G.R. No.
L-19190 November 29, 1922 of P3,000, with subsidiary imprisonment in case of insolvency, and the
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri
branch of the Philippine National Bank, Venancio Concepcion,
President of the Philippine National Bank, between April 10, 1919, and
May 7, 1919, authorized an extension of credit in favor of "Puno y
Concepcion, S. en C." in the amount of P300,000. This special
authorization was essential in view of the memorandum order of
President Concepcion dated May 17, 1918, limiting the discretional
power of the local manager at Aparri, Cagayan, to grant loans and
discount negotiable documents to P5,000, which, in certain cases,
could be increased to P10,000. Pursuant to this authorization, credit
aggregating P300,000, was granted the firm of "Puno y Concepcion, S.
en C.," the only security required consisting of six demand notes. The
notes, together with the interest, were taken up and paid by July 17,
1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at
P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de
Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral. Venancio
Concepcion," P50,000. Member Miguel S. Concepcion was the
administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the
Philippine National Bank and as member of the board of directors of
this bank, was charged in the Court of First Instance of Cagayan with a
violation of section 35 of Act No. 2747. He was found guilty by the
Honorable Enrique V. Filamor, Judge of First Instance, and was
sentenced to imprisonment for one year and six months, to pay a fine
costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just
mentioned, to which reference must hereafter repeatedly be made,
reads as follows: "The National Bank shall not, directly or indirectly,
grant loans to any of the members of the board of directors of the bank
nor to agents of the branch banks." Section 49 of the same Act
provides: "Any person who shall violate any of the provisions of this
Act shall be punished by a fine not to exceed ten thousand pesos, or by
imprisonment not to exceed five years, or by both such fine and
imprisonment." These two sections were in effect in 1919 when the
alleged unlawful acts took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by
the trial court. These errors they have argued adroitly and exhaustively
in their printed brief, and again in oral argument. Attorney-General
Villa-Real, in an exceptionally accurate and comprehensive brief,
answers the proposition of appellant one by one.
The question presented are reduced to their simplest elements in the
opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, a "loan" within the meaning of section 35 of
Act No. 2747?
Counsel argue that the documents of record do not prove that
authority to make a loan was given, but only show the concession of a
credit. In this statement of fact, counsel is correct, for the exhibits in
question speak of a "credito" (credit) and not of a " prestamo" (loan).
The "credit" of an individual means his ability to borrow money by
virtue of the confidence or trust reposed by a lender that he will pay
what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's
Law Dictionary.) A "loan" means the delivery by one party and the
receipt by the other party of a given sum of money, upon an
agreement, express or implied, to repay the sum loaned, with or
without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The
concession of a "credit" necessarily involves the granting of "loans" up
to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C.," by Venancio Concepcion, President of the
Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the
granting of a "loan," it does not prohibit what is commonly known as a
"discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the
National Bank, inquired of the Insular Auditor whether section 37 of
Act No. 2612 was intended to apply to discounts as well as to loans.
The ruling of the Acting Insular Auditor, dated August 11, 1916, was to
the effect that said section referred to loans alone, and placed no
restriction upon discount transactions. It becomes material, therefore,
to discover the distinction between a "loan" and a "discount," and to
ascertain if the instant transaction comes under the first or the latter
denomination.
Discounts are favored by bankers because of their liquid nature,
growing, as they do, out of an actual, live, transaction. But in its last
analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a credit;
(2) a discount is always on double-name paper; a loan is generally on
single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the
law covers loans and not discounts, yet the conclusion is inevitable that
the demand notes signed by the firm "Puno y Concepcion, S. en C."
were not discount paper but were mere evidences of indebtedness,
because (1) interest was not deducted from the face of the notes, but
was paid when the notes fell due; and (2) they were single-name and
not double-name paper.
The facts of the instant case having relation to this phase of the
argument are not essentially different from the facts in the Binalbagan
Estate case. Just as there it was declared that the operations
constituted a loan and not a discount, so should we here lay down the
same ruling.
III. Was the granting of a credit of P300,000 to the copartnership,
"Puno y Concepcion, S. en C." by Venancio Concepcion, President of
the Philippine National Bank, an "indirect loan" within the meaning of
section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en
C." was not an "indirect loan." In this connection, it should be recalled
that the wife of the defendant held one-half of the capital of this
partnership.
In the interpretation and construction of statutes, the primary rule is
to ascertain and give effect to the intention of the Legislature. In this
instance, the purpose of the Legislature is plainly to erect a wall of
safety against temptation for a director of the bank. The prohibition
against indirect loans is a recognition of the familiar maxim that no
man may serve two masters that where personal interest clashes
with fidelity to duty the latter almost always suffers. If, therefore, it is
shown that the husband is financially interested in the success or
failure of his wife's business venture, a loan to partnership of which the
wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar
relationship called a conjugal partnership. (Articles 1315, 1393, 1401,
1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a
partnership of which the wife of a director of a bank is a member, is an
indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an
occurrence is shown by the acknowledged fact that in this instance the
defendant was tempted to mingle his personal and family affairs with
his official duties, and to permit the loan P300,000 to a partnership of
no established reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3
Am. Rep., 211), the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no
director or officer should borrow of the bank, and "if any
director," etc., "shall be convicted," etc., "of directly or
indirectly violating this section he shall be punished by fine and
imprisonment?" We say to protect the stockholders, depositors
and creditors of the bank, against the temptation to which the
directors and officers might be exposed, and the power which
as such they must necessarily possess in the control and
management of the bank, and the legislature unwilling to rely
upon the implied understanding that in assuming this relation
they would not acquire any interest hostile or adverse to the
most exact and faithful discharge of duty, declared in express
terms that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in
the Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his
copartnership firm as well as to himself directly. The loan was
made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National
Bank, be convicted of a violation of section 35 of Act No. 2747 in
relation with section 49 of the same Act, when these portions of Act
No. 2747 were repealed by Act No. 2938, prior to the finding of the
information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act
No. 2747, in relation to section 35 of the same Act, provides a
punishment for any person who shall violate any of the provisions of
the Act. It is contended, however, by the appellant, that the repeal of
these sections of Act No. 2747 by Act No. 2938 has served to take away
the basis for criminal prosecution.
This same question has been previously submitted and has received an
answer adverse to such contention in the cases of United Stated vs.
Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil.,
653); and Ong Chang Wing and Kwong Fok vs. United States ([1910],
218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding,
and it must again be the holding, that where an Act of the Legislature
which penalizes an offense, such repeals a former Act which penalized
the same offense, such repeal does not have the effect of thereafter
depriving the courts of jurisdiction to try, convict, and sentenced
offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, in violation of section 35 of Act No. 2747,
penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act
No. 2747 is on the bank, and since section 49 of said Act provides a
punishment not on the bank when it violates any provisions of the law,
but on a person violating any provisions of the same, and imposing
imprisonment as a part of the penalty, the prohibition contained in said
section 35 is without penal sanction.
The answer is that when the corporation itself is forbidden to do an
act, the prohibition extends to the board of directors, and to each
director separately and individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of
the Philippine National Bank, in extending the credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was
convicted, it was because he was misled by rulings coming from the
Insular Auditor. It is furthermore stated that since the loans made to
the copartnership "Puno y Concepcion, S. en C." have been paid, no
loss has been suffered by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under

the statute which the defendant has violated, criminal intent is not
necessarily material. The doing of the inhibited act, inhibited on
account of public policy and public interest, constitutes the crime. And,
in this instance, as previously demonstrated, the acts of the President
of the Philippine National Bank do not fall within the purview of the
rulings of the Insular Auditor, even conceding that such rulings have
controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and

advantage not common to the other stockholders. The law will
not allow private profit from a trust, and will not listen to any
proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision

of the trial court, and the errors assigned by the appellant, and with
reference to previous decisions of this court on the same subject, we
are irresistibly led to the conclusion that no reversible error was
committed in the trial of this case, and that the defendant has been
proved guilty beyond a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge falls within the
limits of the punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the

appellant. So ordered.
 G.R. No. L-4150 February 10, 1910
FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno
Jimenea, deceased, defendant-appellant.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit against
Agustina Jarra, the administratrix of the estate of Magdaleno Jimenea,
alleging that in the latter part of 1901 Jimenea borrowed and obtained
from the plaintiff ten first-class carabaos, to be used at the animal-
power mill of his hacienda during the season of 1901-2, without
recompense or remuneration whatever for the use thereof, under the
sole condition that they should be returned to the owner as soon as
the work at the mill was terminated; that Magdaleno Jimenea,
however, did not return the carabaos, notwithstanding the fact that
the plaintiff claimed their return after the work at the mill was finished;
that Magdaleno Jimenea died on the 28th of October, 1904, and the
defendant herein was appointed by the Court of First Instance of
Occidental Negros administratrix of his estate and she took over the
administration of the same and is still performing her duties as such
administratrix; that the plaintiff presented his claim to the
commissioners of the estate of Jimenea, within the legal term, for the
return of the said ten carabaos, but the said commissioners rejected
his claim as appears in their report; therefore, the plaintiff prayed that
judgment be entered against the defendant as administratrix of the
estate of the deceased, ordering her to return the ten first-class
carabaos loaned to the late Jimenea, or their present value, and to pay
the costs.
The defendant was duly summoned, and on the 25th of September,
1906, she demurred in writing to the complaint on the ground that it
was vague; but on the 2nd of October of the same year, in answer to
the complaint, she said that it was true that the late Magdaleno
Jimenea asked the plaintiff to loan him ten carabaos, but that he only
obtained three second-class animals, which were afterwards
transferred by sale by the plaintiff to the said Jimenea; that she denied
the allegations contained in paragraph 3 of the complaint; for all of
which she asked the court to absolve her of the complaint with the cost
against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix
Martinez notified the defendant and her counsel, Matias Hilado, that
he had made an agreement with the plaintiff to the effect that the
latter would not compromise the controversy without his consent, and
that as fees for his professional services he was to receive one half of
the amount allowed in the judgment if the same were entered in favor
of the plaintiff.
The case came up for trial, evidence was adduced by both parties, and
either exhibits were made of record. On the 10th of January, 1907, the
court below entered judgment sentencing Agustina Jarra, as
administratrix of the estate of Magdaleno Jimenea, to return to the
plaintiff, Felix de los Santos, the remaining six second and third class
carabaos, or the value thereof at the rate of P120 each, or a total of
P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and,
by a writing dated January 19, moved for anew trial on the ground that
the findings of fact were openly and manifestly contrary to the weight
of the evidence. The motion was overruled, the defendant duly
excepted, and in due course submitted the corresponding bill of
exceptions, which was approved and submitted to this court.
The defendant has admitted that Magdaleno Jimenea asked the
plaintiff for the loan of ten carabaos which are now claimed by the
latter, as shown by two letters addressed by the said Jimenea to Felix
de los Santos; but in her answer the said defendant alleged that the
late Jimenea only obtained three second-class carabaos, which were
subsequently sold to him by the owner, Santos; therefore, in order to
decide this litigation it is indispensable that proof be forthcoming that
Jimenea only received three carabaos from his son-in-law Santos, and
that they were sold by the latter to him.
The record discloses that it has been fully proven from the testimony
of a sufficient number of witnesses that the plaintiff, Santos, sent in
charge of various persons the ten carabaos requested by his father-in-
law, Magdaleno Jimenea, in the two letters produced at the trial by the
plaintiff, and that Jimenea received them in the presence of some of
said persons, one being a brother of said Jimenea, who saw the animals
arrive at the hacienda where it was proposed to employ them. Four
died of rinderpest, and it is for this reason that the judgment appealed
from only deals with six surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-law
Santos is not evidenced by any trustworthy documents such as those
of transfer, nor were the declarations of the witnesses presented by
the defendant affirming it satisfactory; for said reason it can not be
considered that Jimenea only received three carabaos on loan from his
son-in-law, and that he afterwards kept them definitely by virtue of the
purchase.
By the laws in force the transfer of large cattle was and is still made by
means of official documents issued by the local authorities; these
documents constitute the title of ownership of the carabao or horse so
acquired. Furthermore, not only should the purchaser be provided
with a new certificate or credential, a document which has not been
produced in evidence by the defendant, nor has the loss of the same
been shown in the case, but the old documents ought to be on file in
the municipality, or they should 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 name of the previous
owner of each of the three carabaos said to have been sold by the
plaintiff.
From the foregoing it may be logically inferred that the carabaos
loaned or given on commodatum to the now deceased Magdaleno
Jimenea were ten in number; that they, or at any rate the six surviving
ones, have not been returned to the owner thereof, Felix de los Santos,
and that it is not true that the latter sold to the former three carabaos
that the purchaser was already using; therefore, as the said six
carabaos were not the property of the deceased nor of any of his
descendants, it is the duty of the administratrix of the estate to return
them or indemnify the owner for their value.
The Civil Code, in dealing with loans in general, from which generic
denomination the specific one of commodatum is derived, establishes
prescriptions in relation to the last-mentioned contract by the
following articles:
ART. 1740. By the contract of loan, one of the parties delivers
to the other, either anything not perishable, in order that the
latter may use it during a certain period and return it to the
former, in which case it is called commodatum, or money or any
other perishable thing, under the condition to return an equal
amount of the same kind and quality, in which case it is merely
called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation
to pay interest.
ART. 1741. The bailee acquires retains the ownership of the
thing loaned. The bailee acquires the use thereof, but not its
fruits; if any compensation is involved, to be paid by the person
requiring the use, the agreement ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from the
commodatum pass to the heirs of both contracting parties,
unless the loan has been in consideration for the person of the
bailee, in which case his heirs shall not have the right to
continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant
upon demand, there is no doubt that she is under obligation to
indemnify the owner thereof by paying him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever
act in contravention of the stipulations of the same, shall be
subjected to indemnify for the losses and damages caused
thereby.
The obligation of the bailee or of his successors to return either the
thing loaned or its value, is sustained by the supreme tribunal of Sapin.
In its decision of March 21, 1895, it sets out with precision the legal
doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor
retains the ownership of the thing loaned, and at the expiration
of the period, or after the use for which it was loaned has been
accomplished, it is the imperative duty of the bailee to return
the thing itself to its owner, or to pay him damages if through
the fault of the bailee the thing should have been lost or
injured, it is clear that where public securities are involved, the
trial court, in deferring to the claim of the bailor that the
amount loaned be returned him by the bailee in bonds of the
same class as those which constituted the contract, thereby
properly applies law 9 of title 11 of partida 5.
With regard to the third assignment of error, based on the fact that the
plaintiff Santos had not appealed from the decision of the
commissioners rejecting his claim for the recovery of his carabaos, it is
sufficient to estate that we are not dealing with a claim for the
payment of a certain sum, the collection of a debt from the estate, or
payment for losses and damages (sec. 119, Code of Civil Procedure),
but with the exclusion from the inventory of the property of the late
Jimenea, or from his capital, of six carabaos which did not belong to
him, and which formed no part of the inheritance.
The demand for the exclusion of the said carabaos belonging to a third
party and which did not form part of the property of the deceased,
must be the subject of a direct decision of the court in an ordinary
action, wherein the right of the third party to the property which he
seeks to have excluded from the inheritance and the right of the
deceased has been discussed, and rendered in view of the result of the
evidence adduced by the administrator of the estate and of the
claimant, since it is so provided by the second part of section 699 and
by section 703 of the Code of Civil Procedure; the refusal of the
commissioners before whom the plaintiff unnecessarily appeared can
not affect nor reduce the unquestionable right of ownership of the
latter, inasmuch as there is no law nor principle of justice authorizing
the successors of the late Jimenea to enrich themselves at the cost and
to the prejudice of Felix de los Santos.
For the reasons above set forth, by which the errors assigned to the
judgment appealed from have been refuted, and considering that the
same is in accordance with the law and the merits of the case, it is our
opinion that it should be affirmed and we do hereby affirm it with the
costs against the appellant. So ordered.
 G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila,
judgment was rendered on June 28, 1965 sentencing defendant
Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co., Inc. in
the amount of P383,343.68, plus interest at the legal rate from the date
the complaint was filed and attorney's fees in the amount of P5,000.00.
The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied
to the Rehabilitation Finance Corporation (RFC), before its conversion
into DBP, for an industrial loan of P500,000.00, to be used as follows:
P250,000.00 for the construction of a factory building (for the
manufacture of jute sacks); P240,900.00 to pay the balance of the
purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had
already been purchased by Saura on the strength of a letter of credit
extended by the Prudential Bank and Trust Co., and arrived in Davao
City in July 1953; and that to secure its release without first paying the
draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan
application for P500,000.00, to be secured by a first mortgage on the
factory building to be constructed, the land site thereof, and the
machinery and equipment to be installed. Among the other terms
spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized
exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto
Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the
promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation
Finance Corporation, subject to availability of funds, and as the
construction of the factory buildings progresses, to be certified to by
an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954.
The day before, however, evidently having otherwise been informed
of its approval, Saura, Inc. wrote a letter to RFC, requesting a
modification of the terms laid down by it, namely: that in lieu of having
China Engineers, Ltd. (which was willing to assume liability only to the
extent of its stock subscription with Saura, Inc.) sign as co-maker on
the corresponding promissory notes, Saura, Inc. would put up a bond
for P123,500.00, an amount equivalent to such subscription; and that
Maria S. Roca would be substituted for Inocencia Arellano as one of the
other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February
4, 1954, designating of the members of its Board of Governors, for
certain reasons stated in the resolution, "to reexamine all the aspects
of this approved loan ... with special reference as to the advisability of
financing this particular project based on present conditions obtaining
in the operations of jute mills, and to submit his findings thereon at the
next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had
again agreed to act as co-signer for the loan, and asked that the
necessary documents be prepared in accordance with the terms and
conditions specified in Resolution No. 145. In connection with the
reexamination of the project to be financed with the loan applied for,
as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other
and undertake the necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the same "should not
be taken as an acquiescence on (its) part to novate, or accept new
conditions to, the agreement already) entered into," referring to its
acceptance of the terms and conditions mentioned in Resolution No.
145.
On April 13, 1954 the loan documents were executed: the promissory
note, with F.R. Halling, representing China Engineers, Ltd., as one of
the co-signers; and the corresponding deed of mortgage, which was
duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan
agreement the reexamination contemplated in Resolution No. 736
proceeded. In a meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc., was present, it
was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import &
Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose of
financing the manufacture of jute sacks in Davao, with special
reference as to the advisability of financing this particular project
based on present conditions obtaining in the operation of jute mills,
and after having heard Ramon E. Saura and after extensive discussion
on the subject the Board, upon recommendation of the Chairman,
RESOLVED that the loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that releases up to P100,000
may be authorized as may be necessary from time to time to place the
factory in actual operation: PROVIDED that all terms and conditions of
Resolution No. 145, c.s., not inconsistent herewith, shall remain in full
force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed
the promissory note for China Engineers Ltd. jointly and severally with
the other RFC that his company no longer to of the loan and therefore
considered the same as cancelled as far as it was concerned. A follow-
up letter dated July 2 requested RFC that the registration of the
mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan
of P500,000.00 be granted. The request was denied by RFC, which
added in its letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 ... in view of a notification ... from
the China Engineers Ltd., expressing their desire to consider the loan
insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the
loan and informed RFC that China Engineers, Ltd. "will at any time
reinstate their signature as co-signer of the note if RFC releases to us
the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the
loan to the original amount of P500,000.00, "it appearing that China
Engineers, Ltd. is now willing to sign the promissory notes jointly with
the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and
high cost of imported raw materials, the Department of
 Agriculture and Natural Resources shall certify to the
following:
1. That the raw materials needed by the borrower-
corporation to carry out its operation are available in
the immediate vicinity; and
2. That there is prospect of increased production
thereof to provide adequately for the requirements of
the factory."
The action thus taken was communicated to Saura, Inc. in a letter of
RFC dated December 22, 1954, wherein it was explained that the
certification by the Department of Agriculture and Natural Resources
was required "as the intention of the original approval (of the loan) is
to develop the manufacture of sacks on the basis of locally available
raw materials." This point is important, and sheds light on the
subsequent actuations of the parties. Saura, Inc. does not deny that
the factory he was building in Davao was for the manufacture of bags
from local raw materials. The cover page of its brochure (Exh. M)
describes the project as a "Joint venture by and between the Mindanao
Industry Corporation and the Saura Import and Export Co., Inc. to
finance, manage and operate a Kenaf mill plant, to manufacture copra
and corn bags, runners, floor mattings, carpets, draperies; out of 100%
local raw materials, principal kenaf." The explanatory note on page 1
of the same brochure states that, the venture "is the first serious
attempt in this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in theIsland of
Mindanao where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve
the loan application in the first place, and to require, in its Resolution
No. 9083, a certification from the Department of Agriculture and
Natural Resources as to the availability of local raw materials to
provide adequately for the requirements of the factory. Saura, Inc.
itself confirmed the defendant's stand impliedly in its letter of January
21, 1955: (1) stating that according to a special study made by the
Bureau of Forestry "kenaf will not be available in sufficient quantity
this year or probably even next year;" (2) requesting "assurances (from
RFC) that my company and associates will be able to bring in sufficient
jute materials as may be necessary for the full operation of the jute
mill;" and (3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the
open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as
the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of
January 21, 1955, regarding the release
 of your loan under consideration of
P500,000. As stated in our letter of
December 22, 1954, the releases of the
loan, if revived, are proposed to be made
from time to time, subject to availability
of funds towards the end that the sack
factory shall be placed in actual
operating status. We shall be able to act
on your request for revised purpose and
manner of releases upon re-appraisal of
the securities offered for the loan.
With respect to our requirement that the
Department of Agriculture and Natural
Resources certify that the raw materials
needed are available in the immediate
vicinity and that there is prospect of
increased production thereof to provide
adequately the requirements of the
factory, we wish to reiterate that the
basis of the original approval is to
develop the manufacture of sacks on the
basis of the locally available raw
materials. Your statement that you will
have to rely on the importation of jute
and your request that we give you
assurance that your company will be able
to bring in sufficient jute materials as
may be necessary for the operation of
your factory, would not be in line with
our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura,
Inc. did not pursue the matter further. Instead, it requested RFC to
cancel the mortgage, and so, on June 17, 1955 RFC executed the
corresponding deed of cancellation and delivered it to Ramon F. Saura
himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the
registration of a mortgage contract, executed on August 6, 1954, over
the same property in favor of the Prudential Bank and Trust Co., under
which contract Saura, Inc. had up to December 31 of the same year
within which to pay its obligation on the trust receipt heretofore
mentioned. It appears further that for failure to pay the said obligation
the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC
was cancelled at the request of Saura, Inc., the latter commenced the
present suit for damages, alleging failure of RFC (as predecessor of the
defendant DBP) to comply with its obligation to release the proceeds
of the loan applied for and approved, thereby preventing the plaintiff
from completing or paying contractual commitments it had entered
into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there
was a perfected contract between the parties and that the defendant
was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that
there was no perfected contract; and (3) that assuming there was, the
plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as
recognized in Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something,
by way of commodatum or simple loan is binding upon
the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of
the contract.
There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was approved by
resolution of the defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short of resolving the
basic claim that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura,
Inc. on the assumption that the factory to be constructed would utilize
locally grown raw materials, principally kenaf. There is no serious
dispute about this. It was in line with such assumption that when RFC,
by Resolution No. 9083 approved on December 17, 1954, restored the
loan to the original amount of P500,000.00. it imposed two conditions,
to wit: "(1) that the raw materials needed by the borrower-corporation
to carry out its operation are available in the immediate vicinity; and
(2) that there is prospect of increased production thereof to provide
adequately for the requirements of the factory." The imposition of
those conditions was by no means a deviation from the terms of the
agreement, but rather a step in its implementation. There was nothing
in said conditions that contradicted the terms laid down in RFC
Resolution No. 145, passed on January 7, 1954, namely "that the
proceeds of the loan shall be utilized exclusively for the following
purposes: for construction of factory building P250,000.00; for
payment of the balance of purchase price of machinery and equipment
P240,900.00; for working capital P9,100.00." Evidently Saura, Inc.
realized that it could not meet the conditions required by RFC, and so
wrote its letter of January 21, 1955, stating that local jute "will not be
able in sufficient quantity this year or probably next year," and asking
that out of the loan agreed upon the sum of P67,586.09 be released
"for raw materials and labor." This was a deviation from the terms laid
down in Resolution No. 145 and embodied in the mortgage contract,
implying as it did a diversion of part of the proceeds of the loan to
purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the
negotiations which had been going on for the implementation of the
agreement reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked
that the mortgage be cancelled, which was done on June 15, 1955. The
action thus taken by both parties was in the nature of mutual
desistance what Manresa terms "mutuo disenso"1 which is a
mode of extinguishing obligations. It is a concept that derives from the
principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.2
The subsequent conduct of Saura, Inc. confirms this desistance. It did
not protest against any alleged breach of contract by RFC, or even point
out that the latter's stand was legally unjustified. Its request for
cancellation of the mortgage carried no reservation of whatever rights
it believed it might have against RFC for the latter's non-compliance. In
1962 it even applied with DBP for another loan to finance a rice and
corn project, which application was disapproved. It was only in 1964,
nine years after the loan agreement had been cancelled at its own
request, that Saura, Inc. brought this action for damages. All these
circumstances demonstrate beyond doubt that the said agreement
had been extinguished by mutual desistance and that on the
initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider
and resolve the other issues raised in the respective briefs of the
parties.
WHEREFORE, the judgment appealed from is reversed and the
complaint dismissed, with costs against the plaintiff-appellee.
 [G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and
AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45,
assailing the decision of the Sixteenth Division of the respondent Court
of Appeals promulgated on 21 December 1994[1], which affirmed in
toto the decision handed down by the Regional Trial Court (RTC) of
Pasay City.[2]
The case arose when on 11 August 1981, private respondent
Aurora Queao (Queao) filed a complaint before the Pasay City RTC for
cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
declaring the questioned Real Estate Mortgage void, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld
the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two
Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On 11
August 1980, Naguiat indorsed to Queao Associated Bank Check No.
090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by
the Corporate Resources Financing Corporation. She also issued her
own Filmanbank Check No. 065314, to the order of Queao, also dated
11 August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute the loan
granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered
to the latter the owners duplicates of the titles covering the mortgaged
properties.[4] On the same day, the mortgage deed was notarized, and
Queao issued to Naguiat a promissory note for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per
annum, payable on 11 September 1980.[5] Queao also issued a Security
Bank and Trust Company check, postdated 11 September 1980, for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and
payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check
was dishonored for insufficiency of funds. On the following day, 12
September 1980, Queao requested Security Bank to stop payment of
her postdated check, but the bank rejected the request pursuant to its
policy not to honor such requests if the check is drawn against
insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter, Queao
and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the proceeds of
the loan, adding that the checks were retained by Ruebenfeldt, who
purportedly was Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage
with the Sheriff of Rizal Province, who then scheduled the foreclosure
sale on 14 August 1981. Three days before the scheduled sale, Queao
filed the case before the Pasay City RTC,[8] seeking the annulment of
the mortgage deed. The trial court eventually stopped the auction
sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed
of Real Estate Mortgage null and void, and ordering Naguiat to return
to Queao the owners duplicates of her titles to the mortgaged
lots.[10] Naguiat appealed the decision before the Court of Appeals,
making no less than eleven assignments of error. The Court of Appeals
promulgated the decision now assailed before us that affirmed in
toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of
Appeals, especially on the issue of whether Queao had actually
received the loan proceeds which were supposed to be covered by the
two checks Naguiat had issued or indorsed. Naguiat claims that being
a notarial instrument or public document, the mortgage deed enjoys
the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-binding
effect of the admissions of third persons.[11]
The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does
not exercise in an appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be raised[12] as the
Supreme Court is not a trier of facts.[13] The resolution of factual issues
is the function of lower courts, whose findings on these matters are
received with respect and are in fact generally binding on the Supreme
Court.[14] A question of law which the Court may pass upon must not
involve an examination of the probative value of the evidence
presented by the litigants.[15] There is a question of law in a given case
when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the
conclusiveness of the findings of facts of the lower courts.[17] But
Naguiats case does not fall under any of the exceptions. In any event,
both the decisions of the appellate and trial courts are supported by
the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat
vigorously insists that Queao received the loan proceeds. Capitalizing
on the status of the mortgage deed as a public document, she cites the
rule that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is correct
in ruling that the presumption of truthfulness of the recitals in a public
document was defeated by the clear and convincing evidence in this
case that pointed to the absence of consideration.[18] This Court has
held that the presumption of truthfulness engendered by notarized
documents is rebuttable, yielding as it does to clear and convincing
evidence to the contrary, as in this case.[19]
On the other hand, absolutely no evidence was submitted by
Naguiat that the checks she issued or endorsed were actually encashed
or deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code provides that the
delivery of bills of exchange and mercantile documents such as checks
shall produce the effect of payment only when they have been
cashed.[20] It is only after the checks have produced the effect of
payment that the contract of loan may be deemed perfected. Art. 1934
of the Civil Code provides:
An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple
loan itself shall not be perfected until the delivery of the object of the
contract.
A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract.[21] In this
case, the objects of the contract are the loan proceeds which Queao
would enjoy only upon the encashment of the checks signed or
indorsed by Naguiat. If indeed the checks were encashed or deposited,
Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent
bank records. Since Naguiat presented no such proof, it follows that
the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they could
not bind her following the res inter alia acta alteri nocere non
debet rule. The Court of Appeals rejected the argument, holding that
since Ruebenfeldt was an authorized representative or agent of
Naguiat the situation falls under a recognized exception to the the mortgage which is supposed to secure the loan is null and void. The
rule.[22] Still, Naguiat insists that Ruebenfeldt was not her agent. consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it
Suffice to say, however, the existence of an agency relationship
cannot exist as an independent contract.[28] A mortgage contract being
between Naguiat and Ruebenfeldt is supported by ample evidence. As
a mere accessory contract, its validity would depend on the validity of
correctly pointed out by the Court of Appeals, Ruebenfeldt was not a
the loan secured by it.[29]
stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to
withhold from Queao the checks she issued or indorsed to Queao, WHEREFORE, the petition is denied and the assailed decision is
pending delivery by the latter of additional collateral. Ruebenfeldt affirmed. Costs against petitioner.
served as agent of Naguiat on the loan application of Queaos friend,
SO ORDERED.
Marilou Farralese, and it was in connection with that transaction that
Queao came to know Naguiat.[23] It was also Ruebenfeldt who
accompanied Queao in her meeting with Naguiat and on that occasion,
on her own and without Queao asking for it, Reubenfeldt actually drew
a check for the sum of P220,000.00 payable to Naguiat, to cover for
Queaos alleged liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by
estoppel[25] citing Article 1873 of the Civil Code.[26] Apparently, it
considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queao got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaos impression. In that situation, the rule is clear. One who
clothes another with apparent authority as his agent, and holds him
out to the public as such, cannot be permitted to deny the authority of
such person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the honest belief
that he is what he appears to be.[27] The Court of Appeals is correct in
invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between
Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
checks issued or indorsed to Queao were never encashed or deposited
to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the
courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that
 G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by
the late Jose V. Bagtas, petitioner-appellant.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only
questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the
Philippines through the Bureau of Animal Industry three bulls: a Red
Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7
May 1949 for breeding purposes subject to a government charge of
breeding fee of 10% of the book value of the bulls. Upon the expiration
on 7 May 1949 of the contract, the borrower asked for a renewal for
another period of one year. However, the Secretary of Agriculture and
Natural Resources approved a renewal thereof of only one bull for
another year from 8 May 1949 to 7 May 1950 and requested the return
of the other two. On 25 March 1950 Jose V. Bagtas wrote to the
Director of Animal Industry that he would pay the value of the three
bulls. On 17 October 1950 he reiterated his desire to buy them at a
value with a deduction of yearly depreciation to be approved by the
Auditor General. On 19 October 1950 the Director of Animal Industry
advised him that the book value of the three bulls could not be reduced
and that they either be returned or their book value paid not later than
31 October 1950. Jose V. Bagtas failed to pay the book value of the
three bulls or to return them. So, on 20 December 1950 in the Court of
First Instance of Manila the Republic of the Philippines commenced an
action against him praying that he be ordered to return the three bulls
loaned to him or to pay their book value in the total sum of P3,241.45
and the unpaid breeding fee in the sum of P199.62, both with interests,
and costs; and that other just and equitable relief be granted in (civil
No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and
Manalo, answered that because of the bad peace and order situation
in Cagayan Valley, particularly in the barrio of Baggao, and of the
pending appeal he had taken to the Secretary of Agriculture and
Natural Resources and the President of the Philippines from the refusal
by the Director of Animal Industry to deduct from the book value of
the bulls corresponding yearly depreciation of 8% from the date of
acquisition, to which depreciation the Auditor General did not object,
he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of
P3,625.09 the total value of the three bulls plus the breeding
fees in the amount of P626.17 with interest on both sums of
(at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution
which the court granted on 18 October and issued on 11 November
1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to
serve the writ outside Manila. Of this order appointing a special sheriff,
on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the
defendant Jose Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January 1959 she file a
motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari
were returned to the Bureau Animal of Industry and that sometime in
November 1958 the third bull, the Sahiniwal, died from gunshot wound
inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that
the writ of execution be quashed and that a writ of preliminary
injunction be issued. On 31 January 1959 the plaintiff objected to her
motion. On 6 February 1959 she filed a reply thereto. On the same day,
6 February, the Court denied her motion. Hence, this appeal certified
by the Court of Appeals to this Court as stated at the beginning of this
opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant
by the late defendant, returned the Sindhi and Bhagnari bulls to Roman
Remorin, Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum
receipt signed by the latter (Exhibit 2). That is why in its objection of 31
January 1959 to the appellant's motion to quash the writ of execution
the appellee prays "that another writ of execution in the sum of
P859.53 be issued against the estate of defendant deceased Jose V.
Bagtas." She cannot be held liable for the two bulls which already had
been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed
during a raid by the Huk in November 1953 upon the surrounding
barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal
was kept, and that as such death was due to force majeure she is
relieved from the duty of returning the bull or paying its value to the
appellee. The contention is without merit. The loan by the appellee to
the late defendant Jose V. Bagtas of the three bulls for breeding
purposes for a period of one year from 8 May 1948 to 7 May 1949, later
on renewed for another year as regards one bull, was subject to the
payment by the borrower of breeding fee of 10% of the book value of
the bulls. The appellant contends that the contract
was commodatum and that, for that reason, as the appellee retained
ownership or title to the bull it should suffer its loss due to force
majeure. A contract of commodatum is essentially gratuitous.1 If the
breeding fee be considered a compensation, then the contract would
be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of
the contract. And even if the contract be commodatum, still the
appellant is liable, because article 1942 of the Civil Code provides that
a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a
fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949.
The loan of one bull was renewed for another period of one year to
end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased husband of the
appellant the bulls had each an appraised book value, to with: the
Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at
P744.46. It was not stipulated that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt
from liability.
The appellant's contention that the demand or prayer by the appellee
for the return of the bull or the payment of its value being a money
claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without
merit. However, the claim that his civil personality having ceased to
exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court provides
that
After a party dies and the claim is not thereby extinguished, the
court shall order, upon proper notice, the legal representative
of the deceased to appear and to be substituted for the
deceased, within a period of thirty (30) days, or within such
time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed
to comply with section 16 of Rule 3 which provides that
 Whenever a party to a pending case dies . . . it shall be the duty Special proceedings for the administration and settlement of the
of his attorney to inform the court promptly of such death . . . estate of the deceased Jose V. Bagtas having been instituted in the
and to give the name and residence of the executory Court of First Instance of Rizal (Q-200), the money judgment rendered
administrator, guardian, or other legal representative of the in favor of the appellee cannot be enforced by means of a writ of
deceased . . . . execution but must be presented to the probate court for payment by
the appellant, the administratrix appointed by the court.
The notice by the probate court and its publication in the Voz de
Manila that Felicidad M. Bagtas had been issue letters of ACCORDINGLY, the writ of execution appealed from is set aside,
administration of the estate of the late Jose Bagtas and that "all without pronouncement as to costs.
persons having claims for monopoly against the deceased Jose V.
Bagtas, arising from contract express or implied, whether the same be
due, not due, or contingent, for funeral expenses and expenses of the
last sickness of the said decedent, and judgment for monopoly against
him, to file said claims with the Clerk of this Court at the City Hall Bldg.,
Highway 54, Quezon City, within six (6) months from the date of the
first publication of this order, serving a copy thereof upon the
aforementioned Felicidad M. Bagtas, the appointed administratrix of
the estate of the said deceased," is not a notice to the court and the
appellee who were to be notified of the defendant's death in
accordance with the above-quoted rule, and there was no reason for
such failure to notify, because the attorney who appeared for the
defendant was the same who represented the administratrix in the
special proceedings instituted for the administration and settlement of
his estate. The appellee or its attorney or representative could not be
expected to know of the death of the defendant or of the
administration proceedings of his estate instituted in another court
that if the attorney for the deceased defendant did not notify the
plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls to the appellee,
the estate of the late defendant is only liable for the sum of P859.63,
the value of the bull which has not been returned to the appellee,
because it was killed while in the custody of the administratrix of his
estate. This is the amount prayed for by the appellee in its objection on
31 January 1959 to the motion filed on 7 January 1959 by the appellant
for the quashing of the writ of execution.
 [G.R. No. 146364. June 3, 2004]
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE
GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review[1] of the 21 June 2000
Decision[2] and 14 December 2000 Resolution of the Court of Appeals
in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11
November 1996 decision[3] of the Regional Trial Court of Quezon City,
Branch 81,[4] affirming the 15 December 1995 decision[5] of the
Metropolitan Trial Court of Quezon City, Branch 31.[6]
The Antecedents
In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a
certain Pedro Perez for the rights over a 250-square meter lot in Barrio
Payatas, Quezon City. Pajuyo then constructed a house made of light
materials on the lot. Pajuyo and his family lived in the house from 1979
to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie
Guevarra (Guevarra) executed a Kasunduan or agreement. Pajuyo, as
owner of the house, allowed Guevarra to live in the house for free
provided Guevarra would maintain the cleanliness and orderliness of
the house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the
house and demanded that Guevarra vacate the house. Guevarra
refused.
Pajuyo filed an ejectment case against Guevarra with the
Metropolitan Trial Court of Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or
right of possession over the lot where the house stands because the
lot is within the 150 hectares set aside by Proclamation No. 137 for
socialized housing. Guevarra pointed out that from December 1985 to
September 1994, Pajuyo did not show up or communicate with him.
Guevarra insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of
Pajuyo. The dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for
the plaintiff and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any
other person or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS
(P300.00) monthly as reasonable compensation for the use
of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of
attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of
Quezon City, Branch 81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The
dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error
in the decision appealed from, being in accord with the law and
evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.[8]
Guevarra received the RTC decision on 29 November
1996. Guevarra had only until 14 December 1996 to file his appeal with
the Court of Appeals. Instead of filing his appeal with the Court of
Appeals, Guevarra filed with the Supreme Court a Motion for Extension
of Time to File Appeal by Certiorari Based on Rule 42 (motion for
extension). Guevarra theorized that his appeal raised pure questions
of law. The Receiving Clerk of the Supreme Court received the motion
for extension on 13 December 1996 or one day before the right to
appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the
Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued
a Resolution[9] referring the motion for extension to the Court of
Appeals which has concurrent jurisdiction over the case. The case
presented no special and important matter for the Supreme Court to
take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of
Appeals issued a Resolution[10] granting the motion for extension
conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to
comment on Guevaras petition for review. On 11 April 1997, Pajuyo
filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing
the RTC decision. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a
quo in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is
hereby declared that the ejectment case filed against defendant-
appellant is without factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo
pointed out that the Court of Appeals should have dismissed outright
Guevarras petition for review because it was filed out of
time. Moreover, it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution
denying Pajuyos motion for reconsideration. The dispositive portion of
the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is
hereby DENIED. No costs.
SO ORDERED.[12]
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo
and Guevarra is the house and not the lot. Pajuyo is the owner of the
house, and he allowed Guevarra to use the house only by tolerance.
Thus, Guevarras refusal to vacate the house on Pajuyos demand made
Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord
and tenant relationship between Pajuyo and Guevarra. The terms of
the Kasunduan bound Guevarra to return possession of the house on
demand.
 The RTC rejected Guevarras claim of a better right under
Proclamation No. 137, the Revised National Government Center
Housing Project Code of Policies and other pertinent laws. In an
ejectment suit, the RTC has no power to decide Guevarras rights under
these laws. The RTC declared that in an ejectment case, the only issue
for resolution is material or physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are
squatters. Pajuyo and Guevarra illegally occupied the contested lot
which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also
a squatter. Perez had no right or title over the lot because it is public
land. The assignment of rights between Perez and Pajuyo, and
the Kasunduan between Pajuyo and Guevarra, did not have any legal
effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The
court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which
held that the Kasunduan between Pajuyo and Guevarra created a legal
tie akin to that of a landlord and tenant relationship. The Court of
Appeals ruled that the Kasunduan is not a lease contract but
a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the
property, the appellate court held that Guevarra has a better right over
the property under Proclamation No. 137. President Corazon C. Aquino
(President Aquino) issued Proclamation No. 137 on 7 September 1987.
At that time, Guevarra was in physical possession of the
property. Under Article VI of the Code of Policies Beneficiary Selection
and Disposition of Homelots and Structures in the National Housing
Project (the Code), the actual occupant or caretaker of the lot shall
have first priority as beneficiary of the project. The Court of Appeals
concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court
debunked Pajuyos claim that Guevarra filed his motion for extension
beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for
extension filed before the Supreme Court was stamped 13 December
1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court of
Appeals concluded that the motion for extension bore a date, contrary
to Pajuyos claim that the motion for extension was undated. Guevarra
filed the motion for extension on time on 13 December 1996 since he
filed the motion one day before the expiration of the reglementary
period on 14 December 1996. Thus, the motion for extension properly
complied with the condition imposed by the Court of Appeals in its 28
January 1997 Resolution. The Court of Appeals explained that the
thirty-day extension to file the petition for review was deemed granted
because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate
court should have dismissed the petition for review because it was
Guevarras counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that Pajuyo
did not raise this issue in his Comment. The Court of Appeals held that
Pajuyo could not now seek the dismissal of the case after he had
extensively argued on the merits of the case. This technicality, the
appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY
AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private
Respondents Motion for an Extension of thirty
days to file petition for review at the time when
 there was no more period to extend as the
decision of the Regional Trial Court had already
become final and executory.
2) in giving due course, instead of dismissing, private
respondents Petition for Review even though the
certification against forum-shopping was signed
only by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered
into by the parties was in fact a commodatum,
instead of a Contract of Lease as found by the
Metropolitan Trial Court and in holding that the
ejectment case filed against defendant-appellant
is without legal and factual basis.
4) in reversing and setting aside the Decision of the
Regional Trial Court in Civil Case No. Q-96-26943
and in holding that the parties are in pari delicto
being both squatters, therefore, illegal occupants
of the contested parcel of land.
5) in deciding the unlawful detainer case based on
the so-called Code of Policies of the National
Government Center Housing Project instead of
deciding the same under the Kasunduan
voluntarily executed by the parties, the terms and
conditions of which are the laws between
themselves.[13]
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we
find merit in the substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed
outright Guevarras petition for review because the RTC decision had
already become final and executory when the appellate court acted on
Guevarras motion for extension to file the petition. Pajuyo points out
that Guevarra had only one day before the expiry of his period to
appeal the RTC decision. Instead of filing the petition for review with
the Court of Appeals, Guevarra filed with this Court an undated motion
for extension of 30 days to file a petition for review. This Court merely
referred the motion to the Court of Appeals. Pajuyo believes that the
filing of the motion for extension with this Court did not toll the
running of the period to perfect the appeal. Hence, when the Court of
Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their
appellate jurisdiction are appealable to the Court of Appeals by
petition for review in cases involving questions of fact or mixed
questions of fact and law.[14]Decisions of the regional trial courts
involving pure questions of law are appealable directly to this Court by
petition for review.[15] These modes of appeal are now embodied in
Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved
only questions of law. Guevarra thus filed his motion for extension to
file petition for review before this Court on 14 December 1996. On 3
January 1997, Guevarra then filed his petition for review with this
Court. A perusal of Guevarras petition for review gives the impression
that the issues he raised were pure questions of law. There is a
question of law when the doubt or difference is on what the law is on
a certain state of facts.[16] There is a question of fact when the doubt
or difference is on the truth or falsity of the facts alleged.[17]
In his petition for review before this Court, Guevarra no longer
disputed the facts. Guevarras petition for review raised these
questions: (1) Do ejectment cases pertain only to possession of a
structure, and not the lot on which the structure stands? (2) Does a suit
by a squatter against a fellow squatter constitute a valid case for
ejectment? (3) Should a Presidential Proclamation governing the lot on
which a squatters structure stands be considered in an ejectment suit
filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties
under the law on ejectment and the Presidential Proclamation. At first
glance, the questions Guevarra raised appeared purely legal. However,
some factual questions still have to be resolved because they have a
bearing on the legal questions raised in the petition for review. These
factual matters refer to the metes and bounds of the disputed property
and the application of Guevarra as beneficiary of Proclamation No.
137.
The Court of Appeals has the power to grant an extension of time
to file a petition for review. In Lacsamana v. Second Special Cases
Division of the Intermediate Appellate Court,[18] we declared that the
Court of Appeals could grant extension of time in appeals by petition
for review. In Liboro v. Court of Appeals,[19] we clarified that the
prohibition against granting an extension of time applies only in a case
where ordinary appeal is perfected by a mere notice of appeal. The
prohibition does not apply in a petition for review where the pleading
needs verification. A petition for review, unlike an ordinary appeal,
requires preparation and research to present a persuasive
position.[20] The drafting of the petition for review entails more time
and effort than filing a notice of appeal.[21] Hence, the Court of Appeals
may allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v.
Court of Appeals,[22] we held that Liboros clarification of Lacsamana is
consistent with the Revised Internal Rules of the Court of Appeals and
Supreme Court Circular No. 1-91. They all allow an extension of time
for filing petitions for review with the Court of Appeals. The extension,
however, should be limited to only fifteen days save in exceptionally
meritorious cases where the Court of Appeals may grant a longer
period.
A judgment becomes final and executory by operation of law.
Finality of judgment becomes a fact on the lapse of the reglementary
period to appeal if no appeal is perfected.[23] The RTC decision could
not have gained finality because the Court of Appeals granted the 30-
day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion
when it approved Guevarras motion for extension. The Court of
Appeals gave due course to the motion for extension because it
complied with the condition set by the appellate court in its resolution
dated 28 January 1997. The resolution stated that the Court of Appeals
would only give due course to the motion for extension if filed on
time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the
filing of the motion for extension are (1) the date of receipt of the
judgment or final order or resolution subject of the petition, and (2)
the date of filing of the motion for extension.[24] It is the date of the
filing of the motion or pleading, and not the date of execution, that
determines the timeliness of the filing of that motion or pleading. Thus,
even if the motion for extension bears no date, the date of filing
stamped on it is the reckoning point for determining the timeliness of
its filing.
Guevarra had until 14 December 1996 to file an appeal from the
RTC decision. Guevarra filed his motion for extension before this Court
on 13 December 1996, the date stamped by this Courts Receiving Clerk
on the motion for extension. Clearly, Guevarra filed the motion for
extension exactly one day before the lapse of the reglementary period
to appeal.
Assuming that the Court of Appeals should have dismissed
Guevarras appeal on technical grounds, Pajuyo did not ask the
appellate court to deny the motion for extension and dismiss the
petition for review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only when the Court
of Appeals ruled in Guevarras favor that Pajuyo raised the procedural
issues against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution,
receives an adverse decision on the merits, is estopped from attacking
the jurisdiction of the court.[25] Estoppel sets in not because the
judgment of the court is a valid and conclusive adjudication, but
because the practice of attacking the courts jurisdiction after
voluntarily submitting to it is against public policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to
discuss Guevarras failure to sign the certification against forum
shopping. Instead, Pajuyo harped on Guevarras counsel signing the
verification, claiming that the counsels verification is insufficient since
it is based only on mere information.
A partys failure to sign the certification against forum shopping is
different from the partys failure to sign personally the verification. The
certificate of non-forum shopping must be signed by the party, and not
by counsel.[27] The certification of counsel renders the petition
defective.[28]
On the other hand, the requirement on verification of a pleading
is a formal and not a jurisdictional requisite.[29] It is intended simply to
secure an assurance that what are alleged in the pleading are true and
correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith.[30] The party
need not sign the verification. A partys representative, lawyer or any
person who personally knows the truth of the facts alleged in the
pleading may sign the verification.[31]
We agree with the Court of Appeals that the issue on the
certificate against forum shopping was merely an afterthought. Pajuyo
did not call the Court of Appeals attention to this defect at the early
stage of the proceedings. Pajuyo raised this procedural issue too late
in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts
of Jurisdiction to Resolve the Issue of Possession
Settled is the rule that the defendants claim of ownership of the
disputed property will not divest the inferior court of its jurisdiction
over the ejectment case.[32] Even if the pleadings raise the issue of
ownership, the court may pass on such issue to determine only the
question of possession, especially if the ownership is inseparably linked
with the possession.[33] The adjudication on the issue of ownership is
only provisional and will not bar an action between the same parties
involving title to the land.[34] This doctrine is a necessary consequence
of the nature of the two summary actions of ejectment, forcible entry
and unlawful detainer, where the only issue for adjudication is the
physical or material possession over the real property.[35]
In this case, what Guevarra raised before the courts was that he
and Pajuyo are not the owners of the contested property and that they
are mere squatters. Will the defense that the parties to the ejectment
case are not the owners of the disputed lot allow the courts to
renounce their jurisdiction over the case? The Court of Appeals
believed so and held that it would just leave the parties where they are
since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at
issue in an action for recovery of possession. The parties cannot
present evidence to prove ownership or right to legal possession
except to prove the nature of the possession when necessary to
resolve the issue of physical possession.[36] The same is true when the
defendant asserts the absence of title over the property. The absence
of title over the contested lot is not a ground for the courts to withhold
relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment
proceedings is - who is entitled to the physical possession of the
premises, that is, to the possession de facto and not to the
possession de jure.[37] It does not even matter if a partys title to the
property is questionable,[38] or when both parties intruded into public
land and their applications to own the land have yet to be approved by
the proper government agency.[39] Regardless of the actual condition
of the title to the property, the party in peaceable quiet possession
shall not be thrown out by a strong hand, violence or terror.[40] Neither
is the unlawful withholding of property allowed. Courts will always
uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such
possession even against the owner himself.[41] Whatever may be the
character of his possession, if he has in his favor prior possession in
time, he has the security that entitles him to remain on the property
until a person with a better right lawfully ejects him.[42] To repeat, the
only issue that the court has to settle in an ejectment suit is the right
to physical possession.
In Pitargue v. Sorilla,[43] the government owned the land in
dispute. The government did not authorize either the plaintiff or the
defendant in the case of forcible entry case to occupy the land. The
plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending
application for the land with the Bureau of Lands when the defendant
ousted him from possession. The plaintiff filed the action of forcible
entry against the defendant. The government was not a party in the
case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle
the issue of possession because while the application of the plaintiff
was still pending, title remained with the government, and the Bureau
of Public Lands had jurisdiction over the case. We disagreed with the
defendant. We ruled that courts have jurisdiction to entertain
ejectment suits even before the resolution of the application. The
plaintiff, by priority of his application and of his entry, acquired prior
physical possession over the public land applied for as against other
private claimants. That prior physical possession enjoys legal
protection against other private claimants because only a court can
take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant
in Pitargue[44] as squatters, strictly speaking, their entry into the
disputed land was illegal. Both the plaintiff and defendant entered the
public land without the owners permission. Title to the land remained
with the government because it had not awarded to anyone ownership
of the contested public land. Both the plaintiff and the defendant were
in effect squatting on government property. Yet, we upheld the courts
jurisdiction to resolve the issue of possession even if the plaintiff and
the defendant in the ejectment case did not have any title over the
contested land.
Courts must not abdicate their jurisdiction to resolve the issue of
physical possession because of the public need to preserve the basic
policy behind the summary actions of forcible entry and unlawful
detainer. The underlying philosophy behind ejectment suits is to
prevent breach of the peace and criminal disorder and to compel the
party out of possession to respect and resort to the law alone to obtain
what he claims is his.[45] The party deprived of possession must not
take the law into his own hands.[46] Ejectment proceedings are
summary in nature so the authorities can settle speedily actions to
recover possession because of the overriding need to quell social
disturbances.[47]
We further explained in Pitargue the greater interest that is at
stake in actions for recovery of possession. We made the following
pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction
to take cognizance of possessory actions involving these public lands
before final award is made by the Lands Department, and before title
is given any of the conflicting claimants? It is one of utmost importance,
as there are public lands everywhere and there are thousands of
settlers, especially in newly opened regions. It also involves a matter of
policy, as it requires the determination of the respective authorities
and functions of two coordinate branches of the Government in
connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code,
either in the old, which was in force in this country before the American
occupation, or in the new, we have a possessory action, the aim and
purpose of which is the recovery of the physical possession of real
property, irrespective of the question as to who has the title thereto.
Under the Spanish Civil Code we had the accion interdictal, a summary
proceeding which could be brought within one year from dispossession
(Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and
as early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted
the common law action of forcible entry (section 80 of Act No. 190),
the object of which has been stated by this Court to be to prevent
breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such
withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some
appropriate action in the court to assert their claims. (Supia and
Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the
enactment of the first Public Land Act (Act No. 926) the action of
forcible entry was already available in the courts of the country. So the
question to be resolved is, Did the Legislature intend, when it vested
the power and authority to alienate and dispose of the public lands in
the Lands Department, to exclude the courts from entertaining the
possessory action of forcible entry between rival claimants or
occupants of any land before award thereof to any of the parties? Did
Congress intend that the lands applied for, or all public lands for that
matter, be removed from the jurisdiction of the judicial Branch of the
Government, so that any troubles arising therefrom, or any breaches
of the peace or disorders caused by rival claimants, could be inquired
into only by the Lands Department to the exclusion of the courts? The
answer to this question seems to us evident. The Lands Department
does not have the means to police public lands; neither does it have
the means to prevent disorders arising therefrom, or contain breaches
of the peace among settlers; or to pass promptly upon conflicts of
possession. Then its power is clearly limited to disposition and
alienation, and while it may decide conflicts of possession in order to
make proper award, the settlement of conflicts of possession which is
recognized in the court herein has another ultimate purpose, i.e., the
protection of actual possessors and occupants with a view to the
prevention of breaches of the peace. The power to dispose and
alienate could not have been intended to include the power to
prevent or settle disorders or breaches of the peace among rival
settlers or claimants prior to the final award. As to this, therefore, the
corresponding branches of the Government must continue to exercise
power and jurisdiction within the limits of their respective
functions. The vesting of the Lands Department with authority to
administer, dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of the
exercise of the respective functions or powers thereon, such as the
authority to stop disorders and quell breaches of the peace by the
police, the authority on the part of the courts to take jurisdiction over
possessory actions arising therefrom not involving, directly or
indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American
courts to the effect that courts have no jurisdiction to determine the
rights of claimants to public lands, and that until the disposition of the
land has passed from the control of the Federal Government, the
courts will not interfere with the administration of matters concerning
the same. (50 C. J. 1093-1094.) We have no quarrel with this principle.
The determination of the respective rights of rival claimants to public
lands is different from the determination of who has the actual physical
possession or occupation with a view to protecting the same and
preventing disorder and breaches of the peace. A judgment of the
court ordering restitution of the possession of a parcel of land to the
actual occupant, who has been deprived thereof by another through
the use of force or in any other illegal manner, can never be prejudicial
interference with the disposition or alienation of public lands. On the
other hand, if courts were deprived of jurisdiction of cases involving
conflicts of possession, that threat of judicial action against breaches
of the peace committed on public lands would be eliminated, and a
state of lawlessness would probably be produced between
applicants, occupants or squatters, where force or might, not right or
justice, would rule.
It must be borne in mind that the action that would be used to solve
conflicts of possession between rivals or conflicting applicants or
claimants would be no other than that of forcible entry. This action,
both in England and the United States and in our jurisdiction, is a
summary and expeditious remedy whereby one in peaceful and quiet
possession may recover the possession of which he has been deprived
by a stronger hand, by violence or terror; its ultimate object being to
prevent breach of the peace and criminal disorder. (Supia and Batioco
vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is
mere possession as a fact, of physical possession, not a legal
possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to
possession is never in issue in an action of forcible entry; as a matter
of fact, evidence thereof is expressly banned, except to prove the
nature of the possession. (Second 4, Rule 72, Rules of Court.) With this
nature of the action in mind, by no stretch of the imagination can
conclusion be arrived at that the use of the remedy in the courts of
justice would constitute an interference with the alienation,
disposition, and control of public lands. To limit ourselves to the case
at bar can it be pretended at all that its result would in any way
interfere with the manner of the alienation or disposition of the land
contested? On the contrary, it would facilitate adjudication, for the
question of priority of possession having been decided in a final
manner by the courts, said question need no longer waste the time of
the land officers making the adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari
delicto to this case.
Articles 1411 and 1412 of the Civil Code[48] embody the principle
of pari delicto. We explained the principle of pari delicto in these
words:
The rule of pari delicto is expressed in the maxims ex dolo malo non
eritur actio and in pari delicto potior est conditio defedentis. The law
will not aid either party to an illegal agreement. It leaves the parties
where it finds them.[49]
The application of the pari delicto principle is not absolute, as
there are exceptions to its application. One of these exceptions is
where the application of the pari delicto rule would violate well-
established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the
summary actions of forcible entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and
detainer is that, regardless of the actual condition of the title to the
property, the party in peaceable quiet possession shall not be turned
out by strong hand, violence or terror. In affording this remedy of
restitution the object of the statute is to prevent breaches of the peace
and criminal disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would create that
some advantage must accrue to those persons who, believing
themselves entitled to the possession of property, resort to force to
gain possession rather than to some appropriate action in the courts
to assert their claims. This is the philosophy at the foundation of all
these actions of forcible entry and detainer which are designed to
compel the party out of possession to respect and resort to the law
alone to obtain what he claims is his.[52]
Clearly, the application of the principle of pari delicto to a case of
ejectment between squatters is fraught with danger. To shut out relief
to squatters on the ground of pari delicto would openly invite mayhem
and lawlessness. A squatter would oust another squatter from
possession of the lot that the latter had illegally occupied, emboldened
by the knowledge that the courts would leave them where they are.
Nothing would then stand in the way of the ousted squatter from re-
claiming his prior possession at all cost.
 Petty warfare over possession of properties is precisely what
ejectment cases or actions for recovery of possession seek to
prevent.[53] Even the owner who has title over the disputed property
cannot take the law into his own hands to regain possession of his
property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to
the ejectment suit are squatters. The determination of priority and
superiority of possession is a serious and urgent matter that cannot be
left to the squatters to decide. To do so would make squatters receive
better treatment under the law. The law restrains property owners
from taking the law into their own hands. However, the principle
of pari delicto as applied by the Court of Appeals would give squatters
free rein to dispossess fellow squatters or violently retake possession
of properties usurped from them. Courts should not leave squatters to
their own devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case
of ejectment. The Court of Appeals refused to rule on the issue of
physical possession. Nevertheless, the appellate court held that the
pivotal issue in this case is who between Pajuyo and Guevarra has the
priority right as beneficiary of the contested land under Proclamation
No. 137.[54] According to the Court of Appeals, Guevarra enjoys
preferential right under Proclamation No. 137 because Article VI of the
Code declares that the actual occupant or caretaker is the one qualified
to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the
contested lot is part of a relocation site under Proclamation No.
137. Proclamation No. 137 laid down the metes and bounds of the land
that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land
specified by Proclamation No. 137. Guevarra had the burden to prove
that the disputed lot is within the coverage of Proclamation No.
137. He failed to do so.
Second. The Court of Appeals should not have given credence to
Guevarras unsubstantiated claim that he is the beneficiary of
Proclamation No. 137. Guevarra merely alleged that in the survey the
project administrator conducted, he and not Pajuyo appeared as the
actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of
Proclamation No. 137. Pajuyo allowed Guevarra to occupy the
disputed property in 1985. President Aquino signed Proclamation No.
137 into law on 11 March 1986. Pajuyo made his earliest demand for
Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to
the time that Proclamation No. 137 allegedly segregated the disputed
lot, Guevarra never applied as beneficiary of Proclamation No. 137.
Even when Guevarra already knew that Pajuyo was reclaiming
possession of the property, Guevarra did not take any step to comply
with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage
of Proclamation No. 137 and Guevarra has a pending application over
the lot, courts should still assume jurisdiction and resolve the issue of
possession. However, the jurisdiction of the courts would be limited to
the issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over
possessory actions involving public land to determine the issue of
physical possession. The determination of the respective rights of rival
claimants to public land is, however, distinct from the determination
of who has the actual physical possession or who has a better right of
physical possession.[56] The administrative disposition and alienation of
public lands should be threshed out in the proper government
agency.[57]
 The Court of Appeals determination of Pajuyo and Guevarras
rights under Proclamation No. 137 was premature. Pajuyo and
Guevarra were at most merely potential beneficiaries of the law.
Courts should not preempt the decision of the administrative agency
mandated by law to determine the qualifications of applicants for the
acquisition of public lands. Instead, courts should expeditiously resolve
the issue of physical possession in ejectment cases to prevent disorder
and breaches of peace.[58]
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and
ownership of the house built on it. Guevarra expressly admitted the
existence and due execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas,
Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na
pansamantalang manirahan sa nasabing bahay at lote ng walang
bayad. Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis
ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in
the house and lot free of rent, but Guevarra was under obligation to
maintain the premises in good condition. Guevarra promised to vacate
the premises on Pajuyos demand but Guevarra broke his promise and
refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful
detainer involves the withholding by a person from another of the
possession of real property to which the latter is entitled after the
expiration or termination of the formers right to hold possession under
a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by
tolerance without any contract, the defendant is necessarily bound by
an implied promise that he will vacate on demand, failing which, an
action for unlawful detainer will lie.[60] The defendants refusal to
comply with the demand makes his continued possession of the
property unlawful.[61] The status of the defendant in such a case is
similar to that of a lessee or tenant whose term of lease has expired
but whose occupancy continues by tolerance of the owner.[62]
This principle should apply with greater force in cases where a
contract embodies the permission or tolerance to use the
property. The Kasunduan expressly articulated Pajuyos forbearance.
Pajuyo did not require Guevarra to pay any rent but only to maintain
the house and lot in good condition. Guevarra expressly vowed in
the Kasunduan that he would vacate the property on demand.
Guevarras refusal to comply with Pajuyos demand to vacate made
Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that
the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to
another something not consumable so that the latter may use the
same for a certain time and return it.[63] An essential feature
of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for
a certain period.[64] Thus, the bailor cannot demand the return of the
thing loaned until after expiration of the period stipulated, or after
accomplishment of the use for which
[65]
the commodatum is constituted. If the bailor should have urgent
need of the thing, he may demand its return for temporary use. [66] If
the use of the thing is merely tolerated by the bailor, he can demand
the return of the thing at will, in which case the contractual relation is
called a precarium.[67] Under the Civil Code, precarium is a kind
of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by
Pajuyo to Guevarra was not essentially gratuitous. While
the Kasunduan did not require Guevarra to pay rent, it obligated him
to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from
a commodatum. The effects of the Kasunduan are also different from
that of a commodatum. Case law on ejectment has treated relationship
based on tolerance as one that is akin to a landlord-tenant relationship
where the withdrawal of permission would result in the termination of
the lease.[69] The tenants withholding of the property would then be
unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra
is one of commodatum, Guevarra as bailee would still have the duty to
turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to
contracts for safekeeping, or contracts of commission, administration
and commodatum.[70] These contracts certainly involve the obligation
to deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground
that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed
out, cannot enter into a contract involving the land they illegally
occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between
squatters. Guevarra freely entered into the Kasunduan. Guevarra
cannot now impugn the Kasunduan after he had benefited from
it. The Kasunduanbinds Guevarra.
The Kasunduan is not void for purposes of determining who
between Pajuyo and Guevarra has a right to physical possession of the
contested property. The Kasunduan is the undeniable evidence of
Guevarras recognition of Pajuyos better right of physical possession.
Guevarra is clearly a possessor in bad faith. The absence of a contract
would not yield a different result, as there would still be an implied
promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to
be avoided, and that is allowing an absentee squatter who (sic) makes
(sic) a profit out of his illegal act.[72] Guevarra bases his argument on
the preferential right given to the actual occupant or caretaker under
Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because
Guevarra stayed in the property without paying any rent. There is also
no proof that Pajuyo is a professional squatter who rents out usurped
properties to other squatters. Moreover, it is for the proper
government agency to decide who between Pajuyo and Guevarra
qualifies for socialized housing. The only issue that we are addressing
is physical possession.
Prior possession is not always a condition sine qua non in
ejectment.[73] This is one of the distinctions between forcible entry and
unlawful detainer.[74] In forcible entry, the plaintiff is deprived of
physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must allege and
prove prior possession.[75] But in unlawful detainer, the defendant
unlawfully withholds possession after the expiration or termination of
his right to possess under any contract, express or implied. In such a
case, prior physical possession is not required.[76]
Pajuyos withdrawal of his permission to Guevarra terminated
the Kasunduan. Guevarras transient right to possess the property
ended as well. Moreover, it was Pajuyo who was in actual possession
of the property because Guevarra had to seek Pajuyos permission to
temporarily hold the property and Guevarra had to follow the
conditions set by Pajuyo in the Kasunduan. Control over the property
still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the
disputed property. Possession in the eyes of the law does not mean
that a man has to have his feet on every square meter of the ground
before he is deemed in possession.[77] One may acquire possession not
only by physical occupation, but also by the fact that a thing is subject
to the action of ones will.[78] Actual or physical occupation is not always
necessary.[79]
Ruling on Possession Does not Bind Title to the Land in Dispute adjudication on the merits on the issue of ownership.[82] The owner can
still go to court to recover lawfully the property from the person who
holds the property without legal title. Our ruling here does not
We are aware of our pronouncement in cases where we declared
diminish the power of government agencies, including local
that squatters and intruders who clandestinely enter into titled
governments, to condemn, abate, remove or demolish illegal or
government property cannot, by such act, acquire any legal right to
unauthorized structures in accordance with existing laws.
said property.[80] We made this declaration because the person who
had title or who had the right to legal possession over the disputed
property was a party in the ejectment suit and that party instituted the
Attorneys Fees and Rentals
case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not
The MTC and RTC failed to justify the award of P3,000 attorneys
a party to the ejectment case. This case is between squatters. Had the
fees to Pajuyo. Attorneys fees as part of damages are awarded only in
government participated in this case, the courts could have evicted the
the instances enumerated in Article 2208 of the Civil Code.[83] Thus, the
contending squatters, Pajuyo and Guevarra.
award of attorneys fees is the exception rather than the
Since the party that has title or a better right over the property is rule.[84] Attorneys fees are not awarded every time a party prevails in a
not impleaded in this case, we cannot evict on our own the parties. suit because of the policy that no premium should be placed on the
Such a ruling would discourage squatters from seeking the aid of the right to litigate.[85] We therefore delete the attorneys fees awarded to
courts in settling the issue of physical possession. Stripping both the Pajuyo.
plaintiff and the defendant of possession just because they are
We sustain the P300 monthly rentals the MTC and RTC assessed
squatters would have the same dangerous implications as the
against Guevarra. Guevarra did not dispute this factual finding of the
application of the principle of pari delicto. Squatters would then rather
two courts. We find the amount reasonable compensation to
settle the issue of physical possession among themselves than seek
Pajuyo. The P300 monthly rental is counted from the last demand to
relief from the courts if the plaintiff and defendant in the ejectment
vacate, which was on 16 February 1995.
case would both stand to lose possession of the disputed property. This
would subvert the policy underlying actions for recovery of possession. WHEREFORE, we GRANT the petition. The Decision dated 21 June
2000 and Resolution dated 14 December 2000 of the Court of Appeals
Since Pajuyo has in his favor priority in time in holding the
in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11
property, he is entitled to remain on the property until a person who
November 1996 of the Regional Trial Court of Quezon City, Branch 81
has title or a better right lawfully ejects him. Guevarra is certainly not
in Civil Case No. Q-96-26943, affirming the Decision dated 15
that person. The ruling in this case, however, does not preclude Pajuyo
December 1995 of the Metropolitan Trial Court of Quezon City, Branch
and Guevarra from introducing evidence and presenting arguments
31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The
before the proper administrative agency to establish any right to which
award of attorneys fees is deleted. No costs.
they may be entitled under the law.[81]
SO ORDERED.
In no way should our ruling in this case be interpreted to condone
squatting. The ruling on the issue of physical possession does not affect
title to the property nor constitute a binding and conclusive
[G.R. No. 115324. February 19, 2003]
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL
BANK), petitioner, vs. HON. COURT OF APPEALS AND
FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the
Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of
its Resolution[2] dated May 5, 1994, denying the motion for
reconsideration of said decision filed by petitioner Producers Bank of
the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by
his neighbor and friend Angeles Sanchez to help her friend and
townmate, Col. Arturo Doronilla, in incorporating his business, the
Sterela Marketing and Services (Sterela for brevity). Specifically,
Sanchez asked private respondent to deposit in a bank a certain
amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw
his money from said account within a months time. Private respondent
asked Sanchez to bring Doronilla to their house so that they could
discuss Sanchezs request.[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a
certain Estrella Dumagpi, Doronillas private secretary, met and
discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued a
check in the amount of Two Hundred Thousand Pesos (P200,000.00) in
favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia
Vives, to accompany Doronilla and Sanchez in opening a savings
account in the name of Sterela in the Buendia, Makati branch of
Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives
and Dumagpi went to the bank to deposit the check. They had with
them an authorization letter from Doronilla authorizing Sanchez and
her companions, in coordination with Mr. Rufo Atienza, to open an
account for Sterela Marketing Services in the amount
of P200,000.00. In opening the account, the authorized signatories
were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings
Account No. 10-1567 was thereafter issued to Mrs. Vives.[4]
Subsequently, private respondent learned that Sterela was no
longer holding office in the address previously given to him. Alarmed,
he and his wife went to the Bank to verify if their money was still
intact. The bank manager referred them to Mr. Rufo Atienza, the
assistant manager, who informed them that part of the money in
Savings Account No. 10-1567 had been withdrawn by Doronilla, and
that only P90,000.00 remained therein.He likewise told them that Mrs.
Vives could not withdraw said remaining amount because it had to
answer for some postdated checks issued by Doronilla. According to
Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-
1567, Doronilla opened Current Account No. 10-0320 for Sterela and
authorized the Bank to debit Savings Account No. 10-1567 for the
amounts necessary to cover overdrawings in Current Account No. 10-
0320. In opening said current account, Sterela, through Doronilla,
obtained a loan of P175,000.00 from the Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were
dishonored. Atienza also said that Doronilla could assign or withdraw
the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.[5]
Private respondent tried to get in touch with Doronilla through
Sanchez. On June 29, 1979, he received a letter from Doronilla,
assuring him that his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a postdated check for Two
Hundred Twelve Thousand Pesos (P212,000.00) in favor of private
respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored. Doronilla
requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was
again dishonored.[6]
Private respondent referred the matter to a lawyer, who made a
written demand upon Doronilla for the return of his clients
money. Doronilla issued another check for P212,000.00 in private
respondents favor but the check was again dishonored for insufficiency
of funds.[7]
Private respondent instituted an action for recovery of sum of
money in the Regional Trial Court (RTC) in Pasig, Metro Manila against
Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as
Civil Case No. 44485. He also filed criminal actions against Doronilla,
Sanchez and Dumagpi in the RTC. However, Sanchez passed away on
March 16, 1985 while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157, promulgated its
Decision in Civil Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing
defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of
the Philippines to pay plaintiff Franklin Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited,
with interest at the legal rate from the filing of the complaint until the
same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for
exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.[8]
Petitioner appealed the trial courts decision to the Court of
Appeals. In its Decision dated June 25, 1991, the appellate court
affirmed in toto the decision of the RTC.[9] It likewise denied with
finality petitioners motion for reconsideration in its Resolution dated
May 5, 1994.[10]
On June 30, 1994, petitioner filed the present petition, arguing
that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE
TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH
THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be
PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER
SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE
RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE
JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE
CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745,
UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED
BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE
DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS
JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR
THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS
ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00
FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND
THE COSTS OF SUIT.[11]
Private respondent filed his Comment on September 23,
1994. Petitioner filed its Reply thereto on September 25, 1995. The
Court then required private respondent to submit a rejoinder to the
reply. However, said rejoinder was filed only on April 21, 1997, due to
petitioners delay in furnishing private respondent with copy of the
reply[12] and several substitutions of counsel on the part of private
respondent.[13] On January 17, 2001, the Court resolved to give due
course to the petition and required the parties to submit their
respective memoranda.[14] Petitioner filed its memorandum on April
16, 2001 while private respondent submitted his memorandum on
March 22, 2001.
Petitioner contends that the transaction between private
respondent and Doronilla is a simple loan (mutuum) since all the
elements of a mutuum are present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second,
the transaction was onerous as Doronilla was obliged to pay interest,
as evidenced by the check issued by Doronilla in the amount
of P212,000.00, or P12,000 more than what private respondent
deposited in Sterelas bank account.[15] Moreover, the fact that private
respondent sued his good friend Sanchez for his failure to recover his
money from Doronilla shows that the transaction was not merely
gratuitous but had a business angle to it. Hence, petitioner argues that
it cannot be held liable for the return of private
respondents P200,000.00 because it is not privy to the transaction
between the latter and Doronilla.[16]
It argues further that petitioners Assistant Manager, Mr. Rufo
Atienza, could not be faulted for allowing Doronilla to withdraw from
the savings account of Sterela since the latter was the sole proprietor
of said company.Petitioner asserts that Doronillas May 8, 1979 letter
addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these
two to withdraw from said account. Hence, the authority to withdraw
therefrom remained exclusively with Doronilla, who was the sole
proprietor of Sterela, and who alone had legal title to the savings
account.[17] Petitioner points out that no evidence other than the
testimonies of private respondent and Mrs. Vives was presented
during trial to prove that private respondent deposited
his P200,000.00 in Sterelas account for purposes of its
incorporation.[18] Hence, petitioner should not be held liable for
allowing Doronilla to withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming
the trial courts decision since the findings of fact therein were not
accord with the evidence presented by petitioner during trial to prove
that the transaction between private respondent and Doronilla was
a mutuum, and that it committed no wrong in allowing Doronilla to
withdraw from Sterelas savings account.[19]
Finally, petitioner claims that since there is no wrongful act or
omission on its part, it is not liable for the actual damages suffered by
private respondent, and neither may it be held liable for moral and
exemplary damages as well as attorneys fees.[20]
Private respondent, on the other hand, argues that the transaction
between him and Doronilla is not a mutuum but an
accommodation,[21] since he did not actually part with the ownership
of his P200,000.00 and in fact asked his wife to deposit said amount in
the account of Sterela so that a certification can be issued to the effect
that Sterela had sufficient funds for purposes of its incorporation but
at the same time, he retained some degree of control over his money
through his wife who was made a signatory to the savings account and
in whose possession the savings account passbook was given.[22]
He likewise asserts that the trial court did not err in finding that
petitioner, Atienzas employer, is liable for the return of his money. He
insists that Atienza, petitioners assistant manager, connived with
Doronilla in defrauding private respondent since it was Atienza who
facilitated the opening of Sterelas current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for
said company, as well as the approval of the authority to debit Sterelas
savings account to cover any overdrawings in its current account.[23]
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law
may be raised in a petition for review filed with this Court. The Court
has repeatedly held that it is not its function to analyze and weigh all
over again the evidence presented by the parties during trial. [24] The
Courts jurisdiction is in principle limited to reviewing errors of law that
might have been committed by the Court of Appeals.[25] Moreover,
factual findings of courts, when adopted and confirmed by the Court
of Appeals, are final and conclusive on this Court unless these findings
are not supported by the evidence on record.[26] There is no showing
of any misapprehension of facts on the part of the Court of Appeals in
the case at bar that would require this Court to review and overturn
the factual findings of that court, especially since the conclusions of
fact of the Court of Appeals and the trial court are not only consistent
but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that
the transaction between private respondent and Doronilla was
a commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was
a commodatum. Article 1933 of the Civil Code distinguishes between
the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be
paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the
contract is a consumable thing, such as money, the contract would be
a mutuum. However, there are some instances where
a commodatum may have for its object a consumable thing. Article
1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose
of the contract is not the consumption of the object, as when it is
merely for exhibition.
Thus, if consumable goods are loaned only for purposes of
exhibition, or when the intention of the parties is to lend consumable
goods and to have the very same goods returned at the end of the
period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be
accorded primordial consideration in determining the actual character
of a contract.[27] In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such
determination.[28]
As correctly pointed out by both the Court of Appeals and the trial
court, the evidence shows that private respondent agreed to deposit
his money in the savings account of Sterela specifically for the purpose
of making it appear that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned
within thirty (30) days.[29] Private respondent merely accommodated
Doronilla by lending his money without consideration, as a favor to his
good friend Sanchez. It was however clear to the parties to the
transaction that the money would not be removed from Sterelas
savings account and would be returned to private respondent after
thirty (30) days.
Doronillas attempts to return to private respondent the amount
of P200,000.00 which the latter deposited in Sterelas account together
with an additional P12,000.00, allegedly representing interest on
the mutuum, did not convert the transaction from a commodatum into
a mutuum because such was not the intent of the parties and because
the additional P12,000.00 corresponds to the fruits of the lending of
the P200,000.00. Article 1935 of the Civil Code expressly states that
[t]he bailee in commodatum acquires the use of the thing loaned but
not its fruits. Hence, it was only proper for Doronilla to remit to private
respondent the interest accruing to the latters money deposited with
petitioner.
Neither does the Court agree with petitioners contention that it is
not solidarily liable for the return of private respondents money
because it was not privy to the transaction between Doronilla and
private respondent.The nature of said transaction, that is, whether it is
a mutuum or a commodatum, has no bearing on the question of
petitioners liability for the return of private respondents money
because the factual circumstances of the case clearly show that
petitioner, through its employee Mr. Atienza, was partly responsible
for the loss of private respondents money and is liable for its
restitution.
Petitioners rules for savings deposits written on the passbook it
issued Mrs. Vives on behalf of Sterela for Savings Account No. 10-1567
expressly states that
2. Deposits and withdrawals must be made by the depositor personally
or upon his written authority duly authenticated, and neither a deposit
nor a withdrawal will be permitted except upon the production of the
depositor savings bank book in which will be entered by the Bank the
amount deposited or withdrawn.[30]
Said rule notwithstanding, Doronilla was permitted by petitioner,
through Atienza, the Assistant Branch Manager for the Buendia Branch
of petitioner, to withdraw therefrom even without presenting the
passbook (which Atienza very well knew was in the possession of Mrs.
Vives), not just once, but several times. Both the Court of Appeals and
the trial court found that Atienza allowed said withdrawals because he
was party to Doronillasscheme of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the
knowledge, help and cooperation of Rufo Atienza, assistant manager
and cashier of the Makati (Buendia) branch of the defendant
bank. Indeed, the evidence indicates that Atienza had not only
facilitated the commission of the fraud but he likewise helped in
devising the means by which it can be done in such manner as to make
it appear that the transaction was in accordance with banking
procedure.
To begin with, the deposit was made in defendants Buendia branch
precisely because Atienza was a key officer therein. The records show
that plaintiff had suggested that the P200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla and Dumagpi
insisted that it must be in defendants branch in Makati for it will be
easier for them to get a certification. In fact before he was introduced
to plaintiff, Doronilla had already prepared a letter addressed to the
Buendia branch manager authorizing Angeles B. Sanchez and company
to open a savings account for Sterela in the amount of P200,000.00, as
per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank
x x x (Exh. 1). This is a clear manifestation that the other defendants
had been in consultation with Atienza from the inception of the
scheme. Significantly, there were testimonies and admission that
Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and
business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the
coordination between Doronilla and Atienza, the latter knew before
hand that the money deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he was explicitly told by
Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even
declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank
records disclose that the only ones empowered to withdraw the same
were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were
Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the
usual banking procedure that withdrawals of savings deposits could
only be made by persons whose authorized signatures are in the
signature cards on file with the bank. He, however, said that this
procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authority to
withdraw by virtue of such ownership. The Court is not inclined to
agree with Atienza. In the first place, he was all the time aware that the
money came from Vives and did not belong to Sterela. He was also told
by Mrs. Vives that they were only accommodating Doronilla so that a
certification can be issued to the effect that Sterela had a deposit of so
much amount to be sued in the incorporation of the firm. In the second
place, the signature of Doronilla was not authorized in so far as that
account is concerned inasmuch as he had not signed the signature card
provided by the bank whenever a deposit is opened. In the third place,
neither Mrs. Vives nor Sanchez had given Doronilla the authority to
withdraw.
Moreover, the transfer of fund was done without the passbook having
been presented. It is an accepted practice that whenever a withdrawal
is made in a savings deposit, the bank requires the presentation of the
passbook. In this case, such recognized practice was dispensed
with. The transfer from the savings account to the current account was
without the submission of the passbook which Atienza had given to
Mrs. Vives. Instead, it was made to appear in a certification signed by
Estrella Dumagpi that a duplicate passbook was issued to Sterela
because the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigning the savings account
(Exh. C). Atienza, who undoubtedly had a hand in the execution of this
certification, was aware that the contents of the same are not true. He
knew that the passbook was in the hands of Mrs. Vives for he was the
one who gave it to her. Besides, as assistant manager of the branch and
the bank official servicing the savings and current accounts in question,
he also was aware that the original passbook was never
surrendered. He was also cognizant that Estrella Dumagpi was not
among those authorized to withdraw so her certification had no effect
whatsoever.
The circumstance surrounding the opening of the current account also
demonstrate that Atienzas active participation in the perpetration of
the fraud and deception that caused the loss. The records indicate that
this account was opened three days later after the P200,000.00 was
deposited. In spite of his disclaimer, the Court believes that Atienza
was mindful and posted regarding the opening of the current account
considering that Doronilla was all the while in coordination with
him. That it was he who facilitated the approval of the authority to
debit the savings account to cover any overdrawings in the current
account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the
loss subject of this case. x x x.[31]
Under Article 2180 of the Civil Code, employers shall be held
primarily and solidarily liable for damages caused by their employees
acting within the scope of their assigned tasks. To hold the employer
liable under this provision, it must be shown that an employer-
employee relationship exists, and that the employee was acting within
the scope of his assigned task when the act complained of was
committed.[32] Case law in the United States of America has it that a
corporation that entrusts a general duty to its employee is responsible
to the injured party for damages flowing from the employees wrongful
act done in the course of his general authority, even though in doing
such act, the employee may have failed in its duty to the employer and
disobeyed the latters instructions.[33]
 There is no dispute that Atienza was an employee of
petitioner. Furthermore, petitioner did not deny that Atienza was
acting within the scope of his authority as Assistant Branch Manager
when he assisted Doronilla in withdrawing funds from Sterelas Savings
Account No. 10-1567, in which account private respondents money
was deposited, and in transferring the money withdrawn to Sterelas
Current Account with petitioner. Atienzas acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of
petitioners interests[34] even though in the process, Atienza violated
some of petitioners rules such as those stipulated in its savings account
passbook.[35] It was established that the transfer of funds from Sterelas
savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of
Atienza, and that it was their connivance which was the cause of
private respondents loss.
The foregoing shows that the Court of Appeals correctly held that
under Article 2180 of the Civil Code, petitioner is liable for private
respondents loss and is solidarily liable with Doronilla and Dumagpi for
the return of the P200,000.00 since it is clear that petitioner failed to
prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterelas savings account, and that it was not
negligent in the selection and supervision of Atienza. Accordingly, no
error was committed by the appellate court in the award of actual,
moral and exemplary damages, attorneys fees and costs of suit to
private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision
and Resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.
 G.R. No. L-8321 October 14, 1913
ALEJANDRA MINA, ET AL., plaintiffs-appellants,
vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
ARELLANO, C.J.:
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco
Fontanilla acquired during his lifetime, on March 12, 1874, a lot in the
center of the town of Laoag, the capital of the Province of Ilocos Norte,
the property having been awarded to him through its purchase at a
public auction held by the alcalde mayor of that province. The lot has
a frontage of 120 meters and a depth of 15.
Andres Fontanilla, with the consent of his brother Francisco, erected a
warehouse on a part of the said lot, embracing 14 meters of its
frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the
herein plaintiffs, Alejandro Mina, et al., were recognized without
discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having
died, the children of Ruperta Pascual were recognized likes without
discussion, though it is not said how, and consequently are entitled to
the said building, or rather, as Ruperta Pascual herself stated, to only
six-sevenths of one-half of it, the other half belonging, as it appears, to
the plaintiffs themselves, and the remaining one-seventh of the first
one-half to the children of one of the plaintiffs, Elena de Villanueva.
The fact is that the plaintiffs and the defendants are virtually, to all
appearance, the owners of the warehouse; while the plaintiffs are
undoubtedly, the owners of the part of the lot occupied by that
building, as well as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual,
as the guardian of her minor children, the herein defendants,
petitioned the Curt of First Instance of Ilocos Norte for authorization to
sell "the six-sevenths of the one-half of the warehouse, of 14 by 11
meters, together with its lot." The plaintiffs that is Alejandra Mina,
et al. opposed the petition of Ruperta Pascual for the reason that
the latter had included therein the lot occupied by the warehouse,
which they claimed was their exclusive property. All this action was
taken in a special proceeding in reguardianship.
The plaintiffs did more than oppose Pascual's petition; they requested
the court, through motion, to decide the question of the ownership of
the lot before it pass upon the petition for the sale of the warehouse.
But the court before determining the matter of the ownership of the
lot occupied by the warehouse, ordered the sale of this building,
saying:
While the trial continues with respect to the ownership of the
lot, the court orders the sale at public auction of the said
warehouse and of the lot on which it is built, with the present
boundaries of the land and condition of the building, at a price
of not less than P2,890 Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold
to Cu Joco, the other defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership
of the lot, and the court decided it by holding that this land belonged
to the owner of the warehouse which had been built thereon thirty
years before.
The plaintiffs appealed and this court reversed the judgment of the
lower court and held that the appellants were the owners of the lot in
question. 1
When the judgment became final and executory, a writ of execution
issued and the plaintiffs were given possession of the lot; but soon
thereafter the trial court annulled this possession for the reason that it
affected Cu Joco, who had not been a party to the suit in which that
writ was served.
It was then that the plaintiffs commenced the present action for the
purpose of having the sale of the said lot declared null and void and of
no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is
as follows:
9. That the herein plaintiffs excepted to the judgment and
appealed therefrom to the Supreme Court which found for
them by holding that they are the owners of the lot in question,
although there existed and still exists a commodatum by virtue
of which the guardianship (meaning the defendants) had and
has the use, and the plaintiffs the ownership, of the property,
with no finding concerning the decree of the lower court that
ordered the sale.
The obvious purport of the cause "although there existed and still
exists a commodatum," etc., appears to be that it is a part of the
decision of the Supreme Court and that, while finding the plaintiffs to
be the owners of the lot, we recognized in principle the existence of a
commodatum under which the defendants held the lot. Nothing could
be more inexact. Possibly, also, the meaning of that clause is that,
notwithstanding the finding made by the Supreme Court that the
plaintiffs were the owners, these former and the defendants agree that
there existed, and still exists, a commodatum, etc. But such an
agreement would not affect the truth of the contents of the decision
of this court, and the opinions held by the litigants in regard to this
point could have no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the
least influence in our previous decision to require our making any
finding in regard thereto, for, with or without that decree, the Supreme
Court had to decide the ownership of the lot consistently with its titles
and not in accordance with the judicial acts or proceedings had prior
to the setting up of the issue in respect to the ownership of the
property that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant
agree that the plaintiffs have the ownership, and they themselves only
the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite
evident, whatsoever be the manner in which the sale was effected,
whether judicially or extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself.
The effect of the sale being a transfer of the ownership of the thing, it
is evident that he who has only the mere use of the thing cannot
transfer its ownership. The sale of a thing effected by one who is not
its owner is null and void. The defendants never were the owners of
the lot sold. The sale of it by them is necessarily null and void. On
cannot convey to another what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of
the authorization conferred upon me on the 31st of July, 1909,
by the Court of First Instance of Ilocos Norte, proceeded with
the sale at public auction of the six-sevenths part of the one-
half of the warehouse constructed of rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the minors, etc.,
sold at public auction all the land and all the rights title, interest,
and ownership in the said property to Cu Joco, who was the
highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser,
Cu Joco, his heirs and assigns, all the interest, ownership and
inheritance rights and others that, as the guardian of the said
minors, I have and may have in the said property, etc.
The purchaser could not acquire anything more than the interest that
might be held by a person to whom realty in possession of the vendor
might be sold, for at a judicial auction nothing else is disposed of. What
the minor children of Ruperta Pascual had in their possession was the
ownership of the six-sevenths part of one-half of the warehouse and
the use of the lot occupied by his building. This, and nothing more,
could the Chinaman Cu Joco acquire at that sale: not the ownership of
the lot; neither the other half, nor the remaining one-seventh of the
said first half, of the warehouse. Consequently, the sale made to him
of this one-seventh of one-half and the entire other half of the building
was null and void, and likewise with still more reason the sale of the lot
the building occupies.
The purchaser could and should have known what it was that was
offered for sale and what it was that he purchased. There is nothing
that can justify the acquisition by the purchaser of the warehouse of
the ownership of the lot that this building occupies, since the minors
represented by Ruperta Pascual never were the owners of the said lot,
nor were they ever considered to be such.
The trial court, in the judgment rendered, held that there were no
grounds for the requested annulment of the sale, and that the plaintiffs
were entitled to the P600 deposited with the clerk of the court as the
value of the lot in question. The defendants, Ruperta Pascual and the
Chinaman Cu Joco, were absolved from the complaint, without express
finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made
and be compelled to accept the price set on the lot by expert
appraisers, not even though the plaintiffs be considered as coowner of
the warehouse. It would be much indeed that, on the ground of
coownership, they should have to abide by and tolerate the sale of the
said building, which point this court does not decide as it is not a
question submitted to us for decision, but, as regards the sale of the
lot, it is in all respects impossible to hold that the plaintiffs must abide
by it and tolerate, it, and this conclusion is based on the fact that they
did not give their consent (art. 1261, Civil Code), and only the
contracting parties who have given it are obliged to comply (art.
1091, idem).
The sole purpose of the action in the beginning was to obtain an
annulment of the sale of the lot; but subsequently the plaintiffs,
through motion, asked for an amendment by their complaint in the
sense that the action should be deemed to be one for the recovery of
possession of a lot and for the annulment of its sale. The plaintiff's
petition was opposed by the defendant's attorney, but was allowed by
the court; therefore the complaint seeks, after the judicial annulment
of the sale of the lot, to have the defendants sentenced immediately
to deliver the same to the plaintiffs.
Such a finding appears to be in harmony with the decision rendered by
the Supreme Court in previous suit, wherein it was held that the
ownership of the lot lay in the plaintiffs, and for this reason steps were
taken to give possession thereof to the defendants; but, as the
purchaser Cu Joco was not a party to that suit, the present action is
strictly one for recover against Cu Joco to compel him, once the sale
has been annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this
and in the previous suit, that Andres Fontanilla, the defendants'
predecessor in interest, erected the warehouse on the lot,
some thirty years ago, with the explicit consent of his brother
Francisco Fontanilla, the plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs
and the defendants are the coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that
neither Andres Fontanilla nor his successors paid any
consideration or price whatever for the use of the lot occupied
 by the said building; whence it is, perhaps, that both parties
have denominated that use a commodatum.
Upon the premise of these facts, or even merely upon that of the first
of them, the sentencing of the defendants to deliver the lot to the
plaintiffs does not follow as a necessary corollary of the judicial
declaration of ownership made in the previous suit, nor of that of the
nullity of the sale of the lot, made in the present case.
The defendants do not hold lawful possession of the lot in
question.1awphil.net
But, although both litigating parties may have agreed in their idea of
the commodatum, on account of its not being, as indeed it is not, a
question of fact but of law, yet that denomination given by them to the
use of the lot granted by Francisco Fontanilla to his brother, Andres
Fontanilla, is not acceptable. Contracts are not to be interpreted in
conformity with the name that the parties thereto agree to give them,
but must be construed, duly considering their constitutive elements,
as they are defined and denominated by law.
By the contract of loan, one of the parties delivers to the other,
either anything not perishable, in order that the latter may use
it during the certain period and return it to the former, in which
case it is called commodatum . . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use
of the thing belonging to another shall for a certain period. Francisco
Fontanilla did not fix any definite period or time during which Andres
Fontanilla could have the use of the lot whereon the latter was to erect
a stone warehouse of considerable value, and so it is that for the past
thirty years of the lot has been used by both Andres and his successors
in interest. The present contention of the plaintiffs that Cu Joco, now
in possession of the lot, should pay rent for it at the rate of P5 a month,
would destroy the theory of the commodatum sustained by them,
since, according to the second paragraph of the aforecited article 1740,
"commodatum is essentially gratuitous," and, if what the plaintiffs
themselves aver on page 7 of their brief is to be believed, it never
entered Francisco's mind to limit the period during which his brother
Andres was to have the use of the lot, because he expected that the
warehouse would eventually fall into the hands of his son, Fructuoso
Fontanilla, called the adopted son of Andres, which did not come to
pass for the reason that Fructuoso died before his uncle Andres. With
that expectation in view, it appears more likely that Francisco intended
to allow his brother Andres a surface right; but this right supposes the
payment of an annual rent, and Andres had the gratuitous use of the
lot.
Hence, as the facts aforestated only show that a building was erected
on another's ground, the question should be decided in accordance
with the statutes that, thirty years ago, governed accessions to real
estate, and which were Laws 41 and 42, title 28, of the third Partida,
nearly identical with the provisions of articles 361 and 362 of the Civil
Code. So, then, pursuant to article 361, the owner of the land on which
a building is erected in good faith has a right to appropriate such edifice
to himself, after payment of the indemnity prescribed in articles 453
and 454, or to oblige the builder to pay him the value of the land. Such,
and no other, is the right to which the plaintiff are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the
said lot which was made by Ruperta Pascual, in representation of her
minor children, to Cu Joco, and to maintain the latter in the use of the
lot until the plaintiffs shall choose one or the other of the two rights
granted them by article 361 of the Civil Code.1awphil.net
The judgment appealed from is reversed and the sale of the lot in
question is held to be null and void and of no force or effect. No special
finding is made as to the costs of both instances.
 G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-
appellants,
vs.
BECK, defendant-appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her
certain furniture which she lent him for his use. She appealed from the
judgment of the Court of First Instance of Manila which ordered that
the defendant return to her the three has heaters and the four electric
lamps found in the possession of the Sheriff of said city, that she call
for the other furniture from the said sheriff of Manila at her own
expense, and that the fees which the Sheriff may charge for the deposit
of the furniture be paid pro rata by both parties, without
pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the
latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936,
upon the novation of the contract of lease between the plaintiff and
the defendant, the former gratuitously granted to the latter the use of
the furniture described in the third paragraph of the stipulation of
facts, subject to the condition that the defendant would return them
to the plaintiff upon the latter's demand. The plaintiff sold the property
to Maria Lopez and Rosario Lopez and on September 14, 1936, these
three notified the defendant of the conveyance, giving him sixty days
to vacate the premises under one of the clauses of the contract of
lease. There after the plaintiff required the defendant to return all the
furniture transferred to him for them in the house where they were
found. On November 5, 1936, the defendant, through another
person, wrote to the plaintiff reiterating that she may call for the
furniture in the ground floor of the house. On the 7th of the same
month, the defendant wrote another letter to the plaintiff informing
her that he could not give up the three gas heaters and the four electric
lamps because he would use them until the 15th of the same month
when the lease in due to expire. The plaintiff refused to get the
furniture in view of the fact that the defendant had declined to make
delivery of all of them. On November 15th, before vacating the
house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the
warehouse situated at No. 1521, Rizal Avenue, in the custody of the
said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court
incorrectly applied the law: in holding that they violated the contract
by not calling for all the furniture on November 5, 1936, when the
defendant placed them at their disposal; in not ordering the defendant
to pay them the value of the furniture in case they are not delivered;
in holding that they should get all the furniture from the Sheriff at their
expenses; in ordering them to pay-half of the expenses claimed by the
Sheriff for the deposit of the furniture; in ruling that both parties
should pay their respective legal expenses or the costs; and in denying
pay their respective legal expenses or the costs; and in denying the
motions for reconsideration and new trial. To dispose of the case, it is
only necessary to decide whether the defendant complied with his
obligation to return the furniture upon the plaintiff's demand; whether
the latter is bound to bear the deposit fees thereof, and whether she
is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum,
because under it the plaintiff gratuitously granted the use of the
furniture to the defendant, reserving for herself the ownership
thereof; by this contract the defendant bound himself to return the
furniture to the plaintiff, upon the latters demand (clause 7 of the
contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil
Code). The obligation voluntarily assumed by the defendant to return
the furniture upon the plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence or house. The
defendant did not comply with this obligation when he merely placed
them at the disposal of the plaintiff, retaining for his benefit the three
gas heaters and the four eletric lamps. The provisions of article 1169 of the furniture with the Sheriff shall be for the account of the defendant.
the Civil Code cited by counsel for the parties are not squarely the defendant shall pay the costs in both instances. So ordered.
applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply with her obligation to get
the furniture when they were offered to her.

As the defendant had voluntarily undertaken to return all the furniture

to the plaintiff, upon the latter's demand, the Court could not legally
compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not
entitled to place the furniture on deposit; nor was the plaintiff under a
duty to accept the offer to return the furniture, because the defendant
wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that the plaintiff is

entitled to the payment thereof by the defendant in case of his inability
to return some of the furniture because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted
the correctness of the said value. Should the defendant fail to deliver
some of the furniture, the value thereof should be latter determined
by the trial Court through evidence which the parties may desire to
present.

The costs in both instances should be borne by the defendant because

the plaintiff is the prevailing party (section 487 of the Code of Civil
Procedure). The defendant was the one who breached the contract
of commodatum, and without any reason he refused to return and
deliver all the furniture upon the plaintiff's demand. In these
circumstances, it is just and equitable that he pay the legal expenses
and other judicial costs which the plaintiff would not have otherwise
defrayed.

The appealed judgment is modified and the defendant is ordered to

return and deliver to the plaintiff, in the residence to return and deliver
to the plaintiff, in the residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts Exhibit A. The
expenses which may be occasioned by the delivery to and deposit of