EN BANC

G.R. No. L-4150

February 10, 1910

FELIX DE LOS SANTOS, plaintiff-appelle, vs.

AGUSTINA JARRA, administratrix of the estate of
Magdaleno Jimenea, deceased, defendant-appellant.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought
suit against Agustina Jarra, the administratrix of the estate of
Magdaleno Jimenea, alleging that in the latter part of 1901
Jimenea borrowed and obtained from the plaintiff ten firstclass carabaos, to be used at the animal-power mill of his
hacienda during the season of 1901-2, without recompense or
remuneration whatever for the use thereof, under the sole
condition that they should be returned to the owner as soon as
the work at the mill was terminated; that Magdaleno Jimenea,
however, did not return the carabaos, notwithstanding the fact
that the plaintiff claimed their return after the work at the mill
was finished; that Magdaleno Jimenea died on the 28th of
October, 1904, and the defendant herein was appointed by the
Court of First Instance of Occidental Negros administratrix of
his estate and she took over the administration of the same
and is still performing her duties as such administratrix; that
the plaintiff presented his claim to the commissioners of the
estate of Jimenea, within the legal term, for the return of the
said ten carabaos, but the said commissioners rejected his
claim as appears in their report; therefore, the plaintiff prayed
that judgment be entered against the defendant as
administratrix of the estate of the deceased, ordering her to
return the ten first-class carabaos loaned to the late Jimenea,
or their present value, and to pay the costs.
The defendant was duly summoned, and on the 25th of
September, 1906, she demurred in writing to the complaint on
the ground that it was vague; but on the 2d of October of the

same year, in answer to the complaint, she said that it was

true that the late Magdaleno Jimenea asked the plaintiff to
loan him ten carabaos, but that he only obtained three secondclass animals, which were afterwards transferred by sale by
the plaintiff to the said Jimenea; that she denied the
allegations contained in paragraph 3 of the complaint; for all of
which she asked the court to absolve her of the complaint with
the cost against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose
Felix Martinez notified the defendant and her counsel, Matias
Hilado, that he had made an agreement with the plaintiff to the
effect that the latter would not compromise the controversy
without his consent, and that as fees for his professional
services he was to receive one half of the amount allowed in the
judgment if the same were entered in favor of the plaintiff.
The case came up for trial, evidence was adduced by both
parties, and either exhibits were made of record. On the 10th
of January, 1907, the court below entered judgment
sentencing Agustina Jarra, as administratrix of the estate of
Magdaleno Jimenea, to return to the plaintiff, Felix de los
Santos, the remaining six second and third class carabaos, or
the value thereof at the rate of P120 each, or a total of P720
with the costs.
Counsel for the defendant excepted to the foregoing judgment,
and, by a writing dated January 19, moved for anew trial on
the ground that the findings of fact were openly and manifestly
contrary to the weight of the evidence. The motion was
overruled, the defendant duly excepted, and in due course
submitted the corresponding bill of exceptions, which was
approved and submitted to this court.
The defendant has admitted that Magdaleno Jimenea asked
the plaintiff for the loan of ten carabaos which are now claimed
by the latter, as shown by two letters addressed by the said

Jimenea to Felix de los Santos; but in her answer the said

defendant alleged that the late Jimenea only obtained three
second-class carabaos, which were subsequently sold to him
by the owner, Santos; therefore, in order to decide this
litigation it is indispensable that proof be forthcoming that
Jimenea only received three carabaos from his son-in-law
Santos, and that they were sold by the latter to him.
The record discloses that it has been fully proven from the
testimony of a sufficient number of witnesses that the plaintiff,
Santos, sent in charge of various persons the ten carabaos
requested by his father-in-law, Magdaleno Jimenea, in the two
letters produced at the trial by the plaintiff, and that Jimenea
received them in the presence of some of said persons, one
being a brother of said Jimenea, who saw the animals arrive at
the hacienda where it was proposed to employ them. Four died
of rinderpest, and it is for this reason that the judgment
appealed from only deals with six surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his
son-in-law Santos is not evidenced by any trustworthy
documents such as those of transfer, nor were the declarations
of the witnesses presented by the defendant affirming it
satisfactory; for said reason it can not be considered that
Jimenea only received three carabaos on loan from his son-inlaw, and that he afterwards kept them definitely by virtue of
the purchase.
By the laws in force the transfer of large cattle was and is still
made by means of official documents issued by the local
authorities; these documents constitute the title of ownership
of the carabao or horse so acquired. Furthermore, not only
should the purchaser be provided with a new certificate or
credential, a document which has not been produced in
evidence by the defendant, nor has the loss of the same been
shown in the case, but the old documents ought to be on file in
the municipality, or they should have been delivered to the new

purchaser, and in the case at bar neither did the defendant

present the old credential on which should be stated the name
of the previous owner of each of the three carabaos said to
have been sold by the plaintiff.
From the foregoing it may be logically inferred that the
carabaos loaned or given on commodatum to the now deceased
Magdaleno Jimenea were ten in number; that they, or at any
rate the six surviving ones, have not been returned to the
owner thereof, Felix de los Santos, and that it is not true that
the latter sold to the former three carabaos that the purchaser
was already using; therefore, as the said six carabaos were not
the property of the deceased nor of any of his descendants, it is
the duty of the administratrix of the estate to return them or
indemnify the owner for their value.
The Civil Code, in dealing with loans in general, from which
generic denomination the specific one of commodatum is
derived, establishes prescriptions in relation to the lastmentioned contract by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers
to the other, either anything not perishable, in order that the
latter may use it during a certain period and return it to the
former, in which case it is called commodatum, or money or
any other perishable thing, under the condition to return an
equal amount of the same kind and quality, in which case it is
merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation
to pay interest.
ART. 1741. The bailee acquires retains the ownership of the
thing loaned. The bailee acquires the use thereof, but not its
fruits; if any compensation is involved, to be paid by the person
requiring the use, the agreement ceases to be a commodatum.

ART. 1742. The obligations and rights which arise from the
commodatum pass to the heirs of both contracting parties,
unless the loan has been in consideration for the person of the
bailee, in which case his heirs shall not have the right to
continue using the thing loaned.
The carabaos delivered to be used not being returned by the
defendant upon demand, there is no doubt that she is under
obligation to indemnify the owner thereof by paying him their
value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever
act in contravention of the stipulations of the same, shall be
subjected to indemnify for the losses and damages caused
thereby.
The obligation of the bailee or of his successors to return either
the thing loaned or its value, is sustained by the supreme
tribunal of Sapin. In its decision of March 21, 1895, it sets out
with precision the legal doctrine touching commodatum as
follows:
Although it is true that in a contract of commodatum the bailor
retains the ownership of the thing loaned, and at the expiration
of the period, or after the use for which it was loaned has been
accomplished, it is the imperative duty of the bailee to return
the thing itself to its owner, or to pay him damages if through
the fault of the bailee the thing should have been lost or
injured, it is clear that where public securities are involved, the
trial court, in deferring to the claim of the bailor that the
amount loaned be returned him by the bailee in bonds of the
same class as those which constituted the contract, thereby
properly applies law 9 of title 11 of partida 5.

With regard to the third assignment of error, based on the fact

that the plaintiff Santos had not appealed from the decision of
the commissioners rejecting his claim for the recovery of his
carabaos, it is sufficient to estate that we are not dealing with a
claim for the payment of a certain sum, the collection of a debt
from the estate, or payment for losses and damages (sec. 119,
Code of Civil Procedure), but with the exclusion from the
inventory of the property of the late Jimenea, or from his
capital, of six carabaos which did not belong to him, and which
formed no part of the inheritance.
The demand for the exclusion of the said carabaos belonging to
a third party and which did not form part of the property of the
deceased, must be the subject of a direct decision of the court
in an ordinary action, wherein the right of the third party to
the property which he seeks to have excluded from the
inheritance and the right of the deceased has been discussed,
and rendered in view of the result of the evidence adduced by
the administrator of the estate and of the claimant, since it is
so provided by the second part of section 699 and by section
703 of the Code of Civil Procedure; the refusal of the
commissioners before whom the plaintiff unnecessarily
appeared can not affect nor reduce the unquestionable right of
ownership of the latter, inasmuch as there is no law nor
principle of justice authorizing the successors of the late
Jimenea to enrich themselves at the cost and to the prejudice
of Felix de los Santos.
For the reasons above set forth, by which the errors assigned
to the judgment appealed from have been refuted, and
considering that the same is in accordance with the law and
the merits of the case, it is our opinion that it should be
affirmed and we do hereby affirm it with the costs against the
appellant. So ordered.

Comment [U1]: In the law of succe

personal rights cannot be a subject of
per Art. 776 of the Civil Code The inh
includes all the property, rights, and o
person which are not extinguished by

FIRST DIVISION
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE, petitioner, vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND
JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for
petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:
The principal issue in this case is whether or not a decision of
the Court of Appeals promulgated a long time ago can properly
be considered res judicata by respondent Court of Appeals in
the present two cases between petitioner and two private
respondents.
Petitioner questions as allegedly erroneous the Decision dated
August 31, 1987 of the Ninth Division of Respondent Court of
Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and
CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for
Recovery of Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial
Court of Baguio and Benguet in Civil Case No. 3607 (419) and
Civil Case No. 3655 (429), with the dispositive portion as
follows:
WHEREFORE, Judgment is hereby rendered ordering the
defendant, Catholic Vicar Apostolic of the Mountain Province to

return and surrender Lot 2 of Plan Psu-194357 to the

plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to
the other set of plaintiffs, the Heirs of Egmidio Octaviano
(Leonardo Valdez, et al.). For lack or insufficiency of evidence,
the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's
decision, sustained the trial court's conclusions that the
Decision of the Court of Appeals, dated May 4,1977 in CA-G.R.
No. 38830-R, in the two cases affirmed by the Supreme Court,
touched on the ownership of lots 2 and 3 in question; that the
two lots were possessed by the predecessors-in-interest of
private respondents under claim of ownership in good faith
from 1906 to 1951; that petitioner had been in possession of
the same lots as bailee in commodatum up to 1951, when
petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in
possession as owner for eleven years, hence there is no
possibility of acquisitive prescription which requires 10 years
possession with just title and 30 years of possession without;
that the principle of res judicata on these findings by the Court
of Appeals will bar a reopening of these questions of facts; and
that those facts may no longer be altered.
Petitioner's motion for reconsideration of the respondent
appellate court's Decision in the two aforementioned cases (CA
G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the
trail court are as follows
... The documents and records presented reveal that the whole
controversy started when the defendant Catholic Vicar
Apostolic of the Mountain Province (VICAR for brevity) filed
with the Court of First Instance of Baguio Benguet on
September 5, 1962 an application for registration of title over

Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion

Central, La Trinidad, Benguet, docketed as LRC N-91, said
Lots being the sites of the Catholic Church building, convents,
high school building, school gymnasium, school dormitories,
social hall, stonewalls, etc. On March 22, 1963 the Heirs of
Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively,
asserting ownership and title thereto. After trial on the merits,
the land registration court promulgated its Decision, dated
November 17, 1965, confirming the registrable title of VICAR to
Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No.
3655) and the Heirs of Egmidio Octaviano (plaintiffs in the
herein Civil Case No. 3607) appealed the decision of the land
registration court to the then Court of Appeals, docketed as
CA-G.R. No. 38830-R. The Court of Appeals rendered its
decision, dated May 9, 1977, reversing the decision of the land
registration court and dismissing the VICAR's application as to
Lots 2 and 3, the lots claimed by the two sets of oppositors in
the land registration case (and two sets of plaintiffs in the two
cases now at bar), the first lot being presently occupied by the
convent and the second by the women's dormitory and the
sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for
reconsideration praying the Court of Appeals to order the
registration of Lot 3 in the names of the Heirs of Egmidio
Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and
Pacita Valdez filed their motion for reconsideration praying that
both Lots 2 and 3 be ordered registered in the names of the
Heirs of Juan Valdez and Pacita Valdez. On August 12,1977,
the Court of Appeals denied the motion for reconsideration
filed by the Heirs of Juan Valdez on the ground that there was
"no sufficient merit to justify reconsideration one way or the
other ...," and likewise denied that of the Heirs of Egmidio
Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition

for review on certiorari of the decision of the Court of Appeals
dismissing his (its) application for registration of Lots 2 and 3,
docketed as G.R. No. L-46832, entitled 'Catholic Vicar
Apostolic of the Mountain Province vs. Court of Appeals and
Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for
reconsideration the Heirs of Juan Valdez and Pacita Valdez, on
September 8, 1977, filed with the Supreme Court a petition for
review, docketed as G.R. No. L-46872, entitled, Heirs of Juan
Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of
Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute
resolution both petitions (of VICAR on the one hand and the
Heirs of Juan Valdez and Pacita Valdez on the other) for lack of
merit. Upon the finality of both Supreme Court resolutions in
G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of
Octaviano filed with the then Court of First Instance of Baguio,
Branch II, a Motion For Execution of Judgment praying that
the Heirs of Octaviano be placed in possession of Lot 3. The
Court, presided over by Hon. Salvador J. Valdez, on December
7, 1978, denied the motion on the ground that the Court of
Appeals decision in CA-G.R. No. 38870 did not grant the Heirs
of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the
Court of Appeals a petitioner for certiorari and mandamus,
docketed as CA-G.R. No. 08890-R, entitled Heirs of Egmidio
Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its
decision dated May 16, 1979, the Court of Appeals dismissed
the petition.
It was at that stage that the instant cases were filed. The Heirs
of Egmidio Octaviano filed Civil Case No. 3607 (419) on July
24, 1979, for recovery of possession of Lot 3; and the Heirs of

Juan Valdez filed Civil Case No. 3655 (429) on September 24,
1979, likewise for recovery of possession of Lot 2 (Decision, pp.
199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs
of Egmidio Octaviano presented one (1) witness, Fructuoso
Valdez, who testified on the alleged ownership of the land in
question (Lot 3) by their predecessor-in-interest, Egmidio
Octaviano (Exh. C ); his written demand (Exh. BB-4 ) to
defendant Vicar for the return of the land to them; and the
reasonable rentals for the use of the land at P10,000.00 per
month. On the other hand, defendant Vicar presented the
Register of Deeds for the Province of Benguet, Atty. Nicanor
Sison, who testified that the land in question is not covered by
any title in the name of Egmidio Octaviano or any of the
plaintiffs (Exh. 8). The defendant dispensed with the testimony
of Mons.William Brasseur when the plaintiffs admitted that the
witness if called to the witness stand, would testify that
defendant Vicar has been in possession of Lot 3, for seventyfive (75) years continuously and peacefully and has
constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material
facts are not in dispute, submitted the case on the sole issue of
whether or not the decisions of the Court of Appeals and the
Supreme Court touching on the ownership of Lot 2, which in
effect declared the plaintiffs the owners of the land constitute
res judicata.
In these two cases, the plaintiffs argue that the defendant
Vicar is barred from setting up the defense of ownership
and/or long and continuous possession of the two lots in
question since this is barred by prior judgment of the Court of
Appeals in CA-G.R. No. 038830-R under the principle of res
judicata. Plaintiffs contend that the question of possession and
ownership have already been determined by the Court of
Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and

affirmed by the Supreme Court (Exh. 1, Minute Resolution of

the Supreme Court). On his part, defendant Vicar maintains
that the principle of res judicata would not prevent them from
litigating the issues of long possession and ownership because
the dispositive portion of the prior judgment in CA-G.R. No.
038830-R merely dismissed their application for registration
and titling of lots 2 and 3. Defendant Vicar contends that only
the dispositive portion of the decision, and not its body, is the
controlling pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals
according to petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES
JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT
LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE BUT
WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT
PURCHASED LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO
WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS
WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF
PRIVATE RESPONDENTS WHO WERE IN POSSESSION OF
LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD
FREE PATENT APPLICATIONS AND THE PREDECESSORS OF
PRIVATE RESPONDENTS ALREADY HAD FREE PATENT
APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2
AND 3 ONLY IN 1951 AND JUST TITLE IS A PRIME
NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART.

1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE

PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT
OF APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE
SUPREME COURT;

taxation purposes. When petitioner applied for registration of

Lots 2 and 3 in 1962, it had been in possession in concept of
owner only for eleven years. Ordinary acquisitive prescription
requires possession for ten years, but always with just title.
Extraordinary acquisitive prescription requires 30 years. 4

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN

POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR
ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

On the above findings of facts supported by evidence and

evaluated by the Court of Appeals in CA-G.R. No. 38830-R,
affirmed by this Court, We see no error in respondent appellate
court's ruling that said findings are res judicata between the
parties. They can no longer be altered by presentation of
evidence because those issues were resolved with finality a
long time ago. To ignore the principle of res judicata would be
to open the door to endless litigations by continuous
determination of issues without end.

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR

AND BUILDER IN GOOD FAITH WITHOUT RIGHTS OF
RETENTION AND REIMBURSEMENT AND IS BARRED BY THE
FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA
G.R. NO. 038830. 3

An examination of the Court of Appeals Decision dated May 4,

1977, First Division 5 in CA-G.R. No. 38830-R, shows that it
reversed the trial court's Decision 6 finding petitioner to be
entitled to register the lands in question under its ownership,
on its evaluation of evidence and conclusion of facts.

The petition is bereft of merit.

The Court of Appeals found that petitioner did not meet the
requirement of 30 years possession for acquisitive prescription
over Lots 2 and 3. Neither did it satisfy the requirement of 10
years possession for ordinary acquisitive prescription because
of the absence of just title. The appellate court did not believe
the findings of the trial court that Lot 2 was acquired from
Juan Valdez by purchase and Lot 3 was acquired also by
purchase from Egmidio Octaviano by petitioner Vicar because
there was absolutely no documentary evidence to support the
same and the alleged purchases were never mentioned in the
application for registration.

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO.

038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND
THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS
WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM
OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;

Petitioner questions the ruling of respondent Court of Appeals

in CA-G.R. Nos. 05148 and 05149, when it clearly held that it
was in agreement with the findings of the trial court that the
Decision of the Court of Appeals dated May 4,1977 in CA-G.R.
No. 38830-R, on the question of ownership of Lots 2 and 3,
declared that the said Court of Appeals Decision CA-G.R. No.
38830-R) did not positively declare private respondents as
owners of the land, neither was it declared that they were not
owners of the land, but it held that the predecessors of private
respondents were possessors of Lots 2 and 3, with claim of
ownership in good faith from 1906 to 1951. Petitioner was in
possession as borrower in commodatum up to 1951, when it
repudiated the trust by declaring the properties in its name for

By the very admission of petitioner Vicar, Lots 2 and 3 were

owned by Valdez and Octaviano. Both Valdez and Octaviano
had Free Patent Application for those lots since 1906. The

predecessors of private respondents, not petitioner Vicar, were

in possession of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4,
which are not in question, but not Lots 2 and 3, because the
buildings standing thereon were only constructed after
liberation in 1945. Petitioner Vicar only declared Lots 2 and 3
for taxation purposes in 1951. The improvements oil Lots 1, 2,
3, 4 were paid for by the Bishop but said Bishop was appointed
only in 1947, the church was constructed only in 1951 and the
new convent only 2 years before the trial in 1963.
When petitioner Vicar was notified of the oppositor's claims,
the parish priest offered to buy the lot from Fructuoso Valdez.
Lots 2 and 3 were surveyed by request of petitioner Vicar only
in 1962.
Private respondents were able to prove that their predecessors'
house was borrowed by petitioner Vicar after the church and
the convent were destroyed. They never asked for the return of
the house, but when they allowed its free use, they became
bailors in commodatum and the petitioner the bailee. The
bailees' failure to return the subject matter of commodatum to
the bailor did not mean adverse possession on the part of the
borrower. The bailee held in trust the property subject matter
of commodatum. The adverse claim of petitioner came only in
1951 when it declared the lots for taxation purposes. The
action of petitioner Vicar by such adverse claim could not ripen
into title by way of ordinary acquisitive prescription because of
the absence of just title.
The Court of Appeals found that the predecessors-in-interest
and private respondents were possessors under claim of
ownership in good faith from 1906; that petitioner Vicar was
only a bailee in commodatum; and that the adverse claim and
repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the

Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact
have become incontestible. This Court declined to review said
decision, thereby in effect, affirming it. It has become final and
executory a long time ago.
Respondent appellate court did not commit any reversible
error, much less grave abuse of discretion, when it held that
the Decision of the Court of Appeals in CA-G.R. No. 38830-R is
governing, under the principle of res judicata, hence the rule,
in the present cases CA-G.R. No. 05148 and CA-G.R. No.
05149. The facts as supported by evidence established in that
decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this
petition is DENIED for lack of merit, the Decision dated Aug.
31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent
Court of Appeals is AFFIRMED, with costs against petitioner.
SO ORDERED.

FIRST DIVISION
G.R. No. 146364

June 3, 2004

In September 1994, Pajuyo informed Guevarra of his need of

the house and demanded that Guevarra vacate the house.
Guevarra refused.

COLITO T. PAJUYO, petitioner, vs.

COURT OF APPEALS and EDDIE GUEVARRA, respondents.

Pajuyo filed an ejectment case against Guevarra with the

Metropolitan Trial Court of Quezon City, Branch 31 ("MTC").

DECISION

In his Answer, Guevarra claimed that Pajuyo had no valid title

or right of possession over the lot where the house stands
because the lot is within the 150 hectares set aside by
Proclamation No. 137 for socialized housing. Guevarra pointed
out that from December 1985 to September 1994, Pajuyo did
not show up or communicate with him. Guevarra insisted that
neither he nor Pajuyo has valid title to the lot.

CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000
Decision2 and 14 December 2000 Resolution of the Court of
Appeals in CA-G.R. SP No. 43129. The Court of Appeals set
aside the 11 November 1996 decision3 of the Regional Trial
Court of Quezon City, Branch 81,4 affirming the 15 December
1995 decision5 of the Metropolitan Trial Court of Quezon City,
Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400
to a certain Pedro Perez for the rights over a 250-square meter
lot in Barrio Payatas, Quezon City. Pajuyo then constructed a
house made of light materials on the lot. Pajuyo and his family
lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie
Guevarra ("Guevarra") executed a Kasunduan or agreement.
Pajuyo, as owner of the house, allowed Guevarra to live in the
house for free provided Guevarra would maintain the
cleanliness and orderliness of the house. Guevarra promised
that he would voluntarily vacate the premises on Pajuyos
demand.

On 15 December 1995, the MTC rendered its decision in favor

of Pajuyo. The dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered for the plaintiff and against defendant, ordering the
latter to:
A) vacate the house and lot occupied by the defendant or any
other person or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS
(P300.00) monthly as reasonable compensation for the use of
the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of
attorneys fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of
Quezon City, Branch 81 ("RTC").

Comment [U2]: Issue: Is the contr

relationship of Pajuyo and Guevara th
commodatum?

Held: No. The Court of Appeals theor

Kasunduan is one of commodatum is
merit. In a contract of commodatum,
parties delivers to another something
consumable so that the latter may use
a certain time and return it. An essent
commodatum is that it is gratuitous. A
feature of commodatum is that the us
belonging to another is for a certain p
the bailor cannot demand the return o
loaned until after expiration of the pe
stipulated, or after accomplishment o
which the commodatum is constituted
should have urgent need of the thing,
demand its return for temporary use.
the thing is merely tolerated by the ba
demand the return of the thing at will
the contractual relation is called a pre
the Civil Code, precarium is a kind of c
The Kasunduan reveals that the accom
accorded by Pajuyo to Guevarra was n
gratuitous. While the Kasunduan did n
Guevarra to pay rent, it obligated him
the property in good condition. The im
this obligation makes the Kasunduan a
different from a commodatum. The ef
Kasunduan are also different from tha
commodatum. Case law on ejectment
relationship based on tolerance as on
to a landlord-tenant relationship whe
withdrawal of permission would resul
termination of the lease. The tenants
of the property would then be unlawf

On 11 November 1996, the RTC affirmed the MTC decision.

The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no
reversible error in the decision appealed from, being in accord
with the law and evidence presented, and the same is hereby
affirmed en toto.
SO ORDERED.8
Guevarra received the RTC decision on 29 November 1996.
Guevarra had only until 14 December 1996 to file his appeal
with the Court of Appeals. Instead of filing his appeal with the
Court of Appeals, Guevarra filed with the Supreme Court a
"Motion for Extension of Time to File Appeal by Certiorari
Based on Rule 42" ("motion for extension"). Guevarra theorized
that his appeal raised pure questions of law. The Receiving
Clerk of the Supreme Court received the motion for extension
on 13 December 1996 or one day before the right to appeal
expired.
On 3 January 1997, Guevarra filed his petition for review with
the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court
issued a Resolution9 referring the motion for extension to the
Court of Appeals which has concurrent jurisdiction over the
case. The case presented no special and important matter for
the Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of
Appeals issued a Resolution10 granting the motion for
extension conditioned on the timeliness of the filing of the
motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to
comment on Guevaras petition for review. On 11 April 1997,
Pajuyo filed his Comment.

On 21 June 2000, the Court of Appeals issued its decision

reversing the RTC decision. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, the assailed Decision of
the court a quo in Civil Case No. Q-96-26943 is REVERSED
and SET ASIDE; and it is hereby declared that the ejectment
case filed against defendant-appellant is without factual and
legal basis.
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision.
Pajuyo pointed out that the Court of Appeals should have
dismissed outright Guevarras petition for review because it
was filed out of time. Moreover, it was Guevarras counsel and
not Guevarra who signed the certification against forumshopping.
On 14 December 2000, the Court of Appeals issued a
resolution denying Pajuyos motion for reconsideration. The
dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration
is hereby DENIED. No costs.
SO ORDERED.12
The Ruling of the MTC
The MTC ruled that the subject of the agreement between
Pajuyo and Guevarra is the house and not the lot. Pajuyo is
the owner of the house, and he allowed Guevarra to use the
house only by tolerance. Thus, Guevarras refusal to vacate the
house on Pajuyos demand made Guevarras continued
possession of the house illegal.
The Ruling of the RTC

The RTC upheld the Kasunduan, which established the

landlord and tenant relationship between Pajuyo and
Guevarra. The terms of the Kasunduan bound Guevarra to
return possession of the house on demand.
The RTC rejected Guevarras claim of a better right under
Proclamation No. 137, the Revised National Government
Center Housing Project Code of Policies and other pertinent
laws. In an ejectment suit, the RTC has no power to decide
Guevarras rights under these laws. The RTC declared that in
an ejectment case, the only issue for resolution is material or
physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are
squatters. Pajuyo and Guevarra illegally occupied the
contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was
also a squatter. Perez had no right or title over the lot because
it is public land. The assignment of rights between Perez and
Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did
not have any legal effect. Pajuyo and Guevarra are in pari
delicto or in equal fault. The court will leave them where they
are.
The Court of Appeals reversed the MTC and RTC rulings, which
held that the Kasunduan between Pajuyo and Guevarra
created a legal tie akin to that of a landlord and tenant
relationship. The Court of Appeals ruled that the Kasunduan is
not a lease contract but a commodatum because the agreement
is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim
the property, the appellate court held that Guevarra has a
better right over the property under Proclamation No. 137.
President Corazon C. Aquino ("President Aquino") issued

Proclamation No. 137 on 7 September 1987. At that time,

Guevarra was in physical possession of the property. Under
Article VI of the Code of Policies Beneficiary Selection and
Disposition of Homelots and Structures in the National
Housing Project ("the Code"), the actual occupant or caretaker
of the lot shall have first priority as beneficiary of the project.
The Court of Appeals concluded that Guevarra is first in the
hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate
court debunked Pajuyos claim that Guevarra filed his motion
for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for
extension filed before the Supreme Court was stamped "13
December 1996 at 4:09 PM" by the Supreme Courts Receiving
Clerk. The Court of Appeals concluded that the motion for
extension bore a date, contrary to Pajuyos claim that the
motion for extension was undated. Guevarra filed the motion
for extension on time on 13 December 1996 since he filed the
motion one day before the expiration of the reglementary
period on 14 December 1996. Thus, the motion for extension
properly complied with the condition imposed by the Court of
Appeals in its 28 January 1997 Resolution. The Court of
Appeals explained that the thirty-day extension to file the
petition for review was deemed granted because of such
compliance.
The Court of Appeals rejected Pajuyos argument that the
appellate court should have dismissed the petition for review
because it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping. The Court of
Appeals pointed out that Pajuyo did not raise this issue in his
Comment. The Court of Appeals held that Pajuyo could not
now seek the dismissal of the case after he had extensively
argued on the merits of the case. This technicality, the
appellate court opined, was clearly an afterthought.

The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS
AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents
Motion for an Extension of thirty days to file petition for review
at the time when there was no more period to extend as the
decision of the Regional Trial Court had already become final
and executory.
2) in giving due course, instead of dismissing, private
respondents Petition for Review even though the certification
against forum-shopping was signed only by counsel instead of
by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the
parties was in fact a commodatum, instead of a Contract of
Lease as found by the Metropolitan Trial Court and in holding
that "the ejectment case filed against defendant-appellant is
without legal and factual basis".
4) in reversing and setting aside the Decision of the Regional
Trial Court in Civil Case No. Q-96-26943 and in holding that
the parties are in pari delicto being both squatters, therefore,
illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the socalled Code of Policies of the National Government Center
Housing Project instead of deciding the same under the
Kasunduan voluntarily executed by the parties, the terms and
conditions of which are the laws between themselves.13
The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However,

we find merit in the substantive issues Pajuyo is submitting for
resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed
outright Guevarras petition for review because the RTC
decision had already become final and executory when the
appellate court acted on Guevarras motion for extension to file
the petition. Pajuyo points out that Guevarra had only one day
before the expiry of his period to appeal the RTC decision.
Instead of filing the petition for review with the Court of
Appeals, Guevarra filed with this Court an undated motion for
extension of 30 days to file a petition for review. This Court
merely referred the motion to the Court of Appeals. Pajuyo
believes that the filing of the motion for extension with this
Court did not toll the running of the period to perfect the
appeal. Hence, when the Court of Appeals received the motion,
the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their
appellate jurisdiction are appealable to the Court of Appeals by
petition for review in cases involving questions of fact or mixed
questions of fact and law.14 Decisions of the regional trial
courts involving pure questions of law are appealable directly
to this Court by petition for review.15 These modes of appeal
are now embodied in Section 2, Rule 41 of the 1997 Rules of
Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved
only questions of law. Guevarra thus filed his motion for
extension to file petition for review before this Court on 14
December 1996. On 3 January 1997, Guevarra then filed his
petition for review with this Court. A perusal of Guevarras
petition for review gives the impression that the issues he

raised were pure questions of law. There is a question of law

when the doubt or difference is on what the law is on a certain
state of facts.16 There is a question of fact when the doubt or
difference is on the truth or falsity of the facts alleged.17
In his petition for review before this Court, Guevarra no longer
disputed the facts. Guevarras petition for review raised these
questions: (1) Do ejectment cases pertain only to possession of
a structure, and not the lot on which the structure stands? (2)
Does a suit by a squatter against a fellow squatter constitute a
valid case for ejectment? (3) Should a Presidential
Proclamation governing the lot on which a squatters structure
stands be considered in an ejectment suit filed by the owner of
the structure?
These questions call for the evaluation of the rights of the
parties under the law on ejectment and the Presidential
Proclamation. At first glance, the questions Guevarra raised
appeared purely legal. However, some factual questions still
have to be resolved because they have a bearing on the legal
questions raised in the petition for review. These factual
matters refer to the metes and bounds of the disputed property
and the application of Guevarra as beneficiary of Proclamation
No. 137.
The Court of Appeals has the power to grant an extension of
time to file a petition for review. In Lacsamana v. Second
Special Cases Division of the Intermediate Appellate
Court,18 we declared that the Court of Appeals could grant
extension of time in appeals by petition for review. In Liboro v.
Court of Appeals,19 we clarified that the prohibition against
granting an extension of time applies only in a case where
ordinary appeal is perfected by a mere notice of appeal. The
prohibition does not apply in a petition for review where the
pleading needs verification. A petition for review, unlike an
ordinary appeal, requires preparation and research to present
a persuasive position.20 The drafting of the petition for review

entails more time and effort than filing a notice of appeal. 21

Hence, the Court of Appeals may allow an extension of time to
file a petition for review.
In the more recent case of Commissioner of Internal Revenue
v. Court of Appeals,22 we held that Liboros clarification of
Lacsamana is consistent with the Revised Internal Rules of
the Court of Appeals and Supreme Court Circular No. 1-91.
They all allow an extension of time for filing petitions for review
with the Court of Appeals. The extension, however, should be
limited to only fifteen days save in exceptionally meritorious
cases where the Court of Appeals may grant a longer period.
A judgment becomes "final and executory" by operation of law.
Finality of judgment becomes a fact on the lapse of the
reglementary period to appeal if no appeal is perfected.23 The
RTC decision could not have gained finality because the Court
of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion
when it approved Guevarras motion for extension. The Court
of Appeals gave due course to the motion for extension because
it complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that
the Court of Appeals would only give due course to the motion
for extension if filed on time. The motion for extension met this
condition.
The material dates to consider in determining the timeliness of
the filing of the motion for extension are (1) the date of receipt
of the judgment or final order or resolution subject of the
petition, and (2) the date of filing of the motion for extension. 24
It is the date of the filing of the motion or pleading, and not the
date of execution, that determines the timeliness of the filing of
that motion or pleading. Thus, even if the motion for extension
bears no date, the date of filing stamped on it is the reckoning
point for determining the timeliness of its filing.

Guevarra had until 14 December 1996 to file an appeal from

the RTC decision. Guevarra filed his motion for extension
before this Court on 13 December 1996, the date stamped by
this Courts Receiving Clerk on the motion for extension.
Clearly, Guevarra filed the motion for extension exactly one day
before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed
Guevarras appeal on technical grounds, Pajuyo did not ask
the appellate court to deny the motion for extension and
dismiss the petition for review at the earliest opportunity.
Instead, Pajuyo vigorously discussed the merits of the case. It
was only when the Court of Appeals ruled in Guevarras favor
that Pajuyo raised the procedural issues against Guevarras
petition for review.
A party who, after voluntarily submitting a dispute for
resolution, receives an adverse decision on the merits, is
estopped from attacking the jurisdiction of the court.25
Estoppel sets in not because the judgment of the court is a
valid and conclusive adjudication, but because the practice of
attacking the courts jurisdiction after voluntarily submitting to
it is against public policy.26
In his Comment before the Court of Appeals, Pajuyo also failed
to discuss Guevarras failure to sign the certification against
forum shopping. Instead, Pajuyo harped on Guevarras counsel
signing the verification, claiming that the counsels verification
is insufficient since it is based only on "mere information."
A partys failure to sign the certification against forum
shopping is different from the partys failure to sign personally
the verification. The certificate of non-forum shopping must be
signed by the party, and not by counsel.27 The certification of
counsel renders the petition defective.28
On the other hand, the requirement on verification of a
pleading is a formal and not a jurisdictional requisite.29 It is

intended simply to secure an assurance that what are alleged

in the pleading are true and correct and not the product of the
imagination or a matter of speculation, and that the pleading is
filed in good faith.30 The party need not sign the verification. A
partys representative, lawyer or any person who personally
knows the truth of the facts alleged in the pleading may sign
the verification.31
We agree with the Court of Appeals that the issue on the
certificate against forum shopping was merely an afterthought.
Pajuyo did not call the Court of Appeals attention to this defect
at the early stage of the proceedings. Pajuyo raised this
procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest
the Courts of Jurisdiction to Resolve the Issue of
Possession
Settled is the rule that the defendants claim of ownership of
the disputed property will not divest the inferior court of its
jurisdiction over the ejectment case.32 Even if the pleadings
raise the issue of ownership, the court may pass on such issue
to determine only the question of possession, especially if the
ownership is inseparably linked with the possession.33 The
adjudication on the issue of ownership is only provisional and
will not bar an action between the same parties involving title
to the land.34 This doctrine is a necessary consequence of the
nature of the two summary actions of ejectment, forcible entry
and unlawful detainer, where the only issue for adjudication is
the physical or material possession over the real property.35
In this case, what Guevarra raised before the courts was that
he and Pajuyo are not the owners of the contested property
and that they are mere squatters. Will the defense that the
parties to the ejectment case are not the owners of the
disputed lot allow the courts to renounce their jurisdiction over
the case? The Court of Appeals believed so and held that it

would just leave the parties where they are since they are in
pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is
not at issue in an action for recovery of possession. The parties
cannot present evidence to prove ownership or right to legal
possession except to prove the nature of the possession when
necessary to resolve the issue of physical possession.36 The
same is true when the defendant asserts the absence of title
over the property. The absence of title over the contested lot is
not a ground for the courts to withhold relief from the parties
in an ejectment case.
The only question that the courts must resolve in ejectment
proceedings is - who is entitled to the physical possession of
the premises, that is, to the possession de facto and not to the
possession de jure.37 It does not even matter if a partys title to
the property is questionable,38 or when both parties intruded
into public land and their applications to own the land have
yet to be approved by the proper government agency.39
Regardless of the actual condition of the title to the property,
the party in peaceable quiet possession shall not be thrown out
by a strong hand, violence or terror.40 Neither is the unlawful
withholding of property allowed. Courts will always uphold
respect for prior possession.
Thus, a party who can prove prior possession can recover such
possession even against the owner himself.41 Whatever may be
the character of his possession, if he has in his favor prior
possession in time, he has the security that entitles him to
remain on the property until a person with a better right
lawfully ejects him.42 To repeat, the only issue that the court
has to settle in an ejectment suit is the right to physical
possession.

In Pitargue v. Sorilla,43 the government owned the land in

dispute. The government did not authorize either the plaintiff
or the defendant in the case of forcible entry case to occupy the
land. The plaintiff had prior possession and had already
introduced improvements on the public land. The plaintiff had
a pending application for the land with the Bureau of Lands
when the defendant ousted him from possession. The plaintiff
filed the action of forcible entry against the defendant. The
government was not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to
settle the issue of possession because while the application of
the plaintiff was still pending, title remained with the
government, and the Bureau of Public Lands had jurisdiction
over the case. We disagreed with the defendant. We ruled that
courts have jurisdiction to entertain ejectment suits even
before the resolution of the application. The plaintiff, by
priority of his application and of his entry, acquired prior
physical possession over the public land applied for as against
other private claimants. That prior physical possession enjoys
legal protection against other private claimants because only a
court can take away such physical possession in an ejectment
case.
While the Court did not brand the plaintiff and the defendant
in Pitargue44 as squatters, strictly speaking, their entry into
the disputed land was illegal. Both the plaintiff and defendant
entered the public land without the owners permission. Title to
the land remained with the government because it had not
awarded to anyone ownership of the contested public land.
Both the plaintiff and the defendant were in effect squatting on
government property. Yet, we upheld the courts jurisdiction to
resolve the issue of possession even if the plaintiff and the
defendant in the ejectment case did not have any title over the
contested land.

Courts must not abdicate their jurisdiction to resolve the issue

of physical possession because of the public need to preserve
the basic policy behind the summary actions of forcible entry
and unlawful detainer. The underlying philosophy behind
ejectment suits is to prevent breach of the peace and criminal
disorder and to compel the party out of possession to respect
and resort to the law alone to obtain what he claims is his.45
The party deprived of possession must not take the law into his
own hands.46 Ejectment proceedings are summary in nature so
the authorities can settle speedily actions to recover possession
because of the overriding need to quell social disturbances.47
We further explained in Pitargue the greater interest that is at
stake in actions for recovery of possession. We made the
following pronouncements in Pitargue:
The question that is before this Court is: Are courts without
jurisdiction to take cognizance of possessory actions involving
these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting
claimants? It is one of utmost importance, as there are public
lands everywhere and there are thousands of settlers,
especially in newly opened regions. It also involves a matter of
policy, as it requires the determination of the respective
authorities and functions of two coordinate branches of the
Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil
Code, either in the old, which was in force in this country
before the American occupation, or in the new, we have a
possessory action, the aim and purpose of which is the
recovery of the physical possession of real property,
irrespective of the question as to who has the title thereto.
Under the Spanish Civil Code we had the accion interdictal, a
summary proceeding which could be brought within one year
from dispossession (Roman Catholic Bishop of Cebu vs.
Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901,

upon the enactment of the Code of Civil Procedure (Act No. 190
of the Philippine Commission) we implanted the common law
action of forcible entry (section 80 of Act No. 190), the object of
which has been stated by this Court to be "to prevent
breaches of the peace and criminal disorder which would
ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing
themselves entitled to the possession of property, resort to
force to gain possession rather than to some appropriate
action in the court to assert their claims." (Supia and
Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before
the enactment of the first Public Land Act (Act No. 926) the
action of forcible entry was already available in the courts of
the country. So the question to be resolved is, Did the
Legislature intend, when it vested the power and authority to
alienate and dispose of the public lands in the Lands
Department, to exclude the courts from entertaining the
possessory action of forcible entry between rival claimants or
occupants of any land before award thereof to any of the
parties? Did Congress intend that the lands applied for, or all
public lands for that matter, be removed from the jurisdiction
of the judicial Branch of the Government, so that any troubles
arising therefrom, or any breaches of the peace or disorders
caused by rival claimants, could be inquired into only by the
Lands Department to the exclusion of the courts? The answer
to this question seems to us evident. The Lands Department
does not have the means to police public lands; neither does it
have the means to prevent disorders arising therefrom, or
contain breaches of the peace among settlers; or to pass
promptly upon conflicts of possession. Then its power is
clearly limited to disposition and alienation, and while it
may decide conflicts of possession in order to make
proper award, the settlement of conflicts of possession
which is recognized in the court herein has another
ultimate purpose, i.e., the protection of actual possessors

and occupants with a view to the prevention of breaches

of the peace. The power to dispose and alienate could not
have been intended to include the power to prevent or
settle disorders or breaches of the peace among rival
settlers or claimants prior to the final award. As to this,
therefore, the corresponding branches of the Government must
continue to exercise power and jurisdiction within the limits of
their respective functions. The vesting of the Lands
Department with authority to administer, dispose, and
alienate public lands, therefore, must not be understood
as depriving the other branches of the Government of the
exercise of the respective functions or powers thereon,
such as the authority to stop disorders and quell
breaches of the peace by the police, the authority on the
part of the courts to take jurisdiction over possessory
actions arising therefrom not involving, directly or
indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in
American courts to the effect that courts have no jurisdiction
to determine the rights of claimants to public lands, and that
until the disposition of the land has passed from the control of
the Federal Government, the courts will not interfere with the
administration of matters concerning the same. (50 C. J. 10931094.) We have no quarrel with this principle. The
determination of the respective rights of rival claimants to
public lands is different from the determination of who has the
actual physical possession or occupation with a view to
protecting the same and preventing disorder and breaches of
the peace. A judgment of the court ordering restitution of the
possession of a parcel of land to the actual occupant, who has
been deprived thereof by another through the use of force or in
any other illegal manner, can never be "prejudicial
interference" with the disposition or alienation of public lands.
On the other hand, if courts were deprived of jurisdiction
of cases involving conflicts of possession, that threat of

judicial action against breaches of the peace committed

on public lands would be eliminated, and a state of
lawlessness would probably be produced between
applicants, occupants or squatters, where force or might,
not right or justice, would rule.
It must be borne in mind that the action that would be used to
solve conflicts of possession between rivals or conflicting
applicants or claimants would be no other than that of forcible
entry. This action, both in England and the United States and
in our jurisdiction, is a summary and expeditious remedy
whereby one in peaceful and quiet possession may recover the
possession of which he has been deprived by a stronger hand,
by violence or terror; its ultimate object being to prevent
breach of the peace and criminal disorder. (Supia and Batioco
vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the
remedy is mere possession as a fact, of physical possession,
not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.)
The title or right to possession is never in issue in an action of
forcible entry; as a matter of fact, evidence thereof is expressly
banned, except to prove the nature of the possession. (Second
4, Rule 72, Rules of Court.) With this nature of the action in
mind, by no stretch of the imagination can conclusion be
arrived at that the use of the remedy in the courts of justice
would constitute an interference with the alienation,
disposition, and control of public lands. To limit ourselves to
the case at bar can it be pretended at all that its result would
in any way interfere with the manner of the alienation or
disposition of the land contested? On the contrary, it would
facilitate adjudication, for the question of priority of possession
having been decided in a final manner by the courts, said
question need no longer waste the time of the land officers
making the adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari

delicto to this case.
Articles 1411 and 1412 of the Civil Code48 embody the
principle of pari delicto. We explained the principle of pari
delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo
malo non eritur actio and in pari delicto potior est conditio
defedentis. The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them.49
The application of the pari delicto principle is not absolute, as
there are exceptions to its application. One of these exceptions
is where the application of the pari delicto rule would violate
well-established public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind
the summary actions of forcible entry and unlawful detainer.
We held that:
It must be stated that the purpose of an action of forcible entry
and detainer is that, regardless of the actual condition of the
title to the property, the party in peaceable quiet possession
shall not be turned out by strong hand, violence or terror. In
affording this remedy of restitution the object of the statute is
to prevent breaches of the peace and criminal disorder which
would ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing
themselves entitled to the possession of property, resort to
force to gain possession rather than to some appropriate action
in the courts to assert their claims. This is the philosophy at
the foundation of all these actions of forcible entry and
detainer which are designed to compel the party out of
possession to respect and resort to the law alone to obtain
what he claims is his.52

Clearly, the application of the principle of pari delicto to a case

of ejectment between squatters is fraught with danger. To shut
out relief to squatters on the ground of pari delicto would
openly invite mayhem and lawlessness. A squatter would oust
another squatter from possession of the lot that the latter had
illegally occupied, emboldened by the knowledge that the
courts would leave them where they are. Nothing would then
stand in the way of the ousted squatter from re-claiming his
prior possession at all cost.
Petty warfare over possession of properties is precisely what
ejectment cases or actions for recovery of possession seek to
prevent.53 Even the owner who has title over the disputed
property cannot take the law into his own hands to regain
possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties
to the ejectment suit are squatters. The determination of
priority and superiority of possession is a serious and urgent
matter that cannot be left to the squatters to decide. To do so
would make squatters receive better treatment under the law.
The law restrains property owners from taking the law into
their own hands. However, the principle of pari delicto as
applied by the Court of Appeals would give squatters free rein
to dispossess fellow squatters or violently retake possession of
properties usurped from them. Courts should not leave
squatters to their own devices in cases involving recovery of
possession.
Possession is the only Issue for Resolution in an Ejectment
Case
The case for review before the Court of Appeals was a simple
case of ejectment. The Court of Appeals refused to rule on the
issue of physical possession. Nevertheless, the appellate court
held that the pivotal issue in this case is who between Pajuyo
and Guevarra has the "priority right as beneficiary of the

contested land under Proclamation No. 137."54 According to the

Court of Appeals, Guevarra enjoys preferential right under
Proclamation No. 137 because Article VI of the Code declares
that the actual occupant or caretaker is the one qualified to
apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal
basis.
First. Guevarra did not present evidence to show that the
contested lot is part of a relocation site under Proclamation No.
137. Proclamation No. 137 laid down the metes and bounds of
the land that it declared open for disposition to bona fide
residents.
The records do not show that the contested lot is within the
land specified by Proclamation No. 137. Guevarra had the
burden to prove that the disputed lot is within the coverage of
Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence
to Guevarras unsubstantiated claim that he is the beneficiary
of Proclamation No. 137. Guevarra merely alleged that in the
survey the project administrator conducted, he and not Pajuyo
appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits
of Proclamation No. 137. Pajuyo allowed Guevarra to occupy
the disputed property in 1985. President Aquino signed
Proclamation No. 137 into law on 11 March 1986. Pajuyo made
his earliest demand for Guevarra to vacate the property in
September 1994.
During the time that Guevarra temporarily held the property
up to the time that Proclamation No. 137 allegedly segregated
the disputed lot, Guevarra never applied as beneficiary of
Proclamation No. 137. Even when Guevarra already knew that
Pajuyo was reclaiming possession of the property, Guevarra

did not take any step to comply with the requirements of

Proclamation No. 137.
Third. Even assuming that the disputed lot is within the
coverage of Proclamation No. 137 and Guevarra has a pending
application over the lot, courts should still assume jurisdiction
and resolve the issue of possession. However, the jurisdiction
of the courts would be limited to the issue of physical
possession only.
In Pitargue,55 we ruled that courts have jurisdiction over
possessory actions involving public land to determine the issue
of physical possession. The determination of the respective
rights of rival claimants to public land is, however, distinct
from the determination of who has the actual physical
possession or who has a better right of physical possession.56
The administrative disposition and alienation of public lands
should be threshed out in the proper government agency. 57
The Court of Appeals determination of Pajuyo and Guevarras
rights under Proclamation No. 137 was premature. Pajuyo and
Guevarra were at most merely potential beneficiaries of the
law. Courts should not preempt the decision of the
administrative agency mandated by law to determine the
qualifications of applicants for the acquisition of public lands.
Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and
breaches of peace.58
Pajuyo is Entitled to Physical Possession of the Disputed
Property
Guevarra does not dispute Pajuyos prior possession of the lot
and ownership of the house built on it. Guevarra expressly
admitted the existence and due execution of the Kasunduan.
The Kasunduan reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo.

Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie
Guevarra, na pansamantalang manirahan sa nasabing bahay
at lote ng "walang bayad." Kaugnay nito, kailangang
panatilihin nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay
kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside
in the house and lot free of rent, but Guevarra was under
obligation to maintain the premises in good condition.
Guevarra promised to vacate the premises on Pajuyos demand
but Guevarra broke his promise and refused to heed Pajuyos
demand to vacate.
These facts make out a case for unlawful detainer. Unlawful
detainer involves the withholding by a person from another of
the possession of real property to which the latter is entitled
after the expiration or termination of the formers right to hold
possession under a contract, express or implied.59
Where the plaintiff allows the defendant to use his property by
tolerance without any contract, the defendant is necessarily
bound by an implied promise that he will vacate on demand,
failing which, an action for unlawful detainer will lie.60 The
defendants refusal to comply with the demand makes his
continued possession of the property unlawful.61 The status of
the defendant in such a case is similar to that of a lessee or
tenant whose term of lease has expired but whose occupancy
continues by tolerance of the owner.62
This principle should apply with greater force in cases where a
contract embodies the permission or tolerance to use the
property. The Kasunduan expressly articulated Pajuyos
forbearance. Pajuyo did not require Guevarra to pay any rent
but only to maintain the house and lot in good condition.
Guevarra expressly vowed in the Kasunduan that he would

vacate the property on demand. Guevarras refusal to comply

with Pajuyos demand to vacate made Guevarras continued
possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the
Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to
another something not consumable so that the latter may use
the same for a certain time and return it.63 An essential feature
of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another
is for a certain period.64 Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the
commodatum is constituted.65 If the bailor should have urgent
need of the thing, he may demand its return for temporary
use.66 If the use of the thing is merely tolerated by the bailor,
he can demand the return of the thing at will, in which case
the contractual relation is called a precarium.67 Under the Civil
Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by
Pajuyo to Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition
of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment
has treated relationship based on tolerance as one that is akin
to a landlord-tenant relationship where the withdrawal of
permission would result in the termination of the lease.69 The
tenants withholding of the property would then be unlawful.
This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and
Guevarra is one of commodatum, Guevarra as bailee would still

have the duty to turn over possession of the property to

Pajuyo, the bailor. The obligation to deliver or to return the
thing received attaches to contracts for safekeeping, or
contracts of commission, administration and commodatum.70
These contracts certainly involve the obligation to deliver or
return the thing received.71
Guevarra turned his back on the Kasunduan on the sole
ground that like him, Pajuyo is also a squatter. Squatters,
Guevarra pointed out, cannot enter into a contract involving
the land they illegally occupy. Guevarra insists that the
contract is void.
Guevarra should know that there must be honor even between
squatters. Guevarra freely entered into the Kasunduan.
Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who
between Pajuyo and Guevarra has a right to physical
possession of the contested property. The Kasunduan is the
undeniable evidence of Guevarras recognition of Pajuyos
better right of physical possession. Guevarra is clearly a
possessor in bad faith. The absence of a contract would not
yield a different result, as there would still be an implied
promise to vacate.

rent. There is also no proof that Pajuyo is a professional

squatter who rents out usurped properties to other squatters.
Moreover, it is for the proper government agency to decide who
between Pajuyo and Guevarra qualifies for socialized housing.
The only issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in
ejectment.73 This is one of the distinctions between forcible
entry and unlawful detainer.74 In forcible entry, the plaintiff is
deprived of physical possession of his land or building by
means of force, intimidation, threat, strategy or stealth. Thus,
he must allege and prove prior possession.75 But in unlawful
detainer, the defendant unlawfully withholds possession after
the expiration or termination of his right to possess under any
contract, express or implied. In such a case, prior physical
possession is not required.76
Pajuyos withdrawal of his permission to Guevarra terminated
the Kasunduan. Guevarras transient right to possess the
property ended as well. Moreover, it was Pajuyo who was in
actual possession of the property because Guevarra had to
seek Pajuyos permission to temporarily hold the property and
Guevarra had to follow the conditions set by Pajuyo in the
Kasunduan. Control over the property still rested with Pajuyo
and this is evidence of actual possession.

Guevarra contends that there is "a pernicious evil that is

sought to be avoided, and that is allowing an absentee squatter
who (sic) makes (sic) a profit out of his illegal act."72 Guevarra
bases his argument on the preferential right given to the actual
occupant or caretaker under Proclamation No. 137 on
socialized housing.

Pajuyos absence did not affect his actual possession of the

disputed property. Possession in the eyes of the law does not
mean that a man has to have his feet on every square meter of
the ground before he is deemed in possession.77 One may
acquire possession not only by physical occupation, but also
by the fact that a thing is subject to the action of ones will.78
Actual or physical occupation is not always necessary.79

We are not convinced.

Ruling on Possession Does not Bind Title to the Land in Dispute

Pajuyo did not profit from his arrangement with Guevarra

because Guevarra stayed in the property without paying any

We are aware of our pronouncement in cases where we

declared that "squatters and intruders who clandestinely enter

into titled government property cannot, by such act, acquire

any legal right to said property."80 We made this declaration
because the person who had title or who had the right to legal
possession over the disputed property was a party in the
ejectment suit and that party instituted the case against
squatters or usurpers.
In this case, the owner of the land, which is the government, is
not a party to the ejectment case. This case is between
squatters. Had the government participated in this case, the
courts could have evicted the contending squatters, Pajuyo and
Guevarra.
Since the party that has title or a better right over the property
is not impleaded in this case, we cannot evict on our own the
parties. Such a ruling would discourage squatters from seeking
the aid of the courts in settling the issue of physical
possession. Stripping both the plaintiff and the defendant of
possession just because they are squatters would have the
same dangerous implications as the application of the principle
of pari delicto. Squatters would then rather settle the issue of
physical possession among themselves than seek relief from
the courts if the plaintiff and defendant in the ejectment case
would both stand to lose possession of the disputed property.
This would subvert the policy underlying actions for recovery of
possession.
Since Pajuyo has in his favor priority in time in holding the
property, he is entitled to remain on the property until a
person who has title or a better right lawfully ejects him.
Guevarra is certainly not that person. The ruling in this case,
however, does not preclude Pajuyo and Guevarra from
introducing evidence and presenting arguments before the
proper administrative agency to establish any right to which
they may be entitled under the law.81

In no way should our ruling in this case be interpreted to

condone squatting. The ruling on the issue of physical
possession does not affect title to the property nor constitute a
binding and conclusive adjudication on the merits on the issue
of ownership.82 The owner can still go to court to recover
lawfully the property from the person who holds the property
without legal title. Our ruling here does not diminish the power
of government agencies, including local governments, to
condemn, abate, remove or demolish illegal or unauthorized
structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000
attorneys fees to Pajuyo. Attorneys fees as part of damages are
awarded only in the instances enumerated in Article 2208 of
the Civil Code.83 Thus, the award of attorneys fees is the
exception rather than the rule.84 Attorneys fees are not
awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to
litigate.85 We therefore delete the attorneys fees awarded to
Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed
against Guevarra. Guevarra did not dispute this factual finding of the
two courts. We find the amount reasonable compensation to Pajuyo.
The P300 monthly rental is counted from the last demand to vacate,
which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June
2000 and Resolution dated 14 December 2000 of the Court of
Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision
dated 11 November 1996 of the Regional Trial Court of Quezon City,
Branch 81 in Civil Case No. Q-96-26943, affirming the Decision
dated 15 December 1995 of the Metropolitan Trial Court of Quezon
City, Branch 31 in Civil Case No. 12432, is REINSTATED with
MODIFICATION. The award of attorneys fees is deleted. No costs. SO
ORDERED.

EN BANC
G.R. No. L-17474

October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate
left by the late Jose V. Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only
questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the
Philippines through the Bureau of Animal Industry three bulls: a Red
Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and
a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to
7 May 1949 for breeding purposes subject to a government charge of
breeding fee of 10% of the book value of the bulls. Upon the
expiration on 7 May 1949 of the contract, the borrower asked for a
renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only
one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V.
Bagtas wrote to the Director of Animal Industry that he would pay
the value of the three bulls. On 17 October 1950 he reiterated his
desire to buy them at a value with a deduction of yearly depreciation
to be approved by the Auditor General. On 19 October 1950 the
Director of Animal Industry advised him that the book value of the
three bulls could not be reduced and that they either be returned or
their book value paid not later than 31 October 1950. Jose V. Bagtas
failed to pay the book value of the three bulls or to return them. So,
on 20 December 1950 in the Court of First Instance of Manila the
Republic of the Philippines commenced an action against him praying
that he be ordered to return the three bulls loaned to him or to pay
their book value in the total sum of P3,241.45 and the unpaid

breeding fee in the sum of P199.62, both with interests, and costs;
and that other just and equitable relief be granted in (civil No.
12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and
Manalo, answered that because of the bad peace and order situation
in Cagayan Valley, particularly in the barrio of Baggao, and of the
pending appeal he had taken to the Secretary of Agriculture and
Natural Resources and the President of the Philippines from the
refusal by the Director of Animal Industry to deduct from the book
value of the bulls corresponding yearly depreciation of 8% from the
date of acquisition, to which depreciation the Auditor General did not
object, he could not return the animals nor pay their value and
prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the
total value of the three bulls plus the breeding fees in the amount of
P626.17 with interest on both sums of (at) the legal rate from the
filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution
which the court granted on 18 October and issued on 11 November
1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to
serve the writ outside Manila. Of this order appointing a special
sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving
spouse of the defendant Jose Bagtas who died on 23 October 1951
and as administratrix of his estate, was notified. On 7 January 1959
she file a motion alleging that on 26 June 1952 the two bull Sindhi
and Bhagnari were returned to the Bureau Animal of Industry and
that sometime in November 1958 the third bull, the Sahiniwal, died
from gunshot wound inflicted during a Huk raid on Hacienda
Felicidad Intal, and praying that the writ of execution be quashed
and that a writ of preliminary injunction be issued. On 31 January
1959 the plaintiff objected to her motion. On 6 February 1959 she
filed a reply thereto. On the same day, 6 February, the Court denied
her motion. Hence, this appeal certified by the Court of Appeals to
this Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the

appellant by the late defendant, returned the Sindhi and Bhagnari
bulls to Roman Remorin, Superintendent of the NVB Station, Bureau
of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a
memorandum receipt signed by the latter (Exhibit 2). That is why in
its objection of 31 January 1959 to the appellant's motion to quash
the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of
defendant deceased Jose V. Bagtas." She cannot be held liable for the
two bulls which already had been returned to and received by the
appellee.
The appellant contends that the Sahiniwal bull was accidentally
killed during a raid by the Huk in November 1953 upon the
surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan,
where the animal was kept, and that as such death was due to force
majeure she is relieved from the duty of returning the bull or paying
its value to the appellee. The contention is without merit. The loan by
the appellee to the late defendant Jose V. Bagtas of the three bulls for
breeding purposes for a period of one year from 8 May 1948 to 7 May
1949, later on renewed for another year as regards one bull, was
subject to the payment by the borrower of breeding fee of 10% of the
book value of the bulls. The appellant contends that the contract was
commodatum and that, for that reason, as the appellee retained
ownership or title to the bull it should suffer its loss due to force
majeure. A contract of commodatum is essentially gratuitous. 1 If the
breeding fee be considered a compensation, then the contract would
be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of
the contract. And even if the contract be commodatum, still the
appellant is liable, because article 1942 of the Civil Code provides
that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a
fortuitous event:
(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from responsibility
in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949.
The loan of one bull was renewed for another period of one year to
end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased husband of the
appellant the bulls had each an appraised book value, to with: the
Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at
P744.46. It was not stipulated that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt
from liability.
The appellant's contention that the demand or prayer by the appellee
for the return of the bull or the payment of its value being a money
claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without
merit. However, the claim that his civil personality having ceased to
exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court
provides that
After a party dies and the claim is not thereby extinguished, the court
shall order, upon proper notice, the legal representative of the
deceased to appear and to be substituted for the deceased, within a
period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel
failed to comply with section 16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his
attorney to inform the court promptly of such death . . . and to give
the name and residence of the executory administrator, guardian, or
other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de
Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all
persons having claims for monopoly against the deceased Jose V.

Bagtas, arising from contract express or implied, whether the same

be due, not due, or contingent, for funeral expenses and expenses of
the last sickness of the said decedent, and judgment for monopoly
against him, to file said claims with the Clerk of this Court at the City
Hall Bldg., Highway 54, Quezon City, within six (6) months from the
date of the first publication of this order, serving a copy thereof upon
the aforementioned Felicidad M. Bagtas, the appointed administratrix
of the estate of the said deceased," is not a notice to the court and the
appellee who were to be notified of the defendant's death in
accordance with the above-quoted rule, and there was no reason for
such failure to notify, because the attorney who appeared for the
defendant was the same who represented the administratrix in the
special proceedings instituted for the administration and settlement
of his estate. The appellee or its attorney or representative could not
be expected to know of the death of the defendant or of the
administration proceedings of his estate instituted in another court
that if the attorney for the deceased defendant did not notify the
plaintiff or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee,
the estate of the late defendant is only liable for the sum of P859.63,
the value of the bull which has not been returned to the appellee,
because it was killed while in the custody of the administratrix of his
estate. This is the amount prayed for by the appellee in its objection
on 31 January 1959 to the motion filed on 7 January 1959 by the
appellant for the quashing of the writ of execution.
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.

THIRD DIVISION
G.R. Nos. 173654-765

August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
TERESITA PUIG and ROMEO PORRAS, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of
Court with petitioner People of the Philippines, represented by the
Office of the Solicitor General, praying for the reversal of the Orders
dated 30 January 2006 and 9 June 2006 of the Regional Trial Court
(RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo,
dismissing the 112 cases of Qualified Theft filed against respondents
Teresita Puig and Romeo Porras, and denying petitioners Motion for
Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutors Office filed
before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of
Qualified Theft against respondents Teresita Puig (Puig) and Romeo
Porras (Porras) who were the Cashier and Bookkeeper, respectively, of
private complainant Rural Bank of Pototan, Inc. The cases were
docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations1 filed before the RTC were
uniform and pro-forma, except for the amounts, date and time of
commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of
Pototan, Province of Iloilo, Philippines, and within the jurisdiction of
this Honorable Court, above-named [respondents], conspiring,
confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent

of the management of the Bank and with intent of gain, did then and
there willfully, unlawfully and feloniously take, steal and carry away
the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine
Currency, to the damage and prejudice of the said bank in the
aforesaid amount.
After perusing the Informations in these cases, the trial court did not
find the existence of probable cause that would have necessitated the
issuance of a warrant of arrest based on the following grounds:
(1) the element of taking without the consent of the owners was
missing on the ground that it is the depositors-clients, and not the
Bank, which filed the complaint in these cases, who are the owners of
the money allegedly taken by respondents and hence, are the real
parties-in-interest; and
(2) the Informations are bereft of the phrase alleging "dependence,
guardianship or vigilance between the respondents and the
offended party that would have created a high degree of
confidence between them which the respondents could have
abused."
It added that allowing the 112 cases for Qualified Theft filed against
the respondents to push through would be violative of the right of the
respondents under Section 14(2), Article III of the 1987 Constitution
which states that in all criminal prosecutions, the accused shall
enjoy the right to be informed of the nature and cause of the
accusation against him. Following Section 6, Rule 112 of the Revised
Rules of Criminal Procedure, the RTC dismissed the cases on 30
January 2006 and refused to issue a warrant of arrest against Puig
and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the
petitioner.
On 9 June 2006, an Order3 denying petitioners Motion for
Reconsideration was issued by the RTC, finding as follows:
Accordingly, the prosecutions Motion for Reconsideration should be,
as it hereby, DENIED. The Order dated January 30, 2006 STANDS in
all respects.

Petitioner went directly to this Court via Petition for Review on

Certiorari under Rule 45, raising the sole legal issue of:

Petition for Review on Certiorari, considering that the incident was

indorsed by the DOJ.

WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED

THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING
WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING
CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

We find merit in the petition.

Petitioner prays that judgment be rendered annulling and setting

aside the Orders dated 30 January 2006 and 9 June 2006 issued by
the trial court, and that it be directed to proceed with Criminal Cases
No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code,
"fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple
loans." Corollary thereto, Article 1953 of the same Code provides that
"a person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality." Thus, it posits that
the depositors who place their money with the bank are considered
creditors of the bank. The bank acquires ownership of the money
deposited by its clients, making the money taken by respondents as
belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the
elements of the crime of qualified theft, citing that a perusal of the
Informations will show that they specifically allege that the
respondents were the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., respectively, and that they took various amounts of
money with grave abuse of confidence, and without the knowledge
and consent of the bank, to the damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge
the petition on the ground that a Petition for Review on Certiorari via
Rule 45 is the wrong mode of appeal because a finding of probable
cause for the issuance of a warrant of arrest presupposes evaluation
of facts and circumstances, which is not proper under said Rule.
Respondents further claim that the Department of Justice (DOJ),
through the Secretary of Justice, is the principal party to file a

The dismissal by the RTC of the criminal cases was allegedly due to
insufficiency of the Informations and, therefore, because of this
defect, there is no basis for the existence of probable cause which will
justify the issuance of the warrant of arrest. Petitioner assails the
dismissal contending that the Informations for Qualified Theft
sufficiently state facts which constitute (a) the qualifying
circumstance of grave abuse of confidence; and (b) the element of
taking, with intent to gain and without the consent of the owner, which
is the Bank.
In determining the existence of probable cause to issue a warrant of
arrest, the RTC judge found the allegations in the Information
inadequate. He ruled that the Information failed to state facts
constituting the qualifying circumstance of grave abuse of confidence
and the element of taking without the consent of the owner, since the
owner of the money is not the Bank, but the depositors therein. He
also cites People v. Koc Song,4 in which this Court held:
There must be allegation in the information and proof of a relation,
by reason of dependence, guardianship or vigilance, between the
respondents and the offended party that has created a high degree of
confidence between them, which the respondents abused.
At this point, it needs stressing that the RTC Judge based his
conclusion that there was no probable cause simply on the
insufficiency of the allegations in the Informations concerning the facts
constitutive of the elements of the offense charged. This, therefore,
makes the issue of sufficiency of the allegations in the Informations the
focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the
Revised Penal Code, is committed as follows, viz:
ART. 310. Qualified Theft. The crime of theft shall be punished by
the penalties next higher by two degrees than those respectively
specified in the next preceding article, if committed by a domestic

servant, or with grave abuse of confidence, or if the property stolen is

motor vehicle, mail matter or large cattle or consists of coconuts
taken from the premises of a plantation, fish taken from a fishpond
or fishery or if property is taken on the occasion of fire, earthquake,
typhoon, volcanic eruption, or any other calamity, vehicular accident
or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires
the physical taking of anothers property without violence or
intimidation against persons or force upon things. The elements of
the crime under this Article are:

Section 9. Cause of the accusation. The acts or omissions complained

of as constituting the offense and the qualifying and aggravating
circumstances must be stated in ordinary and concise language and
not necessarily in the language used in the statute but in terms
sufficient to enable a person of common understanding to know what
offense is being charged as well as its qualifying and aggravating
circumstances and for the court to pronounce judgment.

1. Intent to gain;

It is evident that the Information need not use the exact language of
the statute in alleging the acts or omissions complained of as
constituting the offense. The test is whether it enables a person of
common understanding to know the charge against him, and the
court to render judgment properly. 5

2. Unlawful taking;

The portion of the Information relevant to this discussion reads:

3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon
things.
To fall under the crime of Qualified Theft, the following elements
must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or intimidation
against persons, nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the
Rules of Court requires, inter alia, that the information must state
the acts or omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9,
Rule 110 of the Rules of Court, is enlightening:

A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other

employees of a Bank who come into possession of the monies
deposited therein enjoy the confidence reposed in them by their
employer. Banks, on the other hand, where monies are deposited, are
considered the owners thereof. This is very clear not only from the
express provisions of the law, but from established jurisprudence.
The relationship between banks and depositors has been held to be
that of creditor and debtor. Articles 1953 and 1980 of the New Civil
Code, as appropriately pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to
the creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions
concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly
established the nature of possession by the Bank of the money
deposits therein, and the duties being performed by its employees

who have custody of the money or have come into possession of it.
The Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of
confidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as
sufficient to make out a case of Qualified Theft. For a graphic
illustration, we cite Roque v. People,6 where the accused teller was
convicted for Qualified Theft based on this Information:
That on or about the 16th day of November, 1989, in the municipality
of Floridablanca, province of Pampanga, Philippines and within the
jurisdiction of his Honorable Court, the above-named accused
ASUNCION GALANG ROQUE, being then employed as teller of the
Basa Air Base Savings and Loan Association Inc. (BABSLA) with
office address at Basa Air Base, Floridablanca, Pampanga, and as
such was authorized and reposed with the responsibility to receive
and collect capital contributions from its member/contributors of
said corporation, and having collected and received in her capacity as
teller of the BABSLA the sum of TEN THOUSAND PESOS
(P10,000.00), said accused, with intent of gain, with grave abuse of
confidence and without the knowledge and consent of said
corporation, did then and there willfully, unlawfully and feloniously
take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of
Antonio Salazar withdrew from his Savings Account No. 1359, when
in truth and in fact said Antonio Salazar did not withdr[a]w the said
amount of P10,000.00 to the damage and prejudice of BABSLA in the
total amount of P10,000.00, Philippine currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the bank
places money in the tellers possession due to the confidence reposed
on the teller, the felony of qualified theft would be committed. 7
Also in People v. Sison,8 the Branch Operations Officer was
convicted of the crime of Qualified Theft based on the Information as
herein cited:
That in or about and during the period compressed between January
24, 1992 and February 13, 1992, both dates inclusive, in the City of

Manila, Philippines, the said accused did then and there wilfully,
unlawfully and feloniously, with intent of gain and without the
knowledge and consent of the owner thereof, take, steal and carry
away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations
belonging to the PHILIPPINE COMMERCIAL INTERNATIONAL BANK
(PCIBank for brevity), Luneta Branch, Manila represented by its
Branch Manager, HELEN U. FARGAS, to the damage and prejudice of
the said owner in the aforesaid amount of P6,000,000.00, Philippine
Currency.
That in the commission of the said offense, herein accused acted with
grave abuse of confidence and unfaithfulness, he being the Branch
Operation Officer of the said complainant and as such he had free
access to the place where the said amount of money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the
Philippine Commercial and Industrial Bank (PCIB), is Qualified Theft.
Appellant could not have committed the crime had he not been
holding the position of Luneta Branch Operation Officer which gave
him not only sole access to the bank vault xxx. The management of
the PCIB reposed its trust and confidence in the appellant as its
Luneta Branch Operation Officer, and it was this trust and
confidence which he exploited to enrich himself to the damage and
prejudice of PCIB x x x.9
From another end, People v. Locson,10 in addition to People v.
Sison, described the nature of possession by the Bank. The money in
this case was in the possession of the defendant as receiving teller of
the bank, and the possession of the defendant was the possession of
the Bank. The Court held therein that when the defendant, with
grave abuse of confidence, removed the money and appropriated it to
his own use without the consent of the Bank, there was taking as
contemplated in the crime of Qualified Theft. 11
Conspicuously, in all of the foregoing cases, where the Informations
merely alleged the positions of the respondents; that the crime was
committed with grave abuse of confidence, with intent to gain and

without the knowledge and consent of the Bank, without necessarily

stating the phrase being assiduously insisted upon by respondents,
"of a relation by reason of dependence, guardianship or
vigilance, between the respondents and the offended party that
has created a high degree of confidence between them, which
respondents abused,"12 and without employing the word "owner" in
lieu of the "Bank" were considered to have satisfied the test of
sufficiency of allegations.
As regards the respondents who were employed as Cashier and
Bookkeeper of the Bank in this case, there is even no reason to
quibble on the allegation in the Informations that they acted with
grave abuse of confidence. In fact, the Information which alleged
grave abuse of confidence by accused herein is even more precise, as
this is exactly the requirement of the law in qualifying the crime of
Theft.
In summary, the Bank acquires ownership of the money deposited by
its clients; and the employees of the Bank, who are entrusted with
the possession of money of the Bank due to the confidence reposed in
them, occupy positions of confidence. The Informations, therefore,
sufficiently allege all the essential elements constituting the crime of
Qualified Theft.
On the theory of the defense that the DOJ is the principal party who
may file the instant petition, the ruling in Mobilia Products, Inc. v.
Hajime Umezawa13 is instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State, the
interest of the private complainant or the offended party is limited to
the civil liability arising therefrom. Hence, if a criminal case is
dismissed by the trial court or if there is an acquittal, a
reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect
thereof is concerned and may be made only by the public prosecutor;
or in the case of an appeal, by the State only, through the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state
that the rule is well-settled that in appeals by certiorari under Rule
45 of the Rules of Court, only errors of law may be raised, 14 and
herein petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations

in these cases, a closer look at the records of the preliminary
investigation conducted will show that, indeed, probable cause exists
for the indictment of herein respondents. Pursuant to Section 6, Rule
112 of the Rules of Court, the judge shall issue a warrant of arrest
only upon a finding of probable cause after personally evaluating the
resolution of the prosecutor and its supporting evidence. Soliven v.
Makasiar,15 as reiterated in Allado v. Driokno,16 explained that
probable cause for the issuance of a warrant of arrest is the existence
of such facts and circumstances that would lead a reasonably
discreet and prudent person to believe that an offense has been
committed by the person sought to be arrested. 17 The records
reasonably indicate that the respondents may have, indeed,
committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon
the fiscal or the judge, as the case may be, to relieve the respondents
from the pain of going through a trial once it is ascertained that no
probable cause exists to form a sufficient belief as to the guilt of the
respondents, conversely, it is also equally imperative upon the judge
to proceed with the case upon a showing that there is a prima facie
case against the respondents.
WHEREFORE, premises considered, the Petition for Review on
Certiorari is hereby GRANTED. The Orders dated 30 January 2006
and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054
to 05-3165 are REVERSED and SET ASIDE. Let the corresponding
Warrants of Arrest issue against herein respondents TERESITA PUIG
and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas,
Iloilo, is directed to proceed with the trial of Criminal Cases No. 053054 to 05-3165, inclusive, with reasonable dispatch. No
pronouncement as to costs.
SO ORDERED.

THIRD DIVISION
G.R. No. 123498

November 23, 2007

BPI FAMILY BANK, Petitioner, vs.

AMADO FRANCO and COURT OF APPEALS, Respondents.
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with
meticulous care and utmost fidelity. We reiterate this exhortation in
the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of
the Court of Appeals (CA) Decision1 in CA-G.R. CV No. 43424 which
affirmed with modification the judgment2 of the Regional Trial Court,
Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.
This case has its genesis in an ostensible fraud perpetrated on the
petitioner BPI Family Bank (BPI-FB) allegedly by respondent Amado
Franco (Franco) in conspiracy with other individuals, 3 some of whom
opened and maintained separate accounts with BPI-FB, San
Francisco del Monte (SFDM) branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc.
(Tevesteco) opened a savings and current account with BPI-FB. Soon
thereafter, or on August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a time deposit account with the same
branch of BPI-FB with a deposit of P100,000,000.00, to mature one
year thence.
Subsequently, on August 31, 1989, Franco opened three accounts,
namely, a current,4 savings,5 and time deposit,6 with BPI-FB. The
current and savings accounts were respectively funded with an initial
deposit of P500,000.00 each, while the time deposit account had
P1,000,000.00 with a maturity date of August 31, 1990. The total
amount of P2,000,000.00 used to open these accounts is traceable to
a check issued by Tevesteco allegedly in consideration of Francos
introduction of Eladio Teves, 7 who was looking for a conduit bank to
facilitate Tevestecos business transactions, to Jaime Sebastian, who

was then BPI-FB SFDMs Branch Manager. In turn, the funding for
the P2,000,000.00 check was part of the P80,000,000.00 debited by
BPI-FB from FMICs time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit purportedly
signed by FMICs officers.
It appears, however, that the signatures of FMICs officers on the
Authority to Debit were forged.8 On September 4, 1989, Antonio
Ong,9 upon being shown the Authority to Debit, personally declared
his signature therein to be a forgery. Unfortunately, Tevesteco had
already effected several withdrawals from its current account (to
which had been credited the P80,000,000.00 covered by the forged
Authority to Debit) amounting to P37,455,410.54, including the
P2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in
light of FMICs forgery claim, BPI-FB, thru its Senior Vice-President,
Severino Coronacion, instructed Jesus Arangorin 10 to debit Francos
savings and current accounts for the amounts remaining therein. 11
However, Francos time deposit account could not be debited due to
the capacity limitations of BPI-FBs computer.12
In the meantime, two checks13 drawn by Franco against his BPI-FB
current account were dishonored upon presentment for payment,
and stamped with a notation "account under garnishment."
Apparently, Francos current account was garnished by virtue of an
Order of Attachment issued by the Regional Trial Court of Makati
(Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had
been filed by BPI-FB against Franco et al.,14 to recover the
P37,455,410.54 representing Tevestecos total withdrawals from its
account.
Notably, the dishonored checks were issued by Franco and presented
for payment at BPI-FB prior to Francos receipt of notice that his
accounts were under garnishment. 15 In fact, at the time the Notice of
Garnishment dated September 27, 1989 was served on BPI-FB,
Franco had yet to be impleaded in the Makati case where the writ of
attachment was issued.
It was only on May 15, 1990, through the service of a copy of the
Second Amended Complaint in Civil Case No. 89-4996, that Franco

was impleaded in the Makati case.16 Immediately, upon receipt of

such copy, Franco filed a Motion to Discharge Attachment which the
Makati RTC granted on May 16, 1990. The Order Lifting the Order of
Attachment was served on BPI-FB on even date, with Franco
demanding the release to him of the funds in his savings and current
accounts. Jesus Arangorin, BPI-FBs new manager, could not
forthwith comply with the demand as the funds, as previously stated,
had already been debited because of FMICs forgery claim. As such,
BPI-FBs computer at the SFDM Branch indicated that the current
account record was "not on file."

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda

Tica (Buenaventura, et al.),19 recipients of a P500,000.00 check
proceeding from the P80,000,000.00 mistakenly credited to
Tevesteco, likewise filed suit. Buenaventura et al., as in the case of
Franco, were also prevented from effecting withdrawals20 from their
current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City
Branch. Likewise, when the case was elevated to this Court docketed
as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no
right to freeze Buenaventura, et al.s accounts and adjudged BPI-FB
liable therefor, in addition to damages.

With respect to Francos savings account, it appears that Franco

agreed to an arrangement, as a favor to Sebastian, whereby
P400,000.00 from his savings account was temporarily transferred to
Domingo Quiaoits savings account, subject to its immediate return
upon issuance of a certificate of deposit which Quiaoit needed in
connection with his visa application at the Taiwan Embassy. As part
of the arrangement, Sebastian retained custody of Quiaoits savings
account passbook to ensure that no withdrawal would be effected
therefrom, and to preserve Francos deposits.

Meanwhile, BPI-FB filed separate civil and criminal cases against

those believed to be the perpetrators of the multi-million peso scam.22
In the criminal case, Franco, along with the other accused, except for
Manuel Bienvenida who was still at large, were acquitted of the crime
of Estafa as defined and penalized under Article 351, par. 2(a) of the
Revised Penal Code.23 However, the civil case24 remains under
litigation and the respective rights and liabilities of the parties have
yet to be adjudicated.

On May 17, 1990, Franco pre-terminated his time deposit account.

BPI-FB deducted the amount of P63,189.00 from the remaining
balance of the time deposit account representing advance interest
paid to him.
These transactions spawned a number of cases, some of which we
had already resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount
of P80,000,000.00 debited from its account. 17 The case eventually
reached this Court, and in BPI Family Savings Bank, Inc. v. First
Metro Investment Corporation, 18 we upheld the finding of the courts
below that BPI-FB failed to exercise the degree of diligence required
by the nature of its obligation to treat the accounts of its depositors
with meticulous care. Thus, BPI-FB was found liable to FMIC for the
debited amount in its time deposit. It was ordered to pay
P65,332,321.99 plus interest at 17% per annum from August 29,
1989 until fully restored. In turn, the 17% shall itself earn interest at
12% from October 4, 1989 until fully paid.

Consequently, in light of BPI-FBs refusal to heed Francos demands

to unfreeze his accounts and release his deposits therein, the latter
filed on June 4, 1990 with the Manila RTC the subject suit. In his
complaint, Franco prayed for the following reliefs: (1) the interest on
the remaining balance25 of his current account which was eventually
released to him on October 31, 1991; (2) the balance 26 on his savings
account, plus interest thereon; (3) the advance interest27 paid to him
which had been deducted when he pre-terminated his time deposit
account; and (4) the payment of actual, moral and exemplary
damages, as well as attorneys fees.
BPI-FB traversed this complaint, insisting that it was correct in
freezing the accounts of Franco and refusing to release his deposits,
claiming that it had a better right to the amounts which consisted of
part of the money allegedly fraudulently withdrawn from it by
Tevesteco and ending up in Francos accounts. BPI-FB asseverated
that the claimed consideration of P2,000,000.00 for the introduction
facilitated by Franco between George Daantos and Eladio Teves, on
the one hand, and Jaime Sebastian, on the other, spoke volumes of
Francos participation in the fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the

dispositive portion of which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered in favor of [Franco] and against [BPI-FB], ordering the latter
to pay to the former the following sums:
1. P76,500.00 representing the legal rate of interest on the amount of
P450,000.00 from May 18, 1990 to October 31, 1991;
2. P498,973.23 representing the balance on [Francos] savings
account as of May 18, 1990, together with the interest thereon in
accordance with the banks guidelines on the payment therefor;
3. P30,000.00 by way of attorneys fees; and
4. P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual
and legal anchor.
Costs against [BPI-FB].
SO ORDERED.28
Unsatisfied with the decision, both parties filed their respective
appeals before the CA. Franco confined his appeal to the Manila
RTCs denial of his claim for moral and exemplary damages, and the
diminutive award of attorneys fees. In affirming with modification the
lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby
AFFIRMED with modification ordering [BPI-FB] to pay [Franco]
P63,189.00 representing the interest deducted from the time deposit
of plaintiff-appellant. P200,000.00 as moral damages and
P100,000.00 as exemplary damages, deleting the award of nominal
damages (in view of the award of moral and exemplary damages) and
increasing the award of attorneys fees from P30,000.00 to
P75,000.00.
Cost against [BPI-FB].
SO ORDERED.29

In this recourse, BPI-FB ascribes error to the CA when it ruled that:

(1) Franco had a better right to the deposits in the subject accounts
which are part of the proceeds of a forged Authority to Debit; (2)
Franco is entitled to interest on his current account; (3) Franco can
recover the P400,000.00 deposit in Quiaoits savings account; (4) the
dishonor of Francos checks was not legally in order; (5) BPI-FB is
liable for interest on Francos time deposit, and for moral and
exemplary damages; and (6) BPI-FBs counter-claim has no factual
and legal anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that
BPI-FB cannot unilaterally freeze Francos accounts and preclude
him from withdrawing his deposits. However, contrary to the
appellate courts ruling, we hold that Franco is not entitled to
unearned interest on the time deposit as well as to moral and
exemplary damages.
First. On the issue of who has a better right to the deposits in
Francos accounts, BPI-FB urges us that the legal consequence of
FMICs forgery claim is that the money transferred by BPI-FB to
Tevesteco is its own, and considering that it was able to recover
possession of the same when the money was redeposited by Franco,
it had the right to set up its ownership thereon and freeze Francos
accounts.
BPI-FB contends that its position is not unlike that of an owner of
personal property who regains possession after it is stolen, and to
illustrate this point, BPI-FB gives the following example: where Xs
television set is stolen by Y who thereafter sells it to Z, and where Z
unwittingly entrusts possession of the TV set to X, the latter would
have the right to keep possession of the property and preclude Z from
recovering possession thereof. To bolster its position, BPI-FB cites
Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good
faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it from
the person in possession of the same.

If the possessor of a movable lost or of which the owner has been

unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid
therefor.
BPI-FBs argument is unsound. To begin with, the movable property
mentioned in Article 559 of the Civil Code pertains to a specific or
determinate thing.30 A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of
the same kind.31
In this case, the deposit in Francos accounts consists of money
which, albeit characterized as a movable, is generic and fungible. 32
The quality of being fungible depends upon the possibility of the
property, because of its nature or the will of the parties, being
substituted by others of the same kind, not having a distinct
individuality.33
Significantly, while Article 559 permits an owner who has lost or has
been unlawfully deprived of a movable to recover the exact same
thing from the current possessor, BPI-FB simply claims ownership of
the equivalent amount of money, i.e., the value thereof, which it had
mistakenly debited from FMICs account and credited to Tevestecos,
and subsequently traced to Francos account. In fact, this is what
BPI-FB did in filing the Makati Case against Franco, et al. It staked
its claim on the money itself which passed from one account to
another, commencing with the forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar
ownership,34 and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone
awry. Its primary function is to pass from hand to hand as a medium
of exchange, without other evidence of its title. 35 Money, which had
passed through various transactions in the general course of banking
business, even if of traceable origin, is no exception.
Thus, inasmuch as what is involved is not a specific or determinate
personal property, BPI-FBs illustrative example, ostensibly based on
Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the

accounts of Franco, but not as a legal consequence of its
unauthorized transfer of FMICs deposits to Tevestecos account. BPIFB conveniently forgets that the deposit of money in banks is
governed by the Civil Code provisions on simple loan or mutuum. 36
As there is a debtor-creditor relationship between a bank and its
depositor, BPI-FB ultimately acquired ownership of Francos deposits,
but such ownership is coupled with a corresponding obligation to pay
him an equal amount on demand.37 Although BPI-FB owns the
deposits in Francos accounts, it cannot prevent him from demanding
payment of BPI-FBs obligation by drawing checks against his current
account, or asking for the release of the funds in his savings account.
Thus, when Franco issued checks drawn against his current
account, he had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze
the accounts of Franco based on its mere suspicion that the funds
therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter,
the right to take whatever action it pleases on deposits which it
supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of
Appeals38 continues to resonate, thus:
The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not
hesitated to entrust his lifes savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some
interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in
the settling of his monthly bills and the payment of ordinary
expenses. x x x.

In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever directs. A
blunder on the part of the bank, such as the dishonor of the check
without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and
criminal litigation.
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is
duty bound to know the signatures of its customers. Having failed to
detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot
now shift liability thereon to Franco and the other payees of checks
issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final
judgment.
Further, it boggles the mind why BPI-FB, even without delving into
the authenticity of the signature in the Authority to Debit, effected
the transfer of P80,000,000.00 from FMICs to Tevestecos account,
when FMICs account was a time deposit and it had already paid
advance interest to FMIC. Considering that there is as yet no
indubitable evidence establishing Francos participation in the
forgery, he remains an innocent party. As between him and BPI-FB,
the latter, which made possible the present predicament, must bear
the resulting loss or inconvenience.
Second. With respect to its liability for interest on Francos current
account, BPI-FB argues that its non-compliance with the Makati
RTCs Order Lifting the Order of Attachment and the legal
consequences thereof, is a matter that ought to be taken up in that
court.

The argument is tenuous. We agree with the succinct holding of the

appellate court in this respect. The Manila RTCs order to pay
interests on Francos current account arose from BPI-FBs unjustified
refusal to comply with its obligation to pay Franco pursuant to their
contract of mutuum. In other words, from the time BPI-FB refused
Francos demand for the release of the deposits in his current
account, specifically, from May 17, 1990, interest at the rate of 12%
began to accrue thereon.39
Undeniably, the Makati RTC is vested with the authority to determine
the legal consequences of BPI-FBs non-compliance with the Order
Lifting the Order of Attachment. However, such authority does not
preclude the Manila RTC from ruling on BPI-FBs liability to Franco
for payment of interest based on its continued and unjustified refusal
to perform a contractual obligation upon demand. After all, this was
the core issue raised by Franco in his complaint before the Manila
RTC.
Third. As to the award to Franco of the deposits in Quiaoits account,
we find no reason to depart from the factual findings of both the
Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits
in his account are actually owned by Franco who simply
accommodated Jaime Sebastians request to temporarily transfer
P400,000.00 from Francos savings account to Quiaoits account. 40
His testimony cannot be characterized as hearsay as the records
reveal that he had personal knowledge of the arrangement made
between Franco, Sebastian and himself. 41
BPI-FB makes capital of Francos belated allegation relative to this
particular arrangement. It insists that the transaction with Quiaoit
was not specifically alleged in Francos complaint before the Manila
RTC. However, it appears that BPI-FB had impliedly consented to the
trial of this issue given its extensive cross-examination of Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in

all respects as if they had been raised in the pleadings. Such

amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to
amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is now within
the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation of
the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the
amendment to be made. (Emphasis supplied)
In all, BPI-FBs argument that this case is not the right forum for
Franco to recover the P400,000.00 begs the issue. To reiterate,
Quiaoit, testifying during the trial, unequivocally disclaimed
ownership of the funds in his account, and pointed to Franco as the
actual owner thereof. Clearly, Francos action for the recovery of his
deposits appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist
that the dishonor of Francos checks respectively dated September 11
and 18, 1989 was legally in order in view of the Makati RTCs
supplemental writ of attachment issued on September 14, 1989. It
posits that as the party that applied for the writ of attachment before
the Makati RTC, it need not be served with the Notice of Garnishment
before it could place Francos accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FBs
clever but transparent ploy to circumvent Section 4, 42 Rule 13 of the
Rules of Court. It should be noted that the strict requirement on
service of court papers upon the parties affected is designed to
comply with the elementary requisites of due process. Franco was
entitled, as a matter of right, to notice, if the requirements of due
process are to be observed. Yet, he received a copy of the Notice of
Garnishment only on September 27, 1989, several days after the two
checks he issued were dishonored by BPI-FB on September 20 and
21, 1989. Verily, it was premature for BPI-FB to freeze Francos
accounts without even awaiting service of the Makati RTCs Notice of
Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ

of attachment cannot be made without including in the main suit the
owner of the property attached by virtue thereof. Section 5, Rule 13 of
the Rules of Court specifically provides that "no levy or attachment
pursuant to the writ issued x x x shall be enforced unless it is
preceded, or contemporaneously accompanied, by service of
summons, together with a copy of the complaint, the application for
attachment, on the defendant within the Philippines."
Franco was impleaded as party-defendant only on May 15, 1990. The
Makati RTC had yet to acquire jurisdiction over the person of Franco
when BPI-FB garnished his accounts.43 Effectively, therefore, the
Makati RTC had no authority yet to bind the deposits of Franco
through the writ of attachment, and consequently, there was no legal
basis for BPI-FB to dishonor the checks issued by Franco.
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as
such liable for the advance interest it deducted from Francos time
deposit account, and for moral as well as exemplary damages, we find
it proper to reinstate the ruling of the trial court, and allow only the
recovery of nominal damages in the amount of P10,000.00. However,
we retain the CAs award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account
and for moral and exemplary damages, the CA attributed bad faith to
BPI-FB because it (1) completely disregarded its obligation to Franco;
(2) misleadingly claimed that Francos deposits were under
garnishment; (3) misrepresented that Francos current account was
not on file; and (4) refused to return the P400,000.00 despite the fact
that the ostensible owner, Quiaoit, wanted the amount returned to
Franco.
In this regard, we are guided by Article 2201 of the Civil Code which
provides:
Article 2201. In contracts and quasi-contracts, the damages for
which the obligor who acted in good faith is liable shall be those that
are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have
reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor

shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. (Emphasis
supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus
of self-protection and not out of malevolence or ill will. BPI-FB was
not in the corrupt state of mind contemplated in Article 2201 and
should not be held liable for all damages now being imputed to it for
its breach of obligation. For the same reason, it is not liable for the
unearned interest on the time deposit.

Franco could not point to, or identify any particular circumstance in Article
2219 of the Civil Code,50 upon which to base his claim for moral
damages.1wphi1
Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral
damages under Article 2220 of the Civil Code for breach of contract.51
We also deny the claim for exemplary damages. Franco should show that he
is entitled to moral, temperate, or compensatory damages before the court
may even consider the question of whether exemplary damages should be
awarded to him.52 As there is no basis for the award of moral damages,
neither can exemplary damages be granted.

Bad faith does not simply connote bad judgment or negligence; it

imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it partakes of the nature of fraud. 44 We have held that
it is a breach of a known duty through some motive of interest or ill
will.45 In the instant case, we cannot attribute to BPI-FB fraud or
even a motive of self-enrichment. As the trial court found, there was
no denial whatsoever by BPI-FB of the existence of the accounts. The
computer-generated document which indicated that the current
account was "not on file" resulted from the prior debit by BPI-FB of
the deposits. The remedy of freezing the account, or the garnishment,
or even the outright refusal to honor any transaction thereon was
resorted to solely for the purpose of holding on to the funds as a
security for its intended court action, 46 and with no other goal but to
ensure the integrity of the accounts.

While it is a sound policy not to set a premium on the right to litigate, 53 we,
however, find that Franco is entitled to reasonable attorneys fees for having
been compelled to go to court in order to assert his right. Thus, we affirm the
CAs grant of P75,000.00 as attorneys fees.

We have had occasion to hold that in the absence of fraud or bad

faith,47 moral damages cannot be awarded; and that the adverse
result of an action does not per se make the action wrongful, or the
party liable for it. One may err, but error alone is not a ground for
granting such damages.48

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila

RTCs ruling, as affirmed by the CA, that BPI-FB is not entitled to recover
P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result
of Francos suit is, as already pointed out, of its own making. Accordingly,
the denial of its counter-claim is in order.

An award of moral damages contemplates the existence of the

following requisites: (1) there must be an injury clearly sustained by
the claimant, whether physical, mental or psychological; (2) there
must be a culpable act or omission factually established; (3) the
wrongful act or omission of the defendant is the proximate cause of
the injury sustained by the claimant; and (4) the award for damages
is predicated on any of the cases stated in Article 2219 of the Civil
Code.49

Attorneys fees may be awarded when a party is compelled to litigate or incur

expenses to protect his interest,54 or when the court deems it just and
equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of
Franco despite the Makati RTCs Order Lifting the Order of Attachment and
Quiaoits unwavering assertion that the P400,000.00 was part of Francos
savings account. This refusal constrained Franco to incur expenses and
litigate for almost two (2) decades in order to protect his interests and recover
his deposits. Therefore, this Court deems it just and equitable to grant
Franco P75,000.00 as attorneys fees. The award is reasonable in view of the
complexity of the issues and the time it has taken for this case to be
resolved.56

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals

Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION
that the award of unearned interest on the time deposit and of moral and
exemplary damages is DELETED.
No pronouncement as to costs. SO ORDERED.

SECOND DIVISION

G.R. No. 123031 October 12, 1999

CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, VICENTE ALEGRE, respondents.
QUISUMBING, J.:
This petition for review on certiorari assails respondent appellate
court's Decision, 1 dated December 8, 1995, in CA G.R. CV No.
44085, which affirmed the ruling of the Regional Trial Court of
Makati, Branch 132. The dispositive portion of the trial court's
decision reads:
WHEREFORE, judgment is hereby rendered ordering defendant
[herein petitioner] to pay plaintiff [herein private respondent]:
(1) the principal sum of P514,390.94 with legal interest thereon
computed from August 6, 1991 until fully paid; and
(2) the costs of suit.
SO ORDERED.

Based on the records, the following are the pertinent facts of the
case:
Cebu International Finance Corporation (CIFC), a quasi-banking
institution, is engaged in money market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with
CIFC, five hundred thousand (P500,000.00) pesos, in cash. Petitioner
issued a promissory note to mature on May 27, 1991. The note for
five hundred sixteen thousand, two hundred thirty-eight pesos and
sixty-seven centavos (P516,238.67) covered private respondent's
placement plus interest at twenty and a half (20.5%) percent for
thirty-two (32) days.

On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter
the CHECK) for five hundred fourteen thousand, three hundred
ninety pesos and ninety-four centavos (P514,390.94) in favor of the
private respondent as proceeds of his matured investment plus
interest. The CHECK was drawn from petitioner's current account
number 0011-0803-59, maintained with the Bank of the Philippine
Islands (BPI), main branch at Makati City.1wphi1.nt
On June 17, 1991, private respondent's wife deposited the CHECK
with Rizal Commercial Banking Corp. (RCBC), in Puerto Princesa,
Palawan. BPI dishonored the CHECK with the annotation, that the
"Check (is) Subject of an Investigation." BPI took custody of the
CHECK pending an investigation of several counterfeit checks drawn
against CIFC's aforestated checking account. BPI used the check to
trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored
CHECK and demanded, on several occasions, that he be paid in cash.
CIFC refused the request, and instead instructed private respondent
to wait for its ongoing bank reconciliation with BPI. Thereafter,
private respondent, through counsel, made a formal demand for the
payment of his money market placement. In turn, CIFC promised to
replace the CHECK but required an impossible condition that the
original must first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint
for recovery of a sum of money against the petitioner with the
Regional Trial Court of Makati (RTC-Makati), Branch 132.

On July 13, 1992, CIFC sought to recover its lost funds and formally
filed against BPI, a separate civil action 4 for collection of a sum of
money with the RTC-Makati, Branch 147. The collection suit alleged
that BPI unlawfully deducted from CIFC's checking account,
counterfeit checks amounting to one million, seven hundred twentyfour thousand, three hundred sixty-four pesos and fifty-eight
centavos (P1,724,364.58). The action included the prayer to collect
the amount of the CHECK paid to Vicente Alegre but dishonored by
BPI.
Meanwhile, in response to Alegre's complaint with RTC-Makati,
Branch 132, CIFC filed a motion for leave of court to file a third-party

complaint against BPI. BPI was impleaded by CIFC to enforce a right,

for contribution and indemnity, with respect to Alegre's claim. CIFC
asserted that the CHECK it issued in favor of Alegre was genuine,
valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFC's motion. However,
BPI moved to dismiss the third-party complaint on the ground of
pendency of another action with RTC-Makati, Branch 147. Acting on
the motion, the trial court dismissed the third-party complaint on
November 4, 1992, after finding that the third party complaint filed
by CIFC against BPI is similar to its ancillary claim against the bank,
filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on
May 27, and June 22, 1993, Vito Arieta, Bank Manager of BPI,
testified that the bank, indeed, dishonored the CHECK, retained the
original copy and forwarded only a certified true copy to RCBC. When
Arieta was recalled on July 20, 1993, he testified that on July 16,
1993, BPI encashed and deducted the said amount from the account
of CIFC, but the proceeds, as well as the CHECK remained in BPI's
custody. The bank's move was in accordance with the Compromise
Agreement 5 it entered with CIFC to end the litigation in RTC-Makati,
Branch 147. The compromise agreement, which was submitted for
the approval of the said court, provided that:
1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of
P1,724,364.58 plus P20,000 litigation expenses as full and final
settlement of all of plaintiff's claims as contained in the Amended
Complaint dated September 10, 1992. The aforementioned amount
shall be credited to plaintiff's current account No. 0011-0803-59
maintained at defendant's Main Branch upon execution of this
Compromise Agreement.
2. Thereupon, defendant shall debit the sum of P514,390.94 from the
aforesaid current account representing payment/discharge of BPI
Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case
No. 92-515 arising from the alleged dishonor of BPI Check No.
513397, plaintiff cannot go after the defendant: otherwise stated, the
defendant shall not be liable to the plaintiff. Plaintiff [CIFC] may

however set-up the defense of payment/discharge stipulated in par. 2

above. 6
On July 27, 1993, BPI filed a separate collection suit 7 against
Vicente Alegre with the RTC-Makati, Branch 62. The complaint
alleged that Vicente Alegre connived with certain Lina A. Pena and
Lita A. Anda and forged several checks of BPI's client, CIFC. The total
amount of counterfeit checks was P1,724,364.58. BPI prevented the
encashment of some checks amounting to two hundred ninety five
thousand, seven hundred seventy-five pesos and seven centavos
(P295,775.07). BPI admitted that the CHECK, payable to Vicente
Alegre for P514,390.94, was deducted from BPI's claim, hence, the
balance of the loss incurred by BPI was nine hundred fourteen
thousand, one hundred ninety-eight pesos and fifty-seven centavos
(P914,198.57), plus costs of suit for twenty thousand (P20,000.00)
pesos. The records are silent on the outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered
judgment in favor of Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The
respondent court affirmed the decision of the trial court.
Hence this appeal, 8 in which petitioner interposes the following
assignments of errors:
1. The Honorable Court of Appeals erred in affirming the finding of
the Honorable Trial Court holding that petitioner was not discharged
from the liability of paying the value of the subject check to private
respondent after BPI has debited the value thereof against petitioner's
current account.
2. The Honorable Court of Appeals erred in applying the provisions of
paragraph 2 of Article 1249 of the Civil Code in the instant case. The
applicable law being the Negotiable Instruments Law.
3. The Honorable Court of Appeals erred in affirming the Honorable
Trial Court's findings that the petitioner was guilty of negligence and
delay in the performance of its obligation to the private respondent.

4. The Honorable Court of Appeals erred in affirming the Honorable

Trial Court's decision ordering petitioner to pay legal interest and the
cost of suit.
5. The Honorable Court of Appeals erred in affirming the Honorable
Trial Court's dismissal of petitioner's third-party complaint against
BPI.
These issues may be synthesized into three:
1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE
APPLIES IN THE PRESENT CASE;
2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY
DISCHARGED; and
3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY
COMPLAINT OF PETITIONER AGAINST BPI BY REASON OF LIS
PENDENS WAS PROPER?
On the first issue, petitioner contends that the provisions of the
Negotiable Instruments Law (NIL) are the pertinent laws to govern its
money market transaction with private respondent, and not
paragraph 2 of Article 1249 of the Civil Code. Petitioner stresses that
it had already been discharged from the liability of paying the value of
the CHECK due to the following circumstances:
1) There was "ACCEPTANCE" of the subject check by BPI, the drawee
bank, as defined under the Negotiable Instruments Law, and
therefore, BPI, the drawee bank, became primarily liable for the
payment of the check, and consequently, the drawer, herein
petitioner, was discharged from its liability thereon;
2) Moreover, BPI, the drawee bank, has not validly DISHONORED the
subject check; and,
3) The act of BPI, the drawee bank of debiting/deducting the value of
the check from petitioner's account amounted to and/or constituted
a discharge of the drawer's (petitioner's) liability under the
instrument/subject check. 9

Petitioner cites Section 137 of the Negotiable Instruments Law, which

states:
Liability of drawee retaining or destroying bill Where a drawee to
whom a bill is delivered for acceptance destroys the same, or refuses
within twenty-four hours after such delivery or such other period as
the holder may allow, to return the bill accepted or non-accepted to
the Holder, he will be deemed to have accepted the same.
Petitioner asserts that since BPI accepted the instrument, the bank
became primarily liable for the payment of the CHECK.
Consequently, when BPI offset the value of CHECK against the losses
from the forged checks allegedly committed by the private
respondent, the check was deemed paid.
Art. 1249 of the New Civil Code deals with a mode of extinction of an
obligation and expressly provides for the medium in the "payment of
debts." It provides that:
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in
the currency, which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the original obligation shall
be held in abeyance.
Considering the nature of a money market transaction, the abovequoted provision should be applied in the present controversy. As
held in Perez vs. Court of Appeals, 10 a "money market is a market
dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each
other but through a middle man or dealer in open market. In a
money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer. 11
In the case at bar, the money market transaction between the
petitioner and the private respondent is in the nature of a loan. The

private respondent accepted the CHECK, instead of requiring

payment in money. Yet, when he presented it to RCBC for
encashment, as early as June 17, 1991, the same was dishonored by
non-acceptance, with BPI's annotation: "Check (is) subject of an
investigation." These facts were testified to by BPI's manager. Under
these circumstances, and after the notice of dishonor, 12 the holder
has an immediate right of recourse against the drawer, 13 and
consequently could immediately file an action for the recovery of the
value of the check.
In a loan transaction, the obligation to pay a sum certain in money
may be paid in money, which is the legal tender or, by the use of a
check. A check is not a legal tender, and therefore cannot constitute
valid tender of payment. In the case of Philippine Airlines, Inc. vs.
Court of Appeals, 14 this Court held:
Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate
as payment (citation omitted). A check, whether a manager's check or
ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code, par.
3.) 15
Turning now to the second issue, when the bank deducted the
amount of the CHECK from CIFC's current account, this did not ipso
facto operate as a discharge or payment of the instrument. Although
the value of the CHECK was deducted from the funds of CIFC, it was
not delivered to the payee, Vicente Alegre. Instead, BPI offset the
amount against the losses it incurred from forgeries of CIFC checks,
allegedly committed by Alegre. The confiscation of the value of the
check was agreed upon by CIFC and BPI. The parties intended to
amicably settle the collection suit filed by CIFC with the RTC-Makati,
Branch 147, by entering into a compromise agreement, which reads:
xxx xxx xxx

2. Thereupon, defendant shall debit the sum of P514,390.94 from the

aforesaid current account representing payment/discharge of BPI
Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case
No. 92-515 arising from the alleged dishonor of BPI Check No.
513397, plaintiff cannot go after the defendant; otherwise stated, the
defendant shall not be liable to the plaintiff. Plaintiff however (sic)
set-up the defense of payment/discharge stipulated in par. 2
above. 16
A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already
commenced. 17 It is an agreement between two or more persons who,
for preventing or putting an end to a lawsuit, adjust their difficulties
by mutual consent in the manner which they agree on, and which
everyone of them prefers in the hope of gaining, balanced by the
danger of losing. 18 The compromise agreement could not bind a
party who did not sign the compromise agreement nor avail of its
benefits. 19 Thus, the stipulations in the compromise agreement is
unenforceable against Vicente Alegre, not a party thereto. His money
could not be the subject of an agreement between CIFC and BPI.
Although Alegre's money was in custody of the bank, the bank's
possession of it was not in the concept of an owner. BPI cannot
validly appropriate the money as its own. The codal admonition on
this issue is clear:
Art. 1317
No one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him.
A Contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before
it is revoked by the other contracting party. 20
BPI's confiscation of Alegre's money constitutes garnishment without
the parties going through a valid proceeding in court. Garnishment is
an attachment by means of which the plaintiff seeks to subject to his

claim the property of the defendant in the hands of a third person or

money owed to such third person or a garnishee to the defendant. 21
The garnishment procedure must be upon proper order of RTCMakati, Branch 62, the court who had jurisdiction over the collection
suit filed by BPI against Alegre. In effect, CIFC has not yet tendered a
valid payment of its obligation to the private respondent. Tender of
payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the
former's obligation and demanding that the latter accept the same. 22
Tender of payment cannot be presumed by a mere inference from
surrounding circumstances.
With regard to the third issue, for litis pendentia to be a ground for
the dismissal of an action, the following requisites must concur: (a)
identity of parties or at least such as to represent the same interest in
both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same acts; and (c) the identity in the two
cases should be such that the judgment which may be rendered in
one would, regardless of which party is successful, amount to res
judicata in the other. 23
The trial court's ruling as adopted by the respondent court states,
thus:
A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu
International Finance Corporation vs. Bank of the Philippine Islands
now pending before Branch 147 of this Court and the Third Party
Complaint in the instant case would readily show that the parties are
not only identical but also the cause of action being asserted, which
is the recovery of the value of BPI Check No. 513397 is the same. In
Civil Case No. 92-1940 and in the Third Party Complaint the rights
asserted and relief prayed for, the reliefs being founded on the facts,
are identical.
xxx xxx xxx
WHEREFORE, the motion to dismiss is granted and consequently,
the Third Party Complaint is hereby ordered dismissed on ground of
lis pendens. 24

We agree with the observation of the respondent court that, as

between the third party claim filed by the petitioner against BPI in
Civil Case No. 92-515 and petitioner's ancillary claim against the
bank in Civil Case No. 92-1940, there is identity of parties as well as
identity of rights asserted, and that any judgment that may be
rendered in one case will amount to res judicata in another.
The compromise agreement between CIFC and BPI, categorically
provided that "In case plaintiff is adjudged liable to Vicente Alegre in
Civil Case No. 92-515 arising from the alleged dishonor of BPI Check
No. 513397, plaintiff (CIFC) cannot go after the defendant (BPI);
otherwise stated, the defendant shall not be liable to the plaintiff." 25
Clearly, this stipulation expressed that CIFC had already abandoned
any further claim against BPI with respect to the value of BPI Check
No. 513397. To ask this Court to allow BPI to be a party in the case
at bar, would amount to res judicata and would violate terms of the
compromise agreement between CIFC and BPI. The general rule is
that a compromise has upon the parties the effect and authority of
res judicata, with respect to the matter definitely stated therein, or
which by implication from its terms should be deemed to have been
included therein. 26 This holds true even if the agreement has not
been judicially approved. 27
WHEREFORE, the instant petition is hereby DENIED. The Decision of
the Court of Appeals in CA-G.R. CV No. 44085 is AFFIRMED. Costs
against petitioner.1wphi1.nt
SO ORDERED.

FIRST DIVISION
G.R. No. L-36706 March 31, 1980
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner,
vs.
HON. FRANCISCO P. BURGOS, in his capacity as Judge of the
Court of First Instance of Cebu City, Branch 11, and Victoria
Amigable, respondents.
Quirico del Mar & Domingo Antiquera for respondent.
Office of the Solicitor General for petitioner.

DE CASTRO, J.:
Victoria Amigable is the owner of parcel of land situated in Cebu City
with an area of 6,167 square meters. Sometime in 1924, the
Government took this land for road-right-of-way purpose. The land
had since become streets known as Mango Avenue and Gorordo
Avenue in Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First
Instance of Cebu a complaint, which was later amended on April 17,
1959 to recover ownership and possession of the land, and for
damages in the sum of P50,000.00 for the alleged illegal occupation
of the land by the Government, moral damages in the sum of
P25,000.00, and attorney's fees in the sum of P5,000.00, plus costs
of suit. The complaint was docketed as Civil Case No. R-5977 of the
Court of First Instance of Cebu, entitled "Victoria Amigable vs.
Nicolas Cuenca, in his capacity as Commissioner of Public Highway
and Republic of the Philippines. 1
In its answer, 2 the Republic alleged, among others, that the land was
either donated or sold by its owners to the province of Cebu to
enhance its value, and that in any case, the right of the owner, if any,
to recover the value of said property was already barred by estoppel
and the statute of limitations, defendants also invoking the nonsuability of the Government.

In a decision rendered on July 29, 1959 by Judge Amador E. Gomez,

the plaintiff's complaint was dismissed on the grounds relied upon by
the defendants therein. 3 The plaintiff appealed the decision to the
Supreme Court where it was reversed, and the case was remanded to
the court of origin for the determination of the compensation to be
paid the plaintiff-appellant as owner of the land, including attorney's
fees. 4 The Supreme Court decision also directed that to determine
just compensation for the land, the basis should be the price or value
thereof at the time of the taking. 5
In the hearing held pursuant to the decision of the Supreme Court,
the Government proved the value of the property at the time of the
taking thereof in 1924 with certified copies, issued by the Bureau of
Records Management, of deeds of conveyance executed in 1924 or
thereabouts, of several parcels of land in the Banilad Friar Lands in
which the property in question is located, showing the price to be at
P2.37 per square meter. For her part, Victoria Amigable presented
newspaper clippings of the Manila Times showing the value of the
peso to the dollar obtaining about the middle of 1972, which was
P6.775 to a dollar.
Upon consideration of the evidence presented by both parties, the
court which is now the public respondent in the instant petition,
rendered judgment on January 9, 1973 directing the Republic of the
Philippines to pay Victoria Amigable the sum of P49,459.34 as the
value of the property taken, plus P145,410.44 representing interest
at 6% on the principal amount of P49,459.34 from the year 1924 up
to the date of the decision, plus attorney's fees of 10% of the total
amount due to Victoria Amigable, or a grand total of P214,356.75. 6
The aforesaid decision of the respondent court is now the subject of
the present petition for review by certiorari, filed by the Solicitor
General as counsel of the petitioner, Republic of the Philippines,
against the landowner, Victoria Amigable, as private respondent. The
petition was given due course after respondents had filed their
comment thereto, as required. The Solicitor General, as counsel of
petitioner, was then required to file petitioner's brief and to serve
copies thereof to the adverse parties. 7 Petitioner's brief was duly filed
on January 29, 1974, 8 to which respondents filed only a "comment."

instead of a brief, and the case was then considered submitted for
decision. 10
9

1. The issue of whether or not the provision of Article 1250 of the

New Civil Code is applicable in determining the amount of
compensation to be paid to respondent Victoria Amigable for the
property taken is raised because the respondent court applied said
Article by considering the value of the peso to the dollar at the time of
hearing, in determining due compensation to be paid for the property
taken. The Solicitor General contends that in so doing, the
respondent court violated the order of this Court, in its decision in
G.R. No. L-26400, February 29, 1972, to make as basis of the
determination of just compensation the price or value of the land at
the time of the taking.
It is to be noted that respondent judge did consider the value of the
property at the time of the taking, which as proven by the petitioner
was P2.37 per square meter in 1924. However, applying Article 1250
of the New Civil Code, and considering that the value of the peso to
the dollar during the hearing in 1972 was P6.775 to a dollar, as
proven by the evidence of the private respondent Victoria Amigable
the Court fixed the value of the property at the deflated value of the
peso in relation, to the dollar, and came up with the sum of
P49,459.34 as the just compensation to be paid by the Government.
To this action of the respondent judge, the Solicitor General has
taken exception.
Article 1250 of the New Civil Code seems to be the only provision in
our statutes which provides for payment of an obligation in an
amount different from what has been agreed upon by the parties
because of the supervention of extra-ordinary inflation or deflation.
Thus, the Article provides:
ART. 1250. In case extra-ordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at
the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
It is clear that the foregoing provision applies only to cases where a
contract or agreement is involved. It does not apply where the
obligation to pay arises from law, independent of contract. The taking

of private property by the Government in the exercise of its power of

eminent domain does not give rise to a contractual obligation. We
have expressed this view in the case of Velasco vs. Manila Electric Co.,
et al., L-19390, December 29, 1971. 11
Moreover, the law as quoted, clearly provides that the value of the
currency at the time of the establishment of the obligation shall be
the basis of payment which, in cases of expropriation, would be the
value of the peso at the time of the taking of the property when the
obligation of the Government to pay arises. 12 It is only when there is
an "agreement to the contrary" that the extraordinary inflation will
make the value of the currency at the time of payment, not at the
time of the establishment of the obligation, the basis for payment. In
other words, an agreement is needed for the effects of an
extraordinary inflation to be taken into account to alter the value of
the currency at the time of the establishment of the obligation which,
as a rule, is always the determinative element, to be varied by
agreement that would find reason only in the supervention of
extraordinary inflation or deflation.
We hold, therefore, that under the law, in the absence of any
agreement to the contrary, even assuming that there has been an
extraordinary inflation within the meaning of Article 1250 of the New
Civil Code, a fact We decline to declare categorically, the value of the
peso at the time of the establishment of the obligation, which in the
instant case is when the property was taken possession of by the
Government, must be considered for the purpose of determining just
compensation. Obviously, there can be no "agreement to the
contrary" to speak of because the obligation of the Government
sought to be enforced in the present action does not originate from
contract, but from law which, generally is not subject to the will of
the parties. And there being no other legal provision cited which
would justify a departure from the rule that just compensation is
determined on the basis of the value of the property at the time of the
taking thereof in expropriation by the Government, the value of the
property as it is when the Government took possession of the land in
question, not the increased value resulting from the passage of time
which invariably brings unearned increment to landed properties,
represents the true value to be paid as just compensation for the
property taken. 13

In the present case, the unusually long delay of private respondent in

bringing the present action-period of almost 25 years which a stricter
application of the law on estoppel and the statute of limitations and
prescription may have divested her of the rights she seeks on this
action over the property in question, is an added circumstance
militating against payment to her of an amount bigger-may three-fold
more than the value of the property as should have been paid at the
time of the taking. For conformably to the rule that one should take
good care of his own concern, private respondent should have
commenced proper action soon after she had been deprived of her
right of ownership and possession over the land, a deprivation she
knew was permanent in character, for the land was intended for, and
had become, avenues in the City of Cebu. A penalty is always visited
upon one for his inaction, neglect or laches in the assertion of his
rights allegedly withheld from him, or otherwise transgressed upon
by another.
From what has been said, the correct amount of compensation due
private respondent for the taking of her land for a public purpose
would be not P49,459.34, as fixed by the respondent court, but only
P14,615.79 at P2.37 per square meter, the actual value of the land of
6,167 square meters when it was taken in 1924. The interest in the
sum of P145,410.44 at the rate of 6% from 1924 up to the time
respondent court rendered its decision, as was awarded by the said
court should accordingly be reduced.
In Our decision in G.R. No. L-26400, February 29, 1972, 14 We have
said that Victoria Amigable is entitled to the legal interest on the
price of the land from the time of the taking. This holding is however
contested by the Solicitor General, citing the case of Raymunda S.
Digsan vs. Auditor General, et al., 15 alleged to have a similar factual
environment and involving the same issues, where this Court
declared that the interest at the legal rate in favor of the landowner
accrued not from the taking of the property in 1924 but from April
20, 1961 when the claim for compensation was filed with the Auditor
General. Whether the ruling in the case cited is still the prevailing
doctrine, what was said in the decision of this Court in the abovecited
case involving the same on the instant matter, has become the "law of
the case", no motion for its reconsideration having been filed by the
Solicitor General before the decision became final. Accordingly, the

interest to be paid private respondent, Victoria Amigable, shall

commence from 1924, when the taking of the property took place,
computed on the basis of P14,615.79, the value of the land when
taken in said year 1924.
2. On the amount of attorney's fees to be paid private respondent,
about which the Solicitor General has next taken issue with the
respondent court because the latter fixed the same at P19,486.97,
while in her complaint, respondent Amigable had asked for only
P5,000.00, the amount as awarded by the respondent court, would
be too exhorbitant based as it is, on the inflated value of the land. An
attorney's fees of P5,000.00, which is the amount asked for by private
respondent herself in her complaint, would be reasonable.
WHEREFORE, the judgment appealed from is hereby reversed as to
the basis in the determination of the price of the land taken as just
compensation for its expropriation, which should be the value of the
land at the time of the taking, in 1924. Accordingly, the same is
hereby fixed at P14,615.79 at P2.37 per square meter, with interest
thereon at 6% per annum, from the taking of the property in 1924, to
be also paid by Government to private respondent, Victoria Amigable,
until the amount due is fully paid, plus attorney's fees of P5,000.00.
SO ORDERED.

SECOND DIVISION
G.R. No. 132284

February 28, 2006

TELENGTAN BROTHERS & SONS, INC., Petitioner, vs.

UNITED STATES LINES, INC. and the COURT OF APPEALS,
Respondents.
DECISION
GARCIA, J.:
Thru this petition for review on certiorari under Rule 45 of the Rules
of Court, petitioner Telengtan Brothers & Sons, Inc. (Telengtan) seeks
the reversal and setting aside of the decision 1 dated January 8, 1998
of the Court of Appeals (CA) in CA-G.R. CV No. 18349 which affirmed
in toto the decision dated January 10, 1985 2 of the Regional Trial
Court of Manila, Branch 38, finding petitioner liable to respondent
United States Lines, Inc. (U.S. Lines) for demurrage and damages.
Petitioner Telengtan is a domestic corporation doing business under
the name and style La Suerte Cigar & Cigarette Factory, while
respondent U.S. Lines is a foreign corporation engaged in the
business of overseas shipping. During the period material, the
provisions of the Far East Conference Tariff No. 12 were specifically
made applicable to Philippine containerized cargo from the U.S. and
Gulf Ports, effective with vessels arriving at Philippine ports on and
after December 15, 1978. After that date, consignees who fail to take
delivery of their containerized cargo within the 10-day free period are
liable to pay demurrage charges.
As recited in the decision under review, the factual antecedents may
be summarized as follows:
On June 22, 1981, respondent U.S. Lines filed a suit against
petitioner Telengtan seeking payment of demurrage charges plus
interest and damages. Docketed as Civil Case No. R-81-1196 of the
Regional Trial Court of Manila and raffled to Branch 38 thereof, the
complaint alleged that between the years 1979 and 1980, goods
belonging to petitioner loaded on containers aboard its (respondents)
vessels arrived in Manila from U.S. ports. After the 10-day free
period, petitioner still failed to withdraw its goods from the containers

wherein the goods had been shipped. Continuing, respondent U.S.

Lines alleged that petitioner incurred on all those shipments a
demurrage in the total amount of P94,000.00 which the latter refused
to pay despite repeated demands.
In its amended answer with compulsory counterclaim, petitioner
Telengtan, as defendant a quo, disclaims liability for the demanded
demurrage, alleging that it has never entered into a contract nor
signed an agreement to be bound by any rule on demurrage. It
likewise maintains that, absent an obligation to pay respondent who
made no proper or legal demands in the first place, there is justifiable
reason to refuse payment of the latters unwarranted claims. By way
of counterclaim, petitioner states that, upon arrival of the conveying
vessels, it presented the Bills of Lading (B/Ls) and all other pertinent
documents covering seven (7) shipments and demanded from
respondent delivery of all the goods covered by the aforesaid B/Ls,
only to be informed that respondent had already unloaded the goods
from the container vans, stripped them of their contents which
contents were then stored in warehouses. Petitioner further states
that respondent had refused to deliver the goods covered by the B/Ls
and required petitioner to pay the amount of P123,738.04 before the
goods can be released. It thus prays that respondent be ordered to
pay the aforestated amount with interest.
After due proceedings, the trial court found for respondent U.S.
Lines, as plaintiff therein, and accordingly rendered judgment, as
follows:
WHEREFORE, in view of all the foregoing, the Court finds [petitioner]
liable to [respondent] for demurrage incurred in the amount of
P99,408.00 which sum will bear interest at the legal rate from the
date of the filing of the complaint till full payment thereof plus
attorneys fees in the amount of 20% of the total sum due, all of
which shall be recomputed as of the date of payment in accordance
with the provisions of Article 1250 of the Civil Code. Exemplary
damages in the amount of P80,000.00 are also granted. The
counterclaim is dismissed. Costs against [petitioner]. (Words in
bracket ours)3
Party explains the trial court in its decision: 4

In other words, contrary to [petitioners] contentions, both the

provisions of the contract between the parties, in this case the bill of
lading, and the interpretation given by the higher courts to these
provisions are to the effect that demurrage may be lawfully collected.
As a matter of fact, [respondent U.S. Lines] has submitted official
receipts showing that on many other and previous occasions,
[petitioner] paid demurrage to [respondent] (Exhibits "F", "F-1" to "F4", "G", "G-1" to "G-4", "H", "H-1" to "H-4", and "I", "I-1" to "I-3").
[Petitioner] is, therefore, in estoppel to claim that it did not know of
demurrage being charged by [respondent] and that it had not agreed
to it since these exhibits show that [petitioner] knew of this
demurrage and by paying for the same, it in effect, agreed to the
collection of demurrage.
xxxxxxxxx
On the other hand, [petitioner] claims that [respondent] company
owes them the far larger sum of P123,738.04 by way of damages
allegedly suffered by their goods when [respondent] company
removed these goods from its cargo vans and deposited them in
bonded warehouses without its consent. It is not disputed that
[respondent] company did not [sic] in fact remove these goods
belonging to [petitioner] from its vans and deposited them in
warehouses. However, this was done by authority of the Bureau of
Customs and for that purpose, [respondent] addressed a letterrequest to the Collector of Customs, for permission to remove the
goods of defendant from its vans (Exhibit "L"). xxx.
xxxxxxxxx
The Court finds that the charges for warehousing were necessary
expenses covered by the terms of the bill of lading which the
consignee was responsible for. There is therefore now no necessity of
discussing whether or not the counterclaim of [petitioner] had
prescribed or not. Neither is there any question of bad faith on the
part of [respondent]. When it requested for authority to remove
[petitioners] consigned goods from its vans and deposited them in
warehouses, [respondent] had already given consignee sufficient time
to take delivery of the shipment. This, [petitioner] chose not to do.
Instead, it sat pat by the telephone calling without making any
positive effort to check up on the shipment or arrange for its delivery

to its factory. Once arrived at the port, the shipment was available to
consignee for its proper delivery and receipt and the carrier
discharged of its responsibility therefor. Rather, by its inaction,
[petitioner] was guilty of bad faith. Once it had received the notice of
arrival of the carrier in port, it was incumbent on consignee to put
wheels in motion in order that the shipment could be delivered to it.
The inaction of [petitioner] would only indicate that it had no
intention of taking delivery except at its own convenience thus
preventing carrier from taking on other shipments and from leaving
port. Such unexplained and unbusiness-like delay smacks highly of
bad faith on the part of [petitioner] rather than of the [respondent].
(Words in bracket, added).
Appealing to the CA, whereat its recourse was docketed as CA-G.R.
CV No. 18349, petitioner contended that the trial court erred in (1)
holding it liable for demurrage, (2) dismissing its counterclaim, and
(3) awarding exemplary damages and attorneys fees to respondent.
As stated at the outset, however, the CA, in its assailed Decision
dated January 8, 1998,5 affirmed in toto the judgment of the trial
court.
Undaunted, petitioner is now with this Court via the present
recourse, imputing to the CA the following errors:
A. xxx in concluding that it [petitioner] was the one at fault in not
withdrawing its cargo from the container vans in which the goods
were originally shipped despite documentary evidence and written
admissions of private respondent to the contrary.
B. xxx in affirming the trial courts order for the recomputation of the
judgment award in accordance with Article 1250 of the Civil Code
contrary to existing jurisprudence and without any evidence at all to
support it.6
The petition is partly meritorious.1avvphil.net
It is undisputed that the goods subject of petitioners counterclaim
and covered by seven (7) B/Ls with Shippers Reference Nos. S16844, S-16846, S-16848, S-17748, S-17750, S-17749 and S-177517
were loaded for shipment to Manila on respondents vessels in

container vans on a "House/House Containers-Shippers Load,

Stowage and Count" basis. This shipping arrangement means that
the shipping companys container vans are to be brought to the
shipper for loading of its goods; that from the shippers warehouse,
the goods in container vans are brought to the shipping company for
shipment; that the shipping company, upon arrival of its ship at the
port of destination, is to deliver the container vans to the consignees
compound or warehouse; and that the shipper (consignee) is
supposed to load, stow and count the goods from the container van. 8
Likewise undisputed is the fact that the container vans containing
the goods covered by three (3) of the aforesaid B/Ls, particularly
those with Shippers Reference Nos. S-17748, S-17750 and S-17751,9
were delivered to a warehouse, stripped of their contents and the
contents deposited thereat.10
On the argument that the respondent, upon the foregoing undisputed
facts, violated its contractual obligation to deliver when, instead of
delivering the goods to the petitioner as consignee thereof, it
deposited the same in bonded warehouse/s, petitioner would now
score the CA for finding it at fault for non-withdrawal of its cargo
from the container vans within the 10-day free demurrage period.
Pressing the point, petitioner argues that, since the CA drew an
erroneous conclusion from an undisputed set of facts, petitioner now
asserts that the matter of who is at fault - its first assigned error could be treated as a legal issue and not a question of fact.
After careful consideration, the Court sustain the CAs stance faulting
the petitioner for not taking delivery of its cargo from the container
vans within the 10-day free period, an inaction which led respondent
to deposit the same in warehouse/s.
It may be that, when the relevant facts are undisputed, the question
of whether or not the conclusion deduced therefrom by the CA is
correct is a question of law properly cognizable by this Court. 11
However, it has also been held that all doubts as to the correctness of
such conclusions will be resolved in favor of the disposing court. 12 So
it must be in this case.
At any rate, the Court finds that petitioners first contention raises a
question of fact rather than of law. And settled is the rule that factual
findings of the CA, particularly those confirmatory of that of the trial

court, as here, are binding on this Court, 13 save for the most
compelling of reasons, like when they are reached arbitrarily.14
As it were, however, the conclusion of the CA on who contextually is
the erring party was not exactly drawn from a vacuum, supported as
such conclusion is by the records of the case. What the CA wrote
with some measure of logic commends itself for concurrence:
However, ... We find that [petitioner] was the one at fault in not
withdrawing its cargo from the containers wherein the goods were
shipped within the ten (10)-day free period. Had it done so, then
there would not have been any need of depositing the cargo in a
warehouse.
It is incumbent upon the carrier to immediately advise the consignee
of the arrival of the goods for if it does not, it continues to be liable
for the same until the consignee has had reasonable opportunity to
remove them.
Sound business practice dictates that the consignee, upon
notification of the arrival of the goods, should immediately get the
cargo from the carrier especially since it has need of it. xxx.
Appellant tries to shift the blame on the [respondent] by stating that
it was not informed beforehand of the latters intention to deliver the
goods to a warehouse. It likewise alleges that it does not know where
to contact [respondent] for it argues that the person manning the
latters office would only hold office for a few hours, if not always out.
But had it taken the necessary steps of inquiring for the address of
[respondent] from the proper government offices, then it would have
succeeded in finding the latters address.
Judging from the [petitioners] way of conducting business in the
past, We come to the conclusion that it is used to paying demurrage
charges. Exhibits "H" and "I" are certainly proofs of appellants
practice of not getting its cargo from the carrier immediately upon
notification of the goods arrival. 15 (Words in bracket added.)
It cannot be over-emphasized that the container vans were stripped
of their cargo with the prior authorization of the Bureau of Customs.
The trial court said as much, thus:

It is not disputed that [respondent] company did not [sic] in fact

remove these goods belonging to [petitioner] from its vans and
deposited them in warehouses. However, this was done by authority
of the Bureau of Customs and for that purpose, [respondent]
addressed a letter-request to the Collector of Customs, for permission
to remove the goods of [petitioner] from its vans (Exhibit "L"). The
corresponding authority was granted by the Bureau of Customs to do
so as evidenced by a van permit (Exhibit "M"). In other words,
while [respondent] admits that it removed the goods of [petitioner]
from its vans and deposited them in various warehouses, there is no
question that this was done by authority of the Bureau of Customs
which is the proper agency of the government charged with the
supervision and regulation of maritime commerce.
Verily, the authority secured from the Bureau of Customs is
indicative of the bona fides of respondents intention. And as held
below, the authority thus acquired relieved respondent of its
obligations under the B/Ls when it caused the containers to be
stripped and the goods stored in bonded warehouses.
Not lost on this Court is the fact that the B/Ls under which petitioner
anchors its counterclaim allow the goods carried to be delivered to
bonded warehouses for the shippers and/or consignees account if it
does not take possession or delivery thereof as soon as they are at its
disposal for removal. Section 17 of the Regular Long Form Inward
B/L of the respondent16 which is incorporated by reference to the
Short Form of B/L 17 provides:
17. The carrier shall not be required to give any notification
whatsoever of arrival, discharge or any disposition of or action taken
with respect to the goods, even though the goods are consigned to
order with provision for notice to a named person.
The carrier or master may appoint a stevedore or any other persons
to unload and take delivery of the goods and such delivery from
ship's tackle shall be considered complete and all responsibility of the
carrier shall then terminate.
It is agreed that when possession of the goods is received or taken by
the customs or other authorities or by any operator of any lighter,
craft, or other facilities whether selected by the carrier or master,

shipper of consignee, whether public or private, such authority or

person shall be considered as having received possession and
delivery of the goods solely as agent of and on behalf of the shipper
and consignee, . Also if the consignee does not take possession
or delivery of the goods as soon as the goods are at the disposal
of the consignee for removal, the goods shall be at their own risk
and expense, delivery shall be considered complete and the
carrier may, subject to carrier's liens, send the goods to store,
warehouse, put them on lighters or other craft, put them in
possession of authorities, dump, permit to lie where landed or
otherwise dispose of them, always at the risk and expense of the
goods, and the shipper and consignee shall pay and indemnify the
carrier for any loss, damage, fine, charge or expense whatsoever
suffered or incurred in so dealing with or disposing of the goods, or
by reason of the consignee's failure or delay in taking possession and
delivery as provided herein. (Emphasis Ours)
On the second issue raised, the Court finds as erroneous the trial
courts decision, as affirmed by the CA, for the recomputation of the
judgment award as of the date of payment in accordance with Article
1250 of the Civil Code.
In calling for the application of the aforementioned provision,
respondent urged that judicial notice be taken of the succeeding
devaluations of the peso vis--vis the US dollar since the time the
proceedings began in 1981. According to respondent, the
computation of the amount thus due from the petitioner should
factor in such peso devaluations. 18
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.
Extraordinary inflation or deflation, as the case may be, exists when
there is an unusual increase or decrease in the purchasing power of
the Philippine peso which is beyond the common fluctuation in the
value of said currency, and such increase or decrease could not have
been reasonably foreseen or was manifestly beyond the

contemplation of the parties at the time of the establishment of the

obligation.19 Extraordinary inflation can never be assumed; he who
alleges the existence of such phenomenon must prove the same. 20
The Court holds that there has been no extraordinary inflation within
the meaning of Article 1250 of the Civil Code. Accordingly, there is no
plausible reason for ordering the payment of an obligation in an
amount different from what has been agreed upon because of the
purported supervention of extraordinary inflation.
As it were, respondent was unable to prove the occurrence of
extraordinary inflation since it filed its complaint in 1981. Indeed, the
record is bereft of any evidence, documentary or testimonial, that
inflation, nay, an extraordinary one, existed. Even if the price index of
goods and services may have risen during the intervening period, 21
this increase, without more, cannot be considered as resulting to
"extraordinary inflation" as to justify the application of Article 1250.
The erosion of the value of the Philippine peso in the past three or
four decades, starting in the mid-sixties, is, as the Court observed in
Singson vs. Caltex (Phil), Inc., 22 characteristics of most currencies.
And while the Court may take judicial notice of the decline in the
purchasing power of the Philippine currency in that span of time,
such downward trend of the peso cannot be considered as the
extraordinary phenomenon contemplated by Article 1250 of the Civil
Code. Furthermore, absent an official pronouncement or declaration
by competent authorities of the existence of extraordinary inflation
during a given period, as here, the effects of extraordinary inflation, if
that be the case, are not to be applied.
Lest it be overlooked, Article 1250 of the Code, as couched, clearly
provides that the value of the peso at the time of the establishment of
the obligation shall control and be the basis of payment of the
contractual obligation, unless there is "agreement to the contrary." It
is only when there is a contrary agreement that extraordinary
inflation will make the value of the currency at the time of payment,
not at the time of the establishment of obligation, the basis for
payment.23 The Court, in Mobil Oil Philippines, Inc. vs. Court of
Appeals and Fernando A. Pedrosa,[24 formulated the same rule in the
following wise:

In other words, an agreement is needed for the effects of an

extraordinary inflation to be taken into account to alter the value of
the currency at the time of the establishment of the obligation which,
as a rule, is always the determinative element, to be varied by
agreement that would find reason only in the supervention of
extraordinary inflation or deflation.
To be sure, neither the trial court, the CA nor respondent has pointed
to any provision of the covering B/Ls whence respondent sourced its
contractual right under the premises where the defining "agreement
to the contrary" is set forth. Needless to stress, the Court sees no
need to speculate as to the existence of such agreement, the burden
of proof on this regard being on respondent.
WHEREFORE, the assailed decision of the Court of Appeals is
AFFIRMED with the MODIFICATION that the order for
recomputation as of the date of payment in accordance with the
provisions of Article 1250 of the Civil Code is deleted.
Costs against petitioner.
SO ORDERED.

FIRST DIVISION
G.R. No. 171545

December 19, 2007

EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL APAS,

Petitioners, vs.
NG SHEUNG NGOR** doing business under the name and style
"KEN MARKETING," KEN APPLIANCE DIVISION, INC. and
BENJAMIN E. GO, Respondents.

intervening period13 and declared the existence of extraordinary

deflation.14 Consequently, the RTC ordered the use of the 1996 dollar
exchange rate in computing respondents' dollar-denominated loans.15
Lastly, because the business reputation of respondents was
(allegedly) severely damaged when Equitable froze their accounts,16
the trial court awarded moral and exemplary damages to them. 17
The dispositive portion of the February 5, 2004 RTC decision 18
provided:

DECISION

WHEREFORE, premises considered, judgment is hereby rendered:

CORONA, J.:

A) Ordering [Equitable] to reinstate and return the amount of

[respondents'] deposit placed on hold status;

This petition for review on certiorari 1 seeks to set aside the decision2
of the Court of Appeals (CA) in CA-G.R. SP No. 83112 and its
resolution3 denying reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor, 4 Ken Appliance
Division, Inc. and Benjamin E. Go filed an action for annulment
and/or reformation of documents and contracts 5 against petitioner
Equitable PCI Bank (Equitable) and its employees, Aimee Yu and
Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of
Cebu City.6 They claimed that Equitable induced them to avail of its
peso and dollar credit facilities by offering low interest rates 7 so they
accepted Equitable's proposal and signed the bank's pre-printed
promissory notes on various dates beginning 1996. They, however,
were unaware that the documents contained identical escalation
clauses granting Equitable authority to increase interest rates
without their consent.8
Equitable, in its answer, asserted that respondents knowingly
accepted all the terms and conditions contained in the promissory
notes.9 In fact, they continuously availed of and benefited from
Equitable's credit facilities for five years. 10
After trial, the RTC upheld the validity of the promissory notes. It
found that, in 2001 alone, Equitable restructured respondents' loans
amounting to US$228,200 and P1,000,000. 11 The trial court,
however, invalidated the escalation clause contained therein because
it violated the principle of mutuality of contracts. 12 Nevertheless, it
took judicial notice of the steep depreciation of the peso during the

B) Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion

[p]esos as moral damages;
C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion
[p]esos as exemplary damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay
[respondents], jointly and severally, the sum of [t]wo [m]illion [p]esos
as moral and exemplary damages;
E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and
severally, to pay [respondents'] attorney's fees in the sum of
P300,000; litigation expenses in the sum of P50,000 and the cost of
suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay
[Equitable] the unpaid principal obligation for the peso loan as well
as the unpaid obligation for the dollar denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay
[Equitable] interest as follows:
1) 12% per annum for the peso loans;
2) 8% per annum for the dollar loans. The basis for the payment of
the dollar obligation is the conversion rate of P26.50 per dollar

availed of at the time of incurring of the obligation in accordance with

Article 1250 of the Civil Code of the Philippines;

application for an injunction in the CA to enjoin the implementation

and execution of the March 24, 2004 omnibus order. 33

H) Dismissing [Equitable's] counterclaim except the payment of the

aforestated unpaid principal loan obligations and interest.

On June 16, 2004, the CA granted Equitable's application for

injunction. A writ of preliminary injunction was correspondingly
issued.34

SO ORDERED.19
Equitable and respondents filed their respective notices of appeal.20
In the March 1, 2004 order of the RTC, both notices were denied due
course because Equitable and respondents "failed to submit proof
that they paid their respective appeal fees."21
WHEREFORE, premises considered, the appeal interposed by
defendants from the Decision in the above-entitled case is DENIED
due course. As of February 27, 2004, the Decision dated February
5, 2004, is considered final and executory in so far as [Equitable,
Aimee Yu and Bejan Lionel Apas] are concerned.22 (emphasis
supplied)
Equitable moved for the reconsideration of the March 1, 2004 order
of the RTC23 on the ground that it did in fact pay the appeal fees.
Respondents, on the other hand, prayed for the issuance of a writ of
execution.24
On March 24, 2004, the RTC issued an omnibus order denying
Equitable's motion for reconsideration for lack of merit 25 and ordered
the issuance of a writ of execution in favor of respondents.26
According to the RTC, because respondents did not move for the
reconsideration of the previous order (denying due course to the
parties notices of appeal),27 the February 5, 2004 decision became
final and executory as to both parties and a writ of execution against
Equitable was in order.28
A writ of execution was thereafter issued 29 and three real properties
of Equitable were levied upon.30
On March 26, 2004, Equitable filed a petition for relief in the RTC
from the March 1, 2004 order. 31 It, however, withdrew that petition
on March 30, 200432 and instead filed a petition for certiorari with an

Notwithstanding the writ of injunction, the properties of Equitable

previously levied upon were sold in a public auction on July 1, 2004.
Respondents were the highest bidders and certificates of sale were
issued to them.35
On August 10, 2004, Equitable moved to annul the July 1, 2004
auction sale and to cite the sheriffs who conducted the sale in
contempt for proceeding with the auction despite the injunction order
of the CA.36
On October 28, 2005, the CA dismissed the petition for certiorari. 37 It
found Equitable guilty of forum shopping because the bank filed its
petition for certiorari in the CA several hours before withdrawing its
petition for relief in the RTC. 38 Moreover, Equitable failed to disclose,
both in the statement of material dates and certificate of non-forum
shopping (attached to its petition for certiorari in the CA), that it had
a pending petition for relief in the RTC. 39
Equitable moved for reconsideration 40 but it was denied.41 Thus, this
petition.
Equitable asserts that it was not guilty of forum shopping because
the petition for relief was withdrawn on the same day the petition for
certiorari was filed.42 It likewise avers that its petition for certiorari
was meritorious because the RTC committed grave abuse of
discretion in issuing the March 24, 2004 omnibus order which was
based on an erroneous assumption. The March 1, 2004 order
denying its notice of appeal for non payment of appeal fees was
erroneous because it had in fact paid the required fees. 43 Thus, the
RTC, by issuing its March 24, 2004 omnibus order, effectively
prevented Equitable from appealing the patently wrong February 5,
2004 decision.44
This petition is meritorious.

Equitable Was Not Guilty Of Forum shopping

Forum shopping exists when two or more actions involving the same
transactions, essential facts and circumstances are filed and those
actions raise identical issues, subject matter and causes of action. 45
The test is whether, in two or more pending cases, there is identity of
parties, rights or causes of actions and reliefs. 46
Equitable's petition for relief in the RTC and its petition for certiorari
in the CA did not have identical causes of action. The petition for
relief from the denial of its notice of appeal was based on the RTCs
judgment or final order preventing it from taking an appeal by "fraud,
accident, mistake or excusable negligence."47 On the other hand, its
petition for certiorari in the CA, a special civil action, sought to
correct the grave abuse of discretion amounting to lack of jurisdiction
committed by the RTC.48
In a petition for relief, the judgment or final order is rendered by a
court with competent jurisdiction. In a petition for certiorari, the
order is rendered by a court without or in excess of its jurisdiction.
Moreover, Equitable substantially complied with the rule on nonforum shopping when it moved to withdraw its petition for relief in
the RTC on the same day (in fact just four hours and forty minutes
after) it filed the petition for certiorari in the CA. Even if Equitable
failed to disclose that it had a pending petition for relief in the RTC, it
rectified what was doubtlessly a careless oversight by withdrawing
the petition for relief just a few hours after it filed its petition for
certiorari in the CA a clear indication that it had no intention of
maintaining the two actions at the same time.
The Trial Court Committed Grave Abuse of Discretion In Issuing
Its March 1, 2004 and March 24, 2004 Orders
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board or officer
exercising judicial or quasi-judicial function has acted without or
in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there
is no appeal, nor any plain, speedy or adequate remedy in the

ordinary course of law, a person aggrieved thereby may file a

verified petition in the proper court, alleging the facts with certainty
and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such
incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the
judgment, order or resolution subject thereof, copies of all pleadings
and documents relevant and pertinent thereto, and a sworn
certificate of non-forum shopping as provided in the third paragraph
of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari.
These are:
1. that the tribunal, board or officer exercising judicial or quasijudicial functions acted without or in excess of his or its jurisdiction
or with grave abuse of discretion amounting to lack or excess of
jurisdiction; and
2. that there is no appeal or any plain, speedy and adequate remedy
in the ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to
prosper, petitioner must show that the public respondent patently
and grossly abused his discretion and that abuse amounted to an
evasion of positive duty or a virtual refusal to perform a duty enjoined
by law or to act at all in contemplation of law, as where the power
was exercised in an arbitrary and despotic manner by reason of
passion or hostility. 49
The March 1, 2004 order denied due course to the notices of appeal
of both Equitable and respondents. However, it declared that the
February 5, 2004 decision was final and executory only with
respect to Equitable.50 As expected, the March 24, 2004 omnibus
order denied Equitable's motion for reconsideration and granted
respondents' motion for the issuance of a writ of execution.51
The March 1, 2004 and March 24, 2004 orders of the RTC were
obviously intended to prevent Equitable, et al. from appealing the
February 5, 2004 decision. Not only that. The execution of the

decision was undertaken with indecent haste, effectively obviating or

defeating Equitable's right to avail of possible legal remedies. No
matter how we look at it, the RTC committed grave abuse of
discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate
remedy in the ordinary course of law, we hold that there was none.
The RTC denied due course to its notice of appeal in the March 1,
2004 order. It affirmed that denial in the March 24, 2004 omnibus
order. Hence, there was no way Equitable could have possibly
appealed the February 5, 2004 decision.52
Although Equitable filed a petition for relief from the March 24, 2004
order, that petition was not a plain, speedy and adequate remedy in
the ordinary course of law.53 A petition for relief under Rule 38 is an
equitable remedy allowed only in exceptional circumstances or where
there is no other available or adequate remedy.54
Thus, we grant Equitable's petition for certiorari and consequently
give due course to its appeal.
Equitable Raised Pure Questions of Law in Its Petition For
Review
The jurisdiction of this Court in Rule 45 petitions is limited to
questions of law.55 There is a question of law "when the doubt or
controversy concerns the correct application of law or jurisprudence
to a certain set of facts; or when the issue does not call for the
probative value of the evidence presented, the truth or falsehood of
facts being admitted."56
Equitable does not assail the factual findings of the trial court. Its
arguments essentially focus on the nullity of the RTCs February 5,
2004 decision. Equitable points out that that decision was patently
erroneous, specially the exorbitant award of damages, as it was
inconsistent with existing law and jurisprudence. 57
The Promissory Notes Were Valid
The RTC upheld the validity of the promissory notes despite
respondents assertion that those documents were contracts of
adhesion.

A contract of adhesion is a contract whereby almost all of its

provisions are drafted by one party.58 The participation of the other
party is limited to affixing his signature or his "adhesion" to the
contract.59 For this reason, contracts of adhesion are strictly
construed against the party who drafted it. 60
It is erroneous, however, to conclude that contracts of adhesion are
invalid per se. They are, on the contrary, as binding as ordinary
contracts. A party is in reality free to accept or reject it. A contract of
adhesion becomes void only when the dominant party takes
advantage of the weakness of the other party, completely depriving
the latter of the opportunity to bargain on equal footing. 61
That was not the case here. As the trial court noted, if the terms and
conditions offered by Equitable had been truly prejudicial to
respondents, they would have walked out and negotiated with
another bank at the first available instance. But they did not.
Instead, they continuously availed of Equitable's credit facilities for
five long years.
While the RTC categorically found that respondents had outstanding
dollar- and peso-denominated loans with Equitable, it, however,
failed to ascertain the total amount due (principal, interest and
penalties, if any) as of July 9, 2001. The trial court did not explain
how it arrived at the amounts of US$228,200 and P1,000,000. 62 In
Metro Manila Transit Corporation v. D.M. Consunji, 63 we reiterated that
this Court is not a trier of facts and it shall pass upon them only for
compelling reasons which unfortunately are not present in this
case.64 Hence, we ordered the partial remand of the case for the sole
purpose of determining the amount of actual damages. 65
Escalation Clause Violated The Principle Of Mutuality Of
Contracts
Escalation clauses are not void per se. However, one "which grants
the creditor an unbridled right to adjust the interest independently
and upwardly, completely depriving the debtor of the right to assent
to an important modification in the agreement" is void. Clauses of
that nature violate the principle of mutuality of contracts. 66 Article
130867 of the Civil Code holds that a contract must bind both

contracting parties; its validity or compliance cannot be left to the will

of one of them.68
For this reason, we have consistently held that a valid escalation
clause provides:
1. that the rate of interest will only be increased if the applicable
maximum rate of interest is increased by law or by the Monetary
Board; and
2. that the stipulated rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the Monetary Board
(de-escalation clause).69
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent
extensions shall be at such rate as shall be determined by the
bank.70
Equitable dictated the interest rates if the term (or period for
repayment) of the loan was extended. Respondents had no choice but
to accept them. This was a violation of Article 1308 of the Civil Code.
Furthermore, the assailed escalation clause did not contain the
necessary provisions for validity, that is, it neither provided that the
rate of interest would be increased only if allowed by law or the
Monetary Board, nor allowed de-escalation. For these reasons, the
escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita
Builders v. Philippine National Bank71 we held that, because the
escalation clause was annulled, the principal amount of the loan was
subject to the original or stipulated rate of interest. Upon maturity,
the amount due was subject to legal interest at the rate of 12% per
annum.72
Consequently, respondents should pay Equitable the interest rates of
12.66% p.a. for their dollar-denominated loans and 20% p.a. for their
peso-denominated loans from January 10, 2001 to July 9, 2001.
Thereafter, Equitable was entitled to legal interest of 12% p.a. on all
amounts due.

There Was No Extraordinary Deflation

Extraordinary inflation exists when there is an unusual decrease in
the purchasing power of currency (that is, beyond the common
fluctuation in the value of currency) and such decrease could not be
reasonably foreseen or was manifestly beyond the contemplation of
the parties at the time of the obligation. Extraordinary deflation, on
the other hand, involves an inverse situation.73
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of the
currency stipulated should intervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the
following requisites must be proven:
1. that there was an official declaration of extraordinary inflation or
deflation from the Bangko Sentral ng Pilipinas (BSP); 74
2. that the obligation was contractual in nature; 75 and
3. that the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation. 76
Despite the devaluation of the peso, the BSP never declared a
situation of extraordinary inflation. Moreover, although the obligation
in this instance arose out of a contract, the parties did not agree to
recognize the effects of extraordinary inflation (or deflation). 77 The
RTC never mentioned that there was a such stipulation either in the
promissory note or loan agreement. Therefore, respondents should
pay their dollar-denominated loans at the exchange rate fixed by the
BSP on the date of maturity. 78
The Award Of Moral And Exemplary Damages Lacked Basis
Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered, not to impose a penalty to the
wrongdoer.79 To be entitled to moral damages, a claimant must prove:

1. That he or she suffered besmirched reputation, or physical, mental or

psychological suffering sustained by the claimant;
2. That the defendant committed a wrongful act or omission;
3. That the wrongful act or omission was the proximate cause of the damages
the claimant sustained;
4. The case is predicated on any of the instances expressed or envisioned by
Article 221980 and 222081 . 82
In culpa contractual or breach of contract, moral damages are recoverable
only if the defendant acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations.83 The breach must be wanton,
reckless, malicious or in bad faith, and oppressive or abusive. 84
The RTC found that respondents did not pay Equitable the interest due on
February 9, 2001 (or any month thereafter prior to the maturity of the loan)85
or the amount due (principal plus interest) due on July 9, 2001. 86
Consequently, Equitable applied respondents' deposits to their loans upon
maturity.
The relationship between a bank and its depositor is that of creditor and
debtor.87 For this reason, a bank has the right to set-off the deposits in its
hands for the payment of a depositor's indebtedness. 88
Respondents indeed defaulted on their obligation. For this reason, Equitable
had the option to exercise its legal right to set-off or compensation. However,
the RTC mistakenly (or, as it now appears, deliberately) concluded that
Equitable acted "fraudulently or in bad faith or in wanton disregard" of its
contractual obligations despite the absence of proof. The undeniable fact was
that, whatever damage respondents sustained was purely the consequence
of their failure to pay their loans. There was therefore absolutely no basis
for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents
were not entitled to moral damages, neither should they be awarded
exemplary damages.89 And if respondents were not entitled to moral and
exemplary damages, neither could they be awarded attorney's fees and
litigation expenses.90
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court
of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16,
Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being
rendered with grave abuse of discretion amounting to lack or excess of
jurisdiction. All proceedings undertaken pursuant thereto are likewise
declared null and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City
in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners
Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due
course.1avvphi1
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of
Cebu City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New
judgment is hereby entered:
1. ordering respondents Ng Sheung Ngor, doing business under the name
and style of "Ken Marketing," Ken Appliance Division, Inc. and Benjamin E.
Go to pay petitioner Equitable PCI Bank the principal amount of their dollarand peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the name
and style of "Ken Marketing," Ken Appliance Division, Inc. and Benjamin E.
Go to pay petitioner Equitable PCI Bank interest at:
a) 12.66% p.a. with respect to their dollar-denominated loans from January
10, 2001 to July 9, 2001;
b) 20% p.a. with respect to their peso-denominated loans from January 10,
2001 to July 9, 2001;91
c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals, 92 the
total amount due on July 9, 2001 shall earn legal interest at 12% p.a. from
the time petitioner Equitable PCI Bank demanded payment, whether
judicially or extra-judicially; and
d) after this Decision becomes final and executory, the applicable rate shall
be 12% p.a. until full satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall
compute the exact amounts due on the respective dollar-denominated and
peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor,
doing business under the name and style of "Ken Marketing," Ken Appliance
Division and Benjamin E. Go. SO ORDERED.

THIRD DIVISION
G.R. No. 150806

January 28, 2008

EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners,

vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.
DECISION
NACHURA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court, of the Decision 1 of the Court of Appeals (CA), dated
September 3, 2001, in CA-G.R. CV No. 67784, and its Resolution 2
dated November 19, 2001. The assailed Decision affirmed with
modification the Decision3 of the Regional Trial Court (RTC), Makati
City, Branch 136, dated May 9, 2000 in Civil Case No. 98-411.
Sometime in May 1997, respondent Bathala Marketing Industries,
Inc., as lessee, represented by its president Ramon H. Garcia,
renewed its Contract of Lease 4 with Ponciano L. Almeda (Ponciano),
as lessor, husband of petitioner Eufemia and father of petitioner
Romel Almeda. Under the said contract, Ponciano agreed to lease a
portion of the Almeda Compound, located at 2208 Pasong Tamo
Street, Makati City, consisting of 7,348.25 square meters, for a
monthly rental of P1,107,348.69, for a term of four (4) years from
May 1, 1997 unless sooner terminated as provided in the contract.5
The contract of lease contained the following pertinent provisions
which gave rise to the instant case:
SIXTH - It is expressly understood by the parties hereto that the
rental rate stipulated is based on the present rate of assessment on
the property, and that in case the assessment should hereafter be
increased or any new tax, charge or burden be imposed by
authorities on the lot and building where the leased premises are
located, LESSEE shall pay, when the rental herein provided becomes
due, the additional rental or charge corresponding to the portion
hereby leased; provided, however, that in the event that the present
assessment or tax on said property should be reduced, LESSEE shall

be entitled to reduction in the stipulated rental, likewise in

proportion to the portion leased by him;
SEVENTH - In case an extraordinary inflation or devaluation of
Philippine Currency should supervene, the value of Philippine peso at
the time of the establishment of the obligation shall be the basis of
payment;6
During the effectivity of the contract, Ponciano died. Thereafter,
respondent dealt with petitioners. In a letter 7 dated December 29,
1997, petitioners advised respondent that the former shall assess
and collect Value Added Tax (VAT) on its monthly rentals. In
response, respondent contended that VAT may not be imposed as the
rentals fixed in the contract of lease were supposed to include the
VAT therein, considering that their contract was executed on May 1,
1997 when the VAT law had long been in effect.8
On January 26, 1998, respondent received another letter from
petitioners informing the former that its monthly rental should be
increased by 73% pursuant to condition No. 7 of the contract and
Article 1250 of the Civil Code. Respondent opposed petitioners'
demand and insisted that there was no extraordinary inflation to
warrant the application of Article 1250 in light of the pronouncement
of this Court in various cases. 9
Respondent refused to pay the VAT and adjusted rentals as
demanded by petitioners but continued to pay the stipulated amount
set forth in their contract.
On February 18, 1998, respondent instituted an action for
declaratory relief for purposes of determining the correct
interpretation of condition Nos. 6 and 7 of the lease contract to
prevent damage and prejudice.10 The case was docketed as Civil Case
No. 98-411 before the RTC of Makati.
On March 10, 1998, petitioners in turn filed an action for ejectment,
rescission and damages against respondent for failure of the latter to
vacate the premises after the demand made by the former. 11 Before
respondent could file an answer, petitioners filed a Notice of
Dismissal.12 They subsequently refiled the complaint before the

Metropolitan Trial Court of Makati; the case was raffled to Branch

139 and was docketed as Civil Case No. 53596.
Petitioners later moved for the dismissal of the declaratory relief case
for being an improper remedy considering that respondent was
already in breach of the obligation and that the case would not end
the litigation and settle the rights of the parties. The trial court,
however, was not persuaded, and consequently, denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of
respondent and against petitioners. The pertinent portion of the
decision reads:
WHEREFORE, premises considered, this Court renders judgment on
the case as follows:
1) declaring that plaintiff is not liable for the payment of Value-Added
Tax (VAT) of 10% of the rent for [the] use of the leased premises;
2) declaring that plaintiff is not liable for the payment of any rental
adjustment, there being no [extraordinary] inflation or devaluation,
as provided in the Seventh Condition of the lease contract, to justify
the same;
3) holding defendants liable to plaintiff for the total amount of
P1,119,102.19, said amount representing payments erroneously
made by plaintiff as VAT charges and rental adjustment for the
months of January, February and March, 1999; and

court ordered the restitution by the latter to the former of the

amounts paid, notwithstanding the well-established rule that in an
action for declaratory relief, other than a declaration of rights and
obligations, affirmative reliefs are not sought by or awarded to the
parties.
Petitioners elevated the aforesaid case to the Court of Appeals which
affirmed with modification the RTC decision. The fallo reads:
WHEREFORE, premises considered, the present appeal is
DISMISSED and the appealed decision in Civil Case No. 98-411 is
hereby AFFIRMED with MODIFICATION in that the order for the
return of the balance of the rental deposits and of the amounts
representing the 10% VAT and rental adjustment, is hereby
DELETED.
No pronouncement as to costs.
SO ORDERED.14
The appellate court agreed with the conclusions of law and the
application of the decisional rules on the matter made by the RTC.
However, it found that the trial court exceeded its jurisdiction in
granting affirmative relief to the respondent, particularly the
restitution of its excess payment.
Petitioners now come before this Court raising the following issues:
I.

4) holding defendants liable to plaintiff for the amount of

P1,107,348.69, said amount representing the balance of plaintiff's
rental deposit still with defendants.

WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS

APPLICABLE TO THE CASE AT BAR.

SO ORDERED.13

II.

The trial court denied petitioners their right to pass on to respondent

the burden of paying the VAT since it was not a new tax that would
call for the application of the sixth clause of the contract. The court,
likewise, denied their right to collect the demanded increase in rental,
there being no extraordinary inflation or devaluation as provided for
in the seventh clause of the contract. Because of the payment made
by respondent of the rental adjustment demanded by petitioners, the

WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE

AND FOUNDRY CORP. VS. NAWASA CASE, 161 SCRA 32 AND
COMPANION CASES ARE (sic) APPLICABLE IN THE CASE AT BAR.
III.
WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE CASE
OF DEL ROSARIO VS. THE SHELL COMPANY OF THE PHILIPPINES,

164 SCRA 562, THE HONORABLE COURT OF APPEALS SERIOUSLY

ERRED ON A QUESTION OF LAW.
IV.
WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF
APPEALS THAT RESPONDENT IS NOT LIABLE TO PAY THE 10%
VALUE ADDED TAX IS IN ACCORDANCE WITH THE MANDATE OF
RA 7716.
V.
WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE
PLAINTIFF-APPELLEE WAS IN BREACH WHEN THE PETITION FOR
DECLARATORY RELIEF WAS FILED BEFORE THE TRIAL COURT.
In fine, the issues for our resolution are as follows: 1) whether the
action for declaratory relief is proper; 2) whether respondent is liable
to pay 10% VAT pursuant to Republic Act (RA) 7716; and 3) whether
the amount of rentals due the petitioners should be adjusted by
reason of extraordinary inflation or devaluation.
Declaratory relief is defined as an action by any person interested in
a deed, will, contract or other written instrument, executive order or
resolution, to determine any question of construction or validity
arising from the instrument, executive order or regulation, or statute,
and for a declaration of his rights and duties thereunder. The only
issue that may be raised in such a petition is the question of
construction or validity of provisions in an instrument or statute.
Corollary is the general rule that such an action must be justified, as
no other adequate relief or remedy is available under the
circumstances. 15
Decisional law enumerates the requisites of an action for declaratory
relief, as follows: 1) the subject matter of the controversy must be a
deed, will, contract or other written instrument, statute, executive
order or regulation, or ordinance; 2) the terms of said documents and
the validity thereof are doubtful and require judicial construction; 3)
there must have been no breach of the documents in question; 4)
there must be an actual justiciable controversy or the "ripening
seeds" of one between persons whose interests are adverse; 5) the

issue must be ripe for judicial determination; and 6) adequate relief is

not available through other means or other forms of action or
proceeding.16
It is beyond cavil that the foregoing requisites are present in the
instant case, except that petitioners insist that respondent was
already in breach of the contract when the petition was filed.
We do not agree.
After petitioners demanded payment of adjusted rentals and in the
months that followed, respondent complied with the terms and
conditions set forth in their contract of lease by paying the rentals
stipulated therein. Respondent religiously fulfilled its obligations to
petitioners even during the pendency of the present suit. There is no
showing that respondent committed an act constituting a breach of
the subject contract of lease. Thus, respondent is not barred from
instituting before the trial court the petition for declaratory relief.
Petitioners claim that the instant petition is not proper because a
separate action for rescission, ejectment and damages had been
commenced before another court; thus, the construction of the
subject contractual provisions should be ventilated in the same
forum.
We are not convinced.
It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation17
we held that the petition for declaratory relief should be dismissed in
view of the pendency of a separate action for unlawful detainer.
However, we cannot apply the same ruling to the instant case. In
Panganiban, the unlawful detainer case had already been resolved by
the trial court before the dismissal of the declaratory relief case; and
it was petitioner in that case who insisted that the action for
declaratory relief be preferred over the action for unlawful detainer.
Conversely, in the case at bench, the trial court had not yet resolved
the rescission/ejectment case during the pendency of the declaratory
relief petition. In fact, the trial court, where the rescission case was
on appeal, itself initiated the suspension of the proceedings pending
the resolution of the action for declaratory relief.

We are not unmindful of the doctrine enunciated in Teodoro, Jr. v.

Mirasol18 where the declaratory relief action was dismissed because
the issue therein could be threshed out in the unlawful detainer suit.
Yet, again, in that case, there was already a breach of contract at the
time of the filing of the declaratory relief petition. This dissimilar
factual milieu proscribes the Court from applying Teodoro to the
instant case.
Given all these attendant circumstances, the Court is disposed to
entertain the instant declaratory relief action instead of dismissing it,
notwithstanding the pendency of the ejectment/rescission case before
the trial court. The resolution of the present petition would write finis
to the parties' dispute, as it would settle once and for all the question
of the proper interpretation of the two contractual stipulations
subject of this controversy.
Now, on the substantive law issues.
Petitioners repeatedly made a demand on respondent for the payment
of VAT and for rental adjustment allegedly brought about by
extraordinary inflation or devaluation. Both the trial court and the
appellate court found no merit in petitioners' claim. We see no reason
to depart from such findings.
As to the liability of respondent for the payment of VAT, we cite with
approval the ratiocination of the appellate court, viz.:
Clearly, the person primarily liable for the payment of VAT is the
lessor who may choose to pass it on to the lessee or absorb the same.
Beginning January 1, 1996, the lease of real property in the ordinary
course of business, whether for commercial or residential use, when
the gross annual receipts exceed P500,000.00, is subject to 10% VAT.
Notwithstanding the mandatory payment of the 10% VAT by the
lessor, the actual shifting of the said tax burden upon the lessee is
clearly optional on the part of the lessor, under the terms of the
statute. The word "may" in the statute, generally speaking, denotes
that it is directory in nature. It is generally permissive only and
operates to confer discretion. In this case, despite the applicability of
the rule under Sec. 99 of the NIRC, as amended by R.A. 7716,
granting the lessor the option to pass on to the lessee the 10% VAT,
to existing contracts of lease as of January 1, 1996, the original

lessor, Ponciano L. Almeda did not charge the lessee-appellee the

10% VAT nor provided for its additional imposition when they
renewed the contract of lease in May 1997. More significantly, said
lessor did not actually collect a 10% VAT on the monthly rental due
from the lessee-appellee after the execution of the May 1997 contract
of lease. The inevitable implication is that the lessor intended not to
avail of the option granted him by law to shift the 10% VAT upon the
lessee-appellee. x x x.19
In short, petitioners are estopped from shifting to respondent the
burden of paying the VAT.
Petitioners' reliance on the sixth condition of the contract is, likewise,
unavailing. This provision clearly states that respondent can only be
held liable for new taxes imposed after the effectivity of the contract
of lease, that is, after May 1997, and only if they pertain to the lot
and the building where the leased premises are located. Considering
that RA 7716 took effect in 1994, the VAT cannot be considered as a
"new tax" in May 1997, as to fall within the coverage of the sixth
stipulation.
Neither can petitioners legitimately demand rental adjustment
because of extraordinary inflation or devaluation.
Petitioners contend that Article 1250 of the Civil Code does not apply
to this case because the contract stipulation speaks of extraordinary
inflation or devaluation while the Code speaks of extraordinary
inflation or deflation. They insist that the doctrine pronounced in Del
Rosario v. The Shell Company, Phils. Limited 20 should apply.
Essential to contract construction is the ascertainment of the
intention of the contracting parties, and such determination must
take into account the contemporaneous and subsequent acts of the
parties. This intention, once ascertained, is deemed an integral part
of the contract. 21
While, indeed, condition No. 7 of the contract speaks of
"extraordinary inflation or devaluation" as compared to Article 1250's
"extraordinary inflation or deflation," we find that when the parties
used the term "devaluation," they really did not intend to depart from

Article 1250 of the Civil Code. Condition No. 7 of the contract should,
thus, be read in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners'
letter22 dated January 26, 1998, where, in demanding rental
adjustment ostensibly based on condition No. 7, petitioners made
explicit reference to Article 1250 of the Civil Code, even quoting the
law verbatim. Thus, the application of Del Rosario is not warranted.
Rather, jurisprudential rules on the application of Article 1250
should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.
Inflation has been defined as the sharp increase of money or credit,
or both, without a corresponding increase in business transaction.
There is inflation when there is an increase in the volume of money
and credit relative to available goods, resulting in a substantial and
continuing rise in the general price level. 23 In a number of cases, this
Court had provided a discourse on what constitutes extraordinary
inflation, thus:
[E]xtraordinary inflation exists when there is a decrease or increase
in the purchasing power of the Philippine currency which is unusual
or beyond the common fluctuation in the value of said currency, and
such increase or decrease could not have been reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of
the establishment of the obligation.24
The factual circumstances obtaining in the present case do not make
out a case of extraordinary inflation or devaluation as would justify
the application of Article 1250 of the Civil Code. We would like to
stress that the erosion of the value of the Philippine peso in the past
three or four decades, starting in the mid-sixties, is characteristic of
most currencies. And while the Court may take judicial notice of the
decline in the purchasing power of the Philippine currency in that
span of time, such downward trend of the peso cannot be considered

as the extraordinary phenomenon contemplated by Article 1250 of

the Civil Code. Furthermore, absent an official pronouncement or
declaration by competent authorities of the existence of extraordinary
inflation during a given period, the effects of extraordinary inflation
are not to be applied. 25
WHEREFORE, premises considered, the petition is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No. 67784, dated
September 3, 2001, and its Resolution dated November 19, 2001, are
AFFIRMED.
SO ORDERED.