Art. 3, Section 20. No person shall be imprisoned for debt or non-payment of a poll tax.

Section 3. As used in this Act, the term

(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract;
any contract to sell, or sale or contract of sale of property or services, either for present or future delivery,
under which part or all of the price is payable subsequent to the making of such sale or contract; any
rental-purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any
option, demand, lien, pledge, or other claim against, or for the delivery of, property or money; any
purchase, or other acquisition of, or any credit upon the security of, any obligation of claim arising out of
any of the foregoing; and any transaction or series of transactions having a similar purpose or effect.
(Truth in Lending Act)

PP vs Concepcion
*nasa book*

Code of Commerce
Article 1
The following are merchants for the purposes of this Code:
1. Those who, having legal capacity to trade, customarily devote themselves
thereto.
2. Commercial or industrial associations which are formed in accordance with this
Code.

Article 2
Commercial transactions, be they performed by merchants or not, whether they are
specified in this Code or not, shall be governed by the provisions contained in the same;
in the absence of such provisions, by the commercial customs generally observed in
each place; and in the absence of both, by those of the common law.
Commercial transactions shall be considered those enumerated in this Code and any
others of a similar character.

Article 3
The legal presumption of a customary engagement in commerce exists from the time
the person who desires to trade gives notice through circulars, newspapers, handbills,
posters exhibited to the public, or in any other manner whatsoever, of an establishment,
the purpose of which is to conduct any commercial transaction.

FIRST DIVISION
[G.R. No. 154878. March 16, 2007.]
CAROLYN M. GARCIA, petitioner, vs. RICA MARIE S.
THIO, respondent.
DECISION
CORONA, J : p

Assailed in this petition for review on certiorari 1 are the

June 19, 2002 decision 2 and August 20, 2002 resolution 3 of
the Court of Appeals (CA) in CA-G.R. CV No. 56577 which
set aside the February 28, 1997 decision of the Regional Trial
Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S.
Thio received from petitioner Carolyn M. Garcia a crossed
check 4 dated February 24, 1995 in the amount of
US$100,000 payable to the order of a certain Marilou
Santiago. 5 Thereafter, petitioner received from respondent
every month (specifically, on March 24, April 26, June 26 and
July 26, all in 1995) the amount of US$3,000 6 and P76,500 7
on July 26, 8 August 26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner
another crossed check 9 dated June 29, 1995 in the amount
of P500,000, also payable to the order of Marilou Santiago.
10 Consequently, petitioner received from respondent the
amount of P20,000 every month on August 5, September 5,
October 5 and November 5, 1995. 11
According to petitioner, respondent failed to pay the
principal amounts of the loans (US$100,000 and P500,000)
when they fell due. Thus, on February 22, 1996, petitioner
filed a complaint for sum of money and damages in the RTC
of Makati City, Branch 58 against respondent, seeking to
collect the sums of US$100,000, with interest thereon at 3%
a month from October 26, 1995 and P500,000, with interest
thereon at 4% a month from November 5, 1995, plus
attorney's fees and actual damages. 12
Petitioner alleged that on February 24, 1995,
respondent borrowed from her the amount of US$100,000
with interest thereon at the rate of 3% per month, which loan
would mature on October 26, 1995. 13 The amount of this loan
was covered by the first check. On June 29, 1995,
respondent again borrowed the amount of P500,000 at an
agreed monthly interest of 4%, the maturity date of which was
on November 5, 1995. 14 The amount of this loan was
covered by the second check. For both loans, no promissory
note was executed since petitioner and respondent were
close friends at the time. 15 Respondent paid the stipulated
monthly interest for both loans but on their maturity dates, she
failed to pay the principal amounts despite repeated
demands. 16
Respondent denied that she contracted the two loans
with petitioner and countered that it was Marilou Santiago to
whom petitioner lent the money. She claimed she was merely
asked by petitioner to give the crossed checks to Santiago. 17
She issued the checks for P76,000 and P20,000 not as
payment of interest but to accommodate petitioner's request
that respondent use her own checks instead of Santiago's. 18
In a decision dated February 28, 1997, the RTC ruled
in favor of petitioner. 19 It found that respondent borrowed
from petitioner the amounts of US$100,000 with monthly
interest of 3% and P500,000 at a monthly interest of 4%: 20
WHEREFORE, finding preponderance
of evidence to sustain the instant complaint,
judgment is hereby rendered in favor of
[petitioner], sentencing [respondent] to pay the
former the amount of:

1. [US$100,000.00] or its peso

equivalent with interest thereon at 3% per
 month from October 26, 1995 until fully paid;
CcAESI

2. P500,000.00 with interest thereon at

4% per month from November 5, 1995 until
fully paid.

3. P100,000.00 as and for attorney's

fees; and

4. P50,000.00 as and for actual

damages.

For lack of merit, [respondent's]

counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED. 21

On appeal, the CA reversed the decision of the RTC

and ruled that there was no contract of loan between the
parties:
 A perusal of the record of the case
shows that [petitioner] failed to substantiate
her claim that [respondent] indeed borrowed
money from her. There is nothing in the
record that shows that [respondent]
received money from [petitioner]. What is
evident is the fact that [respondent] received a
MetroBank [crossed] check dated February
24, 1995 in the sum of US$100,000.00,
payable to the order of Marilou Santiago and
a CityTrust [crossed] check dated June 29,
1995 in the amount of P500,000.00, again
payable to the order of Marilou Santiago, both
of which were issued by [petitioner]. The
checks received by [respondent], being
crossed, may not be encashed but only
deposited in the bank by the payee thereof,
that is, by Marilou Santiago herself.

It must be noted that crossing a check

has the following effects: (a) the check may
not be encashed but only deposited in the
bank; (b) the check may be negotiated only
once — to one who has an account with the
bank; (c) and the act of crossing the check
serves as warning to the holder that the check
has been issued for a definite purpose so that
he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not
a holder in due course.
 Consequently, the receipt of the
[crossed] check by [respondent] is not the
issuance and delivery to the payee in
contemplation of law since the latter is not the
person who could take the checks as a holder,
i.e., as a payee or indorsee thereof, with intent
to transfer title thereto. Neither could she be
deemed as an agent of Marilou Santiago with
respect to the checks because she was merely
facilitating the transactions between the
former and [petitioner].

With the foregoing circumstances, it

may be fairly inferred that there were really no
contracts of loan that existed between the
parties. . . . (emphasis supplied) 22

Hence this petition. 23

As a rule, only questions of law may be raised in a
petition for review on certiorari under Rule 45 of the Rules of
Court. However, this case falls under one of the exceptions,
i.e., when the factual findings of the CA (which held that there
were no contracts of loan between petitioner and respondent)
and the RTC (which held that there were contracts of loan)
are contradictory. 24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such
is perfected only upon the delivery of the object of the
contract. 25 This is evident in Art. 1934 of the Civil Code which
provides:
 An accepted promise to deliver
something by way of commodatum or simple
loan is binding upon the parties, but the
commodatum or simple loan itself shall not
be perfected until the delivery of the object
of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in

this case the money received by the debtor when the
checks were encashed) the debtor acquires
ownership of such money or loan proceeds and is
bound to pay the creditor an equal amount. 26
It is undisputed that the checks were delivered to
respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a
certain Marilou Santiago. Thus the main question to be
answered is: who borrowed money from petitioner —
respondent or Santiago?
Petitioner insists that it was upon respondent's
instruction that both checks were made payable to Santiago.
27 She maintains that it was also upon respondent's
instruction that both checks were delivered to her
(respondent) so that she could, in turn, deliver the same to
Santiago. 28 Furthermore, she argues that once respondent
received the checks, the latter had possession and control of
them such that she had the choice to either forward them to
Santiago (who was already her debtor), to retain them or to
return them to petitioner. 29
We agree with petitioner. Delivery is the act by which
the res or substance thereof is placed within the actual or
constructive possession or control of another. 30 Although
respondent did not physically receive the proceeds of the
checks, these instruments were placed in her control and
possession under an arrangement whereby she actually re-
lent the amounts to Santiago. STcHDC

Several factors support this conclusion.

First, respondent admitted that petitioner did not
personally know Santiago. 31 It was highly improbable that
petitioner would grant two loans to a complete stranger
without requiring as much as promissory notes or any written
acknowledgment of the debt considering that the amounts
involved were quite big. Respondent, on the other hand,
already had transactions with Santiago at that time. 32
Second, Leticia Ruiz, a friend of both petitioner and
respondent (and whose name appeared in both parties' list of
witnesses) testified that respondent's plan was for petitioner
to lend her money at a monthly interest rate of 3%, after which
respondent would lend the same amount to Santiago at a
higher rate of 5% and realize a profit of 2%. 33 This explained
why respondent instructed petitioner to make the checks
payable to Santiago. Respondent has not shown any reason
why Ruiz' testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted
issuing her own checks in the amount of P76,000 each (peso
equivalent of US$3,000) for eight months to cover the
monthly interest. For the P500,000 loan, she also issued her
own checks in the amount of P20,000 each for four months.
34 According to respondent, she merely accommodated
petitioner's request for her to issue her own checks to cover
the interest payments since petitioner was not personally
acquainted with Santiago. 35 She claimed, however, that
Santiago would replace the checks with cash. 36 Her
explanation is simply incredible. It is difficult to believe that
respondent would put herself in a position where she would
be compelled to pay interest, from her own funds, for loans
she allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of
witnesses, this Court is guided by the rule that
for evidence to be believed, it must not only
proceed from the mouth of a credible witness,
but must be credible in itself such as the
common experience of mankind can approve
as probable under the circumstances. We
have no test of the truth of human testimony
except its conformity to our knowledge,
observation, and experience. Whatever is
repugnant to these belongs to the miraculous,
and is outside of juridical cognizance. 37

Fourth, in the petition for insolvency sworn to and filed

by Santiago, it was respondent, not petitioner, who was listed
as one of her (Santiago's) creditors. 38
Last, respondent inexplicably never presented
Santiago as a witness to corroborate her story. 39 The
presumption is that "evidence willfully suppressed would be
adverse if produced." 40 Respondent was not able to overturn
this presumption.
We hold that the CA committed reversible error when
it ruled that respondent did not borrow the amounts of
US$100,000 and P500,000 from petitioner. We instead agree
with the ruling of the RTC making respondent liable for the
principal amounts of the loans.
 We do not, however, agree that respondent is liable for
the 3% and 4% monthly interest for the US$100,000 and
P500,000 loans respectively. There was no written proof of
the interest payable except for the verbal agreement that the
loans would earn 3% and 4% interest per month. Article 1956
of the Civil Code provides that "[n]o interest shall be due
unless it has been expressly stipulated in writing."
Be that as it may, while there can be no stipulated
interest, there can be legal interest pursuant to Article 2209
of the Civil Code.It is well-settled that:
When the obligation is breached, and it
consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the
interest due should be that which may have
been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from
the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall
be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of
Article 1169 of the Civil Code. 41

Hence, respondent is liable for the payment of legal

interest per annum to be computed from November 21, 1995,
the date when she received petitioner's demand letter. 42
From the finality of the decision until it is fully paid, the amount
due shall earn interest at 12% per annum, the interim period
being deemed equivalent to a forbearance of credit. 43
 The award of actual damages in the amount of P50,000
and P100,000 attorney's fees is deleted since the RTC
decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and
the June 19, 2002 decision and August 20, 2002 resolution
of the Court of Appeals in CA-G.R. CV No. 56577 are
REVERSED and SET ASIDE. The February 28, 1997
decision of the Regional Trial Court in Civil Case No. 96-266
is AFFIRMED with the MODIFICATION that respondent is
directed to pay petitioner the amounts of US$100,000 and
P500,000 at 12% per annum interest from November 21,
1995 until the finality of the decision. The total amount due as
of the date of finality will earn interest of 12% per annum until
fully paid. The award of actual damages and attorney's fees
is deleted.cda

SO ORDERED.
Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ.,
concur.
(Garcia v. Thio, G.R. No. 154878, [March 16, 2007], 547
|||

PHIL 341-351)

SECOND DIVISION
[G.R. No. L-24968. April 27, 1972.]
SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee,
vs. DEVELOPMENT BANK OF THE PHILIPPINES,
defendant-appellant.
Mabanag, Eliger & Associates & Saura, Magno &
Associates for plaintiff-appellee.
Jesus A. Avaceña and Hilario G. Orsolino for defendant-
appellant.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND
CONTRACTS; CONTRACTS; PERFECTION UPON
ACCEPTANCE OF PROMISE TO DELIVER
SOMETHING BY WAY OF SIMPLE LOAN; ART.
1954 OF THE CIVIL CODE. — Where the application
of Saura Inc. for a loan of P500,000.00 was approved
by resolution of the defendant, and the corresponding
mortgage executed and registered, there is
undoubtedly offer and acceptance and We hold that
there was indeed a perfected consensual contract as
recognized in Article 1954 of the Civil Code.
2. ID.; ID.; ID.; ID.; DEFENDANT DID NOT
DEVIATE FROM PERFECTED CONTRACT IN
CASE AT BAR. — The terms laid down in RFC
Resolution No. 145 passed on Jan. 7, 1954 which
resolution approved the loan application state that:
"the proceeds of the loan shall be utilized exclusively
for the following purposes: for construction of factory
building — P250,000.00; for payment of the balance
of purchase price of machinery and equipment —
P240,900.00, for working capital — P9,100.00."
There is no serious dispute that RFC entertained the
loan application of Saura Inc., on the assumption that
the factory to be constructed would utilize locally
grown raw materials principally kenaf . It was in line
with such assumption that when RFC, by Resolution
9083 approved on December 17, 1954, restored the
loan to the original amount of P500,000.00, it
imposed two conditions to wit: (1) that the raw
materials needed by the borrower-corporation to
carry out its operation are available in the immediate
vicinity and (2) that there is prospect of increased
production thereof to provide adequately for the
requirements of the factory." The imposition of those
conditions was by no means a deviation from the
terms of the agreement, but rather a step in its
implementation. There was nothing in said conditions
that contradicted RFC Resolution No. 145.
3. ID.; ID.; ID.; ID.; DEVIATION MADE BY
PLAINTIFF. — Evidently Saura Inc., realized that it
could not meet the conditions required by RFC in
Resolution 9083, and so wrote its letter of January 21,
1955, stating that local jute "will not be available in
sufficient quantity this year or probably next year,"
and asking that out of the loan agreed upon, the sum
of P67,586.09 be released "for raw materials and
labor." This was a deviation from the terms laid down
in Resolution No. 145 and embodied in the mortgage
contract, implying as it did a diversion of part of the
proceeds of the loan to purposes other than those
agreed upon.
4. ID.; ID.; EXTINGUISHMENT OF
OBLIGATION BY MUTUAL DESISTANCE; IN
INSTANT CASE. — When RFC turned down the
request of Saura Inc., the negotiations which had
been going on for the implementation of the
agreement reached an impasse. Saura Inc.,
 obviously was in no position to comply with RFC's
conditions. So instead of doing so and insisting that
the loan be released as agreed upon, Saura Inc.,
asked that the mortgage be cancelled, which was
done on June 15, 1955. The action thus taken by both
parties was in the nature of mutual desistance —
what Manresa terms "mutuo disenso" — which is a
mode of extinguishing obligations. It is a concept that
derives from the principle that since mutual
agreement by the parties can create a contract,
mutual disagreement by the parties can cause its
extinguishment.
DECISION
MAKALINTAL, J : p

In Civil Case No. 55908 of the Court of First

Instance of Manila, judgment was rendered on June
28, 1965 sentencing defendant Development Bank of
the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and
Export Co., Inc. in the amount of P383,343.68, plus
interest at the legal rate from the date the complaint
was filed and attorney's fees in the amount of
P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to
as Saura, Inc.) applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DBP,
for an industrial loan of P500,000.00, to be used as
follows: P250,000.00 for the construction of a factory
building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the
jute mill machinery had already been purchased by
Saura on the strength of a letter of credit extended by
the Prudential Bank and Trust Co., and arrived in
Davao City in July 1953; and that to secure its release
without first paying the draft, Saura, Inc. executed a
trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution
No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the
factory buildings to be constructed, the land site
thereof, and the machinery and equipment to be
installed. Among the other terms spelled out in the
resolution were the following:
"1. That the proceeds of the loan
shall be utilized exclusively for the
following purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery & equipment

For working capital 9,100.00
 TOTAL P500,000.00

4. That Mr. & Mrs. Ramon E.

Saura, Inocencia Arellano, Aniceto
Caolboy and Gregoria Estabillo and
China Engineers, Ltd. shall sign the
promissory notes jointly with the
borrower-corporation;

5. That release shall be made at

the discretion of the Rehabilitation
Finance Corporation, subject to
availability of funds, and as the
construction of the factory buildings
progresses, to be certified to by an
appraiser of this Corporation;"

Saura, Inc. was officially notified of the

resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed
of its approval, Saura, Inc. wrote a letter to RFC,
requesting a modification of the terms laid down by it,
namely: that in lieu of having China Engineers, Ltd.
(which was willing to assume liability only to the
extent of its stock subscription with Saura, Inc.) sign
as co-maker on the corresponding promissory notes,
Saura, Inc. would put up a bond for P123,500.00, an
amount equivalent to such subscription; and that
Maria S. Roca would be substituted for Inocencia
Arellano as one of the other co-makers, having
acquired the latter's shares in Saura, Inc.
In view of such request RFC approved
Resolution No. 736 on February 4, 1954, designating
of the members of its Board of Governors, for certain
reasons stated in the resolution, "to reexamine all the
aspects of this approved loan . . . with special
reference as to the advisability of financing this
particular project based on present conditions
obtaining in the operations of jute mills, and to submit
his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that
China Engineers, Ltd. had again agreed to act as co-
signer for the loan, and asked that the necessary
documents be prepared in accordance with the terms
and conditions specified in Resolution No. 145 In
connection with the re-examination of the project to
be financed with the loan applied for, as stated in
Resolution No. 736, the parties named their
respective committees of engineers and technical
men to meet with each other and undertake the
necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the
same "should not be taken as an acquiescence on
(its) part to novate, or accept new conditions to, the
agreement already entered into," referring to its
acceptance of the terms and conditions mentioned in
Resolution No. 145.
On April 13, 1954 the loan documents were
executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-
signers; and the corresponding deed of mortgage,
which was duly registered on the following April 17.
It appears, however, that despite the formal
execution of the loan agreement the re-examination
contemplated in Resolution No. 736 proceeded. In a
meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura,
Inc., was present, it was decided to reduce the loan
from P500,000.00 to P300,000.00. Resolution No.
3989 was approved as follows:
"RESOLUTION No.
3989. Reducing the Loan Granted Saura
Import & Export Co., Inc. under
Resolution No. 145, C.S., from
P500,000.00 to P300,000.00. Pursuant
to Bd. Res. No. 736, c.s., authorizing the
re-examination of all the various aspects
of the loan granted the Saura Import &
Export Co. under Resolution No. 145,
c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with
special reference as to the advisability of
 financing this particular project based on
present conditions obtaining in the
operation of jute mills, and after having
heard Ramon E. Saura and after
extensive discussion on the subject the
Board, upon recommendation of the
Chairman, RESOLVED that the loan
granted the Saura Import & Export Co.
be REDUCED from P500,000 to
P300,000 and that releases up to
P100,000 may be authorized as may be
necessary from time to time to place the
factory in actual operation: PROVIDED
that all terms and conditions of
Resolution No. 145, c.s., not inconsistent
herewith, shall remain in full force and
effect."

On June 19, 1954 another hitch developed.

F.R. Halling, who had signed the promissory note for
China Engineers Ltd. jointly and severally with the
other co-signers, wrote RFC that his company no
longer wished to avail of the loan and therefore
considered the same cancelled as far as it was
concerned. A follow-up letter dated July 2 requested
RFC that the registration of the mortgage be
withdrawn.
In the meantime Saura, Inc. had written RFC
requesting that the loan of P500,000.00 be granted.
The request was denied by RFC, which added in its
letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 . . . in view of a
notification . . . from the China Engineers, Ltd.,
expressing their desire to consider the loan cancelled
insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to
the cancellation of the loan and informed RFC that
China Engineers, Ltd. "will at any time reinstate their
signature as co-signer of the note if RFC releases to
us the P500,000.00 originally approved by you."
On December 17, 1954 RFC passed
Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China
Engineers, Ltd. is now willing to sign the promissory
notes jointly with the borrower-corporation," but with
the following proviso:
"That in view of observations
made of the shortage and high cost of
imported raw materials, the Department
of Agriculture and Natural Resources
shall certify to the following:

1. That the raw materials needed

by the borrower-corporation to carry out
its operation are available in the
immediate vicinity; and
 2. That there is prospect of
increased production thereof to provide
adequately for the requirements of the
factory."

The action thus taken was communicated to

Saura, Inc. in a letter of RFC dated December 22,
1954, wherein it was explained that the certification
by the Department of Agriculture and Natural
Resources was required "as the intention of the
original approval (of the loan) is to develop the
manufacture of sacks on the basis of locally available
raw materials." This point is important, and sheds
light on the subsequent actuations of the parties.
Saura, Inc. does not deny that the factory he was
building in Davao was for the manufacture of bags
from local raw materials. The cover page of its
brochure (Exh. M) describes the project as a "Joint
venture by and between the Mindanao Industry
Corporation and the Saura Import and Export Co.,
Inc. to finance, manage and operate a Kenaf mill
plant, to manufacture copra and corn bags, runners,
floor mattings, carpets, draperies, out of 100% local
raw materials, principal kenaf." The explanatory note
on page 1 of the same brochure states that the
venture "is the first serious attempt in this country to
use 100% locally grown raw materials notably kenaf
which is presently grown commercially in the Island
of Mindanao where the proposed jutemill is located .
. ."
This fact, according to defendant DBP, is what
moved RFC to approve the loan application in the first
place, and to require, in its Resolution No. 9083, a
certification from the Department of Agriculture and
Natural Resources as to the availability of local raw
materials to provide adequately for the requirements
of the factory. Saura, Inc. itself confirmed the
defendant's stand impliedly in its letter of January 21,
1955: (1) stating that according to a special study
made by the Bureau of Forestry "kenaf will not be
available in sufficient quantity this year or probably
even next year;" (2) requesting "assurances (from
RFC) that my company and associates will be able to
bring in sufficient jute materials as may be necessary
for the full operation of the jute mill;" and (3) asking
that releases of the loan be made as follows:

a) For the payment of the receipt for jute mill

machineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equipment

per attached list to enable the jute

mill to operate P182,413.91

c) For raw materials and labor 67,586.09
 P25,000.00 to be released on the
1) opening
of the letter of credit for raw jute
for $25,000 00.

2) P25,000.00 to be released upon arrival

of raw jute.

3) P17,586.09 to be released as soon as the

mill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc.

the following reply:
"Dear Sirs:

This is with reference to your letter

of January 21, 1955, regarding the
release of your loan under consideration
of P500,000. As stated in our letter of
December 22, 1954, the releases of the
loan, if revived, are proposed to be made
from time to time, subject to availability of
funds towards the end that the sack
factory shall be placed in actual
operating status. We shall be able to act
on your request for revised purposes and
manner of releases upon re-appraisal of
the securities offered for the loan.
 With respect to our requirement
that the Department of Agriculture and
Natural Resources certify that the raw
materials needed are available in the
immediate vicinity and that there is
prospect of increased production thereof
to provide adequately the requirements
of the factory, we wish to reiterate that
the basis of the original approval is to
develop the manufacture of sacks on the
basis of the locally available raw
materials. Your statement that you will
have to rely on the importation of jute and
your request that we give you assurance
that your company will be able to bring in
sufficient jute materials as may be
necessary for the operation of your
factory, would not be in line with our
principle in approving the loan."

With the foregoing letter the negotiations came

to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it requested RFC to cancel the
mortgage, and so, on June 17, 1955 RFC executed
the corresponding deed of cancellation and delivered
it to Ramon F. Saura himself as president of Saura,
Inc.
It appears that the cancellation was requested
to make way for the registration of a mortgage
contract, executed on August 6, 1954, over the same
property in favor of the Prudential Bank and Trust
Co., under which contract Saura, Inc. had up to
December 31 of the same year within which to pay its
obligation on the trust receipt heretofore mentioned.
It appears further that for failure to pay the said
obligation the Prudential Bank and Trust Co. sued
Saura, Inc. on May 15, 1955.
On January 9, 1964, almost 9 years after the
mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the
present suit for damages, alleging failure of RFC (as
predecessor of the defendant DBP) to comply with its
obligation to release the proceeds of the loan applied
for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the
plaintiff, ruling that there was a perfected contract
between the parties and that the defendant was guilty
of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause
of action had prescribed, or that its claim had been
waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff
itself did not comply with the terms thereof.
We hold that there was indeed a perfected
consensual contract, as recognized in Article 1934 of
the Civil Code, which provides:
 "ART. 1934. An accepted promise
to deliver something by way of
commodatum or simple loan is binding
upon the parties, but the commodatum or
simple loan itself shall not be perfected
until the delivery of the object of the
contract."

There was undoubtedly offer and acceptance

in this case: the application of Saura, Inc. for a loan
of P500,000.00 was approved by resolution of the
defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short
of resolving the basic claim that the defendant failed
to fulfill its obligation and that the plaintiff is therefore
entitled to recover damages.
It should be noted that RFC entertained the
loan application of Saura, Inc. on the assumption that
the factory to be constructed would utilize locally
grown raw materials, principally kenaf. There is no
serious dispute about this. It was in line with such
assumption that when RFC, by Resolution No. 9033
approved on December 17, 1954, restored the loan
to the original amount of P500,000.00, it imposed two
conditions, to wit: "(1) that the raw materials needed
by the borrower-corporation to carry out its operation
are available in the immediate vicinity; and (2) that
there is prospect of increased production thereof to
provide adequately for the requirements of the
factory." The imposition of those conditions was by no
means a deviation from the terms of the agreement,
but rather a step in its implementation. There was
nothing in said conditions that contradicted the terms
laid down in RFC Resolution No. 145, passed on
January 7, 1954, namely — "that the proceeds of the
loan shall be utilized exclusively for the following
purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase
price of machinery and equipment — P240,900.00;
for working capital — P9,100.00." Evidently Saura,
Inc. realized that it could not meet the conditions
required by RFC, and so wrote its letter of January
21, 1955, stating that local jute "will not be available
in sufficient quantity this year or probably next year,"
and asking that out of the loan agreed upon the sum
of P67,586.09 be released "for raw materials and
labor." This was a deviation from the terms laid down
in Resolution No. 145 and embodied in the mortgage
contract, implying as it did a diversion of part of the
proceeds of the loan to purposes other than those
agreed upon.
When RFC turned down the request in its letter
of January 25, 1955 the negotiations which had been
going on for the implementation of the agreement
reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead
of doing so and insisting that the loan be released as
agreed upon, Saura, Inc. asked that the mortgage be
cancelled, which was done on June 15, 1955. The
action thus taken by both parties was in the nature of
mutual desistance — what Manresa terms "mutuo
disenso" 1 — which is a mode of extinguishing
obligations. It is a concept that derives from the
principle that since mutual agreement can create a
contract, mutual disagreement by the parties can
cause its extinguishment. 2
The subsequent conduct of Saura, Inc.
confirms this desistance. It did not protest against any
alleged breach of contract by RFC, or even point out
that the latter's stand was legally unjustified. Its
request for cancellation of the mortgage carried no
reservation of whatever rights it believed it might have
against RFC for the latter's noncompliance. In 1962 it
even applied with DBP for another loan to finance a
rice and corn project, which application was
disapproved. It was only in 1964, nine years after the
loan agreement had been cancelled at its own
request, that Saura, Inc. brought this action for
damages. All these circumstances demonstrate
beyond doubt that the said agreement had been
extinguished by mutual desistance — and that on the
initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it
unnecessary to consider and resolve the other issues
raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is
reversed and the complaint dismissed, with costs
against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando,
Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.

(Saura Import & Export Co., Inc. v. Development Bank of

|||

the Phils., G.R. No. L-24968, [April 27, 1972], 150-A PHIL
251-261)

SECOND DIVISION
[G.R. No. 133632. February 15, 2002.]
BPI INVESTMENT CORPORATION, petitioner, vs. HON.
COURT OF APPEALS and ALS MANAGEMENT &
DEVELOPMENT CORPORATION, respondents.
Benedicto Tale Versoza & Associates for petitioner.
Vicente B. Chuidian for private respondent.
SYNOPSIS
The appellate court affirmed the judgment of the
Regional Trial Court of Pasig City in a case for foreclosure of
mortgage by petitioner BPI Investment Corporation (BPIIC for
brevity) against private respondents ALS Management and
Development Corporation and Antonio K. Litonjua,
consolidated with Civil Case No. 52093, for damages with
prayer for the issuance of a writ of preliminary injunction by
the private respondents against said petitioner. The trial court
held that private respondents were not in default in the
payment of their monthly amortization, hence, the
extrajudicial foreclosure conducted by BPIIC was premature
and made in bad faith. In the instant petition, petitioner
contended that the Court of Appeals erred in ruling that
because a simple loan is perfected upon the delivery of the
object of the contract, the loan contract in this case was
perfected only on September 13, 1982. Petitioner claimed
that a contract of loan is a consensual contract, and a loan
contract is perfected at the time the contract of mortgage is
executed conformably with the Court's ruling in Bonnevie v.
Court of Appeals. In the present case, the loan contract was
perfected on March 31, 1981, the date when the mortgage
deed was executed, hence, the amortization and interests on
the loan should be computed from said date.
The Supreme Court affirmed the judgment of the Court
of Appeals with modification as to the damages. The Court
ruled that a loan contract is not a consensual contract but a
real contract. It is perfected only upon the delivery of the
object of the contract. Petitioner misapplied Bonnevie. The
contract in Bonnevie declared by the Court as a perfected
consensual contract falls under the first clause of Article
1934, Civil Code. It is an accepted promise to deliver
something by way of simple loan. In the present case, the
loan contract between BPI, on the one hand, and ALS and
Litonjua, on the other, was perfected only on September 13,
1982, the date of the second release of the loan. Following
the intentions of the parties on the commencement of the
monthly amortization, as found by the Court of Appeals,
private respondents' obligation to pay commenced only on
October 13, 1982, a month after the perfection of the contract.
SYLLABUS
1. CIVIL LAW; CONTRACTS; LOAN; NOT A
CONSENSUAL CONTRACT BUT A REAL CONTRACT; IT
IS PERFECTED ONLY UPON DELIVERY OF THE OBJECT
OF THE CONTRACT; CASE AT BAR. — A loan contract is
not a consensual contract but a real contract. It is perfected
only upon the delivery of the object of the contract. Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by
this Court as a perfected consensual contract falls under the
first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan. In Saura
Import and Export Co. Inc. vs. Development Bank of the
Philippines, 44 SCRA 445, petitioner applied for a loan of
P500,000 with respondent bank. The latter approved the
application through a board resolution. Thereafter, the
corresponding mortgage was executed and registered.
However, because of acts attributable to petitioner, the loan
was not released. Later, petitioner instituted an action for
damages. We recognized in this case, a perfected
consensual contract which under normal circumstances
could have made the bank liable for not releasing the loan.
However, since the fault was attributable to petitioner therein,
the court did not award it damages. A perfected consensual
contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real
contract of loan which requires the delivery of the object of
the contract for its perfection and which gives rise to
obligations only on the part of the borrower. In the present
case, the loan contract between BPI, on the one hand, and
ALS and Litonjua, on the other, was perfected only on
September 13, 1982, the date of the second release of the
loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the
Court of Appeals, private respondents' obligation to pay
commenced only on October 13, 1982, a month after the
perfection of the contract.
2. ID.; ID.; ID.; INVOLVES RECIPROCAL
OBLIGATION WHEREIN THE OBLIGATION OR PROMISE
OF EACH PARTY IS THE CONSIDERATION FOR THAT OF
THE OTHER. — We also agree with private respondents that
a contract of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration for
that of the other. As averred by private respondents, the
promise of BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly
amortization commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic principle in
reciprocal obligations that neither party incurs in delay, if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Only when a party
has performed his part of the contract can he demand that
the other party also fulfills his own obligation and if the latter
fails, default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization after
September 13, 1982 for it was only then when it complied with
its obligation under the loan contract. Therefore, in computing
the amount due as of the date when BPIIC extrajudicially
caused the foreclosure of the mortgage, the starting date is
October 13, 1982 and not May 1, 1981. HESCcA

3. ID.; DAMAGES; NO BASIS FOR AWARD OF

MORAL AND EXEMPLARY DAMAGES; NOMINAL
DAMAGES AWARDED TO RESPONDENTS BY REASON
OF PETITIONER'S NEGLIGENCE. — As admitted by private
respondents themselves, they were irregular in their payment
of monthly amortization. Conformably with our ruling in SSS,
we can not properly declare BPIIC in bad faith. Consequently,
we should rule out the award of moral and exemplary
damages. However, in our view, BPIIC was negligent in
relying merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its records
on the amount actually released to private respondents and
the date when it was released. Such negligence resulted in
damage to private respondents, for which an award of
nominal damages should be given in recognition of their
rights which were violated by BPIIC. For this purpose, the
amount of P25,000 is sufficient.
DECISION
QUISUMBING, J : p

This petition for certiorari assails the decision dated

February 28, 1997, of the Court of Appeals and its resolution
dated April 21, 1998, in CA-G.R. CV No. 38887. The
appellate court affirmed the judgment of the Regional Trial
Court of Pasig City, Branch 151, in (a) Civil Case No. 11831,
for foreclosure of mortgage by petitioner BPI Investment
Corporation (BPIIC for brevity) against private respondents
ALS Management and Development Corporation and
Antonio K. Litonjua, 1 consolidated with (b) Civil Case No.
52093, for damages with prayer for the issuance of a writ of
preliminary injunction by the private respondents against said
petitioner.
The trial court had held that private respondents were
not in default in the payment of their monthly amortization,
hence, the extrajudicial foreclosure conducted by BPIIC was
premature and made in bad faith. It awarded private
respondents the amount of P300,000 for moral damages,
P50,000 for exemplary damages, and P50,000 for attorney's
fees and expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16¼%
per annum from Ayala Investment and Development
Corporation (AIDC), the predecessor of petitioner BPIIC, for
the construction of a house on his lot in New Alabang Village,
Muntinlupa. Said house and lot were mortgaged to AIDC to
secure the loan. Sometime in 1980, Roa sold the house and
lot to private respondents ALS and Antonio Litonjua for
P850,000. They paid P350,000 in cash and assumed the
P500,000 balance of Roa's indebtedness with AIDC. The
latter, however, was not willing to extend the old interest rate
to private respondents and proposed to grant them a new
loan of P500,000 to be applied to Roa's debt and secured by
the same property, at an interest rate of 20% per annum and
service fee of 1% per annum on the outstanding principal
balance payable within ten years in equal monthly
amortization of P9,996.58 and penalty interest at the rate of
21% per annum per day from the date the amortization
became due and payable.
Consequently, in March 1981, private respondents
executed a mortgage deed containing the above stipulations
with the provision that payment of the monthly amortization
shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roa's
arrearages by paying BPIIC the sum of P190,601.35. This
reduced Roa's principal balance to P457,204.90 which, in
turn, was liquidated when BPIIC applied thereto the proceeds
of private respondents' loan of P500,000.
On September 13, 1982, BPIIC released to private
respondents P7,146.87, purporting to be what was left of their
loan after full payment of Roa's loan.
In June 1984, BPIIC instituted foreclosure proceedings
against private respondents on the ground that they failed to
pay the mortgage indebtedness which from May 1, 1981 to
June 30, 1984, amounted to Four Hundred Seventy Five
Thousand Five Hundred Eighty Five and 31/100 Pesos
(P475,585.31). A notice of sheriff's sale was published on
August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil
Case No. 52093 against BPIIC. They alleged, among others,
that they were not in arrears in their payment, but in fact made
an overpayment as of June 30, 1984. They maintained that
they should not be made to pay amortization before the actual
release of the P500,000 loan in August and September 1982.
Further, out of the P500,000 loan, only the total amount of
P464,351.77 was released to private respondents. Hence,
applying the effects of legal compensation, the balance of
P35,648.23 should be applied to the initial monthly
amortization for the loan.
On August 31, 1988, the trial court rendered its
judgment in Civil Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby
rendered in favor of ALS Management and
Development Corporation and Antonio K.
Litonjua and against BPI Investment
Corporation, holding that the amount of loan
granted by BPI to ALS and Litonjua was only
in the principal sum of P464,351.77, with
 interest at 20% plus service charge of 1% per
annum, payable on equal monthly and
successive amortizations at P9,283.83 for ten
(10) years or one hundred twenty (120)
months. The amortization schedule attached
as Annex "A" to the "Deed of Mortgage" is
correspondingly reformed as aforestated.

The Court further finds that ALS and Litonjua suffered

compensable damages when BPI caused their publication in
a newspaper of general circulation as defaulting debtors, and
therefore orders BPI to pay ALS and Litonjua the following
sums:
a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorney's fees and expenses

of litigation.

The foreclosure suit (Civil Case No.

11831) is hereby DISMISSED for being
premature.

Costs against BPI.

 SO ORDERED. 2

Both parties appealed to the Court of Appeals.

However, private respondents' appeal was dismissed for
non-payment of docket fees.
On February 28, 1997, the Court of Appeals
promulgated its decision, the dispositive portion reads:
WHEREFORE, finding no error in the
appealed decision the same is hereby
AFFIRMED in toto.

SO ORDERED. 3

In its decision, the Court of Appeals reasoned that a

simple loan is perfected only upon the delivery of the object
of the contract. The contract of loan between BPIIC and ALS
& Litonjua was perfected only on September 13, 1982, the
date when BPIIC released the purported balance of the
P500,000 loan after deducting therefrom the value of Roa's
indebtedness. Thus, payment of the monthly amortization
should commence only a month after the said date, as can
be inferred from the stipulations in the contract. This, despite
the express agreement of the parties that payment shall
commence on May 1, 1981. From October 1982 to June
1984, the total amortization due was only P194,960.43.
Evidence showed that private respondents had an
overpayment, because as of June 1984, they already paid a
total amount of P201,791.96. Therefore, there was no basis
for BPIIC to extrajudicially foreclose the mortgage and cause
the publication in newspapers concerning private
respondents' delinquency in the payment of their loan. This
fact constituted sufficient ground for moral damages in favor
of private respondents.
The motion for reconsideration filed by petitioner BPIIC
was likewise denied, hence this petition, where BPIIC
submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN
IS A CONSENSUAL CONTRACT
IN THE LIGHT OF THE RULE LAID
DOWN IN BONNEVIE VS. COURT
OF APPEALS, 125 SCRA 122.

II. WHETHER OR NOT BPI SHOULD BE HELD

LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND
ATTORNEY'S FEES IN THE FACE
OF IRREGULAR PAYMENTS
MADE BY ALS AND OPPOSED TO
THE RULE LAID DOWN IN SOCIAL
SECURITY SYSTEM VS. COURT
OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of

Appeals erred in ruling that because a simple loan is
perfected upon the delivery of the object of the contract, the
loan contract in this case was perfected only on September
13, 1982. Petitioner claims that a contract of loan is a
consensual contract, and a loan contract is perfected at the
time the contract of mortgage is executed conformably with
our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In
the present case, the loan contract was perfected on March
31, 1981, the date when the mortgage deed was executed,
hence, the amortization and interests on the loan should be
computed from said date.
Petitioner also argues that while the documents
showed that the loan was released only on August 1982, the
loan was actually released on March 31, 1981, when BPIIC
issued a cancellation of mortgage of Frank Roa's loan. This
finds support in the registration on March 31, 1981 of the
Deed of Absolute Sale executed by Roa in favor of ALS,
transferring the title of the property to ALS, and ALS
executing the Mortgage Deed in favor of BPIIC. Moreover,
petitioner claims, the delay in the release of the loan should
be attributed to private respondents. As BPIIC only agreed to
extend a P500,000 loan, private respondents were required
to reduce Frank Roa's loan below said amount. According to
petitioner, private respondents were only able to do so in
August 1982.
In their comment, private respondents assert that
based on Article 1934 of the Civil Code, 4 a simple loan is
perfected upon the delivery of the object of the contract,
hence a real contract. In this case, even though the loan
contract was signed on March 31, 1981, it was perfected only
on September 13, 1982, when the full loan was released to
private respondents. They submit that petitioner misread
Bonnevie. To give meaning to Article 1934, according to
private respondents, Bonnevie must be construed to mean
that the contract to extend the loan was perfected on March
31, 1981 but the contract of loan itself was only perfected
upon the delivery of the full loan to private respondents on
September 13, 1982.
Private respondents further maintain that even
granting, arguendo, that the loan contract was perfected on
March 31, 1981, and their payment did not start a month
thereafter, still no default took place. According to private
respondents, a perfected loan agreement imposes reciprocal
obligations, where the obligation or promise of each party is
the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is
the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to
deliver the money. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.
Therefore, private respondents conclude, they did not incur
in delay when they did not commence paying the monthly
amortization on May 1, 1981, as it was only on September
13, 1982 when petitioner fully complied with its obligation
under the loan contract.
We agree with private respondents. A loan contract is
not a consensual contract but a real contract. It is perfected
only upon the delivery of the object of the contract. 5 Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by
this Court as a perfected consensual contract falls under the
first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development
Bank of the Philippines, 44 SCRA 445, petitioner applied for
a loan of P500,000 with respondent bank. The latter
approved the application through a board resolution.
Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner
instituted an action for damages. We recognized in this case,
a perfected consensual contract which under normal
circumstances could have made the bank liable for not
releasing the loan. However, since the fault was attributable
to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can
give rise to an action for damages. However, said contract
does not constitute the real contract of loan which requires
the delivery of the object of the contract for its perfection and
which gives rise to obligations only on the part of the
borrower. 6
In the present case, the loan contract between BPI, on
the one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of the
parties on the commencement of the monthly amortization,
as found by the Court of Appeals, private respondents'
obligation to pay commenced only on October 13, 1982, a
month after the perfection of the contract. 7
We also agree with private respondents that a contract
of loan involves a reciprocal obligation, wherein the obligation
or promise of each party is the consideration for that of the
other. 8 As averred by private respondents, the promise of
BPIIC to extend and deliver the loan is upon the consideration
that ALS and Litonjua shall pay the monthly amortization
commencing on May 1, 1981, one month after the supposed
release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does
not comply or is not ready to comply in a proper manner with
what is incumbent upon him. 9 Only when a party has
performed his part of the contract can he demand that the
other party also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only demand
for the payment of the monthly amortization after September
13, 1982 for it was only then when it complied with its
obligation under the loan contract. Therefore, in computing
the amount due as of the date when BPIIC extrajudicially
caused the foreclosure of the mortgage, the starting date is
October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the
first issue, such as the date of actual release of the loan and
whether private respondents were the cause of the delay in
the release of the loan, are factual. Since petitioner has not
shown that the instant case is one of the exceptions to the
basic rule that only questions of law can be raised in a petition
for review under Rule 45 of the Rules of Court, 10 factual
matters need not tarry us now. On these points we are bound
by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not
be held liable for moral and exemplary damages for it did not
act maliciously when it initiated the foreclosure proceedings.
It merely exercised its right under the mortgage contract
because private respondents were irregular in their monthly
amortization. It invoked our ruling in Social Security System
vs. Court of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for
moral and temperate damages. As concluded
by the Court of Appeals "the negligence of the
appellant is not so gross as to warrant moral
and temperate damages," except that, said
Court reduced those damages by only
P5,000.00 instead of eliminating them. Neither
 can we agree with the findings of both the Trial
Court and respondent Court that the SSS had
acted maliciously or in bad faith. The SSS was
of the belief that it was acting in the legitimate
exercise of its right under the mortgage
contract in the face of irregular payments
made by private respondents and placed
reliance on the automatic acceleration clause
in the contract. The filing alone of the
foreclosure application should not be a ground
for an award of moral damages in the same
way that a clearly unfounded civil action is not
among the grounds for moral damages.

Private respondents counter that BPIIC was guilty of

bad faith and should be liable for said damages because it
insisted on the payment of amortization on the loan even
before it was released. Further, it did not make the
corresponding deduction in the monthly amortization to
conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.
But as admitted by private respondents themselves,
they were irregular in their payment of monthly amortization.
Conformably with our ruling in SSS, we can not properly
declare BPIIC in bad faith. Consequently, we should rule out
the award of moral and exemplary damages. 11
However, in our view, BPIIC was negligent in relying
merely on the entries found in the deed of mortgage, without
checking and correspondingly adjusting its records on the
amount actually released to private respondents and the date
when it was released. Such negligence resulted in damage
to private respondents, for which an award of nominal
damages should be given in recognition of their rights which
were violated by BPIIC. 12 For this purpose, the amount of
P25,000 is sufficient.
Lastly, as in SSS where we awarded attorney's fees
because private respondents were compelled to litigate, we
sustain the award of P50,000 in favor of private respondents
as attorney's fees.
WHEREFORE, the decision dated February 28, 1997,
of the Court of Appeals and its resolution dated April 21,
1998, are AFFIRMED WITH MODIFICATION as to the award
of damages. The award of moral and exemplary damages in
favor of private respondents is DELETED, but the award to
them of attorney's fees in the amount of P50,000 is UPHELD.
Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against
petitioner.
ACTIcS

SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

(BPI Investment Corp. v. Court of Appeals, G.R. No.

|||

133632, [February 15, 2002], 427 PHIL 350-363)

 SPECIAL SECOND DIVISION
[G.R. No. 174269. August 25, 2010.]
POLO S. PANTALEON, petitioner, vs. AMERICAN
EXPRESS INTERNATIONAL, INC., respondent.
RESOLUTION
BRION, * J :
p

We resolve the motion for reconsideration filed

by respondent American Express International, Inc.
(AMEX) dated June 8, 2009, 1 seeking to reverse our
Decision dated May 8, 2009 where we ruled that
AMEX was guilty of culpable delay in fulfilling its
obligation to its cardholder — petitioner Polo
Pantaleon. Based on this conclusion, we held AMEX
liable for moral and exemplary damages, as well as
attorney's fees and costs of litigation. 2
FACTUAL ANTECEDENTS
 The established antecedents of the case are
narrated below.
AMEX is a resident foreign corporation
engaged in the business of providing credit services
through the operation of a charge card system.
Pantaleon has been an AMEX cardholder since 1980.
3

In October 1991, Pantaleon, together with his

wife (Julialinda), daughter (Regina), and son (Adrian
Roberto), went on a guided European tour. On
October 25, 1991, the tour group arrived in
Amsterdam. Due to their late arrival, they postponed
the tour of the city for the following day. 4
The next day, the group began their
sightseeing at around 8:50 a.m. with a trip to the
Coster Diamond House (Coster). To have enough
time for take a guided city tour of Amsterdam before
their departure scheduled on that day, the tour
group planned to leave Coster by 9:30 a.m. at the
latest.
While at Coster, Mrs. Pantaleon decided to
purchase some diamond pieces worth a total of
US$13,826.00. Pantaleon presented his American
Express credit card to the sales clerk to pay for this
purchase. He did this at around 9:15 a.m. The sales
clerk swiped the credit card and asked Pantaleon to
sign the charge slip, which was then electronically
referred to AMEX's Amsterdam office at 9:20 a.m. 5
TSaEcH
 At around 9:40 a.m., Coster had not received
approval from AMEX for the purchase so Pantaleon
asked the store clerk to cancel the sale. The store
manager, however, convinced Pantaleon to wait a
few more minutes. Subsequently, the store manager
informed Pantaleon that AMEX was asking for bank
references; Pantaleon responded by giving the
names of his Philippine depository banks.
At around 10 a.m., or 45 minutes after
Pantaleon presented his credit card, AMEX still had
not approved the purchase. Since the city tour could
not begin until the Pantaleons were onboard the tour
bus, Coster decided to release at around 10:05 a.m.
the purchased items to Pantaleon even without
AMEX's approval.
When the Pantaleons finally returned to the
tour bus, they found their travel companions visibly
irritated. This irritation intensified when the tour guide
announced that they would have to cancel the tour
because of lack of time as they all had to be in Calais,
Belgium by 3 p.m. to catch the ferry to London. 6
From the records, it appears that after
Pantaleon's purchase was transmitted for approval to
AMEX's Amsterdam office at 9:20 a.m.; was referred
to AMEX's Manila office at 9:33 a.m.; and was
approved by the Manila office at 10:19 a.m. At 10:38
a.m., AMEX's Manila office finally transmitted the
Approval Code to AMEX's Amsterdam office. In all, it
took AMEX a total of 78 minutes to approve
Pantaleon's purchase and to transmit the
approval to the jewelry store. 7
After the trip to Europe, the Pantaleon family
proceeded to the United States. Again, Pantaleon
experienced delay in securing approval for purchases
using his American Express credit card on two
separate occasions. He experienced the first delay
when he wanted to purchase golf equipment in the
amount of US$1,475.00 at the Richard Metz Golf
Studio in New York on October 30, 1991. Another
delay occurred when he wanted to purchase
children's shoes worth US$87.00 at the Quiency
Market in Boston on November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a
letter demanding an apology for the humiliation and
inconvenience he and his family experienced due to
the delays in obtaining approval for his credit card
purchases. AMEX responded by explaining that the
delay in Amsterdam was due to the amount involved
— the charged purchase of US$13,826.00 deviated
from Pantaleon's established charge purchase
pattern. Dissatisfied with this explanation, Pantaleon
filed an action for damages against the credit card
company with the Makati City Regional Trial Court
(RTC).
On August 5, 1996, the RTC found AMEX guilty
of delay, and awarded Pantaleon P500,000.00 as
moral damages, P300,000.00 as exemplary
damages, P100,000.00 as attorney's fees, and
P85,233.01 as litigation expenses.
 On appeal, the CA reversed the awards. 8
While the CA recognized that delay in the nature of
mora accipiendi or creditor's default attended AMEX's
approval of Pantaleon's purchases, it disagreed with
the RTC's finding that AMEX had breached its
contract, noting that the delay was not attended by
bad faith, malice or gross negligence. The appellate
court found that AMEX exercised diligent efforts to
effect the approval of Pantaleon's purchases; the
purchase at Coster posed particularly a problem
because it was at variance with Pantaleon's
established charge pattern. As there was no proof
that AMEX breached its contract, or that it acted in a
wanton, fraudulent or malevolent manner, the
appellate court ruled that AMEX could not be held
liable for any form of damages. SaDICE

Pantaleon questioned this decision via a

petition for review on certiorari with this Court.
In our May 8, 2009 decision, we reversed the
appellate court's decision and held that AMEX was
guilty of mora solvendi, or debtor's default. AMEX, as
debtor, had an obligation as the credit provider to act
on Pantaleon's purchase requests, whether to
approve or disapprove them, with "timely dispatch."
Based on the evidence on record, we found that
AMEX failed to timely act on Pantaleon's purchases.
Based on the testimony of AMEX's credit
authorizer Edgardo Jaurique, the approval time for
credit card charges would be three to four seconds
under regular circumstances. In Pantaleon's case, it
took AMEX 78 minutes to approve the Amsterdam
purchase. We attributed this delay to AMEX's Manila
credit authorizer, Edgardo Jaurique, who had to go
over Pantaleon's past credit history, his payment
record and his credit and bank references before he
approved the purchase. Finding this delay
unwarranted, we reinstated the RTC decision and
awarded Pantaleon moral and exemplary damages,
as well as attorney's fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues
that this Court erred when it found AMEX guilty of
culpable delay in complying with its obligation to act
with timely dispatch on Pantaleon's purchases. While
AMEX admits that it normally takes seconds to
approve charge purchases, it emphasizes that
Pantaleon experienced delay in Amsterdam because
his transaction was not a normal one. To recall,
Pantaleon sought to charge in a single transaction
jewelry items purchased from Coster in the total
amount of US$13,826.00 or P383,746.16. While the
total amount of Pantaleon's previous purchases using
his AMEX credit card did exceed US$13,826.00,
AMEX points out that these purchases were made in
a span of more than 10 years, not in a single
transaction.
Because this was the biggest single
transaction that Pantaleon ever made using his
AMEX credit card, AMEX argues that the transaction
necessarily required the credit authorizer to carefully
review Pantaleon's credit history and bank
references. AMEX maintains that it did this not only
to ensure Pantaleon's protection (to minimize the
possibility that a third party was fraudulently using his
credit card), but also to protect itself from the risk that
Pantaleon might not be able to pay for his purchases
on credit. This careful review, according to AMEX, is
also in keeping with the extraordinary degree of
diligence required of banks in handling its
transactions. AMEX concluded that in these lights,
the thorough review of Pantaleon's credit record was
motivated by legitimate concerns and could not be
evidence of any ill will, fraud, or negligence by AMEX.
AMEX further points out that the proximate
cause of Pantaleon's humiliation and embarrassment
was his own decision to proceed with the purchase
despite his awareness that the tour group was waiting
for him and his wife. Pantaleon could have prevented
the humiliation had he cancelled the sale when he
noticed that the credit approval for the Coster
purchase was unusually delayed.
In his Comment dated February 24, 2010,
Pantaleon maintains that AMEX was guilty of mora
solvendi, or delay on the part of the debtor, in
complying with its obligation to him. Based on
jurisprudence, a just cause for delay does not relieve
the debtor in delay from the consequences of delay;
thus, even if AMEX had a justifiable reason for the
delay, this reason would not relieve it from the liability
arising from its failure to timely act on Pantaleon's
purchase. HESAIT
 In response to AMEX's assertion that the delay
was in keeping with its duty to perform its obligation
with extraordinary diligence, Pantaleon claims that
this duty includes the timely or prompt performance
of its obligation.
As to AMEX's contention that moral or
exemplary damages cannot be awarded absent a
finding of malice, Pantaleon argues that evil motive or
design is not always necessary to support a finding of
bad faith; gross negligence or wanton disregard of
contractual obligations is sufficient basis for the
award of moral and exemplary damages.
OUR RULING
We GRANT the motion for reconsideration.
Brief historical background
A credit card is defined as "any card, plate,
coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor
or services or anything of value on credit." 9 It traces
its roots to the charge card first introduced by the
Diners Club in New York City in 1950. 10 American
Express followed suit by introducing its own charge
card to the American market in 1958. 11
In the Philippines, the now defunct Pacific Bank
was responsible for bringing the first credit card into
the country in the 1970s. 12 However, it was only in
the early 2000s that credit card use gained wide
acceptance in the country, as evidenced by the surge
in the number of credit card holders then. 13
Nature of Credit Card Transactions
To better understand the dynamics involved in
credit card transactions, we turn to the United States
case of Harris Trust & Savings Bank v. McCray 14
which explains:
The bank credit card system involves a
tripartite relationship between the issuer bank,
the cardholder, and merchants participating in
the system. The issuer bank establishes an
account on behalf of the person to whom the
card is issued, and the two parties enter into
an agreement which governs their
relationship. This agreement provides that the
bank will pay for cardholder's account the
amount of merchandise or services purchased
through the use of the credit card and will also
make cash loans available to the cardholder.
It also states that the cardholder shall be liable
to the bank for advances and payments made
by the bank and that the cardholder's
obligation to pay the bank shall not be affected
or impaired by any dispute, claim, or demand
by the cardholder with respect to any
merchandise or service purchased.

The merchants participating in the

system agree to honor the bank's credit cards.
The bank irrevocably agrees to honor and pay
the sales slips presented by the merchant if
the merchant performs his undertakings such
 as checking the list of revoked cards before
accepting the card. . . . . EcATDH

These slips are forwarded to the

member bank which originally issued the card.
The cardholder receives a statement from the
bank periodically and may then decide
whether to make payment to the bank in full
within a specified period, free of interest, or to
defer payment and ultimately incur an interest
charge.

We adopted a similar view in CIR v. American

Express International, Inc. (Philippine branch), 15
where we also recognized that credit card issuers are
not limited to banks. We said:
Under RA 8484, the credit card that is
issued by banks in general, or by non-banks in
particular, refers to "any card . . . or other credit
device existing for the purpose of obtaining . .
. goods . . . or services . . . on credit;" and is
being used "usually on a revolving basis." This
means that the consumer-credit arrangement
that exists between the issuer and the holder
of the credit card enables the latter to procure
goods or services "on a continuing basis as
long as the outstanding balance does not
exceed a specified limit." The card holder is,
therefore, given "the power to obtain present
 control of goods or service on a promise to pay
for them in the future."

Business establishments may extend

credit sales through the use of the credit card
facilities of a non-bank credit card company to
avoid the risk of uncollectible accounts from
their customers. Under this system, the
establishments do not deposit in their bank
accounts the credit card drafts that arise from
the credit sales. Instead, they merely record
their receivables from the credit card company
and periodically send the drafts evidencing
those receivables to the latter.

The credit card company, in turn, sends

checks as payment to these business
establishments, but it does not redeem the
drafts at full price. The agreement between
them usually provides for discounts to be
taken by the company upon its redemption of
the drafts. At the end of each month, it then
bills its credit card holders for their respective
drafts redeemed during the previous month. If
the holders fail to pay the amounts owed, the
company sustains the loss.

Simply put, every credit card transaction

involves three contracts, namely: (a) the sales
contract between the credit card holder and the
 merchant or the business establishment which
accepted the credit card; (b) the loan agreement
between the credit card issuer and the credit card
holder; and lastly, (c) the promise to pay between
the credit card issuer and the merchant or business
establishment. 16
Credit card issuer — cardholder
relationship
When a credit card company gives the holder
the privilege of charging items at establishments
associated with the issuer, 17 a necessary question in
a legal analysis is — when does this relationship
begin? There are two diverging views on the matter.
In City Stores Co. v. Henderson, 18 another U.S.
decision, held that:
The issuance of a credit card is but an
offer to extend a line of open account credit. It
is unilateral and supported by no
consideration. The offer may be withdrawn at
any time, without prior notice, for any reason
or, indeed, for no reason at all, and its
withdrawal breaches no duty — for there is no
duty to continue it — and violates no rights. DcTAIH

Thus, under this view, each credit card transaction is

considered a separate offer and acceptance.
Novack v. Cities Service Oil Co. 19 echoed this view, with
the court ruling that the mere issuance of a credit card did
not create a contractual relationship with the cardholder.
 On the other end of the spectrum is Gray v.
American Express Company 20 which recognized the
card membership agreement itself as a binding
contract between the credit card issuer and the card
holder. Unlike in the Novack and the City Stores
cases, however, the cardholder in Gray paid an
annual fee for the privilege of being an American
Express cardholder.
In our jurisdiction, we generally adhere to the
Gray ruling, recognizing the relationship between the
credit card issuer and the credit card holder as a
contractual one that is governed by the terms and
conditions found in the card membership agreement.
21 This contract provides the rights and liabilities of a
credit card company to its cardholders and vice
versa.
We note that a card membership agreement is
a contract of adhesion as its terms are prepared
solely by the credit card issuer, with the cardholder
merely affixing his signature signifying his adhesion
to these terms. 22 This circumstance, however, does
not render the agreement void; we have uniformly
held that contracts of adhesion are "as binding as
ordinary contracts, the reason being that the party
who adheres to the contract is free to reject it
entirely." 23 The only effect is that the terms of the
contract are construed strictly against the party who
drafted it. 24
On AMEX's obligations to Pantaleon
 We begin by identifying the two privileges that
Pantaleon assumes he is entitled to with the issuance
of his AMEX credit card, and on which he anchors his
claims. First, Pantaleon presumes that since his
credit card has no pre-set spending limit, AMEX has
the obligation to approve all his charge requests.
Conversely, even if AMEX has no such obligation, at
the very least it is obliged to act on his charge
requests within a specific period of time.
i.Use of credit card a mere offer to enter into loan
agreements
Although we recognize the existence of a
relationship between the credit card issuer and the
credit card holder upon the acceptance by the
cardholder of the terms of the card membership
agreement (customarily signified by the act of the
cardholder in signing the back of the credit card), we
have to distinguish this contractual relationship
from the creditor-debtor relationship which only
arises after the credit card issuer has approved
the cardholder's purchase request. The first
relates merely to an agreement providing for credit
facility to the cardholder. The latter involves the actual
credit on loan agreement involving three contracts,
namely: the sales contract between the credit card
holder and the merchant or the business
establishment which accepted the credit card; the
loan agreement between the credit card issuer and
the credit card holder; and the promise to pay
between the credit card issuer and the merchant or
business establishment. HDIaET
 From the loan agreement perspective, the
contractual relationship begins to exist only upon the
meeting of the offer 25 and acceptance of the parties
involved. In more concrete terms, when cardholders
use their credit cards to pay for their purchases, they
merely offer to enter into loan agreements with the
credit card company. Only after the latter approves
the purchase requests that the parties enter into
binding loan contracts, in keeping with Article 1319 of
the Civil Code, which provides:
Article 1319. Consent is manifested by
the meeting of the offer and the acceptance
upon the thing and the cause which are to
constitute the contract. The offer must be
certain and the acceptance absolute. A
qualified acceptance constitutes a counter-
offer.

This view finds support in the reservation found

in the card membership agreement itself, particularly
paragraph 10, which clearly states that AMEX
"reserve[s] the right to deny authorization for any
requested Charge." By so providing, AMEX made its
position clear that it has no obligation to approve any
and all charge requests made by its card holders.
ii.AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the
purchase requests of its credit cardholders,
Pantaleon cannot claim that AMEX defaulted in its
obligation. Article 1169 of the Civil Code, which
provides the requisites to hold a debtor guilty of
culpable delay, states:
Article 1169. Those obliged to deliver
or to do something incur in delay from the time
the obligee judicially or extrajudicially
demands from them the fulfillment of their
obligation. . . . .

The three requisites for a finding of default are:

(a) that the obligation is demandable and liquidated;
(b) the debtor delays performance; and (c) the
creditor judicially or extrajudicially requires the
debtor's performance. 26
Based on the above, the first requisite is no
longer met because AMEX, by the express terms of
the credit card agreement, is not obligated to approve
Pantaleon's purchase request. Without a
demandable obligation, there can be no finding of
default.
Apart from the lack of any demandable
obligation, we also find that Pantaleon failed to make
the demand required by Article 1169 of the Civil
Code.
As previously established, the use of a credit
card to pay for a purchase is only an offer to the credit
card company to enter a loan agreement with the
credit card holder. Before the credit card issuer
 accepts this offer, no obligation relating to the
loan agreement exists between them. On the other
hand, a demand is defined as the "assertion of a legal
right; . . . an asking with authority, claiming or
challenging as due." 27 A demand presupposes the
existence of an obligation between the parties. CHDaAE

Thus, every time that Pantaleon used his

AMEX credit card to pay for his purchases, what the
stores transmitted to AMEX were his offers to execute
loan contracts. These obviously could not be
classified as the demand required by law to make the
debtor in default, given that no obligation could arise
on the part of AMEX until after AMEX transmitted its
acceptance of Pantaleon's offers. Pantaleon's act of
"insisting on and waiting for the charge purchases to
be approved by AMEX" 28 is not the demand
contemplated by Article 1169 of the Civil Code.
For failing to comply with the requisites of
Article 1169, Pantaleon's charge that AMEX is guilty
of culpable delay in approving his purchase requests
must fail.
iii.On AMEX's obligation to act on the offer within a
specific period of time
Even assuming that AMEX had the right to
review his credit card history before it approved his
purchase requests, Pantaleon insists that AMEX had
an obligation to act on his purchase requests, either
to approve or deny, in "a matter of seconds" or "in
timely dispatch." Pantaleon impresses upon us the
existence of this obligation by emphasizing two
points: (a) his card has no pre-set spending limit; and
(b) in his twelve years of using his AMEX card, AMEX
had always approved his charges in a matter of
seconds.
Pantaleon's assertions fail to convince us.
We originally held that AMEX was in culpable
delay when it acted on the Coster transaction, as well
as the two other transactions in the United States
which took AMEX approximately 15 to 20 minutes to
approve. This conclusion appears valid and
reasonable at first glance, comparing the time it took
to finally get the Coster purchase approved (a total of
78 minutes), to AMEX's "normal" approval time of
three to four seconds (based on the testimony of
Edgardo Jaurigue, as well as Pantaleon's previous
experience). We come to a different result, however,
after a closer look at the factual and legal
circumstances of the case.
AMEX's credit authorizer, Edgardo Jaurigue,
explained that having no pre-set spending limit in a
credit card simply means that the charges made by
the cardholder are approved based on his ability to
pay, as demonstrated by his past spending, payment
patterns, and personal resources. 29 Nevertheless,
every time Pantaleon charges a purchase on his
credit card, the credit card company still has to
determine whether it will allow this charge, based
on his past credit history. This right to review a card
holder's credit history, although not specifically set
out in the card membership agreement, is a
necessary implication of AMEX's right to deny
authorization for any requested charge.
As for Pantaleon's previous experiences with
AMEX (i.e., that in the past 12 years, AMEX has
always approved his charge requests in three or four
seconds), this record does not establish that
Pantaleon had a legally enforceable obligation to
expect AMEX to act on his charge requests within a
matter of seconds. For one, Pantaleon failed to
present any evidence to support his assertion that
AMEX acted on purchase requests in a matter of
three or four seconds as an established practice.
More importantly, even if Pantaleon did prove that
AMEX, as a matter of practice or custom, acted on its
customers' purchase requests in a matter of seconds,
this would still not be enough to establish a legally
demandable right; as a general rule, a practice or
custom is not a source of a legally demandable or
enforceable right. 30
ICAcHE

We next examine the credit card membership

agreement, the contract that primarily governs the
relationship between AMEX and Pantaleon.
Significantly, there is no provision in this
agreement that obligates AMEX to act on all
cardholder purchase requests within a
specifically defined period of time. Thus,
regardless of whether the obligation is worded was to
"act in a matter of seconds" or to "act in timely
dispatch," the fact remains that no obligation exists
on the part of AMEX to act within a specific period of
 time. Even Pantaleon admits in his testimony that he
could not recall any provision in the Agreement that
guaranteed AMEX's approval of his charge requests
within a matter of minutes. 31
Nor can Pantaleon look to the law or
government issuances as the source of AMEX's
alleged obligation to act upon his credit card
purchases within a matter of seconds. As the
following survey of Philippine law on credit card
transactions demonstrates, the State does not
require credit card companies to act upon its
cardholders' purchase requests within a specific
period of time.
Republic Act No. 8484 (RA 8484), or the Access Devices
Regulation Act of 1998, approved on February 11, 1998, is
the controlling legislation that regulates the issuance and
use of access devices, 32 including credit cards. The more
salient portions of this law include the imposition of the
obligation on a credit card company to disclose certain
important financial information 33 to credit card applicants,
as well as a definition of the acts that constitute access
device fraud.
As financial institutions engaged in the
business of providing credit, credit card companies
fall under the supervisory powers of the Bangko
Sentral ng Pilipinas (BSP). 34 BSP Circular No. 398
dated August 21, 2003 embodies the BSP's policy
when it comes to credit cards —
The Bangko Sentral ng Pilipinas (BSP)
shall foster the development of consumer
 credit through innovative products such as
credit cards under conditions of fair and
sound consumer credit practices. The BSP
likewise encourages competition and
transparency to ensure more efficient delivery
of services and fair dealings with customers.
(Emphasis supplied)

Based on this Circular, ". . . [b]efore issuing

credit cards, banks and/or their subsidiary credit card
companies must exercise proper diligence by
ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their
credit commitments." 35 As the above-quoted policy
expressly states, the general intent is to foster "fair
and sound consumer credit practices."
Other than BSP Circular No. 398, a related
circular is BSP Circular No. 454, issued on
September 24, 2004, but this circular merely
enumerates the unfair collection practices of credit
card companies — a matter not relevant to the issue
at hand. DaCTcA

In light of the foregoing, we find and so hold

that AMEX is neither contractually bound nor legally
obligated to act on its cardholders' purchase requests
within any specific period of time, much less a period
of a "matter of seconds" that Pantaleon uses as his
standard. The standard therefore is implicit and, as in
all contracts, must be based on fairness and
reasonableness, read in relation to the Civil Code
 provisions on human relations, as will be discussed
below.
AMEX acted with good faith
Thus far, we have already established that: (a)
AMEX had neither a contractual nor a legal obligation
to act upon Pantaleon's purchases within a specific
period of time; and (b) AMEX has a right to review a
cardholder's credit card history. Our recognition of
these entitlements, however, does not give AMEX
an unlimited right to put off action on
cardholders' purchase requests for indefinite
periods of time. In acting on cardholders' purchase
requests, AMEX must take care not to abuse its rights
and cause injury to its clients and/or third persons.
We cite in this regard Article 19, in conjunction with
Article 21, of the Civil Code, which provide:
Article 19. Every person must, in the
exercise of his rights and in the performance
of his duties, act with justice, give everyone his
due and observe honesty and good faith.

Article 21. Any person who willfully

causes loss or injury to another in a manner
that is contrary to morals, good customs or
public policy shall compensate the latter for
the damage.
 Article 19 pervades the entire legal system and
ensures that a person suffering damage in the course
of another's exercise of right or performance of duty,
should find himself without relief. 36 It sets the
standard for the conduct of all persons, whether
artificial or natural, and requires that everyone, in the
exercise of rights and the performance of obligations,
must: (a) act with justice, (b) give everyone his due,
and (c) observe honesty and good faith. It is not
because a person invokes his rights that he can do
anything, even to the prejudice and disadvantage of
another. 37
While Article 19 enumerates the standards of
conduct, Article 21 provides the remedy for the
person injured by the willful act, an action for
damages. We explained how these two provisions
correlate with each other in GF Equity, Inc. v.
Valenzona: 38
[Article 19], known to contain what is
commonly referred to as the principle of abuse
of rights, sets certain standards which must be
observed not only in the exercise of one's
rights but also in the performance of one's
duties. These standards are the following: to
act with justice; to give everyone his due; and
to observe honesty and good faith. The law,
therefore, recognizes a primordial limitation on
all rights; that in their exercise, the norms of
human conduct set forth in Article 19 must be
observed. A right, though by itself legal
because recognized or granted by law as
such, may nevertheless become the
 source of some illegality. When a right is
exercised in a manner which does not
conform with the norms enshrined in
Article 19 and results in damage to
another, a legal wrong is thereby
committed for which the wrongdoer must
be held responsible. But while Article 19 lays
down a rule of conduct for the government of
human relations and for the maintenance of
social order, it does not provide a remedy for
its violation. Generally, an action for damages
under either Article 20 or Article 21 would be
proper. CTDAaE

In the context of a credit card relationship,

although there is neither a contractual stipulation nor
a specific law requiring the credit card issuer to act on
the credit card holder's offer within a definite period of
time, these principles provide the standard by which
to judge AMEX's actions.
According to Pantaleon, even if AMEX did have
a right to review his charge purchases, it abused this
right when it unreasonably delayed the processing of
the Coster charge purchase, as well as his purchase
requests at the Richard Metz' Golf Studio and Kids'
Unlimited Store; AMEX should have known that its
failure to act immediately on charge referrals would
entail inconvenience and result in humiliation,
embarrassment, anxiety and distress to its
cardholders who would be required to wait before
closing their transactions. 39
 It is an elementary rule in our jurisdiction that
good faith is presumed and that the burden of proving
bad faith rests upon the party alleging it. 40 Although
it took AMEX some time before it approved
Pantaleon's three charge requests, we find no
evidence to suggest that it acted with deliberate intent
to cause Pantaleon any loss or injury, or acted in a
manner that was contrary to morals, good customs or
public policy. We give credence to AMEX's claim that
its review procedure was done to ensure Pantaleon's
own protection as a cardholder and to prevent the
possibility that the credit card was being fraudulently
used by a third person.
Pantaleon countered that this review
procedure is primarily intended to protect AMEX's
interests, to make sure that the cardholder making
the purchase has enough means to pay for the credit
extended. Even if this were the case, however, we do
not find any taint of bad faith in such motive. It is but
natural for AMEX to want to ensure that it will extend
credit only to people who will have sufficient means
to pay for their purchases. AMEX, after all, is running
a business, not a charity, and it would simply be
ludicrous to suggest that it would not want to earn
profit for its services. Thus, so long as AMEX
exercises its rights, performs its obligations, and
generally acts with good faith, with no intent to cause
harm, even if it may occasionally inconvenience
others, it cannot be held liable for damages.
We also cannot turn a blind eye to the
circumstances surrounding the Coster transaction
 which, in our opinion, justified the wait. In Edgardo
Jaurigue's own words:
Q 21: With reference to the transaction at the Coster
Diamond House covered by Exhibit H,
also Exhibit 4 for the defendant, the
approval came at 2:19 a.m. after the
request was relayed at 1:33 a.m., can
you explain why the approval came
after about 46 minutes, more or less?

A21: Because we have to make certain considerations

and evaluations of [Pantaleon's] past
spending pattern with [AMEX] at that
time before approving plaintiff's request
because [Pantaleon] was at that time
making his very first single charge
purchase of US$13,826 [this is below
the US$16,112.58 actually billed and
paid for by the plaintiff because the
difference was already automatically
approved by [AMEX] office in
Netherland[s] and the record of
[Pantaleon's] past spending with
[AMEX] at that time does not
favorably support his ability to pay
for such purchase. In fact, if the
foregoing internal policy of [AMEX] had
been strictly followed, the transaction
would not have been approved at all
considering that the past spending
pattern of the plaintiff with [AMEX] at
 that time does not support his ability to
pay for such purchase. 41 AHCcET

xxx xxx xxx

Q: Why did it take so long?

A: It took time to review the account on credit, so, if

there is any delinquencies [sic] of the
cardmember. There are factors on
deciding the charge itself which are
standard measures in approving the
authorization. Now in the case of Mr.
Pantaleon although his account is
single charge purchase of US$13,826.
[sic] this is below the US$16,000, plus
actually billed . . . we would have
already declined the charge outright
and asked him his bank account to
support his charge. But due to the
length of his membership as cardholder
we had to make a decision on hand. 42

As Edgardo Jaurigue clarified, the reason why

Pantaleon had to wait for AMEX's approval was
because he had to go over Pantaleon's credit card
history for the past twelve months. 43 It would certainly
be unjust for us to penalize AMEX for merely
 exercising its right to review Pantaleon's credit history
meticulously.
Finally, we said in Garciano v. Court of Appeals
that "the right to recover [moral damages] under
Article 21 is based on equity, and he who comes to
court to demand equity, must come with clean hands.
Article 21 should be construed as granting the right to
recover damages to injured persons who are not
themselves at fault." 44 As will be discussed below,
Pantaleon is not a blameless party in all this.
Pantaleon's action was the proximate
cause for his injury
Pantaleon mainly anchors his claim for moral
and exemplary damages on the embarrassment and
humiliation that he felt when the European tour group
had to wait for him and his wife for approximately 35
minutes, and eventually had to cancel the Amsterdam
city tour. After thoroughly reviewing the records of this
case, we have come to the conclusion that Pantaleon
is the proximate cause for this embarrassment and
humiliation.
As borne by the records, Pantaleon knew even
before entering Coster that the tour group would have
to leave the store by 9:30 a.m. to have enough time
to take the city tour of Amsterdam before they left the
country. After 9:30 a.m., Pantaleon's son, who had
boarded the bus ahead of his family, returned to the
store to inform his family that they were the only ones
not on the bus and that the entire tour group was
waiting for them. Significantly, Pantaleon tried to
cancel the sale at 9:40 a.m. because he did not
want to cause any inconvenience to the tour
group. However, when Coster's sale manager asked
him to wait a few more minutes for the credit card
approval, he agreed, despite the knowledge that he
had already caused a 10-minute delay and that the
city tour could not start without him.
In Nikko Hotel Manila Garden v. Reyes, 45 we
ruled that a person who knowingly and voluntarily
exposes himself to danger cannot claim damages for
the resulting injury: DaAETS

The doctrine of volenti non fit injuria ("to

which a person assents is not esteemed in law
as injury") refers to self-inflicted injury or to the
consent to injury which precludes the recovery
of damages by one who has knowingly and
voluntarily exposed himself to danger, even if
he is not negligent in doing so.

This doctrine, in our view, is wholly applicable

to this case. Pantaleon himself testified that the most
basic rule when travelling in a tour group is that you
must never be a cause of any delay because the
schedule is very strict. 46 When Pantaleon made up
his mind to push through with his purchase, he must
have known that the group would become annoyed
and irritated with him. This was the natural,
foreseeable consequence of his decision to make
them all wait.
 We do not discount the fact that Pantaleon and
his family did feel humiliated and embarrassed when
they had to wait for AMEX to approve the Coster
purchase in Amsterdam. We have to acknowledge,
however, that Pantaleon was not a helpless victim in
this scenario — at any time, he could have cancelled
the sale so that the group could go on with the city
tour. But he did not.
More importantly, AMEX did not violate any
legal duty to Pantaleon under the circumstances
under the principle of damnum absque injuria, or
damages without legal wrong, loss without injury. 47
As we held in BPI Express Card v. CA: 48 DECSIT

We do not dispute the findings of the

lower court that private respondent suffered
damages as a result of the cancellation of his
credit card. However, there is a material
distinction between damages and injury. Injury
is the illegal invasion of a legal right; damage
is the loss, hurt, or harm which results from the
injury; and damages are the recompense or
compensation awarded for the damage
suffered. Thus, there can be damage
without injury in those instances in which
the loss or harm was not the result of a
violation of a legal duty. In such cases, the
consequences must be borne by the
injured person alone, the law affords no
remedy for damages resulting from an act
which does not amount to a legal injury or
wrong. These situations are often called
damnum absque injuria.
 In other words, in order that a plaintiff
may maintain an action for the injuries of which
he complains, he must establish that such
injuries resulted from a breach of duty which
the defendant owed to the plaintiff — a
concurrence of injury to the plaintiff and legal
responsibility by the person causing it. The
underlying basis for the award of tort
damages is the premise that an individual
was injured in contemplation of law. Thus,
there must first be a breach of some duty and
the imposition of liability for that breach before
damages may be awarded; and the breach of
such duty should be the proximate cause of
the injury.

Pantaleon is not entitled to damages

Because AMEX neither breached its contract
with Pantaleon, nor acted with culpable delay or the
willful intent to cause harm, we find the award of
moral damages to Pantaleon unwarranted.
Similarly, we find no basis to award exemplary
damages. In contracts, exemplary damages can only
be awarded if a defendant acted "in a wanton,
fraudulent, reckless, oppressive or malevolent
manner." 49 The plaintiff must also show that he is
entitled to moral, temperate, or compensatory
damages before the court may consider the question
of whether or not exemplary damages should be
awarded. 50
 As previously discussed, it took AMEX some
time to approve Pantaleon's purchase requests
because it had legitimate concerns on the amount
being charged; no malicious intent was ever
established here. In the absence of any other
damages, the award of exemplary damages clearly
lacks legal basis.
Neither do we find any basis for the award of
attorney's fees and costs of litigation. No premium
should be placed on the right to litigate and not every
winning party is entitled to an automatic grant of
attorney's fees. 51 To be entitled to attorney's fees and
litigation costs, a party must show that he falls under
one of the instances enumerated in Article 2208 of
the Civil Code.52 This, Pantaleon failed to do. Since
we eliminated the award of moral and exemplary
damages, so must we delete the award for attorney's
fees and litigation expenses.
Lastly, although we affirm the result of the CA
decision, we do so for the reasons stated in this
Resolution and not for those found in the CA decision.
HTcDEa

WHEREFORE, premises considered, we SET ASIDE our

May 8, 2009 Decision and GRANT the present motion for
reconsideration. The Court of Appeals Decision dated
August 18, 2006 is hereby AFFIRMED. No costs.
SO ORDERED.
Carpio Morales, Velasco, Jr., Leonardo-de Castro and
Bersamin, JJ., concur.
 (Pantaleon v. American Express International, Inc., G.R.
|||

No. 174269 (Resolution), [August 25, 2010], 643 PHIL 488-

519)
 SECOND DIVISION
[G.R. No. 115324. February 19, 2003.]
PRODUCERS BANK OF THE PHILIPPINES (now FIRST
INTERNATIONAL BANK), petitioner, vs. HON. COURT OF
APPEALS AND FRANKLIN VIVES, respondents.
Domingo & Dizon for petitioner.
Mauricio Law Office for private respondent.
SYNOPSIS
Upon request of a friend, Franklin Vives
accommodated Arturo Doronilla by opening a savings
account for Sterela Marketing, in coordination with Producer's
Bank assistant branch manager, Rufo Atienza. The purpose
was for incorporation, and the agreement was that the money
would not be removed from Sterela's savings account and
returned to Vives after thirty (30) days. Later, however, part
of the money had been withdrawn by Doronilla who also
opened a current account and authorized the bank to debit
the savings account to cover overdrawing in the current
account. Vives filed a case for recovery of sum of money and
both the trial court and the appellate court ruled on the
solidary liability of Producers Bank to Vives. Hence, this
appeal. IDSEAH

The Court affirmed the appealed decision. Under Art.

2180 of the Civil Code, employers shall be held liable for
damages caused by their employees acting within the scope
of their assigned tasks. The Bank, through its employee
Atienza, was partly responsible for the loss of Vives' money
and is liable for its restitution. That despite limitation on the
savings account passbook issued to Mrs. Vives on behalf of
Sterela, Doronilla was allowed to withdraw several times
without presentation of a passbook as required.
SYLLABUS
 1. REMEDIAL LAW; EVIDENCE; FACTUAL
FINDINGS OF THE TRIAL COURT ADOPTED BY THE
APPELLATE COURT, RESPECTED. — At the outset, it must
be emphasized that only questions of law may be raised in a
petition for review filed with this Court. The Court has
repeatedly held that it is not its function to analyze and weigh
all over again the evidence presented by the parties during
trial. The Court's jurisdiction is in principle limited to reviewing
errors of law that might have been committed by the Court of
Appeals. Moreover, factual findings of courts, when adopted
and confirmed by the Court of Appeals, are final and
conclusive on this Court unless these findings are not
supported by the evidence on record. There is no showing of
any misapprehension of facts on the part of the Court of
Appeals in the case at bar that would require this Court to
review and overturn the factual findings of that court,
especially since the conclusions of fact of the Court of
Appeals and the trial court are not only consistent but are also
amply supported by the evidence on record.
2. CIVIL LAW; SPECIAL CONTRACTS; LOAN;
MUTUUM AND COMMODATUM, DISTINGUISHED. —
Article 1933 of the Civil Code distinguishes between the two
kinds of loans in this wise: By the contract of loan, one of the
parties delivers to another, either something not consumable
so that the latter may use the same for a certain time and
return it, in which case the contract is called a commodatum;
or money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid,
in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous. Simple loan may be
gratuitous or with a stipulation to pay interest. In
commodatum, the bailor retains the ownership of the thing
loaned, while in simple loan, ownership passes to the
borrower. The foregoing provision seems to imply that if the
subject of the contract is a consumable thing, such as money,
the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object,
as when it is merely for exhibition. Thus, if consumable goods
are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to
have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be
accorded primordial consideration in determining the actual
character of a contract. In case of doubt, the
contemporaneous and subsequent acts of the parties shall
be considered in such determination.
3. ID.; ID.; ID.; ADDITIONAL AMOUNT PAID TO
ORIGINAL AMOUNT LOANED AS INTEREST DID NOT
CONVERT AGREEMENT OF COMMODATUM TO
MUTUUM. — Doronilla's attempts to return to private
respondent the amount of P200,000.00 which the latter
deposited in Sterela's account together with an additional
P12,000.00, allegedly representing interest on the mutuum,
did not convert the transaction from a commodatum into a
mutuum because such was not the intent of the parties and
because the additional P12,000.00 corresponds to the fruits
of the lending of the P200,000.00. Article 1935 of the Civil
Code expressly states that "[t]he bailee in commodatum
acquires the use of the thing loaned but not its fruits." Hence,
it was only proper for Doronilla to remit to private respondent
the interest accruing to the latter's money deposited with
petitioner.
4. ID.; EXTRA-CONTRACTUAL OBLIGATIONS;
QUASI-DELICTS; EMPLOYERS LIABLE FOR DAMAGES
CAUSED BY EMPLOYEES ACTING WITHIN THE SCOPE
OF THEIR ASSIGNED TASKS. — Under Article 2180 of the
Civil Code, employers shall be held primarily and solidarily
liable for damages caused by their employees acting within
the scope of their assigned tasks. To hold the employer liable
under this provision, it must be shown that an employer-
employee relationship exists, and that the employee was
acting within the scope of his assigned task when the act
complained of was committed. Case law in the United States
of America has it that a corporation that entrusts a general
duty to its employee is responsible to the injured party for
damages flowing from the employee's wrongful act done in
the course of his general authority, even though in doing such
act, the employee may have failed in its duty to the employer
and disobeyed the latter's instructions. ACTEHI

DECISION
CALLEJO, SR., J : p

This is a petition for review on certiorari of the Decision

1 of the Court of Appeals dated June 25, 1991 in CA-G.R. CV
No. 11791 and of its Resolution 2 dated May 5, 1994, denying
the motion for reconsideration of said decision filed by
petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives
was asked by his neighbor and friend Angeles Sanchez to
help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and
Services ("Sterela" for brevity). Specifically, Sanchez asked
private respondent to deposit in a bank a certain amount of
money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could
withdraw his money from said account within a month's time.
Private respondent asked Sanchez to bring Doronilla to their
house so that they could discuss Sanchez's request. 3
On May 9, 1979, private respondent, Sanchez,
Doronilla and a certain Estrella Dumagpi, Doronilla's private
secretary, met and discussed the matter. Thereafter, relying
on the assurances and representations of Sanchez and
Doronilla, private respondent issued a check in the amount of
Two Hundred Thousand Pesos (P200,000.00) in favor of
Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompany Doronilla and Sanchez in
opening a savings account in the name of Sterela in the
Buendia, Makati branch of Producers Bank of the Philippines.
However, only Sanchez, Mrs. Vives and Dumagpi went to the
bank to deposit the check. They had with them an
authorization letter from Doronilla authorizing Sanchez and
her companions, "in coordination with Mr. Rufo Atienza," to
open an account for Sterela Marketing Services in the
amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles
Sanchez. A passbook for Savings Account No. 10-1567 was
thereafter issued to Mrs. Vives. 4
Subsequently, private respondent learned that Sterela
was no longer holding office in the address previously given
to him. Alarmed, he and his wife went to the Bank to verify if
their money was still intact. The bank manager referred them
to Mr. Rufo Atienza, the assistant manager, who informed
them that part of the money in Savings Account No. 10-1567
had been withdrawn by Doronilla, and that only P90,000.00
remained therein. He likewise told them that Mrs. Vives could
not withdraw said remaining amount because it had to
answer for some postdated checks issued by Doronilla.
According to Atienza, after Mrs. Vives and Sanchez opened
Savings Account No. 10-1567, Doronilla opened Current
Account No. 10-0320 for Sterela and authorized the Bank to
debit Savings; Account No. 10-1567 for the amounts
necessary to cover overdrawings in Current Account No. 10-
0320. In opening said current account, Sterela, through
Doronilla, obtained a loan of P175,000.00 from the Bank. To
cover payment thereof, Doronilla issued three postdated
checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings
Account No. 10-1567 because he was the sole proprietor of
Sterela. 5
Private respondent tried to get in touch with Doronilla
through Sanchez. On June 29, 1979, he received a letter from
Doronilla, assuring him that his money was intact and would
be returned to him. On August 13, 1979, Doronilla issued a
postdated check for Two Hundred Twelve Thousand Pesos
(P212,000.00) in favor of private respondent. However, upon
presentment thereof by private respondent to the drawee
bank, the check was dishonored. Doronilla requested private
respondent to present the same check on September 15,
1979 but when the latter presented the check, it was again
dishonored. 6
Private respondent referred the matter to a lawyer, who
made a written demand upon Doronilla for the return of his
client's money. Doronilla issued another check for
P212,000.00 in private respondent's favor but the check was
again dishonored for insufficiency of funds. 7
Private respondent instituted an action for recovery of
sum of money in the Regional Trial Court (RTC) in Pasig,
Metro Manila against Doronilla, Sanchez, Dumagpi and
petitioner. The case was docketed as Civil Case No. 44485.
He also filed criminal actions against Doronilla, Sanchez and
Dumagpi in the RTC. However, Sanchez passed away on
March 16, 1985 while the case was pending before the trial
court. On October 3, 1995, the RTC of Pasig, Branch 157,
promulgated its Decision in Civil Case No. 44485, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING,
judgment is hereby rendered sentencing
defendants Arturo J. Doronila, Estrella
Dumagpi and Producers Bank of the
Philippines to pay plaintiff Franklin Vives
jointly and severally —

(a) the amount of P200,000.00,

representing the money deposited, with
interest at the legal rate from the filing of the
complaint until the same is fully paid;

(b) the sum of P50,000.00 for moral

damages and a similar amount for exemplary
damages;

(c) the amount of P40,000.00 for

attorney's fees; and

(d) the costs of the suit.

 SO ORDERED. 8

Petitioner appealed the trial court's decision to the

Court of Appeals. In its Decision dated June 25, 1991, the
appellate court affirmed in toto the decision of the RTC 9 It
likewise denied with finality petitioner's motion for
reconsideration in its Resolution dated May 5, 1994. 10
On June 30, 1994, petitioner filed the present petition,
arguing that —
I.

THE HONORABLE COURT OF APPEALS ERRED IN

UPHOLDING THAT THE TRANSACTION
BETWEEN THE DEFENDANT DORONILLA
AND RESPONDENT VIVES WAS ONE OF
SIMPLE LOAN AND NOT
ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN

UPHOLDING THAT PETITIONER'S BANK
MANAGER, MR. RUFO ATIENZA,
CONNIVED WITH THE OTHER
DEFENDANTS IN DEFRAUDING
PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER
 SHOULD BE HELD LIABLE UNDER THE
PRINCIPLE OF NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN

ADOPTING THE ENTIRE RECORDS OF
THE REGIONAL TRIAL COURT AND
AFFIRMING THE JUDGMENT APPEALED
FROM, AS THE FINDINGS OF THE
REGIONAL TRIAL COURT WERE BASED
ON A MISAPPREHENSION OF FACTS;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN

DECLARING THAT THE CITED DECISION
IN SALUDARES VS. MARTINEZ, 29 SCRA
745, UPHOLDING THE LIABILITY OF AN
EMPLOYER FOR ACTS COMMITTED BY AN
EMPLOYEE IS APPLICABLE;

V.
THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THE DECISION OF THE
LOWER COURT THAT HEREIN
PETITIONER BANK IS JOINTLY AND
SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF
P200,000.00 REPRESENTING THE
SAVINGS ACCOUNT DEPOSIT, P50,000.00
FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEY'S FEES AND THE COSTS OF
SUIT. 11

Private respondent filed his Comment on September

23, 1994. Petitioner filed its Reply thereto on September 25,
1995. The Court then required private respondent to submit
a rejoinder to the reply. However, said rejoinder was filed only
on April 21, 1997, due to petitioner's delay in furnishing
private respondent with copy of the reply 12 and several
substitutions of counsel on the part of private respondent. 13
On January 17, 2001, the Court resolved to give due course
to the petition and required the parties to submit their
respective memoranda. 14 Petitioner filed its memorandum on
April 16, 2001 while private respondent submitted his
memorandum on March 22, 2001.
Petitioner contends that the transaction between
private respondent and Doronilla is a simple loan (mutuum)
since all the elements of a mutuum are present: first, what
was delivered by private respondent to Doronilla was money,
a consumable thing; and second, the transaction was
onerous as Doronilla was obliged to pay interest, as
evidenced by the check issued by Doronilla in the amount of
P212,000.00, or P12,000 more than what private respondent
deposited in Sterela's bank account. 15 Moreover, the fact that
private respondent sued his good friend Sanchez for his
failure to recover his money from Doronilla shows that the
transaction was not merely gratuitous but "had a business
angle" to it. Hence, petitioner argues that it cannot be held
liable for the return of private respondent's P200,000.00
because it is not privy to the transaction between the latter
and Doronilla. 16
It argues further that petitioner's Assistant Manager,
Mr. Rufo Atienza, could not be faulted for allowing Doronilla
to withdraw from the savings account of Sterela since the
latter was the sole proprietor of said company. Petitioner
asserts that Doronilla's May 8, 1979 letter addressed to the
bank, authorizing Mrs. Vives and Sanchez to open a savings
account for Sterela, did not contain any authorization for
these two to withdraw from said account. Hence, the authority
to withdraw therefrom remained exclusively with Doronilla,
who was the sole proprietor of Sterela, and who alone had
legal title to the savings account. 17 Petitioner points out that
no evidence other than the testimonies of private respondent
and Mrs. Vives was presented during trial to prove that
private respondent deposited his P200,000.00 in Sterela's
account for purposes of its incorporation. 18 Hence, petitioner
should not be held liable for allowing Doronilla to withdraw
from Sterela's savings account.
Petitioner also asserts that the Court of Appeals erred
in affirming the trial court's decision since the findings of fact
therein were not accord with the evidence presented by
petitioner during trial to prove that the transaction between
private respondent and Doronilla was a mutuum, and that it
committed no wrong in allowing Doronilla to withdraw from
Sterela's savings account. 19
Finally, petitioner claims that since there is no wrongful
act or omission on its part, it is not liable for the actual
damages suffered by private respondent, and neither may it
be held liable for moral and exemplary damages as well as
attorney's fees. 20
Private respondent, on the other hand, argues that the
transaction between him and Doronilla is not a mutuum but
an accommodation, 21 since he did not actually part with the
ownership of his P200,000.00 and in fact asked his wife to
deposit said amount in the account of Sterela so that a
certification can be issued to the effect that Sterela had
sufficient funds for purposes of its incorporation but at the
same time, he retained some degree of control over his
money through his wife who was made a signatory to the
savings account and in whose possession the savings
account passbook was given. 22
He likewise asserts that the trial court did not err in
finding that petitioner, Atienza's employer, is liable for the
return of his money. He insists that Atienza, petitioner's
assistant manager, connived with Doronilla in defrauding
private respondent since it was Atienza who facilitated the
opening of Sterela's current account three days after Mrs.
Vives and Sanchez opened a savings account with petitioner
for said company, as well as the approval of the authority to
debit Sterela's savings account to cover any overdrawings in
its current account. 23
There is no merit in the petition.
At the outset, it must be emphasized that only
questions of law may be raised in a petition for review filed
with this Court. The Court has repeatedly held that it is not its
function to analyze and weigh all over again the evidence
presented by the parties during trial. 24 The Court's
jurisdiction is in principle limited to reviewing errors of law that
might have been committed by the Court of Appeals. 25
Moreover, factual findings of courts, when adopted and
confirmed by the Court of Appeals, are final and conclusive
on this Court unless these findings are not supported by the
evidence on record. 26 There is no showing of any
misapprehension of facts on the part of the Court of Appeals
in the case at bar that would require this Court to review and
overturn the factual findings of that court, especially since the
conclusions of fact of the Court of Appeals and the trial court
are not only consistent but are also amply supported by the
evidence on record.
No error was committed by the Court of Appeals when
it ruled that the transaction between private respondent and
Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the
transaction between them was a commodatum. Article 1933
of the Civil Code distinguishes between the two kinds of loans
in this wise:
By the contract of loan, one of the
parties delivers to another, either something
not consumable so that the latter may use the
same for a certain time and return it, in which
case the contract is called a commodatum; or
money or other consumable thing, upon the
condition that the same amount of the same
kind and quality shall be paid, in which case
the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a
stipulation to pay interest.

In commodatum, the bailor retains the

ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.

The foregoing provision seems to imply that if the

subject of the contract is a consumable thing, such as money,
the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject
of commodatum if the purpose of the contract
is not the consumption of the object, as when
it is merely for exhibition.

Thus, if consumable goods are loaned only for

purposes of exhibition, or when the intention of the parties is
to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall
be accorded primordial consideration in determining the
actual character of a contract. 27 In case of doubt, the
contemporaneous and subsequent acts of the parties shall
be considered in such determination. 28
 As correctly pointed out by both the Court of Appeals
and the trial court, the evidence shows that private
respondent agreed to deposit his money in the savings
account of Sterela specifically for the purpose of making it
appear "that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be
returned within thirty (30) days. 29 Private respondent merely
"accommodated" Doronilla by lending his money without
consideration, as a favor to his good friend Sanchez. It was
however clear to the parties to the transaction that the money
would not be removed from Sterela's savings account and
would be returned to private respondent after thirty (30) days.
Doronilla's attempts to return to private respondent the
amount of P200,000.00 which the latter deposited in Sterela's
account together with an additional P12,000.00, allegedly
representing interest on the mutuum, did not convert the
transaction from a commodatum into a mutuum because
such was not the intent of the parties and because the
additional P12,000.00 corresponds to the fruits of the lending
of the P200,000.00. Article 1935 of the Civil Code expressly
states that "[t]he bailee in commodatum acquires the use of
the thing loaned but not its fruits." Hence, it was only proper
for Doronilla to remit to private respondent the interest
accruing to the latter's money deposited with petitioner.
Neither does the Court agree with petitioner's
contention that it is not solidarily liable for the return of private
respondent's money because it was not privy to the
transaction between Doronilla and private respondent. The
nature of said transaction, that is, whether it is a mutuum or
a commodatum, has no bearing on the question of
petitioner's liability for the return of private respondent's
money because the factual circumstances of the case clearly
show that petitioner, through its employee Mr. Atienza, was
partly responsible for the loss of private respondent's money
and is liable for its restitution.
Petitioner's rules for savings deposits written on the
passbook it issued Mrs. Vives on behalf of Sterela for Savings
Account No. 10-1567 expressly states that —
"2. Deposits and withdrawals must be
made by the depositor personally or upon his
written authority duly authenticated, and
neither a deposit nor a withdrawal will be
permitted except upon the production of the
depositor savings bank book in which will be
entered by the Bank the amount deposited or
withdrawn." 30

Said rule notwithstanding, Doronilla was permitted by

petitioner, through Atienza, the Assistant Branch Manager for
the Buendia Branch of petitioner, to withdraw therefrom even
without presenting the passbook (which Atienza very well
knew was in the possession of Mrs. Vives), not just once, but
several times. Both the Court of Appeals and the trial court
found that Atienza allowed said withdrawals because he was
party to Doronilla's "scheme" of defrauding private
respondent:
xxx xxx xxx

But the scheme could not have been

executed successfully without the knowledge,
help and cooperation of Rufo Atienza,
assistant manager and cashier of the Makati
(Buendia) branch of the defendant bank.
Indeed, the evidence indicates that Atienza
had not only facilitated the commission of the
fraud but he likewise helped in devising the
means by which it can be done in such manner
as to make it appear that the transaction was
in accordance with banking procedure.

To begin with, the deposit was made in

defendant's Buendia branch precisely
because Atienza was a key officer therein. The
records show that plaintiff had suggested that
the P200,000.00 be deposited in his bank, the
Manila Banking Corporation, but Doronilla and
Dumagpi insisted that it must be in defendant's
branch Makati for "it will be easier for them to
get a certification." In fact before he was
introduced to plaintiff, Doronilla had already
prepared a letter addressed to the Buendia
branch manager authorizing Angeles B.
Sanchez and company to open a savings
account for Sterela in the amount of
P200,000.00, as "per coordination with Mr.
Rufo Atienza, Assistant Manager of the Bank
. . ." (Exh. 1). This is a clear manifestation that
the other defendants had been in consultation
with Atienza from the inception of the scheme.
Significantly, there were testimonies and
admission that Atienza is the brother-in-law of
a certain Romeo Mirasol, a friend and
business associate of Doronilla.
 Then there is the matter of the
ownership of the fund. Because of the
"coordination" between Doronilla and Atienza,
the latter knew before hand that the money
deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he
was explicitly told by Inocencia Vives that the
money belonged to her and her husband and
the deposit was merely to accommodate
Doronilla. Atienza even declared that the
money came from Mrs. Vives.

Although the savings account was in

the name of Sterela, the bank records disclose
that the only ones empowered to withdraw the
same were Inocencia Vives and Angeles B.
Sanchez. In the signature card pertaining to
this account (Exh. J), the authorized
signatories were Inocencia Vives &/or Angeles
B. Sanchez. Atienza stated that it is the usual
banking procedure that withdrawals of savings
deposits could only be made by persons
whose authorized signatures are in the
signature cards on file with the bank. He,
however, said that this procedure was not
followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the
full authority to withdraw by virtue of such
ownership. The Court is not inclined to agree
with Atienza. In the first place, he was all the
time aware that the money came from Vives
and did not belong to Sterela.. He was also
told by Mrs. Vives that they were only
accommodating Doronilla so that a
certification can be issued to the effect that
Sterela had a deposit of so much amount to be
sued in the incorporation of the firm. In the
second place, the signature of Doronilla was
not authorized in so far as that account is
concerned inasmuch as he had not signed the
signature card provided by the bank whenever
a deposit is opened. In the third place, neither
Mrs. Vives nor Sanchez had given Doronilla
the authority to withdraw.

Moreover, the transfer of fund was

done without the passbook having been
presented. It is an accepted practice that
whenever a withdrawal is made in a savings
deposit, the bank requires the presentation of
the passbook. In this case, such recognized
practice was dispensed with. The transfer
from the savings account to the current
account was without the submission of the
passbook which Atienza had given to Mrs.
Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a
duplicate passbook was issued to Sterela
because the original passbook had been
surrendered to the Makati Branch in view of a
loan accommodation assigning the savings
account (Exh. C). Atienza, who undoubtedly
had a hand in the execution of this
certification, was aware that the contents of
the same are not true. He knew that the
passbook was in the hands of Mrs. Vives for
he was the one who gave it to her. Besides, as
assistant manager of the branch and the bank
official servicing the savings and current
accounts in question, he also was aware that
the original passbook was never surrendered.
He was also cognizant that Estrella Dumagpi
was not among those authorized to withdraw
so her certification had no effect whatsoever.

The circumstance surrounding the

opening of the current account also
demonstrate that Atienza's active participation
in the perpetration of the fraud and deception
that caused the loss. The records indicate that
this account was opened three days later after
the P200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza
was mindful and posted regarding the opening
of the current account considering that
Doronilla was all the while in "coordination"
with him. That it was he who facilitated the
approval of the authority to debit the savings
account to cover any overdrawings in the
current account (Exh. 2) is not hard to
comprehend.

Clearly Atienza had committed

wrongful acts that had resulted to the loss
subject of this case . . . . 31
 Under Article 2180 of the Civil Code, employers shall
be held primarily and solidarily liable for damages caused by
their employees acting within the scope of their assigned
tasks. To hold the employer liable under this provision, it must
be shown that an employer-employee relationship exists, and
that the employee was acting within the scope of his assigned
task when the act complained of was committed. 32 Case law
in the United States of America has it that a corporation that
entrusts a general duty to its employee is responsible to the
injured party for damages flowing from the employee's
wrongful act done in the course of his general authority, even
though in doing such act, the employee may have failed in its
duty to the employer and disobeyed the latter's instructions.
33
There is no dispute that Atienza was an employee of
petitioner. Furthermore, petitioner did not deny that Atienza
was acting within the scope of his authority as Assistant
Branch Manager when he assisted Doronilla in withdrawing
funds from Sterela's Savings Account No. 10-1567, in which
account private respondent's money was deposited, and in
transferring the money withdrawn to Sterela's Current
Account with petitioner. Atienza's acts of helping Doronilla, a
customer of the petitioner, were obviously done in
furtherance of petitioner's interests 34 even though in the
process, Atienza violated some of petitioner's rules such as
those stipulated in its savings account passbook. 35 It was
established that the transfer of funds from Sterela's savings
account to its current account could not have been
accomplished by Doronilla without the invaluable assistance
of Atienza, and that it was their connivance which was the
cause of private respondent's loss.
 The foregoing shows that the Court of Appeals
correctly held that under Article 2180 of the Civil Code,
petitioner is liable for private respondent's loss and is
solidarily liable with Doronilla and Dumagpi for the return of
the P200,000.00 since it is clear that petitioner failed to prove
that it exercised due diligence to prevent the unauthorized
withdrawals from Sterela's savings account, and that it was
not negligent in the selection and supervision of Atienza.
Accordingly, no error was committed by the appellate court in
the award of actual, moral and exemplary damages,
attorney's fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The
assailed Decision and Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Austria-Martinez, JJ.,
concur.

(Producers Bank of the Philippines v. Court of Appeals,

|||

G.R. No. 115324, [February 19, 2003], 445 PHIL 702-717)

 FIRST DIVISION
[G.R. No. 146364. June 3, 2004.]
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS
and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J : p

The Case
Before us is a petition for review 1 of the 21 June 2000
Decision 2 and 14 December 2000 Resolution of the Court of
Appeals in CA-G.R. SP No. 43129. The Court of Appeals set
aside the 11 November 1996 decision 3 of the Regional Trial
Court of Quezon City, Branch 81, 4 affirming the 15 December
1995 decision 5 of the Metropolitan Trial Court of Quezon
City, Branch 31. 6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo")
paid P400 to a certain Pedro Perez for the rights over a 250-
square meter lot in Barrio Payatas, Quezon City. Pajuyo then
constructed a house made of light materials on the lot. Pajuyo
and his family lived in the house from 1979 to 7 December
1985.
On 8 December 1985, Pajuyo and private respondent
Eddie Guevarra ("Guevarra") executed a Kasunduan or
agreement. Pajuyo, as owner of the house, allowed Guevarra
to live in the house for free provided Guevarra would maintain
the cleanliness and orderliness of the house. Guevarra
promised that he would voluntarily vacate the premises on
Pajuyo's demand.
In September 1994, Pajuyo informed Guevarra of his
need of the house and demanded that Guevarra vacate the
house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with
the Metropolitan Trial Court of Quezon City, Branch 31
("MTC").
In his Answer, Guevarra claimed that Pajuyo had no
valid title or right of possession over the lot where the house
stands because the lot is within the 150 hectares set aside by
Proclamation No. 137 for socialized housing. Guevarra
pointed out that from December 1985 to September 1994,
Pajuyo did not show up or communicate with him. Guevarra
insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision
in favor of Pajuyo. The dispositive portion of the MTC
decision reads:
WHEREFORE, premises considered,
judgment is hereby rendered for the plaintiff
and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant
or any other person or persons
claiming any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED

PESOS (P300.00) monthly as
reasonable compensation for
the use of the premises starting
from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of

attorney's fees; and

D) pay the cost of suit.

SO ORDERED. 7

Aggrieved, Guevarra appealed to the Regional Trial

Court of Quezon City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC
decision. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered,
the Court finds no reversible error in the
decision appealed from, being in accord with
the law and evidence presented, and the same
is hereby affirmed en toto.
 SO ORDERED. 8

Guevarra received the RTC decision on 29 November

1996. Guevarra had only until 14 December 1996 to file his
appeal with the Court of Appeals. Instead of filing his appeal
with the Court of Appeals, Guevarra filed with the Supreme
Court a "Motion for Extension of Time to File Appeal by
Certiorari Based on Rule 42" ("motion for extension").
Guevarra theorized that his appeal raised pure questions of
law. The Receiving Clerk of the Supreme Court received the
motion for extension on 13 December 1996 or one day before
the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for
review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme
Court issued a Resolution 9 referring the motion for extension
to the Court of Appeals which has concurrent jurisdiction over
the case. The case presented no special and important
matter for the Supreme Court to take cognizance of at the first
instance.
On 28 January 1997, the Thirteenth Division of the
Court of Appeals issued a Resolution 10 granting the motion
for extension conditioned on the timeliness of the filing of the
motion.
On 27 February 1997, the Court of Appeals ordered
Pajuyo to comment on Guevarra's 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 Guevarra's petition for review
because it was filed out of time. Moreover, it was Guevarra's
counsel and not Guevarra who signed the certification
against forum-shopping.
On 14 December 2000, the Court of Appeals issued a
resolution denying Pajuyo's 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, Guevarra's refusal
to vacate the house on Pajuyo's demand made Guevarra's
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 Guevarra's 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 Guevarra's 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 Pajuyo's motion for reconsideration, the
appellate court debunked Pajuyo's claim that Guevarra filed
his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarra's
motion for extension filed before the Supreme Court was
stamped "13 December 1996 at 4:09 PM" by the Supreme
Court's Receiving Clerk. The Court of Appeals concluded that
the motion for extension bore a date, contrary to Pajuyo's
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 Pajuyo's argument that
the appellate court should have dismissed the petition for
review because it was Guevarra's 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

Respondent's 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

respondent's Petition for Review
even though the certification
 against forum-shopping was
signed only by counsel instead
of by petitioner himself.

3) in ruling that the Kasunduan voluntarily entered into

by the parties was in fact a
commodatum, instead of a
Contract of Lease as found by
the Metropolitan Trial Court and
in holding that "the ejectment
case filed against defendant-
appellant is without legal and
factual basis".

4) in reversing and setting aside the Decision of the

Regional Trial Court in Civil
Case No. Q-96-26943 and in
holding that the parties are in
pari delicto being both squatters,
therefore, illegal occupants of
the contested parcel of land.

5) in deciding the unlawful detainer case based on the

so-called Code of Policies of the
National Government Center
Housing Project instead of
 deciding the same under the
Kasunduan voluntarily executed
by the parties, the terms and
conditions of which are the laws
between themselves. 13

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless.
However, we find merit in the substantive issues Pajuyo is
submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have
dismissed outright Guevarra's petition for review because the
RTC decision had already become final and executory when
the appellate court acted on Guevarra's 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 Guevarra's
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. Guevarra's 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 squatter's 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 Liboro's
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 Guevarra's 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 Court's 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 Guevarra's 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
Guevarra's favor that Pajuyo raised the procedural issues
against Guevarra's 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 court's jurisdiction after voluntarily submitting to
it is against public policy. 26
In his Comment before the Court of Appeals, Pajuyo
also failed to discuss Guevarra's failure to sign the
certification against forum shopping. Instead, Pajuyo harped
on Guevarra's counsel signing the verification, claiming that
the counsel's verification is insufficient since it is based only
on "mere information." ACIESH

A party's failure to sign the certification against forum

shopping is different from the party's 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 party's 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 defendant's 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 party's title to the property is questionable, 38 or
when both parties intruded into public land and their
applications to own the land have yet to be approved by the
proper government agency. 39 Regardless of the actual
condition of the title to the property, the party in peaceable
quiet possession shall not be thrown out by a strong hand,
violence or terror. 40 Neither is the unlawful withholding of
property allowed. Courts will always uphold respect for prior
possession.
Thus, a party who can prove prior possession can
recover such possession even against the owner himself. 41
Whatever may be the character of his possession, if he has
in his favor prior possession in time, he has the security that
entitles him to remain on the property until a person with a
better right lawfully ejects him. 42 To repeat, the only issue
that the court has to settle in an ejectment suit is the right to
physical possession.
In Pitargue v. Sorilla, 43 the government owned the land
in dispute. The government did not authorize either the
plaintiff or the defendant in the case of forcible entry case to
occupy the land. The plaintiff had prior possession and had
already introduced improvements on the public land. The
plaintiff had a pending application for the land with the Bureau
of Lands when the defendant ousted him from possession.
The plaintiff filed the action of forcible entry against the
defendant. The government was not a party in the case of
forcible entry.
The defendant questioned the jurisdiction of the courts
to settle the issue of possession because while the
application of the plaintiff was still pending, title remained with
the government, and the Bureau of Public Lands had
jurisdiction over the case. We disagreed with the defendant.
We ruled that courts have jurisdiction to entertain ejectment
suits even before the resolution of the application. The
plaintiff, by priority of his application and of his entry, acquired
prior physical possession over the public land applied for as
against other private claimants. That prior physical
possession enjoys legal protection against other private
claimants because only a court can take away such physical
possession in an ejectment case.
While the Court did not brand the plaintiff and the
defendant in Pitargue 44 as squatters, strictly speaking, their
entry into the disputed land was illegal. Both the plaintiff and
defendant entered the public land without the owner's
permission. Title to the land remained with the government
because it had not awarded to anyone ownership of the
contested public land. Both the plaintiff and the defendant
were in effect squatting on government property. Yet, we
upheld the courts' jurisdiction to resolve the issue of
possession even if the plaintiff and the defendant in the
ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve
the issue of physical possession because of the public need
to preserve the basic policy behind the summary actions of
forcible entry and unlawful detainer. The underlying
philosophy behind ejectment suits is to prevent breach of the
peace and criminal disorder and to compel the party out of
possession to respect and resort to the law alone to obtain
what he claims is his. 45 The party deprived of possession
must not take the law into his own hands. 46 Ejectment
proceedings are summary in nature so the authorities can
settle speedily actions to recover possession because of the
overriding need to quell social disturbances. 47
We further explained in Pitargue the greater interest
that is at stake in actions for recovery of possession. We
made the following pronouncements in Pitargue:
The question that is before this Court is:
Are courts without jurisdiction to take
cognizance of possessory actions involving
these public lands before final award is made
by the Lands Department, and before title is
given any of the conflicting claimants? It is one
of utmost importance, as there are public
lands everywhere and there are thousands of
settlers, especially in newly opened regions. It
also involves a matter of policy, as it requires
the determination of the respective authorities
and functions of two coordinate branches of
the Government in connection with public land
conflicts.

Our problem is made simple by the fact

that under the Civil Code, either in the old,
which was in force in this country before the
American occupation, or in the new, we have
a possessory action, the aim and purpose of
which is the recovery of the physical
possession of real property, irrespective of the
question as to who has the title thereto. Under
the Spanish Civil Code we had the accion
interdictal, a summary proceeding which could
be brought within one year from dispossession
(Roman Catholic Bishop of Cebu vs.
Mangaron, 6 Phil. 286, 291); and as early as
October 1, 1901, upon the enactment of the
Code of Civil Procedure (Act No. 190 of the
Philippine Commission) we implanted the
common law action of forcible entry (section
80 of Act No. 190), the object of which has
been stated by this Court to be "to prevent
breaches of the peace and criminal disorder
which would ensue from the withdrawal of the
remedy, and the reasonable hope such
withdrawal would create that some advantage
must accrue to those persons who, believing
themselves entitled to the possession of
property, resort to force to gain possession
rather than to some appropriate action in the
court to assert their claims." (Supia and
Batioco vs. Quintero and Ayala, 59 Phil. 312,
314.) So before the enactment of the first
Public Land Act (Act No. 926) the action of
forcible entry was already available in the
courts of the country. So the question to be
resolved is, Did the Legislature intend, when it
vested the power and authority to alienate and
dispose of the public lands in the Lands
Department, to exclude the courts from
entertaining the possessory action of forcible
entry between rival claimants or occupants of
any land before award thereof to any of the
parties? Did Congress intend that the lands
applied for, or all public lands for that matter,
be removed from the jurisdiction of the judicial
Branch of the Government, so that any
troubles arising therefrom, or any breaches of
the peace or disorders caused by rival
claimants, could be inquired into only by the
Lands Department to the exclusion of the
courts? The answer to this question seems to
us evident. The Lands Department does not
have the means to police public lands; neither
does it have the means to prevent disorders
arising therefrom, or contain breaches of the
peace among settlers; or to pass promptly
upon conflicts of possession. Then its power
is clearly limited to disposition and alienation,
and while it may decide conflicts of possession
in order to make proper award, the settlement
of conflicts of possession which is recognized
in the court herein has another ultimate
purpose, i.e., the protection of actual
possessors and occupants with a view to the
prevention of breaches of the peace. The
power to dispose and alienate could not have
been intended to include the power to prevent
or settle disorders or breaches of the peace
among rival settlers or claimants prior to the
final award. As to this, therefore, the
corresponding branches of the Government
must continue to exercise power and
jurisdiction within the limits of their respective
functions. The vesting of the Lands
Department with authority to administer,
dispose, and alienate public lands, therefore,
must not be understood as depriving the other
branches of the Government of the exercise of
the respective functions or powers thereon,
such as the authority to stop disorders and
quell breaches of the peace by the police, the
authority on the part of the courts to take
jurisdiction over possessory actions arising
therefrom not involving, directly or indirectly,
alienation and disposition.

Our attention has been called to a

principle enunciated in American courts to the
effect that courts have no jurisdiction to
determine the rights of claimants to public
lands, and that until the disposition of the land
has passed from the control of the Federal
Government, the courts will not interfere with
the administration of matters concerning the
same. (50 C. J. 1093-1094.) We have no
quarrel with this principle. The determination
of the respective rights of rival claimants to
public lands is different from the determination
of who has the actual physical possession or
occupation with a view to protecting the same
and preventing disorder and breaches of the
peace. A judgment of the court ordering
restitution of the possession of a parcel of land
to the actual occupant, who has been deprived
thereof by another through the use of force or
in any other illegal manner, can never be
"prejudicial interference" with the disposition
or alienation of public lands. On the other
hand, if courts were deprived of jurisdiction of
cases involving conflicts of possession, that
threat of judicial action against breaches of the
peace committed on public lands would be
eliminated, and a state of lawlessness would
probably be produced between applicants,
occupants or squatters, where force or might,
not right or justice, would rule.

It must be borne in mind that the action

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

The Principle of Pari Delicto is not Applicable to Ejectment

Cases
The Court of Appeals erroneously applied the principle
of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code 48 embody the
principle of pari delicto. We explained the principle of pari
delicto in these words:
The rule of pari delicto is expressed in
the maxims 'ex dolo malo non eritur actio' and
'in pari delicto potior est conditio defedentis.'
The law will not aid either party to an illegal
agreement. It leaves the parties where it finds
them. 49
The application of the pari delicto principle is not
absolute, as there are exceptions to its application.
One of these exceptions is where the application of
the pari delicto rule would violate well-established
public policy. 50
In Drilon v. Gaurana, 51 we reiterated the basic policy
behind the summary actions of forcible entry and unlawful
detainer. We held that:
It must be stated that the purpose of an
action of forcible entry and detainer is that,
regardless of the actual condition of the title to
the property, the party in peaceable quiet
possession shall not be turned out by strong
hand, violence or terror. In affording this
remedy of restitution the object of the statute
is to prevent breaches of the peace and
criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable
hope such withdrawal would create that some
advantage must accrue to those persons who,
believing themselves entitled to the
possession of property, resort to force to gain
possession rather than to some appropriate
action in the courts to assert their claims. This
is the philosophy at the foundation of all these
actions of forcible entry and detainer which are
designed to compel the party out of
possession to respect and resort to the law
alone to obtain what he claims is his. 52

Clearly, the application of the principle of pari delicto to

a case of ejectment between squatters is fraught with danger.
To shut out relief to squatters on the ground of pari delicto
would openly invite mayhem and lawlessness. A squatter
would oust another squatter from possession of the lot that
the latter had illegally occupied, emboldened by the
knowledge that the courts would leave them where they are.
Nothing would then stand in the way of the ousted squatter
from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely
what ejectment cases or actions for recovery of possession
seek to prevent. 53 Even the owner who has title over the
disputed property cannot take the law into his own hands to
regain possession of his property. The owner must go to
court.
Courts must resolve the issue of possession even if the
parties to the ejectment suit are squatters. The determination
of priority and superiority of possession is a serious and
urgent matter that cannot be left to the squatters to decide.
To do so would make squatters receive better treatment
under the law. The law restrains property owners from taking
the law into their own hands. However, the principle of pari
delicto as applied by the Court of Appeals would give
squatters free rein to dispossess fellow squatters or violently
retake possession of properties usurped from them. Courts
should not leave squatters to their own devices in cases
involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment
Case
The case for review before the Court of Appeals was a
simple case of ejectment. The Court of Appeals refused to
rule on the issue of physical possession. Nevertheless, the
appellate court held that the pivotal issue in this case is who
between Pajuyo and Guevarra has the "priority right as
beneficiary of the contested land under Proclamation No.
137." 54 According to the Court of Appeals, Guevarra enjoys
preferential right under Proclamation No. 137 because Article
VI of the Code declares that the actual occupant or caretaker
is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and
legal basis.
First. Guevarra did not present evidence to show that the
contested lot is part of a relocation site under Proclamation
No. 137. Proclamation No. 137 laid down the metes and
bounds of the land that it declared open for disposition to
bona fide residents.
The records do not show that the contested lot is within
the land specified by Proclamation No. 137. Guevarra had
the burden to prove that the disputed lot is within the
coverage of Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given
credence to Guevarra's 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
Guevarra's 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 Pajuyo's 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, sila'y 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 Pajuyo's
demand but Guevarra broke his promise and refused to heed
Pajuyo's 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 former's
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 defendant's 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 Pajuyo's
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. Guevarra's refusal to comply
with Pajuyo's demand to vacate made Guevarra's 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
tenant's 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 Guevarra's recognition of Pajuyo's
better right of physical possession. Guevarra is clearly a
possessor in bad faith. The absence of a contract would not
yield a different result, as there would still be an implied
promise to vacate.
Guevarra contends that there is "a pernicious evil that
is sought to be avoided, and that is allowing an absentee
squatter who (sic) makes (sic) a profit out of his illegal act." 72
Guevarra bases his argument on the preferential right given
to the actual occupant or caretaker under Proclamation No.
137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with
Guevarra because Guevarra stayed in the property without
paying any rent. There is also no proof that Pajuyo is a
professional squatter who rents out usurped properties to
other squatters. Moreover, it is for the proper government
agency to decide who between Pajuyo and Guevarra
qualifies for socialized housing. The only issue that we are
addressing is physical possession.
Prior possession is not always a condition sine qua non
in ejectment. 73 This is one of the distinctions between forcible
entry and unlawful detainer. 74 In forcible entry, the plaintiff is
deprived of physical possession of his land or building by
means of force, intimidation, threat, strategy or stealth. Thus,
he must allege and prove prior possession. 75 But in unlawful
detainer, the defendant unlawfully withholds possession after
the expiration or termination of his right to possess under any
contract, express or implied. In such a case, prior physical
possession is not required. 76
Pajuyo's withdrawal of his permission to Guevarra
terminated the Kasunduan. Guevarra's 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 Pajuyo's 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.
Pajuyo's 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 one's will. 78 Actual or physical occupation is
not always necessary. 79
Ruling on Possession Does not Bind Title to the Land in
Dispute
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.
Attorney's Fees and Rentals
The MTC and RTC failed to justify the award of P3,000
attorney's fees to Pajuyo. Attorney's fees as part of damages
are awarded only in the instances enumerated in Article 2208
of the Civil Code. 83 Thus, the award of attorney's fees is the
exception rather than the rule. 84 Attorney's 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 attorney's 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 attorney's fees is deleted. No
costs.
SO ORDERED. ASHECD

Davide, Jr., C .J ., Panganiban, Ynares-Santiago and

Azcuna, JJ ., concur.
 (Pajuyo v. Court of Appeals, G.R. No. 146364, [June 3,
|||

2004], 474 PHIL 557-595)

 SECOND DIVISION
[G.R. No. L-46145. November 26, 1986.]
REPUBLIC OF THE PHILIPPINES (BUREAU OF
LANDS), petitioner, vs. THE HON.
COURT OF APPEALS, HEIRS OF
DOMINGO P. BALOY, represented by
RICARDO BALOY, ET AL., respondents.

Pelaez, Jalandoni, Adriano, and Associates for respondents.

DECISION
PARAS, J :p

This case originally emanated from a decision

of the then Court of First Instance of Zambales in LRC
Case No. 11-0, LRC Record No. N-29355, denying
respondents' application for registration. From said
order of denial the applicants, heirs of Domingo
Baloy, represented by Ricardo P. Baloy, (herein
private respondents) interposed on appeal to the
Court of Appeals which was docketed as CA-G.R.
No. 52039-R. The appellate court, thru its Fifth
Division with the Hon. Justice Magno Gatmaitan as
ponente, rendered a decision dated February 3, 1977
reversing the decision appealed from and thus
approving the application for registration. Oppositors
(petitioners herein) filed their Motion for
Reconsideration alleging among other things that
applicants' possessory information title can no longer
be invoked and that they were not able to prove a
registerable title over the land. Said Motion for
Reconsideration was denied, hence this petition for
review on certiorari.
Applicants' claim is anchored on their
possessory information title (Exhibit F which had
been translated in Exhibit F-1) coupled with their
continuous, adverse and public possession over the
land in question. An examination of the possessory
information title shows that the description and the
area of the land stated therein substantially coincides
with the land applied for and that said possessory
information title had been regularly issued having
been acquired by applicants' predecessor, Domingo
Baloy, under the provisions of the Spanish Mortgage
Law. Applicants presented their tax declaration on
said lands on April 8, 1965.
The Director of Lands opposed the registration
alleging that this land had become public land thru the
operation of Act 627 of the Philippine Commission.
On November 26, 1902 pursuant to the executive
order of the President of the U.S., the area was
declared within the U.S. Naval Reservation. Under
Act 627 as amended by Act 1138, a period was fixed
within which persons affected thereby could file their
application, (that is within 6 months from July 8, 1905)
otherwise "the said lands or interests therein will be
conclusively adjudged to be public lands and all
claims on the part of private individuals for such lands
or interests therein not to presented will be forever
barred." Petitioner argues that since Domingo Baloy
failed to file his claim within the prescribed period, the
land had become irrevocably public and could not be
 the subject of a valid registration for private
ownership.
Considering the foregoing facts respondent
Court of Appeals ruled as follows:
". . . perhaps, the consequence was that upon failure
of Domingo Baloy to have filed his application
within that period the land had become
irrevocably public; but perhaps also, for the
reason that warning was from the Clerk of the
Court of Land Registration, named J.R. Wilson
and there has not been presented a formal
order or decision of the said Court of Land
Registration so declaring the land public
because of that failure, it can with plausibility
be said that after all, there was no judicial
declaration to that effect, it is true that the U.S.
Navy did occupy it apparently-for some time,
as a recreation area, as this Court
understands from the communication of the
Department of Foreign Affairs to the U.S.
Embassy exhibited in the record, but the very
tenor of the communication apparently seeks
to justify the title of herein applicants, in other
words, what this Court has taken from the
occupation by the U.S. Navy is that during the
interim, the title of applicants was in a state of
suspended animation so to speak but it had
not died either; and the fact being that this land
was really originally private from and after the
issuance and inscription of the possessory
information Exh. F during the Spanish times, it
would be most difficult to sustain position of
Director of Lands that it was land of no private
 owner; open to public imposition, and over
which he has control; and since immediately
after U.S. Navy had abandoned the area,
applicant came in and asserted title once
again, only to be troubled by first Crispiniano
Blanco who however in due time, quitclaimed
in favor of applicants, and then by private
oppositors now, apparently originally tenants
of Blanco, but that entry of private oppositors
sought to be given color of ownership when
they sought to and did file tax declaration in
1965, should not prejudice the original rights
of applicants thru their possessory information
secured regularly so long ago, the conclusion
must have to be that after all, applicants had
succeeded in bringing themselves within the
provisions of Sec. 19 of Act 496, the land
should be registered in their favor;

IN VIEW WHEREOF, this Court is constrained to

reverse, as it now reverses, judgment
appealed from the application is approved,
and once this decision shall have become
final, if ever it would be, let decree issue in
favor of applicants with the personal
circumstances outlined in the application,
costs against private oppositors."

Petitioner now comes to Us with the following:

"ASSIGNMENT OF ERRORS"
 1 Respondent court erred in holding
that to bar private respondents from asserting
any right under their possessory information
title there is need for a court order to that
effect.

2. Respondent court erred in not

holding that private respondents' rights by
virtue of their possessory information title was
lost by prescription.

3. Respondent court erred in

concluding that applicants have registerable
title.

A cursory reading of Sec. 3, Act 627 reveals

that several steps are to be followed before any
affected land can "be conclusively adjudged to be
public land." Sec. 3, Act 627 reads as follows:
"SEC. 3. Immediately upon receipt of
the notice from the Civil Governor in the
preceeding section mentioned it shall be the
duty of the judge of the Court of Land
Registration to issue a notice, stating that the
lands within the limits aforesaid have been
reserved for military purposes, and
announced and declared to be military
reservations, and that claims for all private
lands, buildings, and interests therein, within
the limits aforesaid, must be presented for
registration under the Land Registration Act
within six calendar months from the date of
issuing the notice, and that all lands, buildings,
and interests therein within the limits aforesaid
not so presented within the time therein limited
will be conclusively adjudged to be public
lands, and all claims on the part of private
individuals for such lands, buildings, or an
interest therein not so presented will be
forever barred. The clerk of the Court of Land
Registration shall immediately upon the
issuing of such notice by the judge cause the
same to be published once a week for three
successive weeks in two newspapers, one of
which newspapers shall be in the English
language, and one in the Spanish language in
the city or province where the land lies, if there
be no such Spanish or English newspapers
having a general circulation in the city or
province wherein the land lies, then it shall be
a sufficient compliance with this section if the
notice be published as herein provided, in a
daily newspaper in the Spanish language and
one in the English language, in the City of
Manila, having a general circulation. The clerk
shall also cause a duly attested copy of the
notice in the Spanish language to be posted in
conspicuous place at each angle formed by
the lines of the limits of the land reserved. The
clerk shall also issue and cause to be
personally served the notice in the Spanish
language upon every person living upon or in
visible possession of any part of the military
reservation. If the person in possession is the
 head of the family bring upon the land, it shall
be sufficient to serve the notice upon him, and
if he is absent it shall be sufficient to leave a
copy at his usual place of residence. The clerk
shall certify the manner in which the notices
have been published, posted, and served, and
his certificate shall be conclusive proof of such
publication, posting, and service, but the court
shall have power to cause such further notice
to be given as in its opinion may be
necessary."

Clearly under said provision, private land could be

deemed to have become public land only by virtue of
a judicial declaration after due notice and hearing. It
runs contrary therefore to the contention of petitioners
that failure to present claims set forth under Sec. 2 of
Act 627 made the land ipso facto public without any
need of judicial pronouncement. Petitioner in making
such declaration relied on Sec. 4 of Act 627 alone.
But in construing a statute the entire provisions of the
law must be considered in order to establish the
correct interpretation as intended by the law-making
body. Act 627 by its terms is not self-executory and
requires implementation by the Court of Land
Registration. Act 627, to the extent that it creates a
forfeiture, is a penal statute in derogation of private
rights, so it must be strictly construed so as to
safeguard private respondents' rights. Significantly,
petitioner does not even allege the existence of any
judgment of the Land Registration court with respect
to the land in question. Without a judgment or order
declaring the land to be public, its private character
and the possessory information title over it must be
respected. Since no such order has been rendered
by the Land Registration Court it necessarily follows
that it never became public land thru the operation of
Act 627. To assume otherwise is to deprive private
respondents of their property without due process of
law. In fact it can be presumed that the notice
required by law to be given by publication and by
personal service did not include the name of Domingo
Baloy and the subject land, and hence he and his
land were never brought within the operation of Act
627 as amended. The procedure laid down in Sec. 3
is a requirement of due process. "Due process
requires that the statutes under which it is attempted
to deprive a citizen of private property without or
against his consent must, as in expropriation cases,
be strictly complied with, because such statutes are
in derogation of general rights." (Arriete vs. Director
of Public Works, 58 Phil. 507, 508, 511).
We also find with favor private respondents'
views that court judgments are not to be presumed. It
would be absurd to speak of a judgment by
presumption. If it could be contended that such a
judgment may be presumed, it could equally be
contended that applicants' predecessor Domingo
Baloy presumably seasonably filed a claim, in
accordance with the legal presumption that a person
takes ordinary care of his concerns, and that a
judgment in his favor was rendered.
 The finding of respondent court that during the
interim of 57 years from November 26, 1902 to
December 17, 1959 (when the U.S. Navy possessed
the area) the possessory rights of Baloy or heirs were
merely suspended and not lost by prescription, is
supported by Exhibit "U," a communication or letter
No. 1108-63, dated June 24, 1963, which contains an
official statement of the position of the Republic of the
Philippines with regard to the status of the land in
question. Said letter recognizes the fact that Domingo
Baloy and/or his heirs have been in continuous
possession of said land since 1894 as attested by an
"Informacion Possessoria" Title, which was granted
by the Spanish Government. Hence, the disputed
property is private land and this possession was
interrupted only by the occupation of the land by the
U.S. Navy in 1945 for recreational purposes. The
U.S. Navy eventually abandoned the premises. The
heirs of the late Domingo P. Baloy, are now in actual
possession, and this has been so since the
abandonment by the U.S. Navy. A new recreation
area is now being used by the U.S. Navy personnel
and this place is remote from the land in question.
Clearly, the occupancy of the U.S. Navy was
not in the concept of owner. It partakes of the
character of a commodatum. It cannot therefore
militate against the title of Domingo Baloy and his
successors-in-interest. One's ownership of a thing
may be lost by prescription by reason of another's
possession if such possession be under claim of
ownership, not where the possession is only intended
 to be transient, as in the case of the U.S. Navy's
occupation of the land concerned, in which case the
owner is not divested of his title, although it cannot be
exercised in the meantime.
WHEREFORE, premises considered, finding
no merit in the petition the appealed decision is
hereby AFFIRMED. prLL

SO ORDERED.
Feria, Alampay and Feliciano, ** JJ ., concur.
Fernan, J ., no part.
Gutierrez, Jr., J ., I concur pro hoc vice in the results.

(Republic v. Court of Appeals, G.R. No. L-46145,

|||

[November 26, 1986], 230 PHIL 118-125)

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.
Matias Hilado, for appellant.
Jose Felix Martinez, for appellee.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit against
Agustina Jarra, the administratrix of the estate of Magdaleno Jimenea,
alleging that in the latter part of 1901 Jimenea borrowed and obtained from
the plaintiff ten first-class carabaos, to be used at the animal-power mill of
his hacienda during the season of 1901-2, without recompense or
remuneration whatever for the use thereof, under the sole condition that
they should be returned to the owner as soon as the work at the mill was
terminated; that Magdaleno Jimenea, however, did not return the carabaos,
notwithstanding the fact that the plaintiff claimed their return after the work
at the mill was finished; that Magdaleno Jimenea died on the 28th of
October, 1904, and the defendant herein was appointed by the Court of
First Instance of Occidental Negros administratrix of his estate and she
took over the administration of the same and is still performing her duties
as such administratrix; that the plaintiff presented his claim to the
commissioners of the estate of Jimenea, within the legal term, for the return
of the said ten carabaos, but the said commissioners rejected his claim as
appears in their report; therefore, the plaintiff prayed that judgment be
entered against the defendant as administratrix of the estate of the
deceased, ordering her to return the ten first-class carabaos loaned to the
late Jimenea, or their present value, and to pay the costs.
The defendant was duly summoned, and on the 25th of September, 1906,
she demurred in writing to the complaint on the ground that it was vague;
but on the 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 second-class
animals, which were afterwards transferred by sale by the plaintiff to the
said Jimenea; that she denied the allegations contained in paragraph 3 of
the complaint; for all of which she asked the court to absolve her of the
complaint with the cost against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix
Martinez notified the defendant and her counsel, Matias Hilado, that he had
made an agreement with the plaintiff to the effect that the latter would not
compromise the controversy without his consent, and that as fees for his
professional services he was to receive one half of the amount allowed in
the judgment if the same were entered in favor of the plaintiff.
The case came up for trial, evidence was adduced by both parties, and
either exhibits were made of record. On the 10th of January, 1907, the
court below entered judgment sentencing Agustina Jarra, as administratrix
of the estate of Magdaleno Jimenea, to return to the plaintiff, Felix de los
Santos, the remaining six second and third class carabaos, or the value
thereof at the rate of P120 each, or a total of P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and, by a
writing dated January 19, moved for anew trial on the ground that the
findings of fact were openly and manifestly contrary to the weight of the
evidence. The motion was overruled, the defendant duly excepted, and in
due course submitted the corresponding bill of exceptions, which was
approved and submitted to this court.
The defendant has admitted that Magdaleno Jimenea asked the plaintiff for
the loan of ten carabaos which are now claimed by the latter, as shown by
two letters addressed by the said Jimenea to Felix de los Santos; but in her
answer the said defendant alleged that the late Jimenea only obtained
three second-class carabaos, which were subsequently sold to him by the
owner, Santos; therefore, in order to decide this litigation it is indispensable
that proof be forthcoming that Jimenea only received three carabaos from
his son-in-law Santos, and that they were sold by the latter to him.
The record discloses that it has been fully proven from the testimony of a
sufficient number of witnesses that the plaintiff, Santos, sent in charge of
various persons the ten carabaos requested by his father-in-law,
Magdaleno Jimenea, in the two letters produced at the trial by the plaintiff,
and that Jimenea received them in the presence of some of said persons,
one being a brother of said Jimenea, who saw the animals arrive at the
hacienda where it was proposed to employ them. Four died of rinderpest,
and it is for this reason that the judgment appealed from only deals with six
surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-law
Santos is not evidenced by any trustworthy documents such as those of
transfer, nor were the declarations of the witnesses presented by the
defendant affirming it satisfactory; for said reason it can not be considered
that Jimenea only received three carabaos on loan from his son-in-law, and
that he afterwards kept them definitely by virtue of the purchase.
By the laws in force the transfer of large cattle was and is still made by
means of official documents issued by the local authorities; these
documents constitute the title of ownership of the carabao or horse so
acquired. Furthermore, not only should the purchaser be provided with a
new certificate or credential, a document which has not been produced in
evidence by the defendant, nor has the loss of the same been shown in the
case, but the old documents ought to be on file in the municipality, or they
should have been delivered to the new purchaser, and in the case at bar
neither did the defendant present the old credential on which should be
stated the name of the previous owner of each of the three carabaos said
to have been sold by the plaintiff.
From the foregoing it may be logically inferred that the carabaos loaned or
given on commodatum to the now deceased Magdaleno Jimenea were ten
in number; that they, or at any rate the six surviving ones, have not been
returned to the owner thereof, Felix de los Santos, and that it is not true
that the latter sold to the former three carabaos that the purchaser was
already using; therefore, as the said six carabaos were not the property of
the deceased nor of any of his descendants, it is the duty of the
administratrix of the estate to return them or indemnify the owner for their
value.
The Civil Code, in dealing with loans in general, from which generic
denomination the specific one of commodatum is derived, establishes
prescriptions in relation to the last-mentioned contract by the following
articles:
ART. 1740. By the contract of loan, one of the parties delivers to the other,
either anything not perishable, in order that the latter may use it during a
certain period and return it to the former, in which case it is called
commodatum, or money or any other perishable thing, under the condition
to return an equal amount of the same kind and quality, in which case it is
merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay
interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned.
The bailee acquires the use thereof, but not its fruits; if any compensation
is involved, to be paid by the person requiring the use, the agreement
ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum
pass to the heirs of both contracting parties, unless the loan has been in
consideration for the person of the bailee, in which case his heirs shall not
have the right to continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant
upon demand, there is no doubt that she is under obligation to indemnify
the owner thereof by paying him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud, negligence, or
delay, and those who in any manner whatsoever act in contravention of the
stipulations of the same, shall be subjected to indemnify for the losses and
damages caused thereby.
The obligation of the bailee or of his successors to return either the thing
loaned or its value, is sustained by the supreme tribunal of Sapin. In its
decision of March 21, 1895, it sets out with precision the legal doctrine
touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor retains the
ownership of the thing loaned, and at the expiration of the period, or after
the use for which it was loaned has been accomplished, it is the imperative
duty of the bailee to return the thing itself to its owner, or to pay him
damages if through the fault of the bailee the thing should have been lost or
injured, it is clear that where public securities are involved, the trial court, in
deferring to the claim of the bailor that the amount loaned be returned him
by the bailee in bonds of the same class as those which constituted the
contract, thereby properly applies law 9 of title 11 of partida 5.
With regard to the third assignment of error, based on the fact that the
plaintiff Santos had not appealed from the decision of the commissioners
rejecting his claim for the recovery of his carabaos, it is sufficient to estate
that we are not dealing with a claim for the payment of a certain sum, the
collection of a debt from the estate, or payment for losses and damages
(sec. 119, Code of Civil Procedure), but with the exclusion from the
inventory of the property of the late Jimenea, or from his capital, of six
carabaos which did not belong to him, and which formed no part of the
inheritance.
The demand for the exclusion of the said carabaos belonging to a third
party and which did not form part of the property of the deceased, must be
the subject of a direct decision of the court in an ordinary action, wherein
the right of the third party to the property which he seeks to have excluded
from the inheritance and the right of the deceased has been discussed, and
rendered in view of the result of the evidence adduced by the administrator
of the estate and of the claimant, since it is so provided by the second part
of section 699 and by section 703 of the Code of Civil Procedure; the
refusal of the commissioners before whom the plaintiff unnecessarily
appeared can not affect nor reduce the unquestionable right of ownership
of the latter, inasmuch as there is no law nor principle of justice authorizing
the successors of the late Jimenea to enrich themselves at the cost and to
the prejudice of Felix de los Santos.
For the reasons above set forth, by which the errors assigned to the
judgment appealed from have been refuted, and considering that the same
is in accordance with the law and the merits of the case, it is our opinion
that it should be affirmed and we do hereby affirm it with the costs against
the appellant. So ordered.
Arellano, C.J., Johnson, Moreland and Elliott, JJ., concur.
Carson, J., reserves his vote.
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 reconsideation 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. B—B-4 ) to
defendant Vicar for the return of the land to them; and the reasonable rentals
for the use of the land at P10,000.00 per month. On the other hand,
defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any of the plaintiffs
(Exh. 8). The defendant dispensed with the testimony of Mons.William
Brasseur when the plaintiffs admitted that the witness if called to the witness
stand, would testify that defendant Vicar has been in possession of Lot 3, for
seventy-five (75) years continuously and peacefully and has constructed
permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in
dispute, submitted the case on the sole issue of whether or not the decisions
of the Court of Appeals and the Supreme Court touching on the ownership
of Lot 2, which in effect declared the plaintiffs the owners of the land
constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred
from setting up the defense of ownership and/or long and continuous
possession of the two lots in question since this is barred by prior judgment
of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res
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;
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;
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;
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
The petition is bereft of merit.
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 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
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.
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 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.
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.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.