credit transaction cases 1

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EN BANC

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

REPUBLIC OF THE PHILIPPINE, plaintiff-appellee,vs.!OE ". B#GT#, defendant,FELICI$#$ %. B#GT#, #&'()(*tr+tr( o te I)te*t+te E*t+te /et b0 te /+te !o*e ". B+t+*, petitioner-appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.

Office of the Solicitor General for plaintiff-appellee.

P#$ILL#, J.:

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

On !ay "#$ %ose &. Ba'tas borrowed fro( the )epublic of the *hilippines throu'h the Bureau ofAni(al +ndustry three bulls a )ed indhi with a boo value of *","/0.$0, a Bha'nari, of *",123.40and a ahiniwal, of */$$.$0, for a period of one year fro( !ay "#$ to / !ay "#$# for breedin' purposes sub5ect to a 'overn(ent char'e of breedin' fee of "36 of the boo value of the bulls. 7pon

the e8piration on / !ay "#$# of the contract, the borrower ased for a renewal for another period ofone year. 9owever, the ecretary of A'riculture and Natural )esources approved a renewal thereof ofonly one bull for another year fro( !ay "#$# to / !ay "#43 and requested the return of the othertwo. On 24 !arch "#43 %ose &. Ba'tas wrote to the :irector of Ani(al +ndustry that he would pay thevalue of the three bulls. On "/ October "#43 he reiterated his desire to buy the( at a value with adeduction of yearly depreciation to be approved by the Auditor ;eneral. On "# October "#43 the:irector of Ani(al +ndustry advised hi( that the boo value of the three bulls could not be reduced andthat they either be returned or their boo value paid not later than 1" October "#43. %ose &. Ba'tasfailed to pay the boo value of the three bulls or to return the(. o, on 23 :ece(ber "#43 in the Courtof <irst +nstance of !anila the )epublic of the *hilippines co((enced an action a'ainst hi( prayin'that he be ordered to return the three bulls loaned to hi( or to pay their boo value in the total su( of

*1,2$".$4 and the unpaid breedin' fee in the su( of *"##.02, both with interests, and costs= and thatother 5ust and equitable relief be 'ranted in >civil No. "2"?.

On 4 %uly "#4" %ose &. Ba'tas, throu'h counsel Navarro, )osete and !analo, answered that because ofthe bad peace and order situation in Ca'ayan &alley, particularly in the barrio of Ba''ao, and of the pendin' appeal he had taen to the ecretary of A'riculture and Natural )esources and the *resident ofthe *hilippines fro( the refusal by the :irector of Ani(al +ndustry to deduct fro( the boo value ofthe bulls correspondin' yearly depreciation of 6 fro( the date of acquisition, to which depreciationthe Auditor ;eneral did not ob5ect, he could not return the ani(als nor pay their value and prayed forthe dis(issal of the co(plaint.

After hearin', on 13 %uly "#40 the trial court render 5ud'(ent @

. . . sentencin' the latter >defendant? to pay the su( of *1,024.3# the total value of the three bulls plus the breedin' fees in the a(ount of *020."/ with interest on both su(s of >at? the le'alrate fro( the filin' of this co(plaint and costs.

On # October "#4 the plaintiff (oved e8 parte for a writ of e8ecution which the court 'ranted on "October and issued on "" Nove(ber "#4. On 2 :ece(ber "#4 'ranted an e8-parte (otion filed bythe plaintiff on Nove(ber "#4 for the appoint(ent of a special sheriff to serve the writ outside!anila. Of this order appointin' a special sheriff, on 0 :ece(ber "#4, <elicidad !. Ba'tas, thesurvivin' spouse of the defendant %ose Ba'tas who died on 21 October "#4" and as ad(inistratri8 of



his estate, was notified. On / %anuary "#4# she file a (otion alle'in' that on 20 %une "#42 the two bullindhi and Bha'nari were returned to the Bureau Ani(al of +ndustry and that so(eti(e in Nove(ber"#4 the third bull, the ahiniwal, died fro( 'unshot wound inflicted durin' a 9u raid on 9acienda<elicidad +ntal, and prayin' that the writ of e8ecution be quashed and that a writ of preli(inaryin5unction be issued. On 1" %anuary "#4# the plaintiff ob5ected to her (otion. On 0 <ebruary "#4# shefiled a reply thereto. On the sa(e day, 0 <ebruary, the Court denied her (otion. 9ence, this appeal

certified by the Court of Appeals to this Court as stated at the be'innin' of this opinion.+t is true that on 20 %une "#42 %ose !. Ba'tas, %r., son of the appellant by the late defendant, returnedthe indhi and Bha'nari bulls to )o(an )e(orin, uperintendent of the N&B tation, Bureau ofAni(al +ndustry, Bayo(bon', Nueva &icaya, as evidenced by a (e(orandu( receipt si'ned by thelatter >E8hibit 2?. That is why in its ob5ection of 1" %anuary "#4# to the appellants (otion to quash thewrit of e8ecution the appellee prays that another writ of e8ecution in the su( of *4#.41 be issueda'ainst the estate of defendant deceased %ose &. Ba'tas. he cannot be held liable for the two bullswhich already had been returned to and received by the appellee.

The appellant contends that the ahiniwal bull was accidentally illed durin' a raid by the 9u in Nove(ber "#41 upon the surroundin' barrios of 9acienda <elicidad +ntal, Ba''ao, Ca'ayan, where theani(al was ept, and that as such death was due to force majeure she is relieved fro( the duty ofreturnin' the bull or payin' its value to the appellee. The contention is without (erit. The loan by theappellee to the late defendant %ose &. Ba'tas of the three bulls for breedin' purposes for a period of oneyear fro( !ay "#$ to / !ay "#$#, later on renewed for another year as re'ards one bull, wassub5ect to the pay(ent by the borrower of breedin' fee of "36 of the boo value of the bulls. Theappellant contends that the contract was commodatum and that, for that reason, as the appellee retainedownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is

essentially 'ratuitous." +f the breedin' fee be considered a co(pensation, then the contract would be alease of the bull. 7nder article "0/" of the Civil Code the lessee would be sub5ect to the responsibilitiesof a possessor in bad faith, because she had continued possession of the bull after the e8piry of thecontract. And even if the contract be commodatum, still the appellant is liable, because article "#$2 ofthe Civil Code provides that a bailee in a contract of commodatum @

. . . is liable for loss of the thin's, even if it should be throu'h a fortuitous event

>2? +f he eeps it lon'er than the period stipulated . . .

>1? +f the thin' loaned has been delivered with appraisal of its value, unless there is a stipulatione8e(ptin' the bailee fro( responsibility in case of a fortuitous event=

The ori'inal period of the loan was fro( !ay "#$ to / !ay "#$#. The loan of one bull was renewedfor another period of one year to end on !ay "#43. But the appellant ept and used the bull until Nove(ber "#41 when durin' a 9u raid it was illed by stray bullets. <urther(ore, when lent anddelivered to the deceased husband of the appellant the bulls had each an appraised boo value, to withthe indhi, at *","/0.$0, the Bha'nari at *",123.40 and the ahiniwal at */$$.$0. +t was not stipulated

that in case of loss of the bull due to fortuitous event the late husband of the appellant would be e8e(ptfro( liability.

The appellants contention that the de(and or prayer by the appellee for the return of the bull or the pay(ent of its value bein' a (oney clai( should be presented or filed in the intestate proceedin's ofthe defendant who died on 21 October "#4", is not alto'ether without (erit. 9owever, the clai( thathis civil personality havin' ceased to e8ist the trial court lost 5urisdiction over the case a'ainst hi(, isuntenable, because section "/ of )ule 1 of the )ules of Court provides that @

After a party dies and the clai( is not thereby e8tin'uished, the court shall order, upon proper



notice, the le'al representative of the deceased to appear and to be substituted for the deceased,within a period of thirty >13? days, or within such ti(e as (ay be 'ranted. . . .

and after the defendants death on 21 October "#4" his counsel failed to co(ply with section "0 of )ule1 which provides that @

Dhenever a party to a pendin' case dies . . . it shall be the duty of his attorney to infor( thecourt pro(ptly of such death . . . and to 'ive the na(e and residence of the e8ecutoryad(inistrator, 'uardian, or other le'al representative of the deceased . . . .

The notice by the probate court and its publication in the Vo de !anila that <elicidad !. Ba'tas had been issue letters of ad(inistration of the estate of the late %ose Ba'tas and that all persons havin'clai(s for (onopoly a'ainst the deceased %ose &. Ba'tas, arisin' fro( contract e8press or i(plied,whether the sa(e be due, not due, or contin'ent, for funeral e8penses and e8penses of the last sicnessof the said decedent, and 5ud'(ent for (onopoly a'ainst hi(, to file said clai(s with the Cler of thisCourt at the City 9all Bld'., 9i'hway 4$, ueon City, within si8 >0? (onths fro( the date of the first publication of this order, servin' a copy thereof upon the afore(entioned <elicidad !. Ba'tas, theappointed ad(inistratri8 of the estate of the said deceased, is not a notice to the court and the appelleewho were to be notified of the defendants death in accordance with the above-quoted rule, and there

was no reason for such failure to notify, because the attorney who appeared for the defendant was thesa(e who represented the ad(inistratri8 in the special proceedin's instituted for the ad(inistration andsettle(ent of his estate. The appellee or its attorney or representative could not be e8pected to now ofthe death of the defendant or of the ad(inistration proceedin's of his estate instituted in another courtthat if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death asrequired by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant isonly liable for the su( of *4#.01, the value of the bull which has not been returned to the appellee, because it was illed while in the custody of the ad(inistratri8 of his estate. This is the a(ount prayedfor by the appellee in its ob5ection on 1" %anuary "#4# to the (otion filed on / %anuary "#4# by theappellant for the quashin' of the writ of e8ecution.

pecial proceedin's for the ad(inistration and settle(ent of the estate of the deceased %ose &. Ba'tashavin' been instituted in the Court of <irst +nstance of )ial >-233?, the (oney 5ud'(ent rendered infavor of the appellee cannot be enforced by (eans of a writ of e8ecution but (ust be presented to the probate court for pay(ent by the appellant, the ad(inistratri8 appointed by the court.

ACCO):+N;FG, the writ of e8ecution appealed fro( is set aside, without pronounce(ent as to costs.

EN BANC

G.R. No. L-321 October 14, 1913

#LE!#N$R# %IN#, ET #L., plaintiffs-appellants,vs.RUPERT# P#CU#L, ET #L., defendants-appellees.

". Se#undo for appellants.

$%i#o &itan#a for appellees.

#RELL#NO, C.J.:

<rancisco <ontanilla and Andres <ontanilla were brothers. <rancisco <ontanilla acquired durin'his lifeti(e, on !arch "2, "/$, a lot in the center of the town of Faoa', the capital of the *rovince of



+locos Norte, the property havin' been awarded to hi( throu'h its purchase at a public auction held bythe alcalde mayor of that province. The lot has a fronta'e of "23 (eters and a depth of "4.

Andres <ontanilla, with the consent of his brother <rancisco, erected a warehouse on a part of thesaid lot, e(bracin' "$ (eters of its fronta'e by "" (eters of its depth.

<rancisco <ontanilla, the for(er owner of the lot, bein' dead, the herein plaintiffs, Ale5andro!ina, et al., were reco'nied without discussion as his heirs.

Andres <ontanilla, the for(er owner of the warehouse, also havin' died, the children of )uperta*ascual were reco'nied lies without discussion, thou'h it is not said how, and consequently areentitled to the said buildin', or rather, as )uperta *ascual herself stated, to only si8-sevenths of one-half of it, the other half belon'in', as it appears, to the plaintiffs the(selves, and the re(ainin' one-seventh of the first one-half to the children of one of the plaintiffs, Elena de &illanueva. The fact is thatthe plaintiffs and the defendants are virtually, to all appearance, the owners of the warehouse= while the plaintiffs are undoubtedly, the owners of the part of the lot occupied by that buildin', as well as of there(ainder thereof.

This was the state of affairs, when, on !ay 0, "#3#, )uperta *ascual, as the 'uardian of her(inor children, the herein defendants, petitioned the Curt of <irst +nstance of +locos Norte for

authoriation to sell the si8-sevenths of the one-half of the warehouse, of "$ by "" (eters, to'etherwith its lot. The plaintiffs @ that is Ale5andra !ina, et al. @ opposed the petition of )uperta *ascualfor the reason that the latter had included therein the lot occupied by the warehouse, which theyclai(ed was their e8clusive property. All this action was taen in a special proceedin' in re'uardianship.

The plaintiffs did (ore than oppose *ascuals petition= they requested the court, throu'h (otion,to decide the question of the ownership of the lot before it pass upon the petition for the sale of thewarehouse. But the court before deter(inin' the (atter of the ownership of the lot occupied by thewarehouse, ordered the sale of this buildin', sayin'

Dhile the trial continues with respect to the ownership of the lot, the court orders the sale

at public auction of the said warehouse and of the lot on which it is built, with the present boundaries of the land and condition of the buildin', at a price of not less than *2,#3*hilippine currency . . . .

o, the warehouse, to'ether with the lot on which it stands, was sold to Cu %oco, the otherdefendant in this case, for the price (entioned.

The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the courtdecided it by holdin' that this land belon'ed to the owner of the warehouse which had been builtthereon thirty years before.

The plaintiffs appealed and this court reversed the 5ud'(ent of the lower court and held that the

appellants were the owners of the lot in question. "

Dhen the 5ud'(ent beca(e final and e8ecutory, a writ of e8ecution issued and the plaintiffswere 'iven possession of the lot= but soon thereafter the trial court annulled this possession for thereason that it affected Cu %oco, who had not been a party to the suit in which that writ was served.

+t was then that the plaintiffs co((enced the present action for the purpose of havin' the sale ofthe said lot declared null and void and of no force and effect.

An a'ree(ent was had ad to the facts, the ninth para'raph of which is as follows

#. That the herein plaintiffs e8cepted to the 5ud'(ent and appealed therefro( to the



upre(e Court which found for the( by holdin' that they are the owners of the lot in question,althou'h there e8isted and still e8ists a co((odatu( by virtue of which the 'uardianship>(eanin' the defendants? had and has the use, and the plaintiffs the ownership, of the property,with no findin' concernin' the decree of the lower court that ordered the sale.

The obvious purport of the cause althou'h there e8isted and still e8ists a co((odatu(, etc.,appears to be that it is a part of the decision of the upre(e Court and that, while findin' the plaintiffs

to be the owners of the lot, we reco'nied in principle the e8istence of a co((odatu( under which thedefendants held the lot. Nothin' could be (ore ine8act. *ossibly, also, the (eanin' of that clause isthat, notwithstandin' the findin' (ade by the upre(e Court that the plaintiffs were the owners, thesefor(er and the defendants a'ree that there e8isted, and still e8ists, a co((odatu(, etc. But such ana'ree(ent would not affect the truth of the contents of the decision of this court, and the opinions held by the liti'ants in re'ard to this point could have no bearin' whatever on the present decision.

Nor did the decree of the lower court that ordered the sale have the least influence in our previous decision to require our (ain' any findin' in re'ard thereto, for, with or without that decree,the upre(e Court had to decide the ownership of the lot consistently with its titles and not inaccordance with the 5udicial acts or proceedin's had prior to the settin' up of the issue in respect to theownership of the property that was the sub5ect of the 5udicial decree.

Dhat is essentially pertinent to the case is the fact that the defendant a'ree that the plaintiffs havethe ownership, and they the(selves only the use, of the said lot.

On this pre(ise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the(anner in which the sale was effected, whether 5udicially or e8tra5udicially.

9e who has only the use of a thin' cannot validly sell the thin' itself. The effect of the sale bein'a transfer of the ownership of the thin', it is evident that he who has only the (ere use of the thin'cannot transfer its ownership. The sale of a thin' effected by one who is not its owner is null and void.The defendants never were the owners of the lot sold. The sale of it by the( is necessarily null andvoid. On cannot convey to another what he has never had hi(self.

The returns of the auction contain the followin' state(ents

+, )uperta *ascual, the 'uardian of the (inors, etc., by virtue of the authoriationconferred upon (e on the 1"st of %uly, "#3#, by the Court of <irst +nstance of +locos Norte, proceeded with the sale at public auction of the si8-sevenths part of the one-half of thewarehouse constructed of rubble stone, etc.

Dhereas +, )uperta *ascual, the 'uardian of the (inors, etc., sold at public auction all theland and all the ri'hts title, interest, and ownership in the said property to Cu %oco, who was thehi'hest bidder, etc.

Therefore, . . . + cede and deliver forever to the said purchaser, Cu %oco, his heirs andassi'ns, all the interest, ownership and inheritance ri'hts and others that, as the 'uardian of the

said (inors, + have and (ay have in the said property, etc.

The purchaser could not acquire anythin' (ore than the interest that (i'ht be held by a person towho( realty in possession of the vendor (i'ht be sold, for at a 5udicial auction nothin' else is disposedof. Dhat the (inor children of )uperta *ascual had in their possession was the ownership of the si8-sevenths part of one-half of the warehouse and the use of the lot occupied by his buildin'. This, andnothin' (ore, could the China(an Cu %oco acquire at that sale not the ownership of the lot= neither theother half, nor the re(ainin' one-seventh of the said first half, of the warehouse. Consequently, the sale(ade to hi( of this one-seventh of one-half and the entire other half of the buildin' was null and void,



and liewise with still (ore reason the sale of the lot the buildin' occupies.

The purchaser could and should have nown what it was that was offered for sale and what itwas that he purchased. There is nothin' that can 5ustify the acquisition by the purchaser of thewarehouse of the ownership of the lot that this buildin' occupies, since the (inors represented by)uperta *ascual never were the owners of the said lot, nor were they ever considered to be such.

The trial court, in the 5ud'(ent rendered, held that there were no 'rounds for the requestedannul(ent of the sale, and that the plaintiffs were entitled to the *033 deposited with the cler of thecourt as the value of the lot in question. The defendants, )uperta *ascual and the China(an Cu %oco,were absolved fro( the co(plaint, without e8press findin' as to costs.

The plaintiffs cannot be obli'ed to acquiesce in or allow the sale (ade and be co(pelled toaccept the price set on the lot by e8pert appraisers, not even thou'h the plaintiffs be considered ascoowner of the warehouse. +t would be (uch indeed that, on the 'round of coownership, they shouldhave to abide by and tolerate the sale of the said buildin', which point this court does not decide as it isnot a question sub(itted to us for decision, but, as re'ards the sale of the lot, it is in all respectsi(possible to hold that the plaintiffs (ust abide by it and tolerate, it, and this conclusion is based on thefact that they did not 'ive their consent >art. "20", Civil Code?, and only the contractin' parties who

have 'iven it are obli'ed to co(ply >art. "3#", idem?. The sole purpose of the action in the be'innin' was to obtain an annul(ent of the sale of the lot= but subsequently the plaintiffs, throu'h (otion, ased for an a(end(ent by their co(plaint in thesense that the action should be dee(ed to be one for the recovery of possession of a lot and for theannul(ent of its sale. The plaintiffs petition was opposed by the defendants attorney, but was allowed by the court= therefore the co(plaint sees, after the 5udicial annul(ent of the sale of the lot, to havethe defendants sentenced i((ediately to deliver the sa(e to the plaintiffs.

uch a findin' appears to be in har(ony with the decision rendered by the upre(e Court in previous suit, wherein it was held that the ownership of the lot lay in the plaintiffs, and for this reasonsteps were taen to 'ive possession thereof to the defendants= but, as the purchaser Cu %oco was not a

party to that suit, the present action is strictly one for recover a'ainst Cu %oco to co(pel hi(, once thesale has been annulled, to deliver the lot to its lawful owners, the plaintiffs.

As respects this action for recovery, this upre(e Court finds

". That it is a fact ad(itted by the liti'atin' parties, both in this and in the previous suit, thatAndres <ontanilla, the defendants predecessor in interest, erected the warehouse on the lot,so(e thirty years a'o, with the e8plicit consent of his brother <rancisco <ontanilla, the plaintiffs predecessor in interest.

2. That it also appears to be an ad(itted fact that the plaintiffs and the defendants are thecoowners of the warehouse.

1. That it is a fact e8plicitly ad(itted in the a'ree(ent, that neither Andres <ontanilla nor his

successors paid any consideration or price whatever for the use of the lot occupied by the said buildin'= whence it is, perhaps, that both parties have deno(inated that use a co((odatu(.

7pon the pre(ise of these facts, or even (erely upon that of the first of the(, the sentencin' ofthe defendants to deliver the lot to the plaintiffs does not follow as a necessary corollary of the 5udicialdeclaration of ownership (ade in the previous suit, nor of that of the nullity of the sale of the lot, (adein the present case.

The defendants do not hold lawful possession of the lot in question.'a(phil.net



But, althou'h both liti'atin' parties (ay have a'reed in their idea of the co((odatu(, onaccount of its not bein', as indeed it is not, a question of fact but of law, yet that deno(ination 'iven bythe( to the use of the lot 'ranted by <rancisco <ontanilla to his brother, Andres <ontanilla, is notacceptable. Contracts are not to be interpreted in confor(ity with the na(e that the parties theretoa'ree to 'ive the(, but (ust be construed, duly considerin' their constitutive ele(ents, as they aredefined and deno(inated by law.

By the contract of loan, one of the parties delivers to the other, either anythin' not perishable, in order that the latter (ay use it durin' the certain period and return it to thefor(er, in which case it is called commodatum . . . >art. "/$3, Civil Code?.

+t is, therefore, an essential feature of the co((odatu( that the use of the thin' belon'in' toanother shall for a certain period. <rancisco <ontanilla did not fi8 any definite period or ti(e durin'which Andres <ontanilla could have the use of the lot whereon the latter was to erect a stone warehouseof considerable value, and so it is that for the past thirty years of the lot has been used by both Andresand his successors in interest. The present contention of the plaintiffs that Cu %oco, now in possessionof the lot, should pay rent for it at the rate of *4 a (onth, would destroy the theory of the co((odatu(sustained by the(, since, accordin' to the second para'raph of the aforecited article "/$3,co((odatu( is essentially 'ratuitous, and, if what the plaintiffs the(selves aver on pa'e / of their brief is to be believed, it never entered <ranciscos (ind to li(it the period durin' which his brotherAndres was to have the use of the lot, because he e8pected that the warehouse would eventually fallinto the hands of his son, <ructuoso <ontanilla, called the adopted son of Andres, which did not co(eto pass for the reason that <ructuoso died before his uncle Andres. Dith that e8pectation in view, itappears (ore liely that <rancisco intended to allow his brother Andres a surface ri'ht= but this ri'htsupposes the pay(ent of an annual rent, and Andres had the 'ratuitous use of the lot.

9ence, as the facts aforestated only show that a buildin' was erected on anothers 'round, thequestion should be decided in accordance with the statutes that, thirty years a'o, 'overned accessionsto real estate, and which were Faws $" and $2, title 2, of the third )artida, nearly identical with the provisions of articles 10" and 102 of the Civil Code. o, then, pursuant to article 10", the owner of the

land on which a buildin' is erected in 'ood faith has a ri'ht to appropriate such edifice to hi(self, after pay(ent of the inde(nity prescribed in articles $41 and $4$, or to obli'e the builder to pay hi( thevalue of the land. uch, and no other, is the ri'ht to which the plaintiff are entitled.

<or the fore'oin' reasons, it is only necessary to annul the sale of the said lot which was (ade by)uperta *ascual, in representation of her (inor children, to Cu %oco, and to (aintain the latter in theuse of the lot until the plaintiffs shall choose one or the other of the two ri'hts 'ranted the( by article10" of the Civil Code.'a(phil.net

The 5ud'(ent appealed fro( is reversed and the sale of the lot in question is held to be null andvoid and of no force or effect. No special findin' is (ade as to the costs of both instances.

<+)T :+&++ON

G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC O TH! "O#NTAIN PROVINC!, petitioner,vs.CO#RT O APP!ALS, H!IRS O !G"I$IO OCTAVIANO AN$ %#AN VAL$!&,respondents.

Valdez, Ereso, Polido & Associates for petitioner.

Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.



Jaime . de Leon for t!e "eirs of Egmidio Octa#iano.

Cotabato Law Office for t!e "eirs of Juan Valdez.

GANCA'CO, 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 $udicata 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 3, !"# of the $inth

Division of %espondent Court of Appeals 1 in CA&'.%. $o. ()*" +Civil Case $o. 3(# -*!/and CA&'.%. $o. ()*! +Civil Case $o. 3)) -*0!/, both for %ecovery of Possession, whichaffirmed the Decision of the 1onorable $icodemo T. 2errer, udge of the %egional Trial Courtof 4aguio and 4enguet in Civil Case $o. 3(# -*! and Civil Case $o. 3)) -*0!, with thedispositive portion as follows5

617%728%7, udgment is hereby rendered ordering the defendant, Catholic 9icar Apostolic ofthe :ountain Province to return and surrender ;ot 0 of Plan Psu&!*3)# to the plaintiffs. 1eirs of

uan 9alde<, and ;ot 3 of the same Plan to the other set of plaintiffs, the 1eirs of 7gmidio8ctaviano -;eonardo 9alde<, et al.. 2or lac= or insufficiency of evidence, the plaintiffs> claim ordamages is hereby denied. ?aid defendant is ordered to pay costs. -p. 3, %ollo

%espondent Court of Appeals, in affirming the trial court>s decision, sustained the trial court>sconclusions that the Decision of the Court of Appeals, dated :ay *,!## in CA&'.%. $o.3""3(&%, in the two cases affirmed by the ?upreme Court, touched on the ownership of lots 0and 3 in question@ that the two lots were possessed by the predecessors&in&interest of privaterespondents under claim of ownership in good faith from !( to !)@ that petitioner hadbeen in possession of the same lots as bailee in commodatum up to !), when petitionerrepudiated the trust and when it applied for registration in !0@ that petitioner had ust beenin possession as owner for eleven years, hence there is no possibility of acquisitive

prescription which requires ( years possession with ust title and 3( years of possessionwithout@ that the principle of res $udicata on these findings by the Court of Appeals will bar areopening of these questions of facts@ and that those facts may no longer be altered.

Petitioner>s motion for reconsideration of the respondent appellate court>s Decision in the twoaforementioned cases -CA '.%. $o. C9&()*" and ()*! was denied.

The facts and bac=ground of these cases as narrated by the trail court are as follows B

... The documents and records presented reveal that the whole controversystarted when the defendant Catholic 9icar Apostolic of the :ountain Province-9CA% for brevity filed with the Court of 2irst nstance of 4aguio 4enguet on?eptember ), !0 an application for registration of title over ;ots , 0, 3, and *in Psu&!*3)#, situated at Poblacion Central, ;a Trinidad, 4enguet, doc=eted as

;%C $&!, said ;ots being the sites of the Catholic Church building, convents,high school building, school gymnasium, school dormitories, social hall,stonewalls, etc. 8n :arch 00, !3 the 1eirs of uan 9alde< and the 1eirs of7gmidio 8ctaviano filed their Answer8pposition on ;ots $os. 0 and 3,respectively, asserting ownership and title thereto. After trial on the merits, theland registration court promulgated its Decision, dated $ovember #, !),confirming the registrable title of 9CA% to ;ots , 0, 3, and *.

The 1eirs of uan 9alde< -plaintiffs in the herein Civil Case $o. 3)) and the1eirs of 7gmidio 8ctaviano -plaintiffs in the herein Civil Case $o. 3(#appealed the decision of the land registration court to the then Court of Appeals,



doc=eted as CA&'.%. $o. 3""3(&%. The Court of Appeals rendered its decision,dated :ay !, !##, reversing the decision of the land registration court anddismissing the 9CA%>s application as to ;ots 0 and 3, the lots claimed by thetwo sets of oppositors in the land registration case -and two sets of plaintiffs inthe two cases now at bar, the first lot being presently occupied by the conventand the second by the women>s dormitory and the sister>s convent.

8n :ay !, !##, the 1eirs of 8ctaviano filed a motion for reconsideration

praying the Court of Appeals to order the registration of ;ot 3 in the names of the1eirs of 7gmidio 8ctaviano, and on :ay #, !##, the 1eirs of uan 9alde< andPacita 9alde< filed their motion for reconsideration praying that both ;ots 0 and 3be ordered registered in the names of the 1eirs of uan 9alde< and Pacita9alde<. 8n August 0,!##, the Court of Appeals denied the motion forreconsideration filed by the 1eirs of uan 9alde< on the ground that there wasEno sufficient merit to ustify reconsideration one way or the other ...,E andli=ewise denied that of the 1eirs of 7gmidio 8ctaviano.

Thereupon, the 9CA% filed with the ?upreme Court a petition for review oncertiorari of the decision of the Court of Appeals dismissing his -its applicationfor registration of ;ots 0 and 3, doc=eted as '.%. $o. ;&*"30, entitled >Catholic9icar Apostolic of the :ountain Province vs. Court of Appeals and 1eirs of7gmidio 8ctaviano.>

2rom the denial by the Court of Appeals of their motion for reconsideration the1eirs of uan 9alde< and Pacita 9alde<, on ?eptember ", !##, filed with the?upreme Court a petition for review, doc=eted as '.%. $o. ;&*"#0, entitled,"eirs of Juan Valdez and Pacita Valdez #s. Court of Appeals , 9icar, 1eirs of7gmidio 8ctaviano and Annable 8. 9alde<.

8n anuary 3, !#", the ?upreme Court denied in a minute resolution bothpetitions -of 9CA% on the one hand and the 1eirs of uan 9alde< and Pacita9alde< on the other for lac= of merit. Fpon the finality of both ?upreme Courtresolutions in '.%. $o. ;&*"30 and '.%. $o. ;& *"#0, the 1eirs of 8ctavianofiled with the then Court of 2irst nstance of 4aguio, 4ranch , a :otion 2or7Gecution of udgment praying that the 1eirs of 8ctaviano be placed inpossession of ;ot 3. The Court, presided over by 1on. ?alvador . 9alde<, on

December #, !#", denied the motion on the ground that the Court of Appealsdecision in CA&'.%. $o. 3""#( did not grant the 1eirs of 8ctaviano anyaffirmative relief.

8n 2ebruary #, !#!, the 1eirs of 8ctaviano filed with the Court of Appeals apetitioner for certiorari and mandamus, doc=eted as CA&'.%. $o. (""!(&%,entitled "eirs of Egmidio Octa#iano #s. "on. %al#ador J. Valdez, Jr. and Vicar . nits decision dated :ay , !#!, the Court of Appeals dismissed the petition.

t was at that stage that the instant cases were filed. The 1eirs of 7gmidio8ctaviano filed Civil Case $o. 3(# -*! on uly 0*, !#!, for recovery ofpossession of ;ot 3@ and the 1eirs of uan 9alde< filed Civil Case $o. 3))-*0! on ?eptember 0*, !#!, li=ewise for recovery of possession of ;ot 0-Decision, pp. !!&0(, 8rig. %ec..

n Civil Case $o. 3(# -*! trial was held. The plaintiffs 1eirs of 7gmidio 8ctaviano presentedone - witness, 2ructuoso 9alde<, who testified on the alleged ownership of the land in question-;ot 3 by their predecessor&in&interest, 7gmidio 8ctaviano -7Gh. C @ his written demand -7Gh. 4B4&* to defendant 9icar for the return of the land to them@ and the reasonable rentals for theuse of the land at P(,(((.(( per month. 8n the other hand, defendant 9icar presented the%egister of Deeds for the Province of 4enguet, Atty. $icanor ?ison, who testified that the land inquestion is not covered by any title in the name of 7gmidio 8ctaviano or any of the plaintiffs-7Gh. ". The defendant dispensed with the testimony of :ons.6illiam 4rasseur when theplaintiffs admitted that the witness if called to the witness stand, would testify that defendant9icar has been in possession of ;ot 3, for seventy&five -#) years continuously and peacefullyand has constructed permanent structures thereon.



n Civil Case $o. 3)), the parties admitting that the material facts are not in dispute, submittedthe case on the sole issue of whether or not the decisions of the Court of Appeals and the?upreme Court touching on the ownership of ;ot 0, which in effect declared the plaintiffs theowners of the land constitute res $udicata.

n these two cases , the plaintiffs arque that the defendant 9icar is barred from setting up thedefense of ownership andor long and continuous possession of the two lots in question sincethis is barred by prior udgment of the Court of Appeals in CA&'.%. $o. (3""3(&% under the

principle of res $udicata. Plaintiffs contend that the question of possession and ownership havealready been determined by the Court of Appeals -7Gh. C, Decision, CA&'.%. $o. (3""3(&%and affirmed by the ?upreme Court -7Gh. , :inute %esolution of the ?upreme Court. 8n hispart, defendant 9icar maintains that the principle of res $udicata would not prevent them fromlitigating the issues of long possession and ownership because the dispositive portion of theprior udgment in CA&'.%. $o. (3""3(&% merely dismissed their application for registration andtitling of lots 0 and 3. Defendant 9icar 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 asfollows5

. 7%%8% $ APP;H$' ;A6 82 T17 CA?7 A$D E% J'()CA*A@

0. 7%%8% $ 2$D$' T1AT T17 T%A; C8F%T %F;7D T1AT ;8T? 0 A$D 3 67%7 ACIF%7D 4H PF%C1A?7 4FT 6T18FT D8CF:7$TA%H 79D7$C7 P%7?7$T7D@

3. 7%%8% $ 2$D$' T1AT P7TT8$7%?> C;A: T PF%C1A?7D ;8T? 0 A$D 3 2%8:9A;D7J A$D 8CTA9A$8 6A? A$ :P;7D AD:??8$ T1AT T17 28%:7% 86$7%?67%7 9A;D7J A$D 8CTA9A$8@

*. 7%%8% $ 2$D$' T1AT T 6A? P%7D7C7??8%? 82 P%9AT7 %7?P8$D7$T?618 67%7 $ P8??7??8$ 82 ;8T? 0 A$D 3 AT ;7A?T 2%8: !(, A$D $8TP7TT8$7%@

). 7%%8% $ 2$D$' T1AT 9A;D7J A$D 8CTA9A$8 1AD 2%77 PAT7$T APP;CAT8$? A$D T17 P%7D7C7??8%? 82 P%9AT7 %7?P8$D7$T? A;%7ADH

1AD 2%77 PAT7$T APP;CAT8$? ?$C7 !(@

. 7%%8% $ 2$D$' T1AT P7TT8$7% D7C;A%7D ;8T? 0 A$D 3 8$;H $ !) A$DF?T TT;7 ? A P%:7 $7C7??TH F$D7% A%TC;7 3* $ %7;AT8$ T8 A%T. 0!82 T17 C9; C8D7 28% 8%D$A%H ACIF?T97 P%7?C%PT8$ 82 ( H7A%?@

#. 7%%8% $ 2$D$' T1AT T17 D7C?8$ 82 T17 C8F%T 82 APP7A;? $ CA '.%.$8. (3""3( 6A? A22%:7D 4H T17 ?FP%7:7 C8F%T@

". 7%%8% $ 2$D$' T1AT T17 D7C?8$ $ CA '.%. $8. (3""3( T8FC17D 8$86$7%?1P 82 ;8T? 0 A$D 3 A$D T1AT P%9AT7 %7?P8$D7$T? A$D T17%P%7D7C7??8%? 67%7 $ P8??7??8$ 82 ;8T? 0 A$D 3 F$D7% A C;A: 82

86$7%?1P $ '88D 2AT1 2%8: !( T8 !)@!. 7%%8% $ 2$D$' T1AT P7TT8$7% 1AD 477$ $ P8??7??8$ 82 ;8T? 0 A$D 3:7%7;H A? 4A;77 48% %867% $ C8::8DATF:, A '%ATFT8F? ;8A$ 28% F?7@

(. 7%%8% $ 2$D$' T1AT P7TT8$7% ? A P8??7??8% A$D 4F;D7% $ '88D2AT1 6T18FT %'1T? 82 %7T7$T8$ A$D %7:4F%?7:7$T A$D ? 4A%%7D 4H

T17 2$A;TH A$D C8$C;F?97$7?? 82 T17 D7C?8$ $ CA '.%. $8. (3""3(. (

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA&'.%. $os. ()*" and



()*!, when it clearly held that it was in agreement with the findings of the trial court that theDecision of the Court of Appeals dated :ay *,!## in CA&'.%. $o. 3""3(&%, on the questionof ownership of ;ots 0 and 3, declared that the said Court of Appeals Decision CA&'.%. $o.3""3(&% did not positively declare private respondents as owners of the land, neither was itdeclared that they were not owners of the land, but it held that the predecessors of privaterespondents were possessors of ;ots 0 and 3, with claim of ownership in good faith from

!( to !). Petitioner was in possession as borrower in commodatum up to !), when itrepudiated the trust by declaring the properties in its name for taGation purposes. 6henpetitioner applied for registration of ;ots 0 and 3 in !0, it had been in possession in conceptof owner only for eleven years. 8rdinary acquisitive prescription requires possession for ten

years, but always with ust title. 7Gtraordinary acquisitive prescription requires 3( years. 4

8n the above findings of facts supported by evidence and evaluated by the Court of Appealsin CA&'.%. $o. 3""3(&%, affirmed by this Court, 6e see no error in respondent appellatecourt>s ruling that said findings are res $udicata between the parties. They can no longer bealtered by presentation of evidence because those issues were resolved with finality a longtime ago. To ignore the principle of res $udicata would be to open the door to endlesslitigations by continuous determination of issues without end.

An eGamination of the Court of Appeals Decision dated :ay *, !##, 2irst Division 5 in CA&

'.%. $o. 3""3(&%, shows that it reversed the trial court>s Decision ) finding petitioner to beentitled to register the lands in question under its ownership, on its evaluation of evidence andconclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 3( yearspossession for acquisitive prescription over ;ots 0 and 3. $either did it satisfy the requirementof ( years possession for ordinary acquisitive prescription because of the absence of usttitle. The appellate court did not believe the findings of the trial court that ;ot 0 was acquiredfrom uan 9alde< by purchase and ;ot 3 was acquired also by purchase from 7gmidio8ctaviano by petitioner 9icar because there was absolutely no documentary evidence to

support the same and the alleged purchases were never mentioned in the application forregistration.

4y the very admission of petitioner 9icar, ;ots 0 and 3 were owned by 9alde< and 8ctaviano.4oth 9alde< and 8ctaviano had 2ree Patent Application for those lots since !(. Thepredecessors of private respondents, not petitioner 9icar, were in possession of thequestioned lots since !(.

There is evidence that petitioner 9icar occupied ;ots and *, which are not in question, butnot ;ots 0 and 3, because the buildings standing thereon were only constructed afterliberation in !*). Petitioner 9icar only declared ;ots 0 and 3 for taGation purposes in !).The improvements oil ;ots , 0, 3, * were paid for by the 4ishop but said 4ishop was

appointed only in !*#, the church was constructed only in !) and the new convent only 0years before the trial in !3.

6hen petitioner 9icar was notified of the oppositor>s claims, the parish priest offered to buythe lot from 2ructuoso 9alde<. ;ots 0 and 3 were surveyed by request of petitioner 9icar onlyin !0.

Private respondents were able to prove that their predecessors> house was borrowed bypetitioner 9icar after the church and the convent were destroyed. They never as=ed for thereturn 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 subect matter of commodatumto the bailor did not mean adverse possession on the part of the borrower. The bailee held intrust the property subect matter of commodatum. The adverse claim of petitioner came onlyin !) when it declared the lots for taGation purposes. The action of petitioner 9icar by suchadverse claim could not ripen into title by way of ordinary acquisitive prescription because ofthe absence of ust title.

The Court of Appeals found that the predecessors&in&interest and private respondents werepossessors under claim of ownership in good faith from !(@ that petitioner 9icar was only abailee in commodatum@ and that the adverse claim and repudiation of trust came only in !).

6e find no reason to disregard or reverse the ruling of the Court of Appeals in CA&'.%. $o.3""3(&%. ts findings of fact have become incontestible. This Court declined to review saiddecision, thereby in effect, affirming it. t has become final and eGecutory a long time ago.

%espondent appellate court did not commit any reversible error, much less grave abuse ofdiscretion, when it held that the Decision of the Court of Appeals in CA&'.%. $o. 3""3(&% isgoverning, under the principle of res udicata, hence the rule, in the present cases CA&'.%.$o. ()*" and CA&'.%. $o. ()*!. The facts as supported by evidence established in that

decision may no longer be altered.617%728%7 A$D 4H %7A?8$ 82 T17 28%7'8$', this petition is D7$7D for lac= ofmerit, the Decision dated Aug. 3, !"# in CA&'.%. $os. ()*" and ()*!, by respondentCourt of Appeals is A22%:7D, with costs against petitioner.

?8 8%D7%7D.

ECON: :+&++ON

G.R. No. L-4)145 No*ember 2), 198)

R!P#+LIC O TH! PHILIPPIN!S +#R!A# O LAN$S, petitioner,vs.TH! HON. CO#RT O APP!ALS, H!IRS O $O"INGO P. +ALO', repree/te b RICAR$O +ALO', !T AL.,respondents.

Pelaez, Jalondoni, Adriano and Associates for respondents.

PARAS, J.:p

This case originally emanated from a decision of the then Court of 2irst nstance of Jambales in ;%C Case $o. &(, ;%C %ecord $o. $&0!3)), denyingrespondents> application for registration. 2rom said order of denial the applicants, heirs of Domingo 4aloy, represented by %icardo P. 4aloy, -herein privaterespondents interposed on appeal to the Court of Appeals which was doc=eted as CA&'.%. $o. )0(3!&%. The appellate court, thru its 2ifth Division with the 1on.ustice :agno 'atmaitan as ponente, rendered a decision dated 2ebruary 3, !## reversing the decision appealed from and thus approving the application forregistration. 8ppositors -petitioners herein filed their :otion for %econsideration alleging among other things that applicants> possessory information title can nolonger be invo=ed and that they were not able to prove a registerable title over the land. ?aid :otion for %econsideration was denied, hence this petition forreview on certiorari.

Applicants> claim is anchored on their possessory information title -7Ghibit 2 which had been translated in 7Ghibit 2& coupled with their continuous, adverse andpublic possession over the land in question. An eGamination of the possessory information title shows that the description and the area of the land stated thereinsubstantially coincides with the land applied for and that said possessory information title had been regularly issued having been acquired by applicants>predecessor, Domingo 4aloy, under the provisions of the ?panish :ortgage ;aw. Applicants presented their taG declaration on said lands on April ", !).

The Director of ;ands opposed the registration alleging that this land had become public land thru the operation of Act 0# of the Philippine Commission. 8n

$ovember 0, !(0 pursuant to the eGecutive order of the President of the F.?., the area was declared within the F.?. $aval %eservation. Fnder Act 0# asamended by Act 3", a period was fiGed within which persons affected thereby could file their application, -that is within months from uly ", !() otherwiseEthe said lands or interest therein will be conclusively adudged to be public lands and all claims on the part of private individuals for such lands or intereststherein not to presented will be forever barred.E Petitioner argues that since Domingo 4aloy failed to file his claim within the prescribed period, the land hadbecome irrevocably public and could not be the subect of a valid registration for private ownership.

Considering the foregoing facts respondents Court of Appeals ruled as follows5

... perhaps, the consequence was that upon failure of Domingo 4aloy to have filed his application within that period the land had becomeirrevocably public@ but perhaps also, for the reason that warning was from the Cler= of the Court of ;and %egistration, named .%. 6ilsonand there has not been presented a formal order or decision of the said Court of ;and %egistration so declaring the land public because ofthat failure, it can with plausibility be said that after all, there was no udicial declaration to that effect, it is true that the F.?. $avy didoccupy it apparently for some time, as a recreation area, as this Court understands from the communication of the Department of 2oreign

Affairs to the F.?. 7mbassy eGhibited in the record, but the very tenor of the communication apparently see=s to ustify the title of hereinapplicants, in other words, what this Court has ta=en from the occupation by the F.?. $avy is that during the interim, the title of applicantswas in a state of suspended animation so to spea= but it had not died either@ and the fact being that this land was really originally private



from and after the issuance and inscription of the possessory information 7Gh. 2 during the ?panish times, it would be most difficult tosustain position of Director of ;ands that it was land of no private owner@ open to public disposition, and over which he has control@ andsince immediately after F.?. $avy had abandoned the area, applicant came in and asserted title once again, only to be troubled by firstCrispiniano 4lanco who however in due time, quitclaimed in favor of applicants, and then by private oppositors now, apparently originallytenants of 4lanco, but that entry of private oppositors sought to be given color of ownership when they sought to and did file taGdeclaration in !), should not preudice the original rights of applicants thru their possessory information secured regularly so long ago,the conclusion must have to be that after all, applicants had succeeded in bringing themselves within the provisions of ?ec. ! of Act *!,the land should be registered in their favor@

$ 976 617%782, this Court is constrained to reverse, as it now reverses, udgment appealed from the application is approved, andonce this decision shall have become final, if ever it would be, let decree issue in favor of applicants with the personal circumstancesoutlined in the application, costs against private oppositors.

Petitioner now comes to Fs with the following5

A??'$:7$T 82 7%%8%?5

. %espondent court erred in holding that to bar private respondents from asserting any right under their possessory information title thereis need for a court order to that effect.

0. %espondent court erred in not holding that private respondents> rights by virtue of their possessory information title was lost byprescription.

3. %espondent court erred in concluding that applicants have registerable title.

A cursory reading of ?ec. 3, Act 0# reveals that several steps are to be followed before any affected land can Ebe conclusi#el+ ad$udged to be public land .E ?ec.3, Act 0# reads as follows5

?7C. 3. mmediately upon receipt of the notice from the civil 'overnor in the preceeding section mentioned it shall be the duty of the udge of the Court of ;and %egistration to issue a notice, stating that the lands within the limits aforesaid have been reserved for militarypurposes, and announced and declared to be military reservations, and that claims for all private lands, buildings, and interests therein,within the limits aforesaid, must be presented for registration under the ;and %egistration Act within siG calendar months from the date of

issuing the notice, and that all lands, buildings, and interests therein within the limits aforesaid not so presented within the time thereinlimited will be conclusively adudged to be public lands and all claims on the part of private individuals for such lands, buildings, or aninterest therein not so presented will be forever barred. The cler= of the Court of ;and %egistration shall immediately upon the issuing ofsuch notice by the udge cause the same to be published once a wee= for three successive wee=s in two newspapers, one of whichnewspapers shall be in the 7nglish ;anguage, and one in the ?panish language in the city or province where the land lies, if there be nosuch ?panish or 7nglish newspapers having a general circulation in the city or province wherein the land lies, then it shall be a sufficientcompliance with this section if the notice be published as herein provided, in a daily newspaper in the ?panish language and one in the7nglish language, in the City of :anila, having a general circulation. The cler= shall also cause a duly attested copy of the notice in the?panish language to be posted in conspicuous place at each angle formed by the lines of the limits of the land reserved. The cler= shallalso issue and cause to be personally served the notice in the ?panish language upon every person living upon or in visible possession ofany part of the military reservation. f the person in possession is the head of the family living upon the hand, it shall be sufficient to servethe notice upon him, and if he is absent it shall be sufficient to leave a copy at his usual place of residence. The cler= shall certify themanner in which the notices have been published, posted, and served, and his certificate shall be conclusive proof of such publication,posting, and service, but the court shall have the power to cause such further notice to be given as in its opinion may be necessary.

Clearly under said provisions, private land could be deemed to have become public land only by virtue of a udicial declaration after due notice and hearing. truns contrary therefore to the contention of petitioners that failure to present claims set forth under ?ec. 0 of Act 0# made the land ipso facto public without anydeed of udicial pronouncement. Petitioner in ma=ing such declaration relied on ?ec. * of Act 0# alone. 4ut in construing a statute the entire provisions of thelaw must be considered in order to establish the correct interpretation as intended by the law&ma=ing body. Act 0# by its terms is not self&eGecutory and requiresimplementation by the Court of ;and %egistration. Act 0#, to the eGtent that it creates a forfeiture, is a penal statute in derogation of private rights, so it must bestrictly construed so as to safeguard private respondents> rights. ?ignificantly, petitioner does not even allege the eGistence of any udgment of the ;and%egistration court with respect to the land in question. 6ithout a udgment or order declaring the land to be public, its private character and the possessoryinformation title over it must be respected. ?ince no such order has been rendered by the ;and %egistration Court it necessarily follows that it never becamepublic land thru the operation of Act 0#. To assume otherwise is to deprive private respondents of their property without due process of law. n fact it can bepresumed that the notice required by law to be given by publication and by personal service did not include the name of Domingo 4aloy and the subect land,and hence he and his lane were never brought within the operation of Act 0# as amended. The procedure laid down in ?ec. 3 is a requirement of due process.EDue process requires that the statutes which under it is attempted to deprive a citi<en of private property without or against his consent must, as in eGpropriationcases, be strictly complied with, because such statutes are in derogation of general rights.E -Arriete vs. Director of Public 6or=s, )" Phil. )(#, )(", ).

6e also find with favor private respondents> views that court udgments are not to be presumed. t would be absurd to spea= of a udgment by presumption. f itcould be contended that such a udgment may be presumed, it could equally be contended that applicants> predecessor Domingo 4aloy presumably seasonablyfiled a claim, in accordance with the legal presumption that a person ta=es ordinary care of his concerns, and that a udgment in his favor was rendered.

The finding of respondent court that during the interim of )# years from $ovember 0, !(0 to December #, !)! -when the F.?. $avy possessed the area thepossessory rights of 4aloy or heirs were merely suspended and not lost by prescription, is supported by 7Ghibit EF,E a communication or letter $o. ("&3,dated une 0*, !3, which contains an official statement of the position of the %epublic of the Philippines with regard to the status of the land in question. ?aidletter recogni<es the fact that Domingo 4aloy andor his heirs have been in continuous possession of said land since "!* as attested by an EnformacionPossessoriaE Title, which was granted by the ?panish 'overnment. 1ence, the disputed property is private land and this possession was interrupted only by theoccupation of the land by the F.?. $avy in !*) for recreational purposes. The F.?. $avy eventually abandoned the premises. The heirs of the late Domingo P.

4aloy, are now in actual possession, and this has been so since the abandonment by the F.?. $avy. A new recreation area is now being used by the F.?. $avypersonnel and this place is remote from the land in question.

Clearly, the occupancy of the F.?. $avy was not in the concept of owner. t parta=es of the character of a commodatum. t cannot therefore militate against thetitle of Domingo 4aloy and his successors&in&interest. 8ne>s ownership of a thing may be lost by prescription by reason of another>s possession if suchpossession be under claim of ownership, not where the possession is only intended to be transient, as in the case of the F.?. $avy>s occupation of the landconcerned, in which case the owner is not divested of his title, although it cannot be eGercised in the meantime.

617%728%7, premises considered, finding no merit in the petition the appealed decision is hereby A22%:7D.

?8 8%D7%7D.

EN BANC

G.R. No. L-4624 Noe'ber 3, 1939



%#RG#RIT# UINTO +)& #NGEL #. #N#L$O, plaintiffs-appellants,vs.BEC, defendant-appellee.

!auricio *arlos for appellants. +elipe &uencamino, r. for appellee.

I%PERI#L, J.:

The plaintiff brou'ht this action to co(pel the defendant to return her certain furniture which shelent hi( for his use. he appealed fro( the 5ud'(ent of the Court of <irst +nstance of !anila whichordered that the defendant return to her the three has heaters and the four electric la(ps found in the possession of the heriff of said city, that she call for the other furniture fro( the said sheriff of !anilaat her own e8pense, and that the fees which the heriff (ay char'e for the deposit of the furniture be paid pro rata by both parties, without pronounce(ent as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latters house on !. 9. del*ilar street, No. ""/4. On %anuary "$, "#10, upon the novation of the contract of lease between the

plaintiff and the defendant, the for(er 'ratuitously 'ranted to the latter the use of the furnituredescribed in the third para'raph of the stipulation of facts, sub5ect to the condition that the defendantwould return the( to the plaintiff upon the latters de(and. The plaintiff sold the property to !ariaFope and )osario Fope and on epte(ber "$, "#10, these three notified the defendant of theconveyance, 'ivin' hi( si8ty days to vacate the pre(ises under one of the clauses of the contract oflease. There after the plaintiff required the defendant to return all the furniture transferred to hi( forthe( in the house where they were found. On Nove(ber 4, "#10, the defendant, throu'hanother person, wrote to the plaintiff reiteratin' that she (ay call for the furniture in the 'round floor ofthe house. On the /th of the sa(e (onth, the defendant wrote another letter to the plaintiff infor(in'her that he could not 'ive up the three 'as heaters and the four electric la(ps because he would usethe( until the "4th of the sa(e (onth when the lease in due to e8pire. The plaintiff refused to 'et the

furniture in view of the fact that the defendant had declined to (ae delivery of all of the(. On Nove(ber "4th, before vacatin' the house, the defendant deposited with the heriff all the furniture belon'in' to the plaintiff and they are now on deposit in the warehouse situated at No. "42", )ialAvenue, in the custody of the said sheriff.

+n their seven assi'ned errors the plaintiffs contend that the trial court incorrectly applied thelaw in holdin' that they violated the contract by not callin' for all the furniture on Nove(ber 4, "#10,when the defendant placed the( at their disposal= in not orderin' the defendant to pay the( the valueof the furniture in case they are not delivered= in holdin' that they should 'et all the furniture fro( theheriff at their e8penses= in orderin' the( to pay-half of the e8penses clai(ed by the heriff for thedeposit of the furniture= in rulin' that both parties should pay their respective le'al e8penses or thecosts= and in denyin' pay their respective le'al e8penses or the costs= and in denyin' the (otions for

reconsideration and new trial. To dispose of the case, it is only necessary to decide whether thedefendant co(plied with his obli'ation to return the furniture upon the plaintiffs de(and= whether thelatter is bound to bear the deposit fees thereof, and whether she is entitled to the costs ofliti'ation.la(phi'.net

The contract entered into between the parties is one of commadatum, because under it the plaintiff 'ratuitously 'ranted the use of the furniture to the defendant, reservin' for herself theownership thereof= by this contract the defendant bound hi(self to return the furniture to the plaintiff,upon the latters de(and >clause / of the contract, E8hibit A= articles "/$3, para'raph ", and "/$" of theCivil Code?. The obli'ation voluntarily assu(ed by the defendant to return the furniture upon the



plaintiffs de(and, (eans that he should return all of the( to the plaintiff at the latters residence orhouse. The defendant did not co(ply with this obli'ation when he (erely placed the( at the disposalof the plaintiff, retainin' for his benefit the three 'as heaters and the four eletric la(ps. The provisionsof article ""0# of the Civil Code cited by counsel for the parties are not squarely applicable. The trialcourt, therefore, erred when it ca(e to the le'al conclusion that the plaintiff failed to co(ply with herobli'ation to 'et the furniture when they were offered to her.

As the defendant had voluntarily undertaen to return all the furniture to the plaintiff, upon thelatters de(and, the Court could not le'ally co(pel her to bear the e8penses occasioned by the depositof the furniture at the defendants behest. The latter, as bailee, was not entitled to place the furniture ondeposit= nor was the plaintiff under a duty to accept the offer to return the furniture, because thedefendant wanted to retain the three 'as heaters and the four electric la(ps.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the pay(entthereof by the defendant in case of his inability to return so(e of the furniture because under para'raph0 of the stipulation of facts, the defendant has neither a'reed to nor ad(itted the correctness of the saidvalue. hould the defendant fail to deliver so(e of the furniture, the value thereof should be latterdeter(ined by the trial Court throu'h evidence which the parties (ay desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailin' party >section $/ of the Code of Civil *rocedure?. The defendant was the one who breachedthe contract of commodatum, and without any reason he refused to return and deliver all the furnitureupon the plaintiffs de(and. +n these circu(stances, it is 5ust and equitable that he pay the le'ale8penses and other 5udicial costs which the plaintiff would not have otherwise defrayed.

The appealed 5ud'(ent is (odified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, allthe furniture described in para'raph 1 of the stipulation of facts E8hibit A. The e8penses which (ay beoccasioned by the delivery to and deposit of the furniture with the heriff shall be for the account of thedefendant. the defendant shall pay the costs in both instances. o ordered.

EN BANCG.R. No. L-415 Febr8+r0 1, 191

FELI $E LO #NTO, plaintiff-appelle,vs.#GUTIN# !#RR#, +&'()(*tr+tr( o te e*t+te o %+&+/e)o !('e)e+, &ece+*e&, defendant-appellant.

!atias ilado, for appellant. ose +eli !artine, for appellee.

TORRE, J.:

On the "st of epte(ber, "#30, <eli8 de los antos brou'ht suit a'ainst A'ustina %arra, thead(inistratri8 of the estate of !a'daleno %i(enea, alle'in' that in the latter part of "#3" %i(enea borrowed and obtained fro( the plaintiff ten first-class carabaos, to be used at the ani(al-power (ill ofhis hacienda durin' the season of "#3"-2, without reco(pense or re(uneration whatever for the usethereof, under the sole condition that they should be returned to the owner as soon as the wor at the(ill was ter(inated= that !a'daleno %i(enea, however, did not return the carabaos, notwithstandin'the fact that the plaintiff clai(ed their return after the wor at the (ill was finished= that !a'daleno%i(enea died on the 2th of October, "#3$, and the defendant herein was appointed by the Court of<irst +nstance of Occidental Ne'ros ad(inistratri8 of his estate and she too over the ad(inistration of



the sa(e and is still perfor(in' her duties as such ad(inistratri8= that the plaintiff presented his clai(to the co((issioners of the estate of %i(enea, within the le'al ter(, for the return of the said tencarabaos, but the said co((issioners re5ected his clai( as appears in their report= therefore, the plaintiff prayed that 5ud'(ent be entered a'ainst the defendant as ad(inistratri8 of the estate of thedeceased, orderin' her to return the ten first-class carabaos loaned to the late %i(enea, or their presentvalue, and to pay the costs.

The defendant was duly su((oned, and on the 24th of epte(ber, "#30, she de(urred in writin' tothe co(plaint on the 'round that it was va'ue= but on the 2d of October of the sa(e year, in answer tothe co(plaint, she said that it was true that the late !a'daleno %i(enea ased the plaintiff to loan hi(ten carabaos, but that he only obtained three second-class ani(als, which were afterwards transferred by sale by the plaintiff to the said %i(enea= that she denied the alle'ations contained in para'raph 1 ofthe co(plaint= for all of which she ased the court to absolve her of the co(plaint with the cost a'ainstthe plaintiff.

By a writin' dated the ""th of :ece(ber, "#30, Attorney %ose <eli8 !artine notified the defendantand her counsel, !atias 9ilado, that he had (ade an a'ree(ent with the plaintiff to the effect that thelatter would not co(pro(ise the controversy without his consent, and that as fees for his professionalservices he was to receive one half of the a(ount allowed in the 5ud'(ent if the sa(e were entered infavor of the plaintiff.

The case ca(e up for trial, evidence was adduced by both parties, and either e8hibits were (ade ofrecord. On the "3th of %anuary, "#3/, the court below entered 5ud'(ent sentencin' A'ustina %arra, asad(inistratri8 of the estate of !a'daleno %i(enea, to return to the plaintiff, <eli8 de los antos, there(ainin' si8 second and third class carabaos, or the value thereof at the rate of *"23 each, or a total of*/23 with the costs.

Counsel for the defendant e8cepted to the fore'oin' 5ud'(ent, and, by a writin' dated %anuary "#,(oved for anew trial on the 'round that the findin's of fact were openly and (anifestly contrary to thewei'ht of the evidence. The (otion was overruled, the defendant duly e8cepted, and in due coursesub(itted the correspondin' bill of e8ceptions, which was approved and sub(itted to this court.

The defendant has ad(itted that !a'daleno %i(enea ased the plaintiff for the loan of ten carabaoswhich are now clai(ed by the latter, as shown by two letters addressed by the said %i(enea to <eli8 delos antos= but in her answer the said defendant alle'ed that the late %i(enea only obtained threesecond-class carabaos, which were subsequently sold to hi( by the owner, antos= therefore, in orderto decide this liti'ation it is indispensable that proof be forthco(in' that %i(enea only received threecarabaos fro( his son-in-law antos, and that they were sold by the latter to hi(.

The record discloses that it has been fully proven fro( the testi(ony of a sufficient nu(ber ofwitnesses that the plaintiff, antos, sent in char'e of various persons the ten carabaos requested by hisfather-in-law, !a'daleno %i(enea, in the two letters produced at the trial by the plaintiff, and that%i(enea received the( in the presence of so(e of said persons, one bein' a brother of said %i(enea,

who saw the ani(als arrive at the hacienda where it was proposed to e(ploy the(. <our died ofrinderpest, and it is for this reason that the 5ud'(ent appealed fro( only deals with si8 survivin'carabaos.

The alle'ed purchase of three carabaos by %i(enea fro( his son-in-law antos is not evidenced by anytrustworthy docu(ents such as those of transfer, nor were the declarations of the witnesses presented by the defendant affir(in' it satisfactory= for said reason it can not be considered that %i(enea onlyreceived three carabaos on loan fro( his son-in-law, and that he afterwards ept the( definitely byvirtue of the purchase.



By the laws in force( the transfer of lar'e cattle was and is still (ade by (eans of official docu(entsissued by the local authorities= these docu(ents constitute the title of ownership of the carabao or horseso acquired. <urther(ore, not only should the purchaser be provided with a new certificate orcredential, a docu(ent which has not been produced in evidence by the defendant, nor has the loss ofthe sa(e been shown in the case, but the old docu(ents ou'ht to be on file in the (unicipality, or theyshould have been delivered to the new purchaser, and in the case at bar neither did the defendant

present the old credential on which should be stated the na(e of the previous owner of each of thethree carabaos said to have been sold by the plaintiff.

<ro( the fore'oin' it (ay be lo'ically inferred that the carabaos loaned or 'iven on co((odatu( tothe now deceased !a'daleno %i(enea were ten in nu(ber= that they, or at any rate the si8 survivin'ones, have not been returned to the owner thereof, <eli8 de los antos, and that it is not true that thelatter sold to the for(er three carabaos that the purchaser was already usin'= therefore, as the said si8carabaos were not the property of the deceased nor of any of his descendants, it is the duty of thead(inistratri8 of the estate to return the( or inde(nify the owner for their value.

The Civil Code, in dealin' with loans in 'eneral, fro( which 'eneric deno(ination the specific one ofco((odatu( is derived, establishes prescriptions in relation to the last-(entioned contract by thefollowin' articles

A)T. "/$3. By the contract of loan, one of the parties delivers to the other, either anythin' not perishable, in order that the latter (ay use it durin' a certain period and return it to the for(er,in which case it is called co((odatu(, or (oney or any other perishable thin', under thecondition to return an equal a(ount of the sa(e ind and quality, in which case it is (erelycalled a loan.

Co((odatu( is essentially 'ratuitous.

A si(ple loan (ay be 'ratuitous, or (ade under a stipulation to pay interest.

A)T. "/$". The bailee acquires retains the ownership of the thin' loaned. The bailee acquiresthe use thereof, but not its fruits= if any co(pensation is involved, to be paid by the person

requirin' the use, the a'ree(ent ceases to be a co((odatu(.

A)T. "/$2. The obli'ations and ri'hts which arise fro( the co((odatu( pass to the heirs of both contractin' parties, unless the loan has been in consideration for the person of the bailee, inwhich case his heirs shall not have the ri'ht to continue usin' the thin' loaned.

The carabaos delivered to be used not bein' returned by the defendant upon de(and, there is no doubtthat she is under obli'ation to inde(nify the owner thereof by payin' hi( their value.

Article ""3" of said code reads

Those who in fulfillin' their obli'ations are 'uilty of fraud, ne'li'ence, or delay, and those whoin any (anner whatsoever act in contravention of the stipulations of the sa(e, shall be sub5ected

to inde(nify for the losses and da(a'es caused thereby.The obli'ation of the bailee or of his successors to return either the thin' loaned or its value, issustained by the supre(e tribunal of apin. +n its decision of !arch 2", "#4, it sets out with precisionthe le'al doctrine touchin' co((odatu( as follows

Althou'h it is true that in a contract of co((odatu( the bailor retains the ownership of thethin' loaned, and at the e8piration of the period, or after the use for which it was loaned has been acco(plished, it is the i(perative duty of the bailee to return the thin' itself to its owner,or to pay hi( da(a'es if throu'h the fault of the bailee the thin' should have been lost or



in5ured, it is clear that where public securities are involved, the trial court, in deferrin' to theclai( of the bailor that the a(ount loaned be returned hi( by the bailee in bonds of the sa(eclass as those which constituted the contract, thereby properly applies law # of title "" of partida 4.

Dith re'ard to the third assi'n(ent of error, based on the fact that the plaintiff antos had not appealedfro( the decision of the co((issioners re5ectin' his clai( for the recovery of his carabaos, it is

sufficient to estate that we are not dealin' with a clai( for the pay(ent of a certain su(, the collectionof a debt fro( the estate, or pay(ent for losses and da(a'es >sec. ""#, Code of Civil *rocedure?, butwith the e8clusion fro( the inventory of the property of the late %i(enea, or fro( his capital, of si8carabaos which did not belon' to hi(, and which for(ed no part of the inheritance.

The de(and for the e8clusion of the said carabaos belon'in' to a third party and which did not for( part of the property of the deceased, (ust be the sub5ect of a direct decision of the court in an ordinaryaction, wherein the ri'ht of the third party to the property which he sees to have e8cluded fro( theinheritance and the ri'ht of the deceased has been discussed, and rendered in view of the result of theevidence adduced by the ad(inistrator of the estate and of the clai(ant, since it is so provided by thesecond part of section 0## and by section /31 of the Code of Civil *rocedure= the refusal of theco((issioners before who( the plaintiff unnecessarily appeared can not affect nor reduce theunquestionable ri'ht of ownership of the latter, inas(uch as there is no law nor principle of 5usticeauthoriin' the successors of the late %i(enea to enrich the(selves at the cost and to the pre5udice of<eli8 de los antos.

<or the reasons above set forth, by which the errors assi'ned to the 5ud'(ent appealed fro( have beenrefuted, and considerin' that the sa(e is in accordance with the law and the (erits of the case, it is ouropinion that it should be affir(ed and we do hereby affir( it with the costs a'ainst the appellant. oordered

ECON: :+&++ON

G.R. No. L-50550-52 Otober (1, 1939

CH!! IONG 'A", A"PANG "AH, ANITA 'A" %OS! '.C. 'A" AN$ RICHAR$ 'A",petitioners,vs.HON. NA+$AR %. "ALI, "/66p7 %e o: %oo, S +r7/; I, TH! P!OPL! OTH! PHILIPPIN!S, ROSALIN$A A"IN, TAN CH# AO 7/ LT. COL. AGOSTO SA%ORrespondents.

*omas P. atic, Jr. for petitioners.

Jose E. -ernandez for pri#ate respondent.

Office of t!e %olicitor eneral for respondent t!e People of t!e P!ilippines.

A+A$ SANTOS, J.:

This is a petition for certiorari, prohibition, and mandamus with preliminary inunction.Petitioners alleged that respondent :unicipal udge $abdar . :ali= of olo, ?ulu, actedwithout urisdiction, in eGcess of urisdiction and with grave abuse of discretion when5

-a he held in the preliminary investigation of the charges of estafa filed by respondents%osalinda Amin, Tan Chu Kao and Augusto ?aor against petitioners that there was a primafacie case against the latter@



-b he issued warrants of arrest against petitioners after ma=ing the above determination@ and

-c he undertoo= to conduct trial on the merits of the charges which were doc=eted in his courtas Criminal Cases $o. :&, :&"3 and :&0(".

%espondent udge is said to have acted without urisdiction, in eGcess of urisdiction and withgrave abuse of discretion because the facts recited in the complaints did not constitute thecrime of estafa, and assuming they did, they were not within the urisdiction of the respondent

udge.

n a resolution dated :ay 03, !#!, we required respondents to comment in the petition andissued a temporary restraining order against the respondent udge from further proceedingwith Criminal Cases $os. :&, :&"3 and :&0(" or from enforcing the warrants of arrest hehad issued in connection with said cases.

Comments by the respondent udge and the private respondents pray for the dismissal of thepetition but the ?olicitor 'eneral has manifested that the People of the Philippines have noobection to the grant of the reliefs prayed for, eGcept the damages. 6e considered thecomments as answers and gave due course to the petition.

The position of the ?olicitor 'eneral is well ta=en. 6e have to grant the petition in order toprevent manifest inustice and the eGercise of palpable eGcess of authority.

n Criminal Case $o. :&, respondent %osalinda :. Amin charges petitioners Ham CheeKiong and Ham Hap Kieng with estafa through misappropriation of the amount of P)(,(((.((.4ut the complaint states on its face that said petitioners received the amount from respondent%osalinda :. Amin Eas a loan.E :oreover, the complaint in Civil Case $o. $&), anindependent action for the collection of the same amount filed by respondent %osalinda :.

Amin with the Court of 2irst nstance of ?ulu on ?eptember , !#), li=ewise states that theP)(,(((.(( was a Esimple business loanE which earned interest and was originallydemandable siG - months from uly 0, !#3. -AnneG 7 of the petition.

n Criminal Case $o. :&"3, respondent Tan Chu Kao charges petitioners Ham Chee Kiong,ose H.C. Ham, Ampang :ah and Anita Ham, alias Hong Tay, with estafa throughmisappropriation of the amount of P3(,(((.((. ;i=ewise, the complaint states on its face thatthe P3(,(((.(( was Ea simple loan.E ?o does the complaint in Civil Case $o. $&" filed byrespondent Tan Chu Kao on April , !# with the Court of 2irst nstance of ?ulu for thecollection of the same amount. -AnneG D of the petition..

n Criminal Case $o. :&0(", respondent Augusto ?aor charges petitioners ose H.C. Ham, Anita Ham alias Hong Tai :ah, Chee Kiong Ham and %ichard Ham, with estafa throughmisappropriation of the amount of P0(,(((.((. Fnli=e the complaints in the other two cases,the complaint in Criminal Case $o. :&0(" does not state that the amount was received asloan. 1owever, in a sworn statement dated ?eptember 0!, !#, submitted to respondent

udge to support the complaint, respondent Augusto ?aor states that the amount was aEloan.E -AnneG ' of the petition..

6e agree with the petitioners that the facts alleged in the three criminal complaints do notconstitute estafa through misappropriation.

7stafa through misappropriation is committed according to Article 3), paragraph ,subparagraph -b, of the %evised Penal Code as follows5

Art. 3). ?windling -7stafa. B Any person who shall defraud another by any of the meansmentioned herein below shall be punished by5



GGG GGG GGG

. 6ith unfaithfulness or abuse of confidence namely5

GGG GGG GGG

b 4y misappropriating or converting, to the preudice of another, money, goods, or any otherpersonal property received by the offender in trust or on commission, or for administration, orunder any other obligation involving the duty to ma=e delivery of or to return the same, even

though such obligation be totally or partially guaranteed by a bond@ or by denying havingreceived such money, goods, or other property.

n order that a person can be convicted under the abovequoted provision, it must be proventhat he has the obligation to deliver or return the same money, goods or personal propertythat he received. Petitioners had no such obligation to return the same money, i.e., the bills orcoins, which they received from private respondents. This is so because as clearly stated incriminal complaints, the related civil complaints and the supporting sworn statements, thesums of money that petitioners received were loans.

The nature of simple loan is defined in Articles !33 and !)3 of the Civil Code.

Art. !33. B 4y the contract of loan, one of the parties delivers to another, either something notconsumable so that the latter may use the same for a certain time and return it, in which casethe contract is called a commodatum@ or money or other consumable thing upon the conditionthat the same amount of the same =ind and quality shall be paid, in which case the contract issimply called a loan or mutuum.

Commodatum is essentially gratuitous.

?imple loan may be gratuitous or with a stipulation to pay interest.

n commodatum the bailor retains the ownership of the thing loaned, while in simple loamownership passes to the borrower.

Art. !)3. B A person who receives a loan of money or any other fungible thing acquires theownership thereof, and is bound to pay to the creditor an equal amount of the same =ind andquality.

t can be readily noted from the above&quoted provisions that in simple loan -mutuum, ascontrasted to commodatum, the borrower acquires ownership of the money, goods orpersonal property borrowed. 4eing the owner, the borrower can dispose of the thing borrowed-Article 0*", Civil Code and his act will not be considered misappropriation thereof.

n '.%. #s. )baez , ! Phil. ))!, )( -!, this Court held that it is not estafa for a person torefuse to nay his debt or to deny its eGistence.

6e are of the opinion and so decide that when the relation is purely that of debtor and creditor,the debtor can not be held liable for the crime of estafa, under said article, by merely refusing topay or by denying the indebtedness.

t appears that respondent udge failed to appreciate the distinction between the two types of

loan, mutuum and commodatum, when he performed the questioned acts, 1e mistoo= thetransaction between petitioners and respondents %osalinda Amin, Tan Chu Kao and Augusto?aor to be commodatum wherein the borrower does not acquire ownership over the thingborrowed and has the duty to return the same thing to the lender.

Fnder ?ec. "# of the udiciary Act, the municipal court of a provincial capital, which the:unicipal Court of olo is, has urisdiction over criminal cases where the penalty provided bylaw does not eGceed prision correccional or imprisonment for not more than siG - years, orfine not eGceeding P,(((.(( or both, The amounts allegedly misappropriated by petitionersrange from P0(,(((.(( to P)(,(((.((. The penalty for misappropriation of this magnitude



eGceeds prision correccional or year imprisonment. -Article 3), %evised Penal Code, Assuming then that the acts recited in the complaints constitute the crime of estafa, the:unicipal Court of olo has no urisdiction to try them on the merits. The alleged offenses areunder the urisdiction of the Court of 2irst nstance.

%espondents People of the Philippines being the sovereign authority can not be sued fordamages. They are immune from such type of suit.

6ith respect to the other respondents, this Court is not the proper forum for the considerationof the claim for damages against them.

617%728%7, the petition is hereby granted@ the temporary restraining order previouslyissued is hereby made permanent@ the criminal complaints against petitioners are herebydeclared null and void@ respondent udge is hereby ordered to dismiss said criminal cases andto recall the warrants of arrest he had issued in connection therewith. :oreover, respondent

udge is hereby rebu=ed for manifest ignorance of elementary law. ;et a copy of this decisionbe included in his personal life. Costs against private respondents.

?8 8%D7%7D.

EN BANCG.R. No. 265 #88*t 12, 1927

E"ERINO TOLENTINO +)& POTENCI#N# %#NIO, plaintiffs-appellants,vs.BENITO GON:#LE: ; CHI#%, defendants-appellee.

Araneta and /ara#oa for appellants.

0use1io Orense for appelle.

!OHNON, J.:

*)+NC+*AF 7ET+ON *)EENTE: BG T9E A**EAF

The principal questions presented by this appeal are

>a? +s the contract in question a pacto de retro or a (ort'a'eH

>1? 7nder a pacto de retro, when the vendor beco(es a tenant of the purchaser and a'rees to pay a certain a(ount per (onth as rent, (ay such rent render such a contract usurious when thea(ount paid as rent, co(puted upon the purchase price, a(ounts to a hi'her rate of interestupon said a(ount than that allowed by lawH

>c? !ay the contract in the present case (ay be (odified by parol evidenceH

ANTECE:ENT <ACT

o(eti(e prior to the 2th day of Nove(ber, "#22, the appellants purchased of the Fuon )ice !ills,+nc., a piece or parcel of land with the camarin located thereon, situated in the (unicipality of Tarlac ofthe *rovince of Tarlac for the price of *24,333, pro(isin' to pay therefor in three install(ents. The firstinstall(ent of *2,333 was due on or before the 2d day of !ay, "#2"= the second install(ent of *,333was due on or before 1"st day of !ay, "#2"= the balance of *"4,333 at "2 per cent interest was due and payable on or about the 13th day of Nove(ber, "#22. One of the conditions of that contract of purchasewas that on failure of the purchaser >plaintiffs and appellants? to pay the balance of said purchase priceor any of the install(ents on the date a'reed upon, the property bou'ht would revert to the ori'inalowner.



The pay(ents due on the 2d and 1"st of !ay, "#2", a(ountin' to *"3,333 were paid so far as therecord shows upon the due dates. The balance of *"4,333 due on said contract of purchase was paid onor about the "st day of :ece(ber, "#22, in the (anner which will be e8plained below. On the datewhen the balance of *"4,333 with interest was paid, the vendor of said property had issued to the purchasers transfer certificate of title to said property, No. 42. aid transfer certificate of title >No.42? was transfer certificate of title fro( No. $3, which shows that said land was ori'inally re'istered

in the na(e of the vendor on the /th day of Nove(ber, "#"1.*)EENT <ACT

On the /th day of Nove(ber, "#22 the representative of the vendor of the property in question wrote aletter to the appellant *otenciana !anio >E8hibit A, p. 43?, notifyin' the latter that if the balance of saidindebtedness was not paid, an action would be brou'ht for the purpose of recoverin' the property,to'ether with da(a'es for non co(pliance with the condition of the contract of purchase. The pertinent parts of said letter read as follows

irvase notar que de no estar liquidada esta cuenta el dia 13 del corriente, procedere(os 5udicial(ente contra &d. para recla(ar la devolucion del ca(arin ylos daIos y per5uicios ocasionados a la co(paIia por su incu(pli(iento al contrato.

o(os de &d. atentos y . .

!+T9, BEFF J CO., FT:.

By >'d.? <. +. 9+;9A!

Treasurer.

;eneral !ana'ers

F7KON )+CE !+FF +NC.

Accordin' to E8hibits B and :, which represent the account rendered by the vendor, there was due and payable upon said contract of purchase on the 13th day of Nove(ber, "#22, the su( *"0,#04.3#. 7ponreceivin' the letter of the vendor of said property of Nove(ber /, "#22, the purchasers, the appellantsherein, realiin' that they would be unable to pay the balance due, be'an to (ae an effort to borrow(oney with which to pay the balance due, be'an to (ae an effort to borrow (oney with which to paythe balance of their indebtedness on the purchase price of the property involved. <inally an applicationwas (ade to the defendant for a loan for the purpose of satisfyin' their indebtedness to the vendor ofsaid property. After so(e ne'otiations the defendants a'reed to loan the plaintiffs to loan the plaintiffsthe su( of *"/,433 upon condition that the plaintiffs e8ecute and deliver to hi( a pacto de retro of said

property.+n accordance with that a'ree(ent the defendant paid to the plaintiffs by (eans of a chec the su( of*"0,#04.3#. The defendant, in addition to said a(ount paid by chec, delivered to the plaintiffs the su(of *14$.#" to'ether with the su( of *"3 which the plaintiffs paid to the attorneys for draftin' saidcontract of pacto de retro, (ain' a total paid by the defendant to the plaintiffs and for the plaintiffs of*"/,433 upon the e8ecution and delivery of said contract. aid contracts was dated the 2th day of Nove(ber, "#22, and is in the words and fi'ures followin'

Sepan todos por la presente2



ue nosotros, los conyu'es Se3erino Tolentino y )otenciana !anio, a(bos (ayoresde edad, residentes en el !unicipio de Calu(pit, *rovincia de Bulacan, propietariosy transeuntes en esta Ciudad de !anila, de una parte, y de otra, &enito Gonale Sy

*hiam, (ayor de edad, casado con !aria antia'o, co(erciante y vecinos de estaCiudad de !anila.

!AN+<ETA!O G 9ACE!O CONTA)

*ri(ero. ue nosotros, everino Tolentino y *otenciano !anio, por y enconsideracion a la cantidad de diecisiete (il quinientos pesos >*"/,433? (onedafilipina, que en este acto he(os recibido a nuestra entera satisfaccion de :on Benito;onale y Chia(, cede(os, vende(os y traspasa(os a favor de dicho :onBenito ;onale y Chia(, sus herederos y causahabientes, una finca que, se'un elCertificado de Transferencia de Titulo No. $3 e8pedido por el )e'istrador de Titulosde la *rovincia de Tarlac a favor de Luon Rice !ills *ompany Limited que alincorporarse se dono(ino y se deno(ina Luon Rice !ills $nc., y que estacorporacion nos ha transferido en venta absoluta, se describe co(o si'ue

4n terreno >lote No. "? con las (e5oras e8istentes en el (is(o, situado en el!unicipio de Tarlac. Finda por el O. y N. con propiedad de !anuel 7rquico= por elE. con propiedad de la !anila )ailroad Co.= y por el . con un ca(ino. *artiendo deun punto (arcado " en el plano, cuyo punto se halla al N. $" 'ds. "/ E.4#.$2 (.del (o5on de localiacion No. 2 de la Oficina de Terrenos en Tarlac= y desde dicho punto " N. " 'ds. 1" O., // (. al punto 2= desde este punto N. $ 'ds. 22 E.= 4$./3(. al punto 1= desde este punto . 0 'ds. "/ E.= 0#.24 (. al punto $= desde este punto . 2 'ds. $2 E., 0".$ (. al punto de partida= (idiendo una e8tensionsuperficcial de cuatro (il doscientos die y seis (etros cuadrados >$,2"0? (as o(enos. Todos los puntos no(brados se hallan (arcados en el plano y sobre elterreno los puntos " y 2 estan deter(inados por (o5ones de *. F. . de 23 8 23 8 /3centi(etros y los puntos 1 y $ por (o5ones del *. F. . B. F. la orientacion se'uidaes la verdadera, siendo la declinacion (a'netica de 3 'ds. $4 E. y la fecha de la(edicion, ".L de febrero de "#"1.

e'undo. ue es condicion de esta venta la de que si en el plao de cinco >4? aIoscontados desde el dia ".L de dicie(bre de "#22, devolve(os al e8presado :onBenito ;onale y Chia( el referido precio de diecisiete (il quinientos pesos>*"/,433? queda obli'ado dicho r. Benito ;onale y Chia( a retrovendernos lafinca arriba descrita= pero si transcurre dicho plao de cinco aIos sin e5ercitar elderecho de retracto que nos he(os reservado, entonces quedara esta venta absolutae irrevocable.

Tercero. ue durante el e8presado ter(ino del retracto tendre(os en arrenda(ientola finca arriba descrita, su5eto a condiciones si'uientes

>a? El alquiler que nos obli'a(os a pa'ar por (ensualidades vencidas a :onBenito ;onale y Chia( y en su do(icilio, era de trescientos setenta ycinco pesos >*1/4? (oneda filipina, cada (es.



>1? El a(illara(iento de la finca arrendada sera por cuenta de dicho :onBenito ;onale y Chia(, asi co(o ta(bien la pri(a del se'uro contraincendios, si el conviniera al referido r. Benito ;onale y Chia(ase'urar dicha finca.

>c? Fa falta de pa'o del alquiler aqui estipulado por dos (eses consecutivos

dara lu'ar a la ter(inacion de este arrenda(ieno y a la perdida del derechode retracto que nos he(os reservado, co(o si natural(ente hubiera e8piradoel ter(ino para ello, pudiendo en su virtud dicho r. ;onale y Chia(to(ar posesion de la finca y desahuciarnos de la (is(a.

Cuarto. ue yo, Benito ;onale y Chia(, a (i ve otor'o que acepto estaescritura en los precisos ter(inos en que la de5an otor'ada los conyu'es everinoTolentino y *otenciana !anio.

En testi(onio de todo lo cual, fir(a(os la presente de nuestra (ano en !anila, porcuadruplicado en !anila, hoy a 2 de novie(bre de "#22.

><do.? E&E)+NO TOFENT+NO

><da.? *OTENC+ANA !AN+O

><do.? BEN+TO ;ONKAFEK G C9+A!

<ir(ado en presencia de

><dos.? !O+E !. B79A+N

B. . BANAA;

An e8a(ination of said contract of sale with reference to the first question above, shows clearly that itis a pacto de retro and not a (ort'a'e. There is no pretension on the part of the appellant that saidcontract, standin' alone, is a (ort'a'e. The pertinent lan'ua'e of the contract is

e'undo. ue es condicion de esta venta la de que si en el plao de cinco >4? aIos contadosdesde el dia ".L de dicie(bre de "#22, devolve(os al e8presado :on Benito ;onales y Chia(el referido precio de diecisiete (il quinientos pesos >*"/,433? queda obli'ado dicho r. Benito;onales y Chia( a retrovendornos la finca arriba descrita= pero si transcurre dicho plao decinco >4? aIos sin e5ercitar al derecho de retracto que nos he(os reservado, entonces quedaraesta venta absoluta e irrevocable.

Fan'ua'e cannot be clearer. The purpose of the contract is e8pressed clearly in said quotation that therecan certainly be not doubt as to the purpose of the plaintiff to sell the property in question, reservin' theri'ht only to repurchase the sa(e. The intention to sell with the ri'ht to repurchase cannot be (oreclearly e8pressed.

+t will be noted fro( a readin' of said sale of pacto de retro, that the vendor, reco'niin' the absolutesale of the property, entered into a contract with the purchaser by virtue of which she beca(e thetenant of the purchaser. That contract of rent appears in said quoted docu(ent above as follows

Tercero. ue durante el e8presado ter(ino del retracto tendre(os en arrenda(iento la finca



arriba descrita, su5eto a condiciones si'uientes

>a? El alquiler que nos obli'a(os a pa'ar por (ensualidades vencidas a :on Benito ;onaley Chia( y en su do(icilio, sera de trescientos setenta y cinco pesos >*1/4? (oneda filipina,cada (es.

>1? El a(illara(iento de la finca arrendada sera por cuenta de dicho :on Benito ;onale yChia(, asi co(o ta(bien la pri(a del se'uro contra incendios, si le conviniera al referido r.Benito ;onale y Chia( ase'urar dicha finca.

<ro( the fore'oin', we are driven to the followin' conclusions +irst , that the contract of pacto de

retro is an absolute sale of the property with the ri'ht to repurchase and not a (ort'a'e= and, second,that by virtue of the said contract the vendor beca(e the tenant of the purchaser, under the conditions(entioned in para'raph 1 of said contact quoted above.

+t has been the unifor( theory of this court, due to the severity of a contract of pacto de retro, todeclare the sa(e to be a (ort'a'e and not a sale whenever the interpretation of such a contract 5ustifiesthat conclusion. There (ust be so(ethin', however, in the lan'ua'e of the contract or in the conduct ofthe parties which shows clearly and beyond doubt that they intended the contract to be a (ort'a'eand not a pacto de retro. >+nternational Banin' Corporation 3s. !artine, "3 *hil., 242= *adilla 3s.

Finsan'an, "# *hil., 04= Cu(a'un 3s. Alin'ay, "# *hil., $"4= Olino 3s. !edina, "1 *hil., 1/#= !analo3s. ;ueco, $2 *hil., #24= &elaque 3s. Teodoro, $0 *hil., /4/= &illa 3s. antia'o, 1 *hil., "4/.?

De are not un(indful of the fact that sales with pacto de retro are not favored and that the court willnot construe an instru(ent to one of sale with pacto de retro, with the strin'ent and onerous effectwhich follows, unless the ter(s of the docu(ent and the surroundin' circu(stances require it.

Dhile it is 'eneral rule that parol evidence is not ad(issible for the purpose of varyin' the ter(s of acontract, but when an issue is squarely presented that a contract does not e8press the intention of the parties, courts will, when a proper foundation is laid therefor, hear evidence for the purpose ofascertainin' the true intention of the parties.

+n the present case the plaintiffs alle'e in their co(plaint that the contract in question is a pacto de

retro. They ad(it that they si'ned it. They ad(it they sold the property in question with the ri'ht torepurchase it. The ter(s of the contract quoted by the plaintiffs to the defendant was a sale with pacto de retro, and the plaintiffs have shown no circu(stance whatever which would 5ustify us inconstruin' said contract to be a (ere loan with 'uaranty. +n every case in which this court hasconstrued a contract to be a (ort'a'e or a loan instead of a sale with pacto de retro, it has done so,either because the ter(s of such contract were inco(patible or inconsistent with the theory that saidcontract was one of purchase and sale. >Olino 3s. !edina, supra= *adilla 3s. Finsan'an, supra=!anla'nit 3s. :y *uico, 1$ *hil., 124= )odri'ue 3s. *a(intuan and :e %esus, 1/ *hil., /0.?

+n the case of *adilla 3s. Finsan'an the ter( e(ployed in the contract to indicate the nature of theconveyance of the land was pled'ed instead of sold. +n the case of !anla'nit 3s. :y *uico, while

the vendor used to the ter(s sale and transfer with the ri'ht to repurchase, yet in said contract hedescribed hi(self as a debtor the purchaser as a creditor and the contract as a (ort'a'e. +n thecase of Rodri#ue 3s. )amintuan and De esus the person who e8ecuted the instru(ent, purportin' onits face to be a deed of sale of certain parcels of land, had (erely acted under a power of attorney fro(the owner of said land, authoriin' hi( to borrow (oney in such a(ount and upon such ter(s andconditions as he (i'ht dee( proper, and to secure pay(ent of the loan by a (ort'a'e. +n the case ofVilla 3s. Santia#o >1 *hil., "4/?, althou'h a contract purportin' to be a deed of sale was e8ecuted, thesupposed vendor re(ained in possession of the land and invested the (oney he had obtained fro( thesupposed vendee in (ain' i(prove(ents thereon, which fact 5ustified the court in holdin' that the



transaction was a (ere loan and not a sale. +n the case of *uyu#an 3s. Santos >1# *hil., #/3?, the purchaser accepted partial pay(ents fro( the vendor, and such acceptance of partial pay(ents isabsolutely inco(patible with the idea of irrevocability of the title of ownership of the purchaser at thee8piration of the ter( stipulated in the ori'inal contract for the e8ercise of the ri'ht of repurchase.

)eferrin' a'ain to the ri'ht of the parties to vary the ter(s of written contract, we quote fro( thedissentin' opinion of Chief %ustice Cayetano . Arellano in the case of ;overn(ent of the *hilippine

+slands 3s. *hilippine u'ar Estates :evelop(ent Co., which case was appealed to the upre(e Courtof the 7nited tates and the contention of the Chief %ustice in his dissentin' opinion was affir(ed andthe decision of the upre(e Court of the *hilippine +slands was reversed. >ee decision of the upre(e

Court of the 7nited tates, %une 1, "#".?" The Chief %ustice said in discussin' that question

Accordin' to article "22 of the Civil Code, in order to 5ud'e of the intention of the contractin' parties,consideration (ust chiefly be paid to those acts e8ecuted by said parties which are conte(porary withand subsequent to the contract. And accordin' to article "21, however 'eneral the ter(s of a contract(ay be, they (ust not be held to include thin's and cases different fro( those with re'ard to which theinterested parties a'reed to contract. The upre(e Court of the *hilippine +slands held the parolevidence was ad(issible in that case to vary the ter(s of the contract between the ;overn(ent of the*hilippine +slands and the *hilippine u'ar Estates :evelop(ent Co. +n the course of the opinion of theupre(e Court of the 7nited tates !r. %ustice Brandeis, speain' for the court, said

+t is well settled that courts of equity will refor( a written contract where, owin' to (utual(istae, the lan'ua'e used therein did not fully or accurately e8press the a'ree(ent andintention of the parties. The fact that interpretation or construction of a contract presents aquestion of law and that, therefore, the (istae was one of law is not a bar to 'rantin' relief. . . .This court is always disposed to accept the construction which the hi'hest court of a territory or possession has placed upon a local statute. But that disposition (ay not be yielded to where thelower court has clearly erred. 9ere the construction adopted was rested upon a clearly erroneousassu(ption as to an established rule of equity. . . . The burden of proof restin' upon theappellant cannot be satisfied by (ere preponderance of the evidence. +t is settled that relief by

way of refor(ation will not be 'ranted unless the proof of (utual (istae be of the clearest and(ost satisfactory character.

The evidence introduced by the appellant in the present case does not (eet with that strin'entrequire(ent. There is not a word, a phrase, a sentence or a para'raph in the entire record, which 5ustifies this court in holdin' that the said contract of pacto de retro is a (ort'a'e and not a sale withthe ri'ht to repurchase. Article "2" of the Civil Code provides +f the ter(s of a contract are clear andleave no doubt as to the intention of the contractin' parties, the literal sense of its stipulations shall befollowed. Article "22 provides in order to 5ud'e as to the intention of the contractin' parties,attention (ust be paid principally to their conduct at the ti(e of (ain' the contract and subsequentlythereto.

De cannot thereto conclude this branch of our discussion of the question involved, without quotin'fro( that very well reasoned decision of the late Chief %ustice Arellano, one of the 'reatest 5urists of histi(e. 9e said, in discussin' the question whether or not the contract, in the case of Lichauco 3s.

&eren#uer >23 *hil., "2?, was a pacto de retro or a (ort'a'e

The public instru(ent, E8hibit C, in part reads as follows :on !acarion Beren'uer declaresand states that he is the proprietor in fee si(ple of two parcels of fallow unappropriated crownland situated within the district of his pueblo. The first has an area of /1 5ui%ones, 1alitas and loanes, located in the sitio of Batasan, and its boundaries are, etc., etc. The second is in thesitio of *ananta'lay, barrio of Calu(pan' has as area of /1 hectares, 22 ares, and 0 centares,



and is bounded on the north, etc., etc.

+n the e8ecutory part of the said instru(ent, it is stated

That under condition of ri'ht to repurchase > pacto de retro? he sells the said propertiesto the afore(entioned :oIa Cornelia Faochan'co for *$,333 and upon the followin'conditions <irst, the sale stipulated shall be for the period of two years, countin' fro(this date, within which ti(e the deponent shall be entitled to repurchase the land soldupon pay(ent of its price= second, the lands sold shall, durin' the ter( of the presentcontract, be held in lease by the undersi'ned who shall pay, as rental therefor, the su( of$33 pesos per annu(, or the equivalent in su'ar at the option of the vendor= third, all thefruits of the said lands shall be deposited in the su'ar depository of the vendee, situatedin the district of uiapo of this city, and the value of which shall be applied on accountof the price of this sale= fourth, the deponent acnowled'es that he has received fro( thevendor the purchase price of *$,333 already paid, and in le'al tender currency of thiscountry . . .= fifth, all the ta8es which (ay be assessed a'ainst the lands surveyed byco(petent authority, shall be payable by and constitute a char'e a'ainst the vendor=si8th, if, throu'h any unusual event, such as flood, te(pest, etc., the propertieshereinbefore enu(erated should be destroyed, wholly or in part, it shall be incu(bentupon the vendor to repair the da(a'e thereto at his own e8pense and to put the( into a'ood state of cultivation, and should he fail to do so he binds hi(self to 'ive to thevendee other lands of the sa(e area, quality and value.

8 8 8 8 8 8 8 8 8

The opponent (aintained, and his theory was accepted by the trial court, that Beren'uerscontract with Faochan'co was not one of sale with ri'ht of repurchase, but (erely one of loansecured by those properties, and, consequently, that the ownership of the lands in questionscould not have been conveyed to Faochan'co, inas(uch as it continued to be held byBeren'uer, as well as their possession, which he had not ceased to en5oy.

uch a theory is, as ar'ued by the appellant, erroneous. The instru(ent e8ecuted by !acarioBeren'uer, the te8t of which has been transcribed in this decision, is very clear. Beren'uersheirs (ay not 'o counter to the literal tenor of the obli'ation, the e8act e8pression of theconsent of the contractin' contained in the instru(ent, E8hibit C. Not because the lands (ayhave continued in possession of the vendor, not because the latter (ay have assu(ed the pay(ent of the ta8es on such properties, nor yet because the sa(e party (ay have boundhi(self to substitute by another any one of the properties which (i'ht be destroyed, does thecontract cease to be what it is, as set forth in detail in the public instru(ent. The vendorcontinued in the possession of the lands, not as the owner thereof as before their sale, but as thelessee which he beca(e after its consu((ation, by virtue of a contract e8ecuted in his favor bythe vendee in the deed itself, E8hibit C. )i'ht of ownership is not i(plied by the circu(stanceof the lessees assu(in' the responsibility of the pay(ent is of the ta8es on the property leased,for their pay(ent is not peculiarly incu(bent upon the owner, nor is such ri'ht i(plied by theobli'ation to substitute the thin' sold for another while in his possession under lease, since thatobli'ation ca(e fro( hi( and he continues under another character in its possession@a reasonwhy he 'uarantees its inte'rity and obli'ates hi(self to return the thin' even in a case of force

majeure. uch liability, as a 'eneral rule, is forei'n to contracts of lease and, if required, ise8orbitant, but possible and lawful, if voluntarily a'reed to and such a'ree(ent does not on thisaccount involve any si'n of ownership, nor other (eanin' than the will to i(pose upon oneselfscrupulous dili'ence in the care of a thin' belon'in' to another.



The purchase and sale, once consu((ated, is a contract which by its nature transfers theownership and other ri'hts in the thin' sold. A pacto de retro, or sale with ri'ht to repurchase, isnothin' but a personal ri'ht stipulated between the vendee and the vendor, to the end that thelatter (ay a'ain acquire the ownership of the thin' alienated.

+t is true, very true indeed, that the sale with ri'ht of repurchase is e(ployed as a (ethod ofloan= it is liewise true that in practice (any cases occur where the consu((ation of a pacto de

retro sale (eans the financial ruin of a person= it is also, unquestionable that in pacto de retrosales very i(portant interests often intervene, in the for( of the price of the lease of the thin'sold, which is stipulated as an additional covenant. >!anresa, Civil Code, p. 2/$.?

But in the present case, unlie others heard by this court, there is no proof that the sale withri'ht of repurchase, (ade by Beren'uer in favor of Faonchan'co is rather a (ort'a'e to securea loan.

De co(e now to a discussion of the second question presented above, and that is, statin' the sa(e inanother for( !ay a tenant char'e his landlord with a violation of the 7sury Faw upon the 'round thatthe a(ount of rent he pays, based upon the real value of the property, a(ounts to a usurious rate ofinterestH Dhen the vendor of property under a pacto de retro rents the property and a'rees to pay a

rental value for the property durin' the period of his ri'ht to repurchase, he thereby beco(es a tenantand in all respects stands in the sa(e relation with the purchaser as a tenant under any other contract oflease.

The appellant contends that the rental price paid durin' the period of the e8istence of the ri'ht torepurchase, or the su( of *1/4 per (onth, based upon the value of the property, a(ounted to usury.7sury, 'enerally speain', (ay be defined as contractin' for or receivin' so(ethin' in e8cess of thea(ount allowed by law for the loan or forbearance of (oney@the tain' of (ore interest for the use of(oney than the law allows. +t see(s that the tain' of interest for the loan of (oney, at least the tain'of e8cessive interest has been re'arded with abhorrence fro( the earliest ti(es. >:unha( 3s. ;ould, "0%ohnson MN. G., 10/.? :urin' the (iddle a'es the people of En'land, and especially the En'lishChurch, entertained the opinion, then, current in Europe, that the tain' of any interest for the loan of

(oney was a detestable vice, hateful to (an and contrary to the laws of ;od. >1 Coes +nstitute, "43=Tayler on 7sury, $$.?

Chancellor ent, in the case of Dunham 3s. Gould , supra, said +f we loo bac upon history, we shallfind that there is scarcely any people, ancient or (odern, that have not had usury laws. . . . The)o(ans, throu'h the 'reater part of their history, had the deepest abhorrence of usury. . . . +t will bedee(ed a little sin'ular, that the sa(e voice a'ainst usury should have been raised in the laws of China,in the 9indu institutes of !enu, in the oran of !aho(et, and perhaps, we (ay say, in the laws of allnations that we now of, whether ;ree or Barbarian.

The collection of a rate of interest hi'her than that allowed by law is conde(ned by the *hilippineFe'islature >Acts Nos. 2044, 2002 and 2##2?. But is it unlawful for the owner of a property to enter

into a contract with the tenant for the pay(ent of a specific a(ount of rent for the use and occupationof said property, even thou'h the a(ount paid as rent, based upon the value of the property, (i'hte8ceed the rate of interest allowed by lawH That question has never been decided in this 5urisdiction. +tis one of first i(pression. No cases have been found in this 5urisdiction answerin' that question. Act No. 2044 is An Act fi8in' rates of interest upon loans and declarin' the effect of receivin' or tain'usurious rates.

+t will be noted that said statute i(poses a penalty upon a loan or forbearance of any (oney, 'oods,chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on loans. Acontract of loan, is very different contract fro( that of rent. A loan, as that ter( is used in the



statute, si'nifies the 'ivin' of a su( of (oney, 'oods or credits to another, with a pro(ise to repay, butnot a pro(ise to return the sa(e thin'. To loan, in 'eneral parlance, is to deliver to another forte(porary use, on condition that the thin' or its equivalent be returned= or to deliver for te(porary useon condition that an equivalent in ind shall be returned with a co(pensation for its use. The wordloan, however, as used in the statute, has a technical (eanin'. +t never (eans the return of the sa(ethin'. +t (eans the return of an equivalent only, but never the sa(e thin' loaned. A loan has been

properly defined as an advance pay(ent of (oney, 'oods or credits upon a contract or stipulation torepay, not to return, the thin' loaned at so(e future day in accordance with the ter(s of the contract.7nder the contract of loan, as used in said statute, the (o(ent the contract is co(pleted the (oney,'oods or chattels 'iven cease to be the property of the for(er owner and beco(es the property of theobli'or to be used accordin' to his own will, unless the contract itself e8pressly provides for a specialor specific use of the sa(e. At all events, the (oney, 'oods or chattels, the (o(ent the contract ise8ecuted, cease to be the property of the for(er owner and beco(es the absolute property of theobli'or.

A contract of loan differs (aterially fro( a contract of rent. +n a contract of rent the owner of the property does not lose his ownership. 9e si(ply loses his control over the property rented durin' the period of the contract. +n a contract of loan the thin' loaned beco(es the property of the obli'or. +n a

contract of rent the thin' still re(ains the property of the lessor. 9e si(ply loses control of the sa(ein a li(ited way durin' the period of the contract of rent or lease. +n a contract of rent the relation between the contractors is that of landlord and tenant. +n a contract of loan of (oney, 'oods, chattelsor credits, the relation between the parties is that of obli'or and obli'ee. )ent (ay be defined as theco(pensation either in (oney, provisions, chattels, or labor, received by the owner of the soil fro( theoccupant thereof. +t is defined as the return or co(pensation for the possession of so(e corporealinheritance, and is a profit issuin' out of lands or tene(ents, in return for their use. +t is that, which isto paid for the use of land, whether in (oney, labor or other thin' a'reed upon. A contract of rent is acontract by which one of the parties delivers to the other so(e nonconsu(able thin', in order that thelatter (ay use it durin' a certain period and return it to the for(er= whereas a contract of loan, as thatword is used in the statute, si'nifies the delivery of (oney or other consu(able thin's upon condition

of returnin' an equivalent a(ount of the sa(e ind or quantity, in which cases it is called (erely aloan. +n the case of a contract of rent, under the civil law, it is called a co((odatu(.

<ro( the fore'oin' it will be seen that there is a while distinction between a contract of loan, as thatword is used in the statute, and a contract of rent even thou'h those words are used in ordinary parlance as interchan'eable ter(s.

The value of (oney, 'oods or credits is easily ascertained while the a(ount of rent to be paid for theuse and occupation of the property (ay depend upon a thousand different conditions= as for e8a(ple,far( lands of e8actly equal productive capacity and of the sa(e physical value (ay have a differentrental value, dependin' upon location, prices of co((odities, pro8i(ity to the (aret, etc. 9ouses (ayhave a different rental value due to location, conditions of business, 'eneral prosperity or depression,

adaptability to particular purposes, even thou'h they have e8actly the sa(e ori'inal cost. A store on theEscolta, in the center of business, constructed e8actly lie a store located outside of the business center,will have a (uch hi'her rental value than the other. Two places of business located in different sectionsof the city (ay be constructed e8actly on the sa(e architectural plan and yet one, due to particularlocation or adaptability to a particular business which the lessor desires to conduct, (ay have a very(uch hi'her rental value than one not so located and not so well adapted to the particular business. Avery cheap buildin' on the carnival 'round (ay rent for (ore (oney, due to the particularcircu(stances and surroundin's, than a (uch (ore valuable property located elsewhere. +t will thus beseen that the rent to be paid for the use and occupation of property is not necessarily fi8ed upon the



value of the property. The a(ount of rent is fi8ed, based upon a thousand different conditions and (ayor (ay not have any direct reference to the value of the property rented. To hold that usury can be based upon the co(parative actual rental value and the actual value of the property, is to sub5ect everylandlord to an annoyance not conte(plated by the law, and would create a very 'reat disturbance inevery business or rural co((unity. De cannot brin' ourselves to believe that the Fe'islatureconte(plated any such disturbance in the equilibriu( of the business of the country.

+n the present case the property in question was sold. +t was an absolute sale with the ri'ht only torepurchase. :urin' the period of rede(ption the purchaser was the absolute owner of the property.:urin' the period of rede(ption the vendor was not the owner of the property. :urin' the period ofrede(ption the vendor was a tenant of the purchaser. :urin' the period of rede(ption the relationwhich e8isted between the vendor and the vendee was that of landlord and tenant. That relation canonly be ter(inated by a repurchase of the property by the vendor in accordance with the ter(s of thesaid contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No.2044.

As obno8ious as contracts of pacto de retro are, yet nevertheless, the courts have no ri'ht to (aecontracts for parties. They (ade their own contract in the present case. There is not a word, a phrase, asentence or para'raph, which in the sli'htest way indicates that the parties to the contract in questiondid not intend to sell the property in question absolutely, si(ply with the ri'ht to repurchase. *eoplewho (ae their own beds (ust lie thereon.

Dhat has been said above with reference to the ri'ht to (odify contracts by parol evidence, sufficientlyanswers the third questions presented above. The lan'ua'e of the contract is e8plicit, clear,una(bi'uous and beyond question. +t e8presses the e8act intention of the parties at the ti(e it was(ade. There is not a word, a phrase, a sentence or para'raph found in said contract which needse8planation. The parties thereto entered into said contract with the full understandin' of its ter(s andshould not now be per(itted to chan'e or (odify it by parol evidence.

Dith reference to the i(prove(ents (ade upon said property by the plaintiffs durin' the life of thecontract, E8hibit C, there is hereby reserved to the plaintiffs the ri'ht to e8ercise in a separate action the

ri'ht 'uaranteed to the( under article 10" of the Civil Code.

<or all of the fore'oin' reasons, we are fully persuaded fro( the facts of the record, in relation with thelaw applicable thereto, that the 5ud'(ent appealed fro( should be and is hereby affir(ed, with costs.o ordered.

T9+): :+&++ON

M;.). No. ""$1#. October 2$, "##/

CA)!EN F+DANA; , petitioner, 3s. T9E 9ON. CO7)T O< A**EAF and T9E *EO*FE O< T9E*9+F+**+NE, represented by the olicitor ;eneral, respondents.

: E C + + O N

)O!E)O, .

*etitioner was char'ed with the cri(e of estafa before the )e'ional Trial Court >)TC?, Branch #1,ueon City, in an infor(ation which reads as follows

PThat on or between the (onth of !ay "#, "# and Au'ust, "# in ueon City, *hilippines andwithin the 5urisdiction of this 9onorable Court, the said accused, with intent of 'ain, withunfaithfulness, and abuse of confidence, did then and there, willfully, unlawfully and feloniouslydefraud one ++:O)A )OAFE, in the followin' (anner, to wit on the date and in the place



afore(entioned, said accused received in trust fro( the offended party cash (oney a(ountin' to* 410,043.33 , *hilippine Currency, with the e8press obli'ation involvin' the duty to act asco(plainantQs a'ent in purchasin' local ci'arettes >*hilip !orris and !arlboro ci'arettes?, to resellthe( to several stores, to 'ive her co((ission correspondin' to $36 of the profits= and to return theaforesaid a(ount of offended party, but said accused, far fro( co(plyin' her aforesaid obli'ation, andonce in possession thereof, (isapplied, (isappropriated and converted the sa(e to her personal use and

benefit, despite repeated de(ands (ade upon her, accused failed and refused and still fails and refusesto deliver andRor return the sa(e to the da(a'e and pre5udice of the said ++:O)A )OAFE, in theafore(entioned a(ount and in such other a(ount as (ay be awarded under the provision of the CivilCode.

CONT)A)G TO FAD.S

The antecedent facts are as follows

*etitioner Car(en Fiwana' >Fiwana'? and a certain Thel(a Tabli'an went to the house of co(plainant+sidora )osales >)osales? and ased her to 5oin the( in the business of buyin' and sellin' ci'arettes.Convinced of the feasibility of the venture, )osales readily a'reed. 7nder their a'ree(ent, )osaleswould 'ive the (oney needed to buy the ci'arettes while Fiwana' and Tabli'an would act as her

a'ents, with a correspondin' $36 co((ission to her if the 'oods are sold= otherwise the (oney would be returned to )osales. Consequently, )osales 'ave several cash advances to Fiwana' and Tabli'ana(ountin' to *011,043.33.

:urin' the first two (onths, Fiwana' and Tabli'an (ade periodic visits to )osales to report on the pro'ress of the transactions. The visits, however, suddenly stopped, and all efforts by )osales to obtaininfor(ation re'ardin' their business proved futile.

Alar(ed by this develop(ent and believin' that the a(ounts she advanced were bein'(isappropriated, )osales filed a case of estafa a'ainst Fiwana'.

After trial on the (erits, the trial court rendered a decision dated %anuary #, "##", findin' Fiwana''uilty as char'ed. The dispositive portion of the decision reads thus

PD9E)E<O)E, the Court holds, that the prosecution has established the 'uilt of the accused, beyondreasonable doubt, and therefore, i(poses upon the accused, Car(en Fiwana', an +ndeter(inate *enaltyof + >0? GEA), E+;9T >? !ONT9 AN: TDENTG ONE >2"? :AG O< *)++ONCO))ECC+ONAF TO <O7)TEEN >"$? GEA) AN: E+;9T >? !ONT9 O< *)++ON !AGO)A !A+!7!, AN: TO *AG T9E COT.

The accused is liewise ordered to rei(burse the private co(plainant the su( of *420,043.33, withoutsubsidiary i(prison(ent, in case of insolvency.

O O):E)E:.S

aid decision was affir(ed with (odification by the Court of Appeals in a decision dated Nove(ber

2#, "##1, the decretal portion of which readsPD9E)E<O)E, in view of the fore'oin', the 5ud'(ent appealed fro( is hereby affir(ed with thecorrection of the no(enclature of the penalty which should be + >0? GEA), E+;9T >? !ONT9and TDENTG ONE >2"? :AG of prision (ayor, as (ini(u(, to <O7)TEEN >"$? GEA) andE+;9T >? !ONT9 of reclusion temporal, as (a8i(u(. +n all other respects, the decision isA<<+)!E:.

O O):E)E:.S

9er (otion for reconsideration havin' been denied in the resolution of !arch "0, "##$, Fiwana' filed



the instant petition, sub(ittin' the followin' assi'n(ent of errors

P". )E*ON:ENT A**EFFATE CO7)T ;)A&EFG E))E: +N A<<+)!+N; T9ECON&+CT+ON O< T9E ACC7E:-*ET+T+ONE) <O) T9E C)+!E O< ETA<A, D9ENCFEA)FG T9E CONT)ACT T9AT E+T >sic? BETDEEN T9E ACC7E:-*ET+T+ONE) AN:CO!*FA+NANT + E+T9E) T9AT O< A +!*FE FOAN O) T9AT O< A *A)TNE)9+* O)%O+NT &ENT7)E 9ENCE T9E NON )ET7)N O< T9E !ONEG O< T9E CO!*FA+NANT +

*7)EFG C+&+F +N NAT7)E AN: NOT C)+!+NAF.

2. )E*ON:ENT A**EFFATE CO7)T ;)A&EFG E))E: +N NOT AC7+TT+N; T9EACC7E:-*ET+T+ONE) ON ;)O7N: O< )EAONABFE :O7BT BG A**FG+N; T9EUE7+*O+E )7FEQ.S

Fiwana' advances the theory that the intention of the parties was to enter into a contract of partnership,wherein )osales would contribute the funds while she would buy and sell the ci'arettes, and laterdivide the profits between the(.M" he also ar'ues that the transaction can also be interpreted as asi(ple loan, with )osales lendin' to her the a(ount stated on an install(ent basis.M2

The Court of Appeals correctly re5ected these pretenses.

Dhile factual findin's of the Court of Appeals are conclusive on the parties and not reviewable by theupre(e Court, and carry (ore wei'ht when these affir( the factual findin's of the trial court,M1 wedee( it (ore e8pedient to resolve the instant petition on its (erits.

Estafa is a cri(e co((itted by a person who defrauds another causin' hi( to suffer da(a'es, by(eans of unfaithfulness or abuse of confidence, or of false pretenses of fraudulent acts .M$

<ro( the fore'oin', the ele(ents of estafa are present, as follows >"? that the accused defraudedanother by abuse of confidence or deceit= and >2? that da(a'e or pre5udice capable of pecuniaryesti(ation is caused to the offended party or third party,M4 and it is essential that there be a fiduciaryrelation between the( either in the for( of a trust, co((ission or ad(inistration.M0

The receipt si'ned by Fiwana' states thus

P!ay "#, "# ueon City

)eceived fro( !rs. +sidora *. )osales the su( of <+&E 97N:)E: TDENTG + T9O7AN:AN: + 97N:)E: <+<TG *EO >*420,043.33? *hilippine Currency, to purchase ci'arrets >sic?>*hilip J !arlboro? to be sold to custo(ers. +n the event the said ci'arrets >sic? are not sold, the proceeds of the sale or the said products >shall? be returned to said !rs. +sidora *. )osales the saida(ount of *420,043.33 or the said ite(s on or before Au'ust 13, "#.

>;: J Thu(bed(ared? >sic?

CA)!EN F+DANA;

20 9. aliraya t.

ueon City

i'ned in the presence of

>'d? +lle'ible >'d? :o(in' K. Bali'adS

The lan'ua'e of the receipt could not be any clearer. +t indicates that the (oney delivered to Fiwana'was for a specific purpose, that is, for the purchase of ci'arettes, and in the event the ci'arettes cannot be sold, the (oney (ust be returned to )osales.

Thus, even assu(in' that a contract of partnership was indeed entered into by and between the parties,

http://sc.judiciary.gov.ph/jurisprudence/1997/oct1997/114398.htm#_edn1















we have ruled that when (oney or property have been received by a partner for a specific purpose>such as that obtainin' in the instant case? and he later (isappropriated it, such partner is 'uilty ofestafa.M/

Neither can the transaction be considered a loan, since in a contract of loan once the (oney is received by the debtor, ownership over the sa(e is transferred.M Bein' the owner, the borrower can dispose ofit for whatever purpose he (ay dee( proper.

+n the instant petition, however, it is evident that Fiwana' could not dispose of the (oney as she pleased because it was only delivered to her for a sin'le purpose, na(ely, for the purchase of ci'arettes,and if this was not possible then to return the (oney to )osales. ince in this case there was notransfer of ownership of the (oney delivered, Fiwana' is liable for conversion under Art. 1"4, par. ">b?of the )evised *enal Code.

<HEREFORE, in view of the fore'oin', the appealed decision of the Court of Appeals dated Nove(ber 2#, "##1, is A<<+)!E:. Costs a'ainst petitioner.

O O):E)E:.

EN BANC

G.R. No. L-249)8 Apr6 23, 1932

SA#RA I"PORT 7/ !<PORT CO., INC., plaintiff&appellee,vs.$!V!LOP"!NT +AN O TH! PHILIPPIN!S, defendant&appellant.

abanag, Eliger and Associates and %aura, agno and Associates for plaintiff/appellee.

Jesus A. A#ancea and "ilario . Orsolino for defendant/appellant.

"AALINTAL, J.: p

n Civil Case $o. ))!(" of the Court of 2irst nstance of :anila, udgment was rendered onune 0", !) sentencing defendant Development 4an= of the Philippines -D4P to payactual and consequential damages to plaintiff ?aura mport and 7Gport Co., nc. in the amountof P3"3,3*3.", plus interest at the legal rate from the date the complaint was filed andattorney>s fees in the amount of P),(((.((. The present appeal is from that udgment.

n uly !)3 the plaintiff -hereinafter referred to as ?aura, nc. applied to the %ehabilitation2inance Corporation -%2C, before its conversion into D4P, for an industrial loan ofP)((,(((.((, to be used as follows5 P0)(,(((.(( for the construction of a factory building -forthe manufacture of ute sac=s@ P0*(,!((.(( to pay the balance of the purchase price of the

ute mill machinery and equipment@ and P!,((.(( as additional wor=ing capital.Parenthetically, it may be mentioned that the ute mill machinery had already been purchasedby ?aura on the strength of a letter of credit eGtended by the Prudential 4an= and Trust Co.,and arrived in Davao City in uly !)3@ and that to secure its release without first paying thedraft, ?aura, nc. eGecuted a trust receipt in favor of the said ban=.

8n anuary #, !)* %2C passed %esolution $o. *) approving the loan application forP)((,(((.((, to be secured by a first mortgage on the factory building to be constructed, theland site thereof, and the machinery and equipment to be installed. Among the other termsspelled out in the resolution were the following5








. That the proceeds of the loan shall be utili<ed eGclusively for the following purposes5

2or construction of factory building P0)(,(((.((

2or payment of the balance of purchase

price of machinery and equipment 0*(,!((.((

2or wor=ing capital !,((.((

T 8 T A ; P)((,(((.((*. That :r. L :rs. %amon 7. ?aura, nocencia Arellano, Aniceto Caolboy and 'regoria7stabillo and China 7ngineers, ;td. shall sign the promissory notes ointly with the borrower&corporation@

). That release shall be made at the discretion of the %ehabilitation 2inance Corporation,subect to availability of funds, and as the construction of the factory buildings progresses, tobe certified to by an appraiser of this Corporation@E

?aura, nc. was officially notified of the resolution on anuary !, !)*. The day before,however, evidently having otherwise been informed of its approval, ?aura, nc. wrote a letterto %2C, requesting a modification of the terms laid down by it, namely5 that in lieu of having

China 7ngineers, ;td. -which was willing to assume liability only to the eGtent of its stoc=subscription with ?aura, nc. sign as co&ma=er on the corresponding promissory notes,?aura, nc. would put up a bond for P03,)((.((, an amount equivalent to such subscription@and that :aria ?. %oca would be substituted for nocencia Arellano as one of the other co&ma=ers, having acquired the latter>s shares in ?aura, nc.

n view of such request %2C approved %esolution $o. #3 on 2ebruary *, !)*, designatingof the members of its 4oard of 'overnors, for certain reasons stated in the resolution, EtoreeGamine all the aspects of this approved loan ... with special reference as to the advisabilityof financing this particular proect based on present conditions obtaining in the operations of

ute mills, and to submit his findings thereon at the neGt meeting of the 4oard.E

8n :arch 0*, !)* ?aura, nc. wrote %2C that China 7ngineers, ;td. had again agreed to actas co&signer for the loan, and as=ed that the necessary documents be prepared inaccordance with the terms and conditions specified in %esolution $o. *). n connection withthe reeGamination of the proect to be financed with the loan applied for, as stated in%esolution $o. #3, the parties named their respective committees of engineers and technicalmen to meet with each other and underta=e the necessary studies, although in appointing itsown committee ?aura, nc. made the observation that the same Eshould not be ta=en as anacquiescence on -its part to novate, or accept new conditions to, the agreement alreadyentered into,E referring to its acceptance of the terms and conditions mentioned in %esolution$o. *).

8n April 3, !)* the loan documents were eGecuted5 the promissory note, with 2.%. 1alling,

representing China 7ngineers, ;td., as one of the co&signers@ and the corresponding deed ofmortgage, which was duly registered on the following April #.

t appears, however, that despite the formal eGecution of the loan agreement thereeGamination contemplated in %esolution $o. #3 proceeded. n a meeting of the %2C 4oardof 'overnors on une (, !)*, at which %amon ?aura, President of ?aura, nc., waspresent, it was decided to reduce the loan from P)((,(((.(( to P3((,(((.((. %esolution $o.3!"! was approved as follows5

%7?8;FT8$ $o. 3!"!. %educing the ;oan 'ranted ?aura mport L 7Gport Co., nc. under



%esolution $o. *), C.?., from P)((,(((.(( to P3((,(((.((. Pursuant to 4d. %es. $o. #3,c.s., authori<ing the re&eGamination of all the various aspects of the loan granted the ?auramport L 7Gport Co. under %esolution $o. *), c.s., for the purpose of financing themanufacture of ute sac=s in Davao, with special reference as to the advisability of financingthis particular proect based on present conditions obtaining in the operation of ute mills, andafter having heard %amon 7. ?aura and after eGtensive discussion on the subect the 4oard,

upon recommendation of the Chairman, %7?8;97D that the loan granted the ?aura mport L7Gport Co. be %7DFC7D from P)((,((( to P3((,((( and that releases up to P((,((( maybe authori<ed as may be necessary from time to time to place the factory in actual operation5P%89D7D that all terms and conditions of %esolution $o. *), c.s., not inconsistentherewith, shall remain in full force and effect.E

8n une !, !)* another hitch developed. 2.%. 1alling, who had signed the promissory notefor China 7ngineers ;td. ointly and severally with the other %2C that his company no longerto of the loan and therefore considered the same as cancelled as far as it was concerned. Afollow&up letter dated uly 0 requested %2C that the registration of the mortgage bewithdrawn.

n the meantime ?aura, nc. had written %2C requesting that the loan of P)((,(((.(( begranted. The request was denied by %2C, which added in its letter&reply that it wasEconstrained to consider as cancelled the loan of P3((,(((.(( ... in view of a notification ...from the China 7ngineers ;td., eGpressing their desire to consider the loan insofar as they areconcerned.E

8n uly 0*, !)* ?aura, nc. too= eGception to the cancellation of the loan and informed %2Cthat China 7ngineers, ;td. Ewill at any time reinstate their signature as co&signer of the note if%2C releases to us the P)((,(((.(( originally approved by you.E.

8n December #, !)* %2C passed %esolution $o. !("3, restoring the loan to the originalamount of P)((,(((.((, Eit appearing that China 7ngineers, ;td. is now willing to sign thepromissory notes ointly with the borrower&corporation,E but with the following proviso5

That in view of observations made of the shortage and high cost of imported raw materials, theDepartment of Agriculture and $atural %esources shall certify to the following5

. That the raw materials needed by the borrower&corporation to carry out its operation areavailable in the immediate vicinity@ and

0. That there is prospect of increased production thereof to provide adequately for therequirements of the factory.E

The action thus ta=en was communicated to ?aura, nc. in a letter of %2C dated December00, !)*, wherein it was eGplained that the certification by the Department of Agriculture and$atural %esources was required Eas the intention of the original approval -of the loan is todevelop the manufacture of sac=s on the basis of locally available raw materials.E This point is

important, and sheds light on the subsequent actuations of the parties. ?aura, nc. does notdeny that the factory he was building in Davao was for the manufacture of bags from local rawmaterials. The cover page of its brochure -7Gh. : describes the proect as a Eoint ventureby and between the :indanao ndustry Corporation and the ?aura mport and 7Gport Co., nc.to finance, manage and operate a 0enaf mill plant, to manufacture copra and corn bags,runners, floor mattings, carpets, draperies@ out of ((M local raw materials, principal 1enaf .EThe eGplanatory note on page of the same brochure states that, the venture Eis the firstserious attempt in this country to use ((M locally grown raw materials notably 1enaf which ispresently grown commercially in thesland of :indanao where the proposed utemill is located



...E

This fact, according to defendant D4P, is what moved %2C to approve the loan application inthe first place, and to require, in its %esolution $o. !("3, a certification from the Departmentof Agriculture and $atural %esources as to the availability of local raw materials to provideadequately for the requirements of the factory. ?aura, nc. itself confirmed the defendant>sstand impliedly in its letter of anuary 0, !))5 - stating that according to a special study

made by the 4ureau of 2orestry E1enaf will not be available in sufficient quantity this year orprobably even neGt year@E -0 requesting Eassurances -from %2C that my company andassociates will be able to bring in sufficient ute materials as may be necessary for the fulloperation of the ute mill@E and -3 as=ing that releases of the loan be made as follows5

a 2or the payment of the receipt for ute millmachineries with the Prudential 4an= L

Trust Company P0)(,(((.((

-2or immediate release

b 2or the purchase of materials and equip&ment per attached list to enable the utemill to operate "0,*3.!

c 2or raw materials and labor #,)".(!

P0),(((.(( to be released on the open&ing of the letter of credit for raw utefor N0),(((.((.

0 P0),(((.(( to be released upon arrivalof raw ute.

3 P#,)".(! to be released as soon as themill is ready to operate.

8n anuary 0), !)) %2C sent to ?aura, nc. the following reply5

Dear ?irs5This is with reference to your letter of anuary 0, !)), regarding the release ofyour loan under consideration of P)((,(((. As stated in our letter of December00, !)*, the releases of the loan, if revived, are proposed to be made from timeto time, subect to availability of funds towards the end that the sac= factory shallbe placed in actual operating status. 6e shall be able to act on your request forrevised purpose and manner of releases upon re&appraisal of the securitiesoffered for the loan.

6ith respect to our requirement that the Department of Agriculture and $atural%esources certify that the raw materials needed are available in the immediatevicinity and that there is prospect of increased production thereof to provideadequately the requirements of the factory, we wish to reiterate that the basis ofthe original approval is to develop the manufacture of sac=s on the basis of the

locally available raw materials. Hour statement that you will have to rely on theimportation of ute and your request that we give you assurance that yourcompany will be able to bring in sufficient ute materials as may be necessary forthe operation of your factory, would not be in line with our principle in approvingthe loan.

6ith the foregoing letter the negotiations came to a standstill. ?aura, nc. did not pursue thematter further. nstead, it requested %2C to cancel the mortgage, and so, on une #, !))%2C eGecuted the corresponding deed of cancellation and delivered it to %amon 2. ?aurahimself as president of ?aura, nc.



t appears that the cancellation was requested to ma=e way for the registration of a mortgagecontract, eGecuted on August , !)*, over the same property in favor of the Prudential 4an=and Trust Co., under which contract ?aura, nc. had up to December 3 of the same yearwithin which to pay its obligation on the trust receipt heretofore mentioned. t appears furtherthat for failure to pay the said obligation the Prudential 4an= and Trust Co. sued ?aura, nc.on :ay ), !)).

8n anuary !, !*, ahnost ! years after the mortgage in favor of %2C was cancelled at therequest of ?aura, nc., the latter commenced the present suit for damages, alleging failure of%2C -as predecessor of the defendant D4P to comply with its obligation to release theproceeds of the loan applied for and approved, thereby preventing the plaintiff fromcompleting or paying contractual commitments it had entered into, in connection with its utemill proect.

The trial court rendered udgment for the plaintiff, ruling that there was a perfected contractbetween the parties and that the defendant was guilty of breach thereof. The defendantpleaded below, and reiterates in this appeal5 - that the plaintiff>s cause of action hadprescribed, or that its claim had been waived or abandoned@ -0 that there was no perfectedcontract@ and -3 that assuming there was, the plaintiff itself did not comply with the termsthereof.

6e hold that there was indeed a perfected consensual contract, as recogni<ed in Article !3*of the Civil Code, which provides5

A%T. !)*. An accepted promise to deliver something, by way of commodatum or simple loan isbinding upon the parties, but the commodatum or simple loan itself shall not be perferted untilthe delivery of the obect of the contract.

There was undoubtedly offer and acceptance in this case5 the application of ?aura, nc. for aloan of P)((,(((.(( was approved by resolution of the defendant, and the correspondingmortgage was eGecuted and registered. 4ut this fact alone falls short of resolving the basicclaim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to

recover damages.

t should be noted that %2C entertained the loan application of ?aura, nc. on the assumptionthat the factory to be constructed would utili<e locally grown raw materials, principally 1enaf .There is no serious dispute about this. t was in line with such assumption that when %2C, by%esolution $o. !("3 approved on December #, !)*, restored the loan to the originalamount of P)((,(((.((. it imposed two conditions, to wit5 E- that the raw materials neededby the borrower&corporation to carry out its operation are available in the immediate vicinity@and -0 that there is prospect of increased production thereof to provide adequately for therequirements of the factory.E The imposition of those conditions was by no means a deviationfrom the terms of the agreement, but rather a step in its implementation. There was nothing insaid conditions that contradicted the terms laid down in %2C %esolution $o. *), passed onanuary #, !)*, namely B Ethat the proceeds of the loan shall be utili<ed e2clusi#el+ for thefollowing purposes5 for construction of factory building B P0)(,(((.((@ for payment of thebalance of purchase price of machinery and equipment B P0*(,!((.((@ for wor=ing capital BP!,((.((.E 7vidently ?aura, nc. reali<ed that it could not meet the conditions required by%2C, and so wrote its letter of anuary 0, !)), stating that local ute Ewill not be able insufficient quantity this year or probably neGt year,E and as=ing that out of the loan agreedupon the sum of P#,)".(! be released Efor raw materials and labor.E This was a deviationfrom the terms laid down in %esolution $o. *) and embodied in the mortgage contract,implying as it did a diversion of part of the proceeds of the loan to purposes other than those



agreed upon.

6hen %2C turned down the request in its letter of anuary 0), !)) the negotiations whichhad been going on for the implementation of the agreement reached an impasse. ?aura, nc.obviously was in no position to comply with %2C>s conditions. ?o instead of doing so andinsisting that the loan be released as agreed upon, ?aura, nc. as=ed that the mortgage becancelled, which was done on une ), !)). The action thus ta=en by both parties was in

the nature cf mutual desistance B what :anresa terms Emutuo disensoE 1 @ which is a modeof eGtinguishing obligations. t is a concept that derives from the principle that since mutualagreement can create a contract, mutual disagreement by the parties can cause its

eGtinguishment. 2

The subsequent conduct of ?aura, nc. confirms this desistance. t did not protest against anyalleged breach of contract by %2C, or even point out that the latter>s stand was legallyunustified. ts request for cancellation of the mortgage carried no reservation of whateverrights it believed it might have against %2C for the latter>s non&compliance. n !0 it evenapplied with D4P for another loan to finance a rice and corn proect, which application wasdisapproved. t was only in !*, nine years after the loan agreement had been cancelled at

its own request, that ?aura, nc. brought this action for damages.All these circumstancesdemonstrate beyond doubt that the said agreement had been eGtinguished by mutualdesistance B and that on the initiative of the plaintiff&appellee itself.

6ith this view we ta=e of the case, we find it unnecessary to consider and resolve the otherissues raised in the respective briefs of the parties.

617%728%7, the udgment appealed from is reversed and the complaint dismissed, withcosts against the plaintiff&appellee.

EN BANC

G.R. No. L-1927 %+0 31, 1949

CRITOB#L RO=O, petitioner,vs.!OE L. GO%E:, ET #L., respondents.

Alfonso +arcon for petitioner.*apistrano 6 Aores for respondents.

BENG:ON, J.>

This petition to review a decision of the Court of Appeals was ad(itted (ainly because it involves one phase of the vital conte(porary question the repay(ent of loans 'iven in %apanese fiat currency durin'the last war of the *acific.

On October 4, "#$$, Cristobal )oIo received as a loan four thousand pesos in %apanese fiat (oneyfro( %ose F. ;o(e. 9e infor(ed the later that he would use the (oney to purchase a 5itney= and hea'reed to pay that debt one year after date in the currency then prevailin'. 9e si'ned a pro(issory noteof the followin' tenor

<or value received, + pro(ise to pay one year after date the su( of four thousand pesos >$,333?to %ose F. ;o(e. +t is a'reed that this will not earn any interest and the pay(ent +t is a'reedthat this will not earn any interest and the pay(ent prevailin' by the end of the stipulated periodof one year.



+n consideration of this 'enerous loan, + renounce any ri'ht that (ay co(e to (e by reason ofany postwar arran'e(ent, of privile'e that (ay co(e to (e by le'islation wherein this su( (ay be devalued. + renounce flatly and absolutely any condition, ter( ri'ht or privile'e which in anyway will pre5udice the ri'ht en'endered by this a'ree(ent wherein Atty. %ose F. ;o(e willreceive by ri'ht his (oney in the a(ount of *$,333. + affir( the le'al tender, currency or any(ediu( of e8chan'e, or (oney in this su( of *$,333 will be paid by (e to %ose F. ;o(e one

year after this date, October 4, "#$$.On October "4, "#$4, i.e., after the liberation, )oIo was sued for pay(ent in the Fa'una Court of <irst+nstance. 9is (ain defense was his liability should not e8ceed the equivalent of $,333 pesos (icey(ouse (oney @ and could not be $,333 pesos *hilippine currency, because the contract would bevoid as contrary to law, public order and 'ood (orals.

After the correspondin' hearin', the 9onorable <eli8 Bautista An'elo, %ud'e, ordered the defendant)oIo to pay four thousand pesos in *hilippine currency with le'al interest fro( the presentation of theco(plaint plus costs.

On appeal the Court of Appeals in a decision written by !r. %ustice %u'o, affir(ed the 5ud'(ent withcosts. +t declared bein' a (echanic who new En'lish was not deceived into si'nin' the pro(issory

note, and that the contents of the sa(e had not been (isrepresented to hi(. +t pronounced the contractvalid and enforceable accordin' to its ter(s and conditions.

One basic principle of the law on contracts of the Civil Code is that the contractin' parties (ayestablish any pacts, clauses and conditions they (ay dee( advisable, provided they are not contrary tolaw, (orals or public order. >Article "244.? Another principle is that obli'ations arisin' fro(contracts shall have the force of law between the contractin' parties and (ust be perfor(ed inaccordance with their stipulations >Article "3#"?.

+nvoin' the above proviso, )oIo asserts this contract is contrary to the 7sury law, because on the basis of calculations by ;overn(ent e8perts he only received the equivalent of one hundred *hilippine pesos and now he is required to dis'or'e four thousand pesos or interest 'reatly in e8cess of the lawful

rates.But he is not payin' interest . *recisely the contract says that the (oney received will not earn anyinterest. <urther(ore, he received four thousand pesos= and he is required to pay four thousand pesos

eactly. The increased intrinsic value and purchasin' power of the current (oney is consequence of anevent >chan'e of currency? which at the ti(e of the contract neither party new would certainly happenwithin the period of one year. They both elected to sub5ect their ri'hts and obli'ations to thatcontin'ency. +f within one year another ind of currency beca(e le'al tender, ;o(e would probably'et (ore for his (oney. +f the sa(e %apanese currency continued, he would 'et less, the value of%apanese (oney bein' then on the down'rade.

Our le'islation has a word for these contracts aleatory. The Civil Code reco'nies their validity >seeart. "/#3 and !anresas co((ent thereon? on a par with insurance policies and life annuities.

The e3entual 'ain of ;o(e in this transaction is not interest within the (eanin' of 7sury Faws.+nterest is so(e additional (oney to be paid in any event, which is not the case herein, because ;o(e(i'ht have 'otten less if the %apanese occupation had e8tended to the end of "#$4 or if the liberationforces had chosen to per(it the circulation of the %apanese notes.

!oreover, )oIo ar'ues, the deal was i((oral because tain' advanta'e of his superior nowled'e ofwar develop(ents ;o(e i(posed on hi( this onerous obli'ation. +n the first place, the Court ofAppeals found that he voluntary a'reed to si'n and si'ned the docu(ent without havin' been (isled asto its contents and in so far as nowled'e of war events was concerned both parties were on equal



footin'. +n the second place althou'h on October 4, "#$$ it was possible to sur(ise the i(pendin'A(erican invasion, the date of victory or liberation was anybodys 'uess. +n the third place there wasthe possibility that upon-re-occupation the *hilippine ;overn(ent would not invalidate the %apanesecurrency, which after all had been forced upon the people in e8chan'e for valuable 'oods and property.The odds were about even when )oIo and ;o(e played their bar'ainin' 'a(e. There was nooverreachin', nor unfair advanta'e.

A'ain )oIo alle'es it is i((oral and a'ainst public order for a (an to obtain four thousand pesos inreturn for an invest(ent of forty pesos >his esti(ate of the value of the %apanese (oney he borrowed?.Accordin' to his line of reasonin' it would be i((oral for the ho(eowner to recover ten thousand pesos >*"3,333, when his house is burned, because he invested only about one hundred pesos for theinsurance policy. And when the holder of a sweepstaes ticet who paid only four pesos lucily obtainsthe first prie of one hundred thousand pesos or over, the whole business is i((oral or a'ainst publicorder.

+n this connection we should e8plain that this decision does not cover situations where borrowers of%apanese fiat currency pro(ised to repay the sa(e a(ount or pro(ised to return the sa(e nu(ber of pesos in *hilippines currency or in the currency prevailin' after the war. There (ay be roo( forar'u(ent when those liti'ations co(e up for ad5udication. All we say here and now is that the contractin question is le'al and obli'atory.

A (inor point concerns the personality of the plaintiff, the wife of %ose F. ;o(e. De opine with theCourt of Appeals that the (atter involve a defect in procedure which does not a(ount to pre5udicialerror.

Dherefore, the appealed 5ud'(ent will be affir(ed with costs. o ordered.

EN BANC

G.R. No. L-132 e?te'ber 9, 1949

%#RI#NO NEPO%UCENO +)& #GUE$# G. $E NEPO%UCENO, plaintiffs-appellants,

vs.E$ILBERTO #. N#RCIO +)& %#UR# U#RE:, defendants-appellees.

i#inio Gope for appellants.

+austo, Solima and Gotian#co for appellees.

O:#ET#, J.:

On Nove(ber "$, "#1, appellant !ariano Nepo(uceno e8ecuted a (ort'a'e in favor of the appelleeson a parcel of land situated in the (unicipality of An'eles, *rovince of *a(pan'a, to secure the pay(ent within the period of seven years fro( the date of the (ort'a'e of the su( of *2$,333 to'etherwith interest thereon at the rate of per cent per annu(.

On epte(ber 13, "#$1, that is to say, (ore than two years before the (aturity of said (ort'a'e, the parties e8ecuted a notarial docu(ent entitled *artial Novation of Contract whereby they (odified theter(s of said (ort'a'e as follows

>"? <ro( :ece(ber , "#$", to %anuary ", "#$$, the interest on the (ort'a'e shall be at 0 percent per annu(, unpaid interest also payin' interest also payin' interest at the sa(e rate.

>2? <ro( %anuary ", "#$$, up to the end of the war, the (ort'a'e debt shall liewise bearinterest at 0 per cent. 7npaid interest durin' this period shall however not bear any interest.

>1? At the end of the war the interest shall a'ain beco(e per cent in accordance with the



ori'inal contract of (ort'a'e.

>$? Dhile the war 'oes on, the (ort'a'or, his ad(inistrators or assi'ns, cannot redee( the property (ort'a'ed.

>4? Dhen the (ort'a'e lapses on Nove(ber "$, "#$4, the (ort'a'e (ay continue for anotherten years if the (ort'a'or so chooses, but durin' this period he (ay pay only one half of thecapital.

On %uly 2", "#$$, the (ort'a'or !ariano Nepo(uceno and his wife A'ueda ;. de Nepo(uceno filedtheir co(plaint in this case a'ainst the (ort'a'ees, which co(pplaint, as a(ended on epte(ber /,"#$$, alle'ed the e8ecution of the contract of (ort'a'e and its principal novation as above indicated,and

/. That as per Anne8 B, No. $, it is provided that the (ort'a'or cannot redee( the property(ort'a'ed while the war 'oes on= and that notwithstandin' the said provision the herein plaintiffs-(ort'a'ors are now willin' to pay the a(ount of the indebtedness to'ether with thecorrespondin' interest due thereon=

. That on %uly "#, "#$$, the (ort'a'ors-plaintiffs went to the house of the (ort'a'ees-

defendants to tender pay(ent of the balance of the (ort'a'e debt with their correspondin'interest, but said spouses defendants refuse and still refuse to accept pay(ent=

#. That because of this refusal of the defendants to accept tender of pay(ent on the (ort'a'econsideration, the plaintiffs suffered and still suffer da(a'es in the a(ount of *4,333=

"3. That the plaintiffs are now and have deposited with the Cler of Court of <irst +nstance of*a(pan'a the a(ount of *22,140 for the pay(ent of the (ort'a'e debt and the interest duethereon=

Dherefore, it is (ore respectfully prayed that this 9onorable Court will issue an order in thefollowin' tenor

>a? Orderin' the defendants to accept tender of pay(ent fro( the plaintiffs=

>1? Orderin' defendants to e8ecute the correspondin' deed of release of (ort'a'e=

>c? Orderin' defendants to pay da(a'es in the a(ount of *4,333= and

>d ? Orderin' defendants to pay the a(ount of *1,333 as attorneys fee and the costs of suit andany other re(edy 5ust and equitable in the pre(ises.

After the trial the court sustained the defense that the co(plaint had been pre(aturely presented anddis(issed it with costs.

Appellants contend that the stipulation in the contract of epte(ber 13, "#$1, that while the war 'oeson the (ort'a'or, his ad(inistrators or assi'ns cannot redee( the property (ort'a'ed, is a'ainst public policy and therefore null and void. They cite and rely on article "244 of the Civil Code, which provides

A)T. "244. @ The contractin' parties (ay establish any pacts, clauses, and conditions they(ay dee( advisable, provided they are not contrary to law, (orals, or public order.

They ar'ue that it would certainly be a'ainst public policy and a restraint on the freedo( of co((erceto co(pel a debtor not to release his property fro( a lien @ even if he wanted to by the pay(ent of theindebtedness @ while the war 'oes on, which was undoubtedly of a very uncertain duration.

The first two para'raphs of article ""24 of the Civil Code provide



A)T. ""24. @ Obli'ation for the perfor(ance of which a day certain has been fi8ed shall bede(andable only when the day arrives.

A day certain is understood to be one which (ust necessarily arrive, even thou'h its date beunnown.

Article ""2/ says

A)T. ""2/. Dhenever a ter( for the perfor(ance of an obli'ation is fi8ed, it is presu(ed tohave been established for the benefit of the creditor and that of the debtor, unless fro( its tenoror fro( other circu(stances it should appear that the ter( was established for the benefit of oneor the other.

+t will be noted that the ori'inal contract of (ort'a'e provided for interest at per cent per annu( andthat the principal to'ether with the interest was payable within the period of seven years fro( Nove(ber "$, "#1. But by (utual a'ree(ent of the parties that ter( was (odified on epte(ber 13,"#$1, by reducin' the interest to 0 per cent per annu( fro( :ece(ber , "#$", until the end of the warand by stipulatin' that the (ort'a'or shall not pay off the (ort'a'e while the war went on.

De find nothin' i((oral or violative of public order in that stipulation. The (ort'a'ees apparently did

not want to have their prewar credit paid with %apanese (ilitary notes, and the (ort'a'or voluntarilya'reed not to do so in consideration of the reduction of the rate of interest.

+t was a perfectly equitable and valid transaction, in confor(ity with the provision of the Civil Codehereinabove quoted.

Appellants were bound by said contract and appellees were not obli'ated to receive the pay(ent beforeit was due. 9ence the latter had reason not to accept the tender of pay(ent (ade to the( by the for(er.

The 5ud'(ent is affir(ed, with costs a'ainst the appellants.

FIRT $I"IION

EUIT#BLE PCI B#N,@ ;.). No. "/"4$4

#I%EE ;U +)& BE!#N

LIONEL #P#,

Pet(t(o)er*, *resent

*7NO, *.., *hairperson,

- e r * 8 * - AN:O&AF-;7T+E))EK,

CO)ONA,

AKC7NA and

FEONA):O-:E CAT)O, .

NG HEUNG NGOR @@ &o()

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EN #PPLI#NCE $I"IION,

INC. +)& BEN!#%IN E. GO,

Re*?o)&e)t*. $ece'ber 19, 27

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - -

$ E C I I O N

CORON#, J .>

This petition for review on certiorariM" sees to set aside the decisionM2 of the

Court of Appeals >CA? in CA-;.). * No. 1""2 and its resolutionM1 denyin'

reconsideration.

On October /, 233", respondents N' heun' N'or,M$ en Appliance :ivision, +nc. and

Ben5a(in E. ;o filed an action for annul(ent andRor refor(ation of docu(ents and

contractsM4 a'ainst petitioner Equitable *C+ Ban >Equitable? and its e(ployees, Ai(ee

Gu and Be5an Fionel Apas, in the )e'ional Trial Court >)TC?, Branch "0 of Cebu City.

M0 They clai(ed that Equitable induced the( to avail of its peso and dollar credit

facilities by offerin' low interest ratesM/ so they accepted Equitables proposal and

si'ned the bans pre-printed pro(issory notes on various dates be'innin' "##0. They,

however, were unaware that the docu(ents contained identical escalation clauses

















'rantin' Equitable authority to increase interest rates without their consent.M

Equitable, in its answer, asserted that respondents nowin'ly accepted all the ter(s

and conditions contained in the pro(issory notes.M# +n fact, they continuously availed

of and benefited fro( Equitables credit facilities for five years.M"3

After trial, the )TC upheld the validity of the pro(issory notes. +t found that, in

233" alone, Equitable restructured respondents loans a(ountin' to 7V22,233 and

*",333,333.M"" The trial court, however, invalidated the escalation clause contained

therein because it violated the principle of (utuality of contracts.M"2 Nevertheless, it

too 5udicial notice of the steep depreciation of the peso durin' the intervenin'

periodM"1 and declared the e8istence of e8traordinary deflation.M"$ Consequently, the

)TC ordered the use of the "##0 dollar e8chan'e rate in co(putin' respondents dollar-

deno(inated loans.M"4 Fastly, because the business reputation of respondents was

>alle'edly? severely da(a'ed when Equitable froe their accounts,M"0 the trial court

awarded (oral and e8e(plary da(a'es to the(.M"/

The dispositive portion of the <ebruary 4, 233$ )TC decisionM" provided

<HEREFORE, pre(ises considered, 5ud'(ent is hereby rendered

A? Orderin' MEquitable to reinstate and return the a(ount of Mrespondents deposit placed on holdstatus=

B? Orderin' MEquitable to pay Mrespondents the su( of *"2 M(illion Mpesos as (oral da(a'es=

























C? Orderin' MEquitable to pay Mrespondents the su( of *"3 M(illion Mpesos as e8e(plaryda(a'es=

:? Orderin' defendants Ai(ee Gu and Be5an MFionel Apas to pay Mrespondents, 5ointly and

severally, the su( of Mtwo M(illion Mpesos as (oral and e8e(plary da(a'es=

E? Orderin' MEquitable, Ai(ee Gu and Be5an Fionel Apas, 5ointly and severally, to payMrespondents attorneys fees in the su( of *133,333= liti'ation e8penses in the su( of *43,333 and thecost of suit=

<? :irectin' plaintiffs N' heun' N'or and en !aretin' to pay MEquitable the unpaid principalobli'ation for the peso loan as well as the unpaid obli'ation for the dollar deno(inated loan=

;? :irectin' plaintiff N' heun' N'or and en !aretin' to pay MEquitable interest as follows

"? "26 per annu( for the peso loans=

2? 6 per annu( for the dollar loans. The basis for the pay(ent of the dollar obli'ation is theconversion rate of *20.43 per dollar availed of at the ti(e of incurrin' of the obli'ation in accordancewith Article "243 of the Civil Code of the *hilippines=

9? :is(issin' MEquitables counterclai( e8cept the pay(ent of the aforestated unpaid principal loanobli'ations and interest.

O OR$ERE$.M"#

Equitable and respondents filed their respective notices of appeal.M23

+n the !arch ", 233$ order of the )TC, both notices were denied due course

because Equitable and respondents Pfailed to sub(it proof that they paid their respective

appeal fees.SM2"









<HEREFORE, pre(ises considered, the appeal interposed by defendants fro( the :ecision in theabove-entitled case is $ENIE$ due course. #* o Febr8+r0 27, 24, te $ec(*(o) &+te& Febr8+r05, 24, (* co)*(&ere& ()+/ +)& eec8tor0 () *o +r +* ME8(t+b/e, #('ee ;8 +)& BeD+) L(o)e/#?+* +re co)cer)e&.M22 >e(phasis supplied?

Equitable (oved for the reconsideration of the !arch ", 233$ order of the

)TCM21 on the 'round that it did in fact pay the appeal fees. )espondents, on the other

hand, prayed for the issuance of a writ of e8ecution.M2$

On !arch 2$, 233$, the )TC issued an o(nibus order denyin' Equitables (otion

for reconsideration for lac of (eritM24 and ordered the issuance of a writ of e8ecution

in favor of respondents.M20 Accordin' to the )TC, because respondents did not (ove

for the reconsideration of the previous order >denyin' due course to the partiesQ notices

of appeal?,M2/ the <ebruary 4, 233$ decision beca(e final and e8ecutory as to both

parties and a writ of e8ecution a'ainst Equitable was in order.M2

A writ of e8ecution was thereafter issuedM2# and three real properties of Equitable

were levied upon.M13

On !arch 20, 233$, Equitable filed a petition for relief in the )TC fro( the !arch

", 233$ order.M1" +t, however, withdrew that petition on !arch 13, 233$M12 and

instead filed a petition for certiorari with an application for an in5unction in the CA to

en5oin the i(ple(entation and e8ecution of the !arch 2$, 233$ o(nibus order.M11



























On %une "0, 233$, the CA 'ranted Equitables application for in5unction. A writ of

preli(inary in5unction was correspondin'ly issued.M1$

Notwithstandin' the writ of in5unction, the properties of Equitable previously

levied upon were sold in a public auction on %uly ", 233$. )espondents were the hi'hest

bidders and certificates of sale were issued to the(.M14

On Au'ust "3, 233$, Equitable (oved to annul the %uly ", 233$ auction sale and to

cite the sheriffs who conducted the sale in conte(pt for proceedin' with the auction

despite the in5unction order of the CA.M10

On October 2, 2334, the CA dis(issed the petition for certiorari. M1/ +t found

Equitable 'uilty of foru( shoppin' because the ban filed its petition for certiorari in the

CA several hours before withdrawin' its petition for relief in the )TC. M1 !oreover,

Equitable failed to disclose, both in the state(ent of (aterial dates and certificate of

non-foru( shoppin' >attached to its petition for certiorari in the CA?, that it had a

pendin' petition for relief in the )TC.M1#

Equitable (oved for reconsiderationM$3 but it was denied.M$" Thus, this petition.

Equitable asserts that it was not 'uilty of foru( shoppin' because the petition for

relief was withdrawn on the same day the petition for certiorari was filed.M$2 +t





















liewise avers that its petition for certiorari was (eritorious because the )TC co((itted

'rave abuse of discretion in issuin' the !arch 2$, 233$ o(nibus order which was based

on an erroneous assu(ption. The !arch ", 233$ order denyin' its notice of appeal for

non pay(ent of appeal fees was erroneous because it had in fact paid the required fees.

M$1 Thus, the )TC, by issuin' its !arch 2$, 233$ o(nibus order, effectively prevented

Equitable fro( appealin' the patently wron' <ebruary 4, 233$ decision.M$$

This petition is (eritorious.

E8(t+b/e <+* Not G8(/t0 O For8'*o??()

<oru( shoppin' e8ists when two or (ore actions involvin' the sa(e transactions,

essential facts and circu(stances are filed and those actions raise identical issues,

sub5ect (atter and causes of action.M$4 The test is whether, in two or (ore pendin'

cases, there is identity of parties, ri'hts or causes of actions and reliefs.M$0

Equitables petition for relief in the )TC and its petition for certiorari in the CA did

not have identical causes of action. The petition for relief fro( the denial of its notice of

appeal was based on the )TCQs 5ud'(ent or final order preventin' it fro( tain' an

appeal by Pfraud, accident, (istae or e8cusable ne'li'ence.SM$/ On the other hand, its













petition for certiorari in the CA, a special civil action, sou'ht to correct the 'rave abuse

of discretion a(ountin' to lac of 5urisdiction co((itted by the )TC.M$

+n a petition for relief, the 5ud'(ent or final order is rendered by a court with co(petent

5urisdiction. +n a petition for certiorari, the order is rendered by a court without or in

e8cess of its 5urisdiction.

!oreover, Equitable substantially co(plied with the rule on non-foru( shoppin'

when it (oved to withdraw its petition for relief in the )TC on the sa(e day >in fact 5ust

four hours and forty (inutes after? it filed the petition for certiorari in the CA. Even if

Equitable failed to disclose that it had a pendin' petition for relief in the )TC, it

rectified what was doubtlessly a careless oversi'ht by withdrawin' the petition for relief

5ust a few hours after it filed its petition for certiorari in the CA W a clear indication that

it had no intention of (aintainin' the two actions at the sa(e ti(e.

Te Tr(+/ Co8rt Co''(tte& Gr+e #b8*e o$(*cret(o) I) I**8() It* %+rc 1, 24 +)&%+rc 24, 24 Or&er*

ection ", )ule 04 of the )ules of Court provides

ection ". )etition for *ertiorari. Dhen +)0 tr(b8)+/, bo+r& or o(cer eerc(*() D8&(c(+/ or 8+*(- D8&(c(+/ 8)ct(o) +* +cte& (to8t or () ece** o (t* or (* D8r(*&(ct(o), or (t r+e +b8*e o&(*cret(o) +'o8)t() to /+c or ece** o D8r(*&(ct(o), and tere (* )o +??e+/, )or +)0 ?/+(),





*?ee&0 or +&e8+te re'e&0 () te or&()+r0 co8r*e o /+ , a person a''rieved thereby (ay file averified petition in the proper court, alle'in' the facts with certainty and prayin' that 5ud'(ent berendered annullin' or (odifyin' the proceedin's of such tribunal, board or officer, and 'rantin' suchincidental reliefs as law and 5ustice (ay require.

The petition shall be acco(panied by a certified true copy of the 5ud'(ent, order or resolutionsub5ect thereof, copies of all pleadin's and docu(ents relevant and pertinent thereto, and a sworncertificate of non-foru( shoppin' as provided in the third para'raph of ection 1, )ule $0.

There are two substantial require(ents in a petition for certiorari. These are

". that the tribunal, board or officer e8ercisin' 5udicial or quasi-5udicialfunctions acted without or in e8cess of his or its 5urisdiction or with 'rave abuseof discretion a(ountin' to lac or e8cess of 5urisdiction= and

2. that there is no appeal or any plain, speedy and adequate re(edy in theordinary course of law.

<or a petition for certiorari pre(ised on 'rave abuse of discretion to prosper,

petitioner (ust show that the public respondent patently and 'rossly abused his

discretion and that abuse a(ounted to an evasion of positive duty or a virtual refusal to

perfor( a duty en5oined by law or to act at all in conte(plation of law, as where the

power was e8ercised in an arbitrary and despotic (anner by reason of passion or

hostility.M$#

The !arch ", 233$ order denied due course to the notices of appeal of both

Equitable and respondents. 9owever, it declared that the <ebruary 4, 233$ decision was

()+/ +)& eec8tor0 o)/0 (t re*?ect to E8(t+b/e.M43 As e8pected, the !arch 2$,

233$ o(nibus order denied Equitables (otion for reconsideration and 'ranted







respondents (otion for the issuance of a writ of e8ecution.M4"

The !arch ", 233$ and !arch 2$, 233$ orders of the )TC were obviously intended to

prevent Equitable, et al. fro( appealin' the <ebruary 4, 233$ decision. Not only that.

The e8ecution of the decision was undertaen with indecent haste, effectively obviatin'

or defeatin' Equitables ri'ht to avail of possible le'al re(edies. No (atter how we loo

at it, the )TC co((itted 'rave abuse of discretion in renderin' those orders.

Dith re'ard to whether Equitable had a plain, speedy and adequate re(edy in the

ordinary course of law, we hold that there was none. The )TC denied due course to its

notice of appeal in the !arch ", 233$ order. +t affir(ed that denial in the !arch 2$,

233$ o(nibus order. 9ence, there was no way Equitable could have possibly appealed

the <ebruary 4, 233$ decision.M42

Althou'h Equitable filed a petition for relief fro( the !arch 2$, 233$ order, that

petition was not a plain, speedy and adequate re(edy in the ordinary course of law.M41

A petition for relief under )ule 1 is an equitable re(edy allowed only in e8ceptional

circu(stances or where there is no other available or adequate re(edy.M4$

Thus, we 'rant Equitables petition for certiorari and consequently 'ive due course

to its appeal.











E8(t+b/e R+(*e& P8re 8e*t(o)* o L+ ()It* Pet(t(o) For Re(e

The 5urisdiction of this Court in )ule $4 petitions is li(ited to questions of law.M44

There is a question of law Pwhen the doubt or controversy concerns the correct

application of law or 5urisprudence to a certain set of facts= or when the issue does not

call for the probative value of the evidence presented, the truth or falsehood of facts

bein' ad(itted.SM40

Equitable does not assail the factual findin's of the trial court. +ts ar'u(ents

essentially focus on the nullity of the )TCQs <ebruary 4, 233$ decision. Equitable points

out that that decision was patently erroneous, *?ec(+//0 te eorb(t+)t ++r& o

&+'+e*, as it was inconsistent with e8istin' law and 5urisprudence.M4/

Te Pro'(**or0 Note* <ere "+/(&

The )TC upheld the validity of the pro(issory notes despite respondentsQ assertion that

those docu(ents were contracts of adhesion.

A contract of adhesion is a contract whereby al(ost all of its provisions are drafted

by one party.M4 The participation of the other party is li(ited to affi8in' his si'nature

or his PadhesionS to the contract.M4# <or this reason, contracts of adhesion are strictly













construed a'ainst the party who drafted it.M03

+t is erroneous, however, to conclude that contracts of adhesion are invalid per se.

They are, on the contrary, as bindin' as ordinary contracts. A party is in reality free to

accept or re5ect it. A contract of adhesion beco(es void only when the do(inant party

taes advanta'e of the weaness of the other party, co(pletely deprivin' the latter of the

opportunity to bar'ain on equal footin'.M0"

That was not the case here. As the trial court noted, if the ter(s and conditions

offered by Equitable had been truly pre5udicial to respondents, they would have waled

out and ne'otiated with another ban at the first available instance. But they did not.

+nstead, they continuously availed of Equitables credit facilities for five lon' years.

Dhile the )TC cate'orically found that respondents had outstandin' dollar- and

peso-deno(inated loans with Equitable, it, however, failed to ascertain the total a(ount

due >principal, interest and penalties, if any? as of %uly #, 233". The trial court did not

e8plain how it arrived at the a(ounts of 7V22,233 and *",333,333.M02 +n !etro

!anila Transit *orporation 3. D.!. *onsunji,M01 we reiterated that this Court is not a

trier of facts and it shall pass upon the( only for co(pellin' reasons which

unfortunately are not present in this case.M0$ 9ence, we ordered the partial re(and of

the case for the sole purpose of deter(inin' the a(ount of actual da(a'es.M04















E*c+/+t(o) C/+8*e "(o/+te& Te Pr()c(?/e O%8t8+/(t0 O Co)tr+ct*

Escalation clauses are not void per se. 9owever, one Pwhich 'rants the creditor an

unbridled ri'ht to ad5ust the interest independently and upwardly, co(pletely deprivin'

the debtor of the ri'ht to assent to an i(portant (odification in the a'ree(entS is void.

Clauses of that nature violate the principle of (utuality of contracts.M00 Article

"13M0/ of the Civil Code holds that a contract (ust bind both contractin' parties= its

validity or co(pliance cannot be left to the will of one of the(.M0

<or this reason, we have consistently held that a valid escalation clause provides

". that the rate of interest will only be increased if the applicable (a8i(u( rate of interest isincreased by law or by the !onetary Board= and

2. that the stipulated rate of interest will be reduced if the applicable (a8i(u( rate ofinterest is reduced by law or by the !onetary Board >de-escalation clause?. M0#

The )TC found that Equitables pro(issory notes unifor(ly stated2

+f sub5ect pro(issory note is e8tended, the interest for subsequent e8tensions shall be at such rate asshall be deter(ined by the ban.M/3














Equitable dictated the interest rates if the ter( >or period for repay(ent? of the loan was

e8tended. )espondents had no choice but to accept the(. This was a violation of Article

"13 of the Civil Code. <urther(ore, the assailed escalation clause did not contain the

necessary provisions for validity, that is, it neither provided that the rate of interest

would be increased only if allowed by law or the !onetary Board, nor allowed de-

escalation. <or these reasons, the escalation clause was void.

Dith re'ard to the proper rate of interest, in "e( Sampa#uita &uilders 3.

)hilippine "ational &an7 M/" we held that, because the escalation clause was annulled,

the principal a(ount of the loan was sub5ect to the ori'inal or stipulated rate of interest.

7pon (aturity, the a(ount due was sub5ect to le'al interest at the rate of "26 per

annu(.M/2

Consequently, respondents should pay Equitable the interest rates of "2.006 p.a.

for their dollar-deno(inated loans and 236 p.a. for their peso-deno(inated loans fro(

%anuary "3, 233" to %uly #, 233". Thereafter, Equitable was entitled to le'al interest of

"26 p.a. on all a(ounts due.

Tere <+* No Etr+or&()+r0 $e/+t(o)

E8traordinary inflation e8ists when there is an unusual decrease in the purchasin'







power of currency >that is, beyond the co((on fluctuation in the value of currency? and

such decrease could not be reasonably foreseen or was (anifestly beyond the

conte(plation of the parties at the ti(e of the obli'ation. E8traordinary deflation, on the

other hand, involves an inverse situation.M/1

Article "243 of the Civil Code provides

Article "243. +n case an e8traordinary inflation or deflation of the currency stipulatedshould intervene, the value of the currency at the ti(e of the establish(ent of theobli'ation shall be the basis of pay(ent, unless there is an a'ree(ent to the contrary.

<or e8traordinary inflation >or deflation? to affect an obli'ation, the followin' requisites

(ust be proven

". that there was an official declaration of e8traordinary inflation or deflationfro( the Ban'o entral n' *ilipinas >B*?=M/$

2. that the obli'ation was contractual in nature=M/4 and

1. that the parties e8pressly a'reed to consider the effects of thee8traordinary inflation or deflation.M/0

:espite the devaluation of the peso, the B* never declared a situation of

e8traordinary inflation. !oreover, althou'h the obli'ation in this instance arose out of a

contract, the parties did not a'ree to reco'nie the effects of e8traordinary inflation >or

deflation?.M// The )TC never (entioned that there was a such stipulation either in the

pro(issory note or loan a'ree(ent. Therefore, respondents should pay their dollar-

deno(inated loans at the e8chan'e rate fi8ed by the B* on the date of (aturity.M/















Te #+r& O %or+/ #)& Ee'?/+r0$+'+e* L+ce& B+*(*

!oral da(a'es are in the cate'ory of an award desi'ned to co(pensate the

clai(ant for actual in5ury suffered, not to i(pose a penalty to the wron'doer.M/# To be

entitled to (oral da(a'es, a clai(ant (ust prove

". That he or she suffered bes(irched reputation, or physical, (ental or psycholo'ical sufferin' sustained by the clai(ant=

2. That the defendant co((itted a wron'ful act or o(ission=

1. That the wron'ful act or o(ission was the pro8i(ate cause of theda(a'es the clai(ant sustained=

$. The case is predicated on any of the instances e8pressed or envisioned byArticle 22"#M3 and 2223M". M2

+n culpa contractual or breach of contract, (oral da(a'es are recoverable only if the

defendant acted fraudulently or in bad faith or in wanton disre'ard of his contractual

obli'ations.M1 The breach (ust be wanton, recless, (alicious or in bad faith, and

oppressive or abusive.M$

The )TC found that respondents did not pay Equitable the interest due on <ebruary

#, 233" >or any (onth thereafter prior to the (aturity of the loan?M4 or the a(ount due

>principal plus interest? due on %uly #, 233".M0 Consequently, Equitable applied



















respondents deposits to their loans upon (aturity.

The relationship between a ban and its depositor is that of creditor and debtor.M/

<or this reason, a ban has the ri'ht to set-off the deposits in its hands for the pay(ent

of a depositors indebtedness.M

)espondents indeed defaulted on their obli'ation. <or this reason, Equitable had

the option to e8ercise its le'al ri'ht to set-off or co(pensation. 9owever, the )TC

(istaenly >or, as it now appears, deliberately? concluded that Equitable acted

Pfraudulently or in bad faith or in wanton disre'ardS of its contractual obli'ations

despite the absence of proof. The undeniable fact was that, whatever da(a'e

respondents sustained was ?8re/0 te co)*e8e)ce o te(r +(/8re to ?+0 te(r /o+)* .

There was therefore absolutely no basis for the award of (oral da(a'es to the(.

Neither was there reason to award e8e(plary da(a'es. ince respondents were not

entitled to (oral da(a'es, neither should they be awarded e8e(plary da(a'es.M# And

if respondents were not entitled to (oral and e8e(plary da(a'es, neither could they be

awarded attorneys fees and liti'ation e8penses.M#3

#CCOR$INGL;, the petition is hereby GR#NTE$.

The October 2, 2334 decision and <ebruary 1, 2330 resolution of the Court of











Appeals in CA-;.). * No. 1""2 are hereby RE"ERE$ and ET #I$E.

The !arch 2$, 233$ o(nibus order of the )e'ional Trial Court, Branch "0, Cebu

City in Civil Case No. CEB-20#1 is hereby #NNULLE$ for bein' rendered with

'rave abuse of discretion a(ountin' to lac or e8cess of 5urisdiction. All proceedin's

undertaen pursuant thereto are liewise declared null and void.

The !arch ", 233$ order of the )e'ional Trial Court, Branch "0 of Cebu City in

Civil Case No. CEB-20#1 is hereby ET #I$E. The appeal of petitioners Equitable

*C+ Ban, Ai(ee Gu and Be5an Fionel Apas is therefore 'iven due course.

The <ebruary 4, 233$ decision of the )e'ional Trial Court, Branch "0 of Cebu

City in Civil Case No. CEB-20#1 is accordin'ly ET #I$E. New 5ud'(ent is hereby

entered

". orderin' respondents N' heun' N'or, doin' business under

the na(e and style of Pen !aretin',S en Appliance :ivision, +nc. and

Ben5a(in E. ;o to pay petitioner Equitable *C+ Ban the principal a(ount

of their dollar- and peso-deno(inated loans=

2. orderin' respondents N' heun' N'or, doin' business under

the na(e and style of Pen !aretin',S en Appliance :ivision, +nc. and

Ben5a(in E. ;o to pay petitioner Equitable *C+ Ban interest at



a? "2.006 p.a. with respect to their dollar-deno(inated

loans fro( %anuary "3, 233" to %uly #, 233"=

b? 236 p.a. with respect to their peso-deno(inated loans

fro( %anuary "3, 233" to %uly #, 233"=M#"

c? pursuant to our rulin' in 0astern Shippin# Lines 3. *ourt

of Appeals,M#2 the total a(ount due on %uly #, 233" shall earn le'al

interest at "26 p.a. fro( the ti(e petitioner Equitable *C+ Ban

de(anded pay(ent, whether 5udicially or e8tra-5udicially= and

d? after this :ecision beco(es final and e8ecutory, the

applicable rate shall be "26 p.a. until full satisfaction=

1. all other clai(s and counterclai(s are dis(issed.

As a startin' point, the )e'ional Trial Court, Branch "0 of Cebu City shall

co(pute the e8act a(ounts due on the respective dollar-deno(inated and peso-

deno(inated loans, as of %uly #, 233", of respondents N' heun' N'or, doin' business

under the na(e and style of Pen !aretin',S en Appliance :ivision and Ben5a(in E.

;o. O OR$ERE$.

ECON$ $I"IION

P#N P#CIFIC ER"ICE G.R. No. 169975







CONTR#CTOR, INC. +)&

RIC#R$O F. $EL RO#RIO,

*etitioners,

- versus -

EUIT#BLE PCI B#N or'er/0 THEPHILIPPINE CO%%ERCI#LINTERN#TION#L B#N, )espondent.

*resent

CA)*+O, ., Chairperson,

B)+ON,

:EF CAT+FFO,

ABA:, and

*E)EK, .

*ro(ul'ated

%+rc 1, 21

8 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -8

$ E C I I O N

C#RPIO, J.>

Te C+*e

*an *acific ervice Contractors, +nc. and )icardo <. :el )osario >petitioners? filed



this *etition for )eviewM" assailin' the Court of AppealsQ >CA? :ecisionM2 dated 13

%une 2334 in CA-;.). C& No. 01#00 as well as the )esolution M1 dated 4 October 2334

denyin' the !otion for )econsideration. +n the assailed decision, the CA (odified the

"2 April "### :ecisionM$

of the )e'ional Trial Court of !aati City, Branch 4# >)TC? by orderin' Equitable *C+ Ban M4 >respondent? to pay petitioners *",4"0,3"4.3/ with

interest at the le'al rate of "26 per annu( startin' 0 !ay "##$ until the a(ount is fully

paid.

Te F+ct*

*an *acific ervice Contractors, +nc. >*an *acific? is en'a'ed in contractin'

(echanical wors on airconditionin' syste(. On 2$ Nove(ber "##, *an *acific,

throu'h its *resident, )icardo <. :el )osario >:el )osario?, entered into a contract of

(echanical wors >Contract? with respondent for *23,0,33. *an *acific and

respondent also a'reed on nine chan'e orders for *2,022,0"3.13. Thus, the total

consideration for the whole pro5ect was *21,1"",$"3.13.M0

The Contract stipulated,a(on' others, that *an *acific shall be entitled to a price ad5ust(ent in case of increase

in labor costs and prices of (aterials under para'raphs /3."M/ and /3.2M of the

P;eneral Conditions for the Construction of *C+B Tower ++ E8tensionS >the escalation

clause?.M#

*ursuant to the contract, *an *acific co((enced the (echanical wors in the pro5ect

site, the *C+B Tower ++ e8tension buildin' in !aati City. The pro5ect was co(pleted in

%une "##2. )espondent accepted the pro5ect on # %uly "##2.M"3

+n "##3, labor costs and prices of (aterials escalated. On 4 April "##", in accordance

http://sc.judiciary.gov.ph/jurisprudence/2010/march2010/169975.htm#_ftn1























with the escalation clause, *an *acific clai(ed a price ad5ust(ent of *4,"04,#$4.42.)espondentQs appointed pro5ect en'ineer, TC;+ En'ineers, ased for a reduction in the

price ad5ust(ent. To show 'oodwill, *an *acific reduced the price ad5ust(ent to

*$,4,4$.0/.M""

On 2 April "##2, TC;+ En'ineers reco((ended to respondent that the price

ad5ust(ent should be pe''ed at *1,/13,#4/.3/. TC;+ En'ineers based their evaluation

of the price ad5ust(ent on the followin' factors

". Fabor +ndices of the :epart(ent of Fabor and E(ploy(ent.

2. *rice +nde8 of the National tatistics Office.

*: "4#$ and its +(ple(entin' )ules and )e'ulations as a(ended, "4 !arch "##".

hippin' :ocu(ents sub(itted by **C+.

ub-clause /3." of the ;eneral Conditions of the Contract :ocu(ents. M"2

*an *acific contended that with this reco((endation, respondent was already estopped fro(

disclai(in' liability of at least *1,/13,#4/.3/ in accordance with the escalation clause.M"1

:ue to the e8traordinary increases in the costs of labor and (aterials, *an *acificQsoperational capital was beco(in' inadequate for the pro5ect. 9owever, respondent

withheld the pay(ent of the price ad5ust(ent under the escalation clause despite *an*acificQs repeated de(ands.M"$ +nstead, respondent offered *an *acific a loan of *".(illion. A'ainst its will and on the stren'th of respondentQs pro(ise that the pricead5ust(ent would be released soon, *an *acific, throu'h :el )osario, was constrainedto e8ecute a pro(issory note in the a(ount of *". (illion as a require(ent for the loan.*an *acific also posted a surety bond. The *". (illion was released directly to laborers

and suppliers and not a sin'le centavo was 'iven to *an *acific.M"4

*an *acific (ade several de(ands for pay(ent on the price ad5ust(ent but respondent(erely ept on pro(isin' to release the sa(e. !eanwhile, the *". (illion loan (atured

and respondent de(anded pay(ent plus interest and penalty. *an *acific refused to paythe loan. *an *acific insisted that it would not have incurred the loan if respondentreleased the price ad5ust(ent on ti(e. *an *acific alle'ed that the pro(issory note didnot e8press the true a'ree(ent of the parties. *an *acific (aintained that the *".(illion was to be considered as an advance pay(ent on the price ad5ust(ent. Therefore,there was really no consideration for the pro(issory note= hence, it is null and void fro(

the be'innin'.M"0
















)espondent stood fir( that it would not release any a(ount of the price ad5ust(ent to*an *acific but it would offset the price ad5ust(ent with *an *acificQs outstandin'

balance of *1,220,"0.3", representin' the loan, interests, penalties and collection

char'es.M"/

*an *acific refused the offsettin' but a'reed to receive the reduced a(ount of

*1,/13,#4/.3/ as reco((ended by the TC;+ En'ineers for the purpose of e8tra5udicialsettle(ent, less *". (illion and *$"$,#$2 as advance pay(ents.M"

On 0 !ay "##$, petitioners filed a co(plaint for declaration of nullityRannul(ent of the pro(issory note, su( of (oney, and da(a'es a'ainst the respondent with the )TC of!aati City, Branch 4#. On "2 April "###, the )TC rendered its decision, the dispositive

portion of which reads

D9E)E<O)E, pre(ises considered, 5ud'(ent is hereby rendered in favor of the plaintiffs and a'ainst

the defendant as follows

1. :eclarin' the pro(issory note >E8hibit PBS? null and void=

Orderin' the defendant to pay the plaintiffs the followin' a(ounts

a. *",1#,"""."3 representin' unpaid balance of the ad5ust(ent price, with interest thereon at thele'al rate of twelve >"26? percent per annu( startin' !ay 0, "##$, the date when the co(plaint wasfiled, until the a(ount is fully paid=

*"33,333.33 representin' (oral da(a'es=

*43,333.33 representin' e8e(plary da(a'es= and

*43,333.33 as and for attorneyQs fees.2. :is(issin' defendantQs counterclai(, for lac of (erit= and

Dith costs a'ainst the defendant.

O O):E)E:.M"#

On 21 !ay "###, petitioners partially appealed the )TC :ecision to the CA. On 20 !ay

"###, respondent appealed the entire )TC :ecision for bein' contrary to law and

evidence. +n su(, the appeals of the parties with the CA are as follows

1. Dith respect to the petitioners, whether the )TC erred in deductin' the

a(ount of *"20,#31.#/ fro( the balance of the ad5usted price and in

awardin' only "26 annual interest on the a(ount due, instead of the

ban loan rate of "6 co(pounded annually be'innin' epte(ber









"##2.

2. Dith respect to respondent, whether the )TC erred in declarin' the

pro(issory note void and in awardin' (oral and e8e(plary da(a'es

and attorneyQs fees in favor of petitioners and in dis(issin' itscounterclai(.

+n its decision dated 13 %une 2334, the CA (odified the )TC decision, with respect to

the principal a(ount due to petitioners. The CA re(oved the deduction of *"20,#31.#/

because it represented the final pay(ent on the basic contract price. 9ence, the CA

ordered respondent to pay *",4"0,3"4.3/ to petitioners, with interest at the le'al rate of

"26 per annu( startin' 0 !ay "##$.M23

On 20 %uly 2334, petitioners filed a !otion for *artial )econsideration seein' a

reconsideration of the CAQs :ecision i(posin' the le'al rate of "26. *etitioners clai(ed

that the interest rate applicable should be the "6 ban lendin' rate. )espondent

liewise filed a !otion for )econsideration of the CAQs decision. +n a )esolution dated 4

October 2334, the CA denied both (otions.

A''rieved by the CAQs :ecision, petitioners elevated the case before this Court.

Te I**8e

*etitioners sub(it this sole issue for our consideration Dhether the CA, in

awardin' the unpaid balance of the price ad5ust(ent, erred in fi8in' the interest rate at

"26 instead of the "6 ban lendin' rate.





R8/() o te Co8rt

De 'rant the petition.

This Court notes that respondent did not appeal the decision of the CA. 9ence, there is

no lon'er any issue as to the principal a(ount of the unpaid balance on the price

ad5ust(ent, which the CA correctly co(puted at *",4"0,3"4.3/. The only re(ainin'

issue is the interest rate applicable for respondentQs delay in the pay(ent of the balance

of the price ad5ust(ent.

The CA denied petitionersQ clai( for the application of the ban lendin' rate of "6

co(pounded annually reasonin', to wit

Anent the "6 interest rate co(pounded annually, while it is true that the contract provides for aninterest at the current ban lendin' rate in case of delay in pay(ent by the Owner, and the pro(issorynote char'ed an interest of "6, the said proviso does not authorie plaintiffs to unilaterally raise theinterest rate without the other partyQs consent. 7nlie their request for price ad5ust(ent on the basic

contract price, plaintiffs never infor(ed nor sou'ht the approval of defendant for the i(position of "6interest on the ad5usted price. To unilaterally increase the interest rate of the ad5usted price would beviolative of the principle of (utuality of contracts. Thus, the Court (aintains the le'al rate of twelve percent per annu( startin' fro( the date of 5udicial de(and. Althou'h the contract provides for the period when the reco((endation of the TC;+ En'ineers as to the price ad5ust(ent would be bindin'on the parties, it was established, however, that part of the ad5usted price de(anded by plaintiffs wasalready disbursed as early as 2 <ebruary "##2 by defendant ban to their suppliers and laborers for

their account.M2"

+n this appeal, petitioners alle'e that the contract between the parties consists of two

parts, the A'ree(entM22 and the ;eneral Conditions,M21 both of which provide for

interest at the ban lendin' rate on any unpaid a(ount due under the contract.

*etitioners further clai( that there is nothin' in the contract which requires the consent

of the respondent to be 'iven in order that petitioners can char'e the ban lendin' rate.









M2$ pecifically, petitioners invoe ection 2.4 of the A'ree(ent and ection 03."3 of

the ;eneral Conditions as follows

A'ree(ent

2.5 I +)0 ?+0'e)t (* &e/+0e&, te CONTR#CTOR '+0 c+re ()tere*t tereo) +t te c8rre)tb+) /e)&() r+te*, without pre5udice to ODNE)Q recourse to any other re(edy available under

e8istin' law.M24

;eneral Conditions

03."3 Ti(e for pay(ent

The a(ount due to the Contractor under any interi( certificate issued by the En'ineer pursuant to thisClause, or to any ter( of the Contract, shall, sub5ect to clause $/, be paid by the Owner to theContractor within 2 days after such interi( certificate has been delivered to the Owner, or, in the caseof the <inal Certificate referred to in ub-Clause 03., within 40 days, after such <inal Certificate has been delivered to the Owner. +n the event of the failure of the Owner to (ae pay(ent within the ti(es

stated, the Owner shall pay to the Contractor interest at the rate based on banin' loan rates prevailin'at the ti(e of the si'nin' of the contract upon all su(s unpaid fro( the date by which the sa(e shouldhave been paid. The provisions of this ub-Clause are without pre5udice to the ContractorQs entitle(ent

under Clause 0#.M20 (Emphasis supplied)

*etitioners thus sub(it that it is auto(atically entitled to the ban lendin' rate of interest

fro( the ti(e an a(ount is deter(ined to be due thereto, which respondent should have

paid. Therefore, as petitioners have already proven their entitle(ent to the price

ad5ust(ent, it necessarily follows that the ban lendin' interest rate of "6 shall be

applied.M2/

On the other hand, respondent insists that under the provisions of /3." and /3.2 of the;eneral Conditions, it is stipulated that any additional cost shall be deter(ined by theEn'ineer and shall be added to the contract price after due consultation with the Owner,herein respondent. 9ence, there bein' no prior consultation with the respondentre'ardin' the additional cost to the basic contract price, it naturally follows that

respondent was never consulted or infor(ed of the i(position of "6 interest rateco(pounded annually on the ad5usted price.M2

A perusal of the assailed decision shows that the CA (ade a distinction between theconsent 'iven by the owner of the pro5ect for the liability for the price ad5ust(ents, andthe consent for the i(position of the ban lendin' rate. Thus, while the CA held that

petitioners consulted respondent for price ad5ust(ent on the basic contract price, petitioners, nonetheless, are not entitled to the i(position of "6 interest on the ad5usted














price, as petitioners never infor(ed or sou'ht the approval of respondent for such

i(position.M2#

De disa'ree.

+t is settled that the a'ree(ent or the contract between the parties is the for(al

e8pression of the partiesQ ri'hts, duties, and obli'ations. +t is the best evidence of the

intention of the parties. Thus, when the ter(s of an a'ree(ent have been reduced to

writin', it is considered as containin' all the ter(s a'reed upon and there can be,

between the parties and their successors in interest, no evidence of such ter(s other than

the contents of the written a'ree(ent.M13

The escalation clause of the contract provides

C9AN;E +N COT AN: FE;+FAT+ON

/3." +ncrease or :ecrease of Cost

There shall be added to or deducted fro( the Contract *rice such su(s in respect of rise or fall in thecost of labor andRor (aterials or any other (atters affectin' the cost of the e8ecution of the Dors as(ay be deter(ined.

/3.2 ubsequent Fe'islation

+f, after the date 2 days prior to the latest date of sub(ission of tenders for the Contract there occur inthe country in which the Dors are bein' or are to be e8ecuted chan'es to any National or tatetatute, Ordinance, :ecree or other Faw or any re'ulation or bye-law >sic? of any local or other dulyconstituted authority, or the introduction of any such tate tatute, Ordinance, :ecree, Faw, re'ulationor bye-law >sic? which causes additional or reduced cost to the contractor, other than under ub-Clause/3.", in the e8ecution of the Contract, such additional or reduced cost shall, after due consultation withthe Owner and Contractor, be deter(ined by the En'ineer and shall be added to or deducted fro( the

Contract *rice and the En'ineer shall notify the Contractor accordin'ly, with a copy to the Owner.M1"

+n this case, the CA already settled that petitioners consulted respondent on thei(position of the price ad5ust(ent, and held respondent liable for the balance of

*",4"0,3"4.3/. )espondent did not appeal fro( the decision of the CA= hence,

respondent is estopped fro( contestin' such fact.









9owever, the CA went beyond the intent of the parties by requirin' respondent to 'ive

its consent to the i(position of interest before petitioners can hold respondent liable for

interest at the current ban lendin' rate. This is erroneous. A review of ection 2.0 of the

A'ree(ent and ection 03."3 of the ;eneral Conditions shows that the consent of the

respondent is not needed for the i(position of interest at the current ban lendin' rate,

which occurs upon any delay in pay(ent.

Dhen the ter(s of a contract are clear and leave no doubt as to the intention of the

contractin' parties, the literal (eanin' of its stipulations 'overns. +n these cases, courts

have no authority to alter a contract by construction or to (ae a new contract for the

parties. The CourtQs duty is confined to the interpretation of the contract which the

parties have (ade for the(selves without re'ard to its wisdo( or folly as the court

cannot supply (aterial stipulations or read into the contract words which it does not

contain. +t is only when the contract is va'ue and a(bi'uous that courts are per(itted to

resort to construction of its ter(s and deter(ine the intention of the parties.M12

The escalation clause (ust be read in con5unction with ection 2.4 of the A'ree(ent and

ection 03."3 of the ;eneral Conditions which pertain to the ti(e of pay(ent. Once the

parties a'ree on the price ad5ust(ent after due consultation in co(pliance with the

provisions of the escalation clause, the a'ree(ent is in effect an a(end(ent to the

ori'inal contract, and 'ives rise to the liability of respondent to pay the ad5usted costs.

7nder ection 03."3 of the ;eneral Conditions, the respondent shall pay such liability to

the petitioner within 2 days fro( issuance of the interi( certificate. 7pon respondentQs

failure to pay within the ti(e provided >2 days?, then it shall be liable to pay the

stipulated interest.

This is the lo'ical interpretation of the a'ree(ent of the parties on the i(position of





interest. To provide a contrary interpretation, as one requirin' a separate consent for thei(position of the stipulated interest, would render the intentions of the parties nu'atory.

Article "#40 of the Civil Code, which refers to (onetary interest, specifically (andates

that no interest shall be due unless it has been e8pressly stipulated in writin'. Therefore, pay(ent of (onetary interest is allowed only if

>"? there was an e8press stipulation for the pay(ent of interest= and

>2? the a'ree(ent for the pay(ent of interest was reduced in writin'. The concurrence of

the two conditions is required for the pay(ent of (onetary interest.M11

De a'ree with petitionersQ interpretation that in case of default, the consent of the

respondent is not needed in order to i(pose interest at the current ban lendin' rate.

Applicable Interest Rate

7nder Article 223# of the Civil Code, the appropriate (easure for da(a'es in case of

delay in dischar'in' an obli'ation consistin' of the pay(ent of a su( of (oney is the

pay(ent of penalty interest at the rate a'reed upon in the contract of the parties. +n theabsence of a stipulation of a particular rate of penalty interest, pay(ent of additional

interest at a rate equal to the re'ular (onetary interest beco(es due and payable. <inally,

if no re'ular interest had been a'reed upon by the contractin' parties, then the da(a'es

payable will consist of pay(ent of le'al interest which is 06, or in the case of loans or

forbearances of (oney, "26 per annu(.M1$ +t is only when the parties to a contract have

failed to fi8 the rate of interest or when such a(ount is unwarranted that the Court will

apply the "26 interest per annu( on a loan or forbearance of (oney.M14

The written a'ree(ent entered into between petitioners and respondent provides for aninterest at the current ban lendin' rate in case of delay in pay(ent and the pro(issorynote char'ed an interest of "6.










To prove petitionersQ entitle(ent to the "6 ban lendin' rate of interest, petitioners

presented the pro(issory noteM10 prepared by respondent ban itself. This pro(issory

note, althou'h declared void by the lower courts because it did not e8press the real

intention of the parties, is substantial proof that the ban lendin' rate at the ti(e of

default was "6 per annu(. Absent any evidence of fraud, undue influence or any vice

of consent e8ercised by petitioners a'ainst the respondent, the interest rate a'reed upon

is bindin' on the(.M1/

<HEREFORE, we GR#NT the petition. De ET #I$E the :ecision and

)esolution of the Court of Appeals in CA-;.). C& No. 01#00. De OR$ER respondent

to pay petitioners *",4"0,3"4.3/ with interest at the ban lendin' rate of "6 per annu(

startin' 0 !ay "##$ until the a(ount is fully paid.

O OR$ERE$.

THIR$ $I"IION

G.R. No. 169617 #?r(/ 4, 27

HEIR OF :OILO EPIRITU #N$ PRI%ITI"# EPIRITU, *etitioners,vs.POUE %#I%O L#N$RITO #N$ P#: L#N$RITO, Re?re*e)te& b0 :OILO L#N$RITO,+* te(r #ttor)e0-()-F+ct, )espondents.

: E C + + O N

CHICO-N#:#RIO, J.:

This is a petition for )eview on Certiorari under )ule $4 of the )ules of Court assailin' the :ecision of

the Court of Appeals," dated 1" Au'ust 2334, reversin' the :ecision rendered by the trial court on "1:ece(ber "##4. The Court of Appeals, in its assailed :ecision, fi8ed the interest rate of the loan between the parties at "26 per annu(, and ordered the pouses Koilo and *ri(itiva Espiritu >pousesEspiritu? to reconvey the sub5ect property to the pouses Fandrito conditioned upon the pay(ent of theloan.

*etitioners :7FCE, BENF+N:A, E:D+N, CGNT9+A, AN: !+)+A! AN:)EA, all surna(edE*+)+T7, are the only children and le'al heirs of the pouses Koilo and *ri(itiva Espiritu, who both




http://www.lawphil.net/judjuris/juri2007/apr2007/gr_169617_2007.html#fnt1






died durin' the pendency of the case before the 9onorable Court of Appeals.2

)espondents pouses !a8i(o and *a Fandrito >pouses Fandrito? are herein represented by their son

and attorney-in-fact, Koilo Fandrito.1

On 4 epte(ber "#0, pouses Fandrito loaned fro( the pouses Espiritu the a(ount of *143,333.33 payable in three (onths. To secure the loan, the pouses Fandrito e8ecuted a real estate (ort'a'e over

a five hundred forty >4$3? square (eter lot located in Alaban', !untinlupa, covered by TransferCertificate of Title No. -$#$, in favor of the pouses Espiritu. <ro( the *143,333.33 that theFandritos were supposed to receive, *"/,433.33 was deducted as interest for the first (onth which wasequivalent to five percent of the principal debt, and */,433.33 was further deducted as service fee.Thus, they actually received a net a(ount of *124,333.33. The a'ree(ent, however, provided that the

principal indebtedness earns interest at the le'al rate.$

After three (onths, when the debt beca(e due and de(andable, the pouses Fandrito were unable to pay the principal, and had not been able to (ae any interest pay(ents other than the a(ount initiallydeducted fro( the proceeds of the loan. On 2# :ece(ber "#0, the loan a'ree(ent was e8tended to $%anuary "#/ throu'h an A(end(ent of )eal Estate !ort'a'e. The loan was restructured in such away that the unpaid interest beca(e part of the principal, thus increasin' the principal to *14,333. The

new loan a'ree(ent adopted all other ter(s and conditions contained in first a'ree(ent.4

:ue to the continued inability of the pouses Fandritos to settle their obli'ations with the pousesEspiritu, the loan a'ree(ent was renewed three (ore ti(es. +n all these subsequent renewals, the sa(eter(s and conditions found in the first a'ree(ent were retained. On 2# %uly "#/, the principal wasincreased to *43/,333.33 inclusive of runnin' interest. On "" !arch "#, it was increased to

*0$/,333.33. And on 2" October "#, the principal was increased to */$,"24.33.0 At the hearin' before the trial court, Koilo Espiritu testified that the increase in the principal in each a(end(ent of theloan a'ree(ent did not correspond to the a(ount delivered to the pouses Fandrito. )ather, the

increase in the principal had been due to unpaid interest and other char'es./

The debt re(ained unpaid. As a consequence, the pouses Espiritu foreclosed the (ort'a'ed property

on 1" October "##3. :urin' the auction sale, the property was sold to the pouses Espiritu as the lone bidder. On # %anuary "##", the heriffQs Certificate of ale was annotated on the title of the (ort'a'ed

property, 'ivin' the pouses Fandrito until %anuary "##2 to redee( the property.

The pouses Fandrito failed to redee( the sub5ect property althou'h they alle'ed that they ne'otiatedfor the rede(ption of the property as early as 13 October "##". Dhile the ne'otiated price for the landstarted at *",4#4,1#2./#, it was alle'edly increased by the pouses Espiritu fro( ti(e to ti(e. pousesFandrito alle'edly tendered two (ana'erQs checs and so(e cash, totalin' *",33,333.33 to thepouses Espiritu on "1 %anuary "##2, but the latter refused to accept the sa(e. They also alle'ed thatthe pouses Espiritu increased the a(ount de(anded to *2.4 !illion and 'ave the( until %uly "##2 to pay the said a(ount. 9owever, upon inquiry, they found out that on 2$ %une "##2, the pouses Espiritu

had already e8ecuted an Affidavit of Consolidation of Ownership and re'istered the (ort'a'ed property in their na(e, and that the )e'ister of :eeds of !aati had already issued Transfer Certificateof Title No. "/#32 in the na(e of the pouses Espiritu. On # October "##2, the pouses Fandrito,represented by their son Koilo Fandrito, filed an action for annul(ent or reconveyance of title, with

da(a'es a'ainst the pouses Espiritu before Branch "$0 of the )e'ional Trial Court of !aati. #

A(on' the alle'ations in their Co(plaint, they stated that the pouses Espiritu, as creditors and

(ort'a'ees, i(posed interest rates that are shocin' to oneQs (oral senses."3

The trial court dis(issed the co(plaint and upheld the validity of the foreclosure sale. The trial court

ordered in its :ecision, dated "1 :ece(ber "##4""
























D9E)E<O)E, all the fore'oin' pre(ises considered, the herein co(plaint is hereby dis(issedforthwith.

Dithout pronounce(ents to costs.

The pouses Fandrito appealed to the Court of Appeals pursuant to )ule $" of the "##/ )ules of Court.+n its :ecision dated 1" Au'ust 2334, the Court of Appeals reversed the trial courtQs decision, decreein'that the five percent >46? interest i(posed by the pouses Espiritu on the first (onth and the varyin'interest rates i(posed for the succeedin' (onths contravened the provisions of the )eal Estate!ort'a'e contract which provided that interest at the le'al rate, i.e., "26 per annu(, would bei(posed. +t also ruled that althou'h the 7sury Faw had been rendered ineffective by Central BanCircular No. #34, which, in effect, re(oved the ceilin' rates prescribed for interests, thus, allowin' parties to freely stipulate thereon, the courts (ay render void any stipulation of interest rates which arefound iniquitous or unconscionable. As a result, the Court of Appeals set the interest rate of the loan at

the le'al rate, or "26 per annu(."2

<urther(ore, the Court of Appeals held that the action for reconveyance, filed by the pouses Fandrito,is still a proper re(edy. Even if the pouses Fandrito failed to redee( the property within the one-yearrede(ption period provided by law, the action for reconveyance re(ained as a re(edy available to a

landowner whose property was wron'fully re'istered in anotherQs na(e since the sub5ect property hasnot yet passed to an innocent purchaser for value."1

+n the decretal portion of its :ecision, the Court of Appeals ruled"$

D9E)E<O)E, the instant appeal is hereby ;)ANTE:. The assailed :ecision dated :ece(ber "1,"##4 of the )e'ional Trial Court of !aati, Branch "$0 in Civil Case No. #2-2#23 is hereby)E&E)E: and ET A+:E, and a new one is hereby entered as follows >"? The le'al rate of "26 per annu( is hereby <+E: to be applied as the interest of the loan= and >2? Conditioned upon the pay(ent of the loan, defendants-appellees spouses Koilo and *ri(itiva Espiritu are hereby ordered toreconvey Transfer Certificate of Title No. -$#$ to appellant spouses !a8i(o and *a Fandrito.

The case is )E!AN:E: to the Trial Court for the above deter(ination.

9ence, the present petition. The followin' issues were raised"4

+

T9E 9ONO)ABFE CO7)T O< A**EAF E))E: +N )E&E)+N; AN: ETT+N; A+:E T9E:EC++ON O< T9E T)+AF CO7)T AN: O):E)+N; 9E)E+N *ET+T+ONE) TO )ECON&EGT)AN<E) CE)T+<+CATE O< T+TFE NO. "#" TO 9E)E+N )E*ON:ENT, D+T9O7T ANG<ACT7AF O) FE;AF BA+ T9E)E<O).

++

T9E 9ONO)ABFE CO7)T O< A**EAF E))E: +N <+N:+N; T9AT 9E)E+N *ET+T+ONE)7N+FATE)AFFG +!*OE: ON 9E)E+N )E*ON:ENT T9E AFFE;E:FG 7N)EAONABFE+NTE)ET ON T9E !O)T;A;E FOAN.

+++

T9E 9ONO)ABFE CO7)T O< A**EAF E))E: +N NOT CON+:E)+N; T9AT 9E)E+N)E*ON:ENTQ ATTO)NEG-+N-<ACT + NOT A)!E: D+T9 A7T9O)+TG TO <+FE AN:*)OEC7TE T9+ CAE.

The petition is without (erit.

The )eal Estate !ort'a'e e8ecuted between the parties specified that the principal indebtedness shall












earn interest at the le'al rate. The a'ree(ent contained no other provision on interest or any fees orchar'es incident to the debt. +n at least three contracts, all desi'nated as A(end(ent of )eal Estate!ort'a'e, the interest rate i(posed was, liewise, unspecified. :urin' his testi(ony, Koilo Espirituad(itted that the increase in the principal in each of the A(end(ents of the )eal Estate !ort'a'econsists of interest and char'es. The pouses Espiritu alle'ed that the parties had a'reed on the interestand char'es i(posed in connection with the loan, hereunder enu(erated

". *"/,433.33 was the interest char'ed for the first (onth and */,433.33 was i(posed as service fee.

2. *14,333.33 interest and char'es, or the difference between the *143,333.33 principal in the )ealEstate !ort'a'e dated 4 epte(ber "#0 and the *14,333.33 principal in the A(end(ent of the )ealEstate !ort'a'e dated 2# :ece(ber "#0.

1. *"12,333.33 interest and char'es, or the difference between the *14,333.33 principal in theA(end(ent of the )eal Estate !ort'a'e dated 2# :ece(ber "#0 and the *43/,333.33 principal in theA(end(ent of the )eal Estate !ort'a'e dated 2# %uly "#/.

$. *"$3,333.33 interest and char'es, or the difference between the *43/,333.33 principal in theA(end(ent of the )eal Estate !ort'a'e dated 2# %uly "#/ and the *0$/,333.33 principal in theA(end(ent of the )eal Estate !ort'a'e dated "" !arch "#.

4. *22/,"24.33 interest and char'es, or the difference between the *0$/,333.33 principal in theA(end(ent of the )eal Estate !ort'a'e dated "" !arch "# and the */$,"24 principal in theA(end(ent of the )eal Estate !ort'a'e dated 2" October "#.

The total interest and char'es a(ountin' to *44#,"24.33 on the ori'inal principal of *143,333 wasaccu(ulated over only two years and one (onth. These char'es are not found in any written a'ree(ent between the parties. The records fail to show any co(putation on how (uch interest was char'ed andwhat other fees were i(posed. Not only did lac of transparency characterie the afore(entioneda'ree(ents, the interest rates and the service char'e i(posed, at an avera'e of 0.1#6 per (onth, aree8cessive.

+n enactin' )epublic Act No. 1/04, nown as the Truth in Fendin' Act, the tate sees to protect itscitiens fro( a lac of awareness of the true cost of credit by assurin' the full disclosure of such costs.

ection $, in connection with ection 1>1?"0 of the said law, 'ives a detailed enu(eration of thespecific infor(ation required to be disclosed, a(on' which are the interest and other char'es incident

to the e8tension of credit. ection 0"/ of the sa(e law i(poses on anyone who willfully violates these provisions, sanctions which include civil liability, and a fine andRor i(prison(ent.

Althou'h any action seein' to i(pose either civil or cri(inal liability had already prescribed, thisCourt frowns upon the underhanded (anner in which the pouses Espiritu i(posed interest andchar'es, in connection with the loan. This is a''ravated by the fact that one of the creditors, KoiloEspiritu, a lawyer, is hardly in a position to plead i'norance of the require(ents of the law inconnection with the transparency of credit transactions. +n addition, the Civil Code clearly provides

that

Article "#40. No interest shall be due unless it has been stipulated in writin'.

The o(ission of the pouses Espiritu in specifyin' in the contract the interest rate which was actuallyi(posed, in contravention of the law, (anifested bad faith.

+n several cases, this Court has been nown to declare null and void stipulations on interest and char'es

that were found e8cessive, iniquitous, and unconscionable. +n the case of !edel v. Court of Appeals,"

the Court declared an interest rate of 4.46 per (onth on a *433,333.33 loan to be e8cessive, iniquitous,unconscionable and e8orbitant. Even if the parties the(selves a'reed on the interest rate and stipulated









the sa(e in a written a'ree(ent, it nevertheless declared such stipulation as void and ordered the

i(position of a "26 yearly interest rate. +n pouses olan'on v. alaar,"# 06 (onthly interest on a*03,333.33 loan was liewise equitably reduced to a "6 (onthly interest or "26 per annu(. +n )ui v.

Court of Appeals,23 the Court found a 16 (onthly interest i(posed on four separate loans with a totalof *",343,333.33 to be e8cessive and reduced the interest to a "6 (onthly interest or "26 per annu(.

+n declarin' void the stipulations authoriin' e8cessive interest and char'es, the Court declared that

althou'h the 7sury Faw was suspended by Central Ban Circular No. #34, s. "#2, effective on "%anuary "#1, and consequently parties are 'iven a wide latitude to a'ree on any interest rate, nothin'in the said Circular 'rants lenders carte blanche authority to raise interest rates to levels which will

either enslave their borrowers or lead to a he(orrha'in' of their assets.2"

tipulation authoriin' iniquitous or unconscionable interests are contrary to (orals, if not a'ainst thelaw. 7nder Article "$3# of the Civil Code, these contracts are ine8istent and void fro( the be'innin'.

They cannot be ratified nor the ri'ht to set up their ille'ality as a defense be waived. 22 The nullity ofthe stipulation on the usurious interest does not, however, affect the lenderQs ri'ht to recover the

principal of the loan.21 Nor would it affect the ter(s of the real estate (ort'a'e. The ri'ht to foreclosethe (ort'a'e re(ains with the creditors, and said ri'ht can be e8ercised upon the failure of the debtors

to pay the debt due. The debt due is to be considered without the stipulation of the e8cessive interest. Ale'al interest of "26 per annu( will be added in place of the e8cessive interest for(erly i(posed.

Dhile the ter(s of the )eal Estate !ort'a'e re(ain effective, the foreclosure proceedin's held on 1"

Ocotber "##3 cannot be 'iven effect. +n the Notice of heriffQs ale 2$ dated 4 October "##3, and in the

Certificate of ale24 dated 1" October "##3, the a(ount desi'nated as (ort'a'e indebtedness

a(ounted to */$,"24.33. Fiewise, in the de(and letter 20 dated "2 :ece(ber "##, Koilo Espiritude(anded fro( the pouses Fandrito the a(ount of */$,"24.33 for the unpaid loan. ince the debtdue is li(ited to the principal of *143,333.33 with "26 per annu( as le'al interest, the previousde(and for pay(ent of the a(ount of */$,"24.33 cannot be considered as a valid de(and for

pay(ent. <or an obli'ation to beco(e due, there (ust be a valid de(and.2/ Nor can the foreclosure

proceedin's be considered valid since the total a(ount of the indebtedness durin' the foreclosure proceedin's was pe''ed at */$,"24.33 which included interest and which this Court now nullifies for bein' e8cessive, iniquitous and e8orbitant. +f the foreclosure proceedin's were considered valid, thiswould result in an inequitable situation wherein the pouses Fandrito will have their land foreclosedfor failure to pay an over-inflated loan only a s(all part of which they were obli'ated to pay.

!oreover, it is evident fro( the facts of the case that despite considerable effort on their part, thepouses Fandrito failed to redee( the (ort'a'ed property because they were unable to raise the totala(ount, which was 'rossly inflated by the e8cessive interest i(posed. Their atte(pt to redee( the(ort'a'ed property at the inflated a(ount of *",4#4,1#2./#, as early as 13 October "##", is reflectedin a letter, which creditor-(ort'a'ee Koilo Fandrito acnowled'ed to have received by affi8in' his

si'nature herein.2 They also attached in their Co(plaint copies of two checs in the a(ounts of

*//3,333.33 and *##4,3/.33, both dated "1 %anuary "##2, which were alle'edly refused by thepouses Espiritu.2# Fastly, the pouses Espiritu even attached in their e8hibits a copy of a handwrittenletter, dated 2/ %anuary "##$, written by *a Fandrito, addressed to the pouses Espiritu, wherein the

for(er offered to pay the latter the su( of *2,333,333.33.13 +n all these instances, the pouses Fandritohad tried, but failed, to pay an a(ount way over the indebtedness they were supposed to pay X i.e.,*143,333.33 and "26 interest per annu(. Thus, it is only proper that the pouses Fandrito be 'iven theopportunity to repay the real a(ount of their indebtedness.

ince the pouses Fandrito, the debtors in this case, were not 'iven an opportunity to settle their debt,






























at the correct a(ount and without the iniquitous interest i(posed, no foreclosure proceedin's (ay beinstituted. A 5ud'(ent orderin' a foreclosure sale is conditioned upon a findin' on the correct a(ount

of the unpaid obli'ation and the failure of the debtor to pay the said a(ount.1" +n this case, it has notyet been shown that the pouses Fandrito had already failed to pay the correct a(ount of the debt and,therefore, a foreclosure sale cannot be conducted in order to answer for the unpaid debt. Theforeclosure sale conducted upon their failure to pay */$,"24 in "##3 should be nullified since the

a(ount de(anded as the outstandin' loan was overstated= consequently it has not been shown that the(ort'a'ors X the pouses Fandrito, have failed to pay their outstandin' obli'ation. !oreover, if the proceeds of the sale to'ether with its reasonable rates of interest were applied to the obli'ation, only as(all part of its ori'inal loans would actually re(ain outstandin', but because of the unconscionableinterest rates, the lar'er part corresponded to said e8cessive and iniquitous interest.

As a result, the subsequent re'istration of the foreclosure sale cannot transfer any ri'hts over the(ort'a'ed property to the pouses Espiritu. The re'istration of the foreclosure sale, herein declaredinvalid, cannot vest title over the (ort'a'ed property. The Torrens syste( does not create or vest titlewhere one does not have a ri'htful clai( over a real property. +t only confir(s and records title already

e8istin' and vested. +t does not per(it one to enrich oneself at the e8pense of another. 12 Thus, thedecree of re'istration, even after the lapse of one >"? year, cannot attain the status of indefeasibility.

i'nificantly, the records show that the property (ort'a'ed was purchased by the pouses Espiritu andhad not been transferred to an innocent purchaser for value. This (eans that an action for reconveyance

(ay still be availed of in this case.11

)e'istration of property by one person in his or her na(e, whether by (istae or fraud, the real owner bein' another person, i(presses upon the title so acquired the character of a constructive trust for the

real owner, which would 5ustify an action for reconveyance.1$ This is based on Article "$04 of the CivilCode which states that

Art. "$04. +f property acquired throu'h (istaes or fraud, the person obtainin' it is, by force of law,considered a trustee of an i(plied trust for benefit of the person fro( who( the property co(es.

The action for reconveyance does not prescribe until after a period of ten years fro( the date of there'istration of the certificate of sale since the action would be based on i(plied trust.14 Thus, the actionfor reconveyance filed on 1" October "##2, (ore than one year after the heriffQs Certificate of alewas re'istered on # %anuary "##", was filed within the prescription period.

+t should, however, be reiterated that the provisions of the )eal Estate !ort'a'e are not annulled andthe principal obli'ation stands. +n addition, the interest is not co(pletely re(oved= rather, it is set bythis Court at "26 per annu(. hould the pouses Fandrito fail to pay the principal, with itsreco(puted interest which runs fro( the ti(e the loan a'ree(ent was entered into on 4 epte(ber"#0 until the present, there is nothin' in this :ecision which prevents the pouses Espiritu fro(foreclosin' the (ort'a'ed property.

The last issue raised by the petitioners is whether or not Koilo Fandrito was authoried to file the actionfor reconveyance filed before the trial court or even to file the appeal fro( the 5ud'(ent of the trialcourt, by virtue of the pecial *ower of Attorney dated 13 epte(ber "##2. They further noted that the

trial court and the Court of Appeals failed to rule on this issue.10

The pecial *ower of Attorney1/ dated 13 epte(ber "##2 was e8ecuted by !a8i(o Fandrito, %r., withthe confor(ity of *a Fandrito, in connection with the (ort'a'ed property. +t authoried KoiloFandrito

2. To (ae, si'n, e8ecute and deliver correspondin' pertinent contracts, docu(ents, a'ree(ents and

















other writin's of whatever nature or ind and to sue or file le'al action in any court of the *hilippines,to collect, as de(ands, encash checs, and recover any and all su( of (onies, proceeds, interest andother due accruin', ownin', payable or belon'in' to (e as such owner of the afore-(entioned property.>E(phasis provided.?

Koilo FandritoQs authority to file the case is clearly set forth in the pecial *ower of Attorney.<urther(ore, the records of the case unequivocally show that Koilo Fandrito filed the reconveyance

case with the full authority of his (other, *a Fandrito, who attended the hearin's of the case, filed inher behalf, without (ain' any protest.1 he even testified in the sa(e case on 13 Au'ust "##4. <ro(the acts of *a Fandrito, there is no doubt that she had authoried her son to file the action forreconveyance, in her behalf, before the trial court.

+N &+ED O< T9E <O)E;O+N;, the instant *etition is :EN+E:. This Court A<<+)! the assailed:ecision of the Court of Appeals, pro(ul'ated on 1" Au'ust 2334, fi8in' the interest rate of the loan between the parties at "26 per annu(, and orderin' the pouses Espiritu to reconvey the sub5ect property to the pouses Fandrito conditioned upon the pay(ent of the loan to'ether with herein fi8edrate of interest. Costs a'ainst the petitioners.

O O):E)E:.

EN B#NC

G.R. No. L-477 !8/0 24, 1942

GIL !#R$ENIL, plaintiff-appellant,vs.HEFTI OL# alias HEPTI OL#, !EPTI OL#, defendant-appellee.

0leuterio . Gustilo for appellant.

ose *. Ro1les for appellee.

%OR#N, J.>This is an action for foreclosure of (ort'a'e. The only question raised in this appeal is +s defendant-appellee bound to pay the stipulated interest only up to the date of (aturity as fi8ed in the pro(issorynote, or up to the date pay(ent is effectedH This question is, in our opinion controlled by the e8pressstipulation of the parties.

*ara'raph $ of the (ort'a'e deed recites

ue en consideracion a dicha su(a aun por pa'ar de :O !+F C7AT)OC+ENTO *EO>*2,$333.33?, (oneda filipina, que el r. 9epti olas se co(pro(ete a pa'ar al r. %ardenil en oantes del dia treintaiuno >1"? de (aro de (il novecientos treintaicuarto >"#1$?, con losintereses de dicha su(a al tipo de doce por ciento >"26? anual a partir desde fecha hasta el dia

de su venci(iento o sea treintaiuno >1"? de (aro de (il novecientos treintaicuatro >"#1$?, porla presente, el r. 9epti olas cede y traspasa, por via de pri(era hipoteca, a favor del r.%ardenil, sus herederos y causahabientes, la parcela de terreno descrita en el parrafo pri(ero>".L? de esta escritura.

:efendant-appellee has, therefore, clearly a'reed to pay interest only up to the date of (aturity, or until!arch 1", "#1$. As the contract is silent as to whether after that date, in the event of non-pay(ent, thedebtor would continue to pay interest, we cannot in law, indul'e in any presu(ption as to such interest=otherwise, we would be i(posin' upon the debtor an obli'ation that the parties have not chosen toa'ree upon. Article "/44 of the Civil Code provides that interest shall be due only when it has been





epressly stipulated . >E(phasis supplied.?

A writin' (ust be interpreted accordin' to the le'al (eanin' of its lan'ua'e >section 20, Act No. "#3,now section 4, )ule "21?, and only when the wordin' of the written instru(ent appears to be contraryto the evident intention of the parties that such intention (ust prevail. >Article "2", Civil Code.? Thereis nothin' in the (ort'a'e deed to show that the ter(s e(ployed by the parties thereto are at war withtheir evident intent. On the contrary the act of the (ort'a'e of 'rantin' to the (ort'a'or on the sa(e

date of e8ecution of the deed of (ort'a'e, an e8tension of one year fro( the date of (aturity withinwhich to (ae pay(ent, without (ain' any (ention of any interest which the (ort'a'or should paydurin' the additional period >see E8hibit B attached to the co(plaint?, indicates that the true intentionof the parties was that no interest should be paid durin' the period of 'race. Dhat reason the parties(ay have therefor, we need not here see to e8plore.

Neither has either of the parties shown that, by (utual (istae, the deed of (ort'a'e fails to e8presstheir a'ree(ent, for if such (istae e8isted, plaintiff would have undoubtedly adduced evidence toestablish it and ased that the deed be refor(ed accordin'ly, under the parcel-evidence rule.

De hold therefore, that as the contract is clear and un(istaable and the ter(s e(ployed therein havenot been shown to belie or otherwise fail to e8press the true intention of the parties and that the deed

has not been assailed on the 'round of (utual (istae which would require its refor(ation, sa(eshould be 'iven its full force and effect. Dhen a party sues on a written contract and no atte(pt is (adeto show any vice therein, he cannot be allowed to lay any clai( (ore than what its clear stipulationsaccord. 9is o(ission, to which the law attaches a definite warnin' as an in the instant case, cannot bythe courts be arbitrarily supplied by what their own notions of 5ustice or equity (ay dictate.

*laintiff is, therefore, entitled only to the stipulated interest of "2 per cent on the loan of *2, $33 fro( Nove(ber , "#12 to !arch 1", "#1$. And it bein' a fact that e8tra 5udicial de(ands have been (adewhich we (ay assu(e to have been so (ade on the e8piration of the year of 'race, he shall be entitledto le'al interest upon the principal and the accrued interest fro( April ", "#14, until full pay(ent.

Thus (odified 5ud'(ent is affir(ed, with costs a'ainst appellant.

ECON$ $I"IION



PRI%# CONTRUCTION $E"ELOP%ENTCORPOR#TION +)&ROGELIO . P#NT#LEON,

*etitioners,

- versus -

#RTHUR F. %ENCH#"E: ,

)espondent.

G.R. No. 16545

*resent

∗nachura, .,

B)+ON, Actin# *hairperson,

:EF CAT+FFO,

ABA:, and

*E)EK, .

*ro(ul'ated

!arch #, 23"3

------------------------------------------------------------------------------------------

$ E C I I O N

BRION, J .

De resolve in this :ecision the petition for review on certiorariM" filed by

petitioners *ris(a Construction J :evelop(ent Corporation > )R$S!A? and )o'elio .

*antaleon > )antaleon? >collectively, petitioners? who see to reverse and set aside the







:ecisionM2 dated !ay 4, 2331 and the )esolutionM1 dated October 22, 2331 of the

<or(er Ninth :ivision of the Court of Appeals >*A? in CA-;.). C& No. 0#02/. The

assailed CA :ecision affir(ed the :ecision of the )e'ional Trial Court > RT* ?, Branch

/1, Antipolo City in Civil Case No. #/-$442 that held the petitioners liable for pay(ent

of *1,420,""/.33 to respondent Arthur <. !enchave >respondent ?, but (odified the

interest rate fro( $6 per (onth to "26 per annu(, co(puted fro( the filin' of the

co(plaint to full pay(ent. The assailed CA )esolution denied the petitionersQ !otion

for )econsideration.

F#CTU#L B#CGROUN$

The facts of the case, 'athered fro( the records, are briefly su((aried below.

On :ece(ber , "##1, *antaleon, the *resident and Chair(an of the Board of *)+!A, obtained a

P1,,.J4K /o+) ro' te re*?o)&e)t, (t + 'o)t/0 ()tere*t o P4,. ?+0+b/e or *(

'o)t*, or a total obli'ation of *",2$3,333.33 to be paid within si8 >0? (onths,M4 under the followin'

schedule of pay(ents

%anuary , "##$ YYYYYYY. *$3,333.33

<ebruary , "##$ YYYYYY... *$3,333.33

!arch , "##$ YYYYYYY... *$3,333.33

April , "##$ YYYYYYYY. *$3,333.33

!ay , "##$ YYYYYYYY.. *$3,333.33

%une , "##$ YYYYYYY * ",3$3,333.33M0

Total *",2$3,333.33

To secure the pay(ent of the loan, *antaleon issued a pro(issory noteM/ that states

+, )o'elio . *antaleon, hereby acnowled'e the receipt of ONE !+FF+ON TDO 97N:)E: <O)TGT9O7AN: *EO >*",2$3,333?, *hilippine Currency, fro( !r. Arthur <. !enchave, representin'
















a si8-(onth loan payable accordin' to the followin' schedule

%anuary , "##$ YYYYYYY. *$3,333.33<ebruary , "##$ YYYYYY... *$3,333.33!arch , "##$ YYYYYYY... *$3,333.33April , "##$ YYYYYYYY. *$3,333.33

!ay , "##$ YYYYYYYY.. *$3,333.33%une , "##$ YYYYYYY *",3$3,333.33

The checs correspondin' to the above a(ounts are hereby acnowled'ed.M

and si8 >0? postdated checs correspondin' to the schedule of pay(ents. *antaleon si'ned the

pro(issory note in his personal capacity,M# and as duly authoried by the Board of :irectors of

*)+!A.M"3 The petitioners failed to co(pletely pay the loan within the stipulated si8 >0?-(onth

period.

<ro( epte(ber , "##$ to %anuary $, "##/, the petitioners paid the followin' a(ounts to the

respondent

epte(ber , "##$ YYYYYY*123,333.33October , "##4YYYYYYY.*033,333.33

Nove(ber , "##4YYYYY.....*"4,//2.33

%anuary $, "##/ YYYYYYY *13,333.33M""

As of %anuary $, "##/, the petitioners had already paid a total of *","3,//2.33. 9owever, the

respondent found that the petitioners still had an outstandin' balance of *",10$,"4".33 as of %anuary $,

"##/, to which it +??/(e& + 4 'o)t/0 ()tere*t.M"2 Thus, on Au'ust 2, "##/, the respondent filed

a co(plaint for su( of (oney with the )TC to enforce the unpaid balance, ?/8* 4 'o)t/0 ()tere*t,

*13,333.33 in attorneyQs fees, *",333.33 per court appearance and costs of suit.M"1

+n their Answer dated October 0, "##, the petitioners ad(itted the loan of *",2$3,333.33, but

denied the stipulation on the $6 (onthly interest, ar'uin' that the interest was not provided in the

pro(issory note. *antaleon also denied that he (ade hi(self personally liable and that he (ade


















representations that the loan would be repaid within si8 >0? (onths.M"$

THE RTC RULING

The )TC rendered a :ecision on October 2/, 2333 findin' that the respondent issued a chec for

*",333,333.33 in favor of the petitioners for a loan that would earn an interest of $6 or *$3,333.33

per (onth, or a total of *2$3,333.33 for a 0-(onth period. +t noted that the petitioners (ade several

pay(ents a(ountin' to *",22,//2.33, but they were still indebted to the respondent for *1,420,""/.33

as of <ebruary 11,M"4 "### after considerin' the $6 (onthly interest. The )TC observed that

*)+!A was a one-(an corporation of *antaleon and used this circu(stance to 5ustify the piercin' of

the veil of corporate fiction. Thus, the )TC ordered the petitioners to 5ointly and severally pay therespondent the a(ount of *1,420,""/.33 plus $6 per (onth interest fro( <ebruary "", "### until fully

paid.M"0

The petitioners elevated the case to the CA 3ia an ordinary appeal under )ule $" of the )ules of

Court, insistin' that there was no e8press stipulation on the $6 (onthly interest.

THE C# RULING

The CA decided the appeal on !ay 4, 2331. The CA found that the parties a'reed to a $6

(onthly interest principally based on the board resolution that authoried *antaleon to transact a loan

with an approved interest of not (ore than $6 per (onth. The appellate court, however, noted that the

interest of $6 per (onth, or $6 per annu(, was unreasonable and should be reduced to "26 per

annu(. The CA affir(ed the )TCQs findin' that *)+!A was a (ere instru(entality of *antaleon that

5ustified the piercin' of the veil of corporate fiction. Thus, the CA (odified the )TC :ecision by

i(posin' a "26 per annu( interest, co(puted fro( the filin' of the co(plaint until finality of

5ud'(ent, and thereafter, "26 fro( finality until fully paid.M"/












After the CAs denialM" of their (otion for reconsideration,M"# the petitioners filed the

present petition for review on certiorari under )ule $4 of the )ules of Court.

THE PETITION

The petitioners sub(it that the CA (istaenly relied on their board resolution to conclude that

the parties a'reed to a $6 (onthly interest because the board resolution was not an evidence of a loan

or forbearance of (oney, but (erely an authoriation for *antaleon to perfor( certain acts, includin'

the power to enter into a contract of loan. The e8pressed (andate of Article "#40 of the Civil Code is

that interest due should be stipulated in writin', and no such stipulation e8ists. Even assu(in' that the

loan is sub5ect to $6 (onthly interest, the interest covers the si8 >0?-(onth period only and cannot be

interpreted to apply beyond it. The petitioners also point out the 'larin' inconsistency in the CA

:ecision, which reduced the interest fro( $6 per (onth or $6 per annu( to "26 per annu(, but

failed to consider that the a(ount of *1,420,""/.33 that the )TC ordered the( to pay includes the

co(pounded $6 (onthly interest.

THE C#E FOR THE REPON$ENT

The respondent counters that the CA correctly ruled that the loan is sub5ect to a $6 (onthly

interest because the board resolution is attached to, and an inte'ral part of, the pro(issory note based

on which the petitioners obtained the loan. The respondent further contends that the petitioners are

estopped fro( assailin' the $6 (onthly interest, since they a'reed to pay the $6 (onthly interest on

the principal a(ount under the pro(issory note and the board resolution.

THE IUE

The core issue boils down to whether the parties a'reed to the $6 (onthly interest on the loan. +f

so, does the rate of interest apply to the 0-(onth pay(ent period only or until full pay(ent of the loanH







OUR RULING

We find the petitin meritrius.

Interest due shuld be stipulated in !ritin"#

ther!ise$ 12% per annum

Obli'ations arisin' fro( contracts have the force of law between the contractin' parties and

should be co(plied with in 'ood faith.M23 Dhen the ter(s of a contract are clear and leave no doubt

as to the intention of the contractin' parties, the literal (eanin' of its stipulations 'overns.M2" +n such

cases, courts have no authority to alter the contract by construction or to (ae a new contract for the

parties= a courts duty is confined to the interpretation of the contract the parties (ade for the(selves

without re'ard to its wisdo( or folly, as the court cannot supply (aterial stipulations or read into the

contract words the contract does not contain.M22 +t is only when the contract is va'ue and a(bi'uous

that courts are per(itted to resort to the interpretation of its ter(s to deter(ine the partiesQ intent.

+n the present case, the respondent issued a chec for *",333,333.33.M21 +n turn, *antaleon, in

his personal capacity and as authoried by the Board, e8ecuted the pro(issory note quoted above.Thus, the *",333,333.33 loan shall be payable within si8 >0? (onths, or fro( %anuary , "##$ up to

%une , "##$. :urin' this period, the loan shall earn an interest of *$3,333.33 per (onth, for a total

obli'ation of *",2$3,333.33 for the si8-(onth period. <e )ote t+t t(* +ree& *8' c+) be

co'?8te& +t 4 ()tere*t ?er 'o)t, b8t )o *8c r+te o ()tere*t +* *t(?8/+te& () te ?ro'(**or0

)oteM r+ter + fi&ed sum e'uialent t this rate +* +ree& 8?o).

Article "#40 of the Civil Code specifically (andates that Pno interest shall be due unless it has

been e8pressly stipulated in writin'.S 7nder this provision, the pay(ent of interest in loans or

forbearance of (oney is allowed only if >"? there was an e8press stipulation for the pay(ent of

interest= and >2? the a'ree(ent for the pay(ent of interest was reduced in writin'. The concurrence of

the two conditions is required for the pay(ent of interest at a stipulated rate. Thus, we held in Tan 3.

ValdehueaM2$ and *hin# 3. "icdaoM24 that collection of interest without any stipulation in writin'


















is prohibited by law.

Applyin' this provision, we find that the interest of *$3,333.33 per (onth corresponds only to

the si8 >0?-(onth period of the loan, or fro( %anuary , "##$ to %une , "##$, as a'reed upon by the

parties in the pro(issory note. Thereafter, the interest on the loan should be at the le'al interest rate of

"26 per annum, consistent with our rulin' in 0astern Shippin# Lines, $nc. 3. *ourt of AppealsM20

Dhen the obli'ation is breached, and it consists in the pay(ent of a su( of (oney, i.e., a loan orforbearance of (oney, the interest due should be that which (ay have been stipulated in writin'.<urther(ore, the interest due shall itself earn le'al interest fro( the ti(e it is 5udicially de(anded. I)te +b*e)ce o *t(?8/+t(o), te r+te o ()tere*t *+// be 12 ?er +))8' to be co'?8te& ro'&e+8/t, i.e., fro( 5udicial or e8tra5udicial de(and under and sub5ect to the provisions of Article ""0#of the Civil Code.S >E(phasis supplied?

De reiterated this rulin' in Security &an7 and Trust *o. 3. RT*-!a7ati, &r. 8',M2/ Sulit 3.

*ourt of Appeals,M2 *rismina Garments, $nc. 3. *ourt of Appeals ,M2# 0astern Assurance and

Surety *orporation 3. *ourt of Appeals ,M13 Sps. *atun#al 3. ao ,M1" 9on# 3. Tiu,M12 and Sps.

&arrera 3. Sps. Loreno.M11 Thus, the )TC and the CA (isappreciated the facts of the case= they

erred in findin' that the parties a'reed to a $6 interest, co(pounded by the application of this interest

beyond the pro(issory noteQs si8 >0?-(onth period. The facts show that the parties a'reed to the pay(ent of a specific sum f mne of *$3,333.33 per (onth for si8 (onths, not to a $6 rate of

interest payable within a si8 >0?-(onth period.

*edel . Curt f Appeals nt applicable

The CA (isapplied !edel 3. *ourt of Appeals

M1$ in findin' that a $6 interest per (onth was

unconscionable.

+n !edel , the debtors in a *433,333.33 loan were required to pay an interest of 4.46 per (onth, a

service char'e of 26 per annu(, and a penalty char'e of "6 per (onth, plus attorneyQs fee equivalent

to 246 of the a(ount due, until the loan is fully paid. Taen in con5unction with the stipulated service





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char'e and penalty, we found the interest rate of 4.46 to be e8cessive, iniquitous, unconscionable,

e8orbitant and hence, contrary to (orals, thereby renderin' the stipulation null and void.

Applyin' !edel, we invalidated and reduced the stipulated interest in Spouses Solan#on 3. Salaar M14

of 06 per (onth or /26 per annu( interest on a *03,333.33 loan= in Rui 3. *ourt of Appeals,M10 of

16 per (onth or 106 per annu( interest on a *1,333,333.33 loan= in $mperial 3. aucian,M1/ of "06

per (onth or "#26 per annu( interest on a *123,333.33 loan= in Arrofo 3. :ui%o,M1 of /6 interest

per (onth or $6 per annu( interest on a *"4,333.33 loan= in &ulos, r. 3. 9asuma,M1# of $6 per

(onth or $6 per annu( interest on a *2,433,333.33 loan= and in *hua 3. Timan,M$3 of /6 and 46

per (onth for loans totallin' *#0$,333.33. De note that in all these cases, the ter(s of the loans were

open-ended= the stipulated interest rates were applied for an indefinite period.

!edel finds no application in the present case where no other stipulation e8ists for the pay(ent of any

e8tra a(ount e8cept a specific sum f P4,. ?er 'o)t on the principal of a loan payable within

si8 (onths. Additionally, no issue on the e8cessiveness of the stipulated a(ount of *$3,333.33 per

(onth was ever put in issue by the petitioners=M$" they only assailed the application of a $6 interest

rate, since it was not a'reed upon.

+t is a fa(iliar doctrine in obli'ations and contracts that the parties are bound by the stipulations,

clauses, ter(s and conditions they have a'reed to, which is the law between the(, the only li(itation

bein' that these stipulations, clauses, ter(s and conditions are not contrary to law, (orals, public order

or public policy.M$2 The pay(ent of the specific sum f mne of *$3,333.33 per (onth wasvoluntarily a'reed upon by the petitioners and the respondent. There is nothin' fro( the records and, in

fact, there is no alle'ation showin' that petitioners were victi(s of fraud when they entered into the

a'ree(ent with the respondent.

Therefore, as a'reed by the parties, the loan of *",333,333.33 shall earn *$3,333.33 per (onth for a

period of si8 >0? (onths, or fro( :ece(ber , "##1 to %une , "##$, for a total principal and interest





















a(ount of *",2$3,333.33. Thereafter, interest at the rate of "26 per annu( shall apply. The a(ounts

already paid by the petitioners durin' the pendency of the suit, a(ountin' to *",22,//2.33 as of

<ebruary 12, "###,M$1 should be deducted fro( the total a(ount due, co(puted as indicated above.

De re(and the case to the trial court for the actual co(putation of the total a(ount due.

+ctrine f Estppel nt applicable

The respondent sub(its that the petitioners are estopped fro( disputin' the $6 (onthly interest

beyond the si8-(onth stipulated period, since they a'reed to pay this interest on the principal a(ount

under the pro(issory note and the board resolution.

De disa'ree with the respondentQs contention.

De cannot apply the doctrine of estoppel in the present case since the facts and circu(stances, as

established by the record, ne'ate its application. 7nder the pro(issory note,M$$ what the petitioners

a'reed to was the pay(ent of a specific sum f P4,. ?er 'o)t or *( 'o)t* nt a ,% rate

f interest per mnth fr si& (-) mnths X o) + /o+) o*e ?r()c(?+/ (* P1,,., or te tot+/

+'o8)t o P1,24,.. Thus, no reason e8ists to place the petitioners in estoppel, barrin' the(

fro( raisin' their present defenses a'ainst a $6 per (onth interest after the si8-(onth period of the

a'ree(ent. The board resolution,M$4 on the other hand, si(ply authories *antaleon to contract for a

loan with a (onthly interest of not (ore than $6. This resolution (erely e(bodies the e8tent of

*antaleonQs authority to contract and does not create any ri'ht or obli'ation e8cept as between

*antaleon and the board. A'ain, no cause e8ists to place the petitioners in estoppel.

iercin" the crprate eil unfunded

De find it unfounded and unwarranted for the lower courts to pierce the corporate veil of

*)+!A.










The doctrine of piercin' the corporate veil applies only in three >1? basic instances, na(ely a?

when the separate and distinct corporate personality defeats public convenience, as when the corporate

fiction is used as a vehicle for the evasion of an e8istin' obli'ation= b? in fraud cases, or when the

corporate entity is used to 5ustify a wron', protect a fraud, or defend a cri(e= or c? is used in alter e#o

cases, i.e., where a corporation is essentially a farce, since it is a (ere alter e'o or business conduit of a person, or where the corporation is so or'anied and controlled and its affairs so conducted as to (ae

it (erely an instru(entality, a'ency, conduit or ad5unct of another corporation.M$0 +n the absence of

(alice, bad faith, or a specific provision of law (ain' a corporate officer liable, such corporate officer

cannot be (ade personally liable for corporate liabilities.M$/

+n the present case, we see no co(petent and convincin' evidence of any wron'ful, fraudulent or

unlawful act on the part of *)+!A to 5ustify piercin' its corporate veil. Dhile *antaleon denied

personal liability in his Answer, he (ade hi(self accountable in the pro(issory note Pin his personal

capacity and as authoried 1y the &oard ResolutionS of *)+!A.M$ Dith this state(ent of personal

liability and in the absence of any representation on the part of *)+!A that the obli'ation is all its

own because of its separate corporate identity, we see no occasion to consider piercin' the corporate

veil as (aterial to the case.

<HEREFORE, in li'ht of all the fore'oin', we hereby RE"ERE and ET

#I$E the :ecision dated !ay 4, 2331 of the Court of Appeals in CA-;.). C& No.

0#02/. The petitionersQ loan of *",333,333.33 shall bear interest of *$3,333.33 per

(onth for si8 >0? (onths fro( :ece(ber , "##1 as indicated in the pro(issory note.

Any portion of this loan, unpaid as of the end of the si8-(onth pay(ent period, shall

thereafter bear interest at "26 per annum. The total a(ount due and unpaid, includin'

accrued interests, shall bear interest at "26 per annum fro( the finality of this :ecision.

Fet this case be RE%#N$E$ to the )e'ional Trial Court, Branch /1, Antipolo City for

the proper co(putation of the a(ount due as herein directed, with due re'ard to the

pay(ents the petitioners have already re(itted. Costs a'ainst the respondent.










O OR$ERE$.

THIR$ $I"IION

EBAT+AN +;A-AN,

*etitioner,

-3ersus ;

AF+C+A &+FFAN7E&A,

)espondent.

;.). No. "/122/

*resent

GNA)E-ANT+A;O,

Chairperson,

A7T)+A-!A)T+NEK,

C9+CO-NAKA)+O,

NAC97)A, and

FEONA):O-:E CAT)O,Z .

*ro(ul'ated

%anuary 23, 233#

8 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -8



$ E C I I O N

C9+CO-NAKA)+O, .

Before 7s is a *etitionM" for )eview on *ertiorari under )ule $4 of the )ules of Court

seein' to set aside the :ecision,M2 dated "0 :ece(ber 2334, and )esolution,M1 dated

"# %une 2330 of the Court of Appeals in CA-;.). C& No. /""$, which affir(ed in toto

the :ecision,M$ dated 20 %anuary 233", of the Fas *inas City )e'ional Trial Court,

Branch 244, in Civil Case No. F*-#-330.

The facts 'athered fro( the records are as follows

On 13 !arch "##, respondent Alicia &illanueva filed a co(plaintM4 for su( of (oney

a'ainst petitioner ebastian i'a-an before the Fas *inas City )e'ional Trial Court

>)TC?, Branch 244, doceted as Civil Case No. F*-#-330. )espondent alle'ed that

she was a businesswo(an en'a'ed in supplyin' office (aterials and equip(ents to the

*hilippine Navy Office >*NO? located at <ort Bonifacio, Ta'ui' City, while petitioner

was a (ilitary officer and co(ptroller of the *NO fro( "##" to "##0.

)espondent clai(ed that so(eti(e in "##2, petitioner approached her inside the *NO

and offered to loan her the a(ount of *4$3,333.33. ince she needed capital for her

business transactions with the *NO, she accepted petitionerQs proposal. The loan

a'ree(ent was not reduced in writin'. Also, there was no stipulation as to the pay(ent

of interest for the loan.M0

On 1" Au'ust "##1, respondent issued a chec worth *433,333.33 to petitioner as partial

http://sc.judiciary.gov.ph/jurisprudence/2009/jan2009/173227.htm#_ftn1














pay(ent of the loan. On 1" October "##1, she issued another chec in the a(ount of

*233,333.33 to petitioner as pay(ent of the re(ainin' balance of the loan. *etitioner

told her that since she paid a total a(ount of */33,333.33 for the *4$3,333.33 worth of

loan, the e8cess a(ount of *"03,333.33 would be applied as interest for the loan. Not

satisfied with the a(ount applied as interest, petitioner pestered her to pay additional

interest. *etitioner threatened to bloc or disapprove her transactions with the *NO if

she would not co(ply with his de(and. As all her transactions with the *NO were

sub5ect to the approval of petitioner as co(ptroller of the *NO, and fearin' that

petitioner (i'ht bloc or unduly influence the pay(ent of her vouchers in the *NO, she

conceded. Thus, she paid additional a(ounts in cash and checs as interests for the

loan. he ased petitioner for receipt for the pay(ents but petitioner told her that it was

not necessary as there was (utual trust and confidence between the(. Accordin' to her

co(putation, the total a(ount she paid to petitioner for the loan and interest

accu(ulated to *",233,333.33.M/

Thereafter, respondent consulted a lawyer re'ardin' the propriety of payin' interest on

the loan despite absence of a'ree(ent to that effect. 9er lawyer told her that petitioner

could not validly collect interest on the loan because there was no a'ree(ent between

her and petitioner re'ardin' pay(ent of interest. ince she paid petitioner a total

a(ount of *",233,333.33 for the *4$3,333.33 worth of loan, and upon bein' advised by

her lawyer that she (ade overpay(ent to petitioner, she sent a de(and letter to

petitioner asin' for the return of the e8cess a(ount of *003,333.33. *etitioner, despite

receipt of the de(and letter, i'nored her clai( for rei(burse(ent.M

)espondent prayed that the )TC render 5ud'(ent orderin' petitioner to pay respondent

>"? *003,333.33 plus le'al interest fro( the ti(e of de(and= >2? *133,333.33 as (oral

da(a'es= >1? *43,333.33 as e8e(plary da(a'es= and >$? an a(ount equivalent to 246







of *003,333.33 as attorneyQs fees.M#

+n his answer M"3 to the co(plaint, petitioner denied that he offered a loan to

respondent. 9e averred that in "##2, respondent approached and ased hi( if he could'rant her a loan, as she needed (oney to finance her business venture with the *NO. At

first, he was reluctant to deal with respondent, because the latter had a spotty record as a

supplier of the *NO. 9owever, since respondent was an acquaintance of his office(ate,

he a'reed to 'rant her a loan. )espondent paid the loan in full.M""

ubsequently, respondent a'ain ased hi( to 'ive her a loan. As respondent had beenable to pay the previous loan in full, he a'reed to 'rant her another loan. Fater,

respondent requested hi( to restructure the pay(ent of the loan because she could not

'ive full pay(ent on the due date. 9e acceded to her request. Thereafter, respondent

pleaded for another restructurin' of the pay(ent of the loan. This ti(e he re5ected her

plea. Thus, respondent proposed to e8ecute a pro(issory note wherein she would

acnowled'e her obli'ation to hi(, inclusive of interest, and that she would issue

several postdated checs to 'uarantee the pay(ent of her obli'ation. 7pon his approval

of respondentQs request for restructurin' of the loan, respondent e8ecuted a pro(issory

note dated "2 epte(ber "##$ wherein she ad(itted havin' borrowed an a(ount of

*",2$3,333.33, inclusive of interest, fro( petitioner and that she would pay said a(ount

in !arch "##4. )espondent also issued to hi( si8 postdated checs a(ountin' to

*",2$3,333.33 as 'uarantee of co(pliance with her obli'ation. ubsequently, he

presented the si8 checs for encash(ent but only one chec was honored. 9e de(anded

that respondent settle her obli'ation, but the latter failed to do so. 9ence, he filed

cri(inal cases for &iolation of the Bouncin' Checs Faw >Batas *a(bansa Bl'. 22?

a'ainst respondent. The cases were assi'ned to the !etropolitan Trial Court of !aati

City, Branch 04 >!eTC?.M"2











*etitioner insisted that there was no overpay(ent because respondent ad(itted in the

latterQs pro(issory note that her (onetary obli'ation as of "2 epte(ber "##$ a(ounted

to *",2$3,333.33 inclusive of interests. 9e ar'ued that respondent was already estopped

fro( co(plainin' that she should not have paid any interest, because she was 'iven

several ti(es to settle her obli'ation but failed to do so. 9e (aintained that to rule in

favor of respondent is tanta(ount to concludin' that the loan was 'iven interest-free.

Based on the fore'oin' aver(ents, he ased the )TC to dis(iss respondentQs co(plaint.

After trial, the )TC rendered a :ecision on 20 %anuary 233" holdin' that respondent

(ade an overpay(ent of her loan obli'ation to petitioner and that the latter should

refund the e8cess a(ount to the for(er. +t ratiocinated that respondentQs obli'ation was

only to pay the loaned a(ount of *4$3,333.33, and that the alle'ed interests due should

not be included in the co(putation of respondentQs total (onetary debt because there

was no a'ree(ent between the( re'ardin' pay(ent of interest. +t concluded that since

respondent (ade an e8cess pay(ent to petitioner in the a(ount of *003,333.33 throu'h

(istae, petitioner should return the said a(ount to respondent pursuant to the principle

of solutio inde1iti.M"1

The )TC also ruled that petitioner should pay (oral da(a'es for the sleepless ni'hts

and wounded feelin's e8perienced by respondent. <urther, petitioner should pay

e8e(plary da(a'es by way of e8a(ple or correction for the public 'ood, plus attorneyQs

fees and costs of suit.

The dispositive portion of the )TC :ecision reads

D9E)E<O)E, in view of the fore'oin' evidence and in the li'ht of the provisions of law and





5urisprudence on the (atter, 5ud'(ent is hereby rendered in favor of the plaintiff and a'ainst thedefendant as follows

>"? Orderin' defendant to pay plaintiff the a(ount of *003,333.33 plus le'al interest of "26 per annu( co(puted fro( 1 !arch "## until the a(ount is paid in full=

>2? Orderin' defendant to pay plaintiff the a(ount of *133,333.33 as (oral da(a'es=

>1? Orderin' defendant to pay plaintiff the a(ount of *43,333.33 as e8e(plary da(a'es=

>$? Orderin' defendant to pay plaintiff the a(ount equivalent to 246 of *003,333.33 as attorneyQs fees=and

>4? Orderin' defendant to pay the costs of suit.M"$

*etitioner appealed to the Court of Appeals. On "0 :ece(ber 2334, the appellate court

pro(ul'ated its :ecision affir(in' in toto the )TC :ecision, thus

D9E)E<O)E, the fore'oin' considered, the instant appeal is hereby :EN+E: and the assailed

decision Mis A<<+)!E: in toto.M"4

*etitioner filed a (otion for reconsideration of the appellate courtQs decision but this was

denied.M"0 9ence, petitioner lod'ed the instant petition before us assi'nin' the

followin' errors

+.

T9E )TC AN: T9E CO7)T O< A**EAF E))E: +N )7F+N; T9AT NO +NTE)ET DA :7ETO *ET+T+ONE)=









++.

T9E )TC AN: T9E CO7)T O< A**EAF E))E: +N A**FG+N; T9E *)+NC+*FE O<SOL4T$O $"D0&$T$ .M"/

+nterest is a co(pensation fi8ed by the parties for the use or forbearance of (oney. This

is referred to as (onetary interest. +nterest (ay also be i(posed by law or by courts as

penalty or inde(nity for da(a'es. This is called co(pensatory interest.M" The ri'ht to

interest arises only by virtue of a contract or by virtue of da(a'es for delay or failure to

pay the principal loan on which interest is de(anded.M"#

Article "#40 of the Civil Code, which refers to (onetary interest,M23 specifically

(andates that no interest shall be due unless it has been e8pressly stipulated in writin'.

As can be 'leaned fro( the fore'oin' provision, pay(ent of (onetary interest is

allowed only if >"? there was an e8press stipulation for the pay(ent of interest= and >2?

the a'ree(ent for the pay(ent of interest was reduced in writin'. The concurrence of

the two conditions is required for the pay(ent of (onetary interest. Thus, we have heldthat collection of interest without any stipulation therefor in writin' is prohibited by law.

M2"

+t appears that petitioner and respondent did not a'ree on the pay(ent of interest for the

loan. Neither was there convincin' proof of written a'ree(ent between the two

re'ardin' the pay(ent of interest. )espondent testified that althou'h she accepted petitionerQs offer of loan a(ountin' to *4$3,333.33, there was, nonetheless, no verbal or

written a'ree(ent for her to pay interest on the loan.M22

*etitioner presented a handwritten pro(issory note dated "2 epte(ber "##$M21

















wherein respondent purportedly ad(itted owin' petitioner Pcapital and interest.S

)espondent, however, e8plained that it was petitioner who (ade a pro(issory note and

she was told to copy it in her own handwritin'= that all her transactions with the *NO

were sub5ect to the approval of petitioner as co(ptroller of the *NO= that petitioner

threatened to disapprove her transactions with the *NO if she would not pay interest=

that bein' unaware of the law on interest and fearin' that petitioner would (ae 'ood of

his threats if she would not obey his instruction to copy the pro(issory note, she copied

the pro(issory note in her own handwritin'= and that such was the sa(e pro(issory

note presented by petitioner as alle'ed proof of their written a'ree(ent on interest.M2$

*etitioner did not rebut the fore'oin' testi(ony. +t is evident that respondent did not

really consent to the pay(ent of interest for the loan and that she was (erely triced and

coerced by petitioner to pay interest. 9ence, it cannot be 'ainfully said that such

pro(issory note pertains to an e8press stipulation of interest or written a'ree(ent of

interest on the loan between petitioner and respondent.

*etitioner, nevertheless, clai(s that both the )TC and the Court of Appeals found that he

and respondent a'reed on the pay(ent of /6 rate of interest on the loan= that the a'reed

/6 rate of interest was duly ad(itted by respondent in her testi(ony in the Batas

*a(bansa Bl'. 22 cases he filed a'ainst respondent= that despite such 5udicial ad(ission

by respondent, the )TC and the Court of Appeals, citin' Article "#40 of the Civil Code,

still held that no interest was due hi( since the a'ree(ent on interest was not reduced in

writin'= that the application of Article "#40 of the Civil Code should not be absolute,

and an e8ception to the application of such provision should be (ade when the borrowerad(its that a specific rate of interest was a'reed upon as in the present case= and that it

would be unfair to allow respondent to pay only the loan when the latter very well new

and even ad(itted in the Batas *a(bansa Bl'. 22 cases that there was an a'reed /6 rate

of interest on the loan.M24







De have carefully e8a(ined the )TC :ecision and found that the )TC did not (ae a

rulin' therein that petitioner and respondent a'reed on the pay(ent of interest at the rate

of /6 for the loan. The )TC clearly stated that althou'h petitioner and respondent

entered into a valid oral contract of loan a(ountin' to *4$3,333.33, they, nonetheless,

never intended the pay(ent of interest thereon.M20 Dhile the Court of Appeals

(entioned in its :ecision that it concurred in the )TCQs rulin' that petitioner and

respondent a'reed on a certain rate of interest as re'ards the loan, we consider this as

(erely an inadvertence because, as earlier elucidated, both the )TC and the Court of

Appeals ruled that petitioner is not entitled to the pay(ent of interest on the loan. The

rule is that factual findin's of the trial court deserve 'reat wei'ht and respect especially

when affir(ed by the appellate court.M2/ De found no co(pellin' reason to disturb the

rulin' of both courts.

*etitionerQs reliance on respondentQs alle'ed ad(ission in the Batas *a(bansa Bl'. 22

cases that they had a'reed on the pay(ent of interest at the rate of /6 deserves scant

consideration. +n the said case, respondent (erely testified that after payin' the total

a(ount of loan, petitioner ordered her to pay interest.M2 )espondent did not

cate'orically declare in the sa(e case that she and respondent (ade an epress

stipulation in writin' as re'ards pay(ent of interest at the rate of /6. As earlier

discussed, (onetary interest is due only if there was an epress stipulation in writin' for

the pay(ent of interest.

There are instances in which an interest (ay be i(posed even in the absence of e8press

stipulation, verbal or written, re'ardin' pay(ent of interest. Article 223# of the Civil

Code states that if the obli'ation consists in the pay(ent of a su( of (oney, and the

debtor incurs delay, a le'al interest of "26 per annu( (ay be i(posed as inde(nity for









da(a'es if no stipulation on the pay(ent of interest was a'reed upon. Fiewise, Article

22"2 of the Civil Code provides that interest due shall earn le'al interest fro( the ti(e it

is 5udicially de(anded, althou'h the obli'ation (ay be silent on this point.

All the sa(e, the interest under these two instances (ay be i(posed only as a penalty or

da(a'es for breach of contractual obli'ations. +t cannot be char'ed as a co(pensation

for the use or forbearance of (oney. +n other words, the two instances apply only to

co(pensatory interest and not to (onetary interest.M2# The case at bar involves

petitionerQs clai( for (onetary interest.

<urther, said co(pensatory interest is not char'eable in the instant case because it was

not duly proven that respondent defaulted in payin' the loan. Also, as earlier found, no

interest was due on the loan because there was no written a'ree(ent as re'ards pay(ent

of interest.

Apropos the second assi'ned error, petitioner ar'ues that the principle of solutio inde1iti does not apply to the instant case. Thus, he cannot be co(pelled to return the alle'ed

e8cess a(ount paid by respondent as interest.M13

7nder Article "#03 of the Civil Code, if the borrower of loan pays interest when there

has been no stipulation therefor, the provisions of the Civil Code concernin' solutio

inde1iti shall be applied. Article 2"4$ of the Civil Code e8plains the principle of solutioinde1iti. aid provision provides that if so(ethin' is received when there is no ri'ht to

de(and it, and it was unduly delivered throu'h (istae, the obli'ation to return it arises.

+n such a case, a creditor-debtor relationship is created under a quasi-contract whereby

the payor beco(es the creditor who then has the ri'ht to de(and the return of pay(ent

(ade by (istae, and the person who has no ri'ht to receive such pay(ent beco(es







obli'ated to return the sa(e. The quasi-contract of solutio inde1iti hars bac to the

ancient principle that no one shall enrich hi(self un5ustly at the e8pense of another.M1"

The principle of solutio inde1iti applies where >"? a pay(ent is (ade when there e8ists

no bindin' relation between the payor, who has no duty to pay, and the person who

received the pay(ent= and >2? the pay(ent is (ade throu'h (istae, and not throu'h

liberality or so(e other cause.M12 De have held that the principle of solutio inde1iti

applies in case of erroneous pay(ent of undue interest.M11

+t was duly established that respondent paid interest to petitioner. )espondent was under

no duty to (ae such pay(ent because there was no e8press stipulation in writin' to

that effect. There was no bindin' relation between petitioner and respondent as re'ards

the pay(ent of interest. The pay(ent was clearly a (istae. ince petitioner received

so(ethin' when there was no ri'ht to de(and it, he has an obli'ation to return it.

De shall now deter(ine the propriety of the (onetary award and da(a'es i(posed by

the )TC and the Court of Appeals.

)ecords show that respondent received a loan a(ountin' to *4$3,333.33 fro(

petitioner.M1$ )espondent issued two checs with a total worth of */33,333.33 in favor

of petitioner as pay(ent of the loan.M14 These checs were subsequently encashed by

petitioner.M10 Obviously, there was an e8cess of *"03,333.33 in the pay(ent for the

loan. *etitioner clai(s that the e8cess of *"03,333.33 serves as interest on the loan to

which he was entitled. Aside fro( issuin' the said two checs, respondent also paid

cash in the total a(ount of *"/4,333.33 to petitioner as interest.M1/ Althou'h no

receipts reflectin' the sa(e were presented because petitioner refused to issue such to

respondent, petitioner, nonetheless, ad(itted in his )eply-AffidavitM1 in the Batas

*a(bansa Bl'. 22 cases that respondent paid hi( a total a(ount of *"/4,333.33 cash in



















addition to the two checs. ection 20 )ule "13 of the )ules of Evidence provides that

the declaration of a party as to a relevant fact (ay be 'iven in evidence a'ainst hi(.

Aside fro( the a(ounts of *"03,333.33 and *"/4,333.33 paid as interest, no other

proof of additional pay(ent as interest was presented by respondent. ince we have

previously found that petitioner is not entitled to pay(ent of interest and that the

principle of solutio inde1iti applies to the instant case, petitioner should return to

respondent the e8cess a(ount of *"03,333.33 and *"/4,333.33 or the total a(ount of

*114,333.33. Accordin'ly, the rei(bursable a(ount to respondent fi8ed by the )TC and

the Court of Appeals should be reduced fro( *003,333.33 to *114,333.33.

As earlier stated, petitioner filed five >4? cri(inal cases for violation of Batas *a(bansa

Bl'. 22 a'ainst respondent. +n the said cases, the !eTC found respondent 'uilty of

violatin' Batas *a(bansa Bl'. 22 for issuin' five dishonored checs to petitioner.

Nonetheless, respondentQs conviction therein does not affect our rulin' in the instant

case. The two checs, sub5ect (atter of this case, totalin' */33,333.33 which

respondent clai(ed as pay(ent of the *4$3,333.33 worth of loan, were not a(on' the

five checs found to be dishonored or bounced in the five cri(inal cases. <urther, the

!eTC found that respondent (ade an overpay(ent of the loan by reason of the interest

which the latter paid to petitioner.M1#

Article 22"/ of the Civil Code provides that (oral da(a'es (ay be recovered if the

party underwent physical sufferin', (ental an'uish, fri'ht, serious an8iety, bes(irched

reputation, wounded feelin's, (oral shoc, social hu(iliation and si(ilar in5ury.

)espondent testified that she e8perienced sleepless ni'hts and wounded feelin's when

petitioner refused to return the a(ount paid as interest despite her repeated de(ands.

9ence, the award of (oral da(a'es is 5ustified. 9owever, its correspondin' a(ount of

*133,333.33, as fi8ed by the )TC and the Court of Appeals, is e8orbitant and should be





equitably reduced. Article 22"0 of the Civil Code instructs that assess(ent of da(a'es is

left to the discretion of the court accordin' to the circu(stances of each case. This

discretion is li(ited by the principle that the a(ount awarded should not be palpably

e8cessive as to indicate that it was the result of pre5udice or corruption on the part of the

trial court.M$3 To our (ind, the a(ount of *"43,333.33 as (oral da(a'es is fair,

reasonable, and proportionate to the in5ury suffered by respondent.

Article 2212 of the Civil Code states that in a quasi-contract, such as solutio inde1iti,

e8e(plary da(a'es (ay be i(posed if the defendant acted in an oppressive (anner.

*etitioner acted oppressively when he pestered respondent to pay interest and

threatened to bloc her transactions with the *NO if she would not pay interest. This

forced respondent to pay interest despite lac of a'ree(ent thereto. Thus, the award of

e8e(plary da(a'es is appropriate. The a(ount of *43,333.33 i(posed as e8e(plary

da(a'es by the )TC and the Court is fittin' so as to deter petitioner and other lenders

fro( co((ittin' si(ilar and other serious wron'doin's.M$"

%urisprudence instructs that in awardin' attorneyQs fees, the trial court (ust state the

factual, le'al or equitable 5ustification for awardin' the sa(e.M$2 +n the case under

consideration, the )TC stated in its :ecision that the award of attorneyQs fees equivalent

to 246 of the a(ount paid as interest by respondent to petitioner is reasonable and

(oderate considerin' the e8tent of wor rendered by respondentQs lawyer in the instant

case and the fact that it dra''ed on for several years.M$1 <urther, respondent testified

that she a'reed to co(pensate her lawyer handlin' the instant case such a(ount.M$$

The award, therefore, of attorneyQs fees and its a(ount equivalent to 246 of the a(ount

paid as interest by respondent to petitioner is proper.

<inally, the )TC and the Court of Appeals i(posed a "26 rate of le'al interest on the













a(ount refundable to respondent co(puted fro( 1 !arch "## until its full pay(ent.

This is erroneous.

De held in 0astern Shippin# Lines, $nc. 3. *ourt of Appeals, /,50 that when anobli'ation, not constitutin' a loan or forbearance of (oney is breached, an interest on

the a(ount of da(a'es awarded (ay be i(posed at the rate of 06 per annu(. De

further declared that when the 5ud'(ent of the court awardin' a su( of (oney beco(es

final and e8ecutory, the rate of le'al interest, whether it is a loanRforbearance of (oney

or not, shall be "26 per annu( fro( such finality until its satisfaction, this interim

period bein' dee(ed equivalent to a forbearance of credit.

+n the present case, petitionerQs obli'ation arose fro( a quasi-contract of solutio inde1iti

and not fro( a loan or forbearance of (oney. Thus, an interest of 06 per annu( should

be i(posed on the a(ount to be refunded as well as on the da(a'es awarded and on the

attorneyQs fees, to be co(puted fro( the ti(e of the e8tra-5udicial de(and on 1 !arch

"##,M$0 up to the finality of this :ecision. +n addition, the interest shall beco(e "26

per annu( fro( the finality of this :ecision up to its satisfaction.

<HEREFORE, the :ecision of the Court of Appeals in CA-;.). C& No. /""$, dated

"0 :ece(ber 2334, is hereby #FFIR%E$ with the followin' %O$IFIC#TION >"?

the a(ount of *003,333.33 as refundable a(ount of interest is reduced to T9)EE

97N:)E: T9+)TG <+&E T9O7AN: *EO >*114,333.33?= >2? the a(ount of

*133,333.33 i(posed as (oral da(a'es is reduced to ONE 97N:)E: <+<TG

T9O7AN: *EO >*"43,333.33?= >1? an interest of 06 per annu( is i(posed on the

*114,333.33, on the da(a'es awarded and on the attorneyQs fees to be co(puted fro(

the ti(e of the e8tra-5udicial de(and on 1 !arch "## up to the finality of this

:ecision= and >$? an interest of "26 per annu( is also i(posed fro( the finality of this







:ecision up to its satisfaction. Costs a'ainst petitioner.

O OR$ERE$.

ECON$ $I"IION

*O7E :A&+: B. CA)*O ;.). Nos. "43//1 J

and )EC9+F:A . CA)*O, "414##

)etitioners,

*resent

- versus - *7NO, .,

*hairman,

A7T)+A-!A)T+NEK,

CAFFE%O, ).,

EFEANO) C97A and T+N;A, and

EF!A :G N;, C9+CO-NAKA)+O, .

Respondents.

*ro(ul'ated

epte(ber 13, 2334

8-------------------------------------------------------------------8

$ E C I I O N

Tin'a, .



Before this Court are two consolidated petitions for review. The first, doceted as ;.).

No. "43//1, assails the DecisionM" of the )e'ional Trial Court >)TC?, Branch 20 of

Na'a City dated 20 October 233" in Civil Case No. ##-$1/0. )TC %ud'e <ile(on B.

!ontene'ro dis(issed the co(plaintM2 for annul(ent of real estate (ort'a'e and

consequent foreclosure proceedin's filed by the spouses :avid B. Carpo and )echilda .

Carpo >petitioners?.

The second, doceted as ;.). No. "414##, sees to annul the Court of AppealsQ

DecisionM1 dated 13 April 2332 in CA-;.). * No. 4/2#/. The Court of Appeals Third

:ivision annulled and set aside the orders of %ud'e Coraon A. Tordilla to suspend the

sheriffQs enforce(ent of the writ of possession.

The cases ste((ed fro( a loan contracted by petitioners. On " %uly "##4, they

borrowed fro( Eleanor Chua and El(a :y N' >respondents? the a(ount of One

9undred eventy-<ive Thousand *esos >*"/4,333.33?, payable within si8 >0? (onths

with an interest rate of si8 percent >06? per (onth. To secure the pay(ent of the loan,

petitioners (ort'a'ed their residential house and lot situated at an <rancisco, !a'arao,

Ca(arines ur, which lot is covered by Transfer Certificate of Title >TCT? No. 21"3.

*etitioners failed to pay the loan upon de(and. Consequently, the real estate (ort'a'e

was e8tra5udicially foreclosed and the (ort'a'ed property sold at a public auction on

%uly "##0. The house and lot was awarded to respondents, who were the only bidders,

for the a(ount of Three 9undred i8ty-even Thousand <our 9undred <ifty-even

*esos and Ei'hty Centavos >*10/,$4/.3?.

7pon failure of petitioners to e8ercise their ri'ht of rede(ption, a certificate of sale was

issued on 4 epte(ber "##/ by heriff )olando A. Bor5a. TCT No. 21"3 was

http://sc.judiciary.gov.ph/jurisprudence/2005/sep2005/150773.htm#_ftn1








cancelled and in its stead, TCT No. 2#11 was issued in the na(e of respondents.

:espite the issuance of the TCT, petitioners continued to occupy the said house and lot,

pro(ptin' respondents to file a petition for writ of possession with the )TC doceted aspecial *roceedin's >*? No. #-"004. On 21 !arch "###, )TC %ud'e Ernesto A.

!i'uel issued an Order M$ for the issuance of a writ of possession.

On 21 %uly "###, petitioners filed a co(plaint for annul(ent of real estate (ort'a'e and

the consequent foreclosure proceedin's, doceted as Civil Case No. ##-$1/0 of the

)TC. *etitioners consi'ned the a(ount of Two 9undred <ifty-even Thousand One9undred Ninety-even *esos and Twenty-i8 Centavos >*24/,"#/.20? with the )TC.

!eanwhile, in * No. #-"004, a te(porary restrainin' order was issued upon (otion

on 1 Au'ust "###, en5oinin' the enforce(ent of the writ of possession. +n an Order M4

dated 0 %anuary 2333, the )TC suspended the enforce(ent of the writ of possession

pendin' the final disposition of Civil Case No. ##-$1/0. A'ainst this Order ,respondents filed a petition for certiorari and (anda(us before the Court of Appeals,

doceted as CA-;.). * No. 4/2#/.

:urin' the pendency of the case before the Court of Appeals, )TC %ud'e <ile(on B.

!ontene'ro dis(issed the co(plaint in Civil Case No. ##-$1/0 on the 'round that it

was filed out of ti(e and barred by laches. The )TC proceeded fro( the pre(ise thatthe co(plaint was one for annul(ent of a voidable contract and thus barred by the four-

year prescriptive period. 9ence, the first petition for review now under consideration

was filed with this Court, assailin' the dis(issal of the co(plaint.







The second petition for review was filed with the Court after the Court of Appeals on 13

April 2332 annulled and set aside the )TC orders in * No. #-"004 on the 'round that

it was the (inisterial duty of the lower court to issue the writ of possession when title

over the (ort'a'ed property had been consolidated in the (ort'a'ee.

This Court ordered the consolidation of the two cases, on (otion of petitioners.

+n ;.). No. "43//1, petitioners clai( that followin' the CourtQs rulin' in !edel 3.

*ourt of AppealsM0 the rate of interest stipulated in the principal loan a'ree(ent is

clearly null and void. Consequently, they also ar'ue that the nullity of the a'reed interestrate affects the validity of the real estate (ort'a'e. Notably, while petitioners were silent

in their petition on the issues of prescription and laches on which the )TC 'rounded the

dis(issal of the co(plaint, they belatedly raised the (atters in their !emorandum.

Nonetheless, these points warrant brief co((ent.

On the other hand, petitioners ar'ue in ;.). No. "414## that the )TC did notco((it any 'rave abuse of discretion when it issued the orders dated 1 Au'ust "### and

0 %anuary 2333, and that these orders could not have been Pthe proper sub5ects of a

petition for certiorari and (anda(usS. !ore accurately, the 5usticiable issues before us

are whether the Court of Appeals could properly entertain the petition for certiorari fro(

the ti(eliness aspect, and whether the appellate court correctly concluded that the writ

of possession could no lon'er be stayed.

De first resolve the petition in ;.). No. "43//1.





*etitioners contend that the a'reed rate of interest of 06 per (onth or /26 per annu( is

so e8cessive, iniquitous, unconscionable and e8orbitant that it should have been declared

null and void. +nstead of dis(issin' their co(plaint, they aver that the lower court

should have declared the( liable to respondents for the ori'inal a(ount of the loan plus

"26 interest per annu( and "6 (onthly penalty char'e as liquidated da(a'es,M/ in

view of the rulin' in !edel 3. *ourt of Appeals.M

+n !edel, the Court found that the interest stipulated at 4.46 per (onth or 006 per

annu( was so iniquitous or unconscionable as to render the stipulation void.

Nevertheless, we find the interest at 4.46 per (onth, or 006 per annu(, stipulated upon by the partiesin the pro(issory note iniquitous or unconscionable, and, hence, contrary to (orals >Pcontra 1onos

moresS?, if not a'ainst the law. The stipulation is void. The Court shall reduce equitably liquidatedda(a'es, whether intended as an inde(nity or a penalty if they are iniquitous or unconscionable.M#

+n a lon' line of cases, this Court has invalidated si(ilar stipulations on interest rates

for bein' e8cessive, iniquitous, unconscionable and e8orbitant. +n Solan#on 3. Salaar ,

M"3 we annulled the stipulation of 06 per (onth or /26 per annu( interest on a

*03,333.33 loan. +n $mperial 3. aucian,M"" we reduced the interest rate fro( "06 to

"."0/6 per (onth or "$6 per annu(. +n Rui 3. *ourt of Appeals,M"2 we equitably

reduced the a'reed 16 per (onth or 106 per annu( interest to "6 per (onth or "26

per annu( interest. The "36 and 6 interest rates per (onth on a *",333,333.33 loan

were reduced to "26 per annu( in *uaton 3. Salud .M"1 )ecently, this Court, in Arrofo

3. :uino,M"$ reduced the /6 interest per (onth on a *"4,333.33 loan a(ountin' to$6 interest per annu( to "6 per annu(.

There is no need to unsettle the principle affir(ed in !edel and lie cases. <ro(

that perspective, it is apparent that the stipulated interest in the sub5ect loan is e8cessive,



















iniquitous, unconscionable and e8orbitant. *ursuant to the freedo( of contract principle

e(bodied in Article "130 of the Civil Code, contractin' parties (ay establish such

stipulations, clauses, ter(s and conditions as they (ay dee( convenient, provided they

are not contrary to law, (orals, 'ood custo(s, public order, or public policy. +n the

ordinary course, the codal provision (ay be invoed to annul the e8cessive stipulated

interest.

+n the case at bar, the stipulated interest rate is 06 per (onth, or /26 per annu(. By the

standards set in the above-cited cases, this stipulation is si(ilarly invalid. 9owever, the

)TC refused to apply the principle cited and e(ployed in !edel on the 'round that

!edel did not pertain to the annul(ent of a real estate (ort'a'e,M"4 as it was a case for

annul(ent of the loan contract itself. The question thus sensibly arises whether the

invalidity of the stipulation on interest carries with it the invalidity of the principal

obli'ation.

The question is crucial to the present petition even if the sub5ect thereof is not the

annul(ent of the loan contract but that of the (ort'a'e contract. The consideration of

the (ort'a'e contract is the sa(e as that of the principal contract fro( which it receives

life, and without which it cannot e8ist as an independent contract. Bein' a (ere

accessory contract, the validity of the (ort'a'e contract would depend on the validity of

the loan secured by it.M"0

Notably in !edel , the Court did not invalidate the entire loan obli'ation despite the

inequitability of the stipulated interest, but instead reduced the rate of interest to the

(ore reasonable rate of "26 per annu(. The sa(e re(edial approach to the wron'ful

interest rates involved was e(ployed or affir(ed by the Court in Solan#on, $mperial ,

Rui , *uaton, and Arrofo.







The CourtQs ulti(ate affir(ation in the cases cited of the validity of the principal

loan obli'ation side by side with the invalidation of the interest rates thereupon is

con'ruent with the rule that a usurious loan transaction is not a co(plete nullity but

defective only with respect to the a'reed interest.

De are aware that the Court of Appeals, on certain occasions, had ruled that a

usurious loan is wholly null and void both as to the loan and as to the usurious interest.

M"/ 9owever, this Court adopted the contrary rule,





as co(prehensively discussed in &riones 3. *ammayoM"

+n ;ui %on' J Co. vs. )ivera, et al., $4 *hil. //, this Court liewise declared that, in anyevent, the debtor in a usurious contract of loan should pay the creditor the a(ount which he 5ustly owes hi(, citin' in support of this rulin' its previous decisions in ;o Chioco, Supra,

A'uilar vs. )ubiato, et al., $3 *hil. 4/3, and :el'ado vs. :uque &al'ona, $$ *hil. /1#.

. . . .

Then in Fope and %avelona vs. El 9o'ar <ilipino, $/ *hil. 2$#, De also held that thestandin' 5urisprudence of this Court on the question under consideration was clearly to theeffect that the 7sury Faw, by its letter and spirit, did not deprive the lender of his ri'ht to

recover fro( the borrower the (oney actually loaned to and en5oyed by the latter. ThisCourt went further to say that the 7sury Faw did not provide for the forfeiture of the capitalin favor of the debtor in usurious contracts, and that while the forfeiture (i'ht appear to beconvenient as a drastic (easure to eradicate the evil of usury, the le'al question involvedshould not be resolved on the basis of convenience. Other cases upholdin' the sa(e principle are *alileo vs. Cosio, #/ *hil. #"# and *ascua vs.*ere, F-"#44$, %anuary 1", "#0$, "3 C)A "##, 233-232. +n the latter De e8pressly heldthat when a contract is found to be tainted with usury the only ri'ht of the respondent>creditor? . . . was (erely to collect the a(ount of the loan, plus interest due thereon. The view has been e8pressed, however, that the rulin' thus consistently adhered to shouldnow be abandoned because Article "#4/ of the new Civil Code @ a subsequent law @ provides that contracts and stipulations, under any cloa or device whatever, intended tocircu(vent the laws a'ainst usury, shall be void, and that in such cases the borrower (ayrecover in accordance with the laws on usury. <ro( this the conclusion is drawn that thewhole contract is void and that, therefore, the creditor has no ri'ht to recover @ not even hiscapital. The (eanin' and scope of our rulin' in the cases (entioned heretofore is clearly stated, andthe view referred to in the precedin' para'raph is adequately answered, in An'el %ose, etc.vs. Chelda Enterprises, et al. >F-24/3$, April 2$, "#0?. On the question of whether acreditor in a usurious contract (ay or (ay not recover the principal of the loan, and, in theaffir(ative, whether or not he (ay also recover interest thereon at the le'al rate, De said thefollowin'

P. . . .

Appealin' directly to 7s, defendants raise two questions of law >"? +n a loanwith usurious interest, (ay the creditor recover the principal of the loanH >2?hould attorneys fees be awarded in plaintiffs favorH





;reat reliance is (ade by appellants on Art. "$"" of the New Civil Code . . . . ince, accordin' to the appellants, a usurious loan is void due to ille'ality ofcause or ob5ect, the rule of pari delicto e8pressed in Article "$"", supra,applies, so that neither party can brin' action a'ainst each other. aid rule,however, appellants add, is (odified as to the borrower, by e8press provision

of the law >Art. "$"1, New Civil Code?, allowin' the borrower to recoverinterest paid in e8cess of the interest allowed by the 7sury Faw. As to thelender, no e8ception is (ade to the rule= hence, he cannot recover on thecontract. o @ they continue @ the New Civil Code provisions (ust beupheld as a'ainst the 7sury Faw, under which a loan with usurious interest isnot totally void, because of Article "#0" of the New Civil Code, that7surious contracts shall be 'overned by the 7sury Faw and other speciallaws, so far as they are not inconsistent with this Code.

De do not a'ree with such reasonin'. Article "$"" of the New Civil Code isnot new= it is the sa(e as Article "134 of the Old Civil Code. Therefore, said provision is no warrant for departin' fro( previous interpretation that, as provided in the 7sury Faw >Act No. 2044, as a(ended?, a loan with usuriousinterest is not totally void only as to the interest. . . . J+K??e//+)t* +(/ to co)*(&er t+t + co)tr+ct o /o+) (t 8*8r(o8*()tere*t co)*(*t* o ?r()c(?+/ +)& +cce**or0 *t(?8/+t(o)*M te ?r()c(?+/ o)e(* to ?+0 te &ebtM te +cce**or0 *t(?8/+t(o) (* to ?+0 ()tere*t tereo). #)& *+(& to *t(?8/+t(o)* +re &((*(b/e () te *e)*e t+t te or'er c+)*t(// *t+)& (to8t te /+tter. #rt(c/e 1273, C((/ Co&e, +tte*t* to t(*>Te re)8)c(+t(o) o te ?r()c(?+/ &ebt *+// et()8(* te +cce**or0ob/(+t(o)*M b8t te +(er o te /+tter *+// /e+e te or'er () orce. Te 8e*t(o) tereore to re*o/e (* eter te (//e+/ ter'* +* to?+0'e)t o ()tere*t /(e(*e re)&er* + )8//(t0 te /e+/ ter'* +* to?+0'e)t* o te ?r()c(?+/ &ebt. #rt(c/e 142 o te Ne C((/ Co&e?ro(&e* () t(* re+r&> I) c+*e o + &((*(b/e co)tr+ct, ( te (//e+/ter'* c+) be *e?+r+te& ro' te /e+/ o)e*, te /+tter '+0 be e)orce&. I) *('?/e /o+) (t *t(?8/+t(o) o 8*8r(o8* ()tere*t, te ?re*t+t(o) o te&ebtor to ?+0 te ?r()c(?+/ &ebt, (c (* te c+8*e o te co)tr+ct#rt(c/e 135, C((/ Co&e, (* )ot (//e+/. Te (//e+/(t0 /(e* o)/0 +* to te?re*t+t(o) to ?+0 te *t(?8/+te& ()tere*tM e)ce, be() *e?+r+b/e, te/+tter o)/0 *o8/& be &ee'e& o(&, *()ce (t (* te o)/0 o)e t+t (* (//e+/. . . . .

The principal debt re(ainin' without stipulation for pay(ent of interest canthus be recovered by 5udicial action. And in case of such de(and, and thedebtor incurs in delay, the debt earns interest fro( the date of the de(and >inthis case fro( the filin' of the co(plaint?. uch interest is not due tostipulation, for there was none, the sa(e bein' void. )ather, it is due to the



'eneral provision of law that in obli'ations to pay (oney, where the debtorincurs in delay, he has to pay interest by way of da(a'es >Art. 223#, CivilCode?. The court a quo therefore, did not err in orderin' defendants to pay the principal debt with interest thereon at the le'al rate, fro( the date of filin' ofthe co(plaint.M"#

The CourtQs wholehearted affir(ation of the rule that the principal obli'ation

subsists despite the nullity of the stipulated interest is evinced by its subsequent rulin's,

cited above, in all of which the (ain obli'ation was upheld and the offendin' interest

rate (erely corrected. 9ence, it is clear and settled that the principal loan obli'ation still

stands and re(ains valid. By the sa(e toen, since the (ort'a'e contract derives its

vitality fro( the validity of the principal obli'ation, the invalid stipulation on interest

rate is si(ilarly insufficient to render void the ancillary (ort'a'e contract.

+t should be noted that had the Court declared the loan and (ort'a'e a'ree(ents

void for bein' contrary to public policy, no prescriptive period could have run.M23 uch

benefit is obviously not available to petitioners.

Get the )TC pronounced that the co(plaint was barred by the four-year prescriptive

period provided in Article "1#" of the Civil Code, which 'overns voidable contracts.

This conclusion was derived fro( the alle'ation in the co(plaint that the consent of

petitioners was vitiated throu'h undue influence. Dhile the )TC correctly

acnowled'ed the rule of prescription for voidable contracts, it erred in applyin' the rule

in this case. De are hard put to conclude in this case that there was any undue influence

in the first place.

There is ulti(ately no showin' that petitionersQ consent to the loan and (ort'a'e

a'ree(ents was vitiated by undue influence. The financial condition of petitioners (ay

have (otivated the( to contract with respondents, but undue influence cannot be







attributed to respondents si(ply because they had lent (oney. Article "1#", in relation

to Article "1#3 of the Civil Code, 'rants the a''rieved party the ri'ht to obtain the

annul(ent of contract on account of factors which vitiate consent. Article "11/ defines

the concept of undue influence, as follows

There is undue influence when a person taes i(proper advanta'e of his power over the will ofanother, deprivin' the latter of a reasonable freedo( of choice. The followin' circu(stancesshall be considered the confidential, fa(ily, spiritual and other relations between the parties orthe fact that the person alle'ed to have been unduly influenced was sufferin' fro( (entalweaness, or was i'norant or in financial distress.

Dhile petitioners were alle'edly financially distressed, it (ust be proven that there

is deprivation of their free a'ency. +n other words, for undue influence to be present, the

influence e8erted (ust have so overpowered or sub5u'ated the (ind of a contractin'

party as to destroy his free a'ency, (ain' hi( e8press the will of another rather than

his own.M2" The alle'ed lin'erin' financial woes of petitioners per se cannot be equated

with the presence of undue influence.

The )TC had liewise concluded that petitioners were barred by laches fro( assailin'

the validity of the real estate (ort'a'e. De wholeheartedly a'ree. +f indeed petitioners

unwillin'ly 'ave their consent to the a'ree(ent, they should have raised this issue as

early as in the foreclosure proceedin's. +t was only when the writ of possession was

issued did petitioners challen'e the stipulations in the loan contract in their action for

annul(ent of (ort'a'e. Evidently, petitioners slept on their ri'hts. The Court of

Appeals succinctly (ade the followin' observations

+n all these proceedin's startin' fro( the foreclosure, followed by the issuance of a provisionalcertificate of sale= then the definite certificate of sale= then the issuance of TCT No. 2#11 infavor of the defendants and finally the petition for the issuance of the writ of possession in favorof the defendants, there is no showin' that plaintiffs questioned the validity of these proceedin's. +t was only after the issuance of the writ of possession in favor of the defendants,





that plaintiffs alle'edly tendered to the defendants the a(ount of *203,333.33 which thedefendants refused. +n all these proceedin's, why did plaintiffs sleep on their ri'htsHM22

Clearly then, with the absence of undue influence, petitioners have no cause of

action. Even assu(in' undue influence vitiated their consent to the loan contract, their

action would already be barred by prescription when they filed it. !oreover, petitioners

had clearly slept on their ri'hts as they failed to ti(ely assail the validity of the

(ort'a'e a'ree(ent. The denial of the petition in ;.). No. "43//1 is warranted.

De now resolve the petition in ;.). No. "414##.

*etitioners clai( that the assailed )TC orders dated 1 Au'ust "### and 0 %anuary

2333 could no lon'er be questioned in a special civil action for certiorari and

(anda(us as the re'le(entary period for such action had already elapsed.

+t (ust be noted that the Order dated 1 Au'ust "### suspendin' the enforce(ent of

the writ of possession had a period of effectivity of only twenty >23? days fro( 1 Au'ust

"###, or until 21 Au'ust "###. Thus, upon the e8piration of the twenty >23?-day period,

the said Order beca(e functus officio. Thus, there is really no sense in assailin' the

validity of this Order , (ooted as it was. <or the sa(e reason, the validity of the order

need not have been assailed by respondents in their special civil action before the Court

of Appeals.

On the other hand, the Order dated 0 %anuary 2333 is in the nature of a writ of

in5unction whose period of efficacy is indefinite. +t (ay be properly assailed by way of

the special civil action for certiorari, as it is interlocutory in nature.





As a rule, the special civil action for certiorari under )ule 04 (ust be filed not later

than si8ty >03? days fro( notice of the 5ud'(ent or order.M21 *etitioners ar'ue that the

1 Au'ust "### Order could no lon'er be assailed by respondents in a special civil action

for certiorari before the Court of Appeals, as the petition was filed beyond si8ty >03?

days followin' respondentsQ receipt of the Order . Considerin' that the 1 Au'ust "###

Order had beco(e functus officio in the first place, this ar'u(ent deserves scant

consideration.

*etitioners further clai( that the 0 %anuary 2333 Order could not have liewise been

the sub5ect of a special civil action for certiorari, as it is accordin' to the( a final order,

as opposed to an interlocutory order. That the 0 %anuary 2333 Order is interlocutory in

nature should be beyond doubt. An order is interlocutory if its effects would only be

provisional in character and would still leave substantial proceedin's to be further had

by the issuin' court in order to put the controversy to rest.M2$ The in5unctive relief

'ranted by the order is definitely final, but (erely provisional, its effectivity hin'in' on

the ulti(ate outco(e of the then pendin' action for annul(ent of real estate (ort'a'e.

+ndeed, an interlocutory order hardly puts to a close, or disposes of, a case or a disputedissue leavin' nothin' else to be done by the court in respect thereto, as is characteristic

of a final order.

ince the 0 %anuary 2333 Order is not a final order, but rather interlocutory in

nature, we cannot a'ree with petitioners who insist that it (ay be assailed only throu'h

an appeal perfected within fifteen >"4? days fro( receipt thereof by respondents. +t isa8io(atic that an interlocutory order cannot be challen'ed by an appeal,







but is susceptible to review only throu'h the special civil action of certiorari.M24 The

si8ty >03?-day re'le(entary period for special civil actions under )ule 04 applies, and

respondentsQ petition was filed with the Court of Appeals well within the period.

Accordin'ly, no error can be attributed to the Court of Appeals in 'rantin' the

petition for certiorari and (anda(us. As pointed out by respondents, the re(edy of

(anda(us lies to co(pel the perfor(ance of a (inisterial duty. The issuance of a writ

of possession to a purchaser in an e8tra5udicial foreclosure is (erely a (inisterial

function.M20

Thus, we also affir( the Court of AppealsQ rulin' to set aside the )TC orders en5oinin'

the enforce(ent of the writ of possession.M2/ The purchaser in a foreclosure sale is

entitled as a (atter of ri'ht to a writ of possession, re'ardless of whether or not there is a

pendin' suit for annul(ent of the (ort'a'e or the foreclosure proceedin's. An

in5unction to prohibit the issuance or enforce(ent of the writ is entirely out of place.M2

One final note. The issue on the validity of the stipulated interest rates, re'rettably for

petitioners, was not raised at the earliest possible opportunity. +t should be pointed out

thou'h that since an e8cessive stipulated interest rate (ay be void for bein' contrary to

public policy, an action to annul said interest rate does not prescribe. uch indeed is the

re(edy= it is not the action for annul(ent of the ancillary real estate (ort'a'e. :espite

the nullity of the stipulated interest rate, the principal loan obli'ation subsists, and alon'

with it the (ort'a'e that serves as collateral security for it.

D9E)E<O)E, in view of all the fore'oin', the petitions are :EN+E:. Costs











a'ainst petitioners.

O O):E)E:.

ECON$ $I"IION

G.R. No. L-52482 ebr7r 2(, 1990

S!NTIN!L INS#RANC! CO., INC., petitioner,vs.TH! HONORA+L! CO#RT O APP!ALS, HON. LOR!LIANA CASTRO-+ARTOLO"!,Pre66/ %e, Cort o: 6rt I/t7/e o: R6=7, Se*e/t; %667 $6tr6t, +r7/; <V,TH! PROVINCIAL SH!RI O RI&AL, 7/ ROS! IN$#STRI!S, INC., respondents.

Jesus ). %antos Law Office for petitioner.

3uas!a, Asperilla, Anc!eta, Valmonte, Pea & arcos for pri#ate respondent.

R!GALA$O, J.:

4efore us is a petition see=ing the amendment and modification of the dispositive portion of

respondent court>s decision in CA&'.%. $o. ?P&(!33, 1 allegedly to ma=e it conform with thefindings, arguments and observations embodied in said decision which relief was denied by

respondent court in its resolution, dated anuary ), !"(, 2 reecting petitioner>s eG parte

motion filed for that purpose. (

6hile not involving the main issues in the case threshed out in the court a 4uo, the udgmentin which had already become final and eGecutory, the factual bac=drop of the present petitionis summari<ed by respondent court as follows5

Petitioner ?entinel nsurance Co., nc., was the surety in a contract of suretyship entered into on$ovember ), !#* with $emesio A<cueta, ?r., who is doing business under the name and styleof >:alayan Trading as reflected in ?C8 4ond $o. '-((0#" where both of them boundthemselves, >ointly and severally, to fully and religiously guarantee the compliance with theterms and stipulations of the credit line granted by private respondent %ose ndustries, nc., infavor of $emesio A<cueta, ?r., in the amount of P"(,((.((.> 4etween $ovember 03 toDecember 03, !#*, A<cueta made various purchases of tires, batteries and tire tubes from theprivate respondent but failed to pay therefor, prompting the latter to demand payment butbecause A<cueta failed to settle his accounts, the case was referred to the nsuranceCommissioner who invited the attention of the petitioner on the matter and the latter cancelledthe ?uretyship Agreement on :ay 3, !#) with due notice to the private respondent.:eanwhile, private respondent filed with the respondent court of :a=ati a complaint forcollection of sum of money against herein petitioner and A<cueta, doc=eted as Civil Case $o.00*" alleging the foregoing antecedents and praying that said defendants be ordered to pay

ointly and severally unto the plaintiff.

a The amount of P!",(0.* as its principal obligation, including interest anddamage dues as of April 0!, !#)@

b *o pa+ interest at 567 per annum and damage dues at t!e rate of 87 e#er+



69 da+s commencing from April :;, 5<=9 up to t!e time t!e full amount is full+ paid>

GGG GGG GGG

After petitioner filed its answer with counterclaim, the case, upon agreement of the parties, wassubmitted for summary udgment and on December 0!, !#), respondent court rendered itsdecision with the following dispositive portion5

GGG GGG GGGa To pay interest on the principal obligation at t!e rate of 567 per annum at t!erate of 87 e#er+ 69 da+s commencing from April 3(, !#) until the amount isfully paid.

The decision having become final and eGecutory, the prevailing party moved for its eGecutionwhich respondent udge granted and pursuant thereto, a notice of attachment and levy wasserved by respondent Provincial ?heriff upon the petitioner. 8n the same day, however, the latterfiled a motion for >clarification of the udgment as to its real and true import because on its face, itwould appear that aside from the *M interest imposed on the principal obligation, an additional0M every *) days corresponding to the additional penalty has been imposed against thepetitioner which imposition would be usurious and could not have been the intention ofrespondent udge.> 4ut the move did nor prosper because oil :ay 00, !#, the udge deniedthe motion on the theory that the udgment, having become final and eGecutory, it can no longer

be amended or corrected. 4

Contending that the order was issued with grave abuse of discretion, petitioner went torespondent court on a petition for certiorari and mandamus to compel the court below toclarify its decision, particularly Paragraph l-a of the dispositive portion thereof.

%espondent court granted tile petition in its decision dated December 3, !#!, the disquisitionand dispositive portion whereof read5

6hile it is an elementary rule of procedure that after a decision, order or ruling has become final,the court loses its urisdiction orderover the same and can no longer be subected to anymodification or alteration, it is li=ewise well&settled that courts are empowered even after suchfinality, to correct clerical errors or mista=es in the decisions -Potenciano vs. CA, ;&)!, ))

8.'. 0"!). A clerical error is one that is visible to the eyes or obvious to the understanding-4lac= vs. %epublic, (* Phil. "*!.

That there was a mista=e in the dispositive portion of the decision cannot be denied consideringthat in the complaint filed against the petitioner, the prayer as specifically stated in paragraph -bwas to >order the latter, to pay interest at *M per annum and damage dues at the rate of 0Mevery *) days commencing from April 3(, !#) up to the time the amount is fully paid.> 4ut thisnotwithstanding the respondent court in its questioned decision decreed the petitioner to pay theinterest on the principal obligation at the rate of *M per annum and 0M every *) dayscommencing from April 3(, !#) until the amount is fully paid,> so that, as petitioner correctlyobserves, it would appear that on top of the *M per annum on the principal obligation, anot!er87 interest e#er+ *) days commencing from April 3(, !#) until the amount is fully paid hasbeen imposed against him -petitioner. n other words, 3) days in one year divided by *) daysequals "&! which, multiplied by 0M as ordered by respondent&udge would amount to a littlemore than M. Adding M per annum to the *M interest imposed on the principal obligationwould be 3(M which is veritably usurious and this cannot be countenanced, much lesssanctioned by any court of ustice.

6e agree with this observation and what is more, it is li=ewise a settled rule that although a courtmay grant any relief allowed by law, such prerogative is delimited by the cardinal principle that itcannot grant anything more than what is prayed for, for certainly, the relief to be dispensedcannot rise above its source. -Potenciano vs. CA, supra.

617%728%7, the writ of certiorari is hereby granted and the respondent udge is ordered toclarify its udgment complained of in the following manner5



GGG GGG GGG

a to pay interest at *M per annum on the principal obligation and damagedues at the rate of 0M every *) days commencing from April 3(, !#) up to the

time the full amount is fully paid@ 5

GGG GGG GGG

As earlier stated, petitioner filed an e2 parte motion see=ing to amend the above&quoteddecretal portion which respondent court denied, hence the petition at bar.

The amendment sought, ostensibly in order that the dispositive portion of said decision wouldconform with the body thereof, is the sole issue for resolution by the Court. Petitioner itselfcites authorities in support of its contention that it is entitled to a correct and clear eGpression

of a udgment to avoid substantial inustice. ) n amplification of its plaint, petitioner furtherasseverates that respondent court should not have made an award for Edamage duesE atsuch late stage of the proceeding since said dues were not the subect of the award made by

the trial court. 3

6e disagree with petitioner.

To clarify an ambiguity or correct a clerical error in the udgment, the court may resort to thepleadings filed by the parties, the findings of fact and the conclusions of law eGpressed in the

teGt or body of the decision. 8

ndeed, this was what respondent court did in resolving the original petition. t eGamined thecomplaint filed against the petitioner and noted that the prayer as stated in Paragraph -bthereof was to Eorder defendant to pay interest at * per centum and damage dues at the rateof 0M every *) days commencing from April 3(, !#) up to the time the full amount is fully

paid.E 9

nsofar as the findings and the dispositive portion set forth in respondent court>s decision areconcerned, there is really no inconsistency as wittingly or unwittingly asserted by petitioner.

The findings made by respondent court did not actually nullify the udgment of the trial court.:ore specifically, the statement that the imposition of 0M interest every *) days commencingfrom April 3(, !#) on top of the *M per annum -as would be the impression from asuperficial reading of the dispositive portion of the trial court>s decision would be usurious is asound observation. t should, however, be stressed that such observation was on thetheoretical assumption that the rate of 0M is being imposed as interest, not as damage dueswhich was the intendment of the trial court.

Certainly, the damage dues in this case do not include and are not included in thecomputation of interest as the two are of different categories and are distinct claims whichmay be demanded separately, in the same manner that commissions, fines and penalties are

eGcluded in the computation of interest where the loan or forbearance is not secured in wholeor in part by real estate or an interest therein. 10

6hile interest forms part of the consideration of the contract itself, damage dues -penalties,and so forth are usually made payable only in case of default or non&performance of the

contract. 11 Also, although interest is subect to the provisions of the Fsury ;aw, 12 there is nopolicy or provision in such law preventing the enforcement of damage dues although theeffect may be to increase the sum payable beyond the prescribed ceiling rates.

Petitioner>s assertion that respondent court acted without authority in appending the award of



damage dues to the udgment of the trial court should be reected. As correctly pointed out byprivate respondent, the opening sentence of Paragraph l-a of the dispositive portion of thelower court>s decision eGplicitly ordered petitioner to pay private respondent the amount ofP!",(0.* as principal obligation including interest and damage dues, which is a clear and

unequivocal indication of the lower court>s intent to award both interest and damage dues. 1(

?ignificantly, it bears mention that on several occasions before petitioner moved for a

clarificatory udgment, it offered to settle its account with private respondent without assailingthe imposition of the aforementioned damage dues. 14 As ramified by private respondent5

0. ... the then counsel of record for the petitioner, Atty. Porfirio 4autista, and Atty. Teodulfo ;.%eyes, petitioner>s Assistant 9ice& President for 8perations, had a conference with theundersigned attorneys as to how petitioner will settle its account to avoid eGecution. During theconference, both parties arrived at almost the same computation and the amount due frompetitioner, which includes 0M damage dues every *) days from 3( April !#) until the amount isfully paid, under the udgment. $o question was ever raised as regards same.

GGG GGG GGG

). The very face of AnneG >D> shows that the >0M> damage dues being questioned by the presentcounsel of petitioner had been mentioned no less than T7$ -( T:7? and was clearly and

distinctly defined by petitioner and included in the computation of its obligation to hereinpetitioner as >0M penalty for every *) days.>

GGG GGG GGG

Petitioner>s pretense that it was not the intent of the court to award the damage dues of 0Mevery *) days commencing 3( April !#) is belied by the fact -and this is admitted by petitionerthat upon agreement of the parties, the case before the lower court was submitted for summary

udgment@ in other words, the case was submitted upon the facts as appear in the pleadings withno other evidence presented and a fact that appears clearly in the pleadings is that thedefendants in the case before the lower court were under contract to pay private respondent,among others, the damage dues of 0M every *) days commencing on 3( April !#) until the

obligation is fully paid@ .... 15

%espondent court demonstrably did not err in ordering the clarification of the decision of thetrial court by amending the questioned part of its dispositive portion to include therein thephrase damage dues to modify the stated rate of 0M, and thereby obviate any misconceptionthat it is being imposed as interest.

ACC8%D$';H, certiorari is hereby D7$7D and the decision of respondent Court of Appeals is hereby A22%:7D.

?8 8%D7%7D.

EN B#NC

G.R. No*. L-43697 +)& L-4422 %+rc 31, 193I) re L(8(&+t(o) o te %erc+)t(/e B+) o C()+,GOPOCO GROCER; GOPOCO, ET #L., clai(ants-appellants,vs.P#CIFIC CO#T BICUIT CO., ET #L., oppositors-appellees.

A.!. /arate for appellants Gopoco Grocery et al.

Laurel, Del Rosario and Sa1ido for appellant Tion#-*hui Gion.

Ross, La(rence and Selph for appellees )acific *oast &iscuit *o. et al.



0use1io Orense and *armelino G. Al3endia for appellees *hinese Grocers Asso. et al.

!arcelo "u1la for appellees An# *hen# Lian et al.

$I#:, J.:

On petition of the Ban Co((issioner who alle'ed to have found, after an investi'ation, that the!ercantile Ban of China could not continue operatin' as such without runnin' the ris of sufferin'losses and pre5udice its depositors and custo(ers= and that with the requisite approval of thecorrespondin' authorities, he had taen char'e of all the assets thereof= the Court of <irst +nstance of!anila declared the said ban in liquidation= approved all the acts theretofore e8ecuted by theco((issioner= prohibited the officers and a'ents of the ban fro( interferin' with said co((issionerin the possession of the assets thereof, its docu(ents, deed, vouchers, boos of account, papers,(e(orandu(, notes, bond, bonds and accounts, obli'ations or securities and its real and personal properties= required its creditors and all those who had any clai( a'ainst it, to present the sa(e inwritin' before the co((issioner within ninety days= and ordered the publication, as was in fact done,of the order containin' all these provisions, for the two consecutive wees in two news-papers of'eneral circulation in the City of !anila, at the e8penses of the aforesaid ban. After these publications, and within the period of ninety days, the followin' creditors, a(on' others, presentedtheir presented their clai(s

Tion' Chui ;ion, ;opoco ;rocery, Tan Foco, Doo J Fo J Co., y ;uan 9uat and Fa BellaTondeIa.

+. The clai( of Tion' Chui ;ion is for the su( of *"3,24.2/. 9e alle'ed that he depositedsaid su( in the ban under liquidation on current account.

++. The clai( of ;opoco ;rocery >;opoco? is for the su( of *$,#12.$ plus *$03. +t describedits clai( as follows

Balance due on open account sub5ect to chec *$,#2/.#4

+nterest on cRa $,41

$,#12.$

urety deposit $03.33

+++. The clai( of Tan Foco is for the su( of */,02$.23, and he describes it in turn as follows

Balance due on open account sub5ect to chec F-/4# */,0"3.$$

avin's account No. "40 >forei'n? with !ercantile Banof China F-"0"" A(oy V"4,333,33 +nterest on saidavin's Account No. "40 .22

+nterest on checin' aRc "3.4$

/,02$.23

+&. The clai( of Doo J Fo J Co. is for the su( of *0,#/2. and is set out in its writtenclai( appearin' in the record on appeal as follows

Balance due on open sub5ect to chec F-$4 *0,#0".3"



+nterest on checin' aRc "".1/

0,#/2.1

&. The clai( of y ;uan 9uat is for the su( of *0,212. and the described it as follows

Balance due on open account sub5ect to chec F-/" *0,22$.1$

+nterest on checin' aRc .4$

0,212.

&+. The clai( of Fa Bella TondeIa is for the su( of *",#"2./#, also described as follows

Balance due on open account sub5ect to chec *"#"3.4#

+nterest on account 2.23

",#"2./#To better resolve not only these clai(s but also the (any others which were presented a'ainst the ban,the lower court, on %uly "4, "#12, appointed <ul'encio Borro(eo as co((issioner and referee toreceive the evidence which the interested parties (ay desire to present= and the co((issioner andreferee thus na(ed, after qualifyin' for the office and receivin' the evidence presented to hi(, resolvedthe aforesaid si8 clai(s by reco((endin' that the sa(e be considered as an ordinary credit only, andnot as a preferred credit as the interested parties wanted, because they were at the sa(e ti(e debtors ofthe ban.

The evidence adduced and the very ad(issions of the said interested parties in fact show that >a? theclai(ant Tion' Chui ;ion, while he was a creditor of the !ercantile Ban of China in the su( of*"3,24.2/ which he deposited on current account, was also a debtor not only in the su( of *011./0 but also in the su( of *00$.//, the a(ount of a draft which he accepted, plus interest thereon and the protest fees paid therefor= >b? the clai(ant ;opoco ;rocery >;opoco? had a current account in the banin the su( of *4,1#2.$, but it is indebted to it, in Turn, in the su( of V2,11$.3, the a(ount of certaindrafts which it had accepted= >c? the clai(ant Tan Foco had a deposit of */,02$.23, but he owedV",1/.#3, the a(ount of a draft which he also accepted= >d? the clai(ant Doo J Fo J Co. had adeposit of *0,#/2., but it was indebted in the su( of V1,$0$.$, the a(ount also of certain draftsaccepted by it= >e? the clai(ants y ;uan 9uat and y ia had a deposit of *0,212., but they owedthe su( of V1,"3/.1/, for two drafts accepted by the( and already due= and >f? the clai(ant Fa BellaTondeIa had, in turn, a deposit of *",#"2./#, but it was, in turn, indebted in the su( of V404.$3includin' interest and other e8penses, the a(ount of two drafts drawn upon and accepted by it.

The lower court approved all the reco((endations of The co((issioner and referee as to clai(s of thesi8 appellants as follows= >"? To approve the clai( of Tion' Chui ;ion >*"3,24.2/? but only as anordinary credit, (inus the a(ount of the draft for *00$.//= >2? to approve the clai( of ;opoco ;rocery>;opoco? but also as an ordinary credit only >*4,1/.#4 accordin' to the referee?, (inus its obli'ationa(ountin' to V2,11$.3 or *$,00#.03= >1? to approve the clai( of Tan Foco but as an ordinary creditonly >*/,0"3.$$ accordin' to the referee?, deductin' therefro( his obli'ation a(ountin' to V",1/.#3or *2,/4/.3= to approve the clai( of Doo J Fo J Co. but only as an ordinary credit >*0,#0".3"accordin' to the referee?. after deductin' its obli'ation to the ban, a(ountin' to V1,$0$.$ or*0,#2#.0= >4? to approve the clai( of y ;uan 9uat but only as an ordinary credit >*0,22$.1$



accordin' to the referee?, after deductin' his obli'ation a(ountin' to V1,"3/.1/? or *0,2"$./$= and,finally, >0? to approve the clai( of la Bella TondeIa but also as an ordinary credit only >",#"/.43accordin' to the referee?, after deductin' it obli'ation a(ountin' to V404.$3 or *","13.3= but hee8pressly refused to authorie the pay(ent of the interest by reason of i(possibility upon the 'roundset out in the decision. Not a'reeable to the decision of the lower court, each of the interested partiesappealed therefro( and thereafter filed their respective briefs.

Tion' Chui ;ion ar'ues in his brief filed in case in ;. ). No. $$2233, that the lower court erred

". +n holdin' that his deposit of *"3,24.2/ in the !ercantile Ban of China, constitutes anordinary credit only and not a preferred credit.

2. +n holdin' as preferred credits the drafts and checs issued by the ban under liquidation in pay(ent of the drafts re(itted to it for collection fro( (erchants residin' in the country, byforei'n entities or bans= and in not holdin' that the deposits on current account in said banshould en5oy preference over said drafts and checs= and

1. +n holdin' that the a(ount of *011./0 >which should be understood as *00$.//?, which theclai(ant owes to the ban under liquidation, be deducted fro( his current account deposittherein, a(ountin' to *"3,24.2/, upon the distribution of the assets of the ban a(on' its

various creditors, instead of holdin' that, after deductin' the aforesaid su( of *011./0 >should be *00$.//? fro( his aforesaid deposit, there be turned over to hi( the balance to'ether withthe dividends or shares then correspondin' to hi(, on the basis of said a(ount.

The other five clai(ants, that is, ;opoco ;rocery Tan Foco, Doo J Fo J Co., y ;uan 9uat and FaBella TondeIa, in turn ar'ue in the brief they 5ointly filed in case ;. ). No. $10#/, that the lower courterred

". +n not first deductin' fro( their respective deposits in the ban under liquidation, whose pay(ent they clai(, their respective obli'ation thereto.

2. +n not holdin' that their clai(s constitute a preferred credit.

1. +n holdin' that the drafts and checs issued by the ban under liquidation in pay(ent of thedrafts re(itted to it by forei'n entitles and bans for collection fro( the certain (erchantresidin' in the country, are preferred credits= and in not holdin' that the deposits (ade by eachof the( en5oy preference over said drafts and checs, and

$. +n denyin' their (otion for a new trial base on the proposition that the appealed decision isnot in accordance with law and is contrary to the evidence adduced at the trial.

The questions raised by the appellant in case ;. ). No. $$233 and by appellants in case ;.). $10#/ bein' identical in nature, we believe it practical and proper to resolve said questions 5ointly in onedecision. Before proceedin', however, it is convenient to note that the co((issioner and referee,classifyin' the various clai(s presented a'ainst the ban, placed under one 'roup those partain' of the

sa(e nature, the classification havin' resulted in si8 'roups.+n the first 'roup he included all the clai(s for current account, savin's and fi8ed deposits.

+n the second 'roup he included the clai(s for checs or drafts sold by the ban under liquidation andnot paid by the a'ents or bans in whose favor they had been issued.

+n the third 'roup he included the clai(s checs or drafts issued by the ban under liquidation in pay(ent or rei(burse(ent of the drafts or 'oods re(itted to it for collection, fro( resident (erchantsand entitles, by forei'n bans and entities.

+n the fourth 'roup he included the clai(s for drafts or securities to be collected fro( resident



(erchants and entities to be collected fro( resident (erchants and entities which were pendin'collection on the date pay(ents were suspended.

+n the fifth 'roup he included the clai(s of certain depositors or creditors of the ban who were at thesa(e ti(e debtors thereof= and he considered of this class the clai(s of the appellants in these twocases, and

+n the si8th 'roup he included the other clai(s different in nature fro( the of the aforesaid five clai(s.

+. Now, then, should the appellants deposits on current account in the ban now under liquidation beconsidered preferred credits, and not otherwise, or should they be considered ordinary credits onlyHThe appellants contend that they are preferred credits onlyH The appellants contend that they are preferred credits because they are deposits in conte(plation of law, and as such should be returned withthe correspondin' interest thereon. +n support thereof they cite !anresa >"" !anresa, Civil Code, pa'e001?, and what has been insinuated in the case of Ro#ers 3s. Smith, &ell 6 *o. >"3 *hil., 1"#?, citin'the said co((entator who (aintains that, notwithstandin' the provisions of articles "/0/ and "/0 andothers of the aforesaid Code, fro( which it is inferred that the so-called irre'ular deposits no lon'ere8ist, the fact is that said deposits still e8ist. And they contend and ar'ue that what they had in the banshould be considered as of this character. But it happens that they the(selves ad(it that the ban owes

the( interest which should have been paid to the( before it was declared in a state of liquidation. Thisfact undoubtedly destroys the character which they nullifies their contention that the sa(e beconsidered as irre'ular deposits, because the pay(ent of interest only taes place in the case of loans.On the other hand, as we stated with respect to the clai( of Tan Tion' Tic > $n re Fiquidation of!ercantile Ban of China, ;.). No. $102?, the provisions of the Code of Co((erce, and not those ofthe Civil Code, are applicable to cases of the nature of those at bar, which have to do with parties whoare both (erchants. >Articles 131 and 13#, Code of Co((erce.? De there said, and it is not a(iss torepeat now, that the so-called current account and savin's deposits have lost their character of deposits, properly so-called and are convertible into si(ple co((ercial loans because, in cases of such deposits,the ban has (ade use thereof in the ordinary course of its transactions as an institution en'a'ed in the banin' business, not because it so wishes, but precisely because of the authority dee(ed to have been

'ranted to it by the appellants to enable the( to collect the interest which they had been and they arenow collectin', and by virtue further of the authority 'ranted to it by section "24 of the CorporationFaw >Act No. "$4#?, as a(ended by Acts Nos. 2331 and 10"3 and section # of the Banin' Faw >Act No. 1"4$?, without considerin' of course the provisions of article "/0 of the Civil Code. Dherefore, itis held that the deposits on current account of the appellants in the ban under liquidation, with theri'ht on their ri'ht on their part to collect interest, have not created and could not create a 5uridicalrelation between the( e8cept that of creditors and debtor, they bein' the creditors and the ban thedebtor.

Dhat has so far been said resolves adversely the contention of the appellants, the question raised in thefirst and second assi'ned errors Tion' Chui ;ion in case ;. ). No. $$233, and the appellants secondand third assi'ned errors in case ;. ). No. $10#/.

++. As to the third and first errors attributed to lower court by Tion' Chui ;ion in his case, and by theother appellants in theirs, respectively, it should be stated that the question of set-off raised by the(cannot be resolved a lie question in the said case, ;. ). No. $102, entitled $n re Fiquidation of!ercantile Ban of China. Tan Tion' Tic, clai(ant. +t is proper that set-offs be (ade, inas(uch asthe appellants and the ban bein' reciprocally debtors and creditors, the sa(e is only 5ust andaccordin' to law >art. ""#4, Civil Code?, particularly as none of the appellants falls within thee8ceptions (entioned in section 4 of the +nsolvency Faw >Act No. "#40?, readin'

EC. 4. +n all cases of (utual debts and (utual credits between the parties, the account between the(



shall be stated, and one debt set off a'ainst the other, and the balance only shall be allowed and paid.But no set-off or counterclai( shall be allowed of a clai( in its nature not provable a'ainst the estate*rovided, That no set-off on counterclai( shall be allowed in favor of any debtor to the insolvent of aclai( purchased by or transferred to such debtor within thirty days i((ediately precedin' the filin', orafter the filin' of the petition by or a'ainst the insolvent.

+t has been said with (uch basis by !orse, in his wor on Ban and Banin' >0th ed., vol. ", pa'es //0

and /$? that

The rules of law as to the ri'ht of set-off between the ban and its depositors are not different fro(those applicable to other parties. >*a'e //0.?

Dhere the ban itself stops pay(ent and beco(es insolvent, the custo(er (ay avail hi(self in set-offa'ainst his indebtedness to the ban of any indebtedness of the ban to hi(self, as, for e8a(ple, the balance due hi( on his deposit account. >*a'e /$.?

But if set-offs are proper in these cases, when and how should they be (ade, considerin' that theappellants as for the pay(ent of interestH Are they by any chance entitled to interestH +f they are, whenand until what ti(e should they be paid the sa(eH

The question of whether they are entitled to interest should be resolved in the sa(e way that weresolved the case of the clai(ant Tan Tion' Tic in the said case, ;. ). No. $102. The circu(stancesin these two cases are certainly the sa(e as those in the said case with reference to the said question.The !ercantile Ban of China owes to each of the appellants the interest clai(ed by the(,correspondin' to the year endin' :ece(ber $, "#1", the date it was declared in a state of liquidation, but not which the appellants clai( should be earned by their deposits after said date and until the fulla(ounts thereof are paid to the(. And with respect to the question of set-off, this should be dee(ed(ade, of course, as of the date when the !ercantile Ban of China was declared in a state ofliquidation, that is, on :ece(ber $, "#1", for then there was already a reciprocal concurrence of debts,with respect to said ban and the appellants. >Arts. ""#4 and ""#0 of the Civil Code= !anresa, $thed., p. 10".?

+++. Dith respect to the fourth assi'ned error of the appellants in case ;. ). No. $10#/, we hold, in viewof the considerations set out in resolvin' the other assi'n(ents of errors, that the lower court properlydenied the (otion for new trial of said appellants.

+n view of the fore'oin', we (odify the appealed 5ud'(ents by holdin' that the deposits clai(ed bythe appellants, and declared by the lower court to be ordinary credits are for the followin' a(ounts*"3,24.2/ of Tion' Chui ;ion= *4,1/.#4 of ;opoco ;rocery >;opoco?= */,0"3.$$ of Tan Foco=*0#0".3" of Doo J Fo J Co.= *0,22$.1$ of y ;uan 9uat= and *",#"/.43 of Fa Bella TondeIa, plustheir correspondin' interest up to :ece(ber $, "#1"= that their obli'ations to the ban under liquidationwhich should be set off a'ainst said deposits, are respectively for the followin' a(ounts *00$.// ofTion' Chui ;ion= *$,00#.03 of ;opoco ;rocery >;opoco?= *2,/4/.3 of Tan Foco= *0,#2#.0 of DooJ Fo J Co.= *0,2"$./$ of y 9uat= and *","13.3 of Fa Bella TodeIa= and we order that the set-offs inquestion be (ade in the (anner stated in this decision, that is, as of the date already indicated,:ece(ber $, "#1". +n all other respects, we affir( the aforesaid 5ud'(ents, without special pronounce(ent as to costs. o ordered.

ECON$ $I"IION

G.R. No. L-(8423 "7r; 12, 1935



C!NTRAL +AN O TH! PHILIPPIN!S 7 L6>67tor o: t;e I$!LIT' SAVINGS +AN,petitioner,vs.HONORA+L! %#$G! %!S#S P. "OR!, 7 Pre66/ %e o: +r7/; <III, Cort o:6rt I/t7/e o: "7/67, Spoe A#G#STO 7/ A$!LAI$A PA$ILLA 7/ Spoe"ARC!LA 7/ %O+ !LI&!S, respondents.

-.E. E#angelista and Agapito %. -a$ardo for petitioner.

Juan C. ?abong, Jr. for respondent %pouses Augusto and Adelaida Padilla.

Albert . Palacio for respondent spouses arcela and Job Elizes.

A?#INO, J.:ñé+.£ªwph!1

This case involves the question of whether a final udgment for the payment of a time depositin a savings ban= which udgment was obtained after the ban= was declared insolvent, is apreferred claim against the ban=. The question arises under the following facts5

8n 2ebruary ",!! the :onetary 4oard found the 2idelity ?avings 4an= to be insolvent.The 4oard directed the ?uperintendent of 4an=s to ta=e charge of its assets, forbade it to dobusiness and instructed the Central 4an= ;egal Counsel to ta=e legal actions -%esolution $o.3)(.

8n December !, !! the 4oard involved to see= the court>s assistant and supervision in theliquidation of the ban The resolution implemented only on anuary 0), !#0, when his Central4an= of the Philippines filed the corresponding petition for assistance and supervision in theCourt of 2irst nstance of :anila -Civil Case $o. "(() assigned to 4ranch O.

Prior to the institution of the liquidation proceeding but after the declaration of insolvency, or,specifically, sometime in arc!, 5<=5, the spouses ob 7li<es and :arcela P. 7li<es filed acomplaint in the Court of 2irst nstance of :anila against the 2idelity ?avings 4an= for therecovery of the sum of P)(, )"* as the balance of their time deposits -Civil Case $o. "0)0(assigned to 4ranch .

n the udgment rendered in that case on December 3, !#0 the 2idelity ?avings 4an= wasordered to pay the 7li<es spouses the sum of P)(,)"* plus accumulated interest.

n another case, assigned to 4ranch OOO of the Court of 2irst nstance of :anila, the spouses Augusta A. Padilla and Adelaida Padilla secured on April *, !#0 a udgment against the2idelity ?avings 4an= for the sums of P"(,((( as the balance of their time deposits, plusinterests, P#(,((( as moral and eGemplary damages and P!,(( as attorney>s fees -CivilCase $o. "*0(( where the action was filed on ?eptember , !#.

n its orders of August 0(, !#3 and 2ebruary 0), !#*, the lower court -4ranch O havingcogni<ance of the liquidation proceeding, upon motions of the 7li<es and Padilla spousesand over the opposition of the Central 4an=, directed the latter as liquidator, to pay their timedeposits as preferred $udgments, e#idenced b+ final $udgments, within the meaning of article00**-*-b of the Civil Code, if there are enough funds in the liquidator>s custody in eGcessof the credits more preferred under section 3( of the Central 4an= ;aw in relation to articles00** and 00) of the Civil Code.

2rom the said order, the Central 4an= appealed to this Court by certiorari . t contends that thefinal udgments secured by the 7li<es and Padilla spouses do not enoy any preference



because -a they were rendered after the 2idelity ?avings 4an= was declared insolvent and-b under the charter of the Central 4an= and the 'eneral 4an=ing ;aw, no final udgment canbe validly obtained against an insolvent ban=.

%epublic Act $o. 0) [email protected]!4w

?7C. 0!. Proceeding upon insol#enc+ .B6henever upon eGamination by the ?uperintendent orhis eGaminers or agents into the condition of any ban=ing institution, it shall be disclosed that the

condition of the same is one of insolvency, or that its continuance in business would involveprobable loss to its depositors or creditors, it shall be the duty of the ?uperintendent forthwith, inwriting to inform the :onetary 4oard of the facts, and the 4oard, upon finding the statements ofthe ?uperintendent to be true, shall forthwith forbid the institution to do business in thePhilippines and shall ta=e charge of its assets and proceeds according to law.

The :onetary 4oard shall thereupon determine within thirty days whether the institution may bereorgani<ed or otherwise placed in such a condition so that it may be permitted to resumebusiness with safety to its creditors and shall prescribe the conditions under which suchresumption of business shall ta=e place. n such case the eGpenses and fees in theadministration of the institution shall be determined by the 4oard and shall be paid to the Central4an= out of the assets of such ban=ing institution.

At any time within ten days after the :onetary 4oard has ta=en charge of the assets of any

ban=ing institution, such institution may apply to the Court of 2irst nstance for an order requiringthe :onetary 4oard to show cause why it should not be enoined from continuing such charge ofits assets, and the court may direct the 4oard to refrain from further proceedings and tosurrender charge of its assets.

f the :onetary 4oard shall determine that the ban=ing institution cannot resume business withsafety to its creditors, it shall, by the 8ffice of the ?olicitor 'eneral, file a petition in the Court of2irst nstance reciting the proceedings which have been ta=en and praying the assistance andsupervision of the court in the liquidation of the affairs of the same. The ?uperintendent shallthereafter, upon order of the :onetary 4oard and under the supervision of the court and with allconvenient speed, convert the assets of the ban=ing institution to money.

?7C. 3(. (istribution of assets.Bn case of liquidation of a ban=ing institution, after payment ofthe costs of the proceedings, including reasonable eGpenses and fees of the Central 4an= to beallowed by the court, the Central 4an= shall pay the debts of such institution, under the order ofthe court, in accordance with their legal priority.

The 'eneral 4an=ing Act, %epublic Act $o. 33#, [email protected]!4w

?7C. "). Any director or officer of any ban=ing institution who receives or permits or causes tobe received in said ban= any deposit, or who pays out or permits or causes to be paid out anyfunds of said ban=, or who transfers or permits or causes to be transferred any securities orproperty of said ban=, after said ban= becomes insolvent, shall be punished by fine of not lessthan one thousand nor more than ten thousand pesos and by imprisonment for not less than twonor more than ten years.

The Civil Code [email protected]!4w

A%T. 003#. nsolvency shall be governed by special laws insofar as they are not inconsistent

with this Code. -n A%T. 00**. 6ith reference to other property, real and personal, of the debtor, the followingclaims or credits shall be preferred in the order named5

GGG GGG GGG

-* Credits which, without special privilege, appear in -a a public instrument@ or -b in a final udgment, if they have been the subect of litigation. These credits shall have preference amongthemselves in the order of priority of the dates of the instruments and of the udgments,respectively. -!0*a

A%T. 00). Those credits which do not enoy any preference with respect to specific property,



and those which enoy preference, as to the amount not paid, shall be satisfied according to thefollowing rules5

- n the order established in article 00**@

-0 Common credits referred to in article 00*) shall be paid pro rata regardless of dates. -!0!a

The trial court or, to be eGact, the liquidation court noted that there is no provision in thecharter of the Central 4an= in the 'eneral 4an=ing ;aw -%epublic Acts $os. 0) and 33#,

respectively which suspends or abates civil actions against an insolvent ban= pending incourts other than the liquidation court. t reasoned out that, because such actions are notsuspended, udgments against insolvent ban=s could be considered as preferred creditsunder article 00**-*-b of the Civil Code. t further noted that, in contrast with the Central

Act, section " of the nsolvency ;aw provides that upon the issuance by the court of an orderdeclaring a person insolvent Eall civil proceedings against the said insolvent shall be stayed.E

The liquidation court directed the Central 4an= to honor the writs of eGecution issued by4ranches and OOO for the enforcement of the udgments obtained by the 7li<es and Padillaspouses. t suggested that, after satisfaction of the udgment the Central 4an=, as liquidator,should include said udgments in the list of preferred credits contained in the EProect of

DistributionE Ewith the notation Ealready paidE E8n the other hand, the Central 4an= argues that after the :onetary 4oard has declared that aban= is insolvent and has ordered it to cease operations, the 4oard becomes the trustee of itsassets Efor the equal benefit of all the creditors, including the depositorsE. The Central 4an=cites the ruling that Ethe assets of an insolvent ban=ing institution are held in trust for theequal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or apreference over another by an attachment, eGecution or otherwiseE -%ohr vs. ?tanton Trust L?avings 4an=, # :ont. 0*", 0*) Pac. !*#.

The stand of the Central 4an= is that all depositors and creditors of the insolvent ban= shouldfile their actions with the liquidation court. n support of that view it cites the provision that thensolvency ;aw does not apply to ban=s -last sentence, sec. )0 of Act $o. !).

t also invo=es the provision penali<ing a director officer of a ban= who disburses, or allowsdisbursement, of the funds of the ban= after it becomes insolvent -?ec. "), 'eneral 4an=ing

Act, %epublic Act $o. 33#. t cites the ruling that Ea creditor of an insolvent state ban= in thehands of a liquidator who recovered a udgment against it is not entitled to a preference for-by the mere fact that he is a udgment creditorE -Thomas 1. 4riggs L ?ons, nc. vs. Allen,0(# $. Carolina (, #) ?. 7. "3", 4raver ;iquidation of 2inancial nstitutions, p. !00.

t should be noted that fiGed, savings, and current deposits of money in ban=s and similarinstitutions are not true deposits. They are considered simple loans and, as such, are notpreferred credits -Art. !"(, Civil Code@ n re ;iquidation of :ercantile 4an= of China5 TanTiong Tic= vs. American Apothecaries Co., ) Phil. **@ Pacific Coast 4iscuit Co. vs. Chinese

'rocers Association, ) Phil. 3#)@ 2letcher American $ational 4an= vs. Ang Cheng ;ian, )Phil. 3")@ Pacific Commercial Co. vs. American Apothecaries Co., ) Phil. *0!@ 'opoco'rocery vs. Pacific Coast 4iscuit Co., ) Phil. **3.

The aforequoted section 0! of the Central 4an=>s charter eGplicitly provides that when a ban=is found to be insolvent, the :onetary 4oard shall forbid it to do business and shall ta=echarge of its assets. The 4oard in its %esolution $o. 3)( dated 2ebruary ",!! banned the2idelity ?avings 4an= from doing business. t too= charge of the ban=>s assets. 7vidently, onepurpose in prohibiting the insolvent ban= from doing business is to prevent some depositors



from having an undue or fraudulent preference over other creditors and depositors.

That purpose would be nullified if, as in this case, after the ban= is declared insolvent, suits bysome depositors could be maintained and udgments would be rendered for the payment oftheir deposits and then such udgments would be considered preferred credits under article00** -* -b of the Civil Code.

6e are of the opinion that such udgments cannot be considered preferred and that article00**-*-b does not apply to udgments for the payment of the deposits in an insolventsavings ban= which were obtained after the declaration of insolvency.

A contrary rule or practice would be productive of inustice, mischief and confusion. Torecogni<e such udgments as entitled to priority would mean that depositors in insolventban=s, after learning that the ban= is insolvent as shown by the fact that it can no longer paywithdrawals or that it has closed its doors or has been enoined by the :onetary 4oard fromdoing business, would rush to the courts to secure udgments for the payment of theirdeposits.

n such an eventuality, the courts would be swamped with suits of that character. ?ome of the udgments would be default udgments. Depositors armed with such udgments would pester

the liquidation court with claims for preference on the basis of article 00**-*-b. ;ess alertdepositors would be preudiced. That inequitable situation could not have been contemplatedby the framers of section 0!.

The o!r case -supra supplies some illumination on the disposition of the instant case. tappears in that case that the ?tanton Trust L ?avings 4an= of 'reat 2alls closed its doors tobusiness on uly !, !03. 8n $ovember #,!0* the ban= -then already under liquidationissued to 6illiam %ohr a certificate stating that he was entitled to claim from the ban=N,!.#0 and that he was entitled to dividends thereon. ;ater, %ohr sued the ban= for thepayment of his claim. The ban= demurred to the complaint. The trial court sustained thedemurrer. %ohr appealed. n affirming the order sustaining the demurrer, the ?upreme Court

of :ontana [email protected]!4w The general principle of equity that the assets of an insolvent are to he distributed ratably amonggeneral creditors applies with full force to the distribution of the assets of a ban=. A generaldepositor of a ban= is merely a general creditor, and, as such, is not entitled to any preference orpriority over other general creditors.

The assets of a ban= in process of liquidation are held in trust for the equal benefit of allcreditors, and one cannot be permitted to obtain an advantage or preference over another by anattachment, eGecution or otherwise. A disputed claim of a creditor may be adudicated, but thosewhose claims are recogni<ed and admitted may not successfully maintain action thereon. ?o topermit would defeat the very purpose of the liquidation of a ban= whether being voluntarilyaccomplished or through the intervention of a receiver.

GGG GGG GGG

The available assets of such a ban= are held in trust, and so conserved that each depositor orother creditor shall receive payment or dividend according to the amount of his debt, and thatnone of equal class shall receive any advantage or preference over another.

And with respect to a national ban= under voluntary liquidation, the court noted in the o!rcase that the assets of such a ban= Ebecome a trust fund, to be administered for the benefit ofall creditors pro rata and, while the ban= retains its corporate eGistence, and may be sued, theeffect of a udgment obtained against it by a creditor is only to fi2 t!e amount of debt. "e canac4uire no lien w!ic! will gi#e !im an+ preference or ad#antage o#er ot!er general creditors .-0*) Pac. 0*!. @



Considering that the deposits in question, in their inception, were not preferred credits, it doesnot seem logical and ust that they should be raised to the category of preferred credits simplybecause the depositors, ta=ing advantage of the long interval between the declaration ofinsolvency and the filing of the petition for udicial assistance and supervision, were able tosecure udgments for the payment of their time deposits.

The udicial declaration that the said deposits were payable to the depositors, as indisputably

they were due, could not have given the 7li<es and Padilla spouses a priority over the otherdepositors whose deposits were li=ewise indisputably due and owing from the insolvent ban=but who did not want to incur litigation eGpenses in securing a udgment for the payment ofthe deposits.

The circumstance that the 2idelity ?avings 4an=, having stopped operations since 2ebruary!, !!, was forbidden to do business -and that ban would include the payment of timedeposits implies that suits for the payment of such deposits were prohibited. 6hat wasdirectly prohibited should not be encompassed indirectly. -?ee :aurello vs. 4roadway 4an= LTrust Co. of Paterson # Atl. 3!, * $..;. #.

t is noteworthy that in the trial court>s order of 8ctober 3, !#0, which contains the 4an=

;iquidation %ules and %egulations, it indicated in step the procedure for processing theclaims against the insolvent ban=. n ?tep 9, the court directed the Central 4an=, asliquidator, to submit a Proect of Distribution which should include Ea list of the preferredcredits to be paid in full in the order of priorities established in Articles 00*, 00*0, 00*3, 00*and 00*#E of the Civil Code -note that article 00** was not mentioned. There is no cogentreason why the 7li<es and Padilla spouses should not adhere to the procedure outlined in thesaid rules and regulations.

617%728%7, the lower court>s orders of August 0(, !#3 and 2ebruary 0), !#* arereversed and set aside. $o costs.

?8 8%D7%7D.

ECON$ $I"IION

G.R. No. L-(0511 ebr7r 14, 1980

"AN#!L ". S!RRANO, petitioner,vs.C!NTRAL +AN O TH! PHILIPPIN!S OV!RS!AS +AN O "ANILA !"!RITO ".RA"OS, S#SANA +. RA"OS, !"!RITO +. RA"OS, %R., %OS!A RA"OS $!LA RA"A,HORACIO $!LA RA"A, ANTONIO +. RA"OS, ILO"!NA RA"OS L!$!S"A,RO$OLO L!$!S"A, VICTORIA RA"OS TAN%#ATCO, 7/ T!OILO TAN%#ATCO,respondents.

ene (io1no for petitioner.

-.E. E#angelista & lecerio *. Orsolino for respondent Central Dan1 of t!e P!ilippines.

-eliciano C. *umale, Pacifico *. *orres and Antonio D. Peri4uet for respondent O#erseasDan1 of anila.

Josefina . %alonga for all ot!er respondents.



CONC!PCION, %R., J.:

Petition for mandamus and prohibition, with preliminary inunction, that see=s theestablishment of oint and solidary liability to the amount of Three 1undred 2ifty ThousandPesos, with interest, against respondent Central 4an= of the Philippines and 8verseas 4an=of :anila and its stoc=holders, on the alleged failure of the 8verseas 4an= of :anila to returnthe time deposits made by petitioner and assigned to him, on the ground that respondent

Central 4an= failed in its duty to eGercise strict supervision over respondent 8verseas 4an= of:anila to protect depositors and the general public. 1

Petitioner also prays that bothrespondent ban=s be ordered to eGecute the proper and necessary documents to constituteall properties fisted in AnneG E#E of the Answer of respondent Central 4an= of the Philippinesin '.%. $o. ;&0!3)0, entitled Emerita . amos, et al #s. Central Dan1 of t!e P!ilippines,into a trust fund in favor of petitioner and all other depositors of respondent 8verseas 4an= of:anila. t is also prayed that the respondents be prohibited permanently from honoring,implementing, or doing any act predicated upon the validity or efficacy of the deeds ofmortgage, assignment. andor conveyance or transfer of whatever nature of the properties

listed in AnneG E#E of the Answer of respondent Central 4an= in '.%. $o. 0!3)0. 2

A sought for eG&parte preliminary inunction against both respondent ban=s was not given bythis Court.

Fndisputed pertinent facts are5

8n 8ctober 3, ! and December 0, !, petitioner made a time deposit, for one yearwith M interest, of 8ne 1undred 2ifty Thousand Pesos -P)(,(((.(( with the respondent

8verseas 4an= of :anila. ( Concepcion :anea also made a time deposit, for one year with&M interest, on :arch , !#, of Two 1undred Thousand Pesos -P0((,(((.(( with the

same respondent 8verseas 4an= of :anila. 4

8n August 3, !", Concepcion :anea, married to 2eliGberto :. ?errano, assigned andconveyed to petitioner :anuel :. ?errano, her time deposit of P0((,(((.(( with respondent

8verseas 4an= of :anila. 5

$otwithstanding series of demands for encashment of the aforementioned time deposits fromthe respondent 8verseas 4an= of :anila, dating from December , !# up to :arch *,!", not a single one of the time deposit certificates was honored by respondent 8verseas

4an= of :anila. )

%espondent Central 4an= admits that it is charged with the duty of administering the ban=ingsystem of the %epublic and it eGercises supervision over all doing business in the Philippines,but denies the petitioner>s allegation that the Central 4an= has the duty to eGercise a mostrigid and stringent supervision of ban=s, implying that respondent Central 4an= has to watchevery move or activity of all ban=s, including respondent 8verseas 4an= of :anila.%espondent Central 4an= claims that as of :arch 0, !), the 8verseas 4an= of :anila,while operating, was only on a limited degree of ban=ing operations since the :onetary 4oarddecided in its %esolution $o. 300, dated :arch 0, !), to prohibit the 8verseas 4an= of:anila from ma=ing new loans and investments in view of its chronic reserve deficienciesagainst its deposit liabilities. This limited operation of respondent 8verseas 4an= of :anila

continued up to !". 3

%espondent Central 4an= also denied that it is guarantor of the permanent solvency of anyban=ing institution as claimed by petitioner. t claims that neither the law nor sound ban=ing



supervision requires respondent Central 4an= to advertise or represent to the public anyremedial measures it may impose upon chronic delinquent ban=s as such action mayinevitably result to panic or ban= ErunsE. n the years !&!#, there were no findings to

declare the respondent 8verseas 4an= of :anila as insolvent. 8

%espondent Central 4an= li=ewise denied that a constructive trust was created in favor ofpetitioner and his predecessor in interest Concepcion :anea when their time deposits were

made in ! and !# with the respondent 8verseas 4an= of :anila as during that time thelatter was not an insolvent ban= and its operation as a ban=ing institution was being salvaged

by the respondent Central 4an=. 9

%espondent Central 4an= avers no =nowledge of petitioner>s claim that the properties givenby respondent 8verseas 4an= of :anila as additional collaterals to respondent Central 4an=of the Philippines for the former>s overdrafts and emergency loans were acquired through the

use of depositors> money, including that of the petitioner and Concepcion :anea. 10

n '.%. $o. ;&0!30, entitled Emerita . amos, et al. #s. Central Dan1 of t!e P!ilippines, acase was filed by the petitioner %amos, wherein respondent 8verseas 4an= of :anila soughtto prevent respondent Central 4an= from closing, declaring the former insolvent, and

liquidating its assets. Petitioner :anuel ?errano in this case, filed on ?eptember , !", amotion to intervene in '.%. $o. ;&0!3)0, on the ground that ?errano had a real and legalinterest as depositor of the 8verseas 4an= of :anila in the matter in litigation in that case.%espondent Central 4an= in '.%. $o. ;&0!3)0 opposed petitioner :anuel ?errano>s motionto intervene in that case, on the ground that his claim as depositor of the 8verseas 4an= of:anila should properly be ventilated in the Court of 2irst nstance, and if this Court were toallow ?errano to intervene as depositor in '.%. $o. ;&0!3)0, thousands of other depositorswould follow and thus cause an avalanche of cases in this Court. n the resolution dated8ctober *, !", this Court denied ?errano>s, motion to intervene. The contents of said

motion to intervene are substantially the same as those of the present petition. 11

This Court rendered decision in '.%. $o. ;&0!3)0 on 8ctober *, !#, which became finaland eGecutory on :arch 3, !#0, favorable to the respondent 8verseas 4an= of :anila, withthe dispositive portion to wit5

617%728%7, the writs prayed for in the petition are hereby granted and respondent Central4an=>s resolution $os. 03, 0!( and 333 -that prohibit the 8verseas 4an= of :anila toparticipate in clearing, direct the suspension of its operation, and ordering the liquidation of saidban= are hereby annulled and set aside@ and said respondent Central 4an= of the Philippines isdirected to comply with its obligations under the 9oting Trust Agreement, and to desist from

ta=ing action in violation therefor. Costs against respondent Central 4an= of the Philippines. 12

4ecause of the above decision, petitioner in this case filed a motion for udgment in this case,praying for a decision on the merits, adudging respondent Central 4an= ointly and severally

liable with respondent 8verseas 4an= of :anila to the petitioner for the P3)(,((( timedeposit made with the latter ban=, with all interests due therein@ and declaring all assetsassigned or mortgaged by the respondents 8verseas 4an= of :anila and the %amos groups

in favor of the Central 4an= as trust funds for the benefit of petitioner and other depositors. 1(

4y the very nature of the claims and causes of action against respondents, they in reality arerecovery of time deposits plus interest from respondent 8verseas 4an= of :anila, andrecovery of damages against respondent Central 4an= for its alleged failure to strictlysupervise the acts of the other respondent 4an= and protect the interests of its depositors byvirtue of the constructive trust created when respondent Central 4an= required the other



respondent to increase its collaterals for its overdrafts said emergency loans, said collateralsallegedly acquired through the use of depositors money. These claims shoud be ventilated inthe Court of 2irst nstance of proper urisdiction as 6e already pointed out when this Courtdenied petitioner>s motion to intervene in '.%. $o. ;&0!3)0. Claims of these nature are notproper in actions for mandamus and prohibition as there is no shown clear abuse of discretionby the Central 4an= in its eGercise of supervision over the other respondent 8verseas 4an= of

:anila, and if there was, petitioner here is not the proper party to raise that question, butrather the 8verseas 4an= of :anila, as it did in '.%. $o. ;&0!3)0. $either is there anything toprohibit in this case, since the questioned acts of the respondent Central 4an= -the acts ofdissolving and liquidating the 8verseas 4an= of :anila, which petitioner here intends to useas his basis for claims of damages against respondent Central 4an=, had been accomplisheda long time ago.

2urthermore, both parties overloo=ed one fundamental principle in the nature of ban=deposits when the petitioner claimed that there should be created a constructive trust in hisfavor when the respondent 8verseas 4an= of :anila increased its collaterals in favor ofrespondent Central 4an= for the former>s overdrafts and emergency loans, since thesecollaterals were acquired by the use of depositors> money.

4an= deposits are in the nature of irregular deposits. They are really loans because they earninterest. All =inds of ban= deposits, whether fiGed, savings, or current are to be treated as

loans and are to be covered by the law on loans. 14 Current and savings deposit are loans toa ban= because it can use the same. The petitioner here in ma=ing time deposits that earninterests with respondent 8verseas 4an= of :anila was in reality a creditor of the respondent4an= and not a depositor. The respondent 4an= was in turn a debtor of petitioner. 2ailure ofhe respondent 4an= to honor the time deposit is failure to pay s obligation as a debtor and nota breach of trust arising from depositary>s failure to return the subect matter of the deposit

617%728%7, the petition is dismissed for lac= of merit, with costs against petitioner.

?8 8%D7%7D.

ECON$ $I"IION

G.R. No. L-)00(( Apr6 4, 1984

T!OISTO G#INGONA, %R., ANTONIO I. "ARTIN, 7/ T!R!SITA SANTOS, petitioners,vs.TH! CIT' ISCAL O "ANILA, HON. %OS! +. LA"INIANO, ASST. CIT' ISCAL!LI&AR$O N. LOTA 7/ CL!"!NT $AVI$, respondents.

"AASIAR, Actg. C.J.:ñé+.£ªwph!1

This is a petition for prohibition and inunction with a prayer for the immediate issuance ofrestraining order andor writ of preliminary inunction filed by petitioners on :arch 0, !"0.

8n :arch 3, !"0, by virtue of a court resolution issued by this Court on the same date, atemporary restraining order was duly issued ordering the respondents, their officers, agents,representatives andor person or persons acting upon their -respondents> orders or in theirplace or stead to refrain from proceeding with the preliminary investigation in Case $o."3!3" of the 8ffice of the City 2iscal of :anila -pp. *#&*", rec.. 8n anuary 0*, !"3,



private respondent Clement David filed a motion to lift restraining order which was denied inthe resolution of this Court dated :ay ", !"3.

As can be gleaned from the above, the instant petition see=s to prohibit public respondentsfrom proceeding with the preliminary investigation of .?. $o. "&3!3", in which petitionerswere charged by private respondent Clement David, with estafa and violation of Central 4an=Circular $o. 3* and related regulations regarding foreign eGchange transactions principally,

on the ground of lac= of urisdiction in that the allegations of the charged, as well as thetestimony of private respondent>s principal witness and the evidence through said witness,showed that petitioners> obligation is civil in nature.

2or purposes of brevity, 6e hereby adopt the antecedent facts narrated by the ?olicitor'eneral in its Comment dated une 0",!"0, as [email protected]!4w

8n December 03,!", private respondent David filed .?. $o. "&3!3" in the 8ffice of the City2iscal of :anila, which case was assigned to respondent ;ota for preliminary investigation-Petition, p. ".

n .?. $o. "&3!3", David charged petitioners -together with one %obert :arshall and thefollowing directors of the $ation ?avings and ;oan Association, nc., namely 1omero 'on<ales,uan :erino, 2lavio :acasaet, 9ictor 'ome<, r., Perfecto :analac, aime 9. Pa<, Paulino 4.

Dionisio, and one ohn Doe with estafa and violation of Central 4an= Circular $o. 3* andrelated Central 4an= regulations on foreign eGchange transactions, allegedly committed asfollows -Petition, AnneG [email protected]!4w

E2rom :arch 0(, !#! to :arch, !", David invested with the $ation ?avingsand ;oan Association, -hereinafter called $?;A the sum of P,*),)*.0( onnine deposits, P3,)3.!* on savings account deposits -ointly with his sister,Denise Kuhne, F?N(,(((.(( on time deposit, F?N),(((.(( under a receiptand guarantee of payment and F?N)(,(((.(( under a receipt dated une ",!"( -au ointly with Denise Kuhne, that David was induced into ma=ing theaforestated investments by %obert :arshall an Australian national who wasallegedly a close associate of petitioner 'uingona r., then $?;A President,petitioner :artin, then $?;A 7Gecutive 9ice&President of $?;A and petitioner?antos, then $?;A 'eneral :anager@ that on :arch 0, !" $ ;A was placedunder receivership by the Central 4an=, so that David filed claims therewith forhis investments and those of his sister@ that on uly 00, !" David received areport from the Central 4an= that only P3(),"0.!0 of those investments wereentered in the records of $?;A@ that, therefore, the respondents in .?. $o. "&3!3" misappropriated the balance of the investments, at the same timeviolating Central 4an= Circular $o. 3* and related Central 4an= regulations onforeign eGchange transactions@ that after demands, petitioner 'uingona r. paidonly P0((,(((.((, thereby reducing the amounts misappropriated toP!)!,(#".* and F?N#),(((.((.E

Petitioners, :artin and ?antos, filed a oint counter&affidavit -Petition, AnneG> 4> in which theystated the [email protected]!4w

EThat :artin became President of $?;A in :arch !#" -after the resignation of

'uingona, r. and served as such until 8ctober 3(, !"(, while ?antos was'eneral :anager up to $ovember !"(@ that because $?;A was urgently inneed of funds and at David>s insistence, his investments were treated as special&accounts with interest above the legal rate, an recorded in separate confidentialdocuments only a portion of which were to be reported because he did not wantthe Australian government to taG his total earnings -nor to =now his totalinvestments@ that all transactions with David were recorded eGcept the sum ofF?N),(((.(( which was a personal loan of ?antos@ that David>s chec= forF?N)(,(((.(( was cleared through 'uingona, r.>s dollar account because$?;A did not have one, that a draft of F?N3(,(((.(( was placed in the name ofone Pa< %oces because of a pending transaction with her@ that the Philippine



Deposit nsurance Corporation had already reimbursed David within the legallimits@ that maority of the stoc=holders of $?;A had filed ?pecial Proceedings$o. "0&!) in the Court of 2irst nstance to contest its -$?;A>s closure@ thatafter $?;A was placed under receivership, :artin eGecuted a promissory note inDavid>s favor and caused the transfer to him of a nine and on behalf -! 0 caratdiamond ring with a net value of P)(,(((.((@ and, that the liabilities of $?;A toDavid were civil in nature.E

Petitioner, 'uingona, r., in his counter&affidavit -Petition, AnneG> C> stated the following5 [email protected]!4w

EThat he had no hand whatsoever in the transactions between David and $?;Asince he -'uingona r. had resigned as $?;A president in :arch !#", or priorto those transactions@ that he assumed a portion o@ the liabilities of $?;A toDavid because of the latter>s insistence that he placed his investments with$?;A because of his faith in 'uingona, r.@ that in a Promissory $ote datedune #, !" -Petition, AnneG EDE he -'uingona, r. bound himself to payDavid the sums of P".3(#.( and F?N3#,)((.(( in stated installments@ thathe -'uingona, r. secured payment of those amounts with second mortgagesover two -0 parcels of land under a deed of ?econd %eal 7state :ortgage-Petition, AnneG E7E in which it was provided that the mortgage over one -parcel shall be cancelled upon payment of one&half of the obligation to David@

that he -'uingona, r. paid P0((,(((.(( and tendered another P3((,(((.((which David refused to accept, hence, he -'uingona, r. filed Civil Case $o. I&33") in the Court of 2irst nstance of %i<al at Iue<on City, to effect the releaseof the mortgage over one - of the two parcels of land conveyed to David undersecond mortgages.E

At the inception of the preliminary investigation before respondent ;ota, petitioners moved todismiss the charges against them for lac= of urisdiction because David>s claims allegedlycomprised a purely civil obligation which was itself novated. 2iscal ;ota denied the motion todismiss -Petition, p. ".

4ut, after the presentation of David>s principal witness, petitioners filed the instant petitionbecause5 -a the production of the Promisory $otes, 4an=er>s Acceptance, Certificates of TimeDeposits and ?avings Account allegedly showed that the transactions between David and $?;A

were simple loans, i.e., civil obligations on the part of $?;A which were novated when'uingona, r. and :artin assumed them@ and -b David>s principal witness allegedly testified thatthe duplicate originals of the aforesaid instruments of indebtedness were all on file with $?;A,contrary to David>s claim that some of his investments were not record -Petition, pp. "&!.

Petitioners alleged that they did not eGhaust available administrative remedies because to do sowould be futile -Petition, p. ! +pp. )3&)#, rec./.

As correctly pointed out by the ?olicitor 'eneral, the sole issue for resolution is whetherpublic respondents acted without urisdiction when they investigated the charges -estafa andviolation of C4 Circular $o. 3* and related regulations regarding foreign eGchangetransactions subect matter of .?. $o. "&3!3".

There is merit in the contention of the petitioners that their liability is civil in nature and

therefore, public respondents have no urisdiction over the charge of estafa.

A casual perusal of the December 03, !" affidavit. complaint filed in the 8ffice of the City2iscal of :anila by private respondent David against petitioners Teopisto 'uingona, r.,

Antonio . :artin and Teresita '. ?antos, together with one %obert :arshall and the otherdirectors of the $ation ?avings and ;oan Association, will show that from :arch 0(, !#! to:arch, !", private respondent David, together with his sister, Denise Kuhne, invested withthe $ation ?avings and ;oan Association the sum of P,*),)*.0( on time deposits coveredby 4an=ers Acceptances and Certificates of Time Deposits and the sum of P3,)3.!* onsavings account deposits covered by passboo= nos. &30 and 0!&#*0, or a total of



P,)!,(#".* -pp. )&, roc.. t appears further that private respondent David, togetherwith his sister, made investments in the aforesaid ban= in the amount of F?N#),(((.(( -p. #,rec..

:oreover, the records reveal that when the aforesaid ban= was placed under receivership on:arch 0, !", petitioners 'uingona and :artin, upon the request of private respondentDavid, assumed the obligation of the ban= to private respondent David by eGecuting on une

#, !" a oint promissory note in favor of private respondent ac=nowledging anindebtedness of Pl,33,*.(0 and F?N#),(((.(( -p. "(, rec.. This promissory note wasbased on the statement of account as of une 3(, !" prepared by the private respondent-p. ", rec.. The amount of indebtedness assumed appears to be bigger than the originalclaim because of the added interest and the inclusion of other deposits of privaterespondent>s sister in the amount of P,3.0(.

Thereafter, or on uly #, !", petitioners 'uingona and :artin agreed to divide the saidindebtedness, and petitioner 'uingona eGecuted another promissory note antedated to une#, !" whereby he personally ac=nowledged an indebtedness of P",3(#.( -0 ofP,33,*.(0 and F?N3#,)((.(( -0 of F?N#),(((.(( in favor of private respondent -p.0), rec.. The aforesaid promissory notes were eGecuted as a result of deposits made byClement David and Denise Kuhne with the $ation ?avings and ;oan Association.

2urthermore, the various pleadings and documents filed by private respondent David, beforethis Court indisputably show that he has indeed invested his money on time and savingsdeposits with the $ation ?avings and ;oan Association.

t must be pointed out that when private respondent David invested his money on nine. andsavings deposits with the aforesaid ban=, the contract that was perfected was a contract ofsimple loan or mutuum and not a contract of deposit. Thus, Article !"( of the $ew Civil Codeprovides [email protected]!4w

Article !"(. 2iGed, savings, and current deposits of&money in ban=s and similar institutions shallbe governed by the provisions concerning simple loan.

n the case of Central Dan1 of t!e P!ilippines #s. orfe -3 ?C%A *,! +!#)/, [email protected]!4w

t should be noted that fiGed, savings, and current deposits of money in ban=s and similarinstitutions are hat true deposits. are considered simple loans and, as such, are not preferredcredits -Art. !"( Civil Code@ n re ;iquidation of :ercantile 4ati= of China Tan Tiong Tic= vs.

American Apothecaries Co., Phil **@ Pacific Coast 4iscuit Co. vs. Chinese 'rocers Association ) Phil. 3#)@ 2letcher American $ational 4an= vs. Ang Chong F: P6; 3")@Pacific Commercial Co. vs. American Apothecaries Co., ) Phi; *0!@ 'opoco 'rocery vs.Pacific Coast 4iscuit C8.,) Phil. **3.E

This Court also declared in the recent case of %errano #s. Central Dan1 of t!e P!ilippines -!?C%A (0 +!"(/ [email protected]!4w

4an= deposits are in the nature of irregular deposits. They are really >loans because they earninterest. All =inds of ban= deposits, whether fiGed, savings, or current are to be treated as loansand are to be covered by the law on loans -Art. !"( Civil Code 'ullas vs. Phil. $ational 4an=,0 Phil. )!. Current and sa#ing deposits, are loans to a ban1 because it can use t!e same.The petitioner here in ma=ing time deposits that earn interests will respondent 8verseas 4an= of:anila was in reality a creditor of the respondent 4an= and not a depositor. The respondent4an= was in turn a debtor of petitioner. -ailure of t!e respondent Dan1 to !onor t!e time depositis failure to pa+ its obligation as a debtor and not a breac! of trust arising from a depositar+Fsfailure to return t!e sub$ect matter of t!e deposit -7mphasis supplied.



1ence, the relationship between the private respondent and the $ation ?avings and ;oan Association is that of creditor and debtor@ consequently, the ownership of the amountdeposited was transmitted to the 4an= upon the perfection of the contract and it can ma=euse of the amount deposited for its ban=ing operations, such as to pay interests on depositsand to pay withdrawals. 6hile the 4an= has the obligation to return the amount deposited, ithas, however, no obligation to return or deliver the same mone+ that was deposited. And, the

failure of the 4an= to return the amount deposited will not constitute estafa throughmisappropriation punishable under Article 3), par. l-b of the %evised Penal Code, but it willonly give rise to civil liability over which the public respondents have no& urisdiction.

67 have already laid down the rule [email protected]!4w

n order that a person can be convicted under the above&quoted provision, it must be pro#en t!at!e !as t!e obligation to deli#er or return t!e some mone+, goods or personal propert+ t!at !erecei#ed Petitioners had no such obligation to return the same money, i.e., the bills or coins,which they received from private respondents. This is so because as clearly as stated in criminalcomplaints, the related civil complaints and the supporting sworn statements, the sums of moneythat petitioners received were loans.

The nature of simple loan is defined in Articles !33 and !)3 of the Civil [email protected]!4w

EArt. !33. B 4y the contract of loan, one of the parties delivers to another,either something not consumable so that the latter may use the same for acertain time& and return it, in which case the contract is called a commodatum@ ormoney or ot!er consumable t!ing, upon t!e condition t!at t!e same amount oft!e same 1ind and 4ualit+ s!all !e paid in w!ic! case t!e contract is simpl+called a loan or mutuum.

ECommodatum is essentially gratuitous.

E?imple loan may be gratuitous or with a stipulation to pay interest.

En commodatum the bailor retains the ownership of the t!ing loaned w!ile insimple loan, owners!ip passes to t!e borrower.

EArt. !)3. B 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 equalamount of the same =ind and quality.E

)t can be readil+ noted from t!e abo#e/4uoted pro#isions t!at in simple loan GmutuumH, ascontrasted to commodatum t!e borrower ac4uires owners!ip of t!e mone+, goods or personal

propert+ borrowed Deing t!e owner, t!e borrower can dispose of t!e t!ing borrowed GArticle 86I,Ci#il CodeH and !is act will not be considered misappropriation t!ereofF -Ham vs. :ali=, !* ?C%A3(, 3* +!#!/@ 7mphasis supplied.

4ut even granting that the failure of the ban= to pay the time and savings deposits of privaterespondent David would constitute a violation of paragraph -b of Article 3) of the %evisedPenal Code, nevertheless any incipient criminal liability was deemed avoided, because whenthe aforesaid ban= was placed under receivership by the Central 4an=, petitioners 'uingonaand :artin assumed the obligation of the ban= to private respondent David, thereby resultingin the novation of the original contractual obligation arising from deposit into a contract of loanand converting the original trust relation between the ban= and private respondent David intoan ordinary debtor&creditor relation between the petitioners and private respondent.Consequently, the failure of the ban= or petitioners 'uingona and :artin to pay the depositsof private respondent would not constitute a breach of trust but would merely be a failure topay the obligation as a debtor.

:oreover, while it is true that novation does not eGtinguish criminal liability, it may however,prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal



information in court. Thus, in onzales #s. %errano - 0) ?C%A *, ! +!"/ 6e [email protected]!4w

As pointed out in People #s. ?er+ , novation prior to the filing of the criminal information B as inthe case at bar B may convert the relation between the parties into an ordinary creditor&debtorrelation, and place the complainant in estoppel to insist on the original transaction or Ecast doubton the true natureE thereof.

Again, in the latest case of Ong #s. Court of Appeals -;&)"*#, 0* ?C%A )#", )"(&)"+!"3/ , this Court reiterated the ruling in People #s. ?er+ - ( ?C%A 0** +!*/ , [email protected]!4w

The novation theory may perhaps apply prior to the filling of the criminal information in court bythe state prosecutors because up to that time the original trust relation may be converted by theparties into an ordinary creditor&debtor situation, thereby placing the complainant in estoppel toinsist on the original trust. 4ut after the ustice authorities have ta=en cogni<ance of the crimeand instituted action in court, the offended party may no longer divest the prosecution of itspower to eGact the criminal liability, as distinguished from the civil. The crime being an offenseagainst the state, only the latter can renounce it -People vs. 'ervacio, )* 8ff. 'a<. 0"!"@ Peoplevs. 9elasco, *0 Phil. #@ F.?. vs. :ontanes, " Phil. 0(.

t may be observed in this regard that novation is not one of the means recogni<ed by the Penal

Code whereby criminal liability can be eGtinguished@ hence, the role of novation may only be toeither prevent the rise of criminal habihty or to cast doubt on the true nature of the original basictransaction, whether or not it was such that its breach would not give rise to penal responsibility,as when money loaned is made to appear as a deposit, or other similar disguise is resorted to-cf. Abeto vs. People, !( Phil. )"@ F.?. vs. 9illareal, 0# Phil. *".

n the case at bar, there is no dispute that petitioners 'uingona and :artin eGecuted apromissory note on une #, !" assuming the obligation of the ban= to private respondentDavid@ while the criminal complaint for estafa was filed on December 03, !" with the 8fficeof the City 2iscal. 1ence, it is clear that novation occurred long before the filing of the criminalcomplaint with the 8ffice of the City 2iscal.

Consequently, as aforestated, any incipient criminal liability would be avoided but there will

still be a civil liability on the part of petitioners 'uingona and :artin to pay the assumedobligation.

Petitioners herein were li=ewise charged with violation of ?ection 3 of Central 4an= Circular$o. 3* and other related regulations regarding foreign eGchange transactions by acceptingforeign currency deposit in the amount of F?N#),(((.(( without authority from the Central4an=. They contend however, that the F? dollars intended by respondent David for depositwere all converted into Philippine currency before acceptance and deposit into $ation?avings and ;oan Association.

Petitioners> contention is worthy of behelf for the following reasons5

. t appears from the records that when respondent David was about to ma=e a deposit of

ban= draft issued in his name in the amount of F?N)(,(((.(( with the $ation ?avings and;oan Association, the same had to be cleared first and converted into Philippine currency.

Accordingly, the ban= draft was endorsed by respondent David to petitioner 'uingona, who inturn deposited it to his dollar account with the ?ecurity 4an= and Trust Company. Petitioner'uingona merely accommodated the request of the $ation ?avings and loan Association inorder to clear the ban= draft through his dollar account because the ban= did not have a dollaraccount. mmediately after the ban= draft was cleared, petitioner 'uingona authori<ed $ation?avings and ;oan Association to withdraw the same in order to be utili<ed by the ban= for itsoperations.



0. t is safe to assume that the F.?. dollars were converted first into Philippine pesos beforethey were accepted and deposited in $ation ?avings and ;oan Association, because the ban=is presumed to have followed the ordinary course of the business which is to accept depositsin Philippine currency only, and that the transaction was regular and fair, in the absence of aclear and convincing evidence to the contrary -see paragraphs p and 4, ?ec. ), %ule 3,%ules of Court.

3. %espondent David has not denied the aforesaid contention of herein petitioners despite thefact that it was raised. in petitioners> reply filed on :ay #, !"0 to private respondent>scomment and in the uly 0#, !"0 reply to public respondents> comment and reiterated inpetitioners> memorandum filed on 8ctober 3(, !"0, thereby adding more support to theconclusion that the F?N#),(((.(( were really converted into Philippine currency before theywere accepted and deposited into $ation ?avings and ;oan Association. Considering that thismight adversely affect his case, respondent David should have promptly denied petitioners>allegation.

n conclusion, considering that the liability of the petitioners is purely civil in nature and thatthere is no clear showing that they engaged in foreign eGchange transactions, 6e hold thatthe public respondents acted without urisdiction when they investigated the charges againstthe petitioners. Consequently, public respondents should be restrained from furtherproceeding with the criminal case for to allow the case to continue, even if the petitionerscould have appealed to the :inistry of ustice, would wor= great inustice to petitioners andwould render meaningless the proper administration of ustice.

6hile as a rule, the prosecution in a criminal offense cannot be the subect of prohibition andinunction, this court has recogni<ed the resort to the eGtraordinary writs of prohibition andinunction in eGtreme cases, [email protected]!4w

8n the issue of whether a writ of inunction can restrain the proceedings in Criminal Case $o.3*(, the general rule is that Eordinarily, criminal prosecution may not be bloc=ed by courtprohibition or inunction.E 7Gceptions, however, are allowed in the following instances5 [email protected]!4w

E. for the orderly administration of ustice@

E0. to prevent the use of the strong arm of the law in an oppressive andvindictive manner@

E3. to avoid multiplicity of actions@

E*. to afford adequate protection to constitutional rights@

E). in proper cases, because the statute relied upon is unconstitutional or washeld invalidE - Primicias vs. :unicipality of Frdaneta, Pangasinan, !3 ?C%A *0,*!&*#( +!#!/@ citing %amos vs. Torres, 0) ?C%A ))# +!"/@ and 1ernande<vs. Albano, ! ?C%A !), ! +!#/.

;i=ewise, in Lopez #s. *!e Cit+ Judge, et al. - " ?C%A , 0&00 +!/, 6e [email protected]!4w

The writs of certiorari and prohibition, as eGtraordinary legal remedies, are in the ultimateanalysis, intended to annul void proceedings@ to prevent the unlawful and oppressive eGercise oflegal authority and to provide for a fair and orderly administration of ustice. Thus, in u 0ongEng #s. *rinidad , *# Phil. 3"), 6e too= cogni<ance of a petition for certiorari and prohibitionalthough the accused in the case could have appealed in due time from the order complained of,our action in the premises being based on the public welfare policy the advancement of publicpolicy. n (ima+uga #s. -a$ardo, *3 Phil. 3(*, 6e also admitted a petition to restrain theprosecution of certain chiropractors although, if convicted, they could have appealed. 6e gavedue course to their petition for the orderly administration of ustice and to avoid possible



oppression by the strong arm of the law. And in Are#alo #s. ?epomuceno, 3 Phil. 0#, thepetition for certiorari challenging the trial court>s action admitting an amended information wassustained despite the availability of appeal at the proper time.

617%728%7, T17 P7TT8$ ? 17%74H '%A$T7D@ T17 T7:P8%A%H %7?T%A$$'8%D7% P%798F?;H ??F7D ? :AD7 P7%:A$7$T. C8?T? A'A$?T T17 P%9AT7%7?P8$D7$T.

THIR$ $I"IION

PEOPLE OF THE PHILIPPINE,

*etitioners,

- 3ersus -

TE)E+TA *7+; and )O!EO *O))A,

)espondent.

;.). No. "/104$-/04

*resent

GNA)E-ANT+A;O, .,

Chairperson,

A7T)+A-!A)T+NEK,

C9+CO-NAKA)+O,

)EGE, and

:E CAT)O,Z .

*ro(ul'ated

Au'ust 2, 233

8 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8

http://sc.judiciary.gov.ph/jurisprudence/2008/august2008/173654-765.htm#_ftn1




: E C + + O N

C9+CO-NAKA)+O, .

This is a *etition for )eview under )ule $4 of the )evised )ules of Court with

petitioner *eople of the *hilippines, represented by the Office of the olicitor ;eneral,

prayin' for the reversal of the Orders dated 13 %anuary 2330 and # %une 2330 of the

)e'ional Trial Court >)TC? of the 0th %udicial )e'ion, Branch 0, :u(an'as, +loilo,

dis(issin' the ""2 cases of ualified Theft filed a'ainst respondents Teresita *ui' and

)o(eo *orras, and denyin' petitionerQs !otion for )econsideration, in Cri(inal Cases

No. 34-134$ to 34-1"04.

The followin' are the factual antecedents

On / Nove(ber 2334, the +loilo *rovincial *rosecutorQs Office filed before Branch 0 of

the )TC in :u(an'as, +loilo, ""2 cases of ualified Theft a'ainst respondents Teresita

*ui' >*ui'? and )o(eo *orras >*orras? who were the Cashier and Booeeper,

respectively, of private co(plainant )ural Ban of *ototan, +nc. The cases were

doceted as Cri(inal Cases No. 34-134$ to 34-1"04.

The alle'ations in the +nfor(ationsM" filed before the )TC were unifor( and pro-

forma, e8cept for the a(ounts, date and ti(e of co((ission, to wit

+N<O)!AT+ON





That on or about the "st day of Au'ust, 2332, in the !unicipality of *ototan, *rovince of +loilo,*hilippines, and within the 5urisdiction of this 9onorable Court, above-na(ed Mrespondents,conspirin', confederatin', and helpin' one another, !ith "rae abuse f cnfidence$ bein' the Cashier and eeper of the )ural Ban of *ototan, +nc., *ototan, +loilo, without the nowled'e andRorconsent of the (ana'e(ent of the Ban and with intent of 'ain, did then and there willfully, unlawfully

and feloniously tae, steal and carry away the su( of <+<TEEN T9O7AN: *EO >*"4,333.33?,*hilippine Currency, to the da(a'e and pre5udice of the said ban in the aforesaid a(ount.

After perusin' the +nfor(ations in these cases, the trial court did not find the

e8istence of probable cause that would have necessitated the issuance of a warrant of

arrest based on the followin' 'rounds

>"? the ele(ent of Ut+() (to8t te co)*e)t o te o)er* was (issin' on the 'round that it isthe depositors-clients, and not the Ban, which filed the co(plaint in these cases, who are the ownersof the (oney alle'edly taen by respondents and hence, are the real parties-in-interest= and

>2? the +nfor(ations are bereft of the phrase alle'in' P&e?e)&e)ce, 8+r&(+)*(? or ((/+)cebetee) te re*?o)&e)t* +)& te oe)&e& ?+rt0 t+t o8/& +e cre+te& + ( &eree oco)(&e)ce betee) te' (c te re*?o)&e)t* co8/& +e +b8*e& .<

+t added that allowin' the ""2 cases for ualified Theft filed a'ainst the respondents to

push throu'h would be violative of the ri'ht of the respondents under ection "$>2?,

Article +++ of the "#/ Constitution which states that in all cri(inal prosecutions, the

accused shall en5oy the ri'ht to be infor(ed of the nature and cause of the accusation

a'ainst hi(. <ollowin' ection 0, )ule ""2 of the )evised )ules of Cri(inal *rocedure,

the )TC dis(issed the cases on 13 %anuary 2330 and refused to issue a warrant of arresta'ainst *ui' and *orras.

A !otion for )econsiderationM2 was filed on "/ April 2330, by the petitioner.





On # %une 2330, an Order M1 denyin' petitionerQs !otion for )econsideration was

issued by the )TC, findin' as follows

Accordin'ly, the prosecutionQs !otion for )econsideration should be, as it hereby, :EN+E:.The Order dated %anuary 13, 2330 TAN: in all respects.

*etitioner went directly to this Court 3ia *etition for )eview on *ertiorari under

)ule $4, raisin' the sole le'al issue of

D9ET9E) O) NOT T9E ""2 +N<O)!AT+ON <O) 7AF+<+E: T9E<T 7<<+C+ENTFGAFFE;E T9E EFE!ENT O< TA+N; D+T9O7T T9E CONENT O< T9E ODNE), AN: T9E7AF+<G+N; C+)C7!TANCE O< ;)A&E AB7E O< CON<+:ENCE.

*etitioner prays that 5ud'(ent be rendered annullin' and settin' aside the Orders

dated 13 %anuary 2330 and # %une 2330 issued by the trial court, and that it be directed to

proceed with Cri(inal Cases No. 34-134$ to 34-1"04.

*etitioner e8plains that under Article "#3 of the New Civil Code, Pfi8ed, savin's,

and current deposits of (oney in bans and si(ilar institutions shall be 'overned by the

provisions concernin' si(ple loans.S Corollary thereto, Article "#41 of the sa(e Code

provides that Pa person who receives a loan of (oney or any other fun'ible thin'

acquires the ownership thereof, and is bound to pay to the creditor an equal a(ount of

the sa(e ind and quality.S Thus, it posits that the depositors who place their (oney

with the ban are considered creditors of the ban. The ban acquires ownership of the

(oney deposited by its clients, (ain' the (oney taen by respondents as belon'in' to

the ban.





*etitioner also insists that the +nfor(ations sufficiently alle'e all the ele(ents of

the cri(e of qualified theft, citin' that a perusal of the +nfor(ations will show that they

specifically alle'e that the respondents were the Cashier and Booeeper of the )ural

Ban of *ototan, +nc., respectively, and that they too various a(ounts of (oney with

'rave abuse of confidence, and without the nowled'e and consent of the ban, to the

da(a'e and pre5udice of the ban.

*arenthetically, respondents raise procedural issues. They challen'e the petition on

the 'round that a *etition for )eview on *ertiorari 3ia )ule $4 is the wron' (ode of

appeal because a findin' of probable cause for the issuance of a warrant of arrest

presupposes evaluation of facts and circu(stances, which is not proper under said )ule.

)espondents further clai( that the :epart(ent of %ustice >:O%?, throu'h the

ecretary of %ustice, is the principal party to file a *etition for )eview on *ertiorari,

considerin' that the incident was indorsed by the :O%.

De find (erit in the petition.

The dis(issal by the )TC of the cri(inal cases was alle'edly due to insufficiency

of the +nfor(ations and, therefore, because of this defect, there is no basis for the

e8istence of probable cause which will 5ustify the issuance of the warrant of arrest.

*etitioner assails the dis(issal contendin' that the +nfor(ations for ualified Theftsufficiently state facts which constitute >a? the qualifyin' circu(stance of #ra3e a1use

of confidence= and >b? the ele(ent of ta7in#, (ith intent to #ain and (ithout the consent

of the o(ner, which is the Ban.



+n deter(inin' the e8istence of probable cause to issue a warrant of arrest, the )TC

5ud'e found the alle'ations in the +nfor(ation inadequate. 9e ruled that the +nfor(ation

failed to state facts constitutin' the qualifyin' circu(stance of #ra3e a1use of

confidence and the ele(ent of ta7in# (ithout the consent of the o(ner, since the owner

of the (oney is not the Ban, but the depositors therein. 9e also cites )eople 3. >oc

Son#, /,0 in which this Court held

There (ust be alle'ation in the infor(ation and proof of a relation, by reason of dependence,'uardianship or vi'ilance, between the respondents and the offended party that has created a hi'hde'ree of confidence between the(, which the respondents abused.

At this point, it needs stressin# that the RT* ud#e 1ased his conclusion that there (as

no pro1a1le cause simply on the insufficiency of the alle#ations in the $nformations

concernin# the facts constituti3e of the elements of the offense char#ed. This, therefore,

(aes the issue of sufficiency of the alle'ations in the +nfor(ations the focal point of

discussion.

ualified Theft, as defined and punished under Article 1"3 of the )evised *enal

Code, is co((itted as follows, 3i

A)T. 1"3. :ualified Theft . X The cri(e of theft shall be punished by the penalties ne8t hi'her by two de'rees than those respectively specified in the ne8t precedin' article, if co((itted by ado(estic servant, r !ith "rae abuse f cnfidence, or if the property stolen is (otor vehicle, (ail(atter or lar'e cattle or consists of coconuts taen fro( the pre(ises of a plantation, fish taen fro( a

fishpond or fishery or if property is taen on the occasion of fire, earthquae, typhoon, volcaniceruption, or any other cala(ity, vehicular accident or civil disturbance. >E(phasis supplied.?

Theft, as defined in Article 13 of the )evised *enal Code, requires the physical

tain' of anotherQs property without violence or inti(idation a'ainst persons or force





upon thin's. The ele(ents of the cri(e under this Article are

". +ntent to 'ain=

2. 7nlawful tain'=

1. *ersonal property belon'in' to another=

$. Absence of violence or inti(idation a'ainst persons or force upon thin's.

To fall under the cri(e of ualified Theft, the followin' ele(ents (ust concur

". Tain' of personal property=

2. That the said property belon's to another=

1. That the said tain' be done with intent to 'ain=

$. That it be done without the ownerQs consent=

4. That it be acco(plished without the use of violence or inti(idation a'ainst persons, nor of forceupon thin's=

8. That it 1e done (ith #ra3e a1use of confidence.

On the sufficiency of the +nfor(ation, ection 0, )ule ""3 of the )ules of Court

requires, inter alia, that the infor(ation (ust state the acts or o(issions co(plained of

as constitutive of the offense.

On the (anner of how the +nfor(ation should be worded, ection #, )ule ""3 of



the )ules of Court, is enli'htenin'

ection #. *ause of the accusation. The acts or o(issions co(plained of as constitutin' theoffense and the qualifyin' and a''ravatin' circu(stances (ust be stated in ordinary and concise

lan'ua'e and not necessarily in the lan'ua'e used in the statute but in ter(s sufficient to enable a person of co((on understandin' to now what offense is bein' char'ed as well as its qualifyin' anda''ravatin' circu(stances and for the court to pronounce 5ud'(ent.

+t is evident that the +nfor(ation need not use the e8act lan'ua'e of the statute in

alle'in' the acts or o(issions co(plained of as constitutin' the offense. The test is

whether it enables a person of co((on understandin' to now the char'e a'ainst hi(,

and the court to render 5ud'(ent properly.M4

The portion of the +nfor(ation relevant to this discussion reads

MAbove-na(ed Mrespondents, conspirin', confederatin', and helpin' one another, !ith "rae abuse

f cnfidence$ bein" the Cashier and eeper of the )ural Ban of *ototan, +nc., *ototan, +loilo,without the nowled'e andRor consent of the (ana'e(ent of the Ban 8 8 8.

+t is beyond doubt that tellers, Cashiers, Booeepers and other e(ployees of a

Ban who co(e into possession of the (onies deposited therein en5oy the confidence

reposed in the( by their e(ployer. Bans, on the other hand, where (onies are

deposited, are considered the owners thereof. This is very clear not only fro( the

e8press provisions of the law, but fro( established 5urisprudence. The relationship between bans and depositors has been held to be that of creditor and debtor. Articles

"#41 and "#3 of the New Civil Code, as appropriately pointed out by petitioner,

provide as follows

Article "#41. A person who receives a loan of (oney or any other fun'ible thin' acquires the





ownership thereof, and is bound to pay to the creditor an equal a(ount of the sa(e ind and quality.

Article "#3. <i8ed, savin's, and current deposits of (oney in bans and si(ilar institutionsshall be 'overned by the provisions concernin' loan.

+n a lon' line of cases involvin' ualified Theft, this Court has fir(ly established

the nature of possession by the Ban of the (oney deposits therein, and the duties bein'

perfor(ed by its e(ployees who have custody of the (oney or have co(e into

possession of it. The Court has consistently considered the alle'ations in the

+nfor(ation that such e(ployees acted with 'rave abuse of confidence, to the da(a'e

and pre5udice of the Ban, without particularly referrin' to it as owner of the (oneydeposits, as sufficient to (ae out a case of ualified Theft. <or a 'raphic illustration,

we cite R'ue . eple , /-0 where the accused teller was convicted for ualified Theft

based on this +nfor(ation

That on or about the "0th day of Nove(ber, "##, in the (unicipality of <loridablanca, province of *a(pan'a, *hilippines and within the 5urisdiction of his 9onorable Court, the above-

na(ed accused A7NC+ON ;AFAN; )O7E, bein' then e(ployed as teller of the Basa Air Baseavin's and Foan Association +nc. >BABFA? with office address at Basa Air Base, <loridablanca,*a(pan'a, and as such was authoried and reposed with the responsibility to receive and collect capitalcontributions fro( its (e(berRcontributors of said corporation, and havin' collected and received inher capacity as teller of the BABFA the su( of TEN T9O7AN: *EO >*"3,333.33?, saidaccused, with intent of 'ain, !ith "rae abuse f cnfidence and !ithut the n!led"e and cnsent

f said crpratin, did then and there willfully, unlawfully and feloniously tae, steal and carry awaythe a(ount of *"3,333.33, *hilippine currency, by (ain' it appear that a certain depositor by thena(e of Antonio alaar withdrew fro( his avin's Account No. "14#, when in truth and in fact saidAntonio alaar did not withdrMaw the said a(ount of *"3,333.33 to the da(a'e and pre5udice ofBABFA in the total a(ount of *"3,333.33, *hilippine currency.

+n convictin' the therein appellant, the Court held that

Mince the teller occupies a position of confidence, and the ban places (oney in the tellerQs possession due to the confidence reposed on the teller, the felony of qualified theft would be





co((itted.M/

Also in eple . 3isn,M the Branch Operations Officer was convicted of the

cri(e of ualified Theft based on the +nfor(ation as herein cited

That in or about and durin' the period co(pressed between %anuary 2$, "##2 and <ebruary "1,"##2, both dates inclusive, in the City of !anila, *hilippines, the said accused did then and therewilfully, unlawfully and feloniously, with intent of 'ain and without the nowled'e and consent of theowner thereof, tae, steal and carry away the followin', to wit

Cash (oney a(ountin' to *0,333,333.33 in different deno(inations belon'in' to the

*9+F+**+NE CO!!E)C+AF +NTE)NAT+ONAF BAN >*C+Ban for brevity?, Funeta Branch,!anila represented by its Branch !ana'er, 9EFEN 7. <A);A, to the da(a'e and pre5udice of thesaid owner in the aforesaid a(ount of *0,333,333.33, *hilippine Currency.

That in the co((ission of the said offense, herein accused acted with 'rave abuse of confidenceand unfaithfulness, he bein' the ranch 4peratin 4fficer of the said co(plainant and as such he hadfree access to the place where the said a(ount of (oney was ept.

The 5ud'(ent of conviction elaborated thus

The cri(e perpetuated by appellant a'ainst his e(ployer, the *hilippine Co((ercial and+ndustrial Ban >*C+B?, is ualified Theft. Appellant could not have co((itted the cri(e had he not been holdin' the position of Funeta Branch Operation Officer which 'ave hi( not only sole access tothe ban vault 888. The (ana'e(ent of the *C+B reposed its trust and confidence in the appellant as itsFuneta Branch Operation Officer, and it was this trust and confidence which he e8ploited to enrichhi(self to the da(a'e and pre5udice of *C+B 8 8 8.M#

<ro( another end, eple . csn$ /160 in addition to eple . 3isn, described

the nature of possession by the Ban. The (oney in this case was in the possession of

the defendant as receivin' teller of the ban, and the possession of the defendant was the

possession of the Ban. The Court held therein that when the defendant, with 'rave











abuse of confidence, re(oved the (oney and appropriated it to his own use without the

consent of the Ban, there was tain' as conte(plated in the cri(e of ualified Theft.

M""

Conspicuously, in all of the fore'oin' cases, where the +nfor(ations (erely alle'ed

the positions of the respondents= that the cri(e was co((itted with 'rave abuse of

confidence, with intent to 'ain and without the nowled'e and consent of the Ban,

without necessarily statin' the phrase bein' assiduously insisted upon by respondents,

Pf a relatin b reasn f dependence$ "uardianship r i"ilance$ bet!een the

respndents and the ffended part that has created a hi"h de"ree f cnfidence

bet!een them$ !hich respndents abused$7 /120 and without e(ployin' the word

PownerS in lieu of the PBanS were considered to have satisfied the test of sufficiency of

alle'ations.

As re'ards the respondents who were e(ployed as Cashier and Booeeper of the

Ban in this case, there is even no reason to quibble on the alle'ation in the +nfor(ations

that they acted with 'rave abuse of confidence. +n fact, the +nfor(ation which alle'ed

'rave abuse of confidence by accused herein is even (ore precise, as this is e8actly the

require(ent of the law in qualifyin' the cri(e of Theft.

+n su((ary, the Ban acquires ownership of the (oney deposited by its clients=

and the e(ployees of the Ban, who are entrusted with the possession of (oney of the

Ban due to the confidence reposed in the(, occupy positions of confidence. The

+nfor(ations, therefore, sufficiently alle'e all the essential ele(ents constitutin' the

cri(e of ualified Theft.

On the theory of the defense that the :O% is the principal party who (ay file the







instant petition, the rulin' in !o1ilia )roducts, $nc. 3. ajime 4mea(a /180 is

instructive. The Court thus enunciated

+n a cri(inal case in which the offended party is the tate, the interest of the private

co(plainant or the offended party is li(ited to the civil liability arisin' therefro(. 9ence, if a cri(inalcase is dis(issed by the trial court or if there is an acquittal, a reconsideration of the order of dis(issalor acquittal (ay be undertaen, whenever le'ally feasible, insofar as the cri(inal aspect thereof isconcerned and (ay be (ade only by the public prosecutor= or in the case of an appeal, by the tateonly, throu'h the O;. 8 8 8.

On the alle'ed wron' (ode of appeal by petitioner, suffice it to state that the rule is

well-settled that in appeals by certiorari under )ule $4 of the )ules of Court, only errors

of law (ay be raised,M"$ and herein petitioner certainly raised a question of law.

As an aside, even if we 'o beyond the alle'ations of the +nfor(ations in these

cases, a closer loo at the records of the preli(inary investi'ation conducted will show

that, indeed, probable cause e8ists for the indict(ent of herein respondents. *ursuant to

ection 0, )ule ""2 of the )ules of Court, the 5ud'e shall issue a warrant of arrest only

upon a findin' of probable cause after personally evaluatin' the resolution of the

prosecutor and its supportin' evidence. 3lien . *aasiar ,M"4 as reiterated in Allad

. +rin$ /1-0 e8plained that probable cause for the issuance of a warrant of arrest is

the e8istence of such facts and circu(stances that would lead a reasonably discreet and

prudent person to believe that an offense has been co((itted by the person sou'ht to be

arrested.M"/ The records reasonably indicate that the respondents (ay have, indeed,

co((itted the offense char'ed.

Before closin', let it be stated that while it is truly i(perative upon the fiscal or the

5ud'e, as the case (ay be, to relieve the respondents fro( the pain of 'oin' throu'h a

trial once it is ascertained that no probable cause e8ists to for( a sufficient belief as to













the 'uilt of the respondents, conversely, it is also equally i(perative upon the 5ud'e to

proceed with the case upon a showin' that there is a prima facie case a'ainst the

respondents.

<HEREFORE, pre(ises considered, the *etition for )eview on *ertiorari is hereby

GR#NTE$. The Orders dated 13 %anuary 2330 and # %une 2330 of the )TC dis(issin'

Cri(inal Cases No. 34-134$ to 34-1"04 are RE"ERE$ and ET #I$E. Fet the

correspondin' Darrants of Arrest issue a'ainst herein respondents TE)E+TA *7+; and

)O!EO *O))A. The )TC %ud'e of Branch 0, in :u(an'as, +loilo, is directed to

proceed with the trial of Cri(inal Cases No. 34-134$ to 34-1"04, inclusive, with

reasonable dispatch. No pronounce(ent as to costs.

O OR$ERE$.

EN B#NC

G.R. No. L-7593 %+rc 27, 1913

THE UNITE$ T#TE, plaintiff-appellee,vs.!OE %. IGPU#R#, defendant-appellant.

?. A. >incaid, Thos. L. arti#an, and ose Ro1les Lahesa for appellant.

Office of the Solicitor-General ar3ey for appellee.

#RELL#NO, C.J.

The defendant therein is char'ed with the cri(e of estafa, for havin' swindled %uana !ontilla andEu'enio &era'uth out of *2,$# *hilippine currency, which he had tae on deposit fro( the for(er to be at the latters disposal. The docu(ent settin' forth the obli'ation reads

De hold at the disposal of Eu'enio &era'uth the su( of two thousand four hundred and ninety-ei'ht pesos >*2,$#?, the balance fro( %uana !ontillas su'ar. @ +loilo, %une 20, "#"", @ %ose +'puara, for)a(ire and Co.

The Court of <irst +nstance of +loilo sentenced the defendant to two years of presidio correccional , to pay %uana !ontilla *2,$# *hilippine currency, and in case of insolvency to subsidiary i(prison(ent at*2.43 per day, not to e8ceed one-third of the principal penalty, and the costs.

The defendant appealed, alle'in' as errors >"? 9oldin' that the docu(ent e8ecuted by hi( was acertificate of deposit= >2? holdin' the e8istence of a deposit, without precedent transfer or delivery of



the *2,$#= and >1? classifyin' the facts in the case as the cri(e of estafa.

A deposit is constituted fro( the ti(e a person receives a thin' belon'in' to another with theobli'ation of eepin' and returnin' it. >Art. "/4, Civil Code.?

That the defendant received *2,$# is a fact proven. The defendant drew up a docu(ent declarin' thatthey re(ained in his possession, which he could not have said had he not received the(. Theyre(ained in his possession, surely in no other sense than to tae care of the(, for they remained has noother purpose. They re(ained in the defendants possession at the disposal of &era'uth= but on Au'ust21 of the sa(e year &era'uth de(anded for hi( throu'h a notarial instru(ent restitution of the(, andto date he has not restored the(.

The appellant says %uana !ontillas a'ent voluntarily accepted the su( of *2,$# in an instru(ent payable on de(and, and as no atte(pt was (ade to cash it until Au'ust 21, "#"", he could indorse andne'otiate it lie any other co((ercial instru(ent. There is no doubt that if &era'uth accepted thereceipt for *2,$# it was because at that ti(e he a'reed with the defendant to consider the operation ofsale on co((ission closed, leavin' the collection of said su( until later, which su( re(ained as a loan payable upon presentation of the receipt. >Brief, 1 and $.?

Then, after averrin' the true facts >"? that a sales co((ission was precedent= >2? that this co((ission

was settled with a balance of *2,$# in favor of the principal, %uana !ontilla= and >1? that this balancere(ained in the possession of the defendant, who drew up an instru(ent payable on de(and, he hasdrawn two conclusions, both erroneous One, that the instru(ent drawn up in the for( of a depositcertificate could be indorsed or ne'otiated lie any other co((ercial instru(ent= and the other, that thesu( of *2,$# re(ained in defendants possession as a loan.

+t is erroneous to assert that the certificate of deposit in question is ne'otiable lie any otherco((ercial instru(ent <irst, because every co((ercial instru(ent is not ne'otiable= and second, because only instru(ents payable to order are ne'otiable. 9ence, this instru(ent not bein' to order butto bearer, it is not ne'otiable.

+t is also erroneous to assert that su( of (oney set forth in said certificate is, accordin' to it, in the

defendants possession as a loan. +n a loan the lender trans(its to the borrower the use of the thin' lent,while in a deposit the use of the thin' is not trans(itted, but (erely possession for its custody or safe-eepin'.

+n order that the depositary (ay use or dispose oft he thin's deposited, the depositors consent isrequired, and then

The ri'hts and obli'ations of the depositary and of the depositor shall cease, and the rules and provisions applicable to co((ercial loans, co((ission, or contract which too the place of thedeposit shall be observed. >Art. 13#, Code of Co((erce.?

The defendant has shown no authoriation whatsoever or the consent of the depositary for usin' ordisposin' of the *2,$#, which the certificate acnowled'es, or any contract entered into with the

depositor to convert the deposit into a loan, co((ission, or other contract.

That de(and was not (ade for restitution of the su( deposited, which could have been clai(ed on thesa(e or the ne8t day after the certificate was si'ned, does not operate a'ainst the depositor, or si'nifyanythin' e8cept the intention not to press it. <ailure to clai( at once or delay for so(eti(e inde(andin' restitution of the thin's deposited, which was i((ediately due, does not i(ply such per(ission to use the thin' deposited as would convert the deposit into a loan.

Article $3 of the Code of Co((erce of "2#, previous to the one now in force, provided



The depositary of an a(ount of (oney cannot use the a(ount, and if he (aes use of it, heshall be responsible for all da(a'es that (ay accrue and shall respond to the depositor for thele'al interest on the a(ount.

Dhereupon the co((entators say

+n this case the deposit beco(es in fact a loan, as a 5ust punish(ent i(posed upon hi( whoabuses the sacred nature of a deposit and as a (eans of preventin' the desire of 'ain fro(leadin' hi( into speculations that (ay be disastrous to the depositor, who is (uch bettersecured while the deposit e8ists when he only has a personal action for recovery.

Accordin' to article 4$, No. 4, of the *enal Code, those who to the pre5udice of anotherappropriate or abstract for their own use (oney, 'oods, or other personal property which they(ay have received as a deposit, on co((ission, or for ad(inistration, or for any other purposewhich produces the obli'ation of deliverin' it or returnin' it, and deny havin' received it, shallsuffer the penalty of the precedin' article, which punishes such act as the cri(e of estafa. Thecorrespondin' article of the *enal Code of the *hilippines in 414, No. 4.

+n a decision of an appeal, epte(ber 2, "#4, the principle was laid down that ince he co((itsthe cri(e of estafa under article 4$ of the *enal Code of pain who to anothers detri(ent

appropriates to hi(self or abstracts (oney or 'oods received on co((ission for delivery, the courtri'htly applied this article to the appellant, who, to the (anifest detri(ent of the owner or owners of thesecurities, since he has not restored the(, willfully and wron'fully disposed of the( by appropriatin'the( to hi(self or at least divertin' the( fro( the purpose to which he was char'ed to devote the(.

+t is unquestionable that in no sense did the *2,$# which he willfully and wron'fully disposed of tothe detri(ents of his principal, %uana !ontilla, and of the depositor, Eu'enio &era'uth, belon' to thedefendant.

Fiewise erroneous is the construction apparently at te(pted to be 'iven to two decisions of thisupre(e Court >7. . 3s. :o(in'ue, 2 *hil. )ep., 43, and 7. . 3s. !orales and !orco, "4 *hil.)ep., 210? as i(plyin' that what constitutes estafa is not the disposal of (oney deposited, but denial of

havin' received sa(e. +n the first of said cases there was no evidence that the defendant hadappropriated the 'rain deposited in his possession.

On the contrary, it is entirely probable that, after the departure of the defendant fro( Fib(ananon epte(ber 23, "#, two days after the uprisin' of the civil 'uard in Nueva Caceres, the ricewas seied by the revolutionalists and appropriated to their own uses.

+n this connection it was held that failure to return the thin' deposited was not sufficient, but that it wasnecessary to prove that the depositary had appropriated it to hi(self or diverted the deposit to his ownor anothers benefit. 9e was accused or refusin' to restore, and it was held that the code does not penalie refusal to restore but denial of havin' received. o (uch for the cri(e of o(ission= now withreference to the cri(e of co((ission, it was not held in that decision that appropriation or diversion of

the thin' deposited would not constitute the cri(e of estafa.+n the second of said decisions, the accused ept none of the proceeds of the sales. Those, such as theywere, he turned over to the owner= and there bein' no proof of the appropriation, the a'ent could not be found 'uilty of the cri(e of estafa.

Bein' in accord and the (erits of the case, the 5ud'(ent appealed fro( is affir(ed, with costs.

THIR$ $I"IION



G.R. No. L-))82) At 19, 1988

+AN O TH! PHILIPPIN! ISLAN$S, petitioner,vs.TH! INT!R"!$IAT! APP!LLAT! CO#RT 7/ &SHORNAC respondents.

Pacis & e+es Law Office for petitioner.

Ernesto *. Ks!ornac1, Jr. for pri#ate respondent.

CORT!S, J.:

The original parties to this case were %i<aldy T. Jshornac= and the Commercial 4an= andTrust Company of the Philippines +hereafter referred to as EC8:T%F?T.E/ n !"(, the 4an=of the Philippine slands -hereafter referred to as 4P absorbed C8:T%F?T through acorporate merger, and was substituted as party to the case.

%i<aldy Jshornac= initiated proceedings on une 0",!# by filing in the Court of 2irstnstance of %i<al B Caloocan City a complaint against C8:T%F?T alleging four causes of

action. 7Gcept for the third cause of action, the C2 ruled in favor of Jshornac=. The ban=appealed to the ntermediate Appellate Court which modified the C2 decision absolving theban= from liability on the fourth cause of action. The pertinent portions of the udgment, asmodified, read5

$ 976 82 T17 28%7'8$', the Court renders udgment as follows5

. 8rdering the defendant C8:T%F?T to restore to the dollar savings account of plaintiff -$o.0)&*(! the amount of F.? N,(((.(( as of 8ctober 0#, !#) to earn interest together with theremaining balance of the said account at the rate fiGed by the ban= for dollar deposits underCentral 4an= Circular 3*3@

0. 8rdering defendant C8:T%F?T to return to the plaintiff the amount of F.?. N3,(((.((immediately upon the finality of this decision, without interest for the reason that the said amountwas merely held in custody for safe=eeping, but was not actually deposited with the defendantC8:T%F?T because being cash currency, it cannot by law be deposited with plaintiffs dollaraccount and defendant>s only obligation is to return the same to plaintiff upon demand@

GGG GGG GGG

). 8rdering defendant C8:T%F?T to pay plaintiff in the amount of P",(((.(( as damages inthe concept of litigation eGpenses and attorney>s fees suffered by plaintiff as a result of the failureof the defendant ban= to restore to his -plaintiffs account the amount of F.?. N,(((.(( and toreturn to him -plaintiff the F.?. N3,(((.(( cash left for safe=eeping.

Costs against defendant C8:T%F?T.

?8 8%D7%7D. +%ollo, pp. *#&*"./

Fndaunted, the ban= comes to this Court praying that it be totally absolved from any liability

to Jshornac=. The latter not having appealed the Court of Appeals decision, the issues facingthis Court are limited to the ban=>s liability with regard to the first and second causes of actionand its liability for damages.

. 6e first consider the first cause of action, 8n the dates material to this case, %i<aldyJshornac= and his wife, ?hirley 'orospe, maintained in C8:T%F?T, Iue<on City 4ranch, adollar savings account and a peso current account.

8n 8ctober 0#, !#), an application for a dollar draft was accomplished by 9irgilio 9. 'arcia, Assistant 4ranch :anager of C8:T%F?T Iue<on City, payable to a certain ;eovigilda D.



Di<on in the amount of N,(((.((. n the application, 'arcia indicated that the amount was tobe charged to Dollar ?avings Acct. $o. 0)&*(!, the savings account of the Jshornac=s@ thecharges for commission, documentary stamp taG and others totalling P#.* were to becharged to Current Acct. $o. 0(*)&0!, again, the current account of the Jshornac=s. Therewas no indication of the name of the purchaser of the dollar draft.

8n the same date, 8ctober 0#,!#), C8:T%F?T, under the signature of 9irgilio 9. 'arcia,

issued a chec= payable to the order of ;eovigilda D. Di<on in the sum of F? N,((( drawn onthe Chase :anhattan 4an=, $ew Hor=, with an indication that it was to be charged to Dollar?avings Acct. $o. 0)&*(!.

6hen Jshornac= noticed the withdrawal of F?N,(((.(( from his account, he demanded aneGplanation from the ban=. n answer, C8:T%F?T claimed that the peso value of thewithdrawal was given to Atty. 7rnesto Jshornac=, r., brother of %i<aldy, on 8ctober 0#, !#)when he -7rnesto encashed with C8:T%F?T a cashier>s chec= for P",*)(.(( issued by the:anila 4an=ing Corporation payable to 7rnesto.

Fpon consideration of the foregoing facts, this Court finds no reason to disturb the ruling ofboth the trial court and the Appellate Court on the first cause of action. Petitioner must be held

liable for the unauthori<ed withdrawal of F?N,(((.(( from private respondent>s dollaraccount.

n its desperate attempt to ustify its act of withdrawing from its depositor>s savings account,the ban= has adopted inconsistent theories. 2irst, it still maintains that the peso value of theamount withdrawn was given to Atty. 7rnesto Jshornac=, r. when the latter encashed the:anilaban= Cashier>s Chec=. At the same time, the ban= claims that the withdrawal wasmade pursuant to an agreement where Jshornac= allegedly authori<ed the ban= to withdrawfrom his dollar savings account such amount which, when converted to pesos, would beneeded to fund his peso current account. f indeed the peso equivalent of the amountwithdrawn from the dollar account was credited to the peso current account, why did the ban=still have to pay 7rnestoQ

At any rate, both eGplanations are unavailing. 6ith regard to the first eGplanation, petitionerban= has not shown how the transaction involving the cashier>s chec= is related to thetransaction involving the dollar draft in favor of Di<on financed by the withdrawal from%i<aldy>s dollar account. The two transactions appear entirely independent of each other.:oreover, 7rnesto Jshornac=, r., possesses a personality distinct and separate from %i<aldyJshornac=. Payment made to 7rnesto cannot be considered payment to %i<aldy.

As to the second eGplanation, even if we assume that there was such an agreement, theevidence do not show that the withdrawal was made pursuant to it. nstead, the recordreveals that the amount withdrawn was used to finance a dollar draft in favor of ;eovigilda D.Di<on, and not to fund the current account of the Jshornac=s. There is no proof whatsoever

that peso Current Account $o. 0(&*)&0! was ever credited with the peso equivalent of theF?N,(((.(( withdrawn on 8ctober 0#, !#) from Dollar ?avings Account $o. 0)&*(!.

0. As for the second cause of action, the complaint filed with the trial court alleged that onDecember ", !#), Jshornac= entrusted to C8:T%F?T, thru 'arcia, F? N3,(((.(( cas!-popularly =nown as greenbac=s for safe1eeping, and that the agreement was embodied in adocument, a copy of which was attached to and made part of the complaint. The documentreads5

:a=ati Cable Address5



Philippines EC8:T%F?TE

C8::7%CA; 4A$K A$D T%F?T C8:PA$H

of the Philippines

Iue<on City 4ranch

December ", !#)

:%. %JA;DH T. J?18%$ACKL8% :%? ?1%;7H 7. J?18%$ACK

?ir:adam5

6e ac=nowledged -sic having received from you today the sum of F?D8;;A%?5 T1%77 T18F?A$D 8$;H -F?N3,(((.(( for safe=eeping.

%eceived by5

-?gd. 9%';8 9. 'A%CA

t was also alleged in the complaint that despite demands, the ban= refused to return themoney.

n its answer, C8:T%F?T averred that the F?N3,((( was credited to Jshornac=>s pesocurrent account at prevailing conversion rates.

t must be emphasi<ed that C8:T%F?T did not deny specifically under oath the authenticityand due eGecution of the above instrument.

During trial, it was established that on December ", !#) Jshornac= indeed delivered to theban= F? N3,((( for safe=eeping. 6hen he requested the return of the money on :ay (,!#, C8:T%F?T eGplained that the sum was disposed of in this manner5 F?N0,(((.(( wassold on December 0!, !#) and the peso proceeds amounting to P*,!0(.(( were depositedto Jshornac=>s current account per deposit slip accomplished by 'arcia@ the remainingF?N,(((.(( was sold on 2ebruary 3, !# and the peso proceeds amounting to P",3)(.((were deposited to his current account per deposit slip also accomplished by 'arcia.

Aside from asserting that the F?N3,(((.(( was properly credited to Jshornac=>s currentaccount at prevailing conversion rates, 4P now posits another ground to defeat privaterespondent>s claim. t now argues that the contract embodied in the document is the contractof depositum -as defined in Article !0, $ew Civil Code, which ban=s do not enter into. Theban= alleges that 'arcia eGceeded his powers when he entered into the transaction. 1ence, itis claimed, the ban= cannot be liable under the contract, and the obligation is purely personalto 'arcia.

4efore we go into the nature of the contract entered into, an important point which arises onthe pleadings, must be considered.

The second cause of action is based on a document purporting to be signed by C8:T%F?T,a copy of which document was attached to the complaint. n short, the second cause of actionwas based on an actionable document. t was therefore incumbent upon the ban= tospecifically deny under oath the due eGecution of the document, as prescribed under %ule ",?ection ", if it desired5 - to question the authority of 'arcia to bind the corporation@ and -0to deny its capacity to enter into such contract. +?ee, 7.4. :erchant v. nternational 4an=ingCorporation, Phil. 3* -!(./ $o sworn answer denying the due eGecution of thedocument in question, or questioning the authority of 'arcia to bind the ban=, or denying theban=>s capacity to enter into the contract, was ever filed. 1ence, the ban= is deemed to have



admitted not only 'arcia>s authority, but also the ban=>s power, to enter into the contract inquestion.

n the past, this Court had occasion to eGplain the reason behind this procedural requirement.

The reason for the rule enunciated in the foregoing authorities will, we thin=, be readilyappreciated. n dealing with corporations the public at large is bound to rely to a large eGtentupon outward appearances. f a man is found acting for a corporation with the eGternal indicia of

authority, any person, not having notice of want of authority, may usually rely upon thoseappearances@ and if it be found that the directors had permitted the agent to eGercise thatauthority and thereby held him out as a person competent to bind the corporation, or hadacquiesced in a contract and retained the benefit supposed to have been conferred by it, thecorporation will be bound, notwithstanding the actual authority may never have been granted

... 6hether a particular officer actually possesses the authority which he assumes to eGercise isfrequently =nown to very few, and the proof of it usually is not readily accessible to the strangerwho deals with the corporation on the faith of the ostensible authority eGercised by some of thecorporate officers. t is therefore reasonable, in a case where an officer of a corporation hasmade a contract in its name, that the corporation should be required, if it denies his authority, tostate such defense in its answer. 4y this means the plaintiff is apprised of the fact that theagent>s authority is contested@ and he is given an opportunity to adduce evidence showing eitherthat the authority eGisted or that the contract was ratified and approved. +%amire< v. 8rientalist

Co. and 2ernande<, 3" Phil. 3*, *)& * -!"./

Petitioner>s argument must also be reected for another reason. The practical effect ofabsolving a corporation from liability every time an officer enters into a contract which isbeyond corporate powers, even without the proper allegation or proof that the corporation hasnot authori<ed nor ratified the officer>s act, is to cast corporations in so perfect a mold thattransgressions and wrongs by such artificial beings become impossible +4issell v. :ichigan?outhern and $..%. Cos 00 $.H 0)" -"(./ ETo say that a corporation has no right to dounauthori<ed acts is only to put forth a very plain truism but to say that such bodies have nopower or capacity to err is to impute to them an eGcellence which does not belong to anycreated eGistence with which we are acquainted. The distinction between power and right isno more to be lost sight of in respect to artificial than in respect to natural persons.E + )bid ./

1aving determined that 'arcia>s act of entering into the contract binds the corporation, wenow determine the correct nature of the contract, and its legal consequences, including itsenforceability.

The document which embodies the contract states that the F?N3,(((.(( was received by theban= for safe=eeping. The subsequent acts of the parties also show that the intent of theparties was really for the ban= to safely =eep the dollars and to return it to Jshornac= at alater time, Thus, Jshornac= demanded the return of the money on :ay (, !#, or over fivemonths later.

The above arrangement is that contract defined under Article !0, $ew Civil Code, which

reads5 Art. !0. A deposit is constituted from the moment a person receives a thing belonging toanother, with the obligation of safely =eeping it and of returning the same. f the safe=eeping ofthe thing delivered is not the principal purpose of the contract, there is no deposit but some othercontract.

$ote that the obect of the contract between Jshornac= and C8:T%F?T was foreigneGchange. 1ence, the transaction was covered by Central 4an= Circular $o. 0(, %estrictionson 'old and 2oreign 7Gchange Transactions, promulgated on December !, !*!, which wasin force at the time the parties entered into the transaction involved in this case. The circular



provides5

GGG GGG GGG

0. *ransactions in the assets described below and all dealings in them of whatever nature,including, where applicable their eGportation and importation, s!all ?O* be effected , eGcept withrespect to deposit accounts included in sub&paragraphs -b and -c of this paragraph, when suchdeposit accounts are owned by and in the name of, ban=s.

-a Any and all assets, provided they are held through, in, or with ban=s orban=ing institutions located in the Philippines, including mone+ , chec=s, drafts,bullions ban= drafts, deposit accounts -demand, time and savings, all debts,indebtedness or obligations, financial bro=ers and investment houses, notes,debentures, stoc=s, bonds, coupons, ban= acceptances, mortgages, pledges,liens or other rights in the nature of security, e2pressed in foreign currencies, orif payable abroad, irrespective of the currency in which they are eGpressed, andbelonging to any person, firm, partnership, association, branch office, agency,company or other unincorporated body or corporation residing or located withinthe Philippines@

-b Any and all assets of the =inds included andor described in subparagraph -aabove, whether or not held through, in, or with ban=s or ban=ing institutions, andeGistent within the Philippines, which belong to any person, firm, partnership,

association, branch office, agency, company or other unincorporated body orcorporation not residing or located within the Philippines@

-c Any and all assets eGistent within the Philippines including money, chec=s,drafts, bullions, ban= drafts, all debts, indebtedness or obligations, financialsecurities commonly dealt in by ban=ers, bro=ers and investment houses, notes,debentures, stoc=, bonds, coupons, ban= acceptances, mortgages, pledges,liens or other rights in the nature of security eGpressed in foreign currencies, or ifpayable abroad, irrespective of the currency in which they are eGpressed, andbelonging to any person, firm, partnership, association, branch office, agency,company or other unincorporated body or corporation residing or located withinthe Philippines.

GGG GGG GGG

*. -a All receipts of foreign e2c!ange s!all be sold dail+ to t!e Central Dan1 by those authori<edto deal in foreign eGchange. All receipts of foreign eGchange by any person, firm, partnership,association, branch office, agency, company or other unincorporated body or corporation shallbe sold to the authori<ed agents of the Central 4an= by the recipients wit!in one business da+following t!e receipt of suc! foreign e2c!ange. Any person, firm, partnership, association, branchoffice, agency, company or other unincorporated body or corporation, residing or located withinthe Philippines, who acquires on and after the date of this Circular foreign eGchange shall not,unless licensed by the Central 4an=, dispose of such foreign eGchange in whole or in part, norreceive less than its full value, nor delay ta=ing ownership thereof eGcept as such delay iscustomary@ Provided, further, That within one day upon ta=ing ownership, or receiving payment,of foreign eGchange the aforementioned persons and entities shall sell such foreign eGchange todesignated agents of the Central 4an=.

GGG GGG GGG". ?trict observance of the provisions of this Circular is enoined@ and any person, firm orcorporation, foreign or domestic, who being bound to the observance thereof, or of such otherrules, regulations or directives as may hereafter be issued in implementation of this Circular,shall fail or refuse to comply with, or abide by, or shall violate the same, shall be sub$ect to t!e

penal sanctions pro#ided in t!e Central Dan1 Act.

GGG GGG GGG

Paragraph * -a above was modified by ?ection of Central 4an= Circular $o. 0",%egulations on 2oreign 7Gchange, promulgated on $ovember 0, !! by limiting its



coverage to Philippine residents only. ?ection provides5

?7C. . All receipts of foreign eGchange by any resident person, firm, company or corporationshall be sold to authori<ed agents of the Central 4an= by the recipients within one business dayfollowing the receipt of such foreign eGchange. Any resident person, firm, company orcorporation residing or located wit!in t!e P!ilippines, who acquires foreign eGchange shall not,unless authori<ed by the Central 4an=, dispose of such foreign eGchange in whole or in part, norreceive less than its full value, nor delay ta=ing ownership thereof eGcept as such delay is

customary@ Provided, That, within one business day upon ta=ing ownership or receiving paymentof foreign eGchange the aforementioned persons and entities shall sell such foreign eGchange tothe authori<ed agents of the Central 4an=.

As earlier stated, the document and the subsequent acts of the parties show that theyintended the ban= to safe=eep the foreign eGchange, and return it later to Jshornac=, whoalleged in his complaint that he is a Philippine resident. The parties did not intended to sell theF? dollars to the Central 4an= within one business day from receipt. 8therwise, the contractof depositum would never have been entered into at all.

?ince the mere safe=eeping of the greenbac=s, without selling them to the Central 4an=within one business day from receipt, is a transaction which is not authori<ed by C4 Circular$o. 0(, it must be considered as one which falls under the general class of prohibited

transactions. 1ence, pursuant to Article ) of the Civil Code, it is void, having been eGecutedagainst the provisions of a mandatoryprohibitory law. :ore importantly, it affords neither ofthe parties a cause of action against the other. E6hen the nullity proceeds from the illegality ofthe cause or obect of the contract, and the act constitutes a criminal offense, both partiesbeing in pari delicto, they shall have no cause of action against each other. . .E +Art. *, $ewCivil Code./ The only remedy is one on behalf of the ?tate to prosecute the parties forviolating the law.

6e thus rule that Jshornac= cannot recover under the second cause of action.

3. ;astly, we find the P",(((.(( awarded by the courts a 4uo as damages in the concept oflitigation eGpenses and attorney>s fees to be reasonable. The award is sustained.

617%728%7, the decision appealed from is hereby :8D27D. Petitioner is ordered torestore to the dollar savings account of private respondent the amount of F?N,(((.(( as of8ctober 0#, !#) to earn interest at the rate fiGed by the ban= for dollar savings deposits.Petitioner is further ordered to pay private respondent the amount of P",(((.(( as damages.The other causes of action of private respondent are ordered dismissed.

?8 8%D7%7D.

THIR$ $I"IION

G.R. No. 90023 "7r; (, 199(

CA AGRO-IN$#STRIAL $!V!LOP"!NT CORP., petitioner,vs.TH! HONORA+L! CO#RT O APP!ALS 7/ S!C#RIT' +AN AN$ TR#ST CO"PAN',respondents.

(olorfino & (ominguez Law Offices for petitioner.

(anilo D. Danares for pri#ate respondent.



$AVI$!, %R., J.:

s the contractual relation between a commercial ban= and another party in a contract of rentof a safety deposit boG with respect to its contents placed by the latter one of bailor and baileeor one of lessor and lesseeQ

This is the cruG of the present controversy.8n 3 uly !#!, petitioner -through its President, ?ergio Aguirre and the spouses %amon andPaula Pugao entered into an agreement whereby the former purchased from the latter two -0parcels of land for a consideration of P3)(,0).((. 8f this amount, P#),#0).(( was paid asdownpayment while the balance was covered by three -3 postdated chec=s. Among theterms and conditions of the agreement embodied in a :emorandum of True and Actual

Agreement of ?ale of ;and were that the titles to the lots shall be transferred to the petitionerupon full payment of the purchase price and that the owner>s copies of the certificates of titlesthereto, Transfer Certificates of Title -TCT $os. 0"*)) and 0!0*3*, shall be deposited in asafety deposit boG of any ban=. The same could be withdrawn only upon the oint signaturesof a representative of the petitioner and the Pugaos upon full payment of the purchase price.

Petitioner, through ?ergio Aguirre, and the Pugaos then rented ?afety Deposit 4oG $o. **"of private respondent ?ecurity 4an= and Trust Company, a domestic ban=ing corporationhereinafter referred to as the respondent 4an=. 2or this purpose, both signed a contract oflease -7Ghibit E0E which contains, inter alia, the following conditions5

3. The ban= is not a depositary of the contents of the safe and it has neither the possession norcontrol of the same.

*. The ban= has no interest whatsoever in said contents, eGcept herein eGpressly provided, and

it assumes absolutely no liability in connection therewith. 1

After the eGecution of the contract, two -0 renter>s =eys were given to the renters B one to Aguirre -for the petitioner and the other to the Pugaos. A guard =ey remained in the

possession of the respondent 4an=. The safety deposit boG has two -0 =eyholes, one for theguard =ey and the other for the renter>s =ey, and can be opened only with the use of both=eys. Petitioner claims that the certificates of title were placed inside the said boG.

Thereafter, a certain :rs. :argarita %amos offered to buy from the petitioner the two -0 lotsat a price of P00).(( per square meter which, as petitioner alleged in its complaint, translatesto a profit of P((.(( per square meter or a total of P0"(,)((.(( for the entire property. :rs.%amos demanded the eGecution of a deed of sale which necessarily entailed the productionof the certificates of title. n view thereof, Aguirre, accompanied by the Pugaos, thenproceeded to the respondent 4an= on * 8ctober !#! to open the safety deposit boG and getthe certificates of title. 1owever, when opened in the presence of the 4an=>s representative,the boG yielded no such certificates. 4ecause of the delay in the reconstitution of the title, :rs.%amos withdrew her earlier offer to purchase the lots@ as a consequence thereof, thepetitioner allegedly failed to reali<e the eGpected profit of P0"(,)((.((. 1ence, the latter filed

on ?eptember !"( a complaint 2 for damages against the respondent 4an= with the Courtof 2irst nstance -now %egional Trial Court of Pasig, :etro :anila which doc=eted the sameas Civil Case $o. 3"3"0.

n its Answer with Counterclaim, ( respondent 4an= alleged that the petitioner has no cause ofaction because of paragraphs 3 and * of the contract of lease -7Ghibit E0E@ corollarily, lossof any of the items or articles contained in the boG could not give rise to an action against it. t



then interposed a counterclaim for eGemplary damages as well as attorney>s fees in the

amount of P0(,(((.((. Petitioner subsequently filed an answer to the counterclaim. 4

n due course, the trial court, now designated as 4ranch of the %egional Trial Court

-%TC of Pasig, :etro :anila, rendered a decision 5 adverse to the petitioner on " December!", the dispositive portion of which reads5

617%728%7, premises considered, udgment is hereby rendered dismissing plaintiff>scomplaint.

8n defendant>s counterclaim, udgment is hereby rendered ordering plaintiff to pay defendant theamount of 297 T18F?A$D -P),(((.(( P7?8? as attorney>s fees.

6ith costs against plaintiff. )

The unfavorable verdict is based on the trial court>s conclusion that under paragraphs 3 and* of the contract of lease, the 4an= has no liability for the loss of the certificates of title. Thecourt declared that the said provisions are binding on the parties.

ts motion for reconsideration 3 having been denied, petitioner appealed from the adverse

decision to the respondent Court of Appeals which doc=eted the appeal as CA&'.%. C9 $o.

))(. Petitioner urged the respondent Court to reverse the challenged decision because thetrial court erred in -a absolving the respondent 4an= from liability from the loss, -b notdeclaring as null and void, for being contrary to law, public order and public policy, theprovisions in the contract for lease of the safety deposit boG absolving the 4an= from anyliability for loss, -c not concluding that in this urisdiction, as well as under American

urisprudence, the liability of the 4an= is settled and -d awarding attorney>s fees to the 4an=

and denying the petitioner>s prayer for nominal and eGemplary damages and attorney>s fees. 8

n its Decision promulgated on * uly !"!, 9 respondent Court affirmed the appealeddecision principally on the theory that the contract -7Ghibit E0E eGecuted by the petitioner andrespondent 4an= is in the nature of a contract of lease by virtue of which the petitioner and its

co&renter were given control over the safety deposit boG and its contents while the 4an=retained no right to open the said boG because it had neither the possession nor control over

it and its contents. As such, the contract is governed by Article *3 of the Civil Code 10 whichprovides5

Art. *3. n the lease of things, one of the parties binds himself to give to another the enoymentor use of a thing for a price certain, and for a period which may be definite or indefinite. 1owever,no lease for more than ninety&nine years shall be valid.

t invo=ed *olentino #s. onzales 11 @ which held that the owner of the property loseshis control over the property leased during the period of the contract B and Article!#) of the Civil Code which provides5

Art. !#). The depositary holding certificates, bonds, securities or instruments which earninterest shall be bound to collect the latter when it becomes due, and to ta=e such steps as maybe necessary in order that the securities may preserve their value and the rights correspondingto them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boGes.

and then concluded that E+c/learly, the defendant&appellee is not under any duty tomaintain the contents of the boG. The stipulation absolving the defendant&appellee fromliability is in accordance with the nature of the contract of lease and cannot be

regarded as contrary to law, public order and public policy.E 12 The appellate court was



quic= to add, however, that under the contract of lease of the safety deposit boG,respondent 4an= is not completely free from liability as it may still be made answerablein case unauthori<ed persons enter into the vault area or when the rented boG is forcedopen. Thus, as eGpressly provided for in stipulation number " of the contract inquestion5

". The 4an= shall use due diligence that no unauthori<ed person shall be admitted to any rented

safe and beyond this, the 4an= will not be responsible for the contents of any safe rented from it.1(

ts motion for reconsideration 14 having been denied in the respondent Court>s %esolution of

0" August !"!, 15 petitioner too= this recourse under %ule *) of the %ules of Court andurges Fs to review and set aside the respondent Court>s ruling. Petitioner avers that both therespondent Court and the trial court -a did not properly and legally apply the correct law inthis case, -b acted with grave abuse of discretion or in eGcess of urisdiction amounting tolac= thereof and -c set a precedent that is contrary to, or is a departure from precedentsadhered to and affirmed by decisions of this Court and precepts in American urisprudenceadopted in the Philippines. t reiterates the arguments it had raised in its motion to reconsiderthe trial court>s decision, the brief submitted to the respondent Court and the motion toreconsider the latter>s decision. n a nutshell, petitioner maintains that regardless ofnomenclature, the contract for the rent of the safety deposit boG -7Ghibit E0E is actually acontract of deposit governed by Title O, 4oo= 9 of the Civil Code of the

Philippines. 1) Accordingly, it is claimed that the respondent 4an= is liable for the loss of thecertificates of title pursuant to Article !#0 of the said Code which provides5

Art. !#0. The depositary is obliged to =eep the thing safely and to return it, when required, tothe depositor, or to his heirs and successors, or to the person who may have been designated inthe contract. 1is responsibility, with regard to the safe=eeping and the loss of the thing, shall begoverned by the provisions of Title of this 4oo=.

f the deposit is gratuitous, this fact shall be ta=en into account in determining the degree of carethat the depositary must observe.

Petitioner then quotes a passage from American urisprudence 13 which is supposedto eGpound on the prevailing rule in the Fnited ?tates, to wit5

The prevailing rule appears to be that where a safe&deposit company leases a safe&deposit boGor safe and the lessee ta=es possession of the boG or safe and places therein his securities orother valuables, the relation of bailee and bail or is created between the parties to thetransaction as to such securities or other valuables@ the fact that thesafe&deposit company does not =now, and that it is not eGpected that it shall =now, the characteror description of the property which is deposited in such safe&deposit boG or safe does notchange that relation. That access to the contents of the safe&deposit boG can be had only by theuse of a =ey retained by the lessee - whether it is the sole =ey or one to be used in connectionwith one retained by the lessor does not operate to alter the foregoing rule. The argument that

there is not, in such a case, a delivery of eGclusive possession and control to the depositcompany, and that therefore the situation is entirely different from that of ordinary bailment, hasbeen generally reected by the courts, usually on the ground that as possession must be either inthe depositor or in the company, it should reasonably be considered as in the latter rather than inthe former, since the company is, by the nature of the contract, given absolute control of accessto the property, and the depositor cannot gain access thereto without the consent and activeparticipation of the company. . . . -citations omitted.

and a segment from 6ords and Phrases 18 which states that a contract for the rental ofa ban= safety deposit boG in consideration of a fiGed amount at stated periods is abailment for hire.



Petitioner further argues that conditions 3 and * of the questioned contract are contrary tolaw and public policy and should be declared null and void. n support thereof, it cites Article3( of the Civil Code which provides that parties to a contract may establish suchstipulations, clauses, terms and conditions as they may deem convenient, provided they arenot contrary to law, morals, good customs, public order or public policy.

After the respondent 4an= filed its comment, this Court gave due course to the petition and

required the parties to simultaneously submit their respective :emoranda.The petition is partly meritorious.

6e agree with the petitioner>s contention that the contract for the rent of the safety depositboG is not an ordinary contract of lease as defined in Article *3 of the Civil Code. 1owever,6e do not fully subscribe to its view that the same is a contract of deposit that is to be strictly

governed by the provisions in the Civil Code on deposit@ 19 the contract in the case at bar is aspecial =ind of deposit. t cannot be characteri<ed as an ordinary contract of lease under

Article *3 because the full and absolute possession and control of the safety deposit boGwas not given to the oint renters B the petitioner and the Pugaos. The guard =ey of the boGremained with the respondent 4an=@ without this =ey, neither of the renters could open the

boG. 8n the other hand, the respondent 4an= could not li=ewise open the boG without therenter>s =ey. n this case, the said =ey had a duplicate which was made so that both renterscould have access to the boG.

1ence, the authorities cited by the respondent Court 20 on this point do not apply. $eithercould Article !#), also relied upon by the respondent Court, be invo=ed as an argumentagainst the deposit theory. 8bviously, the first paragraph of such provision cannot apply to adepositary of certificates, bonds, securities or instruments which earn interest if suchdocuments are =ept in a rented safety deposit boG. t is clear that the depositary cannot openthe boG without the renter being present.

6e observe, however, that the deposit theory itself does not altogether find unanimous

support even in American urisprudence. 6e agree with the petitioner that under the latter, theprevailing rule is that the relation between a ban= renting out safe&deposit boGes and itscustomer with respect to the contents of the boG is that of a bail or and bailee, the bailment

being for hire and mutual benefit. 21 This is ust the prevailing view because5

There is, however, some support for the view that the relationship in question might be moreproperly characteri<ed as that of landlord and tenant, or lessor and lessee. t has also beensuggested that it should be characteri<ed as that of licensor and licensee. The relation betweena ban=, safe&deposit company, or storage company, and the renter of a safe&deposit boG therein,is often described as contractual, eGpress or implied, oral or written, in whole or in part. 4ut thereis apparently no urisdiction in which any rule other than that applicable to bailments governsquestions of the liability and rights of the parties in respect of loss of the contents of safe&deposit

boGes. 22 -citations omitted

n the conteGt of our laws which authori<e ban=ing institutions to rent out safety depositboGes, it is clear that in this urisdiction, the prevailing rule in the Fnited ?tates has been

adopted. ?ection #0 of the 'eneral 4an=ing Act 2( pertinently provides5

?ec. #0. n addition to the operations specifically authori<ed elsewhere in this Act, ban=inginstitutions other than building and loan associations may perform the following services5

-a %eceive in custody funds, documents, and valuable obects, and rent safetydeposit boGes for the safeguarding of such effects.

GGG GGG GGG



The ban=s shall perform the services permitted under subsections -a, -b and -c of this section

as depositories or as agents. . . . 24 -emphasis supplied

$ote that the primary function is still found within the parameters of a contract of deposit , i.e.,the receiving in custody of funds, documents and other valuable obects for safe=eeping. Therenting out of the safety deposit boGes is not independent from, but related to or inconunction with, this principal function. A contract of deposit may be entered into orally or in

writing 25 and, pursuant to Article 3( of the Civil Code, the parties thereto may establishsuch stipulations, clauses, terms and conditions as they may deem convenient, provided theyare not contrary to law, morals, good customs, public order or public policy. The depositary>sresponsibility for the safe=eeping of the obects deposited in the case at bar is governed byTitle , 4oo= 9 of the Civil Code. Accordingly, the depositary would be liable if, in performingits obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the

agreement. 2) n the absence of any stipulation prescribing the degree of diligence required,

that of a good father of a family is to be observed. 23 1ence, any stipulation eGempting thedepositary from any liability arising from the loss of the thing deposited on account of fraud,negligence or delay would be void for being contrary to law and public policy. n the instantcase, petitioner maintains that conditions 3 and * of the questioned contract of lease of thesafety deposit boG, which read5

3. The ban= is not a depositary of the contents of the safe and it has neither the possession norcontrol of the same.

*. The ban= has no interest whatsoever in said contents, eGcept herein eGpressly provided, and

it assumes absolutely no liability in connection therewith. 28

are void as they are contrary to law and public policy. 6e find 8urselves in agreementwith this proposition for indeed, said provisions are inconsistent with the respondent4an=>s responsibility as a depositary under ?ection #0-a of the 'eneral 4an=ing Act.4oth eGempt the latter from any liability eGcept as contemplated in condition " thereofwhich limits its duty to eGercise reasonable diligence only with respect to who shall be

admitted to any rented safe, to wit5

". The 4an= shall use due diligence that no unauthori<ed person shall be admitted to any rentedsafe and beyond this, the 4an= will not be responsible for the contents of any safe rented from it.29

2urthermore, condition 3 stands on a wrong premise and is contrary to the actualpractice of the 4an=. t is not correct to assert that the 4an= has neither the possessionnor control of the contents of the boG since in fact, the safety deposit boG itself islocated in its premises and is under its absolute control@ moreover, the respondent4an= =eeps the guard =ey to the said boG. As stated earlier, renters cannot open theirrespective boGes unless the 4an= cooperates by presenting and using this guard =ey.

Clearly then, to the eGtent above stated, the foregoing conditions in the contract inquestion are void and ineffective. t has been said5

6ith respect to property deposited in a safe&deposit boG by a customer of a safe&depositcompany, the parties, since the relation is a contractual one, may by special contract define theirrespective duties or provide for increasing or limiting the liability of the deposit company,provided such contract is not in violation of law or public policy. t must clearly appear that thereactually was such a special contract, however, in order to vary the ordinary obligations implied bylaw from the relationship of the parties@ liability of the deposit company will not be enlarged orrestricted by words of doubtful meaning. The company, in rentingsafe&deposit boGes, cannot eGempt itself from liability for loss of the contents by its own fraud or



negligence or that of its agents or servants, and if a provision of the contract may be construedas an attempt to do so, it will be held ineffective for the purpose. Although it has been held thatthe lessor of a safe&deposit boG cannot limit its liability for loss of the contents thereof through itsown negligence, the view has been ta=en that such a lessor may limits its liability to some eGtent

by agreement or stipulation. (0 -citations omitted

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that thepetition should be dismissed, but on grounds quite different from those relied upon by theCourt of Appeals. n the instant case, the respondent 4an=>s eGoneration cannot, contrary tothe holding of the Court of Appeals, be based on or proceed from a characteri<ation of theimpugned contract as a contract of lease, but rather on the fact that no competent proof waspresented to show that respondent 4an= was aware of the agreement between the petitionerand the Pugaos to the effect that the certificates of title were withdrawable from the safetydeposit boG only upon both parties> oint signatures, and that no evidence was submitted toreveal that the loss of the certificates of title was due to the fraud or negligence of therespondent 4an=. This in turn flows from this Court>s determination that the contract involvedwas one of deposit. ?ince both the petitioner and the Pugaos agreed that each should haveone - renter>s =ey, it was obvious that either of them could as= the 4an= for access to thesafety deposit boG and, with the use of such =ey and the 4an=>s own guard =ey, could openthe said boG, without the other renter being present.

?ince, however, the petitioner cannot be blamed for the filing of the complaint and no badfaith on its part had been established, the trial court erred in condemning the petitioner to paythe respondent 4an= attorney>s fees. To this eGtent, the Decision -dispositive portion of publicrespondent Court of Appeals must be modified.

617%728%7, the Petition for %eview is partially '%A$T7D by deleting the award forattorney>s fees from the * uly !"! Decision of the respondent Court of Appeals in CA&'.%.C9 $o. ))(. As modified, and subect to the pronouncement 6e made above on the natureof the relationship between the parties in a contract of lease of safety deposit boGes, thedispositive portion of the said Decision is hereby A22%:7D and the instant Petition for

%eview is otherwise D7$7D for lac= of merit.

$o pronouncement as to costs.

?8 8%D7%7D.

EN B#NC

G.R. No. 415 #88*t 24, 19

#NGEL !#"ELL#N#, plaintiff-appellee,vs.

!OE LI%, ET #L., defendants-appellants. R. /aldarria#a for appellants.

&. !ontinola for appellee.

TORRE, J.

The attorney for the plaintiff, An'el %avellana, file a co(plaint on the 13th of October, "#30, with theCourt of <irst +nstance of +loilo, prayin' that the defendants, %ose Fi( and Ceferino :o(in'o Fi(, hesentenced to 5ointly and severally pay the su( of *2,00.4, with interest thereon at the rate of "4 percent per annu( fro( the 23th of %anuary, "#, until full pay(ent should be (ade, deductin' fro( the



a(ount of interest due the su( of *","32."0, and to pay the costs of the proceedin's.

Authority fro( the court havin' been previously obtained, the co(plaint was a(ended on the "3th of%anuary, "#3/= it was then alle'ed, on the 20th of !ay, "#/, the defendants e8ecuted and subscribed adocu(ent in favor of the plaintiff readin' as follows

De have received fro( An'el %avellana, as a deposit without interest, the su( of two thousand si8hundred and ei'hty-si8 cents of pesos fuertes, which we will return to the said 'entle(an, 5ointly andseverally, on the 23th of %anuary, "#. @ %aro, 20th of !ay, "#/. @ i'ned %ose Fi(. @ i'nedCeferino :o(in'o Fi(.

That, when the obli'ation beca(e due, the defendants be''ed the plaintiff for an e8tension of ti(e forthe pay(ent thereof, buildin' the(selves to pay interest at the rate of "4 per cent on the a(ount of theirindebtedness, to which the plaintiff acceded= that on the "4th of !ay, "#32, the debtors paid on accountof interest due the su( of *",333 pesos, with the e8ception of either capital or interest, had thereby been sub5ected to loss and da(a'es.

A de(urrer to the ori'inal co(plaint was overruled, and on the $th of %anuary, "#3/, the defendantsanswered the ori'inal co(plaint before its a(end(ent, settin' forth that they acnowled'ed the factsstated in Nos. " and 2 of the co(plaint= that they ad(itted the state(ents of the plaintiff relative to the

pay(ent of ","32."0 pesos (ade on the "4th of Nove(ber, "#32, not, however, as pay(ent of intereston the a(ount stated in the fore'oin' docu(ent, but on account of the principal, and denied that therehad been any a'ree(ent as to an e8tension of the ti(e for pay(ent and the pay(ent of interest at therate of "4 per cent per annu( as alle'ed in para'raph 1 of the co(plaint, and also denied all the otherstate(ents contained therein.

As a counterclai(, the defendants alle'ed that they had paid to the plaintiff su(s which, to'ether withthe *","32."0 acnowled'ed in the co(plaint, a''re'ated the total su( of *4,032."0, and that,deductin' therefro( the total su( of *2,00.4 stated in the docu(ent transcribed in the co(plaint, the plaintiff still owed the defendants *2,#"4.4= therefore, they ased that 5ud'(ent be entered absolvin'the(, and sentencin' the plaintiff to pay the( the su( of *2,#"4.4 with the costs.

Evidence was adduced by both parties and, upon their e8hibits, to'ether with an account boo havin' been (ade of record, the court below rendered 5ud'(ent on the "4th of %anuary, "#3/, in favor of the plaintiff for the recovery of the su( of *4,/"$.$$ and costs.

The defendants e8cepted to the above decision and (oved for a new trial. This (otion was overruledand was also e8cepted to by the(= the bill of e8ceptions presented by the appellants havin' beenapproved, the sa(e was in due course sub(itted to this court.

The docu(ent of indebtedness inserted in the co(plaint states that the plaintiff left on deposit with thedefendants a 'iven su( of (oney which they were 5ointly and severally obli'ed to return on a certaindate fi8ed in the docu(ent= but that, nevertheless, when the docu(ent appearin' as E8hibits 2, writtenin the &isayan dialect and followed by a translation into panish was e8ecuted, it was acnowled'ed, at

the date thereof, the "4th of Nove(ber, "#32, that the a(ount deposited had not yet been returned tothe creditor, whereby he was sub5ected to losses and da(a'es a(ountin' to 13 pesos since the 23th of%anuary, "#, when the return was a'ain stipulated with the further a'ree(ent that the a(ountdeposited should bear interest at the rate of "4 per cent per annu(, fro( the aforesaid date of %anuary23, and that the ",333 pesos paid to the depositor on the "4th of !ay, "#33, accordin' to the receiptissued by hi( to the debtors, would be included, and that the said rate of interest would obtain until thedebtors on the 23th of !ay, "#/, it is called a deposit consisted, and they could have acco(plished thereturn a'reed upon by the delivery of a su( equal to the one received by the(. <or this reason it (ust be understood that the debtors were lawfully authoried to (ae use of the a(ount deposited, which



they have done, as subsequent shown when asin' for an e8tension of the ti(e for the return thereof,inas(uch as, acnowled'in' that they have sub5ected the letter, their creditor, to losses and da(a'esfor not co(plyin' with what had been stipulated, and bein' conscious that they had used, for their own profit and 'ain, the (oney that they received apparently as a deposit, they en'a'ed to pay interest to thecreditor fro( the date na(ed until the ti(e when the refund should be (ade. uch conduct on the partof the debtors is unquestionable evidence that the transaction entered into between the interested parties

was not a deposit, but a real contract of loan.Article "/0/ of the Civil Code provides that @

The depository can not (ae use of the thin' deposited without the e8press per(ission of thedepositor.

Otherwise he shall be liable for losses and da(a'es.

Article "/0 also provides that @

Dhen the depository has per(ission to (ae use of the thin' deposited, the contract loses thecharacter of a deposit and beco(es a loan or bail(ent.

The per(ission shall not be presu(ed, and its e8istence (ust be proven.

Dhen on one of the latter days of %anuary, "#, %ose Fi( went to the office of the creditor asin' foran e8tension of one year, in view of the fact the (oney was scare, and because neither hi(self nor theother defendant were able to return the a(ount deposited, for which reason he a'reed to pay interest atthe rate of "4 per cent per annu(, it was because, as a (atter of fact, he did not have in his possessionthe a(ount deposited, he havin' (ade use of the sa(e in his business and for his own profit= and thecreditor, by 'rantin' the( the e8tension, evidently confir(ed the e8press per(ission previously 'ivento use and dispose of the a(ount stated as havin' bee deposited, which, in accordance with the loan, toall intents and purposes 'ratuitously, until the 23th of %anuary, "#, and fro( that dated with interestat "4 per cent per annu( until its full pay(ent, deductin' fro( the total a(ount of interest the su( of",333 pesos, in accordance with the provisions of article ""/1 of the Civil Code.

Notwithstandin' that it does not appear that %ose Fi( si'ned the docu(ent >E8hibit 2? e8ecuted in the presence of three witnesses on the "4th of Nove(ber, "#32, by Ceferino :o(in'o Fi( on behalf ofhi(self and the for(er, nevertheless, the said docu(ent has not been contested as false, either by acri(inal or by a civil proceedin', nor has any doubt been cast upon the authenticity of the si'natures ofthe witnesses who attested the e8ecution of the sa(e= and fro( the evidence in the case one issufficiently convinced that the said %ose Fi( was perfectly aware of and authoried his 5oint codebtorto liquidate the interest, to pay the su( of ",333 pesos, on account thereof, and to e8ecute the aforesaiddocu(ent No. 2. A true ratification of the ori'inal docu(ent of deposit was thus (ade, and not the least proof is shown in the record that %ose Fi( had ever paid the whole or any part of the capital stated inthe ori'inal docu(ent, E8hibit ".

+f the a(ount, to'ether with interest clai(ed in the co(plaint, less ",333 pesos appears as fully

established, such is not the case with the defendants counterclai( for *4,032."0, because the e8istenceand certainty of said indebtedness i(puted to the plaintiff has not been proven, and the defendants, whocall the(selves creditors for the said a(ount have not proven in a satisfactory (anner that the plaintiffhad received partial pay(ents on account of the sa(e= the latter alle'es with 'ood reason, that theyshould produce the receipts which he (ay have issued, and which he did issue whenever they paid hi(any (oney on account. The plaintiffs alle'ation that the two a(ounts of $33 and ",233 pesos, referredto in docu(ents (ared C and : offered in evidence by the defendants, had been received fro(Ceferino :o(in'o Fi( on account of other debts of his, has not been contradicted, and the fact that inthe ori'inal co(plaint the su( of ","32."0 pesos, was e8pressed in lieu of ",333 pesos, the only



pay(ent (ade on account of interest on the a(ount deposited accordin' to docu(ents No. 2 and letterB above referred to, was due to a (istae.

!oreover, for the reason above set forth it (ay, as a (atter of course, be inferred that there was norenewal of the contract deposited converted into a loan, because, as has already been stated, thedefendants received said a(ount by virtue of real loan contract under the na(e of a deposit, since theso-called bailees were forthwith authoried to dispose of the a(ount deposited. This they have done, as

has been clearly shown.

The ori'inal 5oint obli'ation contracted by the defendant debtor still e8ists, and it has not been shownor proven in the proceedin's that the creditor had released %oe Fi( fro( co(plyin' with his obli'ationin order that he should not be sued for or sentenced to pay the a(ount of capital and interest to'etherwith his codebtor, Ceferino :o(in'o Fi(, because the record offers satisfactory evidence a'ainst the pretension of %ose Fi(, and it further appears that docu(ent No. 2 was e8ecuted by the other debtor,Ceferino :o(in'o Fi(, for hi(self and on behalf of %ose Fi(= and it has also been proven that %oseFi(, bein' fully aware that his debt had not yet been settled, too steps to secure an e8tension of theti(e for pay(ent, and consented to pay interest in return for the concession requested fro( the creditor.

+n view of the fore'oin', and adoptin' the findin's in the 5ud'(ent appealed fro(, it is our opinion that

the sa(e should be and is hereby affir(ed with the costs of this instance a'ainst the appellant, providedthat the interest a'reed upon shall be paid until the co(plete liquidation of the debt. o ordered.

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