Académique Documents
Professionnel Documents
Culture Documents
Loan
General Provisions
1. People vs Concepcion (44 Phil 126) Digest
Commodatum ( Articles 1935- 1952)
2. People vs Bagtas (6 SCRA 262) Digest
Obligations of Bailee (Articles 1941-1945)
Obligations of Bailor (Articles 1946-1952)
3. Quintos and Ansaldo vs Beck (69 Phil 108) Digest
Simple Loan or Mutuum (Articles 1953-1961)
4. Republic vs Jose Grijaldo (15 SCRA 681) Digest
5. State Investment House Inc. vs CA (198 SCRA 390) Digest Digest Digest
6. Eastern Shipping Lines Inc. vs CA (234 SCRA 78) Digest
7. Joven de Cortes vs Venturanza ( 79 SCRA 709) Digest
8. Rizal Commercial Banking Corporation vs CA (289 SCRA 292) Digest Digest
Deposit ((Articles 1962- 2009)
Obligations of Depositary
9. Roman Catholic Bishops of Jaro vs De a Pena ( 26 Phil 144) Digest
10. CA Agro-Industrial Development Corp vs CA (219 SCRA 426) Digest
11. Javellana vs Lim ( 11 Phil 141) Digest
12. Gavieres vs Tavera (1 Phil 71) Digest
13. Delgado vs Bonnevie and Arandez (23 Phil 308) Digest
14. Baron vs David (51 Phil 1) Digest
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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.
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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.
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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
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No. 2747. Section 35 of Act No. 2747 provides that 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. Counsel for the defense 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. They averred that the granting
of a credit to the co-partnership "Puno y Concepcion, S. en C." by Venancio
Concepcion, President of the Philippine National Bank, is not a "loan" within the
meaning of section 35 of Act No. 2747.
ISSUE: Whether or not the granting of a credit of P300,000 to the co-partnership
"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.
HELD: The Supreme Court ruled in the affirmative. 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. 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. The concession of a "credit" necessarily involves the granting of "loans"
up to the limit of the amount fixed in the "credit,"
People vs Bagtas (6 SCRA 262)
G.R. No. L-17474
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FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose
V. Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of
law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines
through the Bureau of Animal Industry three bulls: a Red 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
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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
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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
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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)
(3)
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
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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.
Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the Court of First Instance of
Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be
enforced by means of a writ of execution but must be presented to the probate
court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes,
Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.
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Footnotes
1 Article 1933 of the Civil Code.
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November 3, 1939
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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
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
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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 Civil Code cited by counsel for the parties
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are not squarely 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
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HELD: The contract entered into between the parties is one of commadatum.
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. 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 electric lamps. 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.
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On January 17, 1961 the appellee filed a complaint in the Justice of the Peace
Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid
account in question. The Justice of the Peace Of Hinigaran, after hearing,
dismissed the case on the ground that the action had prescribed. The appellee
appealed to the Court of First Instance of Negros Occidental and on March 26,
1962 the court a quo rendered a decision ordering the appellant to pay the
appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate
of 6% per annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also ordered to pay
the sum equivalent to 10% of the amount due as attorney's fees and costs.
The appellant appealed directly to this Court. During the pendency of this
appeal the appellant Jose Grijaldo died. Upon motion by the Solicitor General
this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto
Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose
Grijaldo to appear and be substituted as appellants in accordance with Section
17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no
cause of action against the appellant; (2) that if the appellee has a cause of
action at all, that action had prescribed; and (3) that the lower court erred in
ordering the appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant maintains that the
appellee has no privity of contract with the appellant. It is claimed that the
transaction between the Taiwan Bank, Ltd. and the appellant, so that the
appellee, Republic of the Philippines, could not legally bring action against the
appellant for the enforcement of the obligation involved in said transaction. This
contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original
creditor and the transaction between the appellant and the Bank of Taiwan
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was a private contract of loan. However, pursuant to the Trading with the
Enemy Act, as amended, and Executive Order No. 9095 of the United States;
and under Vesting Order No. P-4, dated January 21, 1946, the properties of the
Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction
of the enemy country (Japan), were vested in the United States Government
and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were
transferred to and vested in the Republic of the Philippines. The successive
transfer of the rights over the loans in question from the Bank of Taiwan, Ltd. to
the United States Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of the
Philippines the successor of the rights, title and interest in said loans, thereby
creating a privity of contract between the appellee and the appellant. In
defining the word "privy" this Court, in a case, said:
The word "privy" denotes the idea of succession ... hence an assignee of a
credit, and one subrogated to it, etc. will be privies; in short, he who by
succession is placed in the position of one of those who contracted the
judicial relation and executed the private document and appears to be
substituting him in the personal rights and obligation is a privy (Alpurto vs.
Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the
assets of the Bank of Taiwan, Ltd. which belonged to an enemy country. The
confiscation of the assets of the Bank of Taiwan, Ltd. being an involuntary act of
war, and sanctioned by international law, the United States succeeded to the
rights and interests of said Bank of Taiwan, Ltd. over the assets of said bank. As
successor in interest in, and transferee of, the property rights of the United States
of America over the loans in question, the Republic of the Philippines had
thereby become a privy to the original contracts of loan between the Bank of
Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the
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Philippines has a legal right to bring the present action against the appellant
Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee
has no cause of action, that because the loans were secured by a chattel
mortgage on the standing crops on a land owned by him and these crops were
lost or destroyed through enemy action his obligation to pay the loans was
thereby extinguished. This argument is untenable. The terms of the promissory
notes and the chattel mortgage that the appellant executed in favor of the
Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the
appellant under the five promissory notes was not to deliver a determinate thing
namely, the crops to be harvested from his land, or the value of the crops that
would be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five loans, with
interest. The transaction between the appellant and the Bank of Taiwan, Ltd.
was a series of five contracts of simple loan of sums of money. "By a contract of
(simple) loan, one of the parties delivers to another ... money or other
consumable thing upon the condition that the same amount of the same kind
and quality shall be paid." (Article 1933, Civil Code) The obligation of the
appellant under the five promissory notes evidencing the loans in questions is to
pay the value thereof; that is, to deliver a sum of money a clear case of an
obligation to deliver, a generic thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as
a security for the fulfillment of appellant's obligation covered by the five
promissory notes, and the loss of the crops did not extinguish his obligation to
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pay, because the account could still be paid from other sources aside from the
mortgaged crops.
In his second point of contention, the appellant maintains that the action of the
appellee had prescribed. The appellant points out that the loans became due
on June 1, 1944; and when the complaint was filed on January 17,1961 a period
of more than 16 years had already elapsed far beyond the period of ten
years when an action based on a written contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that
the complaint in the present case was brought by the Republic of the Philippines
not as a nominal party but in the exercise of its sovereign functions, to protect
the interests of the State over a public property. Under paragraph 4 of Article
1108 of the Civil Code prescription, both acquisitive and extinctive, does not run
against the State. This Court has held that the statute of limitations does not run
against the right of action of the Government of the Philippines (Government of
the Philippine Islands vs. Monte de Piedad, etc., 35 Phil. 738-751).Secondly, the
running of the period of prescription of the action to collect the loan from the
appellant was interrupted by the moratorium laws (Executive Orders No. 25,
dated November 18, 1944; Executive Order No. 32. dated March 10, 1945; and
Republic Act No. 342, approved on July 26, 1948). The loan in question, as
evidenced by the five promissory notes, were incurred in the year 1943, or during
the period of Japanese occupation of the Philippines. This case is squarely
covered by Executive Order No. 25, which became effective on November 18,
1944, providing for the suspension of payments of debts incurred after
December 31, 1941. The period of prescription was, therefore, suspended
beginning November 18, 1944. This Court, in the case of Rutter vs. Esteban (L3708, May 18, 1953, 93 Phil. 68), declared on May 18, 1953 that the Moratorium
Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are unconstitutional;
but in that case this Court ruled that the moratorium laws had suspended the
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prescriptive period until May 18, 1953. This ruling was categorically reiterated in
the decision in the case of Manila Motors vs. Flores, L-9396, August 16, 1956. It
follows, therefore, that the prescriptive period in the case now before US was
suspended from November 18,1944, when Executive Orders Nos. 25 and 32 were
declared unconstitutional by this Court. Computed accordingly, the prescriptive
period was suspended for 8 years and 6 months. By the appellant's own
admission, the cause of action on the five promissory notes in question arose on
June 1, 1944. The complaint in the present case was filed on January 17, 1961, or
after a period of 16 years, 6 months and 16 days when the cause of action
arose. If the prescriptive period was not interrupted by the moratorium laws, the
action would have prescribed already; but, as We have stated, the prescriptive
period was suspended by the moratorium laws for a period of 8 years and 6
months. If we deduct the period of suspension (8 years and 6 months) from the
period that elapsed from the time the cause of action arose to the time when
the complaint was filed (16 years, 6 months and 16 days) there remains a period
of 8 years and 16 days. In other words, the prescriptive period ran for only 8
years and 16 days. There still remained a period of one year, 11 months and 14
days of the prescriptive period when the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred
in ordering him to pay the amount of P2,377.23. It is claimed by the appellant
that it was error on the part of the lower court to apply the Ballantyne Scale of
values in evaluating the Japanese war notes as of June 1943 when the loans
were incurred, because what should be done is to evaluate the loans on the
basis of the Ballantyne Scale as of the time the loans became due, and that
was in June 1944. This contention of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of
P2,377.23 as of December 31, 1959, plus interest rate of 6% per annum
compounded quarterly from the date of the filing of the complaint. The sum
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total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd.
was P1,281.97 in Japanese war notes. Computed under the Ballantyne Scale of
values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943
is equivalent to P889.64 in genuine Philippine currency which was considered
the aggregate amount due as principal of the five loans, and the amount of
P2,377.23 as of December 31, 1959 was arrived at after computing the interest
on the principal sum of P889.64 compounded quarterly from the time the
obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be
applied as of the time the obligation was incurred, and that was in June 1943.
This stand of the appellee was upheld by the lower court; and the decision of
the lower court is supported by the ruling of this Court in the case of Hilado vs.
De la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese war notes
may be enforced in our Courts after the liberation to the extent of the just
obligation of the contracting parties and, as said notes have become
worthless, in order that justice may be done and the party entitled to be
paid can recover their actual value in Philippine Currency, what the
debtor or defendant bank should return or pay is the value of the
Japanese military notes in relation to the peso in Philippine Currency
obtaining on the date when and at the place where the obligation was
incurred unless the parties had agreed otherwise. ... . (italics supplied)
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs
against the appellant. Inasmuch as the appellant Jose Grijaldo died during the
pendency of this appeal, his estate must answer in the execution of the
judgment in the present case.
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Grijaldo appealed to Supreme Court, but during the pendency of his appeal
Grijaldo died, upon solicitor general motion Grijaldo was substituted by his legal
heirs.
Whether or not appellee had no cause of action and the CFI erred in ordering
Grijaldo to pay the 2, 377.33 it awarded.Article 1263 In an obligation to deliver
a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation.1. Yes, They have cause of action the CFI ruling was
correct Grijaldo heir must pay the 2,377.33 plus 6 % interest.
2. The obligation of Grijaldo under the 5 promissory notes was not to pay or
deliver a determinate thing namely; the crops to be harvested; the value of the
crops to be harvested. His obligation was to pay a generic things which is the
amount of money and the 6 % interest.
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FELICIANO, J.:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain
shares of stock to petitioner State Investment House, Inc. ("State") in order to
secure a loan of P120,000.00 designated as Account No. IF-82-0631-AA. Prior to
the execution of the pledge, respondent-spouses, as an accommodation to
and together with the spouses Jose and Marcelina Aquino, signed an
agreement (Account No. IF-82-1379-AA) with petitioner State for the latter's
purchase of receivables amounting to P375,000.00. When Account No. IF-820631-AA fell due, respondent spouses paid the same partly with their own funds
and partly from the proceeds of another loan which they obtained also from
petitioner State designated as Account No. IF-82-0904-AA. This new loan was
secured by the same pledge agreement executed in relation to Account No. IF820631-AA. When the new loan matured, State demanded payment.
Respondents expressed willingness to pay, requesting that upon payment, the
shares of stock pledged be released. Petitioner State denied the request on the
ground that the loan which it had extended to the spouses Jose and Marcelina
Aquino (Account No. IF-82-1379- AA) had remained unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of
Notarial Sale stating that upon request of State and by virtue of the pledge
agreement, he would sell at public auction the shares of stock pledged to State.
This prompted respondents to file a case before the Regional Trial Court of
Quezon City alleging that the intended foreclosure sale was illegal because
from the time the obligation under Account No. IF-82-0904-AA became due,
they had been able and willing to pay the same, but petitioner had insisted that
respondents pay even the loan account of Jose and Marcelina Aquino which
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had not been secured by the pledge. It was further alleged that their failure to
pay their loan (Account No. IF-82-0904-AA) was excused because the petitioner
State itself had prevented the satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984 rendered by Judge
Willelmo Fortun, initially dismissed the complaint. Respondent spouses filed a
motion for reconsideration praying for a new decision ordering petitioner State
to release the shares upon payment of respondents' loan "without interest," as
the latter had not been in delay in the performance of their obligation. State
countered that the pledge executed by respondent spouses also covered the
loan extended to Jose and Marcelina Aquino, which too should be paid before
the shares may be released.
Acting on the motion for reconsideration, Judge Fortun set aside his original
decision and rendered a new judgment dated 29 January 1985, ordering State
to immediately release the pledge and to deliver to respondents the share of
stock "upon payment of the loan under Code No. 82-0904-AA."
On appeal, the Court of Appeals affirmed in toto the new decision of the trial
court, holding that the loan extended to Jose and Marcelina Aquino, having
been executed prior to the pledge was not covered by the pledge which
secured only loans executed subsequently. Thus, upon payment of the loan
under Code No. IF-0904-AA, the shares of stock should be released. The
decisions of the Court of Appeals and of Judge Fortun became final and
executory.
Upon remand of the records of the case to the trial court for execution, there
developed disagreement over the amount which respondent spouses Rafael
and Refugio Aquino should pay to secure the release of the shares of stock
petitioner State contending that respondents should also pay interest and
respondents arguing they should not. Respondent spouses then filed a motion
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with the trial court to clarify the Fortun decision praying that an order issue
clarifying the phrase "upon payment of plaintiffs' loan" to mean upon payment
of plaintiff' loan in the principal amount of P110,000.00 alone, "without interest,
penalties and other charges."
On 17 February 1989, the trial court, speaking this time through Judge Perlita Tria
Tirona, rendered a decision purporting to clarify the decision of Judge Fortun
and ruling that petitioner State shall release respondents' shares of stock upon
payment by respondents of the principal of the loan as set forth in PN No. 820904-AA in the amount of P110,000.00, without interest, penalties and other
charges.
Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the
appeal was dismissed. The Court of Appeals agreed with Judge Tirona that no
interest need be paid and added that the clarificatory (Tirona) decision of the
trial court merely restated what had been provided for in the earlier (Fortun)
decision; that the Tirona decision did not go beyond what had been adjudged
in the earlier decision. The motion for reconsideration filed by petitioner was
accordingly denied.
Hence, this Petition for Review contending that no manifest ambiguity existed in
the decision penned by Judge Fortun; that the trial court through Judge Tirona,
erred in clarifying the decision of Judge Fortun; and that the amendment sought
to be introduced in the Fortun decision by respondents may not be made as the
same was substantial in nature and the Fortun decision had become final.
We begin by noting that the trial court has asserted authority to issue the
clarificatory order in respect of the decision of Judge Fortun, even though that
judgment had become final and executory. In Reinsurance Company of the
Orient, Inc. v. Court of Appeals, 1 this Court had occasion to deal with the
applicable doctrine to some extent:
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Judge Fortun which may be legitimately clarified by referring to the body of the
decision and perhaps even the pleadings filed before him. The decision of
Judge Fortun disposing of the motion for reconsideration filed by respondent
spouses Rafael and Refugio Aquino consisted basically of quoting practically
the whole motion for reconsideration. In its dispositive portion, Judge Fortun's
decision stated:
WHEREFORE, plaintiffs "Motion for Reconsideration" dated January 3, 1985,
is granted and the decision of this Court dated December 14, 1984 is
hereby revoked and set aside and another judgment is hereby rendered
in favor of plaintiffs as follows:
(1) Ordering defendants to immediately release the pledge on, and to
deliver to plaintiffs, the shares of stocks enumerated and described in
paragraph 4 of plaintiffs' complaint dated July 17, 1984, upon payment of
plaintiffs loan under Code No. 82-0904-AA to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to plaintiffs
P10,000.00 as moral damages, P5,000.00 as exemplary damages,
P6,000.00 as attorney's fees, plus costs;
(3) Dismissing defendants' counterclaim, for lack of merit and making the
preliminary injunction permanent.
SO ORDERED.3
Judge Fortun evidently meant to act favorably on the motion for
reconsideration of the respondent Aquino spouses and in effect accepted
respondent spouses' argument that they had not incurred mora considering that
their failure to pay PN No. IF82-0904-AA on time had been due to petitioner
State's unjustified refusal to release the shares pledged to it. It is not, however,
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clear to what precise extent Judge Fortun meant to grant the motion for
reconsideration. The promissory note in Account No. IF-82-0904-AA had three (3)
components: (a) principal of the loan in the amount of P110,000.00; (b) regular
interest in the amount of seventeen percent (17%) per annum; and (c)
additional or penalty interest in case of non-payment at maturity, at the rate of
two percent (2%) per month or twenty-four percent (24%) per annum. In the
dispositive part of his resolution, Judge Fortun did not specify which of these
components of the loan he was ordering respondent spouses to pay and which
component or components he was in effect deleting. We cannot assume that
Judge Fortun meant to grant the relief prayed for by respondent spouses in all its
parts. For one thing, respondent spouses in their motion for reconsideration
asked for "at least P50,000.00" for moral damages and "at least P50,000.00" for
exemplary damages, as well as P20,000.00 by way of attorney's fees and
litigation expenses. Judge Fortun granted respondent spouses only P10,000.00 as
moral damages and P5,000.00 as exemplary damages, plus P6,000.00 as
attorney's fees and costs. For another, respondent spouses asked Judge Fortun
to order the release of the shares pledged "upon payment of [respondent
spouses'] loan under Code No. 82-0904-AA without interest, as plaintiffs were not
in delay in accordance with Article 69 of the New Civil Code " (Emphasis
supplied). In other words, respondent spouses did not themselves become very
clear what they were asking Judge Fortun to grant them; they did not
apparently distinguish between regular interest or "monetary interest" in the
amount of seventeen percent (17%) per annumand penalty charges or
"compensatory interest" in the amount of two percent (2%) per month or twentyfour percent (24%) per annum.
It thus appears that the Fortun decision was ambiguous in the sense that it was
cryptic. We believe that in these circumstances, we must assume that Judge
Fortun meant to decide in accordance with law, that we cannot fairly assume
that Judge Fortun was grossly ignorant of the law, or that he intended to grant
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the respondent spouses relief to which they were not entitled under law. Thus,
the ultimate question which arises is: if respondent Aquino spouses were not in
delay, what should they have been held liable for in accordance with law?
We believe and so hold that since respondent Aquino spouses were held not to
have been in delay, they were properly liable only for: (a) the principal of the
loan or P110,000.00; and (b) regular or monetary interest in the amount of
seventeen percent (17%) per annum. They were not liable for penalty or
compensatory interest, fixed by the promissory note in Account No. IF-82-0904AA at two percent (2%) per month or twenty-four (24%) per annum. It must be
stressed in this connection that under Article 2209 of the Civil Code which
provides that
. . . [i]f the obligation consists in the payment of a sum of money, and the
debtor incurs in delay. the indemnity for damages, there being no
stimulation to the contrary. shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum.
the appropriate measure for damages in case of delay in discharging an
obligation consisting of the payment of a sum or money, is the payment of
penalty interest at the rate agreed upon; and in the absence of a stipulation of
a particular rate of penalty interest, then the payment of additional interest at a
rate equal to the regular monetary interest; and if no regular interest had been
agreed upon, then payment of legal interest or six percent (6%) per annum.4
The fact that the respondent Aquino spouses were not in default did not mean
that they, as a matter of law, were relieved from the payment not only of
penalty or compensatory interest at the rate of twenty-four percent (24%) per
annum but also of regular or monetary interest of seventeen percent (17%) per
annum. The regular or monetary interest continued to accrue under the terms of
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the relevant promissory note until actual payment is effected. The payment of
regular interest constitutes the price or cost of the use of money and thus, until
the principal sum due is returned to the creditor, regular interest continues to
accrue since the debtor continues to use such principal amount. The relevant
rule is set out in Article 1256 of the Civil Code which provides as follows:
Art. 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the
place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (Emphasis supplied)
Where the creditor unjustly refuses to accept payment, the debtor desirous of
being released from his obligation must comply with two (2) conditions: (a)
tender of payment; and (b) consignation of the sum due. Tender of payment
must be accompanied or followed by consignation in order that the effects of
payment may be produced. Thus, in Llamas v. Abaya,5 the Supreme Court
stressed that a written tender of payment alone, without consignation in court of
the sum due, does not suspend the accruing of regular or monetary interest.
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In the instant case, respondent spouses Aquino, while they are properly
regarded as having made a written tender of payment to petitioner State,
failed to consign in court the amount due at the time of the maturity of Account
No. IF-820904-AA. It follows that their obligation to pay principal-cum-regular or
monetary interest under the terms and conditions of Account No. IF-82-0904-AA
was not extinguished by such tender of payment alone.
For the respondent spouses to continue in possession of the principal of the loan
amounting to P110,000.00 and to continue to use the same after maturity of the
loan without payment of regular or monetary interest, would constitute unjust
enrichment on the part of the respondent spouses at the expense of petitioner
State even though the spouses had not been guilty of mora. It is precisely this
unjust enrichment which Article 1256 of the Civil Code prevents by requiring, in
addition to tender of payment, the consignation of the amount due in court
which amount would thereafter be deposited by the Clerk of Court in a bank
and earn interest to which the creditor would be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED DUE COURSE. The
Decision of the Court of Appeals dated 30 August 1989 in C.A.-G.R. No. 17954
and the Decision of the Regional Trial Court dated 17 February 1989 in Civil Case
No. Q-42188 are hereby REVERSED and SET ASIDE. The dispositive portion of the
decision of Judge Fortun is hereby clarified so as to read as follows:
(1) Ordering defendants to immediately release the pledge and to deliver to the
plaintiff spouses Rafael and Refugio Aquino the shares of stock enumerated and
described in paragraph 4 of said spouses' complaint dated 17 July 1984, upon
full payment of the amount of P110,000.00 plus seventeen percent (17%) per
annum regular interest computed from the time of maturity of the plaintiffs' loan
(Account No. IF-82-0904-AA) and until full payment of such principal and interest
to defendants;
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(2) Ordering defendant State Investment House, Inc. to pay to the plaintiff
spouses Rafael and Refugio Aquino P10,000.00 as moral damages, P5,000.00 as
exemplary damages, P6,000.00 as attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit and making the
preliminary injunction permanent."
No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
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without just cause to accept it, the debtor shall be released from responsibility
by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1)
When the creditor is absent or unknown, or does not appear at the place
of payment;
(2)
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(3)
(4)
(5)
When the title of the obligation has been lost. (Emphasis supplied)
Where the creditor unjustly refuses to accept payment, the debtor desirous of
being released from his obligation must comply with two (2) conditions: (a)
tender of payment; and (b) consignation of the sum due. Tender of payment
must be accompanied or followed by consignation in order that the effects of
payment may be produced. Thus, in Llamas v. Abaya, the Supreme Court
stressed that a written tender of payment alone, without consignation in court of
the sum due, does not suspend the accruing of regular or monetary interest.
In the instant case, respondent spouses Aquino, while they are properly
regarded as having made a written tender of payment to petitioner State,
failed to consign in court the amount due at the time of the maturity of Account
No. IF-820904-AA. It follows that their obligation to pay principal-cum-regular or
monetary interest under the terms and conditions of Account No. IF-82-0904-AA
was not extinguished by such tender of payment alone.
For the respondent spouses to continue in possession of the principal of the loan
amounting to P110,000.00 and to continue to use the same after maturity of the
loan without payment of regular or monetary interest, would constitute unjust
enrichment on the part of the respondent spouses at the expense of petitioner
State even though the spouses had not been guilty of mora. It is precisely this
unjust enrichment which Article 1256 of the Civil Code prevents by requiring, in
addition to tender of payment, the consignation of the amount due in court
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Facts:
This case stemmed from an initial case for the release of pledge executed by
spouses Rafael and Refugio Aquino against State Investment House
Incorporated which refused to do so since Jose and Marcelina Aquinos loan
were still left unpaid and to which it is alleging are debts secured by the pledge
of shares executed by the spouses. During trial, the RTC through Judge Fortun
dismissed the case but upon a motion for reconsideration, Judge Fortun set
aside his original decision and rendered a new judgment dated 29 January
1985, ordering State to immediately release the pledge and to deliver to
respondents the share of stock "upon payment of the loan under Code No. 820904-AA."
On appeal, the Court of Appeals affirmed in toto the new decision of the trial
court, holding that the loan extended to Jose and Marcelina Aquino, having
been executed prior to the pledge was not covered by the pledge which
secured only loans executed subsequently. Thus, upon payment of the loan
under Code No. IF-0904-AA, the shares of stock should be released. The
decisions of the Court of Appeals and of Judge Fortun became final and
executory.
Upon remand of the records of the case to the trial court for execution, there
developed disagreement over the amount which respondent spouses Rafael
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and Refugio Aquino should pay to secure the release of the shares of stock
petitioner State contending that respondents should also pay interest and
respondents arguing they should not. Respondent spouses then filed a motion
with the trial court to clarify the Fortun decision praying that an order issue
clarifying the phrase "upon payment of plaintiffs' loan" to mean upon payment
of plaintiff' loan in the principal amount of P110,000.00 alone, "without interest,
penalties and other charges."
On 17 February 1989, the trial court, speaking this time through Judge Perlita Tria
Tirona, rendered a decision purporting to clarify the decision of Judge Fortun
and ruling that petitioner State shall release respondents' shares of stock upon
payment by respondents of the principal of the loan as set forth in PN No. 820904-AA in the amount of P110,000.00, without interest, penalties and other
charges.
Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the
appeal was dismissed. The Court of Appeals agreed with Judge Tirona that no
interest need be paid and added that the clarificatory (Tirona) decision of the
trial court merely restated what had been provided for in the earlier (Fortun)
decision; that the Tirona decision did not go beyond what had been adjudged
in the earlier decision. The motion for reconsideration filed by petitioner was
accordingly denied.
Hence, this Petition for Review contending that no manifest ambiguity existed in
the decision penned by Judge Fortun; that the trial court through Judge Tirona,
erred in clarifying the decision of Judge Fortun; and that the amendment sought
to be introduced in the Fortun decision by respondents may not be made as the
same was substantial in nature and the Fortun decision had become final.
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Issue:
W/N the decision of Judge Fortun includes Interest.
Held:
See Doctrine. Essentially, in the decision of the case, the court simply
distinguished monetary interest that refers to the cost of money which will
continue to run despite absence of delay on the part of the debtor and can
only be tolled through consignment in court of the payment of the debtor
otherwise an unjust enrichment would result in favor of the debtor, and
compensatory interest which refers to a form of damages which seeks to
indemnify the creditor for the delay caused by the debtor. As such, the decision
was construed to include monetary interest only as the spouses Aquino were in
no sense in delay.
Facts: Private respondents Spouses Rafael & Refugia Aquino pledged certain
shares of stock to petitioner to secure a loan. Prior to the execution of such
pledge, respondents, agreed with the petitioner for the latter's purchase of
receivables from Spouses Jose and Marcelina Aquino. Respondent spouses paid
their loan partly from their own money and from the proceeds of a new loan
secured by the same pledge. Upon maturity of the new loan, petitioner
demanded payment. Respondents expressed willingness to pay requesting that
upon payment the shares of stocks pledged be released. Petitioner denied the
request on the ground that the loan extended to Jose & Marcelina had
remained. Respondent sued the petitioner. The trial judge ruled in their favor.
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Held: On the first issue, yes. The respondents may not be in default in view of
their expressed willingness to pay the same upon demand and the refusal of the
petitioner to accept. However, their tender of payment should have been
properly consigned with the court. On the second issue, since respondent
spouses were held not to have been in delay, they were properly liable only for
the principal of the loan and the stipulated regular or monetary interest of 17%
per annum. They were not liable for penalty or compensatory interest, fixed by
the promissory note in Account No. IF-82-0904-AA at two percent (2%) per
month or twenty-four (24%) per annum. It must be stressed that the appropriate
measure for damages in case of delay in discharging an obligation consisting of
the payment of a sum or money, is the payment of penalty interest at the rate
agreed upon; and in the absence of a stipulation of a particular rate of penalty
interest, then the payment of additional interest at a rate equal to the regular
monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%)per annum, or in the case of loans or
forbearances of money, 12 % per annum as provided for in Central Bank
Circular No. 416.
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payment of the penalty interest at the rateagreed upon; and in the absence of
a stipulation of a particularrate of penalty interest, then the payment of
additional interestat a rate equal to the regular monetary interest, and
if noregular interest had been agreed upon, then payment of legal interest.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for
damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the customs
broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date
the decision appealed from is rendered; and (c) whether the applicable rate of
interest, referred to above, is twelve percent (12%) or six percent (6%).
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The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:
This is an action against defendants shipping company, arrastre
operator and broker-forwarder for damages sustained by a
shipment while in defendants' custody, filed by the insurer-subrogee
who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped
from Yokohama, Japan for delivery vessel "SS EASTERN COMET"
owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc.
The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation
received the shipment from defendant Metro Port Service, Inc., one
drum opened and without seal (per "Request for Bad Order Survey."
Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the consignee's
warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per
"Bad Order Waybill" No. 10649, Exh. E).
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In this decision, we have begun by saying that the questions raised by petitioner
carrier are not all that novel. Indeed, we do have a fairly good number of
previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the
person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of
Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the
goods shipped either are lost or arrive in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence, and there need
not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;
Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port
Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional
cases when such presumption of fault is not observed but these cases,
enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which
can be applied to this case.
The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to the consignee has, too, been
passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum,thus:
The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman (Lua Kian
v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between
the consignee and the common carrier is similar to that of the
consignee and the arrastre operator (Northern Motors, Inc. v. Prince
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Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE
to take good care of the goods that are in its custody and to
deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver the
goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre
operator and the customs broker are themselves always and necessarily liable
solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
may not vary the rule. The instant petition has been brought solely by Eastern
Shipping Lines, which, being the carrier and not having been able to rebut the
presumption of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we take note, is
that "there is sufficient evidence that the shipment sustained damage while in
the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that
deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising
out of short deliveries and pilferage of goods. In this case, appellee Malayan
Insurance (the plaintiff in the lower court) averred in its complaint that the total
amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor
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definitely ascertained. In the stipulation of facts later entered into by the parties,
in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court
rendered judgment ordering the appellants (defendants) Manila Port Service
and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28
December 1962 until full payment thereof. The appellants then assailed, inter
alia, the award of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money,
absent a stipulation, is the legal rate. Such interest normally is
allowable from the date of demand, judicial or extrajudicial. The
trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code,
interest "cannot be recovered upon unliquidated claims or
damages, except when the demand can be established with
reasonable certainty." And as was held by this Court in Rivera
vs. Perez, 4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof (Montilla
c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the
decision." (Emphasis supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for
"Recovery of Damages for Injury to Person and Loss of Property." After trial, the
lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and third party defendants and against the defendants and third
party plaintiffs as follows:
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interest, shall be twelve (12%) percent per annum. This Circular shall
take effect immediately. (Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations
involving loans or forbearance of any money, goods or credits. Any
other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does
not fall within the coverage of the said law for it is not within the
ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be
executed is one rendered in an Action for Damages for injury to
persons and loss of property and does not involve any loan, much
less forbearances of any money, goods or credits. As correctly
argued by the private respondents, the law applicable to the said
case is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of
a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to
the contrary, shall be the payment of interest agreed
upon, and in the absence of stipulation, the legal
interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned
by an injury to person and loss of property. The trial court awarded private
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finality until paid. Solidary costs against the defendant and thirdparty defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending
that "the interest of twelve (12%) per cent per annum imposed on the
total amount of the monetary award was in contravention of law." The
Court 10 ruled out the applicability of the Reformina and Philippine Rabbit
Bus Lines cases and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest
pursuant to Central Bank Circular No. 416 . . . is applicable only in
the following: (1) loans; (2) forbearance of any money, goods or
credit; and
(3) rate allowed in judgments (judgments spoken of refer to
judgments involving loans or forbearance of any money, goods or
credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161
[1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in
the instant case, there is neither a loan or a forbearance, but then
no interest is actually imposed provided the sums referred to in the
judgment are paid upon the finality of the judgment. It is delay in
the payment of such final judgment, that will cause the imposition
of the interest.
It will be noted that in the cases already adverted to, the rate of
interest is imposed on the total sum, from the filing of the complaint
until paid; in other words, as part of the judgment for damages.
Clearly, they are not applicable to the instant case. (Emphasis
supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate
Appellate Court 11 was a petition for review on certiorari from the decision,
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dated 27 February 1985, of the then Intermediate Appellate Court reducing the
amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985,
restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00
as moral damages and P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus costs of suit. In a
decision of 09 November 1988, this Court, while recognizing the right of the
private respondent to recover damages, held the award, however, for moral
damages by the trial court, later sustained by the IAC, to be inconceivably
large. The Court 12 thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum
of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until
paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo
v. Ruiz 13 which arose from a breach of employment contract. For having been
illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon.
When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the
CFI of Negros Oriental dated October 31, 1972 is affirmed in all
respects, with the modification that defendants-appellants, except
defendant-appellant Merton Munn, are ordered to pay, jointly and
severally, the amounts stated in the dispositive portion of the
decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate from the
date of the filing of the complaint until fully paid(Emphasis
supplied.)
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The petition for review to this Court was denied. The records were
thereupon transmitted to the trial court, and an entry of judgment was
made. The writ of execution issued by the trial court directed that only
compensatory damages should earn interest at 6% per annum from the
date of the filing of the complaint. Ascribing grave abuse of discretion on
the part of the trial judge, a petition for certiorari assailed the said order.
This Court said:
. . . , it is to be noted that the Court of Appeals ordered the
payment of interest "at the legal rate" from the time of the filing of
the complaint. . . Said circular [Central Bank Circular No. 416] does
not apply to actions based on a breach of employment contract
like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages
should be computed from the time the complaint was filed until the
amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National
Power Corporation vs. Angas, 14decided on 08 May 1992, involved the
expropriation of certain parcels of land. After conducting a hearing on the
complaints for eminent domain, the trial court ordered the petitioner to pay the
private respondents certain sums of money as just compensation for their lands
so expropriated "with legal interest thereon . . . until fully paid." Again, in applying
the 6% legal interest per annum under the Civil Code, the Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance
of money, goods or credits but expropriation of certain parcels of
land for a public purpose, the payment of which is without
stipulation regarding interest, and the interest adjudged by the trial
court is in the nature of indemnity for damages. The legal interest
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The "second group", did not alter the pronounced rule on the application of the
6% or 12% interest per annum, 17depending on whether or not the amount
involved is a loan or forbearance, on the one hand, or one of indemnity for
damage, on the other hand. Unlike, however, the "first group" which remained
consistent in holding that the running of the legal interest should be from the
time of the filing of the complaint until fully paid, the "second group" varied on
the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the
date of the decision of the court a quo,explaining that "if the suit were for
damages, 'unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof,' then, interest 'should be from the
date of the decision.'" American Express International v. IAC, introduced a
different time frame for reckoning the 6% interest by ordering it to be "computed
from the finality of (the) decision until paid." The Nakpil and Sons case ruled that
12% interest per annum should be imposed from the finality of the decision until
the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may
have called for different applications, guided by the rule that the courts are
vested with discretion, depending on the equities of each case, on the award
of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts 18 is breached, the contravenor can be held
liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages. 20
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II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. 21 Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. 22 In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 23 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court 24 at the rate of 6% per annum. 25 No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable
certainty. 26 Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially
or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
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EASTERN SHIPPING LINES, INC. vs. CA, GR. No. 97412, July 12, 1994
FACTS: Two fiber drums of riboflavin were shipped from Yokohama, Japan on
board the vessel owned by herein petitioner Eastern Shipping Lines. When it
arrives in Manila, it was put unto the custody of Metro Port Service, Inc. The latter
excepted to one drum which is said to be in bad order and which damage was
unknown to Eastern Shipping Lines. Later, Allied Brokerage Corporation received
the shipment from Metro Port Service, Inc. With one drum damaged, Allied
Brokerage Corporation made deliveries to the consignee's warehouse. The latter
excepted to one drum that is damaged. Eastern Shipping Lines averred that
due to the one drum that is damaged and due to the fault and negligence of
Metro Port Service, Inc. and Allied Brokerage Corporation, the consignee
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suffered losses. The two failed and refused to pay the claims for damages.
Consequently, Eastern Shipping Lines was compelled to pay the consignee
being subrogated to all the rights of action of said consignee against Metro Port
Service, Inc. and Allied Brokerage Corporation. Trial ensued and on appeal of
the case, the appellate court affirmed the decision of the trial court ordering
Metro Port Service and Allied Brokerage to pay Eastern Shipping Lines, jointly
and severally, the amount of P19,032.95, with the present legal interest of
12% per annum from the date of filing of the complaints, until fully paid. Metro
Port Service and Allied Brokerage opposed especially as to the payment of
interest contending that the legal interest on an award for loss or damage
should be 6% in view of Article 2209 of the Civil Code.
ISSUE: Whether or not the payment of legal interest on an award for loss or
damage is twelve percent (12%) or six percent (6%).
HELD: Article 2209 of the New Civil Code provides that if the obligation consists in
the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of stipulation, the legal interest which
is six percent per annum. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed
from default under and subject to the provisions of Article 1169 of the Civil
Code.
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The background facts may be gleaned from the pertinent portions of the
decision of the court a quo, as follows:+.wph!1
Plaintiff Felix Cortes y Ochoa and Noel J. Cortes filed the instant
action for foreclosure of real estate against the defendants
Gregorio Venturanza, Mary E. Venturanza, Jose Oledan and Erlinda
M. Oledan. The complaint alleges that plaintiff Felix Cortez y Ochoa
was the original owner of nine (9) parcels of land covered by
Transfer Certificates of Title Nos. 21334 to 21342, inclusive, while
plaintiff Noel J. Cortes was likewise the original owner of twenty-four
(24) parcels of land covered by Transfer Certificates off Title Nos.
21343, 21345, 21347 to 21367, inclusive, all of the land records of
Bulacan; that on October 24, 1958 said plaintiffs sold and delivered
to the defendants all the above-mentioned thirty-three (33) parcels
of land with all the improvements thereon for the total sum of
P716,573.90 of which defendants agreed to pay jointly and severally
the plaintiffs the sum of P100,000.00 upon the signing and execution
of a deed of sale and P40,000.00 on January 1, 1959 thereby
leaving a balance of P576,573.90 which the defendants agreed
and bound themselves to pay plaintiffs jointly and severally within
three (3) years from January 1, 1959 with interest thereon at the rate
of 6% per annum; that defendants further agreed and bound
themselves to secure the payment of the said balance of
P576,573.90 with a first mortgage upon the said 33 parcels of land
with improvements; that the defendants have already paid the
plaintiffs the total sum of P140,000.00; that of the unpaid balance
owing to plaintiffs, P169,484.24 pertaining to plaintiff Felix Cortes and
P407,089.66 pertains to plaintiff Noel J. Cortes; that upon the
registration of the deed of sale and mortgage with the office of the
register of deeds of Bulacan new certificates of title for the 33
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parcels of land were issued in the names of the defendants and the
mortgage obligation was noted thereon; that the mortgage
obligation fell due on January 1, 1962, but despite repeated
demands for payment, defendants failed and refused to pay the
said balance of P576,573.90 to plaintiffs; that from the time the
mortgage obligation fell due and demandable up to December 1,
1962 the total interest due from the defendants on the balance of
their obligation is P103,783.32 computer led at the stipulated interest
of 6% per annum; that it is stipulated in the deed of sale with
purchase money mortgage that in the event or default by
defendants to pay the obligation secured by the mortgage and a
suit is brought for the foreclosure of the mortgage or any other legal
proceedings is instituted for the enforcement of plaintiffs' right,
defendants would be obligated and hound to pay the plaintiffs
reasonable compensation for attorney's fees which plaintiffs fixed at
P50,000.00.
Defendants Spouses Venturanza admit the allegations of the
complaint regarding plaintiffs's former ownership of the lands in
question as well as their execution of the mortgage in favor of
plaintiffs but allege that they are at present the registered owners of
the same parcels of land by virtue of the sale thereof made to
them; they likewise admit the allotment of payment to plaintiffs of
the balance of their obligation but allege that the said balance has
not yet become due and demandable so that they have not
incurred in default. As special affirmative defense defendants
Venturanza allege that the document designated as deed of sale
with purchase money mortgage does not express the true intent
and agreement of the parties with respect to the manner of
payment of the balance of the purchase price, the truth being that
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latter to pay the said balance within the period agreed upon they
(cross-defendants) shall pay to them the sum of P6,367.30 for the
period August 8, 1960 to August 28, 1961; another amount of
P6,367.30 for the period August 28,1961 to August 28, 1962 and still
another amount of P6,367.30 for the period August 28, 1963 by way
of penalty, which despite repeated demands cross-defendants
have failed to pay; that it is further stipulated in their agreement
that in the event of default on the part of cross-defendants, interest
in the legal rate of 6% per annum shall be borne by the unpaid
balance in the amount of P22,285.83 plus the penalties
aforementioned.
By way of counter-claim, defendants-cross-plaintiffs allege that at
the time defendants executed the agreement dated December
28, 1958 plaintiffs had full knowledge of and gave their consent to
the transfer of their shares, ownership and interest in favor of their
co-defendants, as well as the assumption by the latter of the
mortgage obligation; that despite such knowledge and consent,
plaintiffs induced cross-defendants not to register the agreement
and effect the issuance of new transfer certificate of title in the
name solely of defendants Venturanza, evidently for the purpose of
preversing cause of action against them under the deed of sale
with purchase money mortgage; that as a consequence of
plaintiffs' injurious and malicious suit against them they suffered
mental anguish, serious anxiety, besmirched reputation and moral
shock on the basis of which plaintiffs should he held answerable to
them in moral damages in the amount of P100,000.00 aside from
exemplary damages; and that a, a consequence of plaintiffs'
having filed the instant action against them they were compelled
to engage the services of counsel and incurred expenses of
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a. Whether, upon the filing by plaintiffs of their complaint against the defendants
on December 12, 1962, the obligation of the defendants had not yet become
due and demandable and, hence, the complaint was filed prematurely.
b. Whether the payment of P576,573.90 with interest thereon at the stipulated
rate of 6% per annum was to be made dependent upon the consummation of
the sale of the two haciendas of defendants Venturanzas and, hence, there
was a novation of the contract of sale with purchase money mortgage, Exhibit
B, as a result of a change in the manner of payment.
c. Whether the sale on December 28, 1959 by the defendants Oledans to their
co-defendants Venturanzas, of all their rights and interests in the property,
subject-matter of the deed of sale with purchase money mortgage, Exhibit B,
likewise constituted a novation thereof and, therefore, had the effect of
discharging the defendants Oledans from their original obligation to the
plaintiffs.
1. The first and second issues involve an interpretation of paragraph II (c) of the
Deed of Sale with Purchase Money Mortgage, Exhibit B, which provides as
follows: +.wph!1
(c) The remaining balance of the purchase price, after deducting
the sums of P100,000.00 and P40,000.00, mentioned in Paragraphs
(a) and (b) of this Article II, aggregating the sum of FIVE HUNDRED
SEVENTY-SIX THOUSAND FIVE HUNDRED SEVENTY-THREE PESOS AND
NINETY CENTAVOS (P576,573.90) shall be paid, jointly and severally,
by the VENDEES to the VENDORS WITHIN THREE (3) years from
January 1, 1959, with interest at the rate of Six Per Centrum (6%) per
annum, until fully paid of which the sum of P169,484.24, plus the
corresponding interest thereon, shall be paid by the VENDEES to the
VENDOR, FELIX CORTES y OCHOA, and the balance of P407,089.66,
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2. With respect to the second issue, defendants Venturanzas contend that the
three-year period provided for in the Deed of Sale with Purchase Money
Mortgage, Exhibit B, was dependent on the date when they would be able to
collect the purchase price of the two properties they were trying to sell. For this
purpose, they claim that Dr. Cortes, one of the plaintiffs, granted them an
extension of time within which to pay and this act of Dr. Cortes constituted a
novation of the contract.
This claim of defendants Venturanzas is equally devoid of merit. A careful
reading of the Deed of Sale with Purchase Money Mortgage, Exhibit B, reveals
the conspicuous absence of any provision making the consummation of the
said contract dependent on the ability of defendants Venturanzas to collect the
purchase price of their two haciendas. If this were the intention of the parties,
they should have clearly stated it in the contract. It is true the defendants wrote
two letters to Dr. Cortes and/or his lawyer (Exhibits H and I-Venturanza, p. 90,
Folder of Exhibits), wherein the defendants Venturanzas requested an extension
of time within which to pay and Dr. Cortes admitted having been informed of
the alleged projected sale of defendants Venturanzas' properties. Dr. Cortes,
however, vehemently denied having given said defendants any extension of
time.
The deed of sale with purchase money mortgage clearly indicates that the
balance of P576,573.90 shall be paid by the defendants, jointly and severally,
within three (3) years from January 1, 1959, with interest at the rate of 6%per
annum, until fully paid. On January 1, 1962, the defendants failed and refused to
pay their obligation. This is a clear case of an obligation with a definite period ex
die, which period was incidentally established for the benefit of the defendants.
The evidence presented by the plaintiffs to substantiate these facts approaches
moral certainty, not merely preponderance of evidence. Hence, defendants'
defense of novation as to the period for payment, fails.
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Furthermore, according to Article 1159 of the New Civil Code, obligations arising
from contracts have the force of law between the contracting parties and
should be complied with in good faith. The deed, Exhibit B, does not show on its
face that any of the limitation of the freedom of contract under Article 1306 of
the same Code, such as law, morals, good customs, public order, or public
policy, exists, On the contrary, the terms of said exhibit are so clear and leave no
doubt with respect to the intention of the contracting parties. Hence, the literal
meaning of its stipulations shall control (Art. 1370, New Civil Code). This is so
because the intention of the parties is clearly manifested and they are
presumed to intend the consequences of their voluntary acts ft. 5, par. [c], Rule
131, Revised Rules of Court). There being nothing in the deed, Exhibit B, which
would argue against its enforcement, it follows that there is no ground or reason
why it should not be given effect.
WE therefore, see no reason to overturn the finding of the court a quo that the
defendants are indebted to the plaintiffs on the mortgage constituted by them
over the 33 parcels of land in question since the period for payment of the
obligation had become due and, therefore, plaintiffs are entitled to a
foreclosure of the said mortgage
3. The third and last issue pertains to the principal defense of the defendants
Oledans. These defendants claim that because they transferred their interest
and participation in the property subject of the Deed of Sale with Purchase
Money Mortgage, Exhibit B, to the defendants Venturanzas allegedly with the
knowledge of the plaintiffs, novation by substitution of the person of the debtor
took place and, therefore, their obligation to the plaintiffs had been
extinguished.
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may delay or prevent the fulfillment of the obligation by reason of the financial
inability or insolvency of the new debtor; hence, the creditor should agree to
accept the substitution in order that it may be binding on him.
Incidentally, this case is, in practically all respects, similar to, if not Identical with,
the case of McCullough & Co. vs. Veloso and Serna (46 Phil. 1). In that case,
plaintiff sold to defendant Veloso its property known as "McCullough Building"
consisting of a land with the building thereon, for the price of P700,000.00.
Veloso paid a down payment of P50,000.00 cash on account at the execution
of the contract, and the balance of P650,000.00 to be paid on installment basis.
To secure the payment of the balance, Veloso mortgaged the property
purchased in favor of McCullough. It was stipulated that in case of failure on the
part of Veloso to comply with any of the stipulations contained in the mortgage
deed, all the installments with the interest thereon at the rate of 7% per annum
shall become due, and the creditor shall then have the right to bring the proper
action in court.
Subsequently, Veloso sold the property with the improvements thereon for
P100,000.00 to Serna, who agreed to respect the mortgage on the property in
favor of McCullough and to assume Veloso's obligation to pay the plaintiff the
balance. Veloso paid P50,000.00 on account of the P650,000.00 and Serna
made several payments up to the total sum of P250.000.00 Subsequently,
however, neither Veloso nor Serna made any payment upon the last
installments, by virtue of which delay, the whole obligation became due
McCullough went to court.
After due trial, the court sentenced defendant Veloso to pay the plaintiff the
sum of P510,047.34, with interest thereon at 7% per annum, within three months;
otherwise, the property mortgaged shall be sold at public auction to the highest
bidder and in the manner provided by law, the proceeds of the sale to be
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applied to the payment of the judgment, after deducting the fees of the court's
officer.
On appeal, defendant Veloso contended that having sold the property to
Serna and the otter having assumed the obligation to pay the plaintiff"the
unpaid balance of the price secured by the he was relieved from the obligation
to pay the plaintiff. This means contract between the appellant and Serna,
contract between him and the plaintiff was novated by the substitution of Serna
as a new debtor.
The Supreme Court ruled +.wph!1
In order that this novation may take place, the law requires the
consent of the creditor (Art. 1205 of the Old Civil code; now Art.
1293 of the New Civil Code). The plaintiff did not intervene in the
contract between Veloso and Serna and did not expressly give his
consent to this substitution. Novation must be express, and cannot
be presumed.
In the case at bar, the agreement, Exhibit 1-Oledan relied upon by the
defendants Oledans, does not show on its face that the plaintiffs intervened in,
much less gave their consent to, the substitution; as a matter of fact, plaintiff
Cortes vehemently denied having consented to the transfer of rights from the
Oledans to the Venturanzas alone. Res inter alios acta alteri nocere non debet ,
no less than defendant lose Oledan himself testified that he did not personally
see Dr. Cortes about the transfer of rights in Exhibit 1-Oledan, despite his
commitment with his co-defendants in said agreement 'to inform Messrs. Felix
Cortes and Noel J. Cortes (Jesus Noel) of the execution of the said agreement"
(p. 15, t.s.n. hearing of January 19, 1965). There is thus a complete absence of
animus novandi, whether express or implied, on the part of the creditors the
Corteses.
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With respect to the claim of plaintiffs for reasonable attorney's fees, paragraph III
(G) of the Deed of Sale with Purchase Money Mortgage, Exhibit B,
provides:+.wph!1
G In the event of default on the part of the VENDEES and by reason
thereof a suit is brought for the foreclosure of this mortgage or any
other legal proceedings is instituted for the enforcement of any of
the rights of the VENDORS hereunder, a reasonable compensation
shall be paid, jointly and severally, by the VENDEES to the VENDORS
for attorney's fees, in addition to the fees and costs allowed by the
Rules of Court.
The validity of the above agreement for reasonable attorney's fees was
questioned in the pleadings of the defendants before the trial court. Before this
Court, the plaintiffs in their brief (pp. 121-123, 126), called OUR attention to the
oversight in respect thereto committed by the court a quo.
With respect, however, to the interest due to the plaintiffs on the indebtedness
of the defendants, WE are reminded of the mandate of Article 2212 of the New
Civil Code, which provides: +.wph!1
Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
Per stipulation, plaintiffs are entitled to collect from defendants interest at the
rate of six per centum (6%) per annum on the remaining balance of P576,573.90
from January 1, 1959. Hence, for the period from January 1, 1959 to December
12, 1962, the date of the riling of the complaint, plaintiffs are entitled to collect
from the defendants, by way of interest at six percent per annum, the sum of
P136,482.13. Applying the aforequoted legal provision, this amount of
P136,482.13 should be added to the principal of P576,573.90, making a total of
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P713,056.03, which shall earn legal interest stipulated at six percent per annum
from December 13, 1962 until fully paid. Such interest is not due to stipulation;
rather it is due to the mandate of the law hereinbefore quoted.
Now, considering that the total amount recoverable in this case approximates
1.4 million pesos as of October 31, 1977 (consisting of principal of P576,573.90,
plus P136,482.13 interest from January 1, 1959 to December 12, 1962, plus
P636,827.37 interest from December 13, 1962 to October 31, 1977), and that
every step in the foreclosure proceedings had been tenaciously contested, not
to mention the work it will still require counsel for the plaintiffs to collect the same
by judicial proceedings, WE find that P50,000.00 is a reasonable amount to
which the plaintiffs are entitled as and for attorney's fees.
Anent the cross-claim of defendants Oledans against their co-defendants
Venturanzas to the effect "that the defendants Venturanzas are liable to them
for the balance of P22,285.83 in addition to the penalties stipulated in the
agreement and deed of sale, Exhibit 1-Oledan, and the interests provided
therein, WE find the claim for the balance of P22,285.83 meritorious.
On their claim for penalties and interests as provided for in the same agreement,
cross-claimants and defendants Oledans rely on the pertinent portions of the
agreement, which read:+.wph!1
xxx xxx xxx
2. That upon the execution and signing of this Agreement, the
PARTIES/OF THE FIRST PART (the Venturanzas will pay to the PARTIES
OF THE SECOND PART (the Oledans and the latter hereby,
acknowledge receipt thereof, of the sum of TWENTY TWO
THOUSAND (TWO HUNDRED) AND EIGHTY FIVE PESOS AND EIGHTY
THREE CENTAVOS (P22,285-83), Philippine Currency (Prudential Bank
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Check No. 965159) and the balance of Twenty Two Thousand Two
Hundred and Eighty Five Pesos and Eighty Three centavos
(P22,285.83), Philippine Currency, shall be paid by the PARTIES OF
THE FIRST PART to the PARTIES OF THE SECOND PART within eight (8)
months from the date and execution of this Agreement and Deed
of Sale;
xxx xxx xxx
4. That in the event of failure on the part of the PARTIES OF THE FIRST
PART to pay the said balance of Twenty Two Thousand Two
Hundred and Eighty Five Pesos and Eighty Centavos (P22,285.80)
within the said period of eight (8) months stipulated above, the said
PARTIES OF THE FIRST PART will pay to the PARTIES OF THE SECOND
PART a penalty of Six Thousand Three Hundred Sixty Seven Pesos
and Thirty Centavos (P6,367.30) for the period from August 28, 1960
to August 28, 1961; another penalty of P6,367.30 for the period from
August 28, 1961 to August 28, 1962; and another penalty of
P6,367.30 for the period from August 28, 1962 to August 28, 1963. It is
agreed that any part payment on the said balance of P22,285.80
has no effect on the payment of the penalty provided for herein,
and in case of non-payment of the full amount of the balance of
P22,285.80 within the said period of three years aforementioned or
up to August 28, 1963, then the said balance left unpaid plus the
penalties due, as provided for herein, shall bear an interest at the
legal rate. It is of course understood, that the penalties and interest
provided for herein shall not apply if the PARTIES OF THE FIRST PART
shall pay the said balance of Twenty Two Thousand Two Hundred
and Eighty Five Pesos and Eighty Centavos (P22,285.80) within the
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As security for its credit facilities with RCBC, GOYU executed two real estate
mortgages and two chattel mortgages in favor of RCBC, which were registered
with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these
four mortgage contracts, GOYU committed itself to insure the mortgaged
property with an insurance company approved by RCBC, and subsequently, to
endorse and deliver the insurance polices to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In
February 1992, Alchester Insurance Agency, Inc., the insurance agent where
GOYU obtained the Malayan insurance policies, issued nine endorsements in
favor of RCBC seemingly upon instructions of GOYU (Exhibits "1-Malayan" to "9Malayan").
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity on account of the
loss insured against. MICO denied the claim on the ground that the insurance
policies were either attached pursuant to writs of attachments/garnishments
issued by various courts or that the insurance proceeds were also claimed by
other creditors of GOYU alleging better rights to the proceeds than the insured.
GOYU filed a complaint for specific performance and damages which was
docketed at the Regional Trial Court of the National Capital Judicial Region
(Manila, Branch 3) as Civil Case No. 93-65442, now subject of the present G.R.
No. 128833 and 128866.
RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the
proceeds of the insurance policies, but said claims were also denied for the
same reasons that MICO denied GOYU's claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the
Regional Trial Court of Manila (Branch 3), confirmed that GOYU's other creditors,
namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained
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3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering
the plaintiff to pay its loan obligations with defendant
RCBC in the amount of P68,785,069.04, as of April 27,
1992, with interest thereon at the rate stipulated in the
respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is
hereby ordered to release immediately to the plaintiff the amount
of P50,000,000.00 deposited with the Court by defendant Malayan,
together with all the interest earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU was
unsatisfied with the amount awarded in its favor. MICO and RCBC disputed the
trial court's findings of liability on their part. The Court of Appeals party granted
GOYU's appeal, but sustained the findings of the trial court with respect to MICO
and RCBC's liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is
hereby modified as follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in
the total amount of P74,040,518.58 less the
amount of P50,505,594.60 (per O.R. No.
3649285) plus deposited in court and
damages by way of interest commencing
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GOYU itself. Had it not been for GOYU, Alchester would not have known of
GOYU's intention of obtaining insurance coverage in compliance with its
undertaking in the mortgage contracts with RCBC, and verily, Alchester would
not have endorsed the policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC. The basis and purpose of the
doctrine was explained in Philippine National Bank vs. Court of Appeals (94
SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public,
policy, fair dealing, good faith and justice, and its purpose is to
forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and
who reasonably relied thereon. The doctrine of estoppel springs
from equitable principles and the equities in the case. It is designed
to aid the law in the administration of justice where without its aid
injustice might result. It has been applied by this Court wherever
and whenever special circumstances of a case so demand.
(p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a
certain Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine
endorsement documents for GOYU's nine insurance policies in favor of RCBC.
The original copies of each of these nine endorsement documents were sent to
GOYU, and the others were sent to RCBC and MICO, while the fourth copies
were detained for Alchester's file (tsn, February 23, pp. 7-8). GOYU has not
denied having received from Alchester the originals of these documents.
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RCBC, in good faith, relied upon the endorsement documents sent to it as this
was only pursuant to the stipulation in the mortgage contracts. We find such
reliance to be justified under the circumstances of the case. GOYU failed to
seasonably repudiate the authority of the person or persons who prepared such
endorsements. Over and above this, GOYU continued, in the meantime, to
enjoy the benefits of the credit facilities extended to it by RCBC. After the
occurrence of the loss insure against, it was too late for GOYU to disown the
endorsements for any imagined or contrived lack of authority of Alchester to
prepare and issue said endorsements. If there had not been actually an implied
ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU
is at the very least estopped from assailing their operative effects. To permit
GOYU to capitalize on its non-confirmation of these endorsements while it
continued to enjoy the benefits of the credit facilities of RCBC which believed in
good faith that there was due endorsement pursuant to their mortgage
contracts, is to countenance grave contravention of public policy, fair dealing,
good faith, and justice. Such an unjust situation, the Court cannot sanction.
Under the peculiar circumstances obtaining in this case, the Court is bound to
recognize RCBC's right to the proceeds of the insurance polices if not for the
actual endorsement of the policies, at least on the basis of the equitable
principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the interest of
the person in whose name or for whose benefit it is made. The peculiarity of the
circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently
established that it was the intention of the parties to designate RCBC as the
party for whose benefit the insurance policies were taken out. Consider thus the
following:
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case, is truly the person or entity for whose benefit the polices were clearly
intended.
Moreover, the law's evident intention to protect the interests of the mortgage
upon the mortgaged property is expressed in Article 2127 of the Civil Code
which states:
Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public use,
with the declarations, amplifications and limitations established by
law, whether the estate remains in the possession of the mortgagor,
or it passes into the hands of a third person.
Significantly, the Court notes that out of the 10 insurance policies subject of this
case, only 8 of them appear to have been subject of the endorsements
prepared and delivered by Alchester for and upon instructions of GOYU as
shown below:
INSURANCE POLICY PARTICULARS ENDORSEMENT
a. Policy Number F-114-07795 None
Issue Date March 18, 1992
Expiry Date April 5, 1993
Amount P9,646,224.92
b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan"
Issue Date January 18, 1992
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The Court of Appeals erred in placing much significance on the fact that the
excluded promissory notes are dated after the fire. It failed to consider that said
notes had for their origin transactions consummated prior to the fire. Thus,
careful attention must be paid to the fact that Promissory Notes No. 420-92 and
421-92 are mere renewalsof Promissory Notes No. 908-91 and 952-91, loans
already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes which they
ruled should be excluded for bearing dates which are after that of the fire, are
mere renewals of previous ones. The proceeds of the loan represented by these
promissory notes were admittedly received by GOYU. There is ample factual
and legal basis for giving GOYU's judicial admission of liability in the amount of
P116,301,992.60 full force and effect.
It should, however, be quickly added that whatever amount RCBC may have
recovered from the other insurers of the mortgage property will, nonetheless,
have to be applied as payment against GOYU's obligation. But, contrary to the
lower courts' findings, payments effected by GOYU prior to January 21, 1993
should no longer be deducted. Such payments had obviously been duly
considered by GOYU, in its aforequoted letter date March 9, 1993, wherein it
admitted that its past due account totaled P116,301,992.60 as of January 21,
1993.
The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90
as of January 21, 1993, to wit:
Total Obligation as admitted by GOYU
as of January 21, 1993: P116,301,992.60
Broken down as follows:
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Principal 1 Interest
Regular 80,535,946.32
FDU 27,548,025.17
____________
Total 108,083,971.49 8,218,021.11 2
LESS:
1) Proceeds from
Seaboard Eastern
Insurance Company 6,095,145.81
2) Proceeds from
Equitable Insurance
Company 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
___________
9,055,104.70 3
================
NET AMOUNT as of January 21, 1993 P107,246,887.90
The need for the payment of interest due the principal amount of the obligation,
which is the cost of money to RCBC, the primary end and the ultimate reason for
RCBC's existence and being, was duly recognized by the trial court when it ruled
favorably on RCBC's counterclaim, ordering GOYU "to pay its loan obligation
with RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest
thereon at the rate stipulated in the respective promissory notes (without
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surcharges and penalties) per computation, pp. 14-A, 14-B 14-C" (Record, p.
479). Inexplicably, the Court of Appeals, without even laying down the factual
or legal justification for its ruling, modified the trial court's ruling and ordered
GOYU "to pay the principal amount of P68,785,069.04 without any interest,
surcharges and penalties" (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with much
uncertainty deleted the payment ofadditional interest, penalties, and charges,
in this manner:
Regarding defendant RCBC's commitment not to charge additional
interest, penalties and surcharges, the same does not require that it
be embodied in a document or some form of writing to be binding
and enforceable. The principle is well known that generally a verbal
agreement or contract is no less binding and effective than a
written one. And the existence of such a verbal agreement has
been amply established by the evidence in this case. In any event,
regardless of the existence of such verbal agreement, it would still
be unjust and inequitable for defendant RCBC to charge the
plaintiff with surcharges and penalties considering the latter's pitiful
situation. (Emphasis supplied).
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is separate
and distinct from that of surcharges and penalties. What may justify a court in
not allowing the creditor to charge surcharges and penalties despite express
stipulation therefor in a valid agreement, may not equally justify non-payment of
interest. The charging of interest for loans forms a very essential and
fundamental element of the banking business, which may truly be considered to
be at the very core of its existence or being. It is inconceivable for a bank to
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grant loans for which it will not charge any interest at all. We fail to find
justification for the Court of Appeal's outright deletion of the payment of interest
as agreed upon in the respective promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the following rules
of thumb laid down by this Court inEastern Shipping Lines, Inc. vs. Court of
Appeals (234 SCRA 78 [1994]), shall apply, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the actual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default,i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
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accept the lower courts' finding that RCBC had thereby ipso facto effectively
waived collection of any additional interests, surcharges, and penalties from
GOYU. Assurances of assistance are one thing, but waiver of additional interests,
surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default
partake of the nature of liquidated damages, covered by Section 4, Chapter 3,
Title XVIII of the Civil Code. Article 2227 thereof provides:
Art. 2227. Liquidated damages, whether intended as a indemnity or
penalty, shall be equitably reduced if they are iniquitous and
unconscionable.
In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. It
should be stressed that the Court will not make any sweeping ruling that
surcharges and penalties imposed by banks for non-payment of the loans
extended by them are generally iniquitous and unconscionable. What may be
iniquitous and unconscionable in one case, may be totally just and equitable in
another. This provision of law will have to be applied to the established facts of
any given case. Given the circumstance under which GOYU found itself after
the occurrence of the fire, the Court rules the surcharges rates ranging
anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely
iniquitous and unconscionable. The Court tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of GOYU's offer to pay the amount of
P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused,
we find it more in keeping with justice and equity for RCBC not to charge
additional interest, surcharges, and penalties from that time onward.
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Given the factual milieu hereover, we rule that it was error to hold MICO liable in
damages for denying or withholding the proceeds of the insurance claim to
GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the
insurance policies, RCBC has the right to claim the insurance proceeds, in
substitution of the property lost in the fire. Having assigned its rights, GOYU lost its
standing as the beneficiary of the said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay must be
wanton, oppressive, or malevolent (Zenith Insurance Corporation vs. CA. 185
SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good
faith and honesty entertain a difference of opinion as to its liability. Accordingly,
the statutory penalty for vexatious refusal of an insurer to pay a claim should not
be inflicted unless the evidence and circumstances show that such refusal was
willful and without reasonable cause as the facts appear to a reasonable and
prudent man (Bufallo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211;
Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St. Rep 307; Kusnetsky vs.
Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not
show that MICO wantonly and in bad faith delayed the release of the
proceeds. The problem in the determination of who is the actual beneficiary of
the insurance policies, aggravated by the claim of various creditors who
wanted to partake of the insurance proceeds, not to mention the importance
of the endorsement to RCBC, to our mind, and as now borne out by the
outcome herein, justified MICO in withholding payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that
RCBC cannot avail itself of two simultaneous remedies in enforcing the claim of
an unpaid creditor, one for specific performance and the other for foreclosure.
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In doing so, said the appellate court, the second action is deemed barred,
RCBC having split a single cause of action (Rollo, pp. 195-199). The Court of
Appeals was too accommodating in giving due consideration to this argument
of GOYU, for the foreclosure suit is still pending appeal before the same Court of
Appeals in CA G.R. CV No. 46247, the case having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the
Court of Appeals pre-empted the resolution of said foreclosure case which is not
before it. This is plain reversible error if not grave abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691 [1995]):
It should have been enough, nonetheless, for the appellate court to
merely set aside the questioned ordered of the trial court for having
been issued by the latter with grave abuse of discretion. In likewise
enjoining permanently herein petitioner "from entering in and
interfering with the use or occupation and enjoyment of petitioner's
(now private respondent) residential house and compound," the
appellate court in effect, precipitately resolved with finality the
case for injunction that was yet to be heard on the merits by the
lower court. Elevated to the appellate court, it might be stressed,
were mere incidents of the principal case still pending with the trial
court. In Municipality of Bian, Laguna vs. Court of Appeals, 219
SCRA 69, we ruled that the Court of Appeals would have "no
jurisdiction in acertiorari proceeding involving an incident in a case
to rule on the merits of the main case itself which was not on
appeal before it.
(pp. 701-702.)
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Anent the right of RCBC to intervene in Civil Case No. 1073, before the
Zamboanga Regional Trial Court, since it has been determined that RCBC has
the right to the insurance proceeds, the subject matter of intervention is
rendered moot and academic. Respondent Sebastian must, however, yield to
the preferential right of RCBC over the MICO insurance policies. It is basic and
fundamental that the first mortgagee has superior rights over junior mortgagees
or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274
[1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and resolution
of December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby
REVERSED and SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU in Civil
Case No. 93-65442 before Branch 3 of the Manila Trial Court for lack
of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal
Commercial Banking Corporation the proceeds of the insurance
policies in the amount of P51,862,390.94 (per report of adjuster Toplis
& Harding (Far East), Inc., Exhibits "2" and "2-1"), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of
P50,505,594.60 including the interests earned to Rizal Commercial
Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal
Commercial Banking Corporation in the principal amount of
P107,246,887.90, with interest at the respective rates stipulated in
each promissory note from January 21, 1993 until finality of this
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indemnity from MICO but the latter denied the claim on the ground that the
insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the proceeds were
also claimed by other creditors of GOYU. GOYU, alleging better rights to the
proceeds, filed for specific performance and damges before the RTC of Manila
Br 3. The trial court ruled in favor of GOYU for the fire loss claims but ordered it to
pay RCBC its loan obligations. On appeal to the CA, it affirmed the ruling with
regard to the liabilities of MICO and RCBC. The trial court and appellate courts
both held that, since the endorsements do not bear the signature of any officer
of GOYU, they concluded that the endorsements are defective. The CA then
ordered GOYU to pay its obligation to RCBC without any interest, surcharges
and penalties.
ISSUE
Whether or not the ruling of the appellate court is correct.
HELD
The Court held in the negative. The essence or rationale for the payment
of interest or cost of money is separate and distinct from that of surcharges and
penalties. The charging of interest for loans forms a very essential and
fundamental element of the banking business.
Petitions granted.
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Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due
evaluation, a credit facility in the amount of P30 million was initially granted.
Upon GOYU's application increased GOYU's credit facility to P50 million, then to
P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two
CM in favor of RCBC, which were registered with the Registry of Deeds at. Under
each of these four mortgage contracts, GOYU committed itself to insure the
mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In
February 1992, Alchester Insurance Agency, Inc., the insurance agent where
GOYU obtained the Malayan insurance policies, issued nine endorsements in
favor of RCBC seemingly upon instructions of GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted
by fire. Consequently, GOYU submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either
attached pursuant to writs of attachments/garnishments issued by various courts
or that the insurance proceeds were also claimed by other creditors of GOYU
alleging better rights to the proceeds than the insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one
of GOYU's creditors, also filed with MICO its formal claim over the proceeds of
the insurance policies, but said claims were also denied for the same reasons
that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer
of GOYU, the trial court, as well as the Court of Appeals, concluded that the
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endorsements are defective and held that RCBC has no right over the insurance
proceeds.
Issue:
Whether or not RCBC has a right over the insurance proceeds.
Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct
insurable interests in the same mortgaged property, such that each one of them
may insure the same property for his own sole benefit. There is no question that
GOYU could insure the mortgaged property for its own exclusive benefit. In the
present case, although it appears that GOYU obtained the subject insurance
policies naming itself as the sole payee, the intentions of the parties as shown by
their contemporaneous acts, must be given due consideration in order to better
serve the interest of justice and equity.
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GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the interest of
the person in whose name or for whose benefit it is made. The peculiarity of the
circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently
established that it was the intention of the parties to designate RCBC as the
party for whose benefit the insurance policies were taken out. Consider thus the
following:
1.
property from MICO, no less than a sister company of RCBC and definitely an
acceptable insurance company to RCBC.
3.
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO and
RCBC. GOYU did not assail, until of late, the validity of said endorsements.
4.
GOYU continued until the occurrence of the fire, to enjoy the benefits of
the credit facilities extended by RCBC which was conditioned upon the
endorsement of the insurance policies to be taken by GOYU to cover the
mortgaged properties.
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This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the absence
written conformity thereto, obviously considered said endorsement to be
sufficient compliance with its obligation under the mortgage contracts since
RCBC accordingly continued to extend the benefits of its credit facilities and
GOYU continued to benefit therefrom. Just as plain too is the intention of the
parties to constitute RCBC as the beneficiary of the various insurance policies
obtained by GOYU. The intention of the parties will have to be given full force
and effect in this particular case. The insurance proceeds may, therefore, be
exclusively applied to RCBC, which under the factual circumstances of the
case, is truly the person or entity for whose benefit the policies were clearly
intended.
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MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance
of Iloilo, awarding to the plaintiff the sum of P6,641, with interest at the legal rate
from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest
made for the construction of a leper hospital and that father Agustin de la Pea
was the duly authorized representative of the plaintiff to receive the legacy. The
defendant is the administrator of the estate of Father De la Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that he had on
hand as such trustee the sum of P6,641, collected by him for the charitable
purposes aforesaid. In the same year he deposited in his personal account
P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and
during the war of the revolution, Father De la Pea was arrested by the military
authorities as a political prisoner, and while thus detained made an order on
said bank in favor of the United States Army officer under whose charge he then
was for the sum thus deposited in said bank. The arrest of Father De la Pea and
the confiscation of the funds in the bank were the result of the claim of the
military authorities that he was an insurgent and that the funds thus deposited
had been collected by him for revolutionary purposes. The money was taken
from the bank by the military authorities by virtue of such order, was confiscated
and turned over to the Government.
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While there is considerable dispute in the case over the question whether the
P6,641 of trust funds was included in the P19,000 deposited as aforesaid,
nevertheless, a careful examination of the case leads us to the conclusion that
said trust funds were a part of the funds deposited and which were removed
and confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had
no exact counterpart in the Roman law and has none under the Spanish law. In
this jurisdiction, therefore, Father De la Pea's liability is determined by those
portions of the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also
bound to preserve it with the diligence pertaining to a good father of a family"
(art. 1094), it also provides, following the principle of the Roman law, major casus
est, cui humana infirmitas resistere non potest, that "no one shall be liable for
events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or
those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la
Pea did not thereby assume an obligation different from that under which he
would have lain if such deposit had not been made, nor did he thereby make
himself liable to repay the money at all hazards. If the had been forcibly taken
from his pocket or from his house by the military forces of one of the combatants
during a state of war, it is clear that under the provisions of the Civil Code he
would have been exempt from responsibility. The fact that he placed the trust
fund in the bank in his personal account does not add to his responsibility. Such
deposit did not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he
acted more or less negligently by depositing the money in the bank than he
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would if he had left it in his home; or whether he was more or less negligent by
depositing the money in his personal account than he would have been if he
had deposited it in a separate account as trustee. We regard such discussion as
substantially fruitless, inasmuch as the precise question is not one of negligence.
There was no law prohibiting him from depositing it as he did and there was no
law which changed his responsibility be reason of the deposit. While it may be
true that one who is under obligation to do or give a thing is in duty bound,
when he sees events approaching the results of which will be dangerous to his
trust, to take all reasonable means and measures to escape or, if unavoidable,
to temper the effects of those events, we do not feel constrained to hold that, in
choosing between two means equally legal, he is culpably negligent in
selecting one whereas he would not have been if he had selected the other.
The court, therefore, finds and declares that the money which is the subject
matter of this action was deposited by Father De la Pea in the Hongkong and
Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from
the bank by the armed forces of the United States during the war of the
insurrection; and that said Father De la Pea was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take
nothing by his complaint.
Arellano, C.J., Torres and Carson, JJ., concur.
Separate Opinions
TRENT, J., dissenting:
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depositing it as he did, and there was no law which changed his responsibility,
by reason of the deposit."
I assume that the court in using the language which appears in the latter part of
the above quotation meant to say that there was no statutory law regulating
the question. Questions of this character are not usually governed by statutory
law. The law is to be found in the very nature of the trust itself, and, as a general
rule, the courts say what facts are necessary to hold the trustee as a debtor.
If De la Pea, after depositing the trust fund in his personal account, had used
this money for speculative purposes, such as the buying and selling of sugar or
other products of the country, thereby becoming a debtor, there would have
been no doubt as to the liability of his estate. Whether he used this money for
that purpose the record is silent, but it will be noted that a considerable length
of time intervened from the time of the deposit until the funds were confiscated
by the military authorities. In fact the record shows that De la Pea deposited on
June 27, 1898, P5,259, on June 28 of that year P3,280, and on August 5 of the
same year P6,000. The record also shows that these funds were withdrawn and
again deposited all together on the 29th of May, 1900, this last deposit
amounting to P18,970. These facts strongly indicate that De la Pea had as a
matter of fact been using the money in violation of the trust imposed in
him. lawph!1.net
If the doctrine announced in the majority opinion be followed in cases hereafter
arising in this jurisdiction trust funds will be placed in precarious condition. The
position of the trustee will cease to be one of trust.
Case: The Roman Catholic Bishop of Jaro v. Gregorio de la Pea (26 PHIL. 144), Nov.
21, 1913
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LAWS
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renter's key, and can be opened only with the use of both keys. Petitioner claims
that the certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the
two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in
its complaint, translates to a profit of P100.00 per square meter or a total of
P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a
deed of sale which necessarily entailed the production of the certificates of title.
In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the
respondent Bank on 4 October 1979 to open the safety deposit box and get the
certificates of title. However, when opened in the presence of the Bank's
representative, the box yielded no such certificates. Because of the delay in the
reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the
lots; as a consequence thereof, the petitioner allegedly failed to realize the
expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a
complaint 2 for damages against the respondent Bank with the Court of First
Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the
same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner
has no cause of action because of paragraphs 13 and 14 of the contract of
lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the
box could not give rise to an action against it. It then interposed a counterclaim
for exemplary damages as well as attorney's fees in the amount of P20,000.00.
Petitioner subsequently filed an answer to the counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the Regional Trial
Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the
petitioner on 8 December 1986, the dispositive portion of which reads:
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the said box because it had neither the possession nor control over it and its
contents. As such, the contract is governed by Article 1643 of the Civil
Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to
give to another the enjoyment or use of a thing for a price certain,
and for a period which may be definite or indefinite. However, no
lease for more than ninety-nine years shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the
property loses his control over the property leased during the period of the
contract and Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter
when it becomes due, and to take such steps as may be necessary
in order that the securities may preserve their value and the rights
corresponding to them according to law.
The above provision shall not apply to contracts for the rent of
safety deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under
any duty to maintain the contents of the box. The stipulation absolving the
defendant-appellee from liability is in accordance with the nature of the
contract of lease and cannot be regarded as contrary to law, public
order and public policy."
12
however, that under the contract of lease of the safety deposit box,
respondent Bank is not completely free from liability as it may still be made
answerable in case unauthorized persons enter into the vault area or
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when the rented box is forced open. Thus, as expressly provided for in
stipulation number 8 of the contract in question:
8. The Bank shall use due diligence that no unauthorized person
shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it.
Its motion for reconsideration
14
13
Resolution of 28 August 1989, 15 petitioner took this recourse under Rule 45 of the
Rules of Court and urges Us to review and set aside the respondent Court's
ruling. Petitioner avers that both the respondent Court and the trial court (a) did
not properly and legally apply the correct law in this case, (b) acted with grave
abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c)
set a precedent that is contrary to, or is a departure from precedents adhered
to and affirmed by decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the arguments it had raised
in its motion to reconsider the trial court's decision, the brief submitted to the
respondent Court and the motion to reconsider the latter's decision. In a
nutshell, petitioner maintains that regardless of nomenclature, the contract for
the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit
governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the
loss of the certificates of title pursuant to Article 1972 of the said Code which
provides:
Art. 1972. The depositary is obliged to keep the thing safely and to
return it, when required, to the depositor, or to his heirs and
successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the
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17
which is
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not likewise open the box without the renter's key. In this case, the said key had
a duplicate which was made so that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not
apply. Neither could Article 1975, also relied upon by the respondent Court, be
invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a
rented safety deposit box. It is clear that the depositary cannot open the box
without the renter being present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the
petitioner that under the latter, the prevailing rule is that the relation between a
bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire
and mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the relationship in
question might be more properly characterized as that of landlord
and tenant, or lessor and lessee. It has also been suggested that it
should be characterized as that of licensor and licensee. The
relation between a bank, safe-deposit company, or storage
company, and the renter of a safe-deposit box therein, is often
described as contractual, express or implied, oral or written, in
whole or in part. But there is apparently no jurisdiction in which any
rule other than that applicable to bailments governs questions of
the liability and rights of the parties in respect of loss of the contents
of safe-deposit boxes. 22 (citations omitted)
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In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act
23pertinently
provides:
Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building and
loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the
safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections
(a), (b) and (c) of this section asdepositories or as agents. . .
. 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in writing
25
and, pursuant to
Article 1306 of the Civil Code, the parties thereto may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects deposited in the
case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found guilty of
fraud, negligence, delay or contravention of the tenor of the agreement.
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26
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29
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absolute control; moreover, the respondent Bank keeps the guard key to
the said box. As stated earlier, renters cannot open their respective boxes
unless the Bank cooperates by presenting and using this guard key.
Clearly then, to the extent above stated, the foregoing conditions in the
contract in question are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the relation
is a contractual one, may by special contract define their
respective duties or provide for increasing or limiting the liability of
the deposit company, provided such contract is not in violation of
law or public policy. It must clearly appear that there actually was
such a special contract, however, in order to vary the ordinary
obligations implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or restricted by
words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that of its agents or
servants, and if a provision of the contract may be construed as an
attempt to do so, it will be held ineffective for the purpose.
Although it has been held that the lessor of a safe-deposit box
cannot limit its liability for loss of the contents thereof through its own
negligence, the view has been taken that such a lessor may limits its
liability to some extent by agreement or stipulation.
30
(citations
omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that
is, that the petition should be dismissed, but on grounds quite different from
those relied upon by the Court of Appeals. In the instant case, the respondent
Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be
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made, deducting from the amount of interest due the sum of P1,102.16, and to
pay the costs of the proceedings.
Authority from the court having been previously obtained, the complaint was
amended on the 10th of January, 1907; it was then alleged, on the 26th of May,
1897, the defendants executed and subscribed a document in favor of the
plaintiff reading as follows:
We have received from Angel Javellana, as a deposit without interest, the sum
of two thousand six hundred and eighty-six cents of pesos fuertes, which we will
return to the said gentleman, jointly and severally, on the 20th of January, 1898.
Jaro, 26th of May, 1897. Signed Jose Lim. Signed: Ceferino Domingo Lim.
That, when the obligation became due, the defendants begged the plaintiff for
an extension of time for the payment thereof, building themselves to pay interest
at the rate of 15 per cent on the amount of their indebtedness, to which the
plaintiff acceded; that on the 15th of May, 1902, the debtors paid on account
of interest due the sum of P1,000 pesos, with the exception of either capital or
interest, had thereby been subjected to loss and damages.
A demurrer to the original complaint was overruled, and on the 4th of January,
1907, the defendants answered the original complaint before its amendment,
setting forth that they acknowledged the facts stated in Nos. 1 and 2 of the
complaint; that they admitted the statements of the plaintiff relative to the
payment of 1,102.16 pesos made on the 15th of November, 1902, not, however,
as payment of interest on the amount stated in the foregoing document, but on
account of the principal, and denied that there had been any agreement as to
an extension of the time for payment and the payment of interest at the rate of
15 per cent per annum as alleged in paragraph 3 of the complaint, and also
denied all the other statements contained therein.
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As a counterclaim, the defendants alleged that they had paid to the plaintiff
sums which, together with the P1,102.16 acknowledged in the complaint,
aggregated the total sum of P5,602.16, and that, deducting therefrom the total
sum of P2,686.58 stated in the document transcribed in the complaint, the
plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment
be entered absolving them, and sentencing the plaintiff to pay them the sum of
P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their exhibits, together with
an account book having been made of record, the court below rendered
judgment on the 15th of January, 1907, in favor of the plaintiff for the recovery of
the sum of P5,714.44 and costs.
The defendants excepted to the above decision and moved for a new trial. This
motion was overruled and was also excepted to by them; the bill of exceptions
presented by the appellants having been approved, the same was in due
course submitted to this court.
The document of indebtedness inserted in the complaint states that the plaintiff
left on deposit with the defendants a given sum of money which they were
jointly and severally obliged to return on a certain date fixed in the document;
but that, nevertheless, when the document appearing as Exhibits 2, written in
the Visayan dialect and followed by a translation into Spanish was executed, it
was acknowledged, at the date thereof, the 15th of November, 1902, that the
amount deposited had not yet been returned to the creditor, whereby he was
subjected to losses and damages amounting to 830 pesos since the 20th of
January, 1898, when the return was again stipulated with the further agreement
that the amount deposited should bear interest at the rate of 15 per cent per
annum, from the aforesaid date of January 20, and that the 1,000 pesos paid to
the depositor on the 15th of May, 1900, according to the receipt issued by him
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to the debtors, would be included, and that the said rate of interest would
obtain until the debtors on the 20th of May, 1897, it is called a deposit consisted,
and they could have accomplished the return agreed upon by the delivery of a
sum equal to the one received by them. For this reason it must be understood
that the debtors were lawfully authorized to make use of the amount deposited,
which they have done, as subsequent shown when asking for an extension of
the time for the return thereof, inasmuch as, acknowledging that they have
subjected the letter, their creditor, to losses and damages for not complying
with what had been stipulated, and being conscious that they had used, for
their own profit and gain, the money that they received apparently as a
deposit, they engaged to pay interest to the creditor from the date named until
the time when the refund should be made. Such conduct on the part of the
debtors is unquestionable evidence that the transaction entered into between
the interested parties was not a deposit, but a real contract of loan.
Article 1767 of the Civil Code provides that
The depository can not make use of the thing deposited without the
express permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that
When the depository has permission to make use of the thing deposited,
the contract loses the character of a deposit and becomes a loan or
bailment.
The permission shall not be presumed, and its existence must be proven.
When on one of the latter days of January, 1898, Jose Lim went to the office of
the creditor asking for an extension of one year, in view of the fact the money
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was scare, and because neither himself nor the other defendant were able to
return the amount deposited, for which reason he agreed to pay interest at the
rate of 15 per cent per annum, it was because, as a matter of fact, he did not
have in his possession the amount deposited, he having made use of the same
in his business and for his own profit; and the creditor, by granting them the
extension, evidently confirmed the express permission previously given to use
and dispose of the amount stated as having bee deposited, which, in
accordance with the loan, to all intents and purposes gratuitously, until the 20th
of January, 1898, and from that dated with interest at 15 per cent per annum
until its full payment, deducting from the total amount of interest the sum of
1,000 pesos, in accordance with the provisions of article 1173 of the Civil Code.
Notwithstanding that it does not appear that Jose Lim signed the document
(Exhibit 2) executed in the presence of three witnesses on the 15th of November,
1902, by Ceferino Domingo Lim on behalf of himself and the former,
nevertheless, the said document has not been contested as false, either by a
criminal or by a civil proceeding, nor has any doubt been cast upon the
authenticity of the signatures of the witnesses who attested the execution of the
same; and from the evidence in the case one is sufficiently convinced that the
said Jose Lim was perfectly aware of and authorized his joint codebtor to
liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to
execute the aforesaid document No. 2. A true ratification of the original
document of deposit was thus made, and not the least proof is shown in the
record that Jose Lim had ever paid the whole or any part of the capital stated
in the original document, Exhibit 1.
If the amount, together with interest claimed in the complaint, less 1,000 pesos
appears as fully established, such is not the case with the defendant's
counterclaim for P5,602.16, because the existence and certainty of said
indebtedness imputed to the plaintiff has not been proven, and the defendants,
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who call themselves creditors for the said amount have not proven in a
satisfactory manner that the plaintiff had received partial payments on account
of the same; the latter alleges with good reason, that they should produce the
receipts which he may have issued, and which he did issue whenever they paid
him any money on account. The plaintiffs allegation that the two amounts of
400 and 1,200 pesos, referred to in documents marked "C" and "D" offered in
evidence by the defendants, had been received from Ceferino Domingo Lim
on account of other debts of his, has not been contradicted, and the fact that
in the original complaint the sum of 1,102.16 pesos, was expressed in lieu of 1,000
pesos, the only payment made on account of interest on the amount deposited
according to documents No. 2 and letter "B" above referred to, was due to a
mistake.
Moreover, for the reason above set forth it may, as a matter of course, be
inferred that there was no renewal of the contract deposited converted into a
loan, because, as has already been stated, the defendants received said
amount by virtue of real loan contract under the name of a deposit, since the
so-called bailees were forthwith authorized to dispose of the amount deposited.
This they have done, as has been clearly shown.
The original joint obligation contracted by the defendant debtor still exists, and it
has not been shown or proven in the proceedings that the creditor had
released Joe Lim from complying with his obligation in order that he should not
be sued for or sentenced to pay the amount of capital and interest together
with his codebtor, Ceferino Domingo Lim, because the record offers satisfactory
evidence against the pretension of Jose Lim, and it further appears that
document No. 2 was executed by the other debtor, Ceferino Domingo Lim, for
himself and on behalf of Jose Lim; and it has also been proven that Jose Lim,
being fully aware that his debt had not yet been settled, took steps to secure an
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extension of the time for payment, and consented to pay interest in return for
the concession requested from the creditor.
In view of the foregoing, and adopting the findings in the judgment appealed
from, it is our opinion that the same should be and is hereby affirmed with the
costs of this instance against the appellant, provided that the interest agreed
upon shall be paid until the complete liquidation of the debt. So ordered.
Arellano, C.J., Carson, Willard and Tracey, JJ., concur.
JAVELLANA vs LIM
FACTS: Defendants executed a document in favor of plain-appellee wherein it
states that they have received, as a deposit, without interest, money from
plain-appellee and agreed upon a date when they will return the money.
Upon the stipulated due date, defendants asked for an extension to pay and
binding themselves to pay 15% interest per annum on the amount of their
indebtedness, to which the plain-appellee acceded. The defendants were
not able to pay the full amount of their indebtedness notwithstanding the
request made by plain-appellee. The lower court ruled in favor of plainappellee for the recovery of the amount due.
ISSUE: Whether the agreement entered into by the parties is one of loan or of
deposit?
HELD: The document executed was a contract of loan. Where money,
consisting of coins of legal tender, is deposited with a person and thelaer is
authorized by the depositor to use and dispose of the same, the agreement is
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DECISION
COOPER, J. :
The present appeal has been interposed in the declarative action of greater
import filed in the Court of First Instance of Tondo, commenced on January 10,
1900, by Don Manuel Garcia Gavieres as plaintiff and successor in interest of the
deceased Doa Ignacia de Gorricho against Doa Trinidad H. Pardo de Tavera
as universal heir of the deceased Don Felix Pardo de Tavera for the collection of
a balance of 1,423 pesos 75 cents, remaining due on an original obligation of
3,000 pesos which, as the plaintiff alleges, was the amount of a deposit
delivered by Doa Ignacia Gorricho, deceased, to Don Felix Pardo de Tavera,
deceased, on the 31st day of October, 1859. The agreement between the
parties appears in the following writing:jgc:chanrobles.com.ph
"Received of Seorita Ignacia de Gorricho the sum of 3,000 pesos, gold (3,000
pesos), as a deposit payable on two months notice in advance, with interest at
6 per cent per annum with an hypothecation of the goods now owned by me
or which may be owned hereafter, as security of the payment.
In witness whereof I sign in Binondo, January 31, 1859.
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Don Felix Pardo de Tavera. This sum is declared in said document to be the
balance due upon the debt of 2,000 pesos. This was slightly more or less the
amount which remained as due upon the original obligation after deducting
the payments which are admitted to have been made. In the absence of
evidence disclosing that there were other claims in favor of Gavieres it is
reasonably to be supposed that this payment was made to satisfy the balance
due upon the original obligation.
The original contract between the parties was celebrated nearly a half century
ago; the contracting parties have ceased to exist long since; it may be that
there exists or may have existed documents proving a total payment between
the parties and that this document has some time ago suffered the common
fate of perishable things. He who by laches in the exercise of his rights has
caused a failure of proof has no right to complain if the court does not apply
the strict rules of evidence which are applicable in ordinary cases, and admits
to a certain extent the presumption to which the conduct of the interested
party himself naturally gives rise.
It is our opinion that the judgment of the Court of First Instance should be
affirmed, and it is so ordered, with costs of appeal taxed against the Appellant.
Arellano, C.J., Torres, Willard and Mapa, JJ., concur.
Ladd, J., did not sit in this case.
Gavieres vs Tavera (1 Phil 71)
INSERT DIGEST HERE
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GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the
defunct Court of Appeals, now Intermediate Appellate Court, in CA-G.R. No.
61193-R, entitled "Honesto Bonnevie vs. Philippine Bank of Commerce, et al.,"
promulgated August 11, 1978 1 as well as the Resolution denying the motion for
reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the
Court of First Instance of Rizal against respondent Philippine Bank of Commerce
sought the annulment of the Deed of Mortgage dated December 6, 1966
executed in favor of the Philippine Bank of Commerce by the spouses Jose M.
Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made on
September 4, 1968. It alleged among others that (a) the Deed of Mortgage
lacks consideration and (b) the mortgage was executed by one who was not
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the owner of the mortgaged property. It further alleged that the property in
question was foreclosed pursuant to Act No. 3135 as amended, without,
however, complying with the condition imposed for a valid foreclosure.
Granting the validity of the mortgage and the extrajudicial foreclosure, it finally
alleged that respondent Bank should have accepted petitioner's offer to
redeem the property under the principle of equity said justice.
On the other hand, the answer of defendant Bank, now private respondent
herein, specifically denied most of the allegations in the complaint and raised
the following affirmative defenses: (a) that the defendant has not given its
consent, much less the requisite written consent, to the sale of the mortgaged
property to plaintiff and the assumption by the latter of the loan secured
thereby; (b) that the demand letters and notice of foreclosure were sent to Jose
Lozano at his address; (c) that it was notified for the first time about the alleged
sale after it had foreclosed the Lozano mortgage; (d) that the law on contracts
requires defendant's consent before Jose Lozano can be released from his
bilateral agreement with the former and doubly so, before plaintiff may be
substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00
which was secured by mortgage, after two renewals remain unpaid despite
countless reminders and demands; of that the property in question remained
registered in the name of Jose M. Lozano in the land records of Rizal and there
was no entry, notation or indication of the alleged sale to plaintiff; (g) that it is
an established banking practice that payments against accounts need not be
personally made by the debtor himself; and (h) that it is not true that the
mortgage, at the time of its execution and registration, was without
consideration as alleged because the execution and registration of the securing
mortgage, the signing and delivery of the promissory note and the disbursement
of the proceeds of the loan are mere implementation of the basic consensual
contract of loan.
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After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV
Bonnevie filed a motion for intervention. The intervention was premised on the
Deed of Assignment executed by petitioner Honesto Bonnevie in favor of
petitioner Raoul SV Bonnevie covering the rights and interests of petitioner
Honesto Bonnevie over the subject property. The intervention was ultimately
granted in order that all issues be resolved in one proceeding to avoid
multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion
of which reads as follows:
WHEREFORE, all the foregoing premises considered, judgment is hereby
rendered dismissing the complaint with costs against the plaintiff and the
intervenor.
After the motion for reconsideration of the lower court's decision was denied,
petitioners appealed to respondent Court of Appeals assigning the following
errors:
1. The lower court erred in not finding that the real estate mortgage executed
by Jose Lozano was null and void;
2. The lower court erred in not finding that the auction sale decide on August 19,
1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to
redeem the property;
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4. The lower court erred in not finding that the defendant acted in bad faith;
and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the
decision of the lower court, and on October 3. 1978 denied the motion for
reconsideration. Hence, the present petition for review.
The factual findings of respondent Court of Appeals being conclusive upon this
Court, We hereby adopt the facts found the trial court and found by the Court
of Appeals to be consistent with the evidence adduced during trial, to wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the
owners of the property which they mortgaged on December 6, 1966, to secure
the payment of the loan in the principal amount of P75,000.00 they were about
to obtain from defendant-appellee Philippine Bank of Commerce; that on
December 8, 1966, executed in favor of plaintiff-appellant the Deed of Sale with
Mortgage ,, for and in consideration of the sum of P100,000.00, P25,000.00 of
which amount being payable to the Lozano spouses upon the execution of the
document, and the balance of P75,000.00 being payable to defendantappellee; that on December 6, 1966, when the mortgage was executed by the
Lozano spouses in favor of defendant-appellee, the loan of P75,000.00 was not
yet received them, as it was on December 12, 1966 when they and their comaker Alfonso Lim signed the promissory note for that amount; that from April 28,
1967 to July 12, 1968, plaintiff-appellant made payments to defendant-appellee
on the mortgage in the total amount of P18,944.22; that on May 4, 1968, plaintiffappellant assigned all his rights under the Deed of Sale with Assumption of
Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968,
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As clearly seen from the foregoing issues raised, petitioners' course of action is
three-fold. They primarily attack the validity of the mortgage executed by the
Lozano spouses in favor of respondent Bank. Next, they attack the validity of the
extrajudicial foreclosure and finally, appeal to justice and equity. In attacking
the validity of the deed of mortgage, they contended that when it was
executed on December 6, 1966, there was yet no principal obligation to secure
as the loan of P75,000.00 was not received by the Lozano spouses "So much so
that in the absence of a principal obligation, there is want of consideration in
the accessory contract, which consequently impairs its validity and fatally
affects its very existence." (Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage
deed itself, it is clearly seen that the mortgage deed was executed for and on
condition of the loan granted to the Lozano spouses. The fact that the latter did
not collect from the respondent Bank the consideration of the mortgage on the
date it was executed is immaterial. A contract of loan being a consensual
contract, the herein contract of loan was perfected at the same time the
contract of mortgage was executed. The promissory note executed on
December 12, 1966 is only an evidence of indebtedness and does not indicate
lack of consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the
subsequent renewals of the original loan, using as security the same property
which the Lozano spouses had already sold to petitioners, rendered the
mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage
which prohibits the sale, disposition of, mortgage and encumbrance of the
mortgaged properties, without the written consent of the mortgagee, as well as
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the additional proviso that if in spite of said stipulation, the mortgaged property
is sold, the vendee shall assume the mortgage in the terms and conditions under
which it is constituted. These provisions are expressly made part and parcel of
the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the
sale with assumption of mortgage. Coupled with the fact that the
sale/assignment was not registered so that the title remained in the name of the
Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses
could rightfully and validly mortgage the property. Respondent Bank had every
right to rely on the certificate of title. It was not bound to go behind the same to
look for flaws in the mortgagor's title, the doctrine of innocent purchaser for
value being applicable to an innocent mortgagee for value. (Roxas vs.
Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another
argument for the respondent Bank is that a mortgage follows the property
whoever the possessor may be and subjects the fulfillment of the obligation for
whose security it was constituted. Finally, it can also be said that petitioners
voluntarily assumed the mortgage when they entered into the Deed of Sale with
Assumption of Mortgage. They are, therefore, estopped from impugning its
validity whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on
the following grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was not
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As regards the claim that the period of publication of the notice of auction sale
was not in accordance with law, namely: once a week for at least three
consecutive weeks, the Court of Appeals ruled that the publication of notice on
June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act
No. 3135 notwithstanding the fact that June 30 to July 14 is only 14 days. We
agree. Act No. 3135 merely requires that such notice shall be published once a
week for at least three consecutive weeks." Such phrase, as interpreted by this
Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should be
published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier"
was not in accordance with law as said newspaper is not of general circulation
must likewise be disregarded. The affidavit of publication, executed by the
Publisher, business/advertising manager of the Luzon Weekly Courier, stares that
it is "a newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's
sale was published in said paper on June 30, July 7 and July 14, 1968. This
constitutes prima facie evidence of compliance with the requisite publication.
Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide
subscription list of paying subscribers; that it is published at regular intervals."
(Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the largest
circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67).
The testimony of three witnesses that they do read the Luzon Weekly Courier is
no proof that said newspaper is not a newspaper of general circulation in the
province of Rizal.
Whether or not the notice of auction sale was posted for the period required by
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assignee of the property, as the case may be, the petitioners had acquired a
right to redeem the property, petitioners failed to exercise said right within the
period granted by law. Thru certificate of sale in favor of appellee was
registered on September 2, 1968 and the one year redemption period expired
on September 3, 1969. It was not until September 29, 1969 that petitioner
Honesto Bonnevie first wrote respondent and offered to redeem the property.
Moreover, on September 29, 1969, Honesto had at that time already transferred
his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding
that respondent Bank did not act in bad faith, petitioners rely on Exhibit "B"
which is the letter of lose Lozano to respondent Bank dated December 8, 1966
advising the latter that Honesto Bonnevie was authorized to make payments for
the amount secured by the mortgage on the subject property, to receive
acknowledgment of payments, obtain the Release of the Mortgage after full
payment of the obligation and to take delivery of the title of said property. On
the assumption that the letter was received by respondent Bank, a careful
reading of the same shows that the plaintiff was merely authorized to do acts
mentioned therein and does not mention that petitioner is the new owner of the
property nor request that all correspondence and notice should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12,
1968 extends the maturity of said loan up to said date and accordingly on June
10, 1968 when defendant applied for the foreclosure of the mortgage, the loan
was not yet due and demandable, is totally incorrect and misleading. The
undeniable fact is that the loan matured on December 26, 1967. On June 10,
1968, when respondent Bank applied for foreclosure, the loan was already six
months overdue. Petitioners' payment of interest on July 12, 1968 does not
thereby make the earlier act of respondent Bank inequitous nor does it ipso
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facto result in the renewal of the loan. In order that a renewal of a loan may be
effected, not only the payment of the accrued interest is necessary but also the
payment of interest for the proposed period of renewal as well. Besides, whether
or not a loan may be renewed does not solely depend on the debtor but more
so on the discretion of the bank. Respondent Bank may not be, therefore,
charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of
Appeals is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.
Concepcion J J., took no part.
De Castro, J., is on leave.
Footnotes
1 Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.
2 4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner
encumber the mortgaged properties without the written consent of
MORTGAGEE. If in spite of this stipulation, a mortgaged property is sold, the
Vendee shall assume the mortgaged in the terms and conditions under which it
is constituted, it being understood that the assumption of the Vendee (does) not
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release the Vendor of his obligation to the MORTGAGEE; on the contrary, both
the Vendor and the Vendee shall be jointly and severally liable for said
mortgage obligation. ...
April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of P18,944.22
to PBC
May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of Sale
with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie
June 10, 1968: PBC applied for the foreclosure of the mortgage, and notice
of sale was published
January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine
Bank of Commerce for the annulment of the Deed of Mortgage dated
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CA: Affirmed
Respondent Bank had every right to rely on the certificate of title. It was not
bound to go behind the same to look for flaws in the mortgagor's title, the
doctrine of innocent purchaser for value being applicable to an innocent
mortgagee for value.
loan matured on December 26, 1967 so when respondent Bank applied for
foreclosure, the loan was already six months overdue. Payment of interest on
July 12, 1968 does not make the earlier act of PBC inequitous nor does it ipso
facto result in the renewal of the loan. In order that a renewal of a loan may
be effected, not only the payment of the accrued interest is necessary but
also the payment of interest for the proposed period of renewal as well.
Besides, whether or not a loan may be renewed does not solely depend on
the debtor but more so on the discretion of the bank.
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October 8, 1927
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In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave
judgment for her to recover of the defendant the sum of P5,238.51, with costs.
From this judgment both the plaintiff and the defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court
gave judgment for him to recover of the defendant the sum of P5,734.60, with
costs, from which judgment both the plaintiff and the defendant also appealed.
In the same case the defendant interposed a counterclaim in which he asked
credit for the sum of P2,800 which he had advanced to the plaintiff Guillermo
Baron on various occasions. This credit was admitted by the plaintiff and
allowed by the trial court. But the defendant also interposed a cross-action
against Guillermo Baron in which the defendant claimed compensation for
damages alleged to have Ben suffered by him by reason of the alleged
malicious and false statements made by the plaintiff against the defendant in
suing out an attachment against the defendant's property soon after the
institution of the action. In the same cross-action the defendant also sought
compensation for damages incident to the shutting down of the defendant's
rice mill for the period of one hundred seventy days during which the abovementioned attachment was in force. The trial judge disallowed these claims for
damages, and from this feature of the decision the defendant appealed. We
are therefore confronted with five distinct appeals in this record.
Prior to January 17, 1921, the defendant Pablo David has been engaged
in running a rice mill in the municipality of Magalang, in the Province of
Pampanga, a mill which was well patronized by the rice growers of the vicinity
and almost constantly running. On the date stated a fire occurred that
destroyed the mill and its contents, and it was some time before the mill could
be rebuilt and put in operation again. Silvestra Baron, the plaintiff in the first of
the actions before us, is an aunt of the defendant; while Guillermo Baron, the
plaintiff in the other action; is his uncle. In the months of March, April, and May,
1920, Silvestra Baron placed a quantity of palay in the defendant's mill; and this,
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in connection with some that she took over from Guillermo Baron, amounted to
1,012 cavans and 24 kilos. During approximately the same period Guillermo
Baron placed other 1,865 cavans and 43 kilos of palay in the mill. No
compensation has ever been received by Silvestra Baron upon account of the
palay delivered by Guillermo Baron, he has received from the defendant
advancements amounting to P2,800; but apart from this he has not been
compensated. Both the plaintiffs claim that the palay which was delivered by
them to the defendant was sold to the defendant; while the defendant, on the
other hand, claims that the palay was deposited subject to future withdrawal by
the depositors or subject to some future sale which was never effected. He
therefore supposes himself to be relieved from all responsibility by virtue of the
fire of January 17, 1921, already mentioned.
The plaintiff further say that their palay was delivered to the defendant at
his special request, coupled with a promise on his part to pay for the same at
the highest price per cavan at which palay would sell during the year 1920; and
they say that in August of that year the defendant promised to pay them
severally the price of P8.40 per cavan, which was about the top of the market
for the season, provided they would wait for payment until December. The trial
judge found that no such promise had been given; and the incredulity of the
court upon this point seems to us to be justified. A careful examination of the
proof, however, leads us to the conclusion that the plaintiffs did, some time in
the early part of August, 1920, make demand upon the defendant for a
settlement, which he evaded or postponed leaving the exact amount due to
the plaintiffs undetermined.
It should be stated that the palay in question was place by the plaintiffs in
the defendant's mill with the understanding that the defendant was at liberty to
convert it into rice and dispose of it at his pleasure. The mill was actively running
during the entire season, and as palay was daily coming in from many
customers and as rice was being constantly shipped by the defendant to
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Manila, or other rice markets, it was impossible to keep the plaintiffs' palay
segregated. In fact the defendant admits that the plaintiffs' palay was mixed
with that of others. In view of the nature of the defendant's activities and the
way in which the palay was handled in the defendant's mill, it is quite certain
that all of the plaintiffs' palay, which was put in before June 1, 1920, been milled
and disposed of long prior to the fire of January 17, 1921. Furthermore, the proof
shows that when the fire occurred there could not have been more than about
360 cavans of palay in the mill, none of which by any reasonable probability
could have been any part of the palay delivered by the plaintiffs. Considering
the fact that the defendant had thus milled and doubtless sold the plaintiffs'
palay prior to the date of the fire, it result that he is bound to account for its
value, and his liability was not extinguished by the occurence of the fire. In the
briefs before us it seems to have been assumed by the opposing attorneys that
in order for the plaintiffs to recover, it is necessary that they should be able to
establish that the plaintiffs' palay was delivered in the character of a sale, and
that if, on the contrary, the defendant should prove that the delivery was made
in the character of deposit, the defendant should be absolved. But the case
does not depend precisely upon this explicit alternative; for even supposing that
the palay may have been delivered in the character of deposit, subject to
future sale or withdrawal at plaintiffs' election, nevertheless if it was understood
that the defendant might mill the palay and he has in fact appropriated it to his
own use, he is of course bound to account for its value. Under article 1768 of the
Civil Code, when the depository has permission to make use of the thing
deposited, the contract loses the character of mere deposit and becomes a
loan or a commodatum; and of course by appropriating the thing, the bailee
becomes responsible for its value. In this connection we wholly reject the
defendant's pretense that the palay delivered by the plaintiffs or any part of it
was actually consumed in the fire of January, 1921. Nor is the liability of the
defendant in any wise affected by the circumstance that, by a custom
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prevailing among rice millers in this country, persons placing palay with them
without special agreement as to price are at liberty to withdraw it later, proper
allowance being made for storage and shrinkage, a thing that is sometimes
done, though rarely.
In view of what has been said it becomes necessary to discover the price
which the defendant should be required to pay for the plaintiffs' palay. Upon this
point the trial judge fixed upon P6.15 per cavan; and although we are not
exactly in agreement with him as to the propriety of the method by which he
arrived at this figure, we are nevertheless of the opinion that, all things
considered, the result is approximately correct. It appears that the price of
palay during the months of April, May, and June, 1920, had been excessively
high in the Philippine Islands and even prior to that period the Government of
the Philippine Islands had been attempting to hold the price in check by
executive regulation. The highest point was touched in this season was
apparently about P8.50 per cavan, but the market began to sag in May or June
and presently entered upon a precipitate decline. As we have already stated,
the plaintiffs made demand upon the defendant for settlement in the early part
of August; and, so far as we are able to judge from the proof, the price of P6.15
per cavan, fixed by the trial court, is about the price at which the defendant
should be required to settle as of that date. It was the date of the demand of
the plaintiffs for settlement that determined the price to be paid by the
defendant, and this is true whether the palay was delivered in the character of
sale with price undetermined or in the character of deposit subject to use by the
defendant. It results that the plaintiffs are respectively entitle to recover the
value of the palay which they had placed with the defendant during the period
referred to, with interest from the date of the filing of their several complaints.
As already stated, the trial court found that at the time of the fire there
were about 360 cavans of palay in the mill and that this palay was destroyed.
His Honor assumed that this was part of the palay delivered by the plaintiffs, and
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he held that the defendant should be credited with said amount. His Honor
therefore deducted from the claims of the plaintiffs their respective
proportionate shares of this amount of palay. We are unable to see the
propriety of this feature of the decision. There were many customers of the
defendant's rice mill who had placed their palay with the defendant under the
same conditions as the plaintiffs, and nothing can be more certain than that the
palay which was burned did not belong to the plaintiffs. That palay without a
doubt had long been sold and marketed. The assignments of error of each of
the plaintiffs-appellants in which this feature of the decision is attacked are
therefore well taken; and the appealed judgments must be modified by
eliminating the deductions which the trial court allowed from the plaintiffs'
claims.
The trial judge also allowed a deduction from the claim of the plaintiff
Guillermo Baron of 167 cavans of palay, as indicated in Exhibit 12, 13, 14, and 16.
This was also erroneous. These exhibits relate to transactions that occurred nearly
two years after the transactions with which we are here concerned, and they
were offered in evidence merely to show the character of subsequent
transactions between the parties, it appearing that at the time said exhibits
came into existence the defendant had reconstructed his mill and that business
relations with Guillermo Baron had been resumed. The transactions shown by
these exhibits (which relate to palay withdrawn by the plaintiff from the
defendant's mill) were not made the subject of controversy in either the
complaint or the cross-complaint of the defendant in the second case. They
therefore should not have been taken into account as a credit in favor of the
defendant. Said credit must therefore be likewise of course be without prejudice
to any proper adjustment of the rights of the parties with respect to these
subsequent transactions that they have heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions relative to the
liability of the defendant upon the causes of action stated in the complaints. We
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proceed therefore now to consider the question of the liability of the plaintiff
Guillermo Baron upon the cross-complaint of Pablo David in case R. G. No.
26949. In this cross-action the defendant seek, as the stated in the third
paragraph of this opinion, to recover damages for the wrongful suing out of an
attachment by the plaintiff and the levy of the same upon the defendant's rice
mill. It appears that about two and one-half months after said action was
begun, the plaintiff, Guillermo Baron, asked for an attachment to be issued
against the property of the defendant; and to procure the issuance of said writ
the plaintiff made affidavit to the effect that the defendant was disposing, or
attempting the plaintiff. Upon this affidavit an attachment was issued as prayed,
and on March 27, 1924, it was levied upon the defendant's rice mill, and other
property, real and personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and placed it in the
care of a deputy. Operations were not resumed until September 13, 1924, when
the attachment was dissolved by an order of the court and the defendant was
permitted to resume control. At the time the attachment was levied there were,
in the bodega, more than 20,000 cavans of palay belonging to persons who
held receipts therefor; and in order to get this grain away from the sheriff,
twenty-four of the depositors found it necessary to submit third-party claims to
the sheriff. When these claims were put in the sheriff notified the plaintiff that a
bond in the amount of P50,000 must be given, otherwise the grain would be
released. The plaintiff, being unable or unwilling to give this bond, the sheriff
surrendered the palay to the claimants; but the attachment on the rice mill was
maintained until September 13, as above stated, covering a period of one
hundred seventy days during which the mill was idle. The ground upon which
the attachment was based, as set forth in the plaintiff's affidavit was that the
defendant was disposing or attempting to dispose of his property for the
purpose of defrauding the plaintiff. That this allegation was false is clearly
apparent, and not a word of proof has been submitted in support of the
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assertion. On the contrary, the defendant testified that at the time this
attachment was secured he was solvent and could have paid his indebtedness
to the plaintiff if judgment had been rendered against him in ordinary course. His
financial conditions was of course well known to the plaintiff, who is his uncle.
The defendant also states that he had not conveyed away any of his property,
nor had intended to do so, for the purpose of defrauding the plaintiff. We have
before us therefore a case of a baseless attachment, recklessly sued out upon a
false affidavit and levied upon the defendant's property to his great and
needless damage. That the act of the plaintiff in suing out the writ was wholly
unjustifiable is perhaps also indicated in the circumstance that the attachment
was finally dissolved upon the motion of the plaintiff himself.
The defendant testified that his mill was accustomed to clean from 400 to
450 cavans of palay per day, producing 225 cavans of rice of 57 kilos each. The
price charged for cleaning each cavan rice was 30 centavos. The defendant
also stated that the expense of running the mill per day was from P18 to P25,
and that the net profit per day on the mill was more than P40. As the mill was not
accustomed to run on Sundays and holiday, we estimate that the defendant
lost the profit that would have been earned on not less than one hundred forty
work days. Figuring his profits at P40 per day, which would appear to be a
conservative estimate, the actual net loss resulting from his failure to operate the
mill during the time stated could not have been less than P5,600. The
reasonableness of these figures is also indicated in the fact that the twenty-four
customers who intervened with third-party claims took out of the camarin 20,000
cavans of palay, practically all of which, in the ordinary course of events, would
have been milled in this plant by the defendant. And of course other grain
would have found its way to this mill if it had remained open during the one
hundred forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again
opened, the defendant found that his customers had become scattered and
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could not be easily gotten back. So slow, indeed, was his patronage in returning
that during the remainder of the year 1924 the defendant was able to mill
scarcely more than the grain belonging to himself and his brothers; and even
after the next season opened many of his old customers did not return. Several
of these individuals, testifying as witnesses in this case, stated that, owing to the
unpleasant experience which they had in getting back their grain from the
sheriff to the mill of the defendant, though they had previously had much
confidence in him.
As against the defendant's proof showing the facts above stated the
plaintiff submitted no evidence whatever. We are therefore constrained to hold
that the defendant was damaged by the attachment to the extent of P5,600, in
profits lost by the closure of the mill, and to the extent of P1,400 for injury to the
good-will of his business, making a total of P7,000. For this amount the defendant
must recover judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages
resulting from the wrongful suing out of the attachment, suggested that the
closure of the rice mill was a mere act of the sheriff for which the plaintiff was
not responsible and that the defendant might have been permitted by the
sheriff to continue running the mill if he had applied to the sheriff for permission
to operate it. This singular suggestion will not bear a moment's criticism. It was of
course the duty of the sheriff, in levying the attachment, to take the attached
property into his possession, and the closure of the mill was a natural, and even
necessary, consequence of the attachment. For the damage thus inflicted
upon the defendant the plaintiff is undoubtedly responsible.
One feature of the cross-complaint consist in the claim of the defendant
(cross-complaint) for the sum of P20,000 as damages caused to the defendant
by the false and alleged malicious statements contained in the affidavit upon
which the attachment was procured. The additional sum of P5,000 is also
claimed as exemplary damages. It is clear that with respect to these damages
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the cross-action cannot be maintained, for the reason that the affidavit in
question was used in course of a legal proceeding for the purpose of obtaining
a legal remedy, and it is therefore privileged. But though the affidavit is not
actionable as a libelous publication, this fact in no obstacle to the maintenance
of an action to recover the damage resulting from the levy of the attachment.
Before closing this opinion a word should be said upon the point raised in
the first assignment of error of Pablo David as defendant in case R. G. No. 26949.
In this connection it appears that the deposition of Guillermo Baron was
presented in court as evidence and was admitted as an exhibit, without being
actually read to the court. It is supposed in the assignment of error now under
consideration that the deposition is not available as evidence to the plaintiff
because it was not actually read out in court. This connection is not well
founded. It is true that in section 364 of the Code of Civil Procedure it is said that
a deposition, once taken, may be read by either party and will then be
deemed the evidence of the party reading it. The use of the word "read" in this
section finds its explanation of course in the American practice of trying cases
for the most part before juries. When a case is thus tried the actual reading of
the deposition is necessary in order that the jurymen may become acquainted
with its contents. But in courts of equity, and in all courts where judges have the
evidence before them for perusal at their pleasure, it is not necessary that the
deposition should be actually read when presented as evidence.
From what has been said it result that judgment of the court below must
be modified with respect to the amounts recoverable by the respective plaintiffs
in the two actions R. G. Nos. 26948 and 26949 and must be reversed in respect
to the disposition of the cross-complaint interposed by the defendant in case R.
G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiff
Silvestra Baron will recover of the Pablo David the sum of P6,227.24, with interest
from November 21, 1923, the date of the filing of her complaint, and with costs.
In case R. G. No. 26949 the plaintiff Guillermo Baron will recover of the
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defendant Pablo David the sum of P8,669.75, with interest from January 9, 1924.
In the same case the defendant Pablo David, as plaintiff in the cross-complaint,
will recover of Guillermo Baron the sum of P7,000, without costs. So ordered.
Avancea, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ.,
concur.
Separate Opinions
JOHNS, J., dissenting and concurring:
The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo
Baron, the plaintiff in the other action, is his uncle. There is no dispute as to the
amount of palay which each delivered to the mill of the defendant. Owing to
the fact that they were relatives and that the plaintiffs reposed special reposed
special trust and confidence in the defendant, who was their nephew, they
were not as careful and prudent in their business dealings with him as they
should have been. Plaintiffs allege that their respective palay was delivered to
the defendant at his mill with the understanding and agreement between them
that they should receive the highest market price for the palay for that season,
which was P8.50 per cavan. They further allege that about August first they
made another contract in and by which he promised and agreed to pay them
P8.40 per cavan for their palay, in consideration of which they agreed to extend
the time for payment to the first of December of that year. The amount of palay
is not in dispute, and the defendant admits that it was delivered to his mill, but
he claims that he kept it on deposit and as bailee without hire for the plaintiffs
and at their own risk, and that the mill was burned down, and that at the time of
the fire, plaintiffs' palay was in the mill. The lower court found as a fact that there
was no merit in that defense, and that there was but little, if any, palay in the mill
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at the time of the fire and that in truth and in fact that defense was based upon
perjured testimony.
The two cases were tried separately in the court below, but all of the
evidence in the case was substituted and used in the other. Both plaintiffs
testified to the making of the respective contracts as alleged in their complaint;
to wit, that they delivered the palay to the defendant with the express
understanding and agreement that he would pay them for the palay the
highest market price for the season, and to the making of the second contract
about the first of August, in which they had a settlement, and that the
defendant then agreed to pay them P8.40 per cavan, such payment to be
made on December first. It appears that the highest market price for palay for
that season was P8.50 per cavan. The defendant denied the making of either
one of those contracts, and offered no other evidence on that question. That is
to say, we have the evidence of both Silvestra Baron and Guillermo Baron to the
making of those contracts, which is denied by the defendant only. Plaintiffs'
evidence is also corroborated by the usual and customary manner in which the
growers sell their palay. That is to say, it is their custom to sell the palay at or
about the time it is delivered at the mill and as soon as it is made ready for
market in the form of rice. As stated the lower court found as a fact that the
evidence of the defendants as to plaintiffs' palay being in the mill at the time of
the fire was not worthy of belief, and that in legal effect it was a manufactured
defense. Yet, strange as it may seem, both the lower court and this court have
found as a fact that upon the question of the alleged contracts, the evidence
for the defendant is true and entitled to more weight than the evidence of both
plaintiffs which is false.
It appears that the plaintiff Silvestra Baron is an old lady about 80 years of
age and the aunt of the defendant, and Guillermo Baron is the uncle. Under the
theory of the lower court and of this court, both of them at all the time during
the high prices held their palay in defendant's mill at their own risk, and that
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upon that point the evidence of the defendant, standing alone is entitled to
more weight and is more convincing than the combined evidence of the two
plaintiffs. In the very nature of things, if defendant's evidence upon that point is
true, it stands to reason that, following the custom of growers, the plaintiffs would
have sold their palay during the period of high prices, and would not have
waited until it dropped from P8.50 per cavan to P6.15 per cavan about the first
of August. Upon that question, both the weight and the credibility of the
evidence is with the plaintiffs, and they should have judgment for the full
amount of their palay on the basis of P8.40 per cavan. For such reason, I
vigorously dissent from the majority opinion.
I frankly concede that the attachment was wrongful, and that it should
never have been levied. It remained in force for a period of one hundred and
seventy days at which time it was released on motion of the plaintiffs. The
defendant now claims, and the majority opinion has allowed him, damages for
that full period, exclusive of Sundays, at the rate, of P40 per day, found to be the
net profit for the operation of the rice mill. It further appears, and this court finds,
that the defendant was a responsible man, and that he had ample property out
which to satisfy plaintiffs' claim. Assuming that to be true, there was no valid
reason why he could not had given a counter bond and released the
attachment. Upon the theory of the majority opinion, if the plaintiffs had not
released the attachment, they would still be liable to the defendant at the rate
of P40 per day up to the present time. When the mill was attached, if he was in
a position to do so, it was the duty of the defendant to give a counter bond and
release the attachment and resume its operation. The majority opinion also
allowed the defendant P1,400 "for injury to the goodwill of his business." The very
fact that after a delay of about four years, both of the plaintiffs were compelled
to bring to their respective actions against the defendant to recover from him
on a just and meritorious claim, as found by this court and the lower court, and
the further fact that after such long delay, the defendant has sought to defeat
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the actions by a sham and manufactured defense, as found by this and the
lower court, would arouse the suspicion of any customers the defendant ever
had, and shake their confidence in his business honor and integrity, and destroy
any goodwill which he ever did have. Under such conditions, it would be
strange that the defendant would have any customers left. He is not entitled to
any compensation for the loss of goodwill, and P5,000 should be the very limit of
the amount of his damages for the wrongful attachment, and upon that point I
vigorously dissent. In all other respects, I agree with the majority opinion.
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