G.R. No.

115324

February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,

vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:

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

This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated June 25, 1991 in
CA-G.R. CV No. 11791 and of its Resolution2 dated May 5, 1994, denying the motion for reconsideration
of said decision filed by petitioner Producers Bank of the Philippines.

(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;

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles
Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela
Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent to deposit
in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation. She
assured private respondent that he could withdraw his money from said account within a months time.
Private respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchezs
request.3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas
private secretary, met and discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of
Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs.
Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter
from Doronilla authorizing Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open
an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account
No. 10-1567 was thereafter issued to Mrs. Vives.4
Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still intact.
The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them that
part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that
only P90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by Doronilla. According to
Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current
Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the
amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said current
account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.5
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a
letter from Doronilla, assuring him that his money was intact and would be returned to him. On August 13,
1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in
favor of private respondent. However, upon presentment thereof by private respondent to the drawee
bank, the check was dishonored. Doronilla requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was again dishonored. 6
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the
return of his clients money. Doronilla issued another check for P212,000.00 in private respondents favor
but the check was again dishonored for insufficiency of funds. 7

(c) the amount of P40,000.00 for attorneys fees; and

(d) the costs of the suit.
SO ORDERED.8
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991,
the appellate court affirmed in toto the decision of the RTC. 9 It likewise denied with finality petitioners
motion for reconsideration in its Resolution dated May 5, 1994. 10
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION
BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN
AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK
MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING
PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE
PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE
REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS
OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN
SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR
ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER
COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT
DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES,
P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on
September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply.
However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing private
respondent with copy of the reply12 and several substitutions of counsel on the part of private
respondent.13 On January 17, 2001, the Court resolved to give due course to the petition and required the
parties to submit their respective memoranda.14 Petitioner filed its memorandum on April 16, 2001 while
private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent
to Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was
obliged to pay interest, as evidenced by the check issued by Doronilla in the amount of P212,000.00,
or P12,000 more than what private respondent deposited in Sterelas bank account.15 Moreover, the fact
that private respondent sued his good friend Sanchez for his failure to recover his money from Doronilla
shows that the transaction was not merely gratuitous but "had a business angle" to it. Hence, petitioner
argues that it cannot be held liable for the return of private respondents P200,000.00 because it is not
privy to the transaction between the latter and Doronilla.16
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing
Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said
company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs.
Vives and Sanchez to open a savings account for Sterela, did not contain any authorization for these two
to withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings
account.17 Petitioner points out that no evidence other than the testimonies of private respondent and
Mrs. Vives was presented during trial to prove that private respondent deposited his P200,000.00 in
Sterelas account for purposes of its incorporation.18 Hence, petitioner should not be held liable for
allowing Doronilla to withdraw from Sterelas savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the
findings of fact therein were not accord with the evidence presented by petitioner during trial to prove that
the transaction between private respondent and Doronilla was a mutuum, and that it committed no wrong
in allowing Doronilla to withdraw from Sterelas savings account.19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the
actual damages suffered by private respondent, and neither may it be held liable for moral and exemplary
damages as well as attorneys fees.20
Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a
mutuum but an accommodation,21 since he did not actually part with the ownership of his P200,000.00
and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be
issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same time,
he retained some degree of control over his money through his wife who was made a signatory to the
savings account and in whose possession the savings account passbook was given. 22
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for
the return of his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in
defrauding private respondent since it was Atienza who facilitated the opening of Sterelas current
account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for said
company, as well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.23
There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed
with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all over
again the evidence presented by the parties during trial.24 The Courts jurisdiction is in principle limited to
reviewing errors of law that might have been committed by the Court of Appeals.25 Moreover, factual
findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive on this
Court unless these findings are not supported by the evidence on record.26 There is no showing of any
misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this
Court to review and overturn the factual findings of that court, especially since the conclusions of fact of
the Court of Appeals and the trial court are not only consistent but are also amply supported by the
evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private
respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so that
the latter may use the same for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as
money, the contract would be a mutuum. However, there are some instances where a commodatum may
have for its object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties
is to lend consumable goods and to have the very same goods returned at the end of the period agreed
upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.27 In case of doubt, the contemporaneous and subsequent
acts of the parties shall be considered in such determination. 28
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private
respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of
making it appear "that said firm had sufficient capitalization for incorporation, with the promise that the
amount shall be returned within thirty (30) days."29 Private respondent merely "accommodated" Doronilla
by lending his money without consideration, as a favor to his good friend Sanchez. It was however clear
to the parties to the transaction that the money would not be removed from Sterelas savings account and
would be returned to private respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited
in Sterelas account together with an additional P12,000.00, allegedly representing interest on the
mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the
intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending of
the P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum

acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to
private respondent the interest accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of
private respondents money because it was not privy to the transaction between Doronilla and private
respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no
bearing on the question of petitioners liability for the return of private respondents money because the
factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza, was
partly responsible for the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for
Savings Account No. 10-1567 expressly states that
"2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly
authenticated, and neither a deposit nor a withdrawal will be permitted except upon the production of the
depositor savings bank book in which will be entered by the Bank the amount deposited or withdrawn." 30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch
Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the
passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several
times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals because
he was party to Doronillas "scheme" of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the knowledge, help and cooperation
of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the defendant bank.
Indeed, the evidence indicates that Atienza had not only facilitated the commission of the fraud but he
likewise helped in devising the means by which it can be done in such manner as to make it appear that
the transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key
officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants
branch in Makati for "it will be easier for them to get a certification". In fact before he was introduced to
plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing
Angeles B. Sanchez and company to open a savings account for Sterela in the amount of P200,000.00,
as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x" (Exh. 1). This is a clear
manifestation that the other defendants had been in consultation with Atienza from the inception of the
scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-law of a certain
Romeo Mirasol, a friend and business associate of Doronilla.1awphi1.nt
Then there is the matter of the ownership of the fund. Because of the "coordination" between Doronilla
and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money
belonged to her and her husband and the deposit was merely to accommodate Doronilla. Atienza even
declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that the only ones
empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B.
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could
only be made by persons whose authorized signatures are in the signature cards on file with the bank.
He, however, said that this procedure was not followed here because Sterela was owned by Doronilla.
He explained that Doronilla had the full authority to withdraw by virtue of such ownership. The Court is
not inclined to agree with Atienza. In the first place, he was all the time aware that the money came from
Vives and did not belong to Sterela. He was also told by Mrs. Vives that they were only accommodating
Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much amount

to be sued in the incorporation of the firm. In the second place, the signature of Doronilla was not
authorized in so far as that account is concerned inasmuch as he had not signed the signature card
provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez
had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted
practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of
the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings
account to the current account was without the submission of the passbook which Atienza had given to
Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate
passbook was issued to Sterela because the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza, who
undoubtedly had a hand in the execution of this certification, was aware that the contents of the same are
not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to
her. Besides, as assistant manager of the branch and the bank official servicing the savings and current
accounts in question, he also was aware that the original passbook was never surrendered. He was also
cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no
effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that Atienzas active
participation in the perpetration of the fraud and deception that caused the loss. The records indicate that
this account was opened three days later after the P200,000.00 was deposited. In spite of his disclaimer,
the Court believes that Atienza was mindful and posted regarding the opening of the current account
considering that Doronilla was all the while in "coordination" with him. That it was he who facilitated the
approval of the authority to debit the savings account to cover any overdrawings in the current account
(Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x. 31
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages
caused by their employees acting within the scope of their assigned tasks. To hold the employer liable
under this provision, it must be shown that an employer-employee relationship exists, and that the
employee was acting within the scope of his assigned task when the act complained of was
committed.32 Case law in the United States of America has it that a corporation that entrusts a general
duty to its employee is responsible to the injured party for damages flowing from the employees wrongful
act done in the course of his general authority, even though in doing such act, the employee may have
failed in its duty to the employer and disobeyed the latters instructions. 33
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that
Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted
Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in which account private
respondents money was deposited, and in transferring the money withdrawn to Sterelas Current
Account with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously
done in furtherance of petitioners interests34 even though in the process, Atienza violated some of
petitioners rules such as those stipulated in its savings account passbook. 35 It was established that the
transfer of funds from Sterelas savings account to its current account could not have been accomplished
by Doronilla without the invaluable assistance of Atienza, and that it was their connivance which was the
cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code,
petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the
return of theP200,000.00 since it is clear that petitioner failed to prove that it exercised due diligence to
prevent the unauthorized withdrawals from Sterelas savings account, and that it was not negligent in the
selection and supervision of Atienza. Accordingly, no error was committed by the appellate court in the
award of actual, moral and exemplary damages, attorneys fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.

G.R. No. L-49101 October 24, 1983

RAOUL
S.V.
BONNEVIE
and
HONESTO
V.
BONNEVIE, petitioners,
vs.
THE
HONORABLE
COURT
OF
APPEALS
and
THE
PHILIPPINE
BANK
OF
COMMERCE, respondents.

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered

dismissing the complaint with costs against the plaintiff and the intervenor.
After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to
respondent Court of Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage executed by
Jose Lozano was null and void;

Edgardo I. De Leon for petitioners.

Siguion Reyna, Montecillo & Associates for private respondent.

2. The lower court erred in not finding that the auction sale decide on August 19,
1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the
property;

GUERRERO, J:

4. The lower court erred in not finding that the defendant acted in bad faith; and

Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals, now
Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs. Philippine Bank of
Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution denying the motion for
reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance
of Rizal against respondent Philippine Bank of Commerce sought the annulment of the Deed of Mortgage
dated December 6, 1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose M.
Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made on September 4, 1968. It
alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was
executed by one who was not the owner of the mortgaged property. It further alleged that the property in
question was foreclosed pursuant to Act No. 3135 as amended, without, however, complying with the
condition imposed for a valid foreclosure. Granting the validity of the mortgage and the extrajudicial
foreclosure, it finally alleged that respondent Bank should have accepted petitioner's offer to redeem the
property under the principle of equity said justice.

5. The lower court erred in dismissing the complaint.

On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower
court, and on October 3. 1978 denied the motion for reconsideration. Hence, the present petition for
review.
The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby adopt
the facts found the trial court and found by the Court of Appeals to be consistent with the evidence
adduced during trial, to wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the
owners of the property which they mortgaged on December 6, 1966, to secure the
payment of the loan in the principal amount of P75,000.00 they were about to obtain
from defendant-appellee Philippine Bank of Commerce; that on December 8, 1966,
executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in
consideration of the sum of P100,000.00, P25,000.00 of which amount being
payable to the Lozano spouses upon the execution of the document, and the
balance of P75,000.00 being payable to defendant- appellee; that on December 6,
1966, when the mortgage was executed by the Lozano spouses in favor of
defendant-appellee, the loan of P75,000.00 was not yet received them, as it was on
December 12, 1966 when they and their co-maker Alfonso Lim signed the
promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiffappellant made payments to defendant-appellee on the mortgage in the total amount
of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all his rights under
the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul
Bonnevie; that on June 10, 1968, defendant-appellee applied for the foreclosure of
the mortgage, and notice of sale was published in the Luzon Weekly Courier on June
30, July 7, and July 14, 1968; that auction sale was conducted on August 19, 1968,
and the property was sold to defendant-appellee for P84,387.00; and that offers from
plaintiff-appellant to repurchase the property failed, and on October 9, 1969, he
caused an adverse claim to be annotated on the title of the property. (Decision of the
Court of Appeals, p. 5).

On the other hand, the answer of defendant Bank, now private respondent herein, specifically denied
most of the allegations in the complaint and raised the following affirmative defenses: (a) that the
defendant has not given its consent, much less the requisite written consent, to the sale of the mortgaged
property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that the demand
letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was notified for the
first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law on contracts
requires defendant's consent before Jose Lozano can be released from his bilateral agreement with the
former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the
loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid despite countless
reminders and demands; of that the property in question remained registered in the name of Jose M.
Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to
plaintiff; (g) that it is an established banking practice that payments against accounts need not be
personally made by the debtor himself; and (h) that it is not true that the mortgage, at the time of its
execution and registration, was without consideration as alleged because the execution and registration
of the securing mortgage, the signing and delivery of the promissory note and the disbursement of the
proceeds of the loan are mere implementation of the basic consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a motion for
intervention. The intervention was premised on the Deed of Assignment executed by petitioner Honesto
Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner Honesto
Bonnevie over the subject property. The intervention was ultimately granted in order that all issues be
resolved in one proceeding to avoid multiplicity of suits.

Presented for resolution in this review are the following issues:

I

On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as
follows:

Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.

II

b) The notice of auction sale was not posted for the period required by law.
Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.

III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in
refusing their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily
attack the validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next,
they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking
the validity of the deed of mortgage, they contended that when it was executed on December 6, 1966,
there was yet no principal obligation to secure as the loan of P75,000.00 was not received by the Lozano
spouses "So much so that in the absence of a principal obligation, there is want of consideration in the
accessory contract, which consequently impairs its validity and fatally affects its very existence."
(Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen
that the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses.
The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the
date it was executed is immaterial. A contract of loan being a consensual contract, the herein contract of
loan was perfected at the same time the contract of mortgage was executed. The promissory note
executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of
consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original
loan, using as security the same property which the Lozano spouses had already sold to petitioners,
rendered the mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale,
disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of the
mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged property is
sold, the vendee shall assume the mortgage in the terms and conditions under which it is constituted.
These provisions are expressly made part and parcel of the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of
mortgage. Coupled with the fact that the sale/assignment was not registered so that the title remained in
the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could
rightfully and validly mortgage the property. Respondent Bank had every right to rely on the certificate of
title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of
innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan,
28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that
a mortgage follows the property whoever the possessor may be and subjects the fulfillment of the
obligation for whose security it was constituted. Finally, it can also be said that petitioners voluntarily
assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage. They are,
therefore, estopped from impugning its validity whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:
a) petitioners were never notified of the foreclosure sale.

c) publication of the notice of auction sale in the Luzon Weekly Courier was not in
accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a
party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the
same and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was
not entitled to any notice because as of May 14, 1968, he had transferred and assigned all his rights and
interests over the property in favor of intervenor Raoul Bonnevie and respondent Bank not likewise
informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most importantly,
Act No. 3135 does not require personal notice on the mortgagor. The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive weeks
in a newspaper of general circulation in the municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14,
1968 and notices of the sale were posted for not less than twenty days in at least three (3) public places
in the Municipality where the property is located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case
involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered
making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in accordance
with law, namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the
publication of notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act
No. 3135 notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely
requires that such notice shall be published once a week for at least three consecutive weeks." Such
phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should
be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with
law as said newspaper is not of general circulation must likewise be disregarded. The affidavit of
publication, executed by the Publisher, business/advertising manager of the Luzon Weekly Courier,
stares that it is "a newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was
published in said paper on June 30, July 7 and July 14, 1968. This constitutes prima facie evidence of
compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local
news and general information; that it has a bona fide subscription list of paying subscribers; that it is
published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the
largest circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of
three witnesses that they do read the Luzon Weekly Courier is no proof that said newspaper is not a
newspaper of general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It
can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126).
Nevertheless, the records show that copies of said notice were posted in three conspicuous places in the
municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal
Hall. In the same manner, copies of said notice were also posted in the place where the property was
located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street.
The following statement of Atty. Santiago Pastor, head of the legal department of respondent bank,
namely:

Q How many days were the notices posted in these two places,
if you know?
A We posted them only once in one day. (TSN, p. 45, July 25,
1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting
requirement in the absence of proof or even of allegation that the notices were removed before the
expiration of the twenty- day period. A single act of posting (which may even extend beyond the period
required by law) satisfies the requirement of law. The burden of proving that the posting requirement was
not complied with is now shifted to the one who alleges non-compliance.
On the question of whether or not the petitioners had a right to redeem the property, We hold that the
Court of Appeals did not err in ruling that they had no right to redeem. No consent having been secured
from respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not validly
substituted as debtors. In fact, their rights were never recorded and hence, respondent Bank is charged
with the obligation to recognize the right of redemption only of the Lozano spouses. But even granting
that as purchaser or assignee of the property, as the case may be, the petitioners had acquired a right to
redeem the property, petitioners failed to exercise said right within the period granted by law. Thru
certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption
period expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto
Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September 29, 1969,
Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did
not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent Bank
dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make payments for
the amount secured by the mortgage on the subject property, to receive acknowledgment of payments,
obtain the Release of the Mortgage after full payment of the obligation and to take delivery of the title of
said property. On the assumption that the letter was received by respondent Bank, a careful reading of
the same shows that the plaintiff was merely authorized to do acts mentioned therein and does not
mention that petitioner is the new owner of the property nor request that all correspondence and notice
should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the
maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for the
foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and
misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968,
when respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners'
payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank
inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be
effected, not only the payment of the accrued interest is necessary but also the payment of interest for
the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely
depend on the debtor but more so on the discretion of the bank. Respondent Bank may not be, therefore,
charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby
AFFIRMED. Costs against petitioners.

G.R. No. 133632

February 15, 2002

BPI
INVESTMENT
vs.
HON.
COURT
OF
APPEALS
and
CORPORATION, respondents.

CORPORATION, petitioner,
ALS

MANAGEMENT

&

DEVELOPMENT

DECISION
QUISUMBING, J.:
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 attorneys fees and expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.

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 attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.

The facts are as follows:

Costs against BPI.
Frank Roa obtained a loan at an interest rate of 16 1/4% 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 Roas 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 Roas 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.

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.

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.

SO ORDERED.3

On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum
of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated when
BPIIC applied thereto the proceeds of private respondents loan of P500,000.

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 Roas 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.

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 Roas 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 sheriffs 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

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.

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

II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS 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.

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

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 Roas 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 Roas 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 Bonneviedeclared 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.

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.1wphi1 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 attorneys fees because private respondents were compelled to
litigate, we sustain the award of P50,000 in favor of private respondents as attorneys 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 attorneys
fees in the amount ofP50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.

G.R. No. 112485

August 9, 2001

EMILIA
MANZANO, petitioner,
vs.
MIGUEL PEREZ SR., LEONCIO PEREZ, MACARIO PEREZ, FLORENCIO PEREZ, NESTOR PEREZ,
MIGUEL PEREZ JR. and GLORIA PEREZ, respondents.
PANGANIBAN, J.:
Courts decide cases on the basis of the evidence presented by the parties. In the assessment of the
facts, reason and logic are used. In civil cases, the party that presents a preponderance of convincing
evidence wins.

The facts of the case are summarized by the Court of Appeals as follows:
"[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of a residential
house and lot, more particularly described hereunder:
'A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan),
together with all the improvements thereon, situated at General Luna Street,
Siniloan, Laguna. Bounded on the North by Callejon; on the East, by [a] town river;
on the South by Constancia Adofina; and on the West by Gen. Luna Street.
Containing an area of 130 square meters more or less, covered by Tax Dec. No.
9583 and assessed at P1,330.00.
'A residential house of strong mixed materials and G.I. iron roofing, with a floor area
of 40 square meters, more or less. Also covered by Tax No. 9583.'

The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the March
31, 1993 Decision1 of the Court of Appeals (CA)2 in CA-GR CY No. 32594. The dispositive part of the
Decision reads:
"WHEREFORE, the judgment appealed from is hereby REVERSED and another one is
entered dismissing plaintiff's complaint."
On the other hand, the Judgment3 reversed by the CA ruled in this wise:
"WHEREFORE, premises considered, judgment is hereby rendered:
1) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the
properties in question void or simulated;
2) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the
properties in question rescinded;
3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez,
Florencio Perez, Miguel Perez, Jr., Nestor Perez and Gloria Perez to execute an
Extra Judicial Partition with transfer over the said residential lot and house, now
covered and described in Tax Declaration Nos. 1993 and 1994, respectively in the
name of Nieves Manzano (Exh. 'Q' & 'P'), subject matter of this case, in favor of
plaintiff Emilia Manzano;
4) Ordering the defendants to pay plaintiff:

"In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of the herein
[private respondents], allegedly borrowed the aforementioned property as collateral for a
projected loan. The [petitioner] acceded to the request of her sister upon the latter's promise
that she [would] return the property immediately upon payment of her loan.
"Pursuant to their understanding, the [petitioner] executed two deeds of conveyance for the
sale of the residential lot on 22 January 1979 (Exhibit 'J') and the sale of the house erected
thereon on 2 February 1979 (Exhibit 'K'), both for a consideration of P1.00 plus other valuables
allegedly received by her from Nieves Manzano.
"On 2 April 1979, Nieves Manzano, together with her husband, [respondent] Miguel Perez, Sr.,
and her son, [respondent] Macario Perez, obtained a loan from the Rural Bank of Infanta, Inc.
in the sum of P30,000.00. To secure payment of their indebtedness, they executed a Real
Estate Mortgage (Exhibit 'A') over the subject property in favor of the bank.
"Nieves Manzano died on 18 December 1979 leaving her husband and children as heirs.
These heirs, [respondents] herein, allegedly refused to return the subject property to the
[petitioner] even after the payment of their loan with the Rural Bank (Exhibit 'B').
"The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and that the
unwarranted refusal of the [respondents] to return the property caused her sleepless nights,
mental shock and social humiliation. She was, likewise, allegedly constrained to engage the
services of a counsel to protect her proprietary rights.
"The [petitioner] sought the annulment of the deeds of sale and execution of a deed of transfer
or reconveyance of the subject property in her favor, the award of moral damages of not less
than P50,000.00, exemplary damages of P10,000.00, attorney's fees of P10,000.00 plus
P500.00 per court appearance, and costs of suit.

a) P25,000.00 as moral damages;

b) P10,000.00 as exemplary damages;
c) P15,000.00 as and for [a]ttorney's fees; and

"In seeking the dismissal of the complaint, the [respondents] countered that they are the
owners of the property in question being the legal heirs of Nieves Manzano who purchased the
same from the [petitioner] for value and in good faith, as shown by the deeds of sale which
contain the true agreements between the parties therein; that except for the [petitioner's] bare
allegations, she failed to show any proof that the transaction she entered into with her sister
was a loan and not a sale.

d) to pay the cost of the suit."4

The Motion for Reconsideration filed by petitioner before the CA was denied in a Resolution dated
October 28, 1993.5
The Facts

"By way of special and affirmative defense, the [respondents] argued that what the parties to
the [sale] agreed upon was to resell the property to the [petitioner] after the payment of the loan
with the Rural Bank. But since the [respondents] felt that the property is the only memory left by
their predecessor-in-interest, they politely informed the [petitioner] of their refusal to sell the
same. The [respondents] also argued that the [petitioner] is now estopped from questioning
their ownership after seven (7) years from the consummation of the sale.

"As a proximate result of the filing of this alleged baseless and malicious suit, the [respondents]
prayed as counterclaim the award of moral damages in the amount of P10,000.00 each,
exemplary damages in an amount as may be warranted by the evidence on record, attorney's
fees of P10,000.00 plus P500.00 per appearance in court and costs of suit.

The Court of Appeals was not convinced by petitioner's claim that there was a supposed oral agreement
ofcommodatum over the disputed house and lot. Neither was it persuaded by her allegation that
respondents' predecessor-in-interest had given no consideration for the sale of the property in the latter's
favor. It explained as follows:

"In ruling for the [petitioner], the court a guo considered the following:

"To begin with, if the plaintiff-appellee remained as the rightful owner of the subject property,
she would not have agreed to reacquire one-half thereof for a consideration of P10,000.00
(Exhibit 'U-1'). This is especially true if we are to accept her assertion that Nieves Manzano did
not purchase the property for value. More importantly, if the agreement was to merely use
plaintiff's property as collateral in a mortgage loan, it was not explained why physical
possession of the house and lot had to be with the supposed vendee and her family who even
built a pigpen on the lot (p. 6, TSN, June 11, 1990). A mere execution of the document
transferring title in the latter's name would suffice for the purpose.

'First, the properties in question after [they have] been transferred to Nieves
Manzano, the same were mortgaged in favor of the Rural Bank of Infante, Inc. (Exh.
'A') to secure payment of the loan extended to Macario Perez.'
'Second, the documents covering said properties which were given to the bank as
collateral of said loan, upon payment and [release] to the [private respondents], were
returned to [petitioner] by Florencio Perez, one of the [private respondents].'

"The alleged failure of the defendants-appellants to present evidence of payment of real estate
taxes cannot prejudice their cause. Realty tax payment of property is not conclusive evidence
of ownership (Director of Lands vs. Intermediate Appellate Court, 195 SCRA 38). Tax receipts
only become strong evidence of ownership when accompanied by proof of actual possession
of the property (Tabuena vs. Court of Appeals, 196 SCRA 650).

'[These] uncontroverted facts [are] a clear recognition [by private respondents] that
[petitioner] is the owner of the properties in question.'
xxx xxx xxx "'

"In this case, plaintiff-appell[ee] was not in possession of the subject property. The defendantappellants were the ones in actual occupation of the house and lot which as aforestated was
unnecessary if the real agreement was merely to lend the property to be used as collateral.
Moreover, the plaintiff-appellee began paying her taxes only in 1986 after the instant complaint
ha[d] been instituted (Exhibits 'V', 'V-1', 'V-2', 'V-3' and 'T'), and are, therefore, self-serving.

'Third, [respondents'] pretense of ownership of the properties in question is belied by

their failure to present payment of real estate taxes [for] said properties, and it is on
[record] that [petitioner] has been paying the real estate taxes [on] the same (Exh. 'T',
'V', 'V-1', 'V-2' & 'V- 3')."

"Significantly, while plaintiff-appellee was still the owner of the subject property in 1979 (Exhibit
'I'), the Certificate of Tax Declaration issued by the Office of the Municipal Treasurer on 8
August 1990 upon the request of the plaintiff-appellee herself (Exhibit 'W') named Nieves
Manzano as the owner and possessor of the property in question. Moreover, Tax Declaration
No. 9589 in the name of Nieves Manzano (Exhibits 'D' and 'D-1 ') indicates that the transfer of
the subject property was based on the Absolute Sale executed before Notary Public Alfonso
Sanvictores, duly recorded in his notarial book as Document No. 3157, Page 157, Book No. II.
Tax Declaration No[s]. 9633 (Exhibit 'H'), 1994 (Exhibit 'P'), 1993 (Exhibit 'Q') are all in the
name of Nieves Manzano.

xxx xxx xxx

'Fourth, [respondents] confirmed the fact that [petitioner] went to the house in
question and hacked the stairs. According to [petitioner] she did it for failure of the
[respondents] to return and vacate the premises. [Respondents] did not file any
action against her.'
'This is a clear indication also that they (respondents) recognized [petitioner] as
owner of said properties.'

"There is always the presumption that a written contract [is] for a valuable consideration
(Section 5 (r), Rule 131 of the Rules of Court; Gamaitan vs. Court of Appeals, 200 SCRA 37).
The execution of a deed purporting to convey ownership of a realty is in itself prima facie
evidence of the existence of a valuable consideration and xxx the party alleging lack of
consideration has the burden of proving such allegation (Caballero, et al. vs. Caballero, et al.,
C.A. 45 O.G. 2536).

xxx xxx xxx

'Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and the
same was sent to her (Exh. 'F' & 'G').

"The consideration [for] the questioned [sale] is not the One (P1.00) Peso alone but also the
other valuable considerations. Assuming that such consideration is suspiciously insufficient,
this circumstance alone, is not sufficient to invalidate the sale. The inadequacy of the monetary
consideration does not render a conveyance null and void, for the vendor's liberality may be a
sufficient cause for a valid contract (Ong vs. Ong, 139 SCRA 133)." 7

xxx xxx xxx

'Sixth, upon request of the [petitioner] to return said properties to her, [respondents]
did promise and prepare an Extra Judicial Partition with Sale over said properties in
question, however the same did not materialize. The other heirs of Nieves Manzano
did not sign."

Hence, this Petition.8

xxx xxx xxx

Issues
'Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of the
properties in question is P1.00 and other things of value. [Petitioner] denies she has
received any consideration for the transfer of said properties, and the [respondents]
have not presented evidence to belie her testimony."6
Ruling of the Court of Appeals

Petitioner submits the following grounds in support of her cause:9

"1. The Court of Appeals erred in failing to consider that:

A) The introduction of petitioner's evidence is proper under the parol evidence rule.

to sign the document; and (5) petitioner hacked the stairs of the subject house, yet no case was filed
against her. 1wphi1.nt

B) The rules on admission by silence apply in the case at bar.

C) Petitioner is entitled to the reliefs prayed for.
"2. The Court of Appeals erred in reversing the decision of the trial court whose factual findings
are entitled to great respect since it was able to observe and evaluate the demeanor of the
witnesses."10
In sum, the main issue is whether the agreement between the parties was a commodatum or an absolute
sale.
The Court's Ruling
The Petition has no merit.
Main Issue: Sale or Commodatum
Obviously, the issue in this case is enveloped by a conflict in factual perception, which is ordinarily not
reviewable in a petition under Rule 45. But the Court is constrained to resolve it, because the factual
findings of the Court of Appeals are contrary to those of the trial court. 11
Preliminarily, petitioner contends that the CA erred in rejecting the introduction of her parol evidence. A
reading of the assailed Decision shows, however, that an elaborate discussion of the parol evidence rule
and its exceptions was merely given as a preface by the appellate court. Nowhere therein did it consider
petitioner's evidence as improper under the said rule. On the contrary, it considered and weighed each
and every piece thereof. Nonetheless, it was not persuaded, as explained in the multitude of reasons
explicitly stated in its Decision.
This Court finds no cogent reason to disturb the findings and conclusions of the Court of Appeals. Upon
close examination of the records, we find that petitioner has failed to discharge her burden of proving her
case by apreponderance of evidence. This concept refers to evidence that has greater weight or is more
convincing than that which is offered in opposition; at bottom, it means probability of truth. 12
In the case at bar, petitioner has presented no convincing proof of her continued ownership of the subject
property. In addition to her own oral testimony, she submitted proof of payment of real property taxes. But
that payment, which was made only after her Complaint had already been lodged before the trial court,
cannot be considered in her favor for being self-serving, as aptly explained by the CA. Neither can we
give weight to her allegation that respondent's possession of the subject property was merely by virtue of
her tolerance. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our
Rules.13
On the other hand, respondents presented two Deeds of Sale, which petitioner executed in favor of the
former's predecessor-in-interest. Both Deeds - for the residential lot and for the house erected thereon were each in consideration of P1.00 "plus other valuables." Having been notarized, they are presumed to
have been duly executed. Also, issued in favor of respondents' predecessor-in-interest the day after the
sale was Tax Declaration No. 9589, which covered the property.
The facts alleged by petitioner in her favor are the following: (1) she inherited the subject house and lot
from her parents, with her siblings waiving in her favor their claim over the same; (2) the property was
mortgaged to secure a loan of P30,000 taken in the names of Nieves Manzano Perez and Respondent
Miguel Perez; (3) upon full payment of the loan, the documents pertaining to the house and lot were
returned by Respondent Florencio Perez to petitioner; (4) three of the respondents were signatories to a
document transferring one half of the property to Emilia Manzano in consideration of the sum of ten
thousand pesos, although the transfer did not materialize because of the refusal of the other respondents

These matters are not, however, convincing indicators of petitioner's ownership of the house and lot. On
the contrary, they even support the claim of respondents. Indeed, how could one of them have obtained a
mortgage over the property, without having dominion over it? Why would they execute a reconveyance of
one half of it in favor of petitioner? Why would the latter have to pay P10,000 for that portion if, as she
claims, she owns the whole?
Pitted against respondents' evidence, that of petitioner awfully pales. Oral testimony cannot, as a rule,
prevail over a written agreement of the parties.14 In order to contradict the facts contained in a notarial
document, such as the two "Kasulatan ng Bilihang Tuluyan" in this case, as well as the presumption of
regularity in the execution thereof, there must be clear and convincing evidence that is more than merely
preponderant.15 Here, petitioner has failed to come up with even a preponderance of evidence to prove
her claim.
Courts are not blessed with the ability to read what goes on in the minds of people. That is why parties to
a case are given all the opportunity to present evidence to help the courts decide on who are telling the
truth and who are lying, who are entitled to their claim and who are not. The Supreme Court cannot
depart from these guidelines and decide on the basis of compassion alone because, aside from being
contrary to the rule of law and our judicial system, this course of action would ultimately lead to anarchy.
We reiterate, the evidence offered by petitioner to prove her claim is sadly lacking. Jurisprudence on the
subject matter, when applied thereto, points to the existence of a sale, not a commodatum over the
subject house and lot.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

G.R. No. 146364

SO ORDERED.7

June 3, 2004

COLITO
T.
vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.

PAJUYO, petitioner,

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:

DECISION
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.

CARPIO, J.:
The Case

SO ORDERED.8
1

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

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996
to file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals,
Guevarra filed with the Supreme Court a "Motion for Extension of Time to File Appeal by Certiorari Based
on Rule 42" ("motion for extension"). Guevarra theorized that his appeal raised pure questions of law.
The Receiving Clerk of the Supreme Court received the motion for extension on 13 December 1996 or
one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution9 referring the motion for
extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no
special and important matter for the Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution 10 granting the
motion for extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review.
On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No.
Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case
filed against defendant-appellant is without factual and legal basis.
SO ORDERED.11

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter to:

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals
should have dismissed outright Guevarras petition for review because it was filed out of time. Moreover,
it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping.

A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;

On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for
reconsideration. The dispositive portion of the resolution reads:

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;

WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.12

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
The Ruling of the MTC
D) pay the cost of suit.

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the
lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus,
Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of
the house illegal.
The Ruling of the RTC

The 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:

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.

1) in GRANTING, instead of denying, Private Respondents Motion for an Extension

of thirty days to file petition for review at the time when there was no more period to
extend as the decision of the Regional Trial Court had already become final and
executory.

The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National
Government Center Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the
RTC has no power to decide Guevarras rights under these laws. The RTC declared that in an ejectment
case, the only issue for resolution is material or physical possession, not ownership.

2) in giving due course, instead of dismissing, private respondents Petition for

Review even though the certification against forum-shopping was signed only by
counsel instead of by petitioner himself.

The Ruling of the Court of Appeals

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".

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.

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 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 theKasunduan is not a lease contract but a commodatum because the agreement is
not for a price certain.

The Ruling of the Court

Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that
Guevarra has a better right over the property under Proclamation No. 137. President Corazon C. Aquino
("President Aquino") issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in
physical possession of the property. Under Article VI of the Code of Policies Beneficiary Selection and
Disposition of Homelots and Structures in the National Housing Project ("the Code"), the actual occupant
or caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals
concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that
Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court
was stamped "13 December 1996 at 4:09 PM" by the Supreme Courts Receiving Clerk. The Court of
Appeals concluded that the motion for extension bore a date, contrary to Pajuyos claim that the motion
for extension was undated. Guevarra filed the motion for extension on time on 13 December 1996 since
he filed the motion one day before the expiration of the reglementary period on 14 December 1996. Thus,
the motion for extension properly complied with the condition imposed by the Court of Appeals in its 28
January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the petition
for review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the
petition for review because it was Guevarras counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his
Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal of the case after he
had extensively argued on the merits of the case. This technicality, the appellate court opined, was
clearly an afterthought.

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

1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for
review gives the impression that the issues he raised were pure questions of law. There is a question of
law when the doubt or difference is on what the law is on a certain state of facts. 16 There is a question of
fact when the doubt or difference is on the truth or falsity of the facts alleged. 17
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for
review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not
the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a
valid case for ejectment? (3) Should a Presidential Proclamation governing the lot on which a squatters
structure stands be considered in an ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the
Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However,
some factual questions still have to be resolved because they have a bearing on the legal questions
raised in the petition for review. These factual matters refer to the metes and bounds of the disputed
property and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review.
In Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,18 we declared
that the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v.
Court of Appeals,19 we clarified that the prohibition against granting an extension of time applies only in
a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal,
requires preparation and research to present a persuasive position. 20 The drafting of the petition for
review entails more time and effort than filing a notice of appeal. 21 Hence, the Court of Appeals may allow
an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we held
that Liborosclarification of Lacsamana is consistent with the Revised Internal Rules of the Court of
Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for
review with the Court of Appeals. The extension, however, should be limited to only fifteen days save in
exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment becomes a fact on
the lapse of the reglementary period to appeal if no appeal is perfected. 23 The RTC decision could not
have gained finality because the Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for
extension. The Court of Appeals gave due course to the motion for extension because it complied with
the condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that
the Court of Appeals would only give due course to the motion for extension if filed on time. The motion
for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are
(1) the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date
of filing of the motion for extension.24 It is the date of the filing of the motion or pleading, and not the date
of execution, that determines the timeliness of the filing of that motion or pleading. Thus, even if the
motion for extension bears no date, the date of filing stamped on it is the reckoning point for determining
the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion
for extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk
on the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the
lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds,
Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the petition for review
at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when

the Court of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against
Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the
merits, is estopped from attacking the jurisdiction of the court. 25 Estoppel sets in not because the
judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the
courts jurisdiction after voluntarily submitting to it is against public policy. 26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the
certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the
verification, claiming that the counsels verification is insufficient since it is based only on "mere
information."
A partys failure to sign the certification against forum shopping is different from the partys failure to sign
personally the verification. The certificate of non-forum shopping must be signed by the party, and not by
counsel.27 The certification of counsel renders the petition defective.28
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
requisite.29 It is intended simply to secure an assurance that what are alleged in the pleading are true and
correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in
good faith.30 The party need not sign the verification. A partys representative, lawyer or any person who
personally knows the truth of the facts alleged in the pleading may sign the verification.31
We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely
an afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the
proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve
the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest the
inferior court of its jurisdiction over the ejectment case. 32 Even if the pleadings raise the issue of
ownership, the court may pass on such issue to determine only the question of possession, especially if
the ownership is inseparably linked with the possession. 33 The adjudication on the issue of ownership is
only provisional and will not bar an action between the same parties involving title to the land. 34 This
doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible
entry and unlawful detainer, where the only issue for adjudication is the physical or material possession
over the real property.35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the
contested property and that they are mere squatters. Will the defense that the parties to the ejectment
case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case?
The Court of Appeals believed so and held that it would just leave the parties where they are since they
are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of
possession. The parties cannot present evidence to prove ownership or right to legal possession except
to prove the nature of the possession when necessary to resolve the issue of physical possession. 36 The
same is true when the defendant asserts the absence of title over the property. The absence of title over
the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the
physical possession of the premises, that is, to the possession de facto and not to the possession de
jure.37 It does not even matter if a partys title to the property is questionable, 38 or when both parties
intruded into public land and their applications to own the land have yet to be approved by the proper

government agency.39 Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.40 Neither is the
unlawful withholding of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner
himself.41Whatever may be the character of his possession, if he has in his favor prior possession in time,
he has the security that entitles him to remain on the property until a person with a better right lawfully
ejects him.42 To repeat, the only issue that the court has to settle in an ejectment suit is the right to
physical possession.
In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did not authorize
either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had
prior possession and had already introduced improvements on the public land. The plaintiff had a
pending application for the land with the Bureau of Lands when the defendant ousted him from
possession. The plaintiff filed the action of forcible entry against the defendant. The government was not
a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while
the application of the plaintiff was still pending, title remained with the government, and the Bureau of
Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have
jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff, by
priority of his application and of his entry, acquired prior physical possession over the public land applied
for as against other private claimants. That prior physical possession enjoys legal protection against other
private claimants because only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as squatters, strictly speaking,
their entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land
without the owners permission. Title to the land remained with the government because it had not
awarded to anyone ownership of the contested public land. Both the plaintiff and the defendant were in
effect squatting on government property. Yet, we upheld the courts jurisdiction to resolve the issue of
possession even if the plaintiff and the defendant in the ejectment case did not have any title over the
contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the
public need to preserve the basic policy behind the summary actions of forcible entry and unlawful
detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal
disorder and to compel the party out of possession to respect and resort to the law alone to obtain what
he claims is his.45 The party deprived of possession must not take the law into his own
hands.46 Ejectment proceedings are summary in nature so the authorities can settle speedily actions to
recover possession because of the overriding need to quell social disturbances. 47
We further explained in Pitargue the greater interest that is at stake in actions for recovery of
possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
possessory actions involving these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting claimants? It is one of utmost
importance, as there are public lands everywhere and there are thousands of settlers,
especially in newly opened regions. It also involves a matter of policy, as it requires the
determination of the respective authorities and functions of two coordinate branches of the
Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was
in force in this country before the American occupation, or in the new, we have a possessory
action, the aim and purpose of which is the recovery of the physical possession of real
property, irrespective of the question as to who has the title thereto. Under the Spanish Civil
Code we had the accion interdictal, a summary proceeding which could be brought within one
year from dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and
as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190

of the Philippine Commission) we implanted the common law action of forcible entry (section 80
of Act No. 190), the object of which has been stated by this Court to be "to prevent breaches
of the peace and criminal disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would create that some advantage
must accrue to those persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some appropriate action in
the court to assert their claims." (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312,
314.) So before the enactment of the first Public Land Act (Act No. 926) the action of forcible
entry was already available in the courts of the country. So the question to be resolved is, Did
the Legislature intend, when it vested the power and authority to alienate and dispose of the
public lands in the Lands Department, to exclude the courts from entertaining the possessory
action of forcible entry between rival claimants or occupants of any land before award thereof
to any of the parties? Did Congress intend that the lands applied for, or all public lands for that
matter, be removed from the jurisdiction of the judicial Branch of the Government, so that any
troubles arising therefrom, or any breaches of the peace or disorders caused by rival claimants,
could be inquired into only by the Lands Department to the exclusion of the courts? The
answer to this question seems to us evident. The Lands Department does not have the means
to police public lands; neither does it have the means to prevent disorders arising therefrom, or
contain breaches of the peace among settlers; or to pass promptly upon conflicts of
possession. Then its power is clearly limited to disposition and alienation, and while it
may decide conflicts of possession in order to make proper award, the settlement of
conflicts of possession which is recognized in the court herein has another ultimate
purpose, i.e., the protection of actual possessors and occupants with a view to the
prevention of breaches of the peace. The power to dispose and alienate could not have
been intended to include the power to prevent or settle disorders or breaches of the
peace among rival settlers or claimants prior to the final award. As to this, therefore, the
corresponding branches of the Government must continue to exercise power and jurisdiction
within the limits of their respective functions. The vesting of the Lands Department with
authority to administer, dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of the exercise of the
respective functions or powers thereon, such as the authority to stop disorders and
quell breaches of the peace by the police, the authority on the part of the courts to take
jurisdiction over possessory actions arising therefrom not involving, directly or
indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that
courts have no jurisdiction to determine the rights of claimants to public lands, and that until the
disposition of the land has passed from the control of the Federal Government, the courts will
not interfere with the administration of matters concerning the same. (50 C. J. 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 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.

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto. We explained the principle
of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari
delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement. It
leaves the parties where it finds them.49
The application of the pari delicto principle is not absolute, as there are exceptions to its application. One
of these exceptions is where the application of the pari delicto rule would violate well-established public
policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions of forcible entry and
unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless
of the actual condition of the title to the property, the party in peaceable quiet possession shall
not be turned out by strong hand, violence or terror. In affording this remedy of restitution the
object of the statute is to prevent breaches of the peace and criminal disorder which would
ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would
create that some advantage must accrue to those persons who, believing themselves entitled
to the possession of property, resort to force to gain possession rather than to some
appropriate action in the courts to assert their claims. This is the philosophy at the foundation
of all these actions of forcible entry and detainer which are designed to compel the party out of
possession to respect and resort to the law alone to obtain what he claims is his. 52
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught
with danger. To shut out relief to squatters on the ground of pari delicto would openly invite mayhem and
lawlessness. A squatter would oust another squatter from possession of the lot that the latter had illegally
occupied, emboldened by the knowledge that the courts would leave them where they are. Nothing would
then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of
possession seek to prevent.53 Even the owner who has title over the disputed property cannot take the
law into his own hands to regain possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The
determination of priority and superiority of possession is a serious and urgent matter that cannot be left to
the squatters to decide. To do so would make squatters receive better treatment under the law. The law
restrains property owners from taking the law into their own hands. However, the principle of pari
delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or
violently retake possession of properties usurped from them. Courts should not leave squatters to their
own devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case

First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under
Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it declared
open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137.
Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137.
He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that
he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project
administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed
Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into
law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in
September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137
allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137.
Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did
not take any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra
has a pending application over the lot, courts should still assume jurisdiction and resolve the issue of
possession. However, the jurisdiction of the courts would be limited to the issue of physical possession
only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving public land to
determine the issue of physical possession. The determination of the respective rights of rival claimants
to public land is, however, distinct from the determination of who has the actual physical possession or
who has a better right of physical possession. 56 The administrative disposition and alienation of public
lands should be threshed out in the proper government agency.57
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was
premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should
not preempt the decision of the administrative agency mandated by law to determine the qualifications of
applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and breaches of peace. 58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it.
Guevarra expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay
pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng "walang
bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.

Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but
Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to vacate
the premises on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos demand
to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a
person from another of the possession of real property to which the latter is entitled after the expiration or
termination of the formers right to hold possession under a contract, express or implied.59
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the
defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an
action for unlawful detainer will lie.60 The defendants refusal to comply with the demand makes his
continued possession of the property unlawful.61 The status of the defendant in such a case is similar to
that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance
of the owner.62
This principle should apply with greater force in cases where a contract embodies the permission or
tolerance to use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra
expressly vowed in theKasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that
the latter may use the same for a certain time and return it. 63 An essential feature of commodatum is that
it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a
certain period.64 Thus, the bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is constituted.65 If the
bailor should have urgent need of the thing, he may demand its return for temporary use. 66 If the use of
the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium.67 Under the Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case
law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the lease. 69 The
tenants withholding of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as
bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of
commission, administration and commodatum.70 These contracts certainly involve the obligation to deliver
or return the thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter.
Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
theKasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it.
The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to
physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras
recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith.
The absence of a contract would not yield a different result, as there would still be an implied promise to
vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is allowing an
absentee squatter who (sic) makes (sic) a profit out of his illegal act." 72 Guevarra bases his argument on
the preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized
housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property
without paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out
usurped properties to other squatters. Moreover, it is for the proper government agency to decide who
between Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is
physical possession.
Prior possession is not always a condition sine qua non in ejectment.73 This is one of the distinctions
between forcible entry and unlawful detainer.74 In forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he
must allege and prove prior possession.75 But in unlawful detainer, the defendant unlawfully withholds
possession after the expiration or termination of his right to possess under any contract, express or
implied. In such a case, prior physical possession is not required. 76
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right
to possess the property ended as well. Moreover, it was Pajuyo who was in actual possession of the
property because Guevarra had to seek Pajuyos permission to temporarily hold the property and
Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the property still
rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of
the law does not mean that a man has to have his feet on every square meter of the ground before he is
deemed in possession.77 One may acquire possession not only by physical occupation, but also by the
fact that a thing is subject to the action of ones will.78 Actual or physical occupation is not always
necessary.79
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and intruders who
clandestinely enter into titled government property cannot, by such act, acquire any legal right to said
property."80 We made this declaration because the person who had title or who had the right to legal
possession over the disputed property was a party in the ejectment suit and that party instituted the case
against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This
case is between squatters. Had the government participated in this case, the courts could have evicted
the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot
evict on our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts
in settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession
just because they are squatters would have the same dangerous implications as the application of the
principle of pari delicto. Squatters would then rather settle the issue of physical possession among
themselves than seek relief from the courts if the plaintiff and defendant in the ejectment case would both
stand to lose possession of the disputed property. This would subvert the policy underlying actions for
recovery of possession.

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

G.R. No. L-17474

October 25, 1962

6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this
Court as stated at the beginning of this opinion.

REPUBLIC
OF
THE
PHILIPPINES, plaintiff-appellee,
vs.
JOSE
V.
BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
D.
T.
Reyes,
Liaison
and
Office of the Solicitor General for plaintiff-appellee.

Associates

for

petitioner-appellant.

PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration
on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However,
the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for
another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March
1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three
bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry
advised him that the book value of the three bulls could not be reduced and that they either be returned
or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of
the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the
Republic of the Philippines commenced an action against him praying that he be ordered to return the
three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding
fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be
granted in (civil No. 12818).

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned
the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of
execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the
estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already
had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the
animal was kept, and that as such death was due to force majeure she is relieved from the duty of
returning the bull or paying its value to the appellee. The contention is without merit. The loan by the
appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject
to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant
contends that the contract was commodatum and that, for that reason, as the appellee retained
ownership or title to the bull it should suffer its loss due to force majeure. A contract ofcommodatum is
essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a
lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of
a possessor in bad faith, because she had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the
Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of
the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the
pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of
the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the
bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the
Auditor General did not object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and
delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with:
the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt
from liability.

After hearing, on 30 July 1956 the trial court render judgment

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the
payment of its value being a money claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil
personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable,
because section 17 of Rule 3 of the Rules of Court provides that

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three
bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the
legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18
October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of
this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of
the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified.
On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were
returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the
Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying
that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January
1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day,

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the
deceased, within a period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3
which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the
court promptly of such death . . . and to give the name and residence of the executory
administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had
been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having
claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied,
whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness
of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this
Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first
publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the
appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee
who were to be notified of the defendant's death in accordance with the above-quoted rule, and there was
no reason for such failure to notify, because the attorney who appeared for the defendant was the same
who represented the administratrix in the special proceedings instituted for the administration and
settlement of his estate. The appellee or its attorney or representative could not be expected to know of
the death of the defendant or of the administration proceedings of his estate instituted in another court
that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as
required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is
only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee,
because it was killed while in the custody of the administratrix of his estate. This is the amount prayed for
by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant
for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas
having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in
favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

G.R. No. L-46240

November 3, 1939

MARGARITA
QUINTOS
vs.
BECK, defendant-appellee.

and

Mauricio
Carlos
Felipe Buencamino, Jr. for appellee.

ANGEL

A.

ANSALDO, plaintiffs-appellants,

for

appellants.

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him
for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that
the defendant return to her the three has heaters and the four electric lamps found in the possession of
the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own
expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro
rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar
street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff
and the defendant, the former gratuitously granted to the latter the use of the furniture described in the
third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to
the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez
and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days
to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required
the defendant to return all the furniture transferred to him for them in the house where they were found.
On
November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating
that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the
defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters
and the four electric lamps because he would use them until the 15th of the same month when the lease
in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had
declined to make delivery of all of them. On
November 15th, before vacating the house, the
defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit
in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in
holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the
defendant placed them at their disposal; in not ordering the defendant to pay them the value of the
furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at
their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the
furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in
denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration
and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with
his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the
deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof;
by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters
demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means
that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not
comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his
benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came
to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they
were offered to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit;
nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted
to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the
defendant in case of his inability to return some of the furniture because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value.
Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined by
the trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract
of commodatum, and without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal expenses and
other judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in
the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by
the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the
defendant shall pay the costs in both instances. So ordered.