credit cases1

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On May 9, 1977, the He irs of Octaviano filed a motion for reconsideration praying the Court of Appeals to orderthe 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 reco nsideration praying that both Lots 2 and 3 be orderedregistered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977, the Court of Appealsdenied the motion for reconsideration filed by the Heirs of Juan Valdez on the ground that there was "nosufficient merit to justify reconsideration one way o r the other ...," and likewise denied that of the Heirs ofEgmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of theCourt of Appeals dismissing his (its) application for registration of Lots 2 and 3, docketed as G.R. N o. L- 46832,entitled 'Catholic Vicar Apostolic o f the Mountain Province vs. C ourt of Appeals and He irs of EgmidioOctaviano.'

From the denial by the Court of Appeals of the ir motion for reconsideration the Heirs of Juan Valdez and PacitaValdez, on September 8, 1977, filed with the Supreme Court a petition for review, docketed as G.R. No. L-46872entitled,Heirs of Jua n 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 onehand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of bothSupreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with thethen Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs ofOctaviano be placed in possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on December7, 1978, denied the motion on the ground that the Court of Appeals decision in CA- G.R. No. 38870 d id not grantthe 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, entitledHeirs of Egmidio Octaviano vs. Ho n. 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 o n the alle ged ownership of the land in quest ion (Lot 3) by their predecessor-in- interest, Egmid io 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 theland 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 testif ied that the land in quest ion is not cove red by any t itle in the n ame of Egmidio Octaviano or any of theplaintiffs (Exh. 8). The defendant dispensed with the testimony of Mons.William Brasseur when the plaintiffs ad mitted that the

witness if called to the witness stand, would test ify that defend ant Vicar has been in possession of Lot 3, for seventy-five (75) yearscontinuously and peacefully and h as constructed permanent structures thereon.

In Civil Case No. 3655, the p arties admitting that the material facts are not in d ispute, submitted the case on the sole issue ofwhether or not the decisions of the Co urt of Appeals and the Supreme Court touching on the owne rship of Lot 2, which in ef fectdeclared the p laintiffs 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 andcontinuous possession of the two lots in question since this is barred by p rior judgment of the Court of Appeals in CA- G.R. No.038830-R under the principle ofres judicata. Plaintiffs contend that the question of possession and ownership have already beendetermined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1, MinuteResolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res judicata would not prevent themfrom litigating the issues of long possession and ownership because the dispositive portion of the prior judgment in CA -G.R. No.038830-R merely dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that only thedispositive portion of the dec ision, 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 ANDRES JUDI CATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUTDOCUMENTARY EVIDENCE PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIEDADMISSION 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 LEASTFROM 1906, AND NOT PETITIONER;


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5. ERROR IN FINDING T HAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATERESPONDENTS 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 U NDER ARTICLE1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY AC QUISITIVE 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 SUP REME COURT;

8. ERROR IN FINDING THAT THE DECISION IN C A G.R. NO. 038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATERESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITHFROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HA D BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) INCOMMODATUM, A GRATUITOUS LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AN D BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION ANDREIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. N O. 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 thefindings of the trial court that the Decision of the Court of Appeals dated May 4,1977 in CA- G.R. No. 38830-R, on the question of ownership of Lots 2 a nd3, 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 o wners of the land, but it held that the predecessors of private respondents were possesso rs of Lots 2 and 3, with claimof 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 inconcept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but always with just title. E xtraordinaryacquisitive 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. 3 8830-R, affirmed by this Court, We see noerror in respondent appellate court's ruling that said findings are res judicata between the parties. They can no longer be altered by presentation ofevidence because those issues were resolved with finality a long time ago. To ignore the principle ofres judicata would be to open the d oor to endlesslitigations 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, sho ws that it reversed the trial court'sDecision 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. Neitherdid it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of th e absence of just t itle. The appellate court did not

believe the f indings of the trial court that Lot 2 was acqu ired from Juan Valdez by purchase and Lot 3 was acquired also by p urchase from EgmidioOctaviano by pet itioner Vicar because there was absolutely no do cumentary evidence to support the same and the alleged purchases were n evermentioned 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 forthose lots since 1906. The p redecessors of private respondents, not petitioner Vicar, were in possession of the questioned lo ts 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 thereonwere only constructed after liberat ion in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. Th e improve ments 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 pet itioner Vicar was notified of the oppositor's claims, t he parish p riest offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyedby request of pet itioner Vicar on ly in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and t he 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. Thebailees' failure to return the subject matter ofcommodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held intrust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. Theaction 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 o f ownership in good faith from 1906that petitioner Vicar was on ly a bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reaso n to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830- R. Its findings of fact ha ve become incontestible. ThisCourt 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 c ommit any reversible error, much less grave abuse of d iscretion, when it held that the Decision of the Court ofAppeals in CA-G.R. No. 38830-R is governing, unde r the principle of res judicata, hence the rule , in the present cases C A- G.R. No. 05 148 and CA-G.R.No. 05149. The facts as supported by evidence established in that decision may no longer be altered.


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WHEREFORE AND BY REASON OF T HE FOREGOING, th is petition is DENIED for lack of merit, th e 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 Mediald ea, JJ., con cur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,vs.JOSE V. BAGTAS, defendant,FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.Office of the Solicitor General for plaintiff-appellee.

PADILLA,J.:

The Court of Appeals certified this case to this Court because only questions of law are raised.

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red S indhi with abook value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwa l, of P744. 46, for a per iod of one year from 8 May 1948 to 7 May 1949 for breedingpurposes subject to a go vernment charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1 949 of the contract, the

borrower asked for a rene wal for anothe r period of one year. Ho wever, the Secretary of Agriculture and Natur al Resources approved a re newal thereo f ofonly one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to theDirector of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he re iterated his desire to buy them at a value with adeduction of yearly depreciation to be approved by the Aud itor General. On 19 October 1950 the Director of Animal Industry ad vised him that the book

value of the three bulls could not be reduced and that t hey either be returned or their book v alue paid not later than 31 Oct ober 1950. Jose V. Bagtasfailed to pay the book value of the three bulls or to return them. So, on 20 December 1 950 in the Court of First Instance of Manila the Republic of thePhilippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay thei r book value in the totalsum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in(civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and orde r situation in CagayanValley, particularly in the barrio o f Baggao, and of the pending appe al he had taken to the Secretary of Agriculture and Natu ral Resources and thePresident of the Philippines from the refusal by the Director of Animal Industry to de duct from the book value of the bulls corresponding yearlydepreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their

value and prayed for the d ismissal of the comp laint.

After hearing, o n 30 July 1956 the trial court render judgment

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding fees in the amount ofP626.17 with interest on both sums of (at) the legal r ate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of e xecution which the court granted on 18 October and issued on 11 November 1958. On 2December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outsideManila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defe ndant Jose Bagtas who diedon 23 October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she f ile a motion alleging that on 26 June 1952 the two bull

Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that so metime in November 1958 the third bull, the Sahiniwal, died fromgunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and p raying that the writ of execution be quashed and that a writ of preliminaryinjunction be issued. On 3 1 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the sa me day, 6 Fe bruary,the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,Superintendent of the NVB Station, Bureau of A nimal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writof execution in the sum of P859.53 be issued against the estate of defendant deceased Jo se V. Bagtas." She cannot be held liable for the two bulls whichalready had been returned to and received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the sur rounding barrios ofHacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was du e to force majeure she is relieved from the duty ofreturning the bull or paying its value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of thethree bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was


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subject to the payment by the borrower of breeding fee of 10% o f the book value of the bulls. The appellant contends that the contractwas commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contracofcommodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a le ase of the bull. Under article1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, beca use she had continued possession of the bull afterthe expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the C ivil Code provides that a

bailee in a contract ofcommodatum

. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a st ipulation exempting the bailee from responsibility incase of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent anddelivered to the deceased husband o f the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari atP1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant

would be exe mpt from liability.

The appellant's contention that the demand or prayer by the appellee for the return of th e bull or the p ayment of its value being a money claim should bepresented or filed in the intestate proceedings of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that hiscivil personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules ofCourt provides that

After a party dies and the c laim is not thereby extinguished, t he court shall order, up on proper not ice, the legal represent ative of the de ceased

to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that

Whenever a party to a pend ing case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give thename and residence of the executory administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of administration of the estate ofthe late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jo se V. Bagtas, arising from contract express or implied,

whether the same be due, not due, or contingent, for funeral expenses and expenses of the last s ickness of the said decede nt, and judgment for monopolyagainst him, to file said claims with the Clerk o f this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of thefirst publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the saiddeceased," is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance with the above-quoted rule, andthere was no reason for such failure to notify, because the attorney who appeared for the defendant was the same who represented the administratrix inthe special proceedings instituted for the administration and settlement of h is estate. The appellee or its attorney or representative could not be expected

to know of the death of the de fendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceaseddefendant did not notify the plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls t o the appellee, the estate of the late defendant is only liable for the sum of P859.63, the value of thebull which has not been returned to the appellee, because it was killed wh ile in the custody of the administratr ix of his est ate. This is the amount p rayedfor by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing o f the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. B agtas having been instituted in the Court of FirstInstance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must bepresented to the probate court for payment by the appellant, the administratrix appointed by the court.

ACCORDINGLY, the wr it of execution appealed from is set aside , without pronounce ment as to costs .

Bengzon, C.J ., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.Barrera, J., concurs in the result.


Manila

EN BANC

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


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SAURA IMPORT and EXPORT CO., INC ., plaintiff-appellee,vs.DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

Mabanag, Eliger and A ssociates and Saura, Mag no and Associates for plaintiff -appellee.

Jesus A. Avancea and Hila rio G. Orsolino for defendant -appellant.

MAKALINTAL, J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank ofthe Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. i n the amount of P383,343.68, plusinterest at the legal rate fro m the date the complaint was filed and attorney's fees in the amount o f P5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP,for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks);P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a le tter of credit extended bythe Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc.executed a trust receipt in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory

building to be constructed, the la nd site there of, and the machinery a nd equip ment to be instal led. Among the othe r terms spe lled out in the resolut ionwere the following:

1. That the proceeds of the loan shall be utilized exclusively for the following purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall s ign the promissorynotes jointly with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of thefactory buildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of itsapproval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd.(which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co- maker on the corresponding promissorynotes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such su bscription; and that Maria S. Roca would be substituted forInocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 73 6 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons

stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability o f financing this particularproject based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co -signer for the loan, and asked that the necessarydocuments be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the projectto be financed with the loan applied for, as stated in Resolution No. 73 6, the parties named their respective committees of engineers and technical men tomeet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same"should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to itsacceptance of the terms and conditions mentioned in Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.


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It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In ameeting of the RFC Board of Governors on June 10, 1954, at which Ra mon Saura, President of Saura, Inc., was present, it was d ecided to reduce the loanfrom P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000. 00 toP300,000.00. Pursuant to Bd. Res. No. 7 36, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & ExportCo. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special referen ce as to the a dvisability offinancing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and afterextensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co.

be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary fro m time to time to place thefactory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, s hall remain in full force andeffect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the pro missory note for China Engineers Ltd. jointly a nd severally with theother RFC that his company no longer to of the loan a nd therefore considered the sa me as cancelled as far as it was concerned. A follow-up letter datedJuly 2 requested RFC that the registration of the mortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was den ied by RFC, which added in itsletter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the Ch ina Engineers Ltd.,expressing their desire to consider the loan insofar as they are concerned."

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

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

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

1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the ce rtification by theDepartment of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to d evelop the manufacture ofsacks on the basis of locally available raw materials." This point is important, and sheds light on the su bsequent actuations of the parties. Sau ra, Inc. doesnot deny that the factory he was building in Davao was for the manufacture of bags from local r aw materials. The cover page of its brochure (Exh. M)describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance,manage and operate aKenafmill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials,principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100%

locally grown raw materials notablykenafwhich is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the f irst place, and to require, in its Resolution No. 9083, acertification from the Department of Agriculture and Natural Resources as to the availability o f local raw materials to provi de adequately for therequirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to aspecial study made by the Bureau of Forestry "kenafwill not be ava ilable in sufficient quantity this year or probably even next year;" (2) requesting"assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the

jute mill;" and (3) asking that releases of the lo an be made as follows:

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

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip -ment per attached list to enable the jutemill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-ing of the letter of credit for raw jutefor $25,000.00.

2) P25,000.00 to be released upon arrivalof raw jute.


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3) P17,586.09 to be released as soon as themill is ready to operate.

On January 25, 1955 RFC se nt to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21, 1955, regarding the release of your loan under considerationof P500,000. As stated in our letter of Dece mber 22, 1954, the releases of the loan, if revived, are proposed to bemade from time to time, subject to availability of funds towards the end that the sack factory shall be placed inactual operating status. We shall be able to act on y our request for revised purpose and manner of releases upon

re-appraisal of the securities offered for the loan.

With respect to our requirement that the Department of Agriculture and Natu ral Resources certify tha t the rawmaterials needed are available in the immediate vicinity and that there is prospect of increased productionthereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the originalapproval is to develop the manufacture of sacks on the basis of the locally available raw materials. Yourstatement that you will have to rely on the importation of jute and your request that we give you assurance that

your company will be able to bring in sufficie nt jute mater ials as may be necessary for the operat ion of yourfactory, would not be in line with our principle in approving the loan.

With the foregoing letter the negotiations ca me to a standst ill. Saura, Inc. did not pursue the matter further. Instead, it re quested RFC to cancel themortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president ofSaura, Inc.

It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same

property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the sa me year within which to pay itsobligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. suedSaura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suitfor damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its ob ligation to release the proceeds of the loan applied forand approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in conn ection with its jute millproject.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty ofbreach thereof. The defendant pleaded belo w, and reiterates in this appeal: (1) that the plaintiff's ca use of action had prescribed, or that its claim hadbeen waived or abandoned; (2) that there was n o perfected contract; and (3) that assuming there was, the plaint iff itself did not comp ly with the termsthereof.

We hold that there was indeed a perfected consensual cont ract, as recognized in Art icle 1934 of the Civil Code, which provides:

ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is bindi ng upon the pa rties, but thecommodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approve d by resolution of thedefendant, and the corresponding mortgage was executed a nd registered. But this fact alone falls short of resolving the basic claim that the defendantfailed to fulfill its obligation and the p laintiff is therefore entitled to recover da mages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locallygrown raw materials, principallykenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No.9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to w it: "(1) that the rawmaterials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; a nd (2) that there is prospect ofincreased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions w as by n o means a deviationfrom the terms of the agreement, but rather a step in its imple mentation. There was nothing in said conditions that contradicted the terms laid down inRFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilizedexclusively for the following purposes: for

construction of factory building

P250,000.00; for payment of the balance of purchase price of machinery and equipment

P240,900.00; for workingcapital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955,stating that local jute "will not be able in sufficient quantity this year or probably next year," and ask ing that out of the loan agreed upon the sum ofP67,586.09 be released "for raw materials and labor." This was a deviation from the ter ms laid down in Resolution No. 145 and e mbodied in themortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

When RFC turned do wn the request in its letter of January 25, 1955 the ne gotiations which had been going on for the implementatio n of the agree mentreached an impasse. Saura, Inc. obviously was in no position to co mply with RFC's conditions. So instead of doing so a nd insisting that the loan bereleased as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both partie s was inthe nature cf mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It is a concept that derivesfrom the principle that since mutual agreement can create a contract, mutual disagreement by the p arties can cause its extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out thatthe latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever r ights it believed it might haveagainst RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was


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disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action fordamages.All these c ircumstances de monstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on theinitiative of the plaintiff-appellee itself.

With this v iew we take o f the case, we find it unnecessary to consider and resolve the other issues r aised in the respective briefs of the part ies.

WHEREFORE, the jud gment appealed from is reversed and the co mplaint dis missed, with costs against the plaint iff- appellee.

Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernan do, Teehankee, Barredo and Anto nio, JJ., concur.

Makasiar, J., took no part.


Manila

FIRST DIVISION

G.R. No. L-48349 December 29, 1986

FRANCISCO HERRERA, plaintiff-appellant,vs.

PETROPHIL CORPORATION, defendant-appellee.

Paterno R. Canlas Law Offices for plaintif f-appellant.

CRUZ, J.:

This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of F irst Instance of Rizal on a pure question of law. 1

The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on the factual a ntecedents.

The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation)entered into a "Lease Agreement" whereby the former leased to the latter a portion of his property for a period of twenty (20) years from said date,

subject inter alia to the f ollowing conditions:

3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 s qm. per month on 400 sqm. and are to be expropriated later on (sic) or P560per month and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month 2,093 sqm. more or less,payable yearly in advance within the 1st twenty days of each year; provided, a financial aid in the sum of P15,000 to clear the lea sed premisesof existing improvements thereon is paid in this manner; P10,000 upon execution of this lease and P5,000 upon delivery of leased premisesfree and clear of improvements thereon within 30 d ays from the date of execution of this agreement. The portion on the s ide o f the leasedpremises with an area of 365 sqrm. more or less, will be occupied by LESSEE without rental during the lifetime of this lease. PROVIDEDFINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month discounted at 12% interest per annum or a total netamount of P130,288.47 before registration of lease. Leased premises shall be delivered within 30 days after 1st partial payment of financialaid. 2

On December 31, 1969, pursuant to the said contract, the defendant -appellee paid to the p laintfff-appellant advance rentals for the first eight years,subtracting therefrom the a mount of P101,010.73, the amount it computed as constituting the interest or discount for the first eight years, in the totalsum P180,288.47. On August 20, 1970, the defendant-appellee, explaining that there had been a mistake in computation, paid to the appellant theadditional sum of P2,182.70, thereby reducing the deducted amount to only P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest, claiming this had been illegallydeducted from him in violation of the Usury Law. 4 He also prayed for moral damages and attorney's fees. In its answer, the defendant-appellee admittedthe factual allegations of the complaint but argued that the amount deducted was not usurious interest but a g iven to it for p aying the rentals in advancefor eight years. 5 Judgment on the pleadings was rendered for the defendant. 6

Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the interest collected out of therentals paid for the first eight years; that such interest was excessive and violative of the Usury La w; and that he had neithe r agreed to nor accepted thedefendant-appellant's computation of the total amount to be deducted for the e ight years advance rentals. 7

The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, which read:


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6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable by law, because thetotal interest on the sa id amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interest shou ld be computedexcluding the first year rental because at the time the amount of P281, 199.20 was paid it was alread y due under the lease contract hence nointerest should be co llected from the rental for the first year, the amount of P29,536.42 only as the tot al interest should h ave been deducted bydefendant from the sum of P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and that the sa me is not excessive and above that allowed by law.

As its title plainly indicates, the contract bet ween the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT. " Nowherein the contract is there any showing that the p arties intended a loan rather than a lease. The provision for the payment of r entals in advance cannot beconstrued as a rep ayment of a loan because there was no grant or forbearance of money as to constitute an indebtedness on the p art of the lessor. On the

contrary, the defendant-appellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment tha t itwas getting a rebate or discount.

The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may establish such stipulations, clauses, termsand condition as they may want to include; and as long as such agreements are not contrary to law, mo rals, good customs, public policy or public order,they shall have the force of law between them. 8

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its moneyalready in his possession. 9 There was neither loan nor forbearance but a mere discount which the p laintiff-appellant allowed the defendant-appellee todeduct from the total payments because they were being made in advance for e ight years. The discount was in ef fect a reduction of the rentals which thelessor had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject torepayment and is therefore governed by the laws on usury. 10

To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be repayable absolutelyand in all events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law." 11

It has been held that the ele ments of usury are (1) a loan, express or implied; (2) an understanding between the parties th at the money lent shall or maybe returned; that for such loan a greate r rate or interest th at is allowed by law shall be pa id, or agreed t o be paid, as the case may be; and (4) a corruptintent to take more than the legal rate for the use o f money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case ofusury can be declared. 12

Concerning the computation of the deductible discount, the trial court declared:

As above-quoted, the ' Lease Agreement' expressly provide s that the lessee (defenda nt) shag pay the lessor (plaintiff) eight (8) years in advancerentals based on P2,930.20 per month discounted at 12% interest per annum. Thus, the total rental for one -year period is P35,162.40(P2,930.20 multiplied by 12 months) and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the totalinterest for the first eight (8) years should be only P33,755.90 (P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendantclaimed it to be.

The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading. He just co mputed the an nuadiscount to be at P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into consideration the naked fact that therentals due o n the eight year were paid in ad vance by seven (7) years, the rentals due on the seventh ye ar were paid in advance by six (6) years,those due on the sixth year by five (5) years, those due on the fifth year by four (4) years, those due on the fourth year by three (3) years, thosedue on the third year by two (2) years, and those due on the second year by one (1) year, so much so that the total number of years by which theannual rental of P4,129.4880 was paid in advance is twenty-eight (28), resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28

years) as the discount. However, defe ndant was most fair to plaintiff. It d id not simply multiply the annual rental discount by 28 years. Itcomputed the total discount with the principal diminishing month to month as shown by Annex 'A' of its memorandum. This is why the tota ldiscount amount to only P 8,828.03.

The allegation of plaintiff that defendant made the co mputation in a compounded manner is erroneous. Also after making its owncomputations and after examining closely defendant's Annex 'A' of its memorandum, the court finds that defendant did not char ge 12%discount on the rentals due for the first year so much so that the computation conforms with the provision of the Lease Agreement to the effectthat the rentals shall be 'payable yearly in advance within the 1st 20 days of each year. '

We do not agree. The above computat ion appears to be too much technical mumbo -jumbo and could n ot have been the intention of the parties to thetransaction. Had it been so, then it should have been clearly stipulated in the contract. Contracts should be in terpreted according to their literal meaningand should not be interpreted beyond their obvious intendment. 13

The plaintfff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and this a mount would be the samefor each of the eight years. There is no sho wing that the intricate computation applied by the trial court was explained to him by the defendant-appelleeor that he kno wingly accepted it.

The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a 12% reduction for advancerentals for a ll oftwenty eightyears. That is absurd. It is not normal for a person to agree to a reduction corresponding to twenty eight years advancerentals when all he is receiving in advance rentals is for only eight years.

The deduction shall be for only eight years because that was plainly what the p arties intended at the time they signed the lease agreement. "Simplistic" itmay be, as the Solicitor General describes it, but that is how the lessor understood the arrangement. In fact, the Court will reject his subsequent


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modification that the interest should be limited to only seven years because the first year rental was not being paid in ad vance. The agreement was forauniform deduction for the advance rentals for each of the eightyears, and neither of the parties can deviate from it now.

On the annual rental of P35,168.40, the deducted 12% d iscount was P4,220.21; and for eight years, the total rental was P281,347.20 fro m which wasdeducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum of P182,471.17 already paid willleave a balance of P65,114.35 still due the p laintiff-appellant.

The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single stipulation invoked by therespondent for the f lat reduction of P130,288.47.

WHEREFORE, the decis ion of the trial court is hereby modified, and the defendant- appellee Petrophil Corporation is orde red to pay plaintiff -appellant

the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legal rate until fully paid,plus Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against the defendant -appellee.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera and Feliciano, JJ., concur.


Manila

SECOND DIVISION

G.R. No. L-60705 June 28, 1989

INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners,vs.PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS,respondents.

G.R. No. L-60907 June 28, 1989

OVERSEAS BANK OF MANILA, petitioner,vs.COURT OF APPEALS, INTEGRATED REALTY CORPORATION, and RAUL L. SANTOS, respondents.

REGALADO, J.:

In these petitions for review on certiorari, Integrated Realty Corporation and Raul Santos (G.R. No. 60705), and Overseas Ban k of Manila (G.R. No.60907) appeal from the decision of the Court of Appeals, 1the decretal portion of which states:

WHEREFORE, with the modificat ion that appe llee Overseas Bank of Manila is ordered to pay to the appellant Raul Santos the sumof P 700,000.00 due under the time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic) interest per annum from date of i ssueuntil fully paid, the appealed decision is affirmed in all other respects.

In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC and Raul L. Santos (hereafter, Santos) seek the dismissal of the complaintfiled by the Philippine National Bank (hereafter, PNB), or in the event that they be held liable thereunder, to revive and affirm that portion of thedecision of the trial court ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and Santos whatever amounts the latter will pay to PNB, withinterest from the date of payment. 2

On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision of respondent court insofar as it holds OBM l iab le for interest on the timedeposit with it of Santos corresponding to the period of its closure by order of the Central Bank. 3

In its assailed decision, the respondent Court of Appeals, quoting from the decision of the lower court, 4 narrated the antecedents of this case in this wise

The facts of this case are not seriously disputed by any of the parties. They are set forth in the decision of the trial cour t as follows:

Under date 11 January 1967 defendant Raul L. Santos made a t ime deposit with defendant OBM i n the amount of P 500,000 .00.(Exhibit-10 OBM) and was issued a Certificate of Time Deposit No. 2308 (Exhibit 1 Santos, Exhibit D). Under date 6 February 1967defendant Raul L. Santos also made a time deposit with defendant OBM in the amount of P 200,000.00 (Exhibit 11 OBM and wasissued certificate of Time Deposit No. 2367 (Exhibit 2 Santos, Exhibit E).


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Under date 9 February 1967 defendant IRC thru its President-defendant Raul L. Santos, applied for a loan and/or credit line(Exhibit A) in the amount of P 700,000.00 with plaintiff bank. To secure the said loan, defendant Raul L. Santos executed on August11, 1967 a Deed of Assignment (Exhibit C) of the two ti me deposits (Exhibits 1- Santos and 2 Santos, also Exhibits D and E) in favor oplaintiff. Defendant OBM gave its conformity to the ass ignment thru letter dated 11 August 1967 (Exhibit F). On the s ame date,defendant IRC thru its President Raul L. Santos, also executed a Deed of Conformity to Loan Conditions (Exhibit G).

The defendant OBM after the due dates of the time deposit certificates, did not pay plaintiff PNB. Plaintiff demanded payment fromdefendants IRC and Raul L. Santos (Exhibit K) and from defendant OBM (Exhibit L). Defendants IRC and Raul L. Santos repliedthat the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates(Exhibits 5 Santos, 6 Santos and 7 Santos).

On April 6, 1969 (sic), ** PNB filed a complaint to collect from IRC and Santos the loan of P 700,000.00 with interest as well asattomey's fees. It impleaded OBM as a defendant to compel it to redeem a nd pay to it Santos' time deposit certificates with interest,plus exemplary and corrective damages, attorney's fees, and cost.

In their answer to the complaint, IRC and Santos alleged that PNB has no cause of action against them because their obligation toPNB was fully pa id or extinguished upon the' irrevocable' assignment of the time deposit certificates, and that they are notanswerable for the insolvency of OBM They filed a counterclaim for damages a gainst PNB and a cross-claim against OBM a llegingthat OBM acted fraudulently in refusing to pay the time deposit certificates to PNB resulting in the filing of the suit again st them byPNB, and that, therefore, OBM should pay them whatever amount they may be ordered by the court to pay PNB with interest. Theyalso asked that OBM be ordered to pay the m compensatory, moral, exemplary and corrective damages.

In its answer to the complaint, OBM denied knowledge of the t ime deposit certificates because the a lleged time deposit of Santos'does not appear in its books of account.

Whereupon, IRC and Santos, with leave of court, filed a th ird-party complaint against Emerito B. Ramos, Jr., p resident of OBM andRodolfo R. Sunico, treasurer of sa id bank, who a llegedly received the ti me deposits of Santos and issued the certificates therefor.

Answering the third-p arty complaint, Ra mos and Sunico alleged th at IRC and Santos have no cause of action against them becausethey received and signed the t ime deposit certificates as officers of OBM that the time deposits are recorded in t he subsidiary ledgersof the bank and are 'civil liabilities of the defendant OBM

On November 18, 1970, OBM filed an a mended or supplemental answer to the complaint, acknowledging the certificates of timedeposit that it issued to Santos, and admitting its failure to pay the same due to its distressed financial situation. As aff irmativedefenses, it alleged that by reason of its state of insolvency its operations have been suspended by the Central Bank since August 1,1968; that the time deposits ceased to earn interest from that date; that it may not give preference to any depositor or cred itor; andthat payment of the p laintiffs claim is prohibited.

On January 30, 1976, the lower court rendered judgment for the plaintiff, the dispositive portion of which reads as foIlows

WHEREFORE, judgment is hereby rendered, orde ring:

1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the plaintiff, jointly and solidarily, the total a mount of P700,000.00 plus interest at the rate of 9% per annum from maturity dates of the two promissory notes on January 11 and Februa ry6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest effective February 28, 1968 and additional penalty interestof 1% per annum of the Id amount of P 700,000.00 from the time of maturity of Id loan up to the time the said amount of P700,000.00 is actually paid to the plaintiff;

2. The defendants topay l0% of the a mount of P 700,000.00 as and for attorney's fees;

3. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. Santos whateveramounts the latter will pay to the plaintiff with interest from date of payment;

4. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. Santos the amount of P10,000.00 as and f or attorney's fees;

5. The third-party complaint and cross-claim dismissed;

6. The defendant Overseas Bank of Manila to pay the costs.

SO ORDERED. 5

IRC Santos and OBM all appealed to the respondent Court of Appeals. As stated inlimine, on March 16, 1982 respondent court promulgated its appealeddecision, with a modification and the deletion of that portion of the judgment of the trial court ordering OBM to pay IRC and Santos whatever amountsthey will pay to PNB with interest from the date of payment.

Therein defendants-appellants, through separate petitions, have brought the sa id decision to this Court for review.


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1. The first issue posed before us for resolution is whether the liability of IRC and Santos with PNB should be deemed to h ave beenpaid by virtue of the deed of assignment made by the former in favor of PNB, which reads:

KNOW ALL MEN BY THESE PRESENTS;

I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661 Richmond St., Mandaluyong, Rizal for and inconsideration of certain loans, overdrafts and other credit accommodations granted or those that may hereafter be granted to me/us

by the PHILIPPINE NATI ONAL BANK, have assigned, transfer red and conve yed and by these present s, do hereby assign, tr ansferand convey by way of security unto sa id PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates of TimeDeposit issued by the OVERSEAS BANK OF MANILA, its CONFORMITY issued on August 11, 1967, hereto enclosed as Annex ' A', infavor of RAUL L. SANTOS and/or NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS ONLY (P

700,000.00), Philippine Currency, ....

xxx xxx xxx

It is also understood that the herein Assignor/s shall remain hable for any outstanding balance of his /their obligation if the Bank isunable to actually receive or collect the above assigned sums , monies or properties resulting from any agreements, orders ordecisions of the court or for any other cause whatsoever. 6

xxx xxx xxx

Respondent Court of Appeals did not consider the aforesaid assignment as payment, thus:

The contention of IRC and Santos that the irrevocable assignment of the time deposit certificates to PNB constituted payment' oftheir obligation to the latter is not well taken.

Where a cert ificate of depos it in a bank, payable at a future day, was handed over by a de btor to his creditor, it was not payment,unless there was an express agreement on the part of the creditor to receive it as such, and the question whether there was or wasnot such an agreement, was one of facts to be decided by the jury. (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed. 404; See a lsoMichie, Vol. 5-B Banks and Banking, p. 200).7

We uphold respondent court on this sc ore.

In Lopez vs. Court of appeals, et al., 8 petitioner Benito Lopez obtained a loan for P 20,000.00 from the Prudential Bank and Trust Co mpany. On thesame day, he executed a promissory note in favor of the bank and, in addition, he executed a surety bond in which he, as prin cipal, and Philippine

American General Insuran ce Co., Inc. (Philamgen), as surety, bound themselves jointly and severally in favor of the bank for th e payment of the loa n. Onthe same occasion, Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed to indemnify the company against anydamages which the latter may sustain in consequence of having become a surety upon the bond. At the same t ime, Lopez executed a deed of assignmentof his shares of stock in the Baguio Military Institute, Inc. in favor of Philamgen. When Lopez' o bligation matured without being settled, Philamgencaused the transfer of the shares of stocks to its name in order that it may sell the same and apply the proceeds thereof in payment of the loan to the

bank. However, when no payment was still made by the p rincipal de btor or surety, the bank f iled a complaint which compelled Phi lamgen to pay thebank. Thereafte r, Philamgen filed an action to recover the amount of the loan against Lopez. The trial court therein he ld tha t the obligation of Lopez wasdeemed paid when his shares of stocks were transferred in the name of Philamgen. On appeal, the Court of Appeals ruled that L opez was still liable toPhilamgen because, pending payment, Philamgen was merely holding the stock as security for t he payment of Lopez' obligation.

In upholding the finding therein of the Court of Appeals, We held th at:

Notwithstanding the express terms of the 'Stock Assignment Separate from Certificate', however, We hold and rule that thetransaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the e xecutionthereof.

It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P 20,000.00 from Prudential Bank, Lopez execut eda promissory note for P 20,000.00, plus interest at the rate of ten (10%) per cent per annum, in favor of said Bank. He likewiseposted a surety bond to secure his full and fa ithful performance of his obligation under the promissory note with Philamgen a s hissurety. In return for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not only an indemnityagreement but also a stock ass ignment.

The indemnity agreement and stock assignment must be considered together as related transactions because in order to judge theintention of the contracting parties, their contemporaneous and subsequent acts sha ll be principally considered. (Article 1371, NewCivil Code). Thus, considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while thestock assignment indicates a complete discharge of the same obligation, the existence of the indemnity agreement whereby Lope zhad to pay a premium of P l,000.00 for a period of one year and agreed at all times to indemnify Philamgen of any and all kinds oflosses which the latter might sustain by reason of it becoming a surety, is inconsistent with the theory of an absolute sale for and inconsideration of the same undertaking of Philamgen. There would have been no necessity for the execution of the indemnityagreement if the stock assignment was really intended as an absolute conveyance. ...

Along the sa me vein, in the case at bar it would not have been necessary on the part of IRC and Santos to execute pro missory notes in favor of PNB if theassignment of the time deposits of Santos was really intended as an absolute conveyance.


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There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. In declaring that the deedof assignment did not operate as payment of the loan so as to extinguish the obligations of IRC and Santos with PNB, the trial c ourt advanced several

valid bases, to wit:

a. It is clear from the Deed of Assignment that it was only by way of security;

xxx xxx xxx

b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If defendants IRC and Raul L. Santos, upon execu tingthe Deed of Assignment on August 11, 1967 had already paid their loan of P 700,000.00 or otherwise extinguished the same, why

were the promissory notes made on August 16, 1967 still executed by IRC and signed by Raul L. Santos as President?

c. In the app lication for a credit line (Exhibit A),the time deposits were offered as collateral. 9

For all intents and purposes, the deed of assignment in this case is actually a pledge. Adverting again to the Court's pronouncements in Lopez, supra, wequote therefrom:

The character of the transaction between the parties is to be determined by their intention, regardless of what language was used orwhat the for m of the transfer was. If it was intended to secure the payment of money, it must be constr ued as a pledge; but i f therewas some other intention, it is not a pledge. However, even th ough a transfer, if regarded by itsel f, appears t o have bee n absolute , itsobject and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of theproperty as collateral security. It has been said that a transfer of property by the debtor to a c reditor, even if sufficient on its face tomake an absolute conveyance, should be treated as a pledge if the de bt continues in existence and is not discharged by the tr ansfer,and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect insuch a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer o fabsolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. 10

The facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield saidconclusion that it is in fact a pledge. The deed o f assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure thefulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have thefree disposal of their property, and in the a bsence thereof, that they be legally authorized for the purpose. 11The further requirement that the thingpledged be placed in the possession of the creditor, or of a third person by common agreement 12was comp lied with by the execut ion of the deed ofassignment in favor of PNB.

It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstand ing balance of hisobligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders or decisions of the court or forany other cause whatsoever. The term "for any cause whatsoever" is broad enough to include the situation involved in the pres ent case.

Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and Santos should be held liable to PN B for the amount ofthe loan with the corresponding interest thereon.

2. We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB pursuant to the resolution of itsBoard which presumably was done in accordance with ordinary banking procedures. Not only did IRC and Santos fail to overcomethe presumption of regularity of business transactions, but they are likewise estopped from questioning the validity thereof for thefirst time in this petition. There is nothing in the records to sho w that they raised this issue during the trial by presentingcountervailing evidence. What was merely touched upon durin g the proceedings in the court below was the alleged lack of notice tothem of the board resolution, but not the veracity or validity thereof.

3. On the issue of whether OBM should be held liable for interests on the time deposits of IRC and Santos from t he time it ceasedoperations until it resumed its business, the answer is in the negative.

We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 13 that:

It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on moneydeposited with it is that thru the other aspects of its operation it is able to ge nerate funds to cover the payment of such i nterest.Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and

generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can ca rry on asa depository obligated to pay st ipulated interest. Conventional wisdom dictated; this inexorable fair and just conclusion. And it can

be said that all who deposit money in banks are aware of such a si mple economic proposit ion petition. Consequently , it should bedeemed read into every contract of deposit with a bank that the o bligation to pay interest on the deposit ceases the moment theoperation of the bank is completely suspended by the duly constituted authority, the Central Bank.

We consider it of trivial consequence th at the stopp age of the bank's operat ion by the Central Bank has been subsequently declaredillegal by the Supreme Court, for before the Court's order, the bank had no alternative under the law t han to obey the orders of theCentral Bank. Whatever be the juridical significance of the subsequent a ction of the Supreme Court, the stubborn fact remained thatthe petitioner was totally crippled from then on from earning the income needed to meet its obligations to its depositors. If such asituation cannot, strictly speaking, be legally denominated as 'force majeure', as maintained by private respondent, We hold it is amatter of simple equity that it be treated as such.

The Court further adjured that:


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Parenthetically, We may add for the guidance of those who might be concerned, and so that unnecessary litigations be avoided f romfurther clogging the dockets of the courts, that in the light of the considerations expounded in the a bove opinion, the same formulathat exempts petitioner from the payment of interest to its depositors during the whole period of factual stoppage of its ope rations

by orders of the Central Bank, mod ified in effect by the decis ion as well as the app roval of a formula of rehabilita tion by th is Court,should be, as a matter of consistency, applicable or followed in respect to all other obligations of petitioner which could not be paidduring the period of its actual complete closure.

We cannot accept the holding of the respondent Court of Appeals that the above-cited decisions apply only where the bank is in a state of l iquidation. Inthe very case aforecited, this issue was likewise raised and We resolved:

Thus, Our task is narrowed down to the resolution of the legal problem of whether or not, for purposes of the payment of the interest

here in question, stoppage of the operations of a bank by a legal order of liquidation may be equated with actual cessation o f thebank's operat ion, not different, factually speaking, in its e ffects, from legal liquidat ion the factual cessation h aving been ordered bythe Central Bank.

In the case of Chinese Grocer's Association, et al. vs. American Apothecaries, 65 Phil. 395, this Court held:

As to the second assignment of error, this Court, in G.R. No . 43682, In re Liqu idation of the Mercantile Bank of China, Tan TiongTick, claimant and appellant vs. A merican Apothecaries, C., et al., claimants and appellees, through Justice Imperial, held t hefollowing:

4. The court held that the appellant is not entitled to charge interest on the amounts of h is claims, and this is the object of the secondassignment of error, Upon this point a d istinction must be made between the interest which the deposits should earn from thei rexistence until the bank ceased to operate, and that which they may earn from the time the bank's operations were stopped until thedate of payment of the deposits. As to the first-class, we ho ld that it should be paid because such interest has been earned in theordinary course of the bank's businesses and before the latter has been declared in a state of liquidation. Moreover, the bank beingauthorized by law to make use of the deposits with the l imitation stated, to invest the same in its business and other operat ions, itmay be presumed that it bound itself to pay interest to the depositors as in f act it paid interest prior to the dates of the Id claims. Asto the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation,

we hold that the said interest should not be paid.

The Court of Appeals considered this ruling inapplicable to the instant case, precisely because, as contended by private respo ndent,the said Apothecaries case had in fact in contemplation a valid order of li quidation of the bank concerned, whereas here, the order ofthe Central Bank of August 13, 1968 completely forbidding herein petitioner to do business preparatory to its liquidation was firstrestrained and then nullified by this Supreme Court. In other words, as f ar as private respondent is concerned, it is the legal reasonfor cessation of operations, not the actual cessation thereof, that matters and is decisive insofar as his right to the conti nued paymenof the interest on his deposit during the period o f cessation is concerned.

In the light of the peculiar circumstances of this particular case, We disagree. It is Our considered view, after mature deli beration,that it is utterly unfair to award private respondent his prayer for payment of interest on his deposit during the period that petitioner

bank was not allowed by the Central Bank to operate.

4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever amounts they may be adjudged to pay PNB by way ofcompensation for damages incurred, pursuant to Articles 1170 and 2201 of the Civil Code.

It appears that as early as April, 1967, the financial situation of OBM had already caused mounting concern in the Central Bank. 14 On December 5, 1967,new directors and officers drafted from the Central Bank (CB) itself, the Philippine National Bank (PNB) and the Development Bank of the Philippines(DBP) were elected and installed and they took over the management and control of the Overseas Bank. 15 However, it was only on July 31, 1968 whenOBM was excluded from clearing with the C B under Monetary Board Resolution No. 1263. Subsequently, on August 2, 1968, pursuant to Resolution No.1290 of the CB OBM's operations were suspended. 16 These CB resolutions were eventually annulled and set aside by this Court on October 4, 1971 in thedecision rendered in the herein cited case ofRamos.

Thus, when PNB demanded from OBM payment of the amounts due on the t wo time deposits which matured on J anuary 11, 1968 and February 6, 1968,respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in theperformance of its obligation, OBM should be held liable for d amages. 17 When respondent Santos invested his money in time deposits with OBM theyentered into a contract of simple loan or mutuum, 18 not a contract of deposit.

While it is true that unde r Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipu lated in wr iting, this appl ies only tointerest for the use of money. It does not co mprehend interest paid as damages. 19 OBM contends that it had agreed to p ay interest only up to the dates ofmaturity of the certificates of time deposit and th at respondent Santos is not entitled to interest after the maturity dates had expired, unless the contractsare renewed. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money, under Article 1108 ofthe Civil Code he has the r ight to recover damages resulting from the default of OBM and the measure of such damages is interest at the legal rate of sixpercent (6%) per annum on the amounts due and unpaid at t he expiration of the periods respectively provided in the contracts. In fine, OBM is beingrequired to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure a nd delay in the payment ofits obligations which there by compelled IRC and Santos to resort to the courts.

The applicable rule is that legal interest, in the nature of damages for non -compliance with an obligation to pay a su m of money, is recoverable from thedate judicial or extra-judicial demand is made, 20 Which latter mode of demand was made by PNB, after the maturity of the certificates of time deposit,on March 1, 1968. 21 The measure of such damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon in thecertificates of deposit 22 Which is six and onehalf percent (6-1/2%). Such interest due or accrued shall further earn legal interest from the time of judicialdemand. 23


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We reject the p roposition of IRC and Santos that OBM should reimburse the m the entire a mount they may be adjud ged to pay PNB. It must be notedthat their liability to pay the various interests of nine percent (9%) on the principal obligation, one and one -half percent (1-1/2%) additional interest andone percent (1%) penalty interest is an offshoot of their failure to pay under the terms of the two promissory notes executed in favor of PNB. OBM wasnever a party to Id promissory notes. There is, therefore, no privity of contract between OBM and PNB which will justify the imposition of the aforesaidinterests upon OBM whose liability should be strictly confined to and within the provisions of the certificates of time deposit involved in this case. In factas noted by respondent court, when OBM assigned as error that portion of the judgment of the court a quo requiring OBM to make the disputedreimbursement, IRC and Santos did not dispute that objection of OBM Besides, IRC and Santos are not without fault. They likew ise acted in bad faith

when they refuse to comply with their obl igations unde r the promissory notes, thus incurring l iability for all damages reasonably attributable to the non-payment of said obligations. 24

WHEREFORE, judgment is hereby rendered, orde ring:

1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National B ank, jointly and severally, the total amount of sevenhundred thousand pesos (P 700,000.00), with interest thereon at the rate of nine percent (9%) per annum from the maturity dat esof the two promissory notes on January 11 and February 6, 1968, respectively, p lus one and one-half p ercent (1-1/2%) additionalinterest per annum effective February 28, 1968 and additional penalty interest of one percent (1%) per annum of the sa id amount ofseven hundred thousand pesos (P 700,000.00) from the time of maturity o f said loan up to the time the said amount of sevenhundred thousand pesos (P 700,000.00) is fully paid to Philippine National Bank.

2. Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine National Bank ten percent (10%) of the a mount ofseven hundred thousand pesos (P 700,000.00) as and for attorney's fees.

3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos the sum of seven hundred thousand pesos (P700,000.00) due under Time Deposit Certificates Nos. 2308 and 2367, with interest thereon of six an d one-half percent (6-1/2%)per annum from their dates of issue on January 11, 1967 and February 6, 1967, respectively, until the same are fully paid, except thatno interest shall be paid during the entire period of actual cessation of operations by Overseas Bank of Manila;

4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos six and one -half per cent (6-1/2%) interest inthe concept of damages on the principal amounts of said ce rtificates of time deposit from the date of extrajudicial demand by PNBon March 1, 1968, plus legal interest of six percent (6%) on said interest from April 6, 1968, until fifth payment thereof, e xceptduring the entire period of actual cessation of opera tions of said bank.

5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos ten thousand pesos (P l0,000.00) as and forattorney's fees.

SO ORDERED.

Melencio-Herrera, (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Republic vs. Court of Appeals, No. L-46145, 146 SCRA 15 , November 26, 1986

G.R. No. L-46145 November 26, 1986 REPUBLIC OF THE PHILIPPINES (BUREAU OF LA NDS), petitioner,

vs.THE HON. COURT OF A PPEALS, HEIRS OF DOMINGO P. BALOY, represented by RICARDO BALOY, ET A L., respondents.

Pelaez, Jalondoni, Adriano and Associates for respondent s.

PARAS, J.:pThis case originally emanated from a decision of the then Court of First Instance of Zambales in LRC Case No. 11-0, LRC Record No. N-29355, denyingrespondents' application for registration. From said order of den ial the applicants, heirs of Domingo Baloy, represented by R icardo P. Baloy, (hereinprivate respondents) interposed on appeal to the Court of Appeals which was docketed as CA -G.R. No. 52039-R. The appellate court, thru its FifthDivision with the Hon. Justice Magno Gatmaitan as ponente, rendered a decision dated February 3, 1977 reversing the decision appealed from and thusapproving the application for registration. Oppositors (petitioners herein) filed their Motion for Reconsideration alleging a mong other things thatapplicants' possessory information title can no lo nger be invoked and that they were not able to prove a re gisterable title over the land. Said Motion forReconsideration was denied, hence this petition for review on certiorari.

Applicants' claim is anchored on their possessory information title (Exhibit F wh ich had bee n translat ed in Exhibit F -1) coupled with their continuous,adverse and public possession over the land in question. An examination of the possessory information title shows that the de scription and the area ofthe land stated therein substantially coincides with the land applied for and that said possessory information title had been regularly issued having been

acquired by applicants' predecessor, Domingo Baloy, under the provisions of the Spanish Mortgage Law. Applicants presented th eir tax declaration onsaid lands on April 8, 1965.The Director of Lands opposed the registration alleging that this land had become public land thru the operation of Act 627 of the Philipp ineCommission. On November 26, 1902 pursuant to the executive order of the President of the U.S., the area was declared within t he U.S. NavalReservation. Under Act 627 as amended by Act 1138, a period was fixed within which persons affected thereby could file their application, (that is within6 months from July 8, 1905) otherwise "the said lands or interest therein will be conclusively adjudged to be public lands and all claims on the part ofprivate individuals for such lands or interests therein not to p resented will be forever barred." Petitioner argues that since Domingo Baloy failed to filehis claim within the prescribed period, the land had become irrevocably public and could not be the subject of a v alid registration for private ownership.Considering the foregoing facts respondents Court of Appeals ruled as follows:... perhaps, the consequence was that upon failure of Dom ingo Baloy to have filed his application within that period the land had become

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