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SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, respondents.
GANCAYCO, J.:
The principal issue: Whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by
respondent Court of Appeals in the present two cases between petitioner
and two private respondents.
Nature of the case: Recovery of Possession, which affirmed the Decision of
the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of
Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655
(429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic
Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of
Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the
same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano
(Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs'
claim or damages is hereby denied. Said defendant is ordered to pay costs.
(p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision,
sustained the trial court's conclusions that the Decision of the Court of
Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases
affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in
question; that the two lots were possessed by the predecessors-in-interest
of private respondents under claim of ownership in good faith from 1906 to
1951; that petitioner had been in possession of the same lots as bailee in
commodatum up to 1951, when petitioner repudiated the trust and when it
applied for registration in 1962; that petitioner had just been in possession
as owner for eleven years, hence there is no possibility of acquisitive
prescription which requires 10 years possession with just title and 30 years
of possession without; that the principle of res judicata on these findings by
the Court of Appeals will bar a reopening of these questions of facts; and
that those facts may no longer be altered.
FACTS:
The whole controversy started when the Catholic Vicar Apostolic of the
Mountain Province (VICAR for brevity) filed with the Court of First Instance
of Baguio Benguet on September 5, 1962 an application for registration of
title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La
Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the
Catholic Church building, convents, high school building, school
gymnasium, school dormitories, social hall, stonewalls, etc. On March 22,
1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership
and title thereto. After trial on the merits, the land registration court
promulgated its Decision, dated November 17, 1965, confirming the
registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and
the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607)
appealed the decision of the land registration court to the then Court of
Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered
its decision, dated May 9, 1977, reversing the decision of the land
registration court and dismissing the VICAR's application as to Lots 2 and 3,
the lots claimed by the two sets of oppositors in the land registration case
(and two sets of plaintiffs in the two cases now at bar), the first lot being
presently occupied by the convent and the second by the women's
dormitory and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration
praying the Court of Appeals to order the registration of Lot 3 in the names
of the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan
Valdez and Pacita Valdez filed their motion for reconsideration praying that
both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan
Valdez and Pacita Valdez. On August 12,1977, the Court of Appeals denied
the motion for reconsideration filed by the Heirs of Juan Valdez on the
ground that there was "no sufficient merit to justify reconsideration one
way or the other ...," and likewise denied that of the Heirs of Egmidio
Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his (its)
application for registration of Lots 2 and 3, docketed as G.R. No. L-46832,
entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of
Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration
the Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with
the Supreme Court a petition for review, docketed as G.R. No. L-46872,
entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar,
Heirs of Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both
petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita
Valdez on the other) for lack of merit. Upon the finality of both Supreme
Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of
Octaviano filed with the then Court of First Instance of Baguio, Branch II, a
Motion For Execution of Judgment praying that the Heirs of Octaviano be
placed in possession of Lot 3. The Court, presided over by Hon. Salvador J.
Valdez, on December 7, 1978, denied the motion on the ground that the
Court of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of
Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals
a petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R,
entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and
Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed
the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio
Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of
possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655
(429) on September 24, 1979, likewise for recovery of possession of Lot 2
(Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio
Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the
alleged ownership of the land in question (Lot 3) by their predecessor-ininterest, Egmidio Octaviano (Exh. C ); his written demand (Exh. BB-4 ) to
defendant Vicar for the return of the land to them; and the reasonable
rentals for the use of the land at P10,000.00 per month. On the other hand,
defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any of the
plaintiffs (Exh. 8). The defendant dispensed with the testimony of
Mons.William Brasseur when the plaintiffs admitted that the witness if
called to the witness stand, would testify that defendant Vicar has been in
possession of Lot 3, for seventy-five (75) years continuously and peacefully
and has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not
in dispute, submitted the case on the sole issue of whether or not the
decisions of the Court of Appeals and the Supreme Court touching on the
ownership of Lot 2, which in effect declared the plaintiffs the owners of the
land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred
from setting up the defense of ownership and/or long and continuous
possession of the two lots in question since this is barred by prior judgment
of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res
SECOND DIVISION
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA
SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY
FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:+.wph!1
This is a petition for prohibition and injunction with a prayer for the
immediate issuance of restraining order and/or writ of preliminary
injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on
the same date, a temporary restraining order was duly issued ordering the
respondents, their officers, agents, representatives and/or person or
persons acting upon their (respondents') orders or in their place or stead to
refrain from proceeding with the preliminary investigation in Case No.
8131938 of the Office of the City Fiscal of Manila (pp. 47-48, rec.). On
January 24, 1983, private respondent Clement David filed a motion to lift
restraining order which was denied in the resolution of this Court dated May
18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit
public respondents from proceeding with the preliminary investigation of
I.S. No. 81-31938, in which petitioners were charged by private respondent
Clement David, with estafa and violation of Central Bank Circular No. 364
and related regulations regarding foreign exchange transactions principally,
on the ground of lack of jurisdiction in that the allegations of the charged,
as well as the testimony of private respondent's principal witness and the
evidence through said witness, showed that petitioners' obligation is civil in
nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by
the Solicitor General in its Comment dated June 28,1982, as follows:t.
hqw
On December 23,1981, private respondent David filed I.S. No. 81-31938 in
the Office of the City Fiscal of Manila, which case was assigned to
respondent Lota for preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert
Marshall and the following directors of the Nation Savings and Loan
Association, Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet,
Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and
one John Doe) with estafa and violation of Central Bank Circular No. 364
and related Central Bank regulations on foreign exchange transactions,
allegedly committed as follows (Petition, Annex "A"):t.hqw
"From March 20, 1979 to March, 1981, David invested with the Nation
Savings and Loan Association, (hereinafter called NSLA) the sum of
P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits
(jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit,
US$15,000.00 under a receipt and guarantee of payment and
US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise
Kuhne), that David was induced into making the aforestated investments
by Robert Marshall an Australian national who was allegedly a close
associate of petitioner Guingona Jr., then NSLA President, petitioner Martin,
then NSLA Executive Vice-President of NSLA and petitioner Santos, then
NSLA General Manager; that on March 21, 1981 N LA was placed under
receivership by the Central Bank, so that David filed claims therewith for
his investments and those of his sister; that on July 22, 1981 David received
a report from the Central Bank that only P305,821.92 of those investments
were entered in the records of NSLA; that, therefore, the respondents in I.S.
No. 81-31938 misappropriated the balance of the investments, at the same
time violating Central Bank Circular No. 364 and related Central Bank
regulations on foreign exchange transactions; that after demands,
petitioner Guingona Jr. paid only P200,000.00, thereby reducing the
amounts misappropriated to P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition,
Annex' B') in which they stated the following.t.hqw
"That Martin became President of NSLA in March 1978 (after the resignation
of Guingona, Jr.) and served as such until October 30, 1980, while Santos
was General Manager up to November 1980; that because NSLA was
urgently in need of funds and at David's insistence, his investments were
treated as special- accounts with interest above the legal rate, an recorded
in separate confidential documents only a portion of which were to be
reported because he did not want the Australian government to tax his
total earnings (nor) to know his total investments; that all transactions with
David were recorded except the sum of US$15,000.00 which was a personal
loan of Santos; that David's check for US$50,000.00 was cleared through
Guingona, Jr.'s dollar account because NSLA did not have one, that a draft
of US$30,000.00 was placed in the name of one Paz Roces because of a
pending transaction with her; that the Philippine Deposit Insurance
Corporation had already reimbursed David within the legal limits; that
majority of the stockholders of NSLA had filed Special Proceedings No. 821695 in the Court of First Instance to contest its (NSLA's) closure; that after
NSLA was placed under receivership, Martin executed a promissory note in
David's favor and caused the transfer to him of a nine and on behalf (9 1/2)
carat diamond ring with a net value of P510,000.00; and, that the liabilities
of NSLA to David were civil in nature."
There is merit in the contention of the petitioners that their liability is civil
in nature and therefore, public respondents have no jurisdiction over the
charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the
Office of the City Fiscal of Manila by private respondent David against
petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos,
together with one Robert Marshall and the other directors of the Nation
Savings and Loan Association, will show that from March 20, 1979 to March,
1981, private respondent David, together with his sister, Denise Kuhne,
invested with the Nation Savings and Loan Association the sum of
P1,145,546.20 on time deposits covered by Bankers Acceptances and
Certificates of Time Deposits and the sum of P13,531.94 on savings
account deposits covered by passbook nos. 6-632 and 29-742, or a total of
P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent
David, together with his sister, made investments in the aforesaid bank in
the amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed
under receivership on March 21, 1981, petitioners Guingona and Martin,
upon the request of private respondent David, assumed the obligation of
the bank to private respondent David by executing on June 17, 1981 a joint
promissory note in favor of private respondent acknowledging an
indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This
promissory note was based on the statement of account as of June 30,
1981 prepared by the private respondent (p. 81, rec.). The amount of
indebtedness assumed appears to be bigger than the original claim
because of the added interest and the inclusion of other deposits of private
respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to
divide the said indebtedness, and petitioner Guingona executed another
promissory note antedated to June 17, 1981 whereby he personally
acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and
US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25,
rec.). The aforesaid promissory notes were executed as a result of deposits
made by Clement David and Denise Kuhne with the Nation Savings and
Loan Association.
Furthermore, the various pleadings and documents filed by private
respondent David, before this Court indisputably show that he has indeed
invested his money on time and savings deposits with the Nation Savings
and Loan Association.
It must be pointed out that when private respondent David invested his
money on nine. and savings deposits with the aforesaid bank, the contract
that was perfected was a contract of simple loan or mutuum and not a
contract of deposit. Thus, Article 1980 of the New Civil Code provides
that:t.hqw
Article 1980. Fixed, savings, and current deposits of-money in banks and
similar institutions shall be governed by the provisions concerning simple
loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119
[1975], We said:t.hqw
It should be noted that fixed, savings, and current deposits of money in
banks and similar institutions are hat true deposits. are considered simple
loans and, as such, are not preferred credits (Art. 1980 Civil Code; In re
Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American
Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs. Chinese Grocers
Association 65 Phil. 375; Fletcher American National Bank vs. Ang Chong
UM 66 PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65
PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of
the Philippines (96 SCRA 102 [1980]) that:t.hqw
Bank deposits are in the nature of irregular deposits. They are really 'loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the
law on loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil.
519). Current and saving deposits, are loans to a bank because it can use
the same. The petitioner here in making time deposits that earn interests
will respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of the respondent Bank to honor the time
deposit is failure to pay its obligation as a debtor and not a breach of
trust arising from a depositary's failure to return the subject matter of the
deposit (Emphasis supplied).
Hence, the relationship between the private respondent and the Nation
Savings and Loan Association is that of creditor and debtor; consequently,
the ownership of the amount deposited was transmitted to the Bank upon
the perfection of the contract and it can make use of the amount deposited
for its banking operations, such as to pay interests on deposits and to pay
withdrawals. While the Bank has the obligation to return the amount
deposited, it has, however, no obligation to return or deliver the same
money that was deposited. And, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation
punishable under Article 315, par. l(b) of the Revised Penal Code, but it will
only give rise to civil liability over which the public respondents have nojurisdiction.
WE have already laid down the rule that:t.hqw
Moreover, while it is true that novation does not extinguish criminal liability,
it may however, prevent the rise of criminal liability as long as it occurs
prior to the filing of the criminal information in court. Thus, in Gonzales vs.
Serrano ( 25 SCRA 64, 69 [1968]) We held that:t.hqw
As pointed out in People vs. Nery, novation prior to the filing of the criminal
information as in the case at bar may convert the relation between
the parties into an ordinary creditor-debtor relation, and place the
complainant in estoppel to insist on the original transaction or "cast doubt
on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA
578, 580-581 [1983] ), this Court reiterated the ruling in People vs.
Nery ( 10 SCRA 244 [1964] ), declaring that:t.hqw
The novation theory may perhaps apply prior to the filling of the criminal
information in court by the state prosecutors because up to that time the
original trust relation may be converted by the parties into an ordinary
creditor-debtor situation, thereby placing the complainant in estoppel to
insist on the original trust. But after the justice authorities have taken
cognizance of the crime and instituted action in court, the offended party
may no longer divest the prosecution of its power to exact the criminal
liability, as distinguished from the civil. The crime being an offense against
the state, only the latter can renounce it (People vs. Gervacio, 54 Off. Gaz.
2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means
recognized by the Penal Code whereby criminal liability can be
extinguished; hence, the role of novation may only be to either prevent the
rise of criminal habihty or to cast doubt on the true nature of the original
basic transaction, whether or not it was such that its breach would not give
rise to penal responsibility, as when money loaned is made to appear as a
deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil.
581; U.S. vs. Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin
executed a promissory note on June 17, 1981 assuming the obligation of
the bank to private respondent David; while the criminal complaint for
estafa was filed on December 23, 1981 with the Office of the City Fiscal.
Hence, it is clear that novation occurred long before the filing of the
criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be
avoided but there will still be a civil liability on the part of petitioners
Guingona and Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of
Central Bank Circular No. 364 and other related regulations regarding
foreign exchange transactions by accepting foreign currency deposit in the
amount of US$75,000.00 without authority from the Central Bank. They
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 ofcommodatum is essentially gratuitous.1 If the breeding fee be
considered a compensation, then the contract would be a lease of the bull.
Under article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable, because article 1942
of the Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous
event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The
loan of one bull was renewed for another period of one year to end on 8
May 1950. But the appellant kept and used the bull until November 1953
when during a Huk raid it was killed by stray bullets. Furthermore, when
lent and delivered to the deceased husband of the appellant the bulls had
each an appraised book value, to with: the Sindhi, at P1,176.46, the
Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late husband of
the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for
the return of the bull or the payment of its value being a money claim
should be presented or filed in the intestate proceedings of the defendant
who died on 23 October 1951, is not altogether without merit. However, the
claim that his civil personality having ceased to exist the trial court lost
jurisdiction over the case against him, is untenable, because section 17 of
Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall
order, upon proper notice, the legal representative of the deceased to
appear and to be substituted for the deceased, within a period of thirty (30)
days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to
comply with section 16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his
attorney to inform the court promptly of such death . . . and to give the
10
Phil., 731.) In denying the motion for reopening the trial court said: "After
going over the same arguments, this Court is of the opinion, and so holds
that the decision of this Court of January 18, 1954 should not be disturbed."
Considering the stature, ability and experience of counsel Leon Ma.
Guerrero, and the fact that he was given almost one month notice before
the date set for trial, we are persuaded to conclude that the trial court did
not abuse its discretion in refusing to reconsider its decision.
Coming now to the merits of the case, we note that the lower court made
the following findings: On December 18, 1951, plaintiff obtained from
defendant a loan in the sum of P12,000 subject to the following conditions:
(a) that plaintiff shall pay to defendant an interest in the amount of P250 a
month; (b) that defendant shall deduct from the loan certain obligations of
plaintiff to third persons amounting to P4,550, plus the sum of P250 as
interest for the first month; and (c) that after making the above deductions,
defendant shall deliver to plaintiff only the balance of the loan of P12,000.
Pursuant to their agreement, plaintiff paid to defendant as interest on the
loan a total of P2,250.00 corresponding to nine months from December 18,
1951, on the basis of P250.00 a month, which is more than the maximum
interest authorized by law. To secure the payment of the aforesaid loan,
defendant required plaintiff to sign a document known as "Conditional Sale
of Residential Building", purporting to convey to defendant, with right to
repurchase, a two-story building of strong materials belonging to plaintiff.
This document did not express the true intention of the parties which was
merely to place said property as security for the payment of the loan.
After the execution of the aforesaid document, defendant insured the
building against fire with the Associated Insurance & Surety Co., Inc. for the
sum of P15,000, the insurance policy having been issued in the name of
defendant. The building was partly destroyed by fire and, after proper
demand, defendant collected from the insurance company an indemnity of
P13,107.00. Plaintiff demanded from defendant that she be credited with
the necessary amount to pay her obligation out of the insurance proceeds
but defendant refused to do so. And on the strength of these facts, the
court rendered decision the dispositive part of which reads as follows:
Wherefore, judgment is hereby rendered declaring the transaction had
between plaintiff and defendant, as shown in Exhibit A, an equitable
mortgage to secure the payment of the sum of P12,000 loaned by the
defendant to plaintiff; ordering the defendant to credit the sum of P13,107
received by the defendant from the Associated Insurance & surety Co., Inc.
to the payment of plaintiff's obligation in the sum of P12,000.00 as stated
in the complaint, thus considering the agreement of December 18, 1951
between the herein plaintiff and defendant completely paid and leaving still
a balance in the sum of P1,107 from the insurance collected by defendant;
that as plaintiff had paid to the defendant the sum of P2,250.00 for nine
11
months as interest on the sum of P12,000 loaned to plaintiff and the legal
interest allowed by law in this transaction does not exceed 12 per cent per
annum, or the sum of P1,440 for one year, so the herein plaintiff and
overpaid the sum of P810 to the defendant, which this Court hereby
likewise orders the said defendant to refund to herein plaintiff, plus the
balance of P1,107 representing the difference of the sum loan of P12,000
and the collected insurance of P13,107 from the insurance company
abovementioned to which the herein plaintiff is entitled to receive, and to
pay the costs.
The question that now arises is: Is the trial court justified in considering the
obligation of plaintiff fully compensated by the insurance amount and in
ordering defendant to refund to plaintiff the sum of P1,107 representing the
difference of the loan of P12,000 and the sum of P13,107 collected by said
defendant from the insurance company notwithstanding the fact that it was
not proven that the insurance was taken for the benefit of the mortgagor?
Is is our opinion that on this score the court is in error for its ruling runs
counter to the rule governing an insurance taken by a mortgagee
independently of the mortgagor. The rule is that "where a mortgagee,
independently of the mortgagor, insures the mortgaged property in his own
name and for his own interest, he is entitled to the insurance proceeds in
case of loss, but in such case, he is not allowed to retain his claim against
the mortgagor,but is passed by subrogation to the insurer to the extent of
the money paid." (Vance on Insurance, 2d ed., p. 654)Or, stated in another
way, "the mortgagee may insure his interest in the property independently
of the mortgagor. In that event, upon the destruction of the property the
insurance money paid to the mortgagee will not inure to the benefit of the
mortgagor, and the amount due under the mortgage debt remains
unchanged. The mortgagee, however, is not allowed to retain his claim
against the mortgagor, but it passes by subrogation to the insurer, to the
extent of the insurance money paid." (Vance on Insurance, 3rd ed., pp. 772773) This is the same rule upheld by this Court in a case that arose in this
jurisdiction. In the case mentioned, an insurance contract was taken out by
the mortgagee upon his own interest, it being stipulated that the proceeds
would be paid to him only and when the case came up for decision, this
Court held that the mortgagee, in case of loss, may only recover upon the
policy to the extent of his credit at the time of the loss. It was declared that
the mortgaged had no right of action against the mortgagee on the policy.
(San Miguel Brewery vs. Law Union, 40 Phil., 674.)
It is true that there are authorities which hold that "If a mortgagee procures
insurance on his separate interest at his own expense and for his own
benefit, without any agreement with the mortgagor with respect thereto,
the mortgagor has no interest in the policy, and is not entitled to have the
insurance proceeds applied in reduction of the mortgage debt" (19 R.C.L.,
p. 405), and that, furthermore, the mortgagee "has still a right to recover
his whole debt of the mortgagor." (King vs. State Mut. F. Ins. Co., 7 Cush. 1;
Suffolk F. Ins. Co. vs. Boyden 9 Allen, 123; See also Loomis vs. Eagle Life &
Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg.
Co. vs. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster vs. Equitable
Mut. F. Ins. Co., 2 Gray 216.) But these authorities merely represent the
minority view (See case note, 3 Lawyers' Report Annotated, new series, p.
79). "The general rule and the weight of authority is, that the insurer is
thereupon subrogated to the rights of the mortgagee under the mortgage.
This is put upon the analogy of the situation of the insurer to that of a
surety." (Jones on Mortgages, Vol. I, pp. 671-672.)
Considering the foregoing rules, it would appear that the lower court erred
in declaring that the proceeds of the insurance taken out by the defendant
on the property mortgaged inured to the benefit of the plaintiff and in
ordering said defendant to deliver to the plaintiff the difference between
her indebtedness and the amount of insurance received by the defendant,
for, in the light of the majority rule we have above enunciated, the correct
solution should be that the proceeds of the insurance should be delivered
to the defendant but that her claim against the plaintiff should be
considered assigned to the insurance company who is deemed subrogated
to the rights of the defendant to the extent of the money paid as indemnity.
Consistent with the foregoing pronouncement, we therefore modify the
judgment of the lower court as follows:(1) the transaction had between the
plaintiff and defendant as shown in Exhibit A is merely an equitable
mortgage intended to secure the payment of the loan of P12,000;(2) that
the proceeds of the insurance amounting to P13,107.00 was properly
collected by defendant who is not required to account for it to the plaintiff;
(3) that the collection of said insurance proceeds shall not be deemed to
have compensated the obligation of the plaintiff to the defendant, but bars
the latter from claiming its payment from the former; and (4) defendant
shall pay to the plaintiff the sum of P810.00 representing the overpayment
made by plaintiff by way of interest on the loan. No pronouncement as to
costs.
Bengzon, Montemayor, Reyes, A., Jugo, Labrador , Concepcion, and Reyes,
J.B.L., JJ., concur.
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