligations even before filing of this case.
"2. That the charging of interest of twenty-eight (28%) per centum per annum without
any writing is illegal.

"4. Charging of excessive penalties per month is in the guise of hidden interest.
a. Paid releases on November 13, 1987 ofP50,000.00 and January 6, 1988
ofP30,000.00 these two items were not included in the complaint affirming
the fact that these were paid

P 80,000.0
0

b. Exhibit 26 Receipt

231,000.0
0

c. Exhibit 8-25 Receipt

65,300.00

d. Exhibit 27 Receipt

65,000.00

Total

P441,780
.00

Less:
Excess Payment

320,000.0
0
P121,780

"5. The non-inclusion of the husband of the petitioner at the time the case was filed
should have dismissed this case."8
The Courts Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the loan before the filing of the case, petitioner
alleges that the two lower courts misappreciated the facts when they ruled that she
still had an outstanding balance of P208,430.

This issue involves a question of fact. Such question exists when a doubt or difference
arises as to the truth or the falsehood of alleged facts; and when there is need for a
calibration of the evidence, considering mainly the credibility of witnesses and the
existence and the relevancy of specific surrounding circumstances, their relation to
each other and to the whole, and the probabilities of the situation. 9
It is a well-entrenched rule that pure questions of fact may not be the subject of an
appeal by certiorari under Rule 45 of the Rules of Court, as this remedy is generally
confined to questions of law. 10 The jurisdiction of this Court over cases brought to it is
limited to the review and rectification of errors of law allegedly committed by the lower
court. As a rule, the latters factual findings, when adopted and affirmed by the CA, are
final and conclusive and may not be reviewed on appeal. 11
Generally, this Court is not required to analyze and weigh all over again the evidence
already considered in the proceedings below. 12 In the present case, we find no
compelling reason to overturn the factual findings of the RTC -- that the total amount of
the loans extended to petitioner was P320,000, and that she paid a total of
onlyP116,540 on twenty-nine dates. These findings are supported by a preponderance
of evidence. Moreover, the amount of the outstanding obligation has been meticulously
computed by the trial court and affirmed by the CA. Petitioner has not given us
sufficient reason why her cause falls under any of the exceptions to this rule on the
finality of factual findings.
Second Issue:
Rate of Interest
The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to
1.167 percent per month or 14 percent per annum; and the stipulated penalty charge,
from 5 percent to 1.167 percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between the parties, the lower
courts should have imposed the rate of 12 percent per annum only.
The records show that there was a written agreement between the parties for the
payment of interest on the subject loans at the rate of 16 percent per month. As
decreed by the lower courts, this rate must be equitably reduced for being iniquitous,
unconscionable and exorbitant. "While the Usury Law ceiling on interest rates was lifted
by C.B. Circular No. 905, nothing in the said circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets." 13
In Medel v. CA,14 the Court found the stipulated interest rate of 5.5 percent per month,
or 66 percent per annum, unconscionable. In the present case, the rate is even more
iniquitous and unconscionable, as it amounts to 192 percent per annum. When the
agreed rate is iniquitous or unconscionable, it is considered "contrary to morals, if not
against the law. [Such] stipulation is void."15
Since the stipulation on the interest rate is void, it is as if there were no express
contract thereon.16 Hence, courts may reduce the interest rate as reason and equity
demand. We find no justification to reverse or modify the rate imposed by the two
lower courts.

Third and Fourth Issue:

Penalties and Attorneys Fees
Article 1229 of the Civil Code states thus:
"The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable."
In exercising this power to determine what is iniquitous and unconscionable, courts
must consider the circumstances of each case. 17 What may be iniquitous and
unconscionable in one may be totally just and equitable in another. In the present case,
iniquitous and unconscionable was the parties stipulated penalty charge of 5 percent
per month or 60 percent per annum, in addition to regular interests and attorneys
fees. Also, there was partial performance by petitioner when she remitted P116,540 as
partial payment of her principal obligation of P320,000. Under the circumstances, the
trial court was justified in reducing the stipulated penalty charge to the more equitable
rate of 14 percent per annum.
The Promissory Note carried a stipulation for attorneys fees of 25 percent of the
principal amount and accrued interests. Strictly speaking, this covenant on attorneys
fees is different from that mentioned in and regulated by the Rules of Court. 18 "Rather,
the attorneys fees here are in the nature of liquidated damages and the stipulation
therefor is aptly called a penal clause."19 So long as the stipulation does not contravene
the law, morals, public order or public policy, it is binding upon the obligor. It is the
litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment
by execution.
Nevertheless, it appears that petitioners failure to comply fully with her obligation was
not motivated by ill will or malice. The twenty-nine partial payments she made were a
manifestation of her good faith. Again, Article 1229 of the Civil Code specifically
empowers the judge to reduce the civil penalty equitably, when the principal obligation
has been partly or irregularly complied with. Upon this premise, we hold that the RTCs
reduction of attorneys fees -- from 25 percent to 10 percent of the total amount due
and payable -- is reasonable.
Fifth Issue:
Non-Inclusion of Petitioners Husband
Petitioner contends that the case against her should have been dismissed, because her
husband was not included in the proceedings before the RTC.
We are not persuaded. The husbands non-joinder does not warrant dismissal, as it is
merely a formal requirement that may be cured by amendment. 20 Since petitioner
alleges that her husband has already passed away, such an amendment has thus
become moot.
WHEREFORE, the Petition is DENIED. Costs against petitioner.

THIRD DIVISION
UNITED COCONUT PLANTERS BANK,
Petitioner,

G.R. No. 159912

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

- versus -

SPOUSES SAMUEL and ODETTE BELUSO,

Respondents.

Promulgated:

August 17, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

The three promissory notes were renewed several times. On 30 April 1997, the
payment of the principal and interest of the latter two promissory notes were debited
from the spouses Belusos account with UCPB; yet, a consolidated loan for P1.3 Million
was again released to the spouses Beluso under one promissory note with a due date
of 28 February 1998.
To completely avail themselves of the P2.35 Million credit line extended to them by
UCPB, the spouses Beluso executed two more promissory notes for a total
of P350,000.00:
PN #
97-00363-1
98-00002-4

Date of PN
11 December 1997
2 January 1998

Maturity Date
28 February 1998
28 February 1998

Amount Secured
P 200,000
P 150,000

However, the spouses Beluso alleged that the amounts covered by these last two
promissory notes were never released or credited to their account and, thus, claimed
that the principal indebtedness was only P2 Million.
In any case, UCPB applied interest rates on the different promissory notes ranging from
18% to 34%. From 1996 to February 1998 the spouses Beluso were able to pay the
total sum of P763,692.03.

DECISION

CHICO-NAZARIO, J.:

From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and
penalty on the obligations of the spouses Beluso, as follows:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which
seeks to annul the Court of Appeals Decision [1] dated 21 January 2003 and its
Resolution[2] dated 9 September 2003 in CA-G.R. CV No. 67318. The assailed Court of
Appeals Decision and Resolution affirmed in turn the Decision [3] dated 23 March 2000
and Order[4] dated 8 May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati
City, in Civil Case No. 99-314, declaring void the interest rate provided in the
promissory notes executed by the respondents Spouses Samuel and Odette Beluso
(spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB).

PN #
97-00363-1
97-00366-6

Amount Secured
P 200,000
P 700,000

97-00368-2

P 1,300,000

98-00002-4

P 150,000

Interest
Penalty
31%
36%
30.17% 32.786% (102
(7 days)
days)
28% 30.41% (102
(2 days)
days)
33%
36%
(102 days)

Total
P 225,313.24
P 795,294.72
P 1,462,124.54
P 170,034.71

The procedural and factual antecedents of this case are as follows:

On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a
Credit Agreement whereby the latter could avail from the former credit of up to a
maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. The
spouses Beluso constituted, other than their promissory notes, a real estate mortgage
over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539
and T-27828, as additional security for the obligation. The Credit Agreement was
subsequently amended to increase the amount of the Promissory Notes Line to a
maximum of P2.35 Million pesos and to extend the term thereof to 28 February 1998.
The spouses Beluso availed themselves of the credit line under the following
Promissory Notes:
PN #
8314-96-00083-3
8314-96-00085-0
8314-96-000292-2

Date of PN
29 April 1996
2 May 1996
20 November 1996

Maturity Date
27 August 1996
30 August 1996
20 March 1997

Amount Secured
P 700,000
P 500,000
P 800,000

The spouses Beluso, however, failed to make any payment of the foregoing amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total
obligation of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to
comply therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged
by the spouses Beluso to secure their credit line, which, by that time, already ballooned
to P3,784,603.00.
On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and
Damages against UCPB with the RTC of Makati City.
On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case
as follows:
PREMISES CONSIDERED, judgment is hereby rendered declaring the interest
rate used by [UCPB] void and the foreclosure and Sheriffs Certificate
of Sale void. [UCPB] is hereby ordered to return to [the spouses Beluso] the

properties subject of the foreclosure; to pay [the spouses Beluso] the amount
of P50,000.00 by way of attorneys fees; and to pay the costs of suit. [The
spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.[5]
On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration, [6] prompting UCPB
to appeal the RTC Decision with the Court of Appeals. The Court of Appeals affirmed the
RTC Decision, to wit:
WHEREFORE, premises considered, the decision dated March 23, 2000 of the
Regional Trial Court, Branch 65, Makati City in Civil Case No. 99-314 is hereby
AFFIRMED subject to the modification that defendant-appellant UCPB is not
liable for attorneys fees or the costs of suit. [7]
On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration
for lack of merit. UCPB thus filed the present petition, submitting the following issues
for our resolution:
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT WHICH DECLARED VOID THE PROVISION ON INTEREST RATE AGREED
UPON BETWEEN PETITIONER AND RESPONDENTS
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL
COURT OF RESPONDENTS INDEBTEDNESS AND ORDERED RESPONDENTS TO
PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY
THOUSAND THREE HUNDRED EIGHT PESOS (P1,560,308.00)
III
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER OF THE SUBJECT
PROPERTIES DUE TO AN ALLEGED INCORRECT COMPUTATION OF
RESPONDENTS INDEBTEDNESS
IV
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF THE TRUTH IN
LENDING ACT
V
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE DISMISSAL OF THE
CASE BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM SHOPPING[8]
Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the following provision
found in the promissory notes of the spouses Beluso is void, as the interest rates and
the bases therefor were determined solely by petitioner UCPB:
FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND
ODETTE BELUSO (BORROWER), jointly and severally promise to pay to UNITED
COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg., Makati Avenue,
Makati City, Philippines, the sum of ______________ PESOS, (P_____), Philippine
Currency, with interest thereon at the rate indicative of DBD retail rate or as
determined by the Branch Head.[9]
UCPB asserts that this is a reversible error, and claims that while the interest rate was
not numerically quantified in the face of the promissory notes, it was nonetheless
categorically fixed, at the time of execution thereof, at the rate indicative of the DBD
retail rate. UCPB contends that said provision must be read with another stipulation in
the promissory notes subjecting to review the interest rate as fixed:
The interest rate shall be subject to review and may be increased or decreased
by the LENDER considering among others the prevailing financial and
monetary conditions; or the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations;
and/or the resulting profitability to the LENDER after due consideration of all
dealings with the BORROWER.[10]
In this regard, UCPB avers that these are valid reference rates akin to a prevailing rate
or prime rate allowed by this Court inPolotan v. Court of Appeals.[11] Furthermore, UCPB
argues that even if the proviso as determined by the branch head is considered void,
such a declaration would not ipso facto render the connecting clause indicative of DBD
retail rate void in view of the separability clause of the Credit Agreement, which reads:
Section 9.08 Separability Clause. If any one or more of the provisions
contained in this AGREEMENT, or documents executed in connection herewith
shall be declared invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.[12]
According to UCPB, the imposition of the questioned interest rates did not infringe on
the principle of mutuality of contracts, because the spouses Beluso had the liberty to
choose whether or not to renew their credit line at the new interest rates pegged by
petitioner.[13] UCPB also claims that assuming there was any defect in the mutuality of
the contract at the time of its inception, such defect was cured by the subsequent
conduct of the spouses Beluso in availing themselves of the credit line from April 1996
to February 1998 without airing any protest with respect to the interest rates imposed
by UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel. [14]
We agree with the Court of Appeals, and find no merit in the contentions of UCPB.
Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
We applied this provision in Philippine National Bank v. Court of Appeals,[15] where we
held:

In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on
their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence,
even assuming that the P1.8 million loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement with the
character of a contract of adhesion, where the parties do not bargain on equal
footing, the weaker party's (the debtor) participation being reduced to the
alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95
Phil. 85). Such a contract is a veritable trap for the weaker party whom the
courts of justice must protect against abuse and imposition.
The provision stating that the interest shall be at the rate indicative of DBD retail rate
or as determined by the Branch Head is indeed dependent solely on the will of
petitioner UCPB. Under such provision, petitioner UCPB has two choices on what the
interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head. As UCPB is given this choice, the rate should be
categorically determinable in both choices. If either of these two choices presents an
opportunity for UCPB to fix the rate at will, the bank can easily choose such an option,
thus making the entire interest rate provision violative of the principle of mutuality of
contracts.
Not just one, but rather both, of these choices are dependent solely on the will of
UCPB. Clearly, a rate as determined by the Branch Head gives the latter unfettered
discretion on what the rate may be. The Branch Head may choose any rate he or she
desires.As regards the rate indicative of the DBD retail rate, the same cannot be
considered as valid for being akin to a prevailing rate or prime rate allowed by this
Court in Polotan. The interest rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus the prime rate of
Security Bank and Trust Company. x x x.[16]
In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus,
the parties can easily determine the interest rate by applying simple arithmetic. On the
other hand, the provision in the case at bar does not specify any margin above or
below the DBD retail rate. UCPB can peg the interest at any percentage above or below
the DBD retail rate, again giving it unfettered discretion in determining the interest
rate.
The stipulation in the promissory notes subjecting the interest rate to review does not
render the imposition by UCPB of interest rates on the obligations of the spouses
Beluso valid. According to said stipulation:
The interest rate shall be subject to review and may be increased or decreased
by the LENDER considering among others the prevailing financial and
monetary conditions; or the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations;
and/or the resulting profitability to the LENDER after due consideration of all
dealings with the BORROWER.[17]

It should be pointed out that the authority to review the interest rate was given UCPB
alone as the lender. Moreover, UCPB may apply the considerations enumerated in this
provision as it wishes. As worded in the above provision, UCPB may give as much
weight as it desires to each of the following considerations: (1) the prevailing financial
and monetary condition; (2) the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations; and/or (3)
the resulting profitability to the LENDER (UCPB) after due consideration of all dealings
with the BORROWER (the spouses Beluso).Again, as in the case of the interest rate
provision, there is no fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the two options
of UCPB as to the interest to be imposed, as both options violate the principle of
mutuality of contracts.
UCPB likewise failed to convince us that the spouses Beluso were in estoppel.
Estoppel cannot be predicated on an illegal act. As between the parties to a contract,
validity cannot be given to it by estoppel if it is prohibited by law or is against public
policy.[18]
The interest rate provisions in the case at bar are illegal not only because of the
provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed
later, because they violate the Truth in Lending Act. Not disclosing the true finance
charges in connection with the extensions of credit is, furthermore, a form of deception
which we cannot countenance. It is against the policy of the State as stated in the Truth
in Lending Act:
Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State
to protect its citizens from a lack of awareness of the true cost of credit to the
user by assuring a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy. [19]
Moreover, while the spouses Beluso indeed agreed to renew the credit line, the
offending provisions are found in the promissory notes themselves, not in the credit
line. In fixing the interest rates in the promissory notes to cover the renewed credit
line, UCPB still reserved to itself the same two options (1) a rate indicative of the DBD
retail rate; or (2) a rate as determined by the Branch Head.
Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals voided the interest
rates imposed by UCPB, both failed to include in their computation of the outstanding
obligation of the spouses Beluso the legal rate of interest of 12% per
annum.Furthermore, the penalty charges were also deleted in the decisions of the RTC
and the Court of Appeals. Section 2.04, Article II on Interest and other Bank Charges of
the subject Credit Agreement, provides:
Section 2.04 Penalty Charges. In addition to the interest provided for in Section
2.01 of this ARTICLE, any principal obligation of the CLIENT hereunder which is
not paid when due shall be subject to a penalty charge of one percent (1%) of
the amount of such obligation per month computed from due date until the
obligation is paid in full. If the bank accelerates teh (sic) payment of
availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge shall
be used on the total principal amount outstanding and unpaid computed from
the date of acceleration until the obligation is paid in full. [20]

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly
and severally, agree to pay an additional sum equivalent to twenty-five
percent (25%) of the total due on the Note as attorneys fee, aside from the
expenses and costs of collection whether actually incurred or not, and a
penalty charge of one percent (1%) per month on the total amount due and
unpaid from date of default until fully paid.[21]

8.

All other obligations of CLIENT to the BANK, if any. [25]

Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had
been erroneously excluded by the RTC and the Court of Appeals from the computation
of the total amount due and demandable from spouses Beluso.

Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to

Section 9.06 of the Credit Agreement, thus:

The spouses Belusos defense as to all these issues is that the demand made by UCPB
is for a considerably bigger amount and, therefore, the demand should be considered
void. There being no valid demand, according to the spouses Beluso, there would be no
default, and therefore the interests and penalties would not commence to run. As it
was likewise improper to foreclose the mortgaged properties or file a case against the
spouses Beluso, attorneys fees were not warranted.

If the BANK shall require the services of counsel for the enforcement of its
rights under this AGREEMENT, the Note(s), the collaterals and other related
documents, the BANK shall be entitled to recover attorneys fees equivalent to
not less than twenty-five percent (25%) of the total amounts due and
outstanding exclusive of costs and other expenses. [22]

We agree with UCPB on this score. Default commences upon judicial or extrajudicial
demand.[26] The excess amount in such a demand does not nullify the demand itself,
which is valid with respect to the proper amount. A contrary ruling would put
commercial transactions in disarray, as validity of demands would be dependent on the
exactness of the computations thereof, which are too often contested.

Another alleged computational error pointed out by UCPB is the negation of the
Compounding Interest agreed upon by the parties under Section 2.02 of the Credit
Agreement:

There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso
are considered in default with respect to the proper amount and, therefore, the
interests and the penalties began to run at that point.

Section 2.02 Compounding Interest. Interest not paid when due shall form part
of the principal and shall be subject to the same interest rate as herein
stipulated.[23]

As regards the award of 12% legal interest in favor of petitioner, the RTC actually
recognized that said legal interest should be imposed, thus: There being no valid
stipulation as to interest, the legal rate of interest shall be charged. [27] It seems that the
RTC inadvertently overlooked its non-inclusion in its computation.

and paragraph 3 of the subject promissory notes:

The spouses Beluso had even originally asked for the RTC to impose this legal rate of
interest in both the body and the prayer of its petition with the RTC:

Interest not paid when due shall be added to, and become part of the principal
and shall likewise bear interest at the same rate. [24]
UCPB lastly avers that the application of the spouses Belusos payments in the disputed
computation does not reflect the parties agreement. The RTC deducted the payment
made by the spouses Beluso amounting to P763,693.00 from the principal
ofP2,350,000.00. This was allegedly inconsistent with the Credit Agreement, as well as
with the agreement of the parties as to the facts of the case. In paragraph 7 of the
spouses Belusos Manifestation and Motion on Proposed Stipulation of Facts and
Issues vis--vis UCPBs Manifestation, the parties agreed that the amount of P763,693.00
was applied to the interest and not to the principal, in accord with Section 3.03, Article
II of the Credit Agreement on Order of the Application of Payments, which provides:
Section 3.03 Application of Payment. Payments made by the CLIENT shall be
applied in accordance with the following order of preference:
1.
Accounts receivable and other out-of-pocket expenses
2.
Front-end Fee, Origination Fee, Attorneys Fee and other expenses of
collection;
3.
Penalty charges;
4.
Past due interest;
5.
Principal amortization/Payment in arrears;
6.
Advance interest;
7.
Outstanding balance; and

12. Since the provision on the fixing of the rate of interest by the sole will of
the respondent Bank is null and void, only the legal rate of interest which is
12% per annum can be legally charged and imposed by the bank, which would
amount to only about P599,000.00 since 1996 up to August 31, 1998.
xxxx
WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:
xxxx
2. By way of example for the public good against the Banks taking unfair
advantage of the weaker party to their contract, declaring the legal rate of
12% per annum, as the imposable rate of interest up to February 28, 1999 on
the loan of 2.350 million.[28]
All these show that the spouses Beluso had acknowledged before the RTC their
obligation to pay a 12% legal interest on their loans.When the RTC failed to include the
12% legal interest in its computation, however, the spouses Beluso merely defended in
the appellate courts this non-inclusion, as the same was beneficial to them. We see,
however, sufficient basis to impose a 12% legal interest in favor of petitioner in the
case at bar, as what we have voided is merely the stipulated rate of interest and not
the stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing the compounding of

interest. The provisions in the Credit Agreement and in the promissory notes providing
for the compounding of interest were neither nullified by the RTC or the Court of
Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The
compounding of interests has furthermore been declared by this Court to be legal. We
have held in Tan v. Court of Appeals,[29] that:
Without prejudice to the provisions of Article 2212, interest due and unpaid
shall not earn interest. However, the contracting parties may by
stipulation capitalize the interest due and unpaid, which as added
principal, shall earn new interest.
As regards the imposition of penalties, however, although we are likewise upholding
the imposition thereof in the contract, we find the rate iniquitous. Like in the case of
grossly excessive interests, the penalty stipulated in the contract may also be reduced
by the courts if it is iniquitous or unconscionable. [30]
We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous
considering the fact that this penalty is already over and above the compounded
interest likewise imposed in the contract. If a 36% interest in itself has been declared
unconscionable by this Court,[31] what more a 30.41% to 36% penalty, over and above
the payment of compounded interest?UCPB itself must have realized this, as it gave us
a sample computation of the spouses Belusos obligation if both the interest and the
penalty charge are reduced to 12%.
As regards the attorneys fees, the spouses Beluso can actually be liable therefor even
if there had been no demand. Filing a case in court is the judicial demand referred to in
Article 1169[32] of the Civil Code, which would put the obligor in delay.

annulment of foreclosure constitutes a collateral attack on its certificates of title, an act

proscribed by Section 48 of Presidential Decree No. 1529, otherwise known as the
Property Registration Decree, which provides:
Section 48. Certificate not subject to collateral attack. A certificate of title shall
not be subject to collateral attack. It cannot be altered, modified or cancelled
except in a direct proceeding in accordance with law.
The spouses Beluso retort that since they had the right to refuse payment of an
excessive demand on their account, they cannot be said to be in default for refusing to
pay the same. Consequently, according to the spouses Beluso, the enforcement of such
illegal and overcharged demand through foreclosure of mortgage should be voided.
We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we
already found that a valid demand was made by UCPB upon the spouses Beluso,
despite being excessive, the spouses Beluso are considered in default with respect to
the proper amount of their obligation to UCPB and, thus, the property they mortgaged
to secure such amounts may be foreclosed.Consequently, proceeds of the foreclosure
sale should be applied to the extent of the amounts to which UCPB is rightfully entitled.
As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are
present in this case. The grounds for the proper annulment of the foreclosure sale are
the following: (1) that there was fraud, collusion, accident, mutual mistake, breach of
trust or misconduct by the purchaser; (2) that the sale had not been fairly and regularly
conducted; or (3) that the price was inadequate and the inadequacy was so great as to
shock the conscience of the court.[34]

The RTC, however, also held UCPB liable for attorneys fees in this case, as the spouses
Beluso were forced to litigate the issue on the illegality of the interest rate provision of
the promissory notes. The award of attorneys fees, it must be recalled, falls under the
sound discretion of the court. [33] Since both parties were forced to litigate to protect
their respective rights, and both are entitled to the award of attorneys fees from the
other, practical reasons dictate that we set off or compensate both parties liabilities for
attorneys fees. Therefore, instead of awarding attorneys fees in favor of petitioner, we
shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso.

Liability for Violation of Truth in Lending Act

In sum, we hold that spouses Beluso should still be held liable for a compounded legal
interest of 12% per annum and a penalty charge of 12% per annum. We also hold that,
instead of awarding attorneys fees in favor of petitioner, we shall merely affirm the
deletion of the award of attorneys fees to the spouses Beluso.

Section 6. (a) Any creditor who in connection with any credit transaction fails
to disclose to any person any information in violation of this Act or any
regulation issued thereunder shall be liable to such person in the amount
of P100 or in an amount equal to twice the finance charge required by such
creditor in connection with such transaction, whichever is greater, except that
such liability shall not exceed P2,000 on any credit transaction. Action to
recover such penalty may be brought by such person within one year
from the date of the occurrence of the violation, in any court of
competent jurisdiction. x x x (Emphasis ours.)

Annulment of the Foreclosure Sale

Properties of spouses Beluso had been foreclosed, titles to which had already been
consolidated on 19 February 2001 and 20 March 2001 in the name of UCPB, as the
spouses Beluso failed to exercise their right of redemption which expired on 25 March
2000. The RTC, however, annulled the foreclosure of mortgage based on an alleged
incorrect computation of the spouses Belusos indebtedness.
UCPB alleges that none of the grounds for the annulment of a foreclosure sale are
present in the case at bar. Furthermore, the annulment of the foreclosure proceedings
and the certificates of sale were mooted by the subsequent issuance of new certificates
of title in the name of said bank. UCPB claims that the spouses Belusos action for

The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPBs
alleged violation of Republic Act No. 3765, otherwise known as the Truth in Lending Act.
UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in
Lending Act which mandates the filing of an action to recover such penalty must be
made under the following circumstances:

According to UCPB, the Court of Appeals even stated that [a]dmittedly the original
complaint did not explicitly allege a violation of the Truth in Lending Act and no action
to formally admit the amended petition [which expressly alleges violation of the Truth
in Lending Act] was made either by [respondents] spouses Beluso and the lower
court. x x x.[35]

UCPB further claims that the action to recover the penalty for the violation of the Truth
in Lending Act had been barred by the one-year prescriptive period provided for in the
Act. UCPB asserts that per the records of the case, the latest of the subject promissory
notes had been executed on 2 January 1998, but the original petition of the spouses
Beluso was filed before the RTC on9 February 1999, which was after the expiration of
the period to file the same on 2 January 1999.
On the matter of allegation of the violation of the Truth in Lending Act, the Court of
Appeals ruled:
Admittedly the original complaint did not explicitly allege a violation of the
Truth in Lending Act and no action to formally admit the amended petition was
made either by [respondents] spouses Beluso and the lower court. In such
transactions, the debtor and the lending institutions do not deal on an equal
footing and this law was intended to protect the public from hidden or
undisclosed charges on their loan obligations, requiring a full disclosure
thereof by the lender. We find that its infringement may be inferred or implied
from allegations that when [respondents] spouses Beluso executed the
promissory notes, the interest rate chargeable thereon were left blank. Thus,
[petitioner] UCPB failed to discharge its duty to disclose in full to [respondents]
Spouses Beluso the charges applicable on their loans. [36]
We agree with the Court of Appeals. The allegations in the complaint, much more than
the title thereof, are controlling. Other than that stated by the Court of Appeals, we find
that the allegation of violation of the Truth in Lending Act can also be inferred from the
same allegation in the complaint we discussed earlier:
b.) In unilaterally imposing an increased interest rates (sic) respondent bank
has relied on the provision of their promissory note granting respondent bank
the power to unilaterally fix the interest rates, which rate was not determined
in the promissory note but was left solely to the will of the Branch Head of the
respondent Bank, x x x.[37]
The allegation that the promissory notes grant UCPB the power to unilaterally fix the
interest rates certainly also means that the promissory notes do not contain a clear
statement in writing of (6) the finance charge expressed in terms of pesos and
centavos; and (7) the percentage that the finance charge bears to the amount to be
financed expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.[38] Furthermore, the spouses Belusos prayer for such other reliefs just and
equitable in the premises should be deemed to include the civil penalty provided for in
Section 6(a) of the Truth in Lending Act.
UCPBs contention that this action to recover the penalty for the violation of the Truth in
Lending Act has already prescribed is likewise without merit. The penalty for the
violation of the act is P100 or an amount equal to twice the finance charge required by
such creditor in connection with such transaction, whichever is greater, except that
such liability shall not exceed P2,000.00 on any credit transaction. [39] As this penalty
depends on the finance charge required of the borrower, the borrowers cause of action
would only accrue when such finance charge is required. In the case at bar, the date of
the demand for payment of the finance charge is 2 September 1998, while the
foreclosure was made on 28 December 1998. The filing of the case on 9 February
1999 is therefore within the one-year prescriptive period.

UCPB argues that a violation of the Truth in Lending Act, being a criminal offense,
cannot be inferred nor implied from the allegations made in the complaint. [40] Pertinent
provisions of the Act read:
Sec. 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any regulation
issued thereunder shall be liable to such person in the amount of P100 or in an
amount equal to twice the finance charge required by such creditor in
connection with such transaction, whichever is the greater, except that such
liability shall not exceedP2,000 on any credit transaction. Action to recover
such penalty may be brought by such person within one year from the date of
the occurrence of the violation, in any court of competent jurisdiction. In any
action under this subsection in which any person is entitled to a recovery, the
creditor shall be liable for reasonable attorneys fees and court costs as
determined by the court.
xxxx
(c)
Any person who willfully violates any provision of this Act or any
regulation issued thereunder shall be fined by not less than P1,000 or more
than P5,000 or imprisonment for not less than 6 months, nor more than one
year or both.
As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of
the said Act gives rise to both criminal and civil liabilities. Section 6(c) considers a
criminal offense the willful violation of the Act, imposing the penalty therefor of fine,
imprisonment or both. Section 6(a), on the other hand, clearly provides for a civil cause
of action for failure to disclose any information of the required information to any
person in violation of the Act. The penalty therefor is an amount of P100 or in an
amount equal to twice the finance charge required by the creditor in connection with
such transaction, whichever is greater, except that the liability shall not
exceed P2,000.00 on any credit transaction. The action to recover such penalty may be
instituted by the aggrieved private person separately and independently from the
criminal case for the same offense.
In the case at bar, therefore, the civil action to recover the penalty under Section 6(a)
of the Truth in Lending Act had been jointly instituted with (1) the action to declare the
interests in the promissory notes void, and (2) the action to declare the foreclosure
void. This joinder is allowed under Rule 2, Section 5 of the Rules of Court, which
provides:
SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an
opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder
of parties;
(b) The joinder shall not include special civil actions or actions governed by
special rules;
(c) Where the causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in the Regional
Trial Court provided one of the causes of action falls within the jurisdiction of
said court and the venue lies therein; and

(d) Where the claims in all the causes of action are principally for recovery of
money, the aggregate amount claimed shall be the test of jurisdiction.
In attacking the RTCs disposition on the violation of the Truth in Lending Act since the
same was not alleged in the complaint, UCPB is actually asserting a violation of due
process. Indeed, due process mandates that a defendant should be sufficiently
apprised of the matters he or she would be defending himself or herself
against. However, in the 1 July 1999 pre-trial brief filed by the spouses Beluso before
the RTC, the claim for civil sanctions for violation of the Truth in Lending Act was
expressly alleged, thus:
Moreover, since from the start, respondent bank violated the Truth in Lending
Act in not informing the borrower in writing before the execution of the
Promissory Notes of the interest rate expressed as a percentage of the total
loan, the respondent bank instead is liable to pay petitioners double the
amount the bank is charging petitioners by way of sanction for its violation. [41]
In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:
b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth
in Lending Act provision to express the interest rate as a simple annual
percentage of the loan?[42]
These assertions are so clear and unequivocal that any attempt of UCPB to feign
ignorance of the assertion of this issue in this case as to prevent it from putting up a
defense thereto is plainly hogwash.
Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to
try and adjudicate the alleged violation of the Truth in Lending Act, considering that the
present action allegedly involved a single credit transaction as there was only one
Promissory Note Line.
We disagree. We have already ruled that the action to recover the penalty under
Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to
declare the interests in the promissory notes void, and (2) the action to declare the
foreclosure void. There had been no question that the above actions belong to the
jurisdiction of the RTC. Subsection (c) of the above-quoted Section 5 of the Rules of
Court on Joinder of Causes of Action provides:
(c) Where the causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in the Regional
Trial Court provided one of the causes of action falls within the jurisdiction of
said court and the venue lies therein.
Furthermore, opening a credit line does not create a credit transaction of loan
or mutuum, since the former is merely a preparatory contract to the contract of loan
or mutuum. Under such credit line, the bank is merely obliged, for the considerations
specified therefor, to lend to the other party amounts not exceeding the limit
provided. The credit transaction thus occurred not when the credit line was opened, but
rather when the credit line was availed of. In the case at bar, the violation of the Truth
in Lending Act allegedly occurred not when the parties executed the Credit Agreement,
where no interest rate was mentioned, but when the parties executed the promissory
notes, where the allegedly offending interest rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given copies of the
subject promissory notes after their execution, then they were duly notified of the
terms thereof, in substantial compliance with the Truth in Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the
disclosure statement must be furnished prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is
extended, prior to the consummation of the transaction, a clear
statement in writing setting forth, to the extent applicable and in accordance
with rules and regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be
acquired;
(2)

the amounts, if any, to be credited as down payment and/or trade-in;

(3)

the difference between the amounts set forth under clauses (1) and (2)

(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension of credit;
(5)

the total amount to be financed;

(6)

the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
The rationale of this provision is to protect users of credit from a lack of awareness of
the true cost thereof, proceeding from the experience that banks are able to conceal
such true cost by hidden charges, uncertainty of interest rates, deduction of interests
from the loaned amount, and the like. The law thereby seeks to protect debtors by
permitting them to fully appreciate the true cost of their loan, to enable them to give
full consent to the contract, and to properly evaluate their options in arriving at
business decisions.Upholding UCPBs claim of substantial compliance would defeat
these purposes of the Truth in Lending Act. The belated discovery of the true cost of
credit will too often not be able to reverse the ill effects of an already consummated
business decision.
In addition, the promissory notes, the copies of which were presented to the spouses
Beluso after execution, are not sufficient notification from UCPB. As earlier discussed,
the interest rate provision therein does not sufficiently indicate with particularity the
interest rate to be applied to the loan covered by said promissory notes.
Forum Shopping
UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in
RTC, Makati City) on the ground that the spouses Beluso instituted another case (Civil
Case No. V-7227) before the RTC of Roxas City, involving the same parties and issues.
UCPB claims that while Civil Case No. V-7227 initially appears to be a different action,
as it prayed for the issuance of a temporary restraining order and/or injunction to stop

foreclosure of spouses Belusos properties, it poses issues which are similar to those of
the present case.[43] To prove its point, UCPB cited the spouses Belusos Amended
Petition in Civil Case No. V-7227, which contains similar allegations as those in the
present case. The RTC of Makati denied UCPBs Motion to Dismiss Case No. 99-314 for
lack of merit. Petitioner UCPB raised the same issue with the Court of Appeals, and is
raising the same issue with us now.
The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of
Roxas City, a Petition for Injunction Against Foreclosure, is the propriety of the
foreclosure before the true account of spouses Beluso is determined. On the other
hand, the issue in Case No. 99-314 before the RTC of Makati City is the validity of the
interest rate provision. The spouses Beluso claim that Civil Case No. V-7227 has
become moot because, before the RTC of Roxas City could act on the restraining order,
UCPB proceeded with the foreclosure and auction sale. As the act sought to be
restrained by Civil Case No. V-7227 has already been accomplished, the spouses
Beluso had to file a different action, that of Annulment of the Foreclosure Sale, Case
No. 99-314 with the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one cause of action is
involved in the two civil actions, namely, the violation of the right of the spouses
Beluso not to have their property foreclosed for an amount they do not owe, the Rules
of Court nevertheless allows the filing of the second action. Civil Case No. V-7227 was
dismissed by the RTC of Roxas City before the filing of Case No. 99-314 with the RTC of
Makati City, since the venue of litigation as provided for in the Credit Agreement is
in Makati City.
Rule 16, Section 5 bars the refiling of an action previously dismissed only in the
following instances:
SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a
motion to dismiss based on paragraphs (f), (h) and (i) of section 1 hereof shall
bar the refiling of the same action or claim. (n)
Improper venue as a ground for the dismissal of an action is found in paragraph (c) of
Section 1, not in paragraphs (f), (h) and (i):
SECTION 1. Grounds.Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on
any of the following grounds:
(a) That the court has no jurisdiction over the person of the defending party;
(b) That the court has no jurisdiction over the subject matter of the claim;
(c) That venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the same parties for the
same cause;
(f) That the cause of action is barred by a prior judgment or by the
statute of limitations;

(g) That the pleading asserting the claim states no cause of action;
(h) That the claim or demand set forth in the plaintiffs pleading has
been paid, waived, abandoned, or otherwise extinguished;
(i) That the claim on which the action is founded is unenforceable
under the provisions of the statute of frauds; and
(j) That a condition precedent for filing the claim has not been complied with.
[44]
(Emphases supplied.)
When an action is dismissed on the motion of the other party, it is only when the
ground for the dismissal of an action is found in paragraphs (f), (h) and (i) that the
action cannot be refiled. As regards all the other grounds, the complainant is allowed to
file same action, but should take care that, this time, it is filed with the proper court or
after the accomplishment of the erstwhile absent condition precedent, as the case may
be.
UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed
by the spouses Beluso on 15 January 1999 with the RTC of Roxas City, which Motion
had not yet been ruled upon when the spouses Beluso filed Civil Case No. 99-314 with
the RTC of Makati. Hence, there were allegedly two pending actions between the same
parties on the same issue at the time of the filing of Civil Case No. 99-314 on 9
February 1999 with the RTC of Makati. This will still not change our findings. It is indeed
the general rule that in cases where there are two pending actions between the same
parties on the same issue, it should be the later case that should be
dismissed. However, this rule is not absolute. According to this Court in Allied Banking
Corporation v. Court of Appeals[45]:
In these cases, it is evident that the first action was filed in anticipation of the
filing of the later action and the purpose is to preempt the later suit or provide
a basis for seeking the dismissal of the second action.
Even if this is not the purpose for the filing of the first action, it may
nevertheless be dismissed if the later action is the more appropriate
vehicle for the ventilation of the issues between the parties. Thus,
in Ramos v. Peralta, it was held:
[T]he rule on litis pendentia does not require that the later case
should yield to the earlier case. What is required merely is that there
be another pending action, not a prior pending action. Considering
the broader scope of inquiry involved in Civil Case No. 4102 and the
location of the property involved, no error was committed by the
lower court in deferring to the Bataan court's jurisdiction.
Given, therefore, the pendency of two actions, the following are the relevant
considerations in determining which action should be dismissed: (1) the date
of filing, with preference generally given to the first action filed to be retained;
(2) whether the action sought to be dismissed was filed merely to preempt the
later action or to anticipate its filing and lay the basis for its dismissal; and (3)
whether the action is the appropriate vehicle for litigating the issues between
the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for
injunction against a foreclosure sale that has already been held, while Civil Case No.
99-314 before the RTC of Makati City includes an action for the annulment of said
foreclosure, an action certainly more proper in view of the execution of the foreclosure
sale. The former case was improperly filed in Roxas City, while the latter was filed
in Makati City, the proper venue of the action as mandated by the Credit Agreement. It
is evident, therefore, that Civil Case No. 99-314 is the more appropriate vehicle for
litigating the issues between the parties, as compared to Civil Case No. V-7227. Thus,
we rule that the RTC of Makati City was not in error in not dismissing Civil Case No. 99314.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the
following MODIFICATIONS:
1.
In addition to the sum of P2,350,000.00 as determined by the courts a
quo, respondent spouses Samuel and Odette Beluso are also liable for the following
amounts:
a. Penalty of 12% per annum on the amount due [46] from the date of demand; and
b. Compounded legal interest of 12% per annum on the amount due [47] from date of
demand;
2.
The following amounts shall be deducted from the liability of the spouses
Samuel and Odette Beluso:
a.
Payments made by the spouses in the amount of P763,692.00. These payments
shall be applied to the date of actual payment of the following in the order that
they are listed, to wit:
i.
penalty charges due and demandable as of the time of payment;
ii.
interest due and demandable as of the time of payment;
iii.
principal amortization/payment in arrears as of the time of payment;
iv.
outstanding balance.
b.
Penalty under Republic Act No. 3765 in the amount of P26,000.00. This amount
shall be deducted from the liability of the spouses Samuel and Odette Beluso on 9
February 1999 to the following in the order that they are listed, to wit:
i.
penalty charges due and demandable as of time of payment;
ii.
interest due and demandable as of the time of payment;
iii.
principal amortization/payment in arrears as of the time of payment;
iv.
outstanding balance.
3.
The foreclosure of mortgage is hereby declared VALID. Consequently, the
amounts which the Regional Trial Court and the Court of Appeals ordered respondents
to pay, as modified in this Decision, shall be deducted from the proceeds of the
foreclosure sale.
SO ORDERED.