G.R. No. L-16106 December 30, 1961 purview of Act No.
purview of Act No. 3936, but not the telegraphic transfer payment
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK, ET AL., defendants,
THE FIRST NATIONAL CITY BANK OF NEW YORK, defendant-appellee.
Office of the Solicitor General for plaintiff-appellant.
Picazo, Lichauco and Agcaoili for defendant-appellee.
BAUTISTA ANGELO, J.:
The Republic of the Philippines filed on September 25, 1957 before
the Court of First Instance of Manila a complaint for escheat of
certain unclaimed bank deposits balances under the provisions of Act
No. 3936 against several banks, among them the First National City
Bank of New York. It is alleged that pursuant to Section 2 of said Act
defendant banks forwarded to the Treasurer of the Philippines a
statement under oath of their respective managing officials of all the
credits and deposits held by them in favor of persons known to be
dead or who have not made further deposits or withdrawals during
the period of 10 years or more. Wherefore, it is prayed that said
credits and deposits be escheated to the Republic of the Philippines
by ordering defendant banks to deposit them to its credit with the
Treasurer of the Philippines.
In its answer the First National City Bank of New York claims that,
while it admits that various savings deposits, pre-war inactive
accounts, and sundry accounts contained in its report submitted to
the Treasurer of the Philippines pursuant to Act No. 3936, totalling
more than P100,000.00, which remained dormant for 10 years or
more, are subject to escheat however, it has inadvertently included in
said report certain items amounting to P18,589.89 which, properly
speaking, are not credits or deposits within the contemplation of Act
No. 3936. Hence, it prayed that said items be not included in the
claim of plaintiff.
After hearing the court a quo rendered judgment holding that
cashier's is or manager's checks and demand drafts as those which
defendant wants excluded from the complaint come within the
which orders are of different category. Consequently, the complaint
was dismissed with regard to the latter. But, after a motion to
reconsider was filed by defendant, the court a quo changed its view
and held that even said demand drafts do not come within the
purview of said Act and so amended its decision accordingly. Plaintiff
has appealed.lawphil.net
Section 1, Act No. 3936, provides:
Section 1. "Unclaimed balances" within the meaning of this
Act shall include credits or deposits of money, bullion,
security or other evidence of indebtedness of any kind, and
interest thereon with banks, as hereinafter defined, in favor
of any person unheard from for a period of ten years or more.
Such unclaimed balances, together with the increase and
proceeds thereof, shall be deposited with the Insular
Treasure to the credit of the Government of the Philippine
Islands to be as the Philippine Legislature may direct.
It would appear that the term "unclaimed balances" that are subject
to escheat include credits or deposits money, or other evidence of
indebtedness of any kind with banks, in favor of any person unheard
from for a period of 10 years or more. And as correctly stated by the
trial court, the term "credit" in its usual meaning is a sum credited on
the books of a company to a person who appears to be entitled to it.
It presupposes a creditor-debtor relationship, and may be said to
imply ability, by reason of property or estates, to make a promised
payment ( In re Ford, 14 F. 2d 848, 849). It is the correlative to debt or
indebtedness, and that which is due to any person, a distinguished
from that which he owes (Mountain Motor Co. vs. Solof, 124 S.E., 824,
825; Eric vs. Walsh, 61 Atl. 2d 1, 4; See also Libby vs. Hopkins, 104
U.S. 303, 309; Prudential Insurance Co. of America vs. Nelson, 101 F.
2d, 441, 443; Barnes vs. Treat, 7 Mass. 271, 274). The same is true
with the term "deposits" in banks where the relationship created
between the depositor and the bank is that of creditor and debtor
(Article 1980, Civil Code; Gullas vs. National Bank, 62 Phil. 915;
Gopoco Grocery, et al. vs. Pacific Coast Biscuit Co., et al., 65 Phil.
443).
The questions that now arise are: Do demand draft and telegraphic
orders come within the meaning of the term "credits" or "deposits"
employed in the law? Can their import be considered as a sum
credited on the books of the bank to a person who appears to be
entitled to it? Do they create a creditor-debtor relationship between
drawee and the payee?
The answers to these questions require a digression the legal
meaning of said banking terminologies.
To begin with, we may say that a demand draft is a bill of exchange
payable on demand (Arnd vs. Aylesworth, 145 Iowa 185; Ward vs. City
Trust Company, 102 N.Y.S. 50; Bank of Republic vs. Republic State
Bank, 42 S.W. 2d, 27). Considered as a bill of exchange, a draft is said
to be, like the former, an open letter of request from, and an order by,
one person on another to pay a sum of money therein mentioned to a
third person, on demand or at a future time therein specified (13
Words and Phrases, 371). As a matter of fact, the term "draft" is often
used, and is the common term, for all bills of exchange. And the
words "draft" and "bill of exchange" are used indiscriminately (Ennis
vs. Coshoctan Nat. Bank, 108 S.E., 811; Hinnemann vs. Rosenback, 39
N.Y. 98, 100, 101; Wilson vs. Bechenau, 48 Supp. 272, 275).
On the other hand, a bill of exchange within the meaning of our
Negotiable Instruments Law (Act No. 2031) does not operate as an
assignment of funds in the hands of the drawee who is not liable on
the instrument until he accepts it. This is the clear import of Section
127. It says: "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for the
payment thereon and the drawee is not liable on the bill unless and
until he accepts the same." In other words, in order that a drawee
may be liable on the draft and then become obligated to the payee it
is necessary that he first accepts the same. In fact, our law requires
that with regard to drafts or bills of exchange there is need that they
be presented either for acceptance or for payment within a
reasonable time after their issuance or after their last negotiation
thereof as the case may be (Section 71, Act 2031). Failure to make
such presentment will discharge the drawer from liability or to the
extent of the loss caused by the delay (Section 186, Ibid.)
Since it is admitted that the demand drafts herein involved have not
been presented either for acceptance or for payment, the inevitable
consequence is that the appellee bank never had any chance of
accepting or rejecting them. Verily, appellee bank never became a
debtor of the payee concerned and as such the aforesaid drafts
cannot be considered as credits subject to escheat within the
meaning of the law.
But a demand draft is very different from a cashier's or manager's
cheek, contrary to appellant's pretense, for it has been held that the
latter is a primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. Thus, a cashier's
check has been clearly characterized in In Re Bank of the United
States, 277 N.Y.S. 96. 100, as follows:
A cashier's check issued by a bank, however, is not an
ordinary draft. The latter is a bill of exchange payable
demand. It is an order upon a third party purporting to drawn
upon a deposit of funds. Drinkall v. Movious State Bank, 11
N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep. 693; State
v. Tyler County State Bank (Tex. Com. App.) 277 S.W. 625, 42
A.L.R. 1347. A cashier's check is of a very different character.
It is the primary obligation of the bank which issues it
(Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and
constitutes its written promise to pay upon demand
(Steinmetz v. Schultz, 59 S.D. 603, 241 N.W. 734)....lawphil.net
The following definitions cited by appellant also confirm this view:
A cashier's check is a check of the bank's cashier on his or
another bank. It is in effect a bill of exchange drawn by a
bank on itself and accepted in advance by the act of
issuance (10 C.J.S. 409).
A cashier's check issued on request of a depositor is the
substantial equivalent of a certified check and the deposit
represented by the check passes to the credit of the
checkholder, who is thereafter a depositor to that amount
(Lummus Cotton Gin Co. v. Walker, 70 So. 754, 756, 195 Ala.
552).
A cashier's check, being merely a bill of exchange drawn by a
bank on itself, and accepted in advance by the act of
issuance, is not subject to countermand by the payee after
 indorsement, and has the same legal effects as a certificate
deposit or a certified check (Walker v. Sellers, 77 So. 715, 201
Ala. 189).

A demand draft is not therefore of the same category as a cashier's

check which should come within the purview of the law.

The case, however, is different with regard to telegraphic payment

order. It is said that as the transaction is for the establishment of a
telegraphic or cable transfer the agreement to remit creates a
contractual obligation a has been termed a purchase and sale
transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer
upon making payment completes the transaction insofar as he is
concerned, though insofar as the remitting bank is concerned the
contract is executory until the credit is established (Ibid.) We agree
with the following comment the Solicitor General: "This is so because
the drawer bank was already paid the value of the telegraphic
transfer payment order. In the particular cases under consideration it
appears in the books of the defendant bank that the amounts
represented by the telegraphic payment orders appear in the names
of the respective payees. If the latter choose to demand payment of
their telegraphic transfers at the time the same was (were) received
by the defendant bank, there could be no question that this bank
would have to pay them. Now, the question is, if the payees decide to
have their money remain for sometime in the defendant bank, can the
latter maintain that the ownership of said telegraphic payment orders
is now with the drawer bank? The latter was already paid the value of
the telegraphic payment orders otherwise it would not have
transmitted the same to the defendant bank. Hence, it is absurd to
say that the drawer banks are still the owners of said telegraphic
payment orders."
WHEREFORE, the decision of the trial court is hereby modified in the
sense that the items specifically referred to and listed under
paragraph 3 of appellee bank's answer representing telegraphic
transfer payment orders should be escheated in favor of the Republic
of the Philippines. No costs.
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the
Aparri branch of the Philippine National Bank, Venancio Concepcion,
President of the Philippine National Bank, between April 10, 1919, and
May 7, 1919, authorized an extension of credit in favor of "Puno y
Concepcion, S. en C." in the amount of P300,000. This special
authorization was essential in view of the memorandum order of
President Concepcion dated May 17, 1918, limiting the discretional
power of the local manager at Aparri, Cagayan, to grant loans and
discount negotiable documents to P5,000, which, in certain cases,
could be increased to P10,000. Pursuant to this authorization, credit
aggregating P300,000, was granted the firm of "Puno y Concepcion,
S. en C.," the only security required consisting of six demand notes.
The notes, together with the interest, were taken up and paid by July
17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at

P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de
Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral. Venancio
Concepcion," P50,000. Member Miguel S. Concepcion was the
administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the
Philippine National Bank and as member of the board of directors of
this bank, was charged in the Court of First Instance of Cagayan with
a violation of section 35 of Act No. 2747. He was found guilty by the
Honorable Enrique V. Filamor, Judge of First Instance, and was
sentenced to imprisonment for one year and six months, to pay a fine
of P3,000, with subsidiary imprisonment in case of insolvency, and
the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just
mentioned, to which reference must hereafter repeatedly be made,
reads as follows: "The National Bank shall not, directly or indirectly,
grant loans to any of the members of the board of directors of the
bank nor to agents of the branch banks." Section 49 of the same Act
provides: "Any person who shall violate any of the provisions of this
Act shall be punished by a fine not to exceed ten thousand pesos, or
by imprisonment not to exceed five years, or by both such fine and
imprisonment." These two sections were in effect in 1919 when the
alleged unlawful acts took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed
by the trial court. These errors they have argued adroitly and
exhaustively in their printed brief, and again in oral argument.
Attorney-General Villa-Real, in an exceptionally accurate and
comprehensive brief, answers the proposition of appellant one by
one.
The question presented are reduced to their simplest elements in the
opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, a "loan" within the meaning of section 35 of
Act No. 2747?
Counsel argue that the documents of record do not prove that
authority to make a loan was given, but only show the concession of
a credit. In this statement of fact, counsel is correct, for the exhibits
in question speak of a "credito" (credit) and not of a " prestamo"
(loan).
The "credit" of an individual means his ability to borrow money by
virtue of the confidence or trust reposed by a lender that he will pay
what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party
and the receipt by the other party of a given sum of money, upon an
agreement, express or implied, to repay the sum loaned, with or
without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The
concession of a "credit" necessarily involves the granting of "loans"
up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership
"Puno y Concepcion, S. en C.," by Venancio Concepcion, President of
the Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the
granting of a "loan," it does not prohibit what is commonly known as
a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the
National Bank, inquired of the Insular Auditor whether section 37 of
Act No. 2612 was intended to apply to discounts as well as to loans.
The ruling of the Acting Insular Auditor, dated August 11, 1916, was to
the effect that said section referred to loans alone, and placed no
restriction upon discount transactions. It becomes material,
therefore, to discover the distinction between a "loan" and a
"discount," and to ascertain if the instant transaction comes under
the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature,
growing, as they do, out of an actual, live, transaction. But in its last
analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a
credit; (2) a discount is always on double-name paper; a loan is
generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the
law covers loans and not discounts, yet the conclusion is inevitable
that the demand notes signed by the firm "Puno y Concepcion, S. en
C." were not discount paper but were mere evidences of
indebtedness, because (1) interest was not deducted from the face of
the notes, but was paid when the notes fell due; and (2) they were
single-name and not double-name paper.
The facts of the instant case having relation to this phase of the
argument are not essentially different from the facts in the
Binalbagan Estate case. Just as there it was declared that the
operations constituted a loan and not a discount, so should we here
lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership,
"Puno y Concepcion, S. en C." by Venancio Concepcion, President of
the Philippine National Bank, an "indirect loan" within the meaning of
section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S.
en C." was not an "indirect loan." In this connection, it should be
recalled that the wife of the defendant held one-half of the capital of
this partnership.
In the interpretation and construction of statutes, the primary rule is
to ascertain and give effect to the intention of the Legislature. In this
instance, the purpose of the Legislature is plainly to erect a wall of
safety against temptation for a director of the bank. The prohibition
against indirect loans is a recognition of the familiar maxim that no
man may serve two masters that where personal interest clashes
with fidelity to duty the latter almost always suffers. If, therefore, it is
shown that the husband is financially interested in the success or
failure of his wife's business venture, a loan to partnership of which
the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar
relationship called a conjugal partnership. (Articles 1315, 1393, 1401,
1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a
partnership of which the wife of a director of a bank is a member, is
an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such
an occurrence is shown by the acknowledged fact that in this
instance the defendant was tempted to mingle his personal and
family affairs with his official duties, and to permit the loan P300,000
to a partnership of no established reputation and without asking for
collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3
Am. Rep., 211), the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that
no director or officer should borrow of the bank, and "if any
director," etc., "shall be convicted," etc., "of directly or
indirectly violating this section he shall be punished by fine
and imprisonment?" We say to protect the stockholders,
depositors and creditors of the bank, against the temptation
to which the directors and officers might be exposed, and the
power which as such they must necessarily possess in the
control and management of the bank, and the legislature
unwilling to rely upon the implied understanding that in
assuming this relation they would not acquire any interest
hostile or adverse to the most exact and faithful discharge of
duty, declared in express terms that they should not borrow,
etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in
the Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his
copartnership firm as well as to himself directly. The loan
was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National
Bank, be convicted of a violation of section 35 of Act No. 2747 in
relation with section 49 of the same Act, when these portions of Act
No. 2747 were repealed by Act No. 2938, prior to the finding of the
information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act
No. 2747, in relation to section 35 of the same Act, provides a
punishment for any person who shall violate any of the provisions of
the Act. It is contended, however, by the appellant, that the repeal of
these sections of Act No. 2747 by Act No. 2938 has served to take
away the basis for criminal prosecution.
This same question has been previously submitted and has received
an answer adverse to such contention in the cases of United Stated
vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43
Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States
([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the
holding, and it must again be the holding, that where an Act of the
Legislature which penalizes an offense, such repeals a former Act
which penalized the same offense, such repeal does not have the
effect of thereafter depriving the courts of jurisdiction to try, convict,
and sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership
"Puno y Concepcion, S. en C." by Venancio Concepcion, President of
the Philippine National Bank, in violation of section 35 of Act No.
2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of
Act No. 2747 is on the bank, and since section 49 of said Act provides
a punishment not on the bank when it violates any provisions of the
law, but on a personviolating any provisions of the same, and
imposing imprisonment as a part of the penalty, the prohibition
contained in said section 35 is without penal sanction. lawph!l.net
And, in this instance, as previously demonstrated, the acts of the
President of the Philippine National Bank do not fall within the
purview of the rulings of the Insular Auditor, even conceding that
such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and
advantage not common to the other stockholders. The law
will not allow private profit from a trust, and will not listen to
any proof of honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision
of the trial court, and the errors assigned by the appellant, and with
reference to previous decisions of this court on the same subject, we
are irresistibly led to the conclusion that no reversible error was
committed in the trial of this case, and that the defendant has been
proved guilty beyond a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge falls within the
limits of the punitive provisions of the law.

The answer is that when the corporation itself is forbidden to do an

act, the prohibition extends to the board of directors, and to each Judgment is affirmed, with the costs of this instance against the
director separately and individually. (People vs. Concepcion, supra.) appellant. So ordered.

VI. Does the alleged good faith of Venancio Concepcion, President of

the Philippine National Bank, in extending the credit of P300,000 to
the copartnership "Puno y Concepcion, S. en C." constitute a legal
defense?

Counsel argue that if defendant committed the acts of which he was

convicted, it was because he was misled by rulings coming from the
Insular Auditor. It is furthermore stated that since the loans made to
the copartnership "Puno y Concepcion, S. en C." have been paid, no
loss has been suffered by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under

the statute which the defendant has violated, criminal intent is not
necessarily material. The doing of the inhibited act, inhibited on
account of public policy and public interest, constitutes the crime.
 LA COMPAIA GENERAL DE TABACOS DE FILIPINAS, petitioner,
vs.
C. H. FRENCH, as Auditor of the Philippine Islands, and C. E. UNSON,
as Acting Purchasing Agent of the Philippine Islands, respondents.

FISHER, J.:

This is a petition for a writ of mandamus filed in this Court by

the Compaia General de Tabacos de Filipinas to compel the
Purchasing Agent to draw a warrant in favor of the petitioner for the
sum of P322.93 and to compel the Insular Auditor to approve and
countersign the same. The Solicitor-General has appeared in behalf of
the respondents and interposed a demurrer, based chiefly on the
ground that the petitioner has not exhausted his administrative
remedy by appealing to the Governor-General from the adverse
decision of the Insular Auditor. The case now comes before us upon
this demurrer.

The origin of the claim appears to be this: The petitioner is a common

carrier engaged in the transportation of passengers and merchandise
in the Philippine coastwise trade, and during the months of January,
February, and March of the current year the petitioner rendered
services as a common carrier in transporting goods and merchandise
for the Government of the Philippine Islands, at the request of the
Purchasing Agent, as chief of the Bureau of Supply. For the services
so rendered said Bureau became indebted to the petitioner in the
sum of P322.93, which indebtedness has been fully liquidated,
audited and allowed by the Government.

It further appears that on or about January 18, 1918, the petitioner

received at Manila upon one of its ships twenty cases of gasoline, to
be transported to Laoag, in the Province of Ilocos Norte. Upon the
arrival of the plaintiff's ship at the port of destination the twenty
cases of gasoline were delivered to the consignee, and it was then
discovered that approximately half of the contents of two cans of a
total value P5.92, had escaped by leakage. The consignee of the
gasoline thereupon made an annotation upon the bill of lading to the
effect that two cases were received in a leaking condition and that
the shipment was five gallons short.

G.R. No. L-14027 November 8, 1918 The petition alleges that said leakage was due to causes unknown to
the petitioner and to the respondents, and was not due to any
negligence or want of due diligence on the part of the petitioner, its
agents or servants. Nevertheless, the petition goes on to state, the
Purchasing Agent claims that the value of the gasoline so lost should
be deducted from the indebtedness admittedly due from the Bureau
of Supply to the petitioner, and this contention has been sustained by
the Insular Auditor, who has adjudged that the petitioner is liable to
the Government for the value of the gasoline so lost.
Acting upon this resolution the respondents have declined to issue to
the petitioner a warrant for the full sum of P322.93 and have tendered
to it, in satisfaction of the entire indebtedness, a warrant for the sum
of P317.01 only which the petitioner has refused to accept. It is
claimed by the petitioner that in adjudging it to be responsible for the
loss aforesaid and in allowing the set-off for the value of the gasoline
lost by leakage, the Insular Auditor has acted arbitrarily and in
excess of his powers, and that if his action is permitted to go into
effect, the petitioner will be deprived of property without due process
of law.
It is averred in the complaint that the bill of lading, upon which the
shipment of gasoline in question was accepted for transportation,
provided, in accordance with the requirements prescribed by the
Insular Collector of Customs, that all cargo which from its nature
must be stored on deck, will be transported wholly at the risk of the
shipper; and it is alleged in the petition that gasoline constitutes
cargo of this character, and that the shipment in question was
consequently so carried on deck. The bill of lading also, upon which
the gasoline was carried, contained a provision that the merchandise
was received and would be carried subject to the conditions
prescribed in the shipping regulations aforesaid. It is apparent,
therefore, that the questions squarely presented are (1) if the
Purchasing Agent and the Insular Auditor may offset against a
specific, liquidated, and undisputed debt of the Government an
unliquidated claim for damages in favor of the Government against
the creditor, and (2) assuming that such set-off is improper, if they
may be compelled by mandamus to issue a warrant to the creditor for
the amount of his credit without deducting what they deem to be due
from him upon the claim for damages.
The question here presented is, therefore, very clearly of greater
importance than would appear to be indicated in the petty sum in
dispute; and the proper solution of the problem requires a somewhat
broader range of discussion than is disclosed in the issue presented
by the demurrer. In what is here to be said we propose to consider
the extent of the power confided to the Insular Auditor with respect
to the audit and settlement of claims due from or owing to the
government and the nature of the remedy or remedies which may be
available to a person aggrieved by his decision.
The fundamental statute from which the power and authority of the
Insular Auditor is derived is the Act of Congress of August 29, 1916,
generally known as the Jones Law, in sections 24 and 25 of which the
office is created and the duties and power of the incumbent defined
as follows:
SEC. 24. That there shall be appointed by the President an
Auditor who shall examine, audit, and settle all accounts
pertaining to the revenues and receipts, from whatever
source, of the Philippine Government an the provincial and
municipal governments of the Philippines, including trust
funds and funds derived from bond issues; and audit, in
accordance with law and administrative regulations, all
expenditures of funds or property pertaining to or held in
trust by the Government or the provinces or municipalities
thereof. He shall perform a like duty with respect to all
government branches.
He shall keep the general accounts of the Government and
preserve the vouchers pertaining thereto.
It shall be the duty of the Auditor to bring to the attention of
the proper administrative officer expenditures of funds or
property which, in his opinion, are irregular, unnecessary,
excessive, or extravagant.
There shall be a Deputy Auditor appointed in the same
manner as the Auditor. The Deputy Auditor shall sign such
official papers as the Auditor may designate and perform
such other duties as the Auditor may prescribe, and in case
of the death, resignation, sickness, or other absence of the
Auditor from his office, from any cause, the Deputy Auditor
shall have charge of such office. In case of the absence from
duty, from any cause, of both the Auditor and the Deputy
Auditor, the Governor General may designate an assistant,
who shall have charge of the office.
The administrative jurisdiction of the Auditor over accounts,
whether of funds or property, and all vouchers and records
pertaining thereto, shall be exclusive. With the approval of
the Governor-General he shall from time to time make an
promulgate general or special rules and regulations, not
inconsistent with law, covering the method of accounting for
public funds and property, and funds and property held in
trust by the Government or any of its branches: Provided,
That any officer accountable for public funds or property may
require such additional reports or returns from his
subordinates or others as he may deem necessary for his
own information and protection.
The decisions of the Auditor shall be final and conclusive
upon the Executive Branches of the Government, except that
appeal therefrom may be taken by the party aggrieved or the
Head of the Department concerned within one year, in the
manner hereinafter provided, have like authority as that
conferred by law upon the several auditors of the United
States and the Comptroller of the United States Treasury and
is authorized to communicate directly with any person having
claims before him for settlement, or with any department,
officer, or person having official relations with his office.
As soon after the close of each fiscal year as the accounts of
said year may be examined and adjusted, the Auditor shall
submit to the Governor-General and the Secretary of War an
annual report of the fiscal concerns of the Government,
showing the receipts and disbursements of the various
Departments and Bureaus of the Government and of the
various provinces and municipalities, and make such other
reports as may be required of him by the Governor-General or
the Secretary of War.
In the execution of their duties the Auditor and the Deputy
Auditor are authorized to summon witnesses, administer
oaths, and to take evidence, and, in the pursuance of these
provisions may issue subpoenas and enforce the attendance
of witnesses, as now provided by law.
The office of the Auditor shall be under the general
supervision of the Governor-General and shall consist of the
Auditor and Deputy Auditor and such necessary assistants as
may be prescribed by law.
SEC. 25. That any person aggrieved by the action or decision
of the Auditor in the settlement of his account or claim may,
within one year, take an appeal in writing to the Governor-
General, which appeal shall specifically set forth the
particular action of the Auditor to which exception is taken,
with the reason and authorities relied on for reversing such
decision.
If the Governor-General shall confirm the action of the
Auditor, he shall so indorse the appeal and transmit it to the
Auditor, and the action shall thereupon be final and
conclusive. Should the Governor-General fail to sustain the
action of the Auditor, he shall forthwith transmit his grounds
of disapproval to the Secretary of War, together with the
appeal and the papers necessary to a proper understanding
of the matter. The decision of the Secretary of War in such
case shall be final and conclusive.
The local statutory provisions relating to the organization and
administration of the Bureau of Audits are chiefly contained in the
Accounting Law, which constitutes chapter 26 (secs. 581-658) of the
Administrative Code (1917). The original source of these provisions is
found in Act No. 1792 of the Philippine Commission.
The most important of the section of the Accounting Law for the
purposes of this inquiry are those defining the general jurisdiction of
the Bureau of Audits (sec. 584, Administrative Code, 1917) and
authorizing set-offs (sec. 624, Administrative Code, 1917) as follows:
SEC. 584. General jurisdiction of Bureau of Audits. The
authority and powers of the Bureau of Audits extend to and
comprehend all matters relating to accounting procedure,
including the keeping of the accounts of the Government, the
preservation of vouchers, the methods of accounting, the
examination and inspection of the books, records, and papers
relating to such accounts, and to the audit and settlement of
the accounts of all persons respecting funs or property
received or held by them in an accountable capacity, as well
as to the examination and audit of all debts and claims of any
 sort due from or owing to the Government of the Philippine
Islands in any of its branches.
SEC. 624. Retention of salary for satisfaction of indebtedness
to Government. When any person is indebted of the Unite
States, the Insular Auditor may direct the proper officer to
withhold the payment of any money due him or his estate, the
same to be applied in satisfaction of such indebtedness.
The Bureau of Audits, under the cited statutes, constitutes the
accounting branch of the governmental service. Its competency
extends to two different subjects, namely (1) Accounting procedure,
and (2) the examination, audit, and settlement of all debts and claims
due from or owing to the Government. Under the latter head, it will be
noted that the authority and powers of the Bureau extend not only to
the audit and settlement of the accounts of Government officers and
employees, but also to the examination and audit of "all debts and
claims of any sort due from or owing to the Government of the
Philippine Islands in any of its branches."
It would hardly be possible to frame a statement concerning the
power of the Bureau with reference to public finance in more
inclusive terms; and if the power of "examination and audit" of "all
claims . . . owing to the Government" should be found to include the
power conclusively to adjudicate the existence, validity, and amount
of disputed unliquidated claims which the executive officers of the
Government may deem to exist and in its favor and to offset such
claims against conceded debts of the Government, the contention of
respondents must prevail.
The first and most important branch of our inquiry involves an inquiry
into the power of the Auditor with respect to such unliquidated claims
in favor of the Government, as regards the effect of his decisions
concerning them, (1) upon the executive branch of the Government
and (2) upon the alleged debtor and the courts.
So far as the executive branches of the Government are concerned
the decisions of the Auditor within the scope of his authority are
conclusive (sec. 655, Administrative Code of 1917), unless appealed
from (section 653, Administrative Code, 1917) to the higher executive
authorities. If in the instant case the petitioner had acquiesced in the
findings and conclusions of the Auditor, his decision that the amount
of the loss arising from the allege leakage was P5.92 would, in the
absence of an appeal under section 653, supra, be conclusive upon
the Bureau of Supply, the officer to whom the goods were consigned,
and all other officials of the Government who might be concerned,
and would subject to the provisions of section 657 of the
Administrative Code of 1917, protect the petitioner herein against any
future contention on the part of any other government official that
the actual loss was greater. Furthermore, the acquiescence of the
claimant as to the amount of the counterclaim would convert it into a
liquidated debt and make it properly subject to set-off.
But as the petitioner denies the allege liability and refuses to consent
to its liquidation by the Auditor, we must determine (1) if the auditor
may lawfully proceed to liquidate and set-off the demand, regardless
of such protest and objection, and (2) if his action is conclusive upon
the courts.
Section 584 of the Administrative Code of 1917 is very similar in its
terms to section 236 of the Revised Statutes of the United States,
which reads as follows:
All claims and demands whatever by the United States and
against them, and all accounts whatever in which the United
States are concerned, either as debtors or as creditors, shall
be settled and adjusted in the Department of the Treasury.
Nevertheless, the words "all claims and demands whatever . . .
against" the United States as used in this statute have been held
repeatedly not to authorize the officers of the Treasury Department to
entertain unliquidated claims against the United States for damages.
In the case of Power vs. United States (18 C. Cls. R., 275), Judge
Davis, writing the opinion of the court, said:
An account is something which may be adjusted and
liquidated by an arithmetical process . . . . But no law
authorizes Treasury officials to allow and pass in accounts a
number not the result of numerical computation upon a
subject within the operation of a mutual part of a contract.
Claims for unliquidated damages require for their settlement
the application of the qualities of judgment and discretion.
They are frequently, perhaps generally sustained by
extraneous proof, having no relation to the subjects to the
 contract, which are common to both parties . . . . The results
to be reached in such cases can in no just sense be called an
account, and are not committed by law to the control and
decision of Treasury accounting officers.
Upon the same subject it was said by Judge it was said by Judge
Richardson in McKee's Case (12 C. Cls. R., 555) that this construction
must properly exclude ". . . claims for unliquidated damages, founded
on neglect or breach of obligations, or otherwise, and so, by the well
defined and accepted meaning of the word "account" and the sense
in which the same and the words "accounting" and "accounting
officers" appear to be used in the numerous sections of the numerous
acts of Congress wherein they occur, it would seem that the
accounting officers have no jurisdiction of such claims except in
special and exceptional cases, in which it has been expressly
conferred upon them by special or private acts. And such has been
opinion of five Attorneys-General all who have officially advised the
executive officers on the subject: Attorney-General Taney in 1832,
whose opinion is referred to by his successors in office; Attorney-
General Nelson in 1844 (4 Opins., 327); Attorney-General Clifford in
1847 (4 Opins., 627); Attorney- General Cushing in 1854 (6 Opins., 524)
and Attorney-General Williams in 1872 (14 Opins., 24). And the same
views were expressed by this court in 1866 (Carmack vs. the United
States, 2 C. Cls. R., 126. 140.)"
Attorney-General Cushing in the opinion cited by Judge Richardson (6
Op. Attys. Gen., 523) says:
To audit is to examine an adjust an account. There is an
indissoluble connection between account andauditor, the
functions of the one indicating the nature of the other. Yet no
definition of the terms audit andauditor implies the
adjudication of damages or other determination of
controversy.
In the case of McClure vs. United States (19 C. Cls. R., 173) referred
to the Court of Claims by the Secretary of the Treasury under the
Bowman Act, it was said:
It is further insisted by the government that this is a claim "for
unliquidated damages for the breach of a contract which the
department have not and never have had, jurisdiction to examine and
settle." In a very broad sense every suit founded on contract may be
regarded as a suit for damages; but where in any proceeding the
damages do not depend upon discretion or the exercise of judicial
judgment they are not unliquidated, but certain and specific."
Again, it was said by Chief Justice Richardson, in the case of
Dennis vs. United States (20 Ct. Cls. R., 119):
Technically, all claims for money due on contracts, where the
exact amount payable is not thereby fixed, as in the case of
goods purchase or work done without an agreed price, are
claims for unliquidated damages. But . . . their settlement
rarely requires anything more than the ordinary processes of
accounting, the prices being readily determined by the
vouchers and reports of the public officers incurring the
expense, or by other means within reach of the accounting
officers, who very properly take jurisdiction and pass upon
such claims . . . . But claims for unliquidated damages
founded on neglect or breach of obligations contrary to the
terms of a contract, and not necessarily arising therefrom,
are of quite a different class. They must be sustained by
extraneous proof, often involving a broad field of
investigation and requiring the application of judgment an
discretion upon the measure of damages and the weight of
conflicting evidence. As was said in Power's Case (18 Ct. Cls.
R., 275), "The results to be reached in such cases can in no
sense be called an account, and are not committee by law to
the control and decision of Treasury accounting officers."
The principle under consideration was the basis of the decision in the
very recent and important case of Smith vs.Jackson, decided by the
Supreme Court of the United States, April 5, 1918 (Advance Sheets,
1918, p. 476). The plaintiff in that proceeding was the judge of the
district court of the Panama Canal Zone, and was entitled, by statute,
to an annual salary $6,000, payable at the rate of $500 a month. A
dispute arose between Judge Jackson and H. A. Smith, the auditor of
the Canal Zone, arising from the fact that the judge had occupied a
house belonging to the government for which, in the opinion of the
auditor, he should have paid rent. The Auditor was also of the opinion
that the judge had overstayed his leave of absence by several days,
and that he should be deprived of his salary for the corresponding
period. The judge denied the liability. The auditor thereupon
proceeded to liquidate the alleged claim of the government against
the judge, and to enforce his decision by offsetting the supposed debt
against the judge's salary. The judge declined to acquiesce in this
ruling and filed suit in the district court of the Cana Zone for
a mandamus against the auditor to compel him to pay the salary
without any deductions whatsoever. The Honorable Henry D. Clayton,
district judge of the middle and northern districts of Alabama, was
designated by the President to hear the case. In a carefully prepared
opinion, based upon an exhaustive citation of authorities, Judge
Clayton held that the writ should issue, and that the auditor was
without authority to set-off against the liquidated debt of the
government to the petitioner the unliquidated claim which he
conceived to exist in favor of the government.lawphil.net
From the decision the auditor appealed to the United States Court of
Appeals for the Fifth Circuit. That court adopted in its entirely (241
Fed., 747) the reasoning of the opinion of Judge Clayton and affirmed
his judgment. The respondent thereupon sued out a writ of error to
the Supreme Court of the United States, where the judgment was
again affirmed in a brief but emphatic opinion in which the Chief
Justice, speaking for the court, said that the decision of Judge
Clayton made "perfectly manifest the error of the action of the
auditor," and that the prosecution of the writ of error "constituted a
plain abuse by the auditor of his administrative functions."
The doctrine stated in the elaborate opinion of Judge Clayton in the
cited case, supported as it is by the persuasive force of its logical
reasoning, and the unanimous approval of the judges of the Circuit
Court of Appeals and of the Justices of the Supreme Court of the
United States, is, in our judgment, directly applicable to the instant
case. The principle underlying that case is that while an auditor may
and should offset a liquidated debt in favor of the government against
a liquidated debt due from it, he has no authority conclusively to
adjudicate unliquidated andcontested claims against creditors of the
government as such a course would be, in effect, the assumption of
judicial power. Upon this point Judge Clayton said:
Mr. Attorney-General Gregory was correct in saying that if the
authorities in the Canal Zone believe that the relator in the
present case owed any amounts of money whatsoever to
Panama Canal, it was "a question for judicial rather than
administrative determination," and that the claim now urged
by the respondent in this case 'could only be enforced
through proceedings in the courts." That is a sententious and
felicitous statement of this case.
Judge Jackson has never had his day in court. He has been
deprived of his salary, or the sum of $1,131.76. without due
process of law. It has been withheld from him by the refusal
of the auditor in this case to issue his voucher upon which
the salary is paid. He denies it upon the grounds that there
was no law or regulation under which the indebtedness was
or could have been created. He denies that the respondent
has authority to withhold any part of his pay in the collection
of an alleged but disputed indebtedness. And yet the
executive officer has sat as a court and without evidence or
hearing, except what he considered evidence, and except
what he considered a hearing, decided a controversy that he
created by his own action. He has passed upon a disputed
claim which is a disputed claim merely because he has
created the dispute in refusing to make payment where it
was his plain duty to make such payment. His conduct,
however good his intention may have been, hardly falls short
of being shocking to the judicial sense of justice, proper and
orderly procedure, in a matter that is clearly justiciable.
Perhaps it is not to be doubted that if, after he had made a
careful examination, the Attorney-General had found Judge
Jackson was indebted, owed the items amounting to the
salary which has been withheld by the Auditor, the account
would have been settled without court proceedings. Or, if not
so settled, then appropriate court action would have been
had for its collection. In any event Judge Jackson was
entitled to his day in court. But the auditor here held that,
having the money for Judge Jackson under his control and
subject to his disbursement, he had the right to determine
the claim against Judge Jackson one disputed in law and in
fact, and now insists that his summary way of determining an
issue of law and an issue of fact, and the collection by
deduction from the Judge's salary of a disputed
indebtedness, cannot be reviewed or questioned by the court.
Notwithstanding that view I think the Attorney-General was
right in saying that the matter "was one for judicial rather
than administrative determination," and that whatever
demand or offset that the Government may have "could only
bee enforced through proceedings in the Courts."
In some of the opinions of former Attorneys-General of the United
States cited by Judge Clayton reference is made to the Act of
Congress of March 3, 1875, (2 Fe. Stat. Ann., 18) wherein it is
provided, "That when any final judgment recovered against the United
States or other claim duly allowed by legal authority shall be
presented to the Secretary of the Treasury for payment and the
plaintiff or claimant therein shall be indebted to the United States in
any manner, whether as principal or surety, it shall be the duty of the
Secretary to withhold payment of an amount of such judgment or
claim equal to the debt thus due to the United States; and if such
plaintiff or claimant assents to such set-off and discharges his
judgment or an amount thereof equal to said debt or claim, the
Secretary shall execute a discharge of the debt due from the plaintiff
to the United States. But if such plaintiff or claimant denies his
indebtedness to the United States or refuses to consent to the set-
off, then the Secretary shall withhold payment of such further amount
of such judgment or claim as in his opinion will be sufficient to cover
all legal charges and costs in prosecuting the debt of the United
States to final judgment. And if such debt is not already in suit, it
shall be the duty of the Secretary to cause legal proceedings to be
immediately commenced to enforce the same and to cause the same
to be prosecuted to final judgment with all reasonable dispatch. And
if in such action judgment shall be rendered against the United
States or the amount recovered for debt an costs shall be less than
the amount so withheld, as before provided, the balance shall then be
paid over to such plaintiff by such Secretary with six per cent
interest thereon for the time it has been withheld from the plaintiff."
This Act of Congress is of great importance and is, we believe, of
controlling authority in this case. It has been noted that section 24 of
the Jones Law confers upon the Insular Auditor "like authority as that
conferred by law upon the several auditors of the United States and
the Comptroller of the United States Treasury," except as otherwise
expressly provided in that Act. This grant of authority is, we believe,
to be construed as limiting as well as conferringauthority, and that
unless the authority now asserted by the Insular Auditor has been
conferred upon similar officials of the United States, it has not been
conferred upon him by the Jones Law.
An examination of the quoted section of the Act of March 3, 1875, will
show that the duty of acting upon contestedunliquidated claims
in favor of the United States against persons holing by being reduced
to judgment or "duly allowed by legal authority" is made to devolve
upon the Secretary of the Treasury, not upon the auditors and the
comptroller. Certainly, it could hardly be contended, in the light of the
fact that the statutes defining the duties of the auditors an the
Comptroller of the Treasury of the United States do not in terms
confer upon them the power conclusively to allow or disallow
contested unliquidated claims for damages as set-offs against
audited debts of the Government, that they can exercise that power,
which has been expressly denied to the Secretary of the Treasury, to
whom they are subordinate. It follows, therefore, that the grant to the
Insular Auditor by the quoted section of the Jones Law of "like
authority" to that conferred upon the auditors of the United States
and the comptroller of the United States Treasury did not carry with
it the power conclusively and finally to adjudicate and set-off
unliquidated claims, as such power is not possessed by those
officers.
It is important to note, as an aid to the construction of our own
statutes and as indicative of the practice and policy of our
Government in such matters, that the Act of March 3, 1875 (18 Sta. at
L., sec. 481) did not attempt to confer upon the Secretary of the
Treasury the power to adjudicate disputed claims of the United
States for the purpose of offsetting them. If the claimant "assents to
such set-off" the deduction is made forthwith, but if he "denies his
indebtedness to the United States or refuses to consent to the set-
off," the Secretary is authorized only to retain a sufficient amount of
the claim to cover the offset, and thereupon "to cause legal
proceedings to be immediatelycommenced to enforce the same
and to cause the same to be prosecuted to final judgment with all
reasonable dispatch."
That is to say, in no event is one who is admittedly a creditor of the
United States to be deprived of his credit by set-off against an
unliquidated and disputed claim of damages, whether arising from
tort or breach of contract, without having his day in court if he
demands it. After that has been done, if it be found that the claimant
is indeed also a debtor of the government in a settle and definite
sum, then both credits being liquidated, compensation is effected by
operation of law.
We conclude, therefore, that no power to adjudicate and offset
disputed unliquidated claims for damages is conferred upon Insular
Auditor by the cited provisions of the Jones Law or by the general
grant of jurisdiction to examine and audit claims owing to the
Government contained in section 584 of the Administrative Code. It
now remains for us to determine if that authority is conferred by
section 624 of that statute.
Section 624 of the Administrative Code of 1917 is as follows:
When any person is indebted to the Government of the
Philippine Islands or Government of the United States, the
Insular Auditor may direct the proper officer to withhold the
payment of any money due him or his estate, the same to be
applied in satisfaction of such indebtedness.
This section, beyond a doubt, authorizes the Insular Auditor, when it
appears that a creditor of the Government is also "indebted to the
Government" "to offset" one "debt" against another. Does it, however,
confer upon the Auditor the exclusive power to determine whether
such indebtedness exists if the supposed debtor denies it? We think
not. Certainly it is not lightly to be assumed that such an authority, to
be exercised with none of the safeguards which surround a judicial
inquiry into such matters, has been conferred.
It is important, in construing section 624 of the Administrative Code,
to ascertain the meaning of the term "indebted" as there used. To be
indebted is to owe a debt. The word "debt," in legal parlance, is of
more restricted meaning than the terms "obligation" or "liability." "A
debt" says Sir John Cross, in Ex parte Thompson (Mon. & B., 219), "is
a demand for a sum certain." A debt is an amount actually
ascertained. That there must be an ascertained debt and not a mere
unliquidated demand or liability, "is sustained by all the case, legal
and equitable." (In re Adams [N.Y.], 12 Daly, 454.) In Bacon's
Abridgement the term "debt" is defined as limited to cases in which
the certainty of the sum is made to appear and that therefore "the
plaintiff is to recover the same in numero and not to be repaired in
damages by the jury as in those actions sounding the damage."
(Watson vs. McNairy, 4 Ky., 356.)
"A debt is properly opposed to unliquidated damages . . . ."
(Commercial National Bank vs. Taylor 19 N.Y. Supp., 533.) It seems to
us, therefore, quite clear that the authority conferred upon the
Auditor by section 624 of the Administrative Code of 1917 to set-off
"debts" to the Government against "money due" the debtor does not
extend to unliquidated, disputed claims arising from tort or breach of
contract.
The Act of Congres of March 3, 1807, which allows set-offs against
claims by the Government, has been most liberally construed by the
Supreme Court of the United States (U.S. vs. Ripley, 7 Peters, 18); but
no claims based upon unliquidated damages have ever been
permitted as a set-off. (U.S. vs. Robeson, 9 Peters, 319.) It is
reasonable that this should be so, for the theory of set-off, like
the compensatio of the Civil Law, is that one of the debts
extinguishes the other by operation of law. As stated by Comptroller
Lawrence, in the Kansas Case (Lawrence, First Comptroller's
Decisions, vol. 2, p. 315):
The object of compensatio, as in set-off, was the prevention
of unnecessary suits and payments.
Compensation and set-off are, therefore, forms of payment by the
mutual extinction, by operation of law, of concurring debts. In our
Civil Code the subject is dealt with under the general heading "The
Extinction of Obligations;" and it is provided in article 1196 that in
order for compensation to take place (1) both debts must "consist of
a sum of money
. . .;" (2) that both debts be due an demandable; and (3) that both
been liquidated. The Code in this respect is merely declaratory of the
earlier law, for in its decision of April 6, 1889, cited by Manresa (vol.
8, p. 3768) the supreme court of Spain had ruled that "compensation
can only take place between certain and liquidated debts, and in no
event can it include the unliquidated claims of one of the parties for
alleged damages or for untaxed court costs."
It is, of course, obvious, that in normal times, no one, is under legal
duty to extend credit to the Government, whether it be for the sale of
merchandise or for its transportation. Had the petitioner in this case
demanded that it be paid in advance before accepting Government
cargo for transportation, its demand would have been wholly
justifiable, just as would be a like demand for cash by a merchant
asked to sell to the Government the goods on his shelf.
The manifest unfairness of taking advantage of the fact that a citizen
has voluntarily permitted the Government to become his debtor in
order to extinguish by administrative fiat a contested claim for
unliquidated damages, which the Government would otherwise have
to submit to the courts, requires no comment.
An examination of the local statutes will show that the Legislature
has provided a method by which the Insular Auditor may have
unliquidated claims in favor of the Government reduced to judgment,
if the liability legally exists. Section 650 of the Administrative Code of
1917 reads as follows:
The Insular Auditor shall, through the proper channels,
supervise and procedure the collection and enforcement of
all debts and claims, and the restitution of all funds and
property, found to be due the Government in his settlement
and adjustment of accounts: and if any legal proceeding is
necessary to such end, he shall request the Governor-
General to authorize and direct the institution of the same.
All money demands in favor of the Government shall bear
interest at six per centum per annum from the date of the
Auditor's written demand.
This section grants to the Insular Auditor and the Governor-General,
jointly, the same power vested in the Secretary of the Federal
Treasury by the Act of Congress of March 3, 1875. It is ample for the
protection of the interests of the Government and secures to the
citizen the right to a full hearing before an unbiased tribunal before
he is deprived of his property. The contention which may be
advanced, that it will work a hardship upon the Government to
require it to submit such controversies to the courts, may be
answered by saying that it is not to be presumed that just claims,
particularly for small amounts, will always be resisted; and, further,
should they be, the unsuccessful litigant may be made to pay the
costs of the suit, in addition to incurring the expense of employing
counsel. These considerations, in the vast majority of cases, prevent
unreasonable resistance to just demands as between private
individuals and there is no reason for assuming that they would not
be equally efficacious in protecting the Government. On the other
hand, it is to be remembered that while in the United States a large
class of claims against the Federal Government arising from contract
may be presented to the Court of Claims (Judicial Code, sec. 145) or
to the District Courts (Judicial Code, section 24) for adjudication an
that similar provisions are to be found in the laws of several of the
States, the Philippine Government has not as yet made provision for
the submission of such claims to judicial investigations at the
instance of its creditors.
The power which the Insular Auditor claims is, if it exists, clearly
judicial in its nature. It implies the hearing of evidence, the making of
findings of fact, the application of the law to such findings, and the
pronouncement of a decision all acts essentially judicial in their
character. As was said by Attorney-General Black (Vol. 9, Ops. Atty.
Gen., 198) in a similar case:
No such jurisdiction is given to the Secretary of the Treasury by any
law, and if the Constitution is not a dead letter Congress cannot
confer it. The Fifth Amendment declares that "no person shall be
deprived of his life, liberty or property, without due process of law."
This means, and has always been held to mean, that the right of a
citizen to his property, as well as his life or liberty, could be taken
away only upon an open, public, and fair trial before a judicial
tribunal, according to the forms prescribed by the law of the land for
the investigation of such subjects. If an executive officer can make
an order that the widow and children of Reside shall be deprived of
twenty- four thousand dollars without a trial, then the same officer
may, with equal propriety, issue a warrant to hang them, since the
Constitution puts life and property on the same footing."
As the asserted authority is judicial in character, if section 624 of the
Administrative Code must be construed as conferring it upon the
Insular Auditor, the very grave question would be presented whether
such power could validly be delegated to him. The judicial power, both
by the Philippine Bill and the Jones Law, is vested in the established
courts, and Congress has reserved to itself the power of divesting it.
(Barrameda vs. Moir, 25 Phil. Rep., 44.)
Certainly, no interpretation of a statute which will bring it into
conflict with the fundamental law will be adopted if avoidable. To
avoid that conflict section 624 of the Administrative Code must bee
construed, in conjunction with section 650 of the same code, as
requiring the Auditor, when his contention regarding the propriety of
offsetting unliquidated claims is disputed, to submit the controversy
to the courts, and as authorizing him, during the pendency of the
litigation, to withhold payment of a sufficient amount of the admitted
indebtedness of the Government to the claimant to offset it should
the Government's contention be upheld by the court, and the
unliquidated claim converted into a liquidated debt. (Civil Code, art.
1196.)
But it is argued that the decisions of the Auditor upon all matters
connected with the accounting service are conclusive an binding
upon all other branches of the Government. That they are
conclusively binding upon the executive branches of the Government
may, as we have seen, be conceded; but that conclusion does not of
necessity imply that this decisions are equally binding upon the
courts. This we think, will be apparent from a consideration of the
wording of the present statutes and their legislative antecedents.
Section 6 of the original Accounting Act contains the following
language:
The decisions of the Auditor shall be final and conclusive
upon the executive branches of the Government, except that
appeal therefrom may be taken by the party aggrieved or the
head of the Department concerned, within one year, in the
manner hereinafter prescribed.
This provision was carried into the Administrative Code of 1916 (Act
No. 2657) by the codifiers in the following form [sec. 687]:
A decision of the Insular Auditor or of a district auditor upon
any matter within their respective powers shall be
conclusive, subject to appeal or review as hereinafter
provided.
It will be observed that the significant words "upon the executive
branches of the Government," immediately following the word
"conclusive," are omitted from the provision as it appeared in the
Administrative Code of 1916. However, very shortly after this Code
went into effect, the Congress of the United States passed the Act of
August 29, 1916, commonly known as the Jones Law; an in the sixth
paragraph of section 24 of this Act (supra) is found a reenactment of
the language which we have quoted above from section 6 of Act No.
1792. A few months later the Philippine Legislature adopted a
revision of the Administrative Code which is contained in Act No.
2711; and it is noteworthy that in this last edition of said Code, the
Legislature, doubtless in obedience to the will of the Congress of the
United States as expressed in the Jones Law, restored the words
which had been omitted from section 687 of the Administrative Code
of 1916, so that the provision as it now stands in the law reads as
follows [sec. 655]:
A decision of the Insular Auditor or of a district auditor upon
any matter within their respective powers shall be conclusive
upon the executive branches of the Government, subject to
appeal or review as hereinafter provided. (Administrative
Code of 1917, section 655.)
Reflection upon the meaning of the language contained in this
provision, as well as a consideration of the import of the legislative
changes by which that provision acquired its present form, leads us
to believe that, in the end and after all is said and done, the action of
the Insular Auditor in passing upon the propriety and validity of any
debt or claim which comes before him for audit is purely and solely
an administrative act and has no binding force except as it affords a
conclusive rule for the guidance and control of the executive
branches of the Government. This idea comports with the principle
accepted in the United States with respect to the functions of
auditors; an it is further indicated in another provision found in
section 24 (supra) of the Jones Law, which is in these words:
The administrative jurisdiction of the auditor over accounts,
whether of funds or property, and all vouchers and records
pertaining thereto, shall be exclusive.
As the same provision appears in section 6 of the earlier Act No.
1792, the word "administrative" before "jurisdiction" is wanting. Its
insertion in the later Act would seem to indicate a recognition of the
fact that the acts of the Auditor are of a purely administrative
character.
The truth is that the embarrassment to which any individual is
subject in his financial relations with the Government does not arise
so much from the conclusiveness of the Insular Auditor's action upon
his claim as it does from the rule that the Government is not subject
to be sued in its own courts without its consent. If a party having a
justiciable claim against the Government could go into court and
maintain an action against it, as against any other defendant, no one
would ever have supposed that the rejection of the claim by an
auditor would have the effect of a conclusive adjudication on the
right. Manifestly it can have no such effect; an when the statute says
that the Insular Auditor's decision shall be conclusive on the
executive branches of the Government, it is as much as to say that it
is not conclusive on the judicial branch. This was the conclusion
expressed by the Court of Claims in the case of McKnight vs. United
States (13 C. Cls. R., 307), construing a similar statute, in which it
was said:
. . . in 1868 an act was passed, which is now incorporated
into the Revised Statutes as section 191, which provides that
the balances certified by the comptrollers "shall be
conclusive upon the executive branch of the
Government . . . ." But this conclusiveness is probably
intended to be . . . conclusive upon the executive branch of
the Government but not upon Congress or the courts.
But it is argued that the action cannot be maintained because it does
not appear from the petition that the petitioner has appealed from the
action of the Insular Auditor to the Governor-General. In section 653
of the Administrative Code (1917) it is declared that any person
aggrieved by a decision of the Insular Auditor may, within one year,
appeal to the Governor-General. In section 656 it is declared that the
action of the Governor-General affirming the Auditor's decision shall
be final; but if he reverses the Auditor, the matter goes to the
Secretary of War whose decision shall be conclusive. Provisions to
the same effect are found in the Jones Law, sections 24, 25. It is our
opinion that the word "final" as used in section 656 of the
Administrative Code in speaking of the action of the Secretary of War,
has reference to the finality and conclusiveness of the proceedings in
an administrative sense that is, final and conclusive upon the
executive branches of the Government. In other words, section 656
follows the tenor of section 655 where it is said that the decision of
the Insular Auditor shall be conclusive, subject to appeal or review as
in section 656 provided. It results that the proceedings under
sections 653 to 656, inclusive, of the Administrative Code (1917) are
at no stag binding upon the courts, whether an administrative appeal
is taken or not. The circumstance that no appeal to the Governor-
General was taken by the petitioner in the instant case is, therefore,
immaterial so far as the judicial solution of the controversy is
concerned. By its election not to take the matter before the
Governor- General, the petitioner left the decision of the Insular
Auditor, in effect, considered as an administrative decision, and
section 653, as we have already seen defines the effect to be given to
it. The petitioner, of course, was bound to await action by the Insular
Auditor because, until this officer acted, it could not be known that
the petitioner's claim was questioned. The failure to appeal from the
Auditor's decision does not affect petitioner's right of redress in the
courts.
It having been shown that an adjudication made by the Insular
Auditor is not binding on the courts, it remains to consider what
remedy, if any, the law affords to a person who considers himself
aggrieved by the Auditor's action and the conditions under which
such remedy may be exerted. That no action can be brought directly
by the creditor against the Government, in the absence of an enabling
statute, to recover from it upon any supposed liability goes without
saying. In the United States, as we have stated, a judicial
determination of the validity of a great variety of claims of private
individuals against the Federal Government may be submitted to
judicial investigation, and administrative courts are common in the
countries of continental Europe; but the Philippine Government,
however, has not as yet made provision for such action, although in
several instances special statutes have opened the doors of the
courts to individual claimants.
In considering the case before us, it is important to bear in mind that
the Government is admittedly indebted to the petitioner in the
definite and certain sum of P322.93. No action, either administrative
or judicial, is therefore necessary to fix this liability upon the
Government. In so far as legal liability can result from governmental
activities, liability exists and upon the demurrer is admitted.
Furthermore, said liability is such that it should be absolved by a
warrant drawn by the Purchasing Agent and countersigned by the
Insular Auditor. The law makes provision for the payment of the
money in this way, and it cannot otherwise be gotten out of the
Insular Treasury.
The legal remedy here indicate as proper is the writ of mandamus to
compel the Purchasing Agent and the Insular Auditor to issue,
countersign, and deliver the proper warrant to the petitioner.
(Hoey vs. Baldwin, 1 Phil., Rep., 551.)
The liability of these officers to the coercive process
of mandamus arises from the fact that a valid claim exists for the
payment of which provision has been made, that these officers are
the appointed agents for making the payment, and that under these
circumstances the execution and delivery to the creditor of the
warrant are merelyministerial functions involving no discretionary
action whatever.
It is, of course, beyond dispute that the courts will not attempt to
control the discretion of executive officers; but to require of them the
performance of merely ministerial acts does not infringe upon that
discretion. The decision of the Supreme Court of the United States in
the Jackson case (supra) is in itself sufficient authority, directly in
point, to uphold us in our conclusion that the execution and delivery
of a warrant for the payment of an admitted indebtedness involves
the exercise of no discretion whatever. If further justification be
required we find it in the decision of the Supreme Court of the United
States in the case of Roberts vs. Valentine (176 U.S., 221) wherein it
was said:
statute, no matter how plain its language, nor how plainly they
violated their duty in refusing to perform the act required."
As it is averred in the complaint and admitted by the demurrer that
the respondents are not withholding the warrant to enable them, with
all due diligence, to submit the disputed claim to the courts, but that
the Auditor has assumed to pass definite and final judgment upon the
validity and amount of the alleged offset, contrary to the expressed
wishes of petitioner, we are of the opinion that the petition states a
cause of action, that the demurrer is not well taken, and it, therefore,
must be and is overruled. Respondents may answer the petition
within five days from the receipt of notice of this ruling and order.

Unless the writ of mandamus is to become practically valueless, and

is to be refused even where a public officer is commanded to do a
particular act by virtue of a particular statute, this writ should be
granted. Every statute to some extent requires construction by the
public officer whose duties may be defined therein. Such officer must
read the law, and he must therefore, in a certain sense, construe it, in
order to form a judgment from its language of what duty he is
directed by the statute to perform. But that does not necessarily and
in all cases make the duty of the officer anything other than a
purely ministerial one. If the law directs him to perform an act in
regard to which no discretion is committed to him, and which, upon
the facts existing he is bound to perform, then that act is ministerial,
although depending upon a statute which requires, in some degree, a
construction of its language by the officer. Unless this be so, the
value of this writ is very greatly impaired. Every executive officer
whose duty is plainly devolved upon him by statute might refuse to
perform it, and when his refusal is brought before the court he might
successfully plead that the performance of the duty involved the
construction of a statute by him, and therefore it was not ministerial,
and the court would on that account be powerless to give relief. Such
a limitation of the powers of the court, we think, would be most
unfortunate, as it would relieve from judicial supervision all executive
officers in the performance of their duties, whenever they should
plead that the duty required of them arose upon the construction of a
 CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.

DECISION

CORONA, J.:

Assailed in this petition for review on certiorari 1 are the June 19,
2002 decision2 and August 20, 2002 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February
28, 1997 decision of the Regional Trial Court (RTC) of Makati City,
Branch 58.

Sometime in February 1995, respondent Rica Marie S. Thio received

from petitioner Carolyn M. Garcia a crossed check4 dated February
24, 1995 in the amount of US$100,000 payable to the order of a
certain Marilou Santiago.5Thereafter, petitioner received from
respondent every month (specifically, on March 24, April 26, June 26
and July 26, all in 1995) the amount of US$3,000 6 and 76,5007 on
July 26,8 August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed

check9 dated June 29, 1995 in the amount of 500,000, also payable
to the order of Marilou Santiago.10 Consequently, petitioner received
from respondent the amount of 20,000 every month on August 5,
September 5, October 5 and November 5, 1995. 11

According to petitioner, respondent failed to pay the principal

amounts of the loans (US$100,000 and 500,000) when they fell due.
Thus, on February 22, 1996, petitioner filed a complaint for sum of
money and damages in the RTC of Makati City, Branch 58 against
respondent, seeking to collect the sums of US$100,000, with interest
thereon at 3% a month from October 26, 1995 and 500,000, with
interest thereon at 4% a month from November 5, 1995, plus
attorneys fees and actual damages.12

Petitioner alleged that on February 24, 1995, respondent borrowed

from her the amount of US$100,000 with interest thereon at the rate
of 3% per month, which loan would mature on October 26, 1995. 13 The
G.R. No. 154878 March 16, 2007
amount of this loan was covered by the first check. On June 29, 1995,
respondent again borrowed the amount of 500,000 at an agreed
monthly interest of 4%, the maturity date of which was on November
5, 1995.14 The amount of this loan was covered by the second check.
For both loans, no promissory note was executed since petitioner and
respondent were close friends at the time.15 Respondent paid the
stipulated monthly interest for both loans but on their maturity dates,
she failed to pay the principal amounts despite repeated
demands.161awphi1.nt
Respondent denied that she contracted the two loans with petitioner
and countered that it was Marilou Santiago to whom petitioner lent
the money. She claimed she was merely asked by petitioner to give
the crossed checks to Santiago.17 She issued the checks for 76,000
and 20,000 not as payment of interest but to accommodate
petitioners request that respondent use her own checks instead of
Santiagos.18
In a decision dated February 28, 1997, the RTC ruled in favor of
petitioner.19 It found that respondent borrowed from petitioner the
amounts of US$100,000 with monthly interest of 3% and 500,000 at
a monthly interest of 4%:20
WHEREFORE, finding preponderance of evidence to sustain the
instant complaint, judgment is hereby rendered in favor of
[petitioner], sentencing [respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest
thereon at 3% per month from October 26, 1995 until fully
paid;
2. 500,000.00 with interest thereon at 4% per month from
November 5, 1995 until fully paid.
3. 100,000.00 as and for attorneys fees; and
4. 50,000.00 as and for actual damages.
For lack of merit, [respondents] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.21
On appeal, the CA reversed the decision of the RTC and ruled that
there was no contract of loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to
substantiate her claim that [respondent] indeed borrowed money
from her. There is nothing in the record that shows that [respondent]
received money from [petitioner]. What is evident is the fact that
[respondent] received a MetroBank [crossed] check dated February
24, 1995 in the sum of US$100,000.00, payable to the order of Marilou
Santiago and a CityTrust [crossed] check dated June 29, 1995 in the
amount of 500,000.00, again payable to the order of Marilou
Santiago, both of which were issued by [petitioner]. The checks
received by [respondent], being crossed, may not be encashed but
only deposited in the bank by the payee thereof, that is, by Marilou
Santiago herself.
It must be noted that crossing a check has the following effects: (a)
the check may not be encashed but only deposited in the bank; (b)
the check may be negotiated only onceto one who has an account
with the bank; (c) and the act of crossing the check serves as
warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is
not the issuance and delivery to the payee in contemplation of law
since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer title
thereto. Neither could she be deemed as an agent of Marilou Santiago
with respect to the checks because she was merely facilitating the
transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there
were really no contracts of loan that existed between the parties. x x
x (emphasis supplied)22
Hence this petition.23
As a rule, only questions of law may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court. However, this case
falls under one of the exceptions, i.e., when the factual findings of the
CA (which held thatthere were no contracts of loan between
petitioner and respondent) and the RTC (which held that there
werecontracts of loan) are contradictory.24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected
only upon the delivery of the object of the contract. 25 This is evident
in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the
money received by the debtor when the checks were encashed) the
debtor acquires ownership of such money or loan proceeds and is
bound to pay the creditor an equal amount.26
It is undisputed that the checks were delivered to respondent.
However, these checks were crossed and payable not to the order of
respondent but to the order of a certain Marilou Santiago. Thus the
main question to be answered is: who borrowed money from
petitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both
checks were made payable to Santiago.27 She maintains that it was
also upon respondents instruction that both checks were delivered
to her (respondent) so that she could, in turn, deliver the same to
Santiago.28 Furthermore, she argues that once respondent received
the checks, the latter had possession and control of them such that
she had the choice to either forward them to Santiago (who was
already her debtor), to retain them or to return them to petitioner.29
We agree with petitioner. Delivery is the act by which the res or
substance thereof is placed within the actual or constructive
possession or control of another.30 Although respondent did not
physically receive the proceeds of the checks, these instruments
were placed in her control and possession under an arrangement
whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know
Santiago.31 It was highly improbable that petitioner would grant two
loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt
considering that the amounts involved were quite big. Respondent, on
the other hand, already had transactions with Santiago at that time. 32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and
whose name appeared in both parties list of witnesses) testified that
respondents plan was for petitioner to lend her money at a monthly
interest rate of 3%, after which respondent would lend the same
amount to Santiago at a higher rate of 5% and realize a profit of
2%.33 This explained why respondent instructed petitioner to make
the checks payable to Santiago. Respondent has not shown any
reason why Ruiz testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own
checks in the amount of 76,000 each (peso equivalent of US$3,000)
for eight months to cover the monthly interest. For the 500,000 loan,
she also issued her own checks in the amount of 20,000 each for
four months.34 According to respondent, she merely accommodated
petitioners request for her to issue her own checks to cover the
interest payments since petitioner was not personally acquainted
with Santiago.35 She claimed, however, that Santiago would replace
the checks with cash.36Her explanation is simply incredible. It is
difficult to believe that respondent would put herself in a position
where she would be compelled to pay interest, from her own funds,
for loans she allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is
guided by the rule that for evidence to be believed, it must not only
proceed from the mouth of a credible witness, but must be credible in
itself such as the common experience of mankind can approve as
probable under the circumstances. We have no test of the truth of
human testimony except its conformity to our knowledge,
observation, and experience. Whatever is repugnant to these belongs 12% per annum, the interim period being deemed equivalent to a
to the miraculous, and is outside of juridical cognizance. 37 forbearance of credit.43

Fourth, in the petition for insolvency sworn to and filed by Santiago, it The award of actual damages in the amount of 50,000 and 100,000
was respondent, not petitioner, who was listed as one of her attorneys fees is deleted since the RTC decision did not explain the
(Santiagos) creditors.38 factual bases for these damages.

Last, respondent inexplicably never presented Santiago as a witness
to corroborate her story.39 The presumption is that "evidence willfully
suppressed would be adverse if produced."40 Respondent was not
able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that
respondent did not borrow the amounts of US$100,000 and 500,000
from petitioner. We instead agree with the ruling of the RTC making
respondent liable for the principal amounts of the loans.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002
decision and August 20, 2002 resolution of the Court of Appeals in
CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February
28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266
is AFFIRMED with the MODIFICATION that respondent is directed to
pay petitioner the amounts of US$100,000 and 500,000 at
12% per annum interest from November 21, 1995 until the finality of
the decision. The total amount due as of the date of finality will earn
interest of 12% perannum until fully paid. The award of actual
damages and attorneys fees is deleted.

We do not, however, agree that respondent is liable for the 3% and 4%

monthly interest for the US$100,000 and 500,000 loans respectively. SO ORDERED.
There was no written proof of the interest payable except for
the verbal agreement that the loans would earn 3% and 4% interest
per month. Article 1956 of the Civil Code provides that "[n]o interest
shall be due unless it has been expressly stipulated in writing."

Be that as it may, while there can be no stipulated interest, there can

be legal interest pursuant to Article 2209 of the Civil Code. It is well-
settled that:

When the obligation is breached, and it consists in the payment of a

sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.41

Hence, respondent is liable for the payment of legal

interest per annum to be computed from November 21, 1995, the date
when she received petitioners demand letter.42 From the finality of
the decision until it is fully paid, the amount due shall earn interest at

G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila,
judgment was rendered on June 28, 1965 sentencing defendant
Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co., Inc.
in the amount of P383,343.68, plus interest at the legal rate from the
date the complaint was filed and attorney's fees in the amount of
P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.)
applied to the Rehabilitation Finance Corporation (RFC), before its
conversion into DBP, for an industrial loan of P500,000.00, to be used
as follows: P250,000.00 for the construction of a factory building (for
the manufacture of jute sacks); P240,900.00 to pay the balance of the
purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had
already been purchased by Saura on the strength of a letter of credit
extended by the Prudential Bank and Trust Co., and arrived in Davao
City in July 1953; and that to secure its release without first paying
the draft, Saura, Inc. executed a trust receipt in favor of the said
bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan
application for P500,000.00, to be secured by a first mortgage on the
factory building to be constructed, the land site thereof, and the
machinery and equipment to be installed. Among the other terms
spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized
exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto
Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign
the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation
Finance Corporation, subject to availability of funds, and as the
construction of the factory buildings progresses, to be certified to by
an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954.
The day before, however, evidently having otherwise been informed of
its approval, Saura, Inc. wrote a letter to RFC, requesting a
modification of the terms laid down by it, namely: that in lieu of
having China Engineers, Ltd. (which was willing to assume liability
only to the extent of its stock subscription with Saura, Inc.) sign as
co-maker on the corresponding promissory notes, Saura, Inc. would
put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for
Inocencia Arellano as one of the other co-makers, having acquired
the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February
4, 1954, designating of the members of its Board of Governors, for
certain reasons stated in the resolution, "to reexamine all the
aspects of this approved loan ... with special reference as to the
advisability of financing this particular project based on present
conditions obtaining in the operations of jute mills, and to submit his
findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd.
had again agreed to act as co-signer for the loan, and asked that the
necessary documents be prepared in accordance with the terms and
conditions specified in Resolution No. 145. In connection with the
reexamination of the project to be financed with the loan applied for,
as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other
and undertake the necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the same "should
not be taken as an acquiescence on (its) part to novate, or accept
new conditions to, the agreement already) entered into," referring to
its acceptance of the terms and conditions mentioned in Resolution
No. 145.
On April 13, 1954 the loan documents were executed: the promissory
note, with F.R. Halling, representing China Engineers, Ltd., as one of
the co-signers; and the corresponding deed of mortgage, which was
duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan
agreement the reexamination contemplated in Resolution No. 736
proceeded. In a meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc., was present, it
was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import &
Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose of
financing the manufacture of jute sacks in Davao, with special
reference as to the advisability of financing this particular project
based on present conditions obtaining in the operation of jute mills,
and after having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon recommendation of the
Chairman, RESOLVED that the loan granted the Saura Import &
Export Co. be REDUCED from P500,000 to P300,000 and that releases
up to P100,000 may be authorized as may be necessary from time to
time to place the factory in actual operation: PROVIDED that all terms
and conditions of Resolution No. 145, c.s., not inconsistent herewith,
shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had
signed the promissory note for China Engineers Ltd. jointly and
severally with the other RFC that his company no longer to of the
loan and therefore considered the same as cancelled as far as it was
concerned. A follow-up letter dated July 2 requested RFC that the
registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan
of P500,000.00 be granted. The request was denied by RFC, which
added in its letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 ... in view of a notification ... from
the China Engineers Ltd., expressing their desire to consider the loan
insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the
loan and informed RFC that China Engineers, Ltd. "will at any time
reinstate their signature as co-signer of the note if RFC releases to us
the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the
loan to the original amount of P500,000.00, "it appearing that China
Engineers, Ltd. is now willing to sign the promissory notes jointly
with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage
and high cost of imported raw materials, the
Department of Agriculture and Natural Resources
shall certify to the following:
 1. That the raw materials needed by the borrower- a) For the payment of the receipt for jute mill
corporation to carry out its operation are available in machineries with the Prudential Bank &
the immediate vicinity; and
Trust Company P250,000.00
2. That there is prospect of increased production
thereof to provide adequately for the requirements of (For immediate release)
the factory."

b) For the purchase of materials and equip-

The action thus taken was communicated to Saura, Inc. in a letter of ment per attached list to enable the jute
RFC dated December 22, 1954, wherein it was explained that the mill to operate 182,413.91
certification by the Department of Agriculture and Natural Resources
was required "as the intention of the original approval (of the loan) is
to develop the manufacture of sacks on the basis of locally available c) For raw materials and labor 67,586.09
raw materials." This point is important, and sheds light on the
subsequent actuations of the parties. Saura, Inc. does not deny that 1) P25,000.00 to be released on the
the factory he was building in Davao was for the manufacture of bags open-
from local raw materials. The cover page of its brochure (Exh. M) ing of the letter of credit for raw jute
describes the project as a "Joint venture by and between the for $25,000.00.
Mindanao Industry Corporation and the Saura Import and Export Co.,
Inc. to finance, manage and operate a Kenaf mill plant, to 2) P25,000.00 to be released upon
manufacture copra and corn bags, runners, floor mattings, carpets, arrival
draperies; out of 100% local raw materials, principal kenaf." The of raw jute.
explanatory note on page 1 of the same brochure states that, the
venture "is the first serious attempt in this country to use 100%
3) P17,586.09 to be released as soon
locally grown raw materials notably kenaf which is presently grown
as the
commercially in theIsland of Mindanao where the proposed jutemill is
mill is ready to operate.
located ..."

On January 25, 1955 RFC sent to Saura, Inc. the following reply:
This fact, according to defendant DBP, is what moved RFC to approve
the loan application in the first place, and to require, in its Resolution
No. 9083, a certification from the Department of Agriculture and Dear Sirs:
Natural Resources as to the availability of local raw materials to
provide adequately for the requirements of the factory. Saura, Inc. This is with reference to your letter
itself confirmed the defendant's stand impliedly in its letter of of January 21, 1955, regarding the
January 21, 1955: (1) stating that according to a special study made release of your loan under
by the Bureau of Forestry "kenaf will not be available in sufficient consideration of P500,000. As stated
quantity this year or probably even next year;" (2) requesting in our letter of December 22, 1954,
"assurances (from RFC) that my company and associates will be able the releases of the loan, if revived,
to bring in sufficient jute materials as may be necessary for the full are proposed to be made from time
operation of the jute mill;" and (3) asking that releases of the loan be to time, subject to availability of
made as follows: funds towards the end that the sack
factory shall be placed in actual
 operating status. We shall be able to
act on your request for revised
purpose and manner of releases
upon re-appraisal of the securities
offered for the loan.
With respect to our requirement that
the Department of Agriculture and
Natural Resources certify that the
raw materials needed are available
in the immediate vicinity and that
there is prospect of increased
production thereof to provide
adequately the requirements of the
factory, we wish to reiterate that the
basis of the original approval is to
develop the manufacture of sacks on
the basis of the locally available raw
materials. Your statement that you
will have to rely on the importation
of jute and your request that we give
you assurance that your company
will be able to bring in sufficient jute
materials as may be necessary for
the operation of your factory, would
not be in line with our principle in
approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura,
Inc. did not pursue the matter further. Instead, it requested RFC to
cancel the mortgage, and so, on June 17, 1955 RFC executed the
corresponding deed of cancellation and delivered it to Ramon F.
Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the
registration of a mortgage contract, executed on August 6, 1954, over
the same property in favor of the Prudential Bank and Trust Co., under
which contract Saura, Inc. had up to December 31 of the same year
within which to pay its obligation on the trust receipt heretofore
mentioned. It appears further that for failure to pay the said
obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May
15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC
was cancelled at the request of Saura, Inc., the latter commenced
the present suit for damages, alleging failure of RFC (as predecessor
of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing the
plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there
was a perfected contract between the parties and that the defendant
was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that
there was no perfected contract; and (3) that assuming there was,
the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as
recognized in Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver
something, by way of commodatum or simple loan is
binding upon the parties, but the commodatum or
simple loan itself shall not be perferted until the
delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was approved by
resolution of the defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short of resolving
the basic claim that the defendant failed to fulfill its obligation and
the plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura,
Inc. on the assumption that the factory to be constructed would
utilize locally grown raw materials, principally kenaf. There is no
serious dispute about this. It was in line with such assumption that
when RFC, by Resolution No. 9083 approved on December 17, 1954,
restored the loan to the original amount of P500,000.00. it imposed
two conditions, to wit: "(1) that the raw materials needed by the
borrower-corporation to carry out its operation are available in the
immediate vicinity; and (2) that there is prospect of increased
production thereof to provide adequately for the requirements of the
factory." The imposition of those conditions was by no means a With this view we take of the case, we find it unnecessary to
deviation from the terms of the agreement, but rather a step in its consider and resolve the other issues raised in the respective briefs
implementation. There was nothing in said conditions that of the parties.
contradicted the terms laid down in RFC Resolution No. 145, passed
on January 7, 1954, namely "that the proceeds of the loan shall be WHEREFORE, the judgment appealed from is reversed and the
utilized exclusively for the following purposes: for construction of complaint dismissed, with costs against the plaintiff-appellee.
factory building P250,000.00; for payment of the balance of
purchase price of machinery and equipment P240,900.00; for
working capital P9,100.00." Evidently Saura, Inc. realized that it
could not meet the conditions required by RFC, and so wrote its letter
of January 21, 1955, stating that local jute "will not be able in
sufficient quantity this year or probably next year," and asking that
out of the loan agreed upon the sum of P67,586.09 be released "for
raw materials and labor." This was a deviation from the terms laid
down in Resolution No. 145 and embodied in the mortgage contract,
implying as it did a diversion of part of the proceeds of the loan to
purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955
the negotiations which had been going on for the implementation of
the agreement reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked
that the mortgage be cancelled, which was done on June 15, 1955.
The action thus taken by both parties was in the nature cf mutual
desistance what Manresa terms "mutuo disenso"1 which is a
mode of extinguishing obligations. It is a concept that derives from
the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It

did not protest against any alleged breach of contract by RFC, or even
point out that the latter's stand was legally unjustified. Its request for
cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latter's non-
compliance. In 1962 it even applied with DBP for another loan to
finance a rice and corn project, which application was disapproved. It
was only in 1964, nine years after the loan agreement had been
cancelled at its own request, that Saura, Inc. brought this action for
damages.All these circumstances demonstrate beyond doubt that the
said agreement had been extinguished by mutual desistance and
that on the initiative of the plaintiff-appellee itself.

G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.
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 300,000 for
moral damages, 50,000 for exemplary damages, and 50,000 for
attorneys fees and expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 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
850,000. They paid 350,000 in cash and assumed the 500,000
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 500,000 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
9,996.58 and penalty interest at the rate of 21% per annum per day
from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a
mortgage deed containing the above stipulations with the provision
that payment of the monthly amortization shall commence on May 1,
1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by
paying BPIIC the sum of 190,601.35. This reduced Roas principal
balance to 457,204.90 which, in turn, was liquidated when BPIIC
applied thereto the proceeds of private respondents loan of
500,000.
On September 13, 1982, BPIIC released to private respondents
7,146.87, 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 (475,585.31). 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 500,000 loan in August
and September 1982. Further, out of the 500,000 loan, only the total
amount of 464,351.77 was released to private respondents. Hence,
applying the effects of legal compensation, the balance of 35,648.23
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.
Costs against BPI.
SO ORDERED.2
Both parties appealed to the Court of Appeals. However, private
respondents appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision,
the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is
hereby AFFIRMED in toto.
SO ORDERED.3
In its decision, the Court of Appeals reasoned that a simple loan is
perfected only upon the delivery of the object of the contract. The
contract of loan between BPIIC and ALS & Litonjua was perfected
only on September 13, 1982, the date when BPIIC released the
purported balance of the 500,000 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 194,960.43. Evidence showed that private respondents
had an overpayment, because as of June 1984, they already paid a
total amount of 201,791.96. Therefore, there was no basis for BPIIC
to extrajudicially foreclose the mortgage and cause the publication in
newspapers concerning private respondents delinquency in the
payment of their loan. This fact constituted sufficient ground for
moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise
denied, hence this petition, where BPIIC submits for resolution the
following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A
CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE LAID
DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR
MORAL AND EXEMPLARY DAMAGES AND 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.
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 500,000 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 500,000
with respondent bank. The latter approved the application through a
board resolution. Thereafter, the corresponding mortgage was
executed and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner instituted an
action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have
made the bank liable for not releasing the loan. However, since the
fault was attributable to petitioner therein, the court did not award it
damages.
A perfected consensual contract, as shown above, can give rise to an
action for damages. However, said contract does not constitute the
real contract of loan which requires the delivery of the object of the
contract for its perfection and which gives rise to obligations only on
the part of the borrower.6
In the present case, the loan contract between BPI, on the one hand,
and ALS and Litonjua, on the other, was perfected only on September
13, 1982, the date of the second release of the loan. Following the
intentions of the parties on the commencement of the monthly
amortization, as found by the Court of Appeals, private respondents
obligation to pay commenced only on October 13, 1982, a month after
the perfection of the contract.7
We also agree with private respondents that a contract of loan
involves a reciprocal obligation, wherein the obligation or promise of
each party is the consideration for that of the other.8 As averred by
private respondents, the promise of BPIIC to extend and deliver the
loan is upon the consideration that ALS and Litonjua shall pay the
monthly amortization commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him.9 Only when a party has performed his part of the
contract can he demand that the other party also fulfills his own
obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. Therefore, in
computing the amount due as of the date when BPIIC extrajudicially
caused the foreclosure of the mortgage, the starting date is October
13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue,
such as the date of actual release of the loan and whether private
respondents were the cause of the delay in the release of the loan,
are factual. Since petitioner has not shown that the instant case is
one of the exceptions to the basic rule that only questions of law can
be raised in a petition for review under Rule 45 of the Rules of
Court,10 factual matters need not tarry us now. On these points we are
bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held
liable for moral and exemplary damages for it did not act maliciously
when it initiated the foreclosure proceedings. It merely exercised its
right under the mortgage contract because private respondents were
irregular in their monthly amortization.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
25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private
respondents were compelled to litigate, we sustain the award of
50,000 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 of 50,000 is
UPHELD. Additionally, petitioner is ORDERED to pay private
respondents 25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
Footnotes
1
While Antonio K. Litonjua was not included in the caption of
the petition before this court, apparently, the intention of
petitioner was to include Litonjua as private respondent for
he was a party in all stages of the case both before the
Regional Trial Court and the Court of Appeals and it was
clearly indicated in the petition that "ALS" collectively
referred to as ALS Management and Development
Corporation and Antonio K. Litonjua.
2
RTC Records, p. 278.
3
Rollo, p. 32.
4
Art. 1934. An accepted promise to deliver something by way
of commodatum or simple loan is binding upon the parties,
but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract.
5
Art. 1934, Civil Code of the Philippines; Monte de
Piedad vs. Javier, et al., 36 OG 2176; A. Padilla, Civil Code of
the Philippines Annotated, Vol. VI, pp. 474-475 (1987); E.
Paras, Civil Code of the Philippines Annotated, Vol. V, p. 885
(1995).
6
A. Tolentino, Civil Code of the Philippines, V. 5, p. 443 (1992).
7
Supra, note 3 at 30.
8
Rose Packing Co. Inc. vs. Court of Appeals, No. L-33084, 167
SCRA 309, 318-319 (1988).
9
Art. 1169, Civil Code:
xxx
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. From the moment one of the parties fulfills
his obligation, delay by the other begins.
10
American President Lines, Ltd. vs. Court of Appeals, G.R.
No. 110853, 336 SCRA 582, 586 (2000).
11
Art. 2234, Civil Code: While the amount of the exemplary
damages need not be proved, the plaintiff must show that he
is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not
exemplary damages should be awarded. In case liquidated
damages have been agreed upon, although no proof of loss is
necessary in order that such liquidated damages may be
recovered, nevertheless, before the court may consider the
question of granting exemplary in addition to the liquidated
damages, the plaintiff must show that he would be entitled to
 moral, temperate or compensatory damages were it not for
the stipulation for liquidated damages.
12
Art. 2221, Civil Code: Nominal damages are adjudicated in
order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff for any
loss suffered by him.
G.R. No. 174269 May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter
Anna Regina and son Adrian Roberto, joined an escorted tour of
Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the
afternoon of 25 October 1991, the second to the last day of the tour.
As the group had arrived late in the city, they failed to engage in any
sight-seeing. Instead, it was agreed upon that they would start early
the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the
Coster Diamond House in Amsterdam around 10 minutes before 9:00
a.m. The group had agreed that the visit to Coster should end by 9:30
a.m. to allow enough time to take in a guided city tour of Amsterdam.
The group was ushered into Coster shortly before 9:00 a.m., and
listened to a lecture on the art of diamond polishing that lasted for
around ten minutes.1 Afterwards, the group was led to the stores
showroom to allow them to select items for purchase. Mrs. Pantaleon
had already planned to purchase even before the tour began a 2.5
karat diamond brilliant cut, and she found a diamond close enough in
approximation that she decided to buy.2 Mrs. Pantaleon also selected
for purchase a pendant and a chain,3 all of which totaled U.S.
$13,826.00.
To pay for these purchases, Pantaleon presented his American
Express credit card together with his passport to the Coster sales
clerk. This occurred at around 9:15 a.m., or 15 minutes before the
tour group was slated to depart from the store. The sales clerk took
the cards imprint, and asked Pantaleon to sign the charge slip. The
charge purchase was then referred electronically to respondents
Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his
AmexCard had not yet been approved. His son, who had already
boarded the tour bus, soon returned to Coster and informed the other
members of the Pantaleon family that the entire tour group was
waiting for them. As it was already 9:40 a.m., and he was already
worried about further inconveniencing the tour group, Pantaleon
asked the store clerk to cancel the sale. The store manager though
asked plaintiff to wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had demanded bank
references. Pantaleon supplied the names of his depositary banks,
then instructed his daughter to return to the bus and apologize to the
tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had
presented his AmexCard, and 30 minutes after the tour group was
supposed to have left the store, Coster decided to release the items
even without respondents approval of the purchase. The spouses
Pantaleon returned to the bus. It is alleged that their offers of
apology were met by their tourmates with stony silence. 4 The tour
groups visible irritation was aggravated when the tour guide
announced that the city tour of Amsterdam was to be canceled due to
lack of remaining time, as they had to catch a 3:00 p.m. ferry at
Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while
her husband had to take a tranquilizer to calm his nerves.
It later emerged that Pantaleons purchase was first transmitted for
approval to respondents Amsterdam office at 9:20 a.m., Amsterdam
time, then referred to respondents Manila office at 9:33 a.m, then
finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code
was transmitted to respondents Amsterdam office at 10:38 a.m.,
several minutes after petitioner had already left Coster, and 78
minutes from the time the purchases were electronically transmitted
by the jewelry store to respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family
proceeded to the United States before returning to Manila on 12
November 1992. While in the United States, Pantaleon continued to
use his AmEx card, several times without hassle or delay, but with
two other incidents similar to the Amsterdam brouhaha. On 30
October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card
purchase and borrowed money instead from a friend, after more than
30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase
childrens shoes worth $87.00 at a store in Boston, and it took 20
minutes before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a
letter7 through counsel to the respondent, demanding an apology for
the "inconvenience, humiliation and embarrassment he and his family
thereby suffered" for respondents refusal to provide credit
authorization for the aforementioned purchases. 8 In response,
respondent sent a letter dated 24 March 1992, 9 stating among others
that the delay in authorizing the purchase from Coster was
attributable to the circumstance that the charged purchase of US
$13,826.00 "was out of the usual charge purchase pattern
established."10 Since respondent refused to accede to Pantaleons
demand for an apology, the aggrieved cardholder instituted an action
for damages with the Regional Trial Court (RTC) of Makati City,
Branch 145.11 Pantaleon prayed that he be awarded 2,000,000.00, as
moral damages; 500,000.00, as exemplary damages; 100,000.00, as
attorneys fees; and 50,000.00 as litigation expenses. 12
On 5 August 1996, the Makati City RTC rendered a decision 13 in favor
of Pantaleon, awarding him 500,000.00 as moral damages,
300,000.00 as exemplary damages, 100,000.00 as attorneys fees,
and 85,233.01 as expenses of litigation. Respondent filed a Notice of
Appeal, while Pantaleon moved for partial reconsideration, praying
that the trial court award the increased amount of moral and
exemplary damages he had prayed for.14 The RTC denied Pantaleons
motion for partial reconsideration, and thereafter gave due course to
respondents Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a
decision16 reversing the award of damages in favor of Pantaleon,
holding that respondent had not breached its obligations to petitioner.
Hence, this petition.
The key question is whether respondent, in connection with the
aforementioned transactions, had committed a breach of its
obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it
still remained liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of
Pantaleon and respondents credit authorizer, Edgardo Jaurigue, that
the normal approval time for purchases was "a matter of seconds."
Based on that standard, respondent had been in clear delay with
respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of
respondent in approving the purchases. However, it made two critical
conclusions in favor of respondent. First, the appellate court ruled
that the delay was not attended by bad faith, malice, or gross
negligence. Second, it ruled that respondent "had exercised diligent
efforts to effect the approval" of the purchases, which were "not in
accordance with the charge pattern" petitioner had established for
himself, as exemplified by the fact that at Coster, he was "making his
very first single charge purchase of US$13,826," and "the record of
[petitioner]s past spending with [respondent] at the time does not
favorably support his ability to pay for such purchase." 17
On the premise that there was an obligation on the part of
respondent "to approve or disapprove with dispatch the charge
purchase," petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part of
respondent in the performance of its obligation. For its part,
respondent characterizes the depiction by petitioner of its obligation
to him as "to approve purchases instantaneously or in a matter of
seconds."
Petitioner correctly cites that under mora solvendi, the three
requisites for a finding of default are that the obligation is
demandable and liquidated; the debtor delays performance; and the
creditor judicially or extrajudicially requires the debtors
performance.18 Petitioner asserts that the Court of Appeals had
wrongly applied the principle of mora accipiendi, which relates to
delay on the part of the obligee in accepting the performance of the
obligation by the obligor. The requisites of mora accipiendi are: an
offer of performance by the debtor who has the required capacity; the
offer must be to comply with the prestation as it should be
performed; and the creditor refuses the performance without just
cause.19 The error of the appellate court, argues petitioner, is in
relying on the invocation by respondent of "just cause" for the delay,
since while just cause is determinative of mora accipiendi, it is not
so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora
to appreciate. Generally, the relationship between a credit card
provider and its card holders is that of creditor-debtor,20 with the card
company as the creditor extending loans and credit to the card
holder, who as debtor is obliged to repay the creditor. This
relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor
while the depositor is considered as the creditor.21 Petitioner is
asking us, not baselessly, to again shift perspectives and again see
the credit card company as the debtor/obligor, insofar as it has the
obligation to the customer as creditor/obligee to act promptly on its
purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we
were to still regard respondent as the creditor in the context of this
cause of action. If there was delay on the part of respondent in its
normal role as creditor to the cardholder, such delay would not have
been in the acceptance of the performance of the debtors obligation
(i.e., the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not fall
under mora accipiendi, which contemplates that the obligation of the
debtor, such as the actual purchases on credit, has already been
constituted. Herein, the establishment of the debt itself (purchases
on credit of the jewelry) had not yet been perfected, as it remained
pending the approval or consent of the respondent credit card
company.
Still, in order for us to appreciate that respondent was in mora
solvendi, we will have to first recognize that there was indeed an
obligation on the part of respondent to act on petitioners purchases
with "timely dispatch," or for the purposes of this case, within a
period significantly less than the one hour it apparently took before
the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the
tardiness on the part of respondent in acting on petitioners purchase
at Coster did constitute culpable delay on its part in complying with
its obligation to act promptly on its customers purchase request,
whether such action be favorable or unfavorable. We quote the trial
court, thus:
As to the first issue, both parties have testified that normal approval
time for purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the
card was that except for the three charge purchases subject of this
case, approvals of his charge purchases were always obtained in a
matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
 Q. You also testified that on normal occasions, the normal
approval time for charges would be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and
approval of plaintiffs charge purchase at the Coster Diamond House
was way beyond the normal approval time of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk
at Coster, at 9:15 a.m. and by the time he had to leave the store at
10:05 a.m., no approval had yet been received. In fact, the Credit
Authorization System (CAS) record of defendant at Phoenix Amex
shows that defendants Amsterdam office received the request to
approve plaintiffs charge purchase at 9:20 a.m., Amsterdam time or
01:20, Phoenix time, and that the defendant relayed its approval to
Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a
total time lapse of one hour and [18] minutes. And even then, the
approval was conditional as it directed in computerese [sic] "Positive
Identification of Card holder necessary further charges require bank
information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from
the frantic successive queries of Amexco Amsterdam which reads:
"US$13,826. Cardmember buying jewels. ID seen. Advise how long will
this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and
02:08, all times Phoenix. Manila Amexco could be unaware of the
need for speed in resolving the charge purchase referred to it, yet it
sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the
Amsterdam transaction shows how Amexco Netherlands viewed the
delay as unusually frustrating. In sequence expressed in Phoenix
time from 01:20 when the charge purchased was referred for
authorization, defendants own record shows:
01:22 the authorization is referred to Manila Amexco
01:32 Netherlands gives information that the identification
of the cardmember has been presented and he is buying
jewelries worth US $13,826.
01:33 Netherlands asks "How long will this take?"
02:08 Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of
its contractual obligation to act on his use of the card abroad "with
special handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are
approved "within seconds," there really is no strict, legally
determinative point of demarcation on how long must it take for a
credit card company to approve or disapprove a customers purchase,
much less one specifically contracted upon by the parties. Yet this is
one of those instances when "youd know it when youd see it," and
one hour appears to be an awfully long, patently unreasonable length
of time to approve or disapprove a credit card purchase. It is long
enough time for the customer to walk to a bank a kilometer away,
withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve
or disapprove" the purchase "in timely dispatch," and not "to approve
the purchase instantaneously or within seconds." Certainly, had
respondent disapproved petitioners purchase "within seconds" or
within a timely manner, this particular action would have never seen
the light of day. Petitioner and his family would have returned to the
bus without delay internally humiliated perhaps over the rejection
of his card yet spared the shame of being held accountable by
newly-made friends for making them miss the chance to tour the city
of Amsterdam.
We do not wish do dispute that respondent has the right, if not the
obligation, to verify whether the credit it is extending upon on a
particular purchase was indeed contracted by the cardholder, and
that the cardholder is within his means to make such transaction.
The culpable failure of respondent herein is not the failure to timely
approve petitioners purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even
assuming that respondents credit authorizers did not have sufficient
basis on hand to make a judgment, we see no reason why respondent
could not have promptly informed petitioner the reason for the delay,
and duly advised him that resolving the same could take some time.
In that way, petitioner would have had informed basis on whether or
not to pursue the transaction at Coster, given the attending
circumstances. Instead, petitioner was left uncomfortably dangling in
the chilly autumn winds in a foreign land and soon forced to confront
the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the
defendant acted fraudulently or in bad faith, and the court should find
that under the circumstances, such damages are due. The findings of
the trial court are ample in establishing the bad faith and unjustified
neglect of respondent, attributable in particular to the "dilly-dallying"
of respondents Manila credit authorizer, Edgardo Jaurique.23 Wrote
the trial court:
While it is true that the Cardmembership Agreement, which defendant
prepared, is silent as to the amount of time it should take defendant
to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three
to four seconds. Specially so with cards used abroad which requires
"special handling", meaning with priority. Otherwise, the object of
credit or charge cards would be lost; it would be so inconvenient to
use that buyers and consumers would be better off carrying bundles
of currency or travellers checks, which can be delivered and
accepted quickly. Such right was not accorded to plaintiff in the
instances complained off for reasons known only to defendant at that
time. This, to the Courts mind, amounts to a wanton and deliberate
refusal to comply with its contractual obligations, or at least abuse of
its rights, under the contract.24
xxx
The delay committed by defendant was clearly attended by
unjustified neglect and bad faith, since it alleges to have consumed
more than one hour to simply go over plaintiffs past credit history
with defendant, his payment record and his credit and bank
references, when all such data are already stored and readily
available from its computer. This Court also takes note of the fact
that there is nothing in plaintiffs billing history that would warrant
the imprudent suspension of action by defendant in processing the
purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding
account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in
plaintiffs account.25
It should be emphasized that the reason why petitioner is entitled to
damages is not simply because respondent incurred delay, but
because the delay, for which culpability lies under Article 1170, led to
the particular injuries under Article 2217 of the Civil Code for which
moral damages are remunerative.26 Moral damages do not avail to
soothe the plaints of the simply impatient, so this decision should not
be cause for relief for those who time the length of their credit card
transactions with a stopwatch. The somewhat unusual attending
circumstances to the purchase at Coster that there was a deadline
for the completion of that purchase by petitioner before any delay
would redound to the injury of his several traveling companions
gave rise to the moral shock, mental anguish, serious anxiety,
wounded feelings and social humiliation sustained by the petitioner,
as concluded by the RTC.27 Those circumstances are fairly unusual,
and should not give rise to a general entitlement for damages under a
more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by
the RTC. There is no hard-and-fast rule in determining what would be
a fair and reasonable amount of moral damages, since each case
must be governed by its own peculiar facts, however, it must be
commensurate to the loss or injury suffered.28 Petitioners original
prayer for 5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court of
500,000.00 in moral damages more seemly.1avvphi1

Likewise, we deem exemplary damages available under the

circumstances, and the amount of 300,000.00 appropriate. There is
similarly no cause though to disturb the determined award of
100,000.00 as attorneys fees, and 85,233.01 as expenses of
litigation. G.R. No. 115324 February 19, 2003

WHEREFORE, the petition is GRANTED. The assailed Decision of the PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL
Court of Appeals is REVERSED and SET ASIDE. The Decision of the BANK), petitioner,
Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is vs.
hereby REINSTATED. Costs against respondent. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

SO ORDERED. DECISION

CALLEJO, SR., J.:

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.

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 (200,000.00) 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 200,000.00.
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
90,000.00 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 175,000.00 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 (212,000.00) 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 212,000.00 in private
respondents favor but the check was again dishonored for
insufficiency of funds.7
Private respondent instituted an action for recovery of sum of money
in the Regional Trial Court (RTC) in Pasig, Metro Manila against
Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed
as Civil Case No. 44485. He also filed criminal actions against
Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed
away on March 16, 1985 while the case was pending before the trial
court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated
its Decision in Civil Case No. 44485, the dispositive portion of which
reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
sentencing defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff Franklin Vives
jointly and severally
(a) the amount of 200,000.00, 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 50,000.00 for moral damages and a similar
amount for exemplary damages;
(c) the amount of 40,000.00 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
212,000.00, or 12,000 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
200,000.00 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 200,000.00 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 200,000.00 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
200,000.00 which the latter deposited in Sterelas account together
with an additional 12,000.00, 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 12,000.00 corresponds to the fruits of the lending of
the 200,000.00. 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 200,000.00 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 200,000.00, 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 200,000.00 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 the 200,000.00 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.

SO ORDERED.

G.R. No. 146364 June 3, 2004
COLITO T. PAJUYO, petitioner,
vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000 Decision2 and
14 December 2000 Resolution of the Court of Appeals in CA-G.R. SP
No. 43129. The Court of Appeals set aside the 11 November 1996
decision3 of the Regional Trial Court of Quezon City, Branch
81,4 affirming the 15 December 1995 decision5 of the Metropolitan
Trial Court of Quezon City, Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid 400 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:
WHEREFORE, premises considered, judgment is hereby
rendered for the plaintiff and against defendant, ordering the
latter to:
A) vacate the house and lot occupied by the
defendant or any other person or persons claiming
any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED
PESOS (300.00) monthly as reasonable
compensation for the use of the premises starting
from the last demand;
C) pay plaintiff the sum of 3,000.00 as and by way of
attorneys fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon
City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The
dispositive portion of the RTC decision reads:
 WHEREFORE, premises considered, the Court finds no
reversible error in the decision appealed from, being in
accord with the law and evidence presented, and the same is
hereby affirmed en toto.
SO ORDERED.8
Guevarra received the RTC decision on 29 November 1996. Guevarra
had only until 14 December 1996 to file his appeal with the Court of
Appeals. Instead of filing his appeal with the Court of Appeals,
Guevarra filed with the Supreme Court a "Motion for Extension of
Time to File Appeal by Certiorari Based on Rule 42" ("motion for
extension"). Guevarra theorized that his appeal raised pure questions
of law. The Receiving Clerk of the Supreme Court received the motion
for extension on 13 December 1996 or one day before the right to
appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the
Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution9 referring the motion for extension to the Court of Appeals
which has concurrent jurisdiction over the case. The case presented
no special and important matter for the Supreme Court to take
cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals
issued a Resolution10 granting the motion for extension conditioned
on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to
comment on Guevaras petition for review. On 11 April 1997, Pajuyo
filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing
the RTC decision. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of
the court a quo in Civil Case No. Q-96-26943
is REVERSED and SET ASIDE; and it is hereby declared that
the ejectment case filed against defendant-appellant is
without factual and legal basis.
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo
pointed out that the Court of Appeals should have dismissed outright
Guevarras petition for review because it was filed out of time.
Moreover, it was Guevarras counsel and not Guevarra who signed the
certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution
denying Pajuyos motion for reconsideration. The dispositive portion
of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration
is hereby DENIED. No costs.
SO ORDERED.12
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and
Guevarra is the house and not the lot. Pajuyo is the owner of the
house, and he allowed Guevarra to use the house only by tolerance.
Thus, Guevarras refusal to vacate the house on Pajuyos demand
made Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and
tenant relationship between Pajuyo and Guevarra. The terms of
the Kasunduan bound Guevarra to return possession of the house on
demand.
The RTC rejected Guevarras claim of a better right under
Proclamation No. 137, the Revised National Government Center
Housing Project Code of Policies and other pertinent laws. In an
ejectment suit, the RTC has no power to decide Guevarras rights
under these laws. The RTC declared that in an ejectment case, the
only issue for resolution is material or physical possession, not
ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are
squatters. Pajuyo and Guevarra illegally occupied the contested lot
which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a
squatter. Perez had no right or title over the lot because it is public
land. The assignment of rights between Perez and Pajuyo, and
the Kasunduan between Pajuyo and Guevarra, did not have any legal
effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The
court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held
that the Kasunduan between Pajuyo and Guevarra created a legal tie
akin to that of a landlord and tenant relationship. The Court of
Appeals ruled that theKasunduan is not a lease contract but
a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the
property, the appellate court held that Guevarra has a better right
over the property under Proclamation No. 137. President Corazon C.
Aquino ("President Aquino") issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical possession of
the property. Under Article VI of the Code of Policies Beneficiary
Selection and Disposition of Homelots and Structures in the National
Housing Project ("the Code"), the actual occupant or caretaker of the
lot shall have first priority as beneficiary of the project. The Court of
Appeals concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court
debunked Pajuyos claim that Guevarra filed his motion for extension
beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for
extension filed before the Supreme Court was stamped "13 December
1996 at 4:09 PM" by the Supreme Courts Receiving Clerk. The Court
of Appeals concluded that the motion for extension bore a date,
contrary to Pajuyos claim that the motion for extension was undated.
Guevarra filed the motion for extension on time on 13 December 1996
since he filed the motion one day before the expiration of the
reglementary period on 14 December 1996. Thus, the motion for
extension properly complied with the condition imposed by the Court
of Appeals in its 28 January 1997 Resolution. The Court of Appeals
explained that the thirty-day extension to file the petition for review
was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate
court should have dismissed the petition for review because it was
Guevarras counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that Pajuyo
did not raise this issue in his Comment. The Court of Appeals held
that Pajuyo could not now seek the dismissal of the case after he had
extensively argued on the merits of the case. This technicality, the
appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS
AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION:
1) in GRANTING, instead of denying, Private
Respondents Motion for an Extension of thirty days
to file petition for review at the time when there was
no more period to extend as the decision of the
Regional Trial Court had already become final and
executory.
2) in giving due course, instead of dismissing, private
respondents Petition for Review even though the
certification against forum-shopping was signed only
by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered
into by the parties was in fact a commodatum,
instead of a Contract of Lease as found by the
 Metropolitan Trial Court and in holding that "the
ejectment case filed against defendant-appellant is
without legal and factual basis".
4) in reversing and setting aside the Decision of the
Regional Trial Court in Civil Case No. Q-96-26943 and
in holding that the parties are in pari delicto being
both squatters, therefore, illegal occupants of the
contested parcel of land.
5) in deciding the unlawful detainer case based on
the so-called Code of Policies of the National
Government Center Housing Project instead of
deciding the same under the Kasunduan voluntarily
executed by the parties, the terms and conditions of
which are the laws between themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we
find merit in the substantive issues Pajuyo is submitting for
resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed
outright 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.15These 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.20The 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 Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari
delicto to this case.
Articles 1411 and 1412 of the Civil Code48 embody the principle of pari
delicto. We explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo
malo non eritur actio and in pari delicto potior est conditio
defedentis. The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them. 49
The application of the pari delicto principle is not absolute, as there
are exceptions to its application. One of these exceptions is where
the application of the pari delicto rule would violate well-established
public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the
summary actions of forcible entry and unlawful detainer. We held
that:
It must be stated that the purpose of an action of forcible
entry and detainer is that, regardless of the actual condition
of the title to the property, the party in peaceable quiet
possession shall not be turned out by strong hand, violence
or terror. In affording this remedy of restitution the object of
the statute is to prevent breaches of the peace and criminal
disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would
create that some advantage must accrue to those persons
who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to
some appropriate action in the courts to assert their claims.
This is the philosophy at the foundation of all these actions
of forcible entry and detainer which are designed to compel
the party out of possession to respect and resort to the law
alone to obtain what he claims is his.52
Clearly, the application of the principle of pari delicto to a case of
ejectment between squatters is fraught with danger. To shut out relief
to squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another squatter
from possession of the lot that the latter had illegally occupied,
emboldened by the knowledge that the courts would leave them
where they are. Nothing would then stand in the way of the ousted
squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what
ejectment cases or actions for recovery of possession seek to
prevent.53 Even the owner who has title over the disputed property
cannot take the law into his own hands to regain possession of his
property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the
ejectment suit are squatters. The determination of priority and
superiority of possession is a serious and urgent matter that cannot
be left to the squatters to decide. To do so would make squatters
receive better treatment under the law. The law restrains property
owners from taking the law into their own hands. However, the
principle of pari delicto as applied by the Court of Appeals would give
squatters free rein to dispossess fellow squatters or violently retake
possession of properties usurped from them. Courts should not leave
squatters to their own devices in cases involving recovery of
possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of
ejectment. The Court of Appeals refused to rule on the issue of
physical possession. Nevertheless, the appellate court held that the
pivotal issue in this case is who between Pajuyo and Guevarra has
the "priority right as beneficiary of the contested land under
Proclamation No. 137."54 According to the Court of Appeals, Guevarra
enjoys preferential right under Proclamation No. 137 because Article
VI of the Code declares that the actual occupant or caretaker is the
one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested
lot is part of a relocation site under Proclamation No. 137.
Proclamation No. 137 laid down the metes and bounds of the land
that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land
specified by Proclamation No. 137. Guevarra had the burden to prove
that the disputed lot is within the coverage of Proclamation No. 137.
He failed to do so.
Second. The Court of Appeals should not have given credence to
Guevarras unsubstantiated claim that he is the beneficiary of
Proclamation No. 137. Guevarra merely alleged that in the survey the
project administrator conducted, he and not Pajuyo appeared as the
actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of
Proclamation No. 137. Pajuyo allowed Guevarra to occupy the
disputed property in 1985. President Aquino signed Proclamation No.
137 into law on 11 March 1986. Pajuyo made his earliest demand for
Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the
time that Proclamation No. 137 allegedly segregated the disputed lot,
Guevarra never applied as beneficiary of Proclamation No. 137. Even
when Guevarra already knew that Pajuyo was reclaiming possession
of the property, Guevarra did not take any step to comply with the
requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of
Proclamation No. 137 and Guevarra has a pending application over
the lot, courts should still assume jurisdiction and resolve the issue
of possession. However, the jurisdiction of the courts would be
limited to the issue of physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory
actions involving public land to determine the issue of physical
possession. The determination of the respective rights of rival
claimants to public land is, however, distinct from the determination
of who has the actual physical possession or who has a better right
of physical possession.56 The administrative disposition and
alienation of public lands should be threshed out in the proper
government agency.57
The Court of Appeals determination of Pajuyo and Guevarras rights
under Proclamation No. 137 was premature. Pajuyo and Guevarra
were at most merely potential beneficiaries of the law. Courts should
not preempt the decision of the administrative agency mandated by
law to determine the qualifications of applicants for the acquisition
of public lands. Instead, courts should expeditiously resolve the issue
of physical possession in ejectment cases to prevent disorder and
breaches of peace.58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and
ownership of the house built on it. Guevarra expressly admitted the
existence and due execution of the Kasunduan.
The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas,
Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na
pansamantalang manirahan sa nasabing bahay at lote ng "walang
bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang
aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the
house and lot free of rent, but Guevarra was under obligation to
maintain the premises in good condition. Guevarra promised to
vacate the premises on Pajuyos demand but Guevarra broke his
promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer
involves the withholding by a person from another of the possession
of real property to which the latter is entitled after the expiration or
termination of the formers right to hold possession under a contract,
express or implied.59
Where the plaintiff allows the defendant to use his property by
tolerance without any contract, the defendant is necessarily bound
by an implied promise that he will vacate on demand, failing which,
an action for unlawful detainer will lie.60 The defendants refusal to
comply with the demand makes his continued possession of the
property unlawful.61 The status of the defendant in such a case is
similar to that of a lessee or tenant whose term of lease has expired
but whose occupancy continues by tolerance of the owner.62
This principle should apply with greater force in cases where a
contract embodies the permission or tolerance to use the property.
The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo
did not require Guevarra to pay any rent but only to maintain the
house and lot in good condition. Guevarra expressly vowed in
the Kasunduan that he would vacate the property on demand.
Guevarras refusal to comply with Pajuyos demand to vacate made
Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that
the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for a
certain time and return it.63 An essential feature of commodatum is
that it is gratuitous. Another feature of commodatum is that the use
of the thing belonging to another is for a certain period. 64 Thus, the
bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the
use for which the commodatum is constituted.65 If the bailor should
have urgent need of the thing, he may demand its return for
temporary use.66 If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case
the contractual relation is called a precarium. 67 Under the Civil
Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo
to Guevarra was not essentially gratuitous. While the Kasunduan did
not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes
the Kasunduan a contract different from a commodatum. The effects
of the Kasunduan are also different from that of a commodatum.
Case law on ejectment has treated relationship based on tolerance
as one that is akin to a landlord-tenant relationship where the
withdrawal of permission would result in the termination of the
lease.69 The tenants withholding of the property would then be
unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is
one of commodatum, Guevarra as bailee would still have the duty to
turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to
contracts for safekeeping, or contracts of commission,
administration and commodatum.70 These contracts certainly involve
the obligation to deliver or return the thing received. 71
Guevarra turned his back on the Kasunduan on the sole ground that
like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out,
cannot enter into a contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between
squatters. Guevarra freely entered into 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 3,000 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 300 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 300 monthly rental is counted from the last demand to vacate,
which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June
2000 and Resolution dated 14 December 2000 of the Court of Appeals
in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11
November 1996 of the Regional Trial Court of Quezon City, Branch 81
in Civil Case No. Q-96-26943, affirming the Decision dated 15
December 1995 of the Metropolitan Trial Court of Quezon City, Branch
31 in Civil Case No. 12432, is REINSTATEDwith MODIFICATION. The
award of attorneys fees is deleted. No costs.
SO ORDERED.
G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by
the late Jose V. Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only
questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the
Philippines through the Bureau of Animal Industry three bulls: a Red
Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7
May 1949 for breeding purposes subject to a government charge of
breeding fee of 10% of the book value of the bulls. Upon the
expiration on 7 May 1949 of the contract, the borrower asked for a
renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only
one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V.
Bagtas wrote to the Director of Animal Industry that he would pay the
value of the three bulls. On 17 October 1950 he reiterated his desire
to buy them at a value with a deduction of yearly depreciation to be
approved by the Auditor General. On 19 October 1950 the Director of
Animal Industry advised him that the book value of the three bulls
could not be reduced and that they either be returned or their book
value paid not later than 31 October 1950. Jose V. Bagtas failed to
pay the book value of the three bulls or to return them. So, on 20
December 1950 in the Court of First Instance of Manila the Republic
of the Philippines commenced an action against him praying that he
be ordered to return the three bulls loaned to him or to pay their book
value in the total sum of P3,241.45 and the unpaid breeding fee in the
sum of P199.62, both with interests, and costs; and that other just
and equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and
Manalo, answered that because of the bad peace and order situation
in Cagayan Valley, particularly in the barrio of Baggao, and of the
pending appeal he had taken to the Secretary of Agriculture and
Natural Resources and the President of the Philippines from the
refusal by the Director of Animal Industry to deduct from the book
value of the bulls corresponding yearly depreciation of 8% from the
date of acquisition, to which depreciation the Auditor General did not
object, he could not return the animals nor pay their value and prayed
for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of
P3,625.09 the total value of the three bulls plus the breeding
fees in the amount of P626.17 with interest on both sums of
(at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution
which the court granted on 18 October and issued on 11 November
1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to
serve the writ outside Manila. Of this order appointing a special
sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving
spouse of the defendant Jose Bagtas who died on 23 October 1951
and as administratrix of his estate, was notified. On 7 January 1959
she file a motion alleging that on 26 June 1952 the two bull Sindhi
and Bhagnari were returned to the Bureau Animal of Industry and that
sometime in November 1958 the third bull, the Sahiniwal, died from
gunshot wound inflicted during a Huk raid on Hacienda Felicidad
Intal, and praying that the writ of execution be quashed and that a
writ of preliminary injunction be issued. On 31 January 1959 the
plaintiff objected to her motion. On 6 February 1959 she filed a reply
thereto. On the same day, 6 February, the Court denied her motion.
Hence, this appeal certified by the Court of Appeals to this Court as
stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the
appellant by the late defendant, returned the Sindhi and Bhagnari
bulls to Roman Remorin, Superintendent of the NVB Station, Bureau
of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a
memorandum receipt signed by the latter (Exhibit 2). That is why in
its objection of 31 January 1959 to the appellant's motion to quash
the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of
defendant deceased Jose V. Bagtas." She cannot be held liable for
the two bulls which already had been returned to and received by the
appellee.
The appellant contends that the Sahiniwal bull was accidentally
killed during a raid by the Huk in November 1953 upon the
surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan,
where the animal was kept, and that as such death was due to force
majeure she is relieved from the duty of returning the bull or paying
its value to the appellee. The contention is without merit. The loan by
the appellee to the late defendant Jose V. Bagtas of the three bulls
for breeding purposes for a period of one year from 8 May 1948 to 7
May 1949, later on renewed for another year as regards one bull, was
subject to the payment by the borrower of breeding fee of 10% of the
book value of the bulls. The appellant contends that the contract
was commodatum and that, for that reason, as the appellee retained
ownership or title to the bull it should suffer its loss due to force
majeure. A contract of commodatum is essentially gratuitous.1 If the
breeding fee be considered a compensation, then the contract would
be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of
the contract. And even if the contract be commodatum, still the
appellant is liable, because article 1942 of the Civil Code provides
that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through
a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949.
The loan of one bull was renewed for another period of one year to
end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased husband of the
appellant the bulls had each an appraised book value, to with: the
Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at
P744.46. It was not stipulated that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt
from liability.
The appellant's contention that the demand or prayer by the appellee
for the return of the bull or the payment of its value being a money
claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without
merit. However, the claim that his civil personality having ceased to
exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court
provides that
After a party dies and the claim is not thereby extinguished,
the court shall order, upon proper notice, the legal
representative of the deceased to appear and to be
substituted for the deceased, within a period of thirty (30)
days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed
to comply with section 16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the
duty of his attorney to inform the court promptly of such
death . . . and to give the name and residence of the
executory administrator, guardian, or other legal
representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de
Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all
persons having claims for monopoly against the deceased Jose V.
Bagtas, arising from contract express or implied, whether the same
be due, not due, or contingent, for funeral expenses and expenses of
the last sickness of the said decedent, and judgment for monopoly
against him, to file said claims with the Clerk of this Court at the City
Hall Bldg., Highway 54, Quezon City, within six (6) months from the
date of the first publication of this order, serving a copy thereof upon
the aforementioned Felicidad M. Bagtas, the appointed administratrix
of the estate of the said deceased," is not a notice to the court and
the appellee who were to be notified of the defendant's death in
accordance with the above-quoted rule, and there was no reason for
such failure to notify, because the attorney who appeared for the
defendant was the same who represented the administratrix in the
special proceedings instituted for the administration and settlement
of his estate. The appellee or its attorney or representative could not
be expected to know of the death of the defendant or of the
administration proceedings of his estate instituted in another court
that if the attorney for the deceased defendant did not notify the
plaintiff or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee,
the estate of the late defendant is only liable for the sum of P859.63,
the value of the bull which has not been returned to the appellee,
because it was killed while in the custody of the administratrix of his
estate. This is the amount prayed for by the appellee in its objection
on 31 January 1959 to the motion filed on 7 January 1959 by the
appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the
estate of the deceased Jose V. Bagtas having been instituted in the
Court of First Instance of Rizal (Q-200), the money judgment rendered
in favor of the appellee cannot be enforced by means of a writ of
execution but must be presented to the probate court for payment by
the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside,
without pronouncement as to costs.
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, respondents.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the
Court of Appeals promulgated a long time ago can properly be
considered res judicata by respondent Court of Appeals in the
present two cases between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated
August 31, 1987 of the Ninth Division of Respondent Court of
Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R.
No. 05149 [Civil Case No. 3655 (429)], both for Recovery of
Possession, which affirmed the Decision of the Honorable Nicodemo
T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in
Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the
dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering
the defendant, Catholic Vicar Apostolic of the
Mountain Province to return and surrender Lot 2 of
Plan Psu-194357 to the plaintiffs. Heirs of Juan
Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo
Valdez, et al.). For lack or insufficiency of evidence,
the plaintiffs' claim or damages is hereby denied.
Said defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision,
sustained the trial court's conclusions that the Decision of the Court
of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases
affirmed by the Supreme Court, touched on the ownership of lots 2
and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of
ownership in good faith from 1906 to 1951; that petitioner had been in
possession of the same lots as bailee in commodatum up to 1951,
when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as
owner for eleven years, hence there is no possibility of acquisitive
prescription which requires 10 years possession with just title and 30
years of possession without; that the principle of res judicata on
these findings by the Court of Appeals will bar a reopening of these
questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate
court's Decision in the two aforementioned cases (CA G.R. No. CV-
05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail
court are as follows
... The documents and records presented reveal that the whole
controversy started when the defendant Catholic Vicar
Apostolic of the Mountain Province (VICAR for brevity) filed
with the Court of First Instance of Baguio Benguet on
September 5, 1962 an application for registration of title over
Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central,
La Trinidad, Benguet, docketed as LRC N-91, said Lots being
the sites of the Catholic Church building, convents, high school
building, school gymnasium, school dormitories, social hall,
stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez
and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively,
asserting ownership and title thereto. After trial on the merits,
the land registration court promulgated its Decision, dated
November 17, 1965, confirming the registrable title of VICAR to
Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No.
3655) and the Heirs of Egmidio Octaviano (plaintiffs in the
herein Civil Case No. 3607) appealed the decision of the land
registration court to the then Court of Appeals, docketed as
CA-G.R. No. 38830-R. The Court of Appeals rendered its
decision, dated May 9, 1977, reversing the decision of the land
registration court and dismissing the VICAR's application as to
Lots 2 and 3, the lots claimed by the two sets of oppositors in
the land registration case (and two sets of plaintiffs in the two
cases now at bar), the first lot being presently occupied by the
convent and the second by the women's dormitory and the
sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for
reconsideration praying the Court of Appeals to order the
registration of Lot 3 in the names of the Heirs of Egmidio
Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and
Pacita Valdez filed their motion for reconsideration praying
that both Lots 2 and 3 be ordered registered in the names of
the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977,
the Court of Appeals denied the motion for reconsideration
filed by the Heirs of Juan Valdez on the ground that there was
"no sufficient merit to justify reconsideration one way or the
other ...," and likewise denied that of the Heirs of Egmidio
Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition
for review on certiorari of the decision of the Court of Appeals
dismissing his (its) application for registration of Lots 2 and 3,
docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic
of the Mountain Province vs. Court of Appeals and Heirs of
Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for
reconsideration the Heirs of Juan Valdez and Pacita Valdez, on
September 8, 1977, filed with the Supreme Court a petition for
review, docketed as G.R. No. L-46872, entitled, Heirs of Juan
Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of
Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute
resolution both petitions (of VICAR on the one hand and the
Heirs of Juan Valdez and Pacita Valdez on the other) for lack of
merit. Upon the finality of both Supreme Court resolutions in
G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano
filed with the then Court of First Instance of Baguio, Branch II,
a Motion For Execution of Judgment praying that the Heirs of
Octaviano be placed in possession of Lot 3. The Court,
presided over by Hon. Salvador J. Valdez, on December 7, 1978,
denied the motion on the ground that the Court of Appeals
decision in CA-G.R. No. 38870 did not grant the Heirs of
Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court
of Appeals a petitioner for certiorari and mandamus, docketed
as CA-G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs.
Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May
16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The
Heirs of Egmidio Octaviano filed Civil Case No. 3607 (419) on
July 24, 1979, for recovery of possession of Lot 3; and the
Heirs of Juan Valdez filed Civil Case No. 3655 (429) on
September 24, 1979, likewise for recovery of possession of Lot
2 (Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The
plaintiffs Heirs of Egmidio Octaviano presented one
(1) witness, Fructuoso Valdez, who testified on the
alleged ownership of the land in question (Lot 3) by
their predecessor-in-interest, Egmidio Octaviano
(Exh. C ); his written demand (Exh. BB-4 ) to
defendant Vicar for the return of the land to them;
and the reasonable rentals for the use of the land at
P10,000.00 per month. On the other hand, defendant
Vicar presented the Register of Deeds for the
Province of Benguet, Atty. Nicanor Sison, who
testified that the land in question is not covered by
any title in the name of Egmidio Octaviano or any of
the plaintiffs (Exh. 8). The defendant dispensed with
the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the
witness stand, would testify that defendant Vicar has
been in possession of Lot 3, for seventy-five (75)
years continuously and peacefully and has
constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the
material facts are not in dispute, submitted the case
on the sole issue of whether or not the decisions of
the Court of Appeals and the Supreme Court touching
on the ownership of Lot 2, which in effect declared
the plaintiffs the owners of the land constitute res
judicata.
In these two cases , the plaintiffs arque that the
defendant Vicar is barred from setting up the
defense of ownership and/or long and continuous
possession of the two lots in question since this is
barred by prior judgment of the Court of Appeals in
CA-G.R. No. 038830-R under the principle of res
judicata. Plaintiffs contend that the question of
possession and ownership have already been
determined by the Court of Appeals (Exh. C, Decision,
CA-G.R. No. 038830-R) and affirmed by the Supreme
Court (Exh. 1, Minute Resolution of the Supreme
Court). On his part, defendant Vicar maintains that
the principle ofres judicata would not prevent them
from litigating the issues of long possession and
ownership because the dispositive portion of the
prior judgment in CA-G.R. No. 038830-R merely
dismissed their application for registration and titling
of lots 2 and 3. Defendant Vicar contends that only
the dispositive portion of the decision, and not its
body, is the controlling pronouncement of the Court
of Appeals. 2
The alleged errors committed by respondent Court of Appeals
according to petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2
AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT
DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED
LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED
ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND
OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE
RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT
LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE
PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE
RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE
1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3
ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER
ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR
ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF
APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME
COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830
TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE
RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION
OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH
FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION
OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM,
A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND
BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND
REIMBURSEMENT AND IS BARRED BY THE FINALITY AND
CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-
G.R. Nos. 05148 and 05149, when it clearly held that it was in
agreement with the findings of the trial court that the Decision of the
Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the
question of ownership of Lots 2 and 3, declared that the said Court of
Appeals Decision CA-G.R. No. 38830-R) did not positively declare
private respondents as owners of the land, neither was it declared
that they were not owners of the land, but it held that the
predecessors of private respondents were possessors of Lots 2 and
3, with claim of ownership in good faith from 1906 to 1951. Petitioner
was in possession as borrower in commodatum up to 1951, when it
repudiated the trust by declaring the properties in its name for
taxation purposes. When petitioner applied for registration of Lots 2
and 3 in 1962, it had been in possession in concept of owner only for
eleven years. Ordinary acquisitive prescription requires possession
for ten years, but always with just title. Extraordinary acquisitive
prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated
by the Court of Appeals in CA-G.R. No. 38830-R, affirmed by this
Court, We see no error in respondent appellate court's ruling that said
findings are res judicatabetween the parties. They can no longer be
altered by presentation of evidence because those issues were
resolved with finality a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations by
continuous determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977,
First Division 5 in CA-G.R. No. 38830-R, shows that it reversed the trial
court's Decision 6 finding petitioner to be entitled to register the
lands in question under its ownership, on its evaluation of evidence
and conclusion of facts.
The Court of Appeals found that petitioner did not meet the
requirement of 30 years possession for acquisitive prescription over
Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the
absence of just title. The appellate court did not believe the findings
of the trial court that Lot 2 was acquired from Juan Valdez by
purchase and Lot 3 was acquired also by purchase from Egmidio
Octaviano by petitioner Vicar because there was absolutely no
documentary evidence to support the same and the alleged
purchases were never mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by
Valdez and Octaviano. Both Valdez and Octaviano had Free Patent
Application for those lots since 1906. The predecessors of private
respondents, not petitioner Vicar, were in possession of the
questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which
are not in question, but not Lots 2 and 3, because the buildings
standing thereon were only constructed after liberation in 1945.
Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in
1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop
but said Bishop was appointed only in 1947, the church was
constructed only in 1951 and the new convent only 2 years before the SO ORDERED.
trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the

parish priest offered to buy the lot from Fructuoso Valdez. Lots 2 and
3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors'

house was borrowed by petitioner Vicar after the church and the
convent were destroyed. They never asked for the return of the
house, but when they allowed its free use, they became bailors
in commodatum and the petitioner the bailee. The bailees' failure to
return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in
trust the property subject matter of commodatum. The adverse claim
of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could
not ripen into title by way of ordinary acquisitive prescription
because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and

private respondents were possessors under claim of ownership in
good faith from 1906; that petitioner Vicar was only a bailee
in commodatum; and that the adverse claim and repudiation of trust
came only in 1951.

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

Appeals in CA-G.R. No. 38830-R. Its findings of fact have become
incontestible. This Court declined to review said decision, thereby in
effect, affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much
less grave abuse of discretion, when it held that the Decision of the
Court of Appeals in CA-G.R. No. 38830-R is governing, under the
principle of res judicata, hence the rule, in the present cases CA-G.R.
No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence
established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is

DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R.
Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED,
with costs against petitioner.
 MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.

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.
G.R. No. L-46240 November 3, 1939
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.
G.R. Nos. 173654-765 August 28, 2008
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
TERESITA PUIG and ROMEO PORRAS, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of
Court with petitioner People of the Philippines, represented by the
Office of the Solicitor General, praying for the reversal of the Orders
dated 30 January 2006 and 9 June 2006 of the Regional Trial Court
(RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo,
dismissing the 112 cases of Qualified Theft filed against respondents
Teresita Puig and Romeo Porras, and denying petitioners Motion for
Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutors Office filed
before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of
Qualified Theft against respondents Teresita Puig (Puig) and Romeo
Porras (Porras) who were the Cashier and Bookkeeper, respectively,
of private complainant Rural Bank of Pototan, Inc. The cases were
docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations 1 filed before the RTC were
uniform and pro-forma, except for the amounts, date and time of
commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the
Municipality of Pototan, Province of Iloilo, Philippines, and
within the jurisdiction of this Honorable Court, above-named
[respondents], conspiring, confederating, and helping one
another, with grave abuse of confidence, being
the Cashier and Bookkeeper of the Rural Bank of Pototan,
Inc., Pototan, Iloilo, without the knowledge and/or consent of
the management of the Bank and with intent of gain, did then
and there willfully, unlawfully and feloniously take, steal and
carry away the sum of FIFTEEN THOUSAND PESOS
(P15,000.00), Philippine Currency, to the damage and
prejudice of the said bank in the aforesaid amount.
After perusing the Informations in these cases, the trial court did not
find the existence of probable cause that would have necessitated
the issuance of a warrant of arrest based on the following grounds:
(1) the element of taking without the consent of the owners
was missing on the ground that it is the depositors-clients,
and not the Bank, which filed the complaint in these cases,
who are the owners of the money allegedly taken by
respondents and hence, are the real parties-in-interest; and
(2) the Informations are bereft of the phrase alleging
"dependence, guardianship or vigilance between the
respondents and the offended party that would have created
a high degree of confidence between them which the
respondents could have abused."
It added that allowing the 112 cases for Qualified Theft filed against
the respondents to push through would be violative of the right of the
respondents under Section 14(2), Article III of the 1987 Constitution
which states that in all criminal prosecutions, the accused shall
enjoy the right to be informed of the nature and cause of the
accusation against him. Following Section 6, Rule 112 of the Revised
Rules of Criminal Procedure, the RTC dismissed the cases on 30
January 2006 and refused to issue a warrant of arrest against Puig
and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the
petitioner.
On 9 June 2006, an Order3 denying petitioners Motion for
Reconsideration was issued by the RTC, finding as follows:
Accordingly, the prosecutions Motion for Reconsideration
should be, as it hereby, DENIED. The Order dated January 30,
2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review
on Certiorari under Rule 45, raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED
THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING
WITHOUT THE CONSENT OF THE OWNER, AND THE
QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF
CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting
aside the Orders dated 30 January 2006 and 9 June 2006 issued by
the trial court, and that it be directed to proceed with Criminal Cases
No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code,
"fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple
loans." Corollary thereto, Article 1953 of the same Code provides that
"a person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality." Thus, it posits that the
depositors who place their money with the bank are considered
creditors of the bank. The bank acquires ownership of the money
deposited by its clients, making the money taken by respondents as
belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the
elements of the crime of qualified theft, citing that a perusal of the
Informations will show that they specifically allege that the
respondents were the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., respectively, and that they took various amounts of
money with grave abuse of confidence, and without the knowledge
and consent of the bank, to the damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge
the petition on the ground that a Petition for Review on Certiorari
via Rule 45 is the wrong mode of appeal because a finding of
probable cause for the issuance of a warrant of arrest presupposes
evaluation of facts and circumstances, which is not proper under said
Rule.
Respondents further claim that the Department of Justice (DOJ),
through the Secretary of Justice, is the principal party to file a
Petition for Review on Certiorari, considering that the incident was
indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to
insufficiency of the Informations and, therefore, because of this
defect, there is no basis for the existence of probable cause which
will justify the issuance of the warrant of arrest. Petitioner assails
the dismissal contending that the Informations for Qualified Theft
sufficiently state facts which constitute (a) the qualifying
circumstance of grave abuse of confidence; and (b) the element of
taking, with intent to gain and without the consent of the owner ,
which is the Bank.
In determining the existence of probable cause to issue a warrant of
arrest, the RTC judge found the allegations in the Information
inadequate. He ruled that the Information failed to state facts
constituting the qualifying circumstance of grave abuse of
confidence and the element of taking without the consent of the
owner, since the owner of the money is not the Bank, but the
depositors therein. He also cites People v. Koc Song,4 in which this
Court held:
There must be allegation in the information and proof of a
relation, by reason of dependence, guardianship or vigilance,
between the respondents and the offended party that has
created a high degree of confidence between them, which
the respondents abused.
At this point, it needs stressing that the RTC Judge based his
conclusion that there was no probable cause simply on the
insufficiency of the allegations in the Informations concerning the
facts constitutive of the elements of the offense charged. This,
therefore, makes the issue of sufficiency of the allegations in the
Informations the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the
Revised Penal Code, is committed as follows, viz:
ART. 310. Qualified Theft . The crime of theft shall be
punished by the penalties next higher by two degrees than
those respectively specified in the next preceding article, if
committed by a domestic servant, or with grave abuse of
confidence, or if the property stolen is motor vehicle, mail
matter or large cattle or consists of coconuts taken from the
premises of a plantation, fish taken from a fishpond or fishery
or if property is taken on the occasion of fire, earthquake,
typhoon, volcanic eruption, or any other calamity, vehicular
accident or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires
the physical taking of anothers property without violence or
intimidation against persons or force upon things. The elements of
the crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or
force upon things.
To fall under the crime of Qualified Theft, the following elements must
concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or
intimidation against persons, nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules
of Court requires, inter alia, that the information must state the acts
or omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9,
Rule 110 of the Rules of Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions
complained of as constituting the offense and the qualifying
and aggravating circumstances must be stated in ordinary
and concise language and not necessarily in the language
used in the statute but in terms sufficient to enable a person
of common understanding to know what offense is being
charged as well as its qualifying and aggravating
circumstances and for the court to pronounce judgment.
It is evident that the Information need not use the exact language of
the statute in alleging the acts or omissions complained of as
constituting the offense. The test is whether it enables a person of
common understanding to know the charge against him, and the
court to render judgment properly.5
The portion of the Information relevant to this discussion reads:
A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without
the knowledge and/or consent of the management of the Bank x x x.
It is beyond doubt that tellers, Cashiers, Bookkeepers and other
employees of a Bank who come into possession of the monies
deposited therein enjoy the confidence reposed in them by their
employer. Banks, on the other hand, where monies are deposited, are
considered the owners thereof. This is very clear not only from the
express provisions of the law, but from established jurisprudence.
The relationship between banks and depositors has been held to be
that of creditor and debtor. Articles 1953 and 1980 of the New Civil
Code, as appropriately pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same
kind and quality.
Article 1980. Fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the
provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly
established the nature of possession by the Bank of the money
deposits therein, and the duties being performed by its employees
who have custody of the money or have come into possession of it.
The Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of
confidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as
sufficient to make out a case of Qualified Theft. For a graphic
illustration, we cite Roque v. People,6 where the accused teller was
convicted for Qualified Theft based on this Information:
That on or about the 16th day of November, 1989, in the
municipality of Floridablanca, province of Pampanga,
Philippines and within the jurisdiction of his Honorable Court,
the above-named accused ASUNCION GALANG ROQUE, being
then employed as teller of the Basa Air Base Savings and
Loan Association Inc. (BABSLA) with office address at Basa
Air Base, Floridablanca, Pampanga, and as such was
authorized and reposed with the responsibility to receive and
collect capital contributions from its member/contributors of
said corporation, and having collected and received in her
capacity as teller of the BABSLA the sum of TEN THOUSAND
PESOS (P10,000.00), said accused, with intent of gain, with
grave abuse of confidence and without the knowledge and
consent of said corporation, did then and there willfully,
unlawfully and feloniously take, steal and carry away the
amount of P10,000.00, Philippine currency, by making it
appear that a certain depositor by the name of Antonio
Salazar withdrew from his Savings Account No. 1359, when in
truth and in fact said Antonio Salazar did not withdr[a]w the
said amount of P10,000.00 to the damage and prejudice of
BABSLA in the total amount of P10,000.00, Philippine
currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the
bank places money in the tellers possession due to the
confidence reposed on the teller, the felony of qualified theft
would be committed.7
Also in People v. Sison,8 the Branch Operations Officer was convicted
of the crime of Qualified Theft based on the Information as herein
cited:
That in or about and during the period compressed between
January 24, 1992 and February 13, 1992, both dates inclusive,
in the City of Manila, Philippines, the said accused did then
and there wilfully, unlawfully and feloniously, with intent of
gain and without the knowledge and consent of the owner
thereof, take, steal and carry away the following, to wit:
Cash money amounting to P6,000,000.00 in different
denominations belonging to the PHILIPPINE COMMERCIAL
INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch,
Manila represented by its Branch Manager, HELEN U.
FARGAS, to the damage and prejudice of the said owner in
the aforesaid amount of P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused
acted with grave abuse of confidence and unfaithfulness, he
being the Branch Operation Officer of the said complainant
and as such he had free access to the place where the said
amount of money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the
Philippine Commercial and Industrial Bank (PCIB), is
Qualified Theft. Appellant could not have committed the
crime had he not been holding the position of Luneta Branch
Operation Officer which gave him not only sole access to the
bank vault xxx. The management of the PCIB reposed its
trust and confidence in the appellant as its Luneta Branch
Operation Officer, and it was this trust and confidence which
he exploited to enrich himself to the damage and prejudice of
PCIB x x x.9
From another end, People v. Locson,10 in addition to People v. Sison,
described the nature of possession by the Bank. The money in this
case was in the possession of the defendant as receiving teller of the
bank, and the possession of the defendant was the possession of the
Bank. The Court held therein that when the defendant, with grave
abuse of confidence, removed the money and appropriated it to his
own use without the consent of the Bank, there was taking as
contemplated in the crime of Qualified Theft. 11
Conspicuously, in all of the foregoing cases, where the Informations
merely alleged the positions of the respondents; that the crime was
committed with grave abuse of confidence, with intent to gain and
without the knowledge and consent of the Bank, without necessarily
stating the phrase being assiduously insisted upon by respondents,
"of a relation by reason of dependence, guardianship or vigilance,
between the respondents and the offended party that has created a
high degree of confidence between them, which respondents
abused,"12 and without employing the word "owner" in lieu of the
"Bank" were considered to have satisfied the test of sufficiency of
allegations.
As regards the respondents who were employed as Cashier and
Bookkeeper of the Bank in this case, there is even no reason to
quibble on the allegation in the Informations that they acted with
grave abuse of confidence. In fact, the Information which alleged
grave abuse of confidence by accused herein is even more precise,
as this is exactly the requirement of the law in qualifying the crime of
Theft.
In summary, the Bank acquires ownership of the money deposited by
its clients; and the employees of the Bank, who are entrusted with
the possession of money of the Bank due to the confidence reposed
in them, occupy positions of confidence. The Informations, therefore,
sufficiently allege all the essential elements constituting the crime of
Qualified Theft.
On the theory of the defense that the DOJ is the principal party who
may file the instant petition, the ruling in Mobilia Products, Inc. v.
Hajime Umezawa13 is instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State,
the interest of the private complainant or the offended party
is limited to the civil liability arising therefrom. Hence, if a
criminal case is dismissed by the trial court or if there is an
acquittal, a reconsideration of the order of dismissal or
acquittal may be undertaken, whenever legally feasible,
insofar as the criminal aspect thereof is concerned and may
be made only by the public prosecutor; or in the case of an
appeal, by the State only, through the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state
that the rule is well-settled that in appeals by certiorari under Rule 45
of the Rules of Court, only errors of law may be raised, 14 and herein
petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of the Informations
in these cases, a closer look at the records of the preliminary
investigation conducted will show that, indeed, probable cause exists
for the indictment of herein respondents. Pursuant to Section 6, Rule
112 of the Rules of Court, the judge shall issue a warrant of arrest
only upon a finding of probable cause after personally evaluating the
resolution of the prosecutor and its supporting evidence. Soliven v.
Makasiar,15 as reiterated inAllado v. Driokno,16 explained that
probable cause for the issuance of a warrant of arrest is the
existence of such facts and circumstances that would lead a
reasonably discreet and prudent person to believe that an offense
has been committed by the person sought to be arrested. 17 The
records reasonably indicate that the respondents may have, indeed,
committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon
the fiscal or the judge, as the case may be, to relieve the respondents
from the pain of going through a trial once it is ascertained that no
probable cause exists to form a sufficient belief as to the guilt of the
respondents, conversely, it is also equally imperative upon the judge
to proceed with the case upon a showing that there is a prima
faciecase against the respondents.
WHEREFORE, premises considered, the Petition for Review
on Certiorari is hereby GRANTED. The Orders dated 30 January 2006
and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to
05-3165 are REVERSED and SET ASIDE. Let the corresponding
Warrants of Arrest issue against herein respondents TERESITA PUIG
and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas,
Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-
3054 to 05-3165, inclusive, with reasonable dispatch. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 123498 November 23, 2007
BPI FAMILY BANK, Petitioner,
vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with
meticulous care and utmost fidelity. We reiterate this exhortation in
the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal
of the Court of Appeals (CA) Decision1 in CA-G.R. CV No. 43424 which
affirmed with modification the judgment2 of the Regional Trial Court,
Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.
This case has its genesis in an ostensible fraud perpetrated on the
petitioner BPI Family Bank (BPI-FB) allegedly by respondent Amado
Franco (Franco) in conspiracy with other individuals,3 some of whom
opened and maintained separate accounts with BPI-FB, San
Francisco del Monte (SFDM) branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc.
(Tevesteco) opened a savings and current account with BPI-FB. Soon
thereafter, or on August 25, 1989, First Metro Investment Corporation
(FMIC) also opened a time deposit account with the same branch of
BPI-FB with a deposit of 100,000,000.00, to mature one year thence.
Subsequently, on August 31, 1989, Franco opened three accounts,
namely, a current,4 savings,5 and time deposit,6with BPI-FB. The
current and savings accounts were respectively funded with an initial
deposit of 500,000.00 each, while the time deposit account had
1,000,000.00 with a maturity date of August 31, 1990. The total
amount of 2,000,000.00 used to open these accounts is traceable to
a check issued by Tevesteco allegedly in consideration of Francos
introduction of Eladio Teves,7 who was looking for a conduit bank to
facilitate Tevestecos business transactions, to Jaime Sebastian, who
was then BPI-FB SFDMs Branch Manager. In turn, the funding for the
2,000,000.00 check was part of the 80,000,000.00 debited by BPI-
FB from FMICs time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit purportedly signed
by FMICs officers.
It appears, however, that the signatures of FMICs officers on the
Authority to Debit were forged.8 On September 4, 1989, Antonio
Ong,9 upon being shown the Authority to Debit, personally declared
his signature therein to be a forgery. Unfortunately, Tevesteco had
already effected several withdrawals from its current account (to
which had been credited the 80,000,000.00 covered by the forged
Authority to Debit) amounting to 37,455,410.54, including the
2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in
light of FMICs forgery claim, BPI-FB, thru its Senior Vice-President,
Severino Coronacion, instructed Jesus Arangorin10 to debit Francos
savings and current accounts for the amounts remaining
therein.11 However, Francos time deposit account could not be
debited due to the capacity limitations of BPI-FBs computer.12
In the meantime, two checks13 drawn by Franco against his BPI-FB
current account were dishonored upon presentment for payment, and
stamped with a notation "account under garnishment." Apparently,
Francos current account was garnished by virtue of an Order of
Attachment issued by the Regional Trial Court of Makati (Makati RTC)
in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-
FB against Franco et al.,14 to recover the 37,455,410.54 representing
Tevestecos total withdrawals from its account.
Notably, the dishonored checks were issued by Franco and presented
for payment at BPI-FB prior to Francos receipt of notice that his
accounts were under garnishment.15 In fact, at the time the Notice of
Garnishment dated September 27, 1989 was served on BPI-FB, Franco
had yet to be impleaded in the Makati case where the writ of
attachment was issued.
It was only on May 15, 1990, through the service of a copy of the
Second Amended Complaint in Civil Case No. 89-4996, that Franco
was impleaded in the Makati case.16 Immediately, upon receipt of
such copy, Franco filed a Motion to Discharge Attachment which the
Makati RTC granted on May 16, 1990. The Order Lifting the Order of
Attachment was served on BPI-FB on even date, with Franco
demanding the release to him of the funds in his savings and current
accounts. Jesus Arangorin, BPI-FBs new manager, could not
forthwith comply with the demand as the funds, as previously stated,
had already been debited because of FMICs forgery claim. As such,
BPI-FBs computer at the SFDM Branch indicated that the current
account record was "not on file."
With respect to Francos savings account, it appears that Franco
agreed to an arrangement, as a favor to Sebastian, whereby
400,000.00 from his savings account was temporarily transferred to
Domingo Quiaoits savings account, subject to its immediate return
upon issuance of a certificate of deposit which Quiaoit needed in
connection with his visa application at the Taiwan Embassy. As part
of the arrangement, Sebastian retained custody of Quiaoits savings
account passbook to ensure that no withdrawal would be effected
therefrom, and to preserve Francos deposits.
On May 17, 1990, Franco pre-terminated his time deposit account.
BPI-FB deducted the amount of 63,189.00 from the remaining
balance of the time deposit account representing advance interest
paid to him.
These transactions spawned a number of cases, some of which we
had already resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount
of 80,000,000.00 debited from its account.17The case eventually
reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro
Investment Corporation,18 we upheld the finding of the courts below
that BPI-FB failed to exercise the degree of diligence required by the
nature of its obligation to treat the accounts of its depositors with
meticulous care. Thus, BPI-FB was found liable to FMIC for the
debited amount in its time deposit. It was ordered to pay
65,332,321.99 plus interest at 17% per annum from August 29, 1989
until fully restored. In turn, the 17% shall itself earn interest at 12%
from October 4, 1989 until fully paid.
In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda
Tica (Buenaventura, et al.),19 recipients of a 500,000.00 check
proceeding from the 80,000,000.00 mistakenly credited to
Tevesteco, likewise filed suit. Buenaventura et al., as in the case of
Franco, were also prevented from effecting withdrawals 20 from their
current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City
Branch. Likewise, when the case was elevated to this Court docketed
as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no
right to freeze Buenaventura, et al.s accounts and adjudged BPI-FB
liable therefor, in addition to damages.
Meanwhile, BPI-FB filed separate civil and criminal cases against
those believed to be the perpetrators of the multi-million peso
scam.22 In the criminal case, Franco, along with the other accused,
except for Manuel Bienvenida who was still at large, were acquitted
of the crime of Estafa as defined and penalized under Article 351, par.
2(a) of the Revised Penal Code.23 However, the civil case24 remains
under litigation and the respective rights and liabilities of the parties
have yet to be adjudicated.
Consequently, in light of BPI-FBs refusal to heed Francos demands to
unfreeze his accounts and release his deposits therein, the latter
filed on June 4, 1990 with the Manila RTC the subject suit. In his
complaint, Franco prayed for the following reliefs: (1) the interest on
the remaining balance25 of his current account which was eventually
released to him on October 31, 1991; (2) the balance26 on his savings
account, plus interest thereon; (3) the advance interest 27 paid to him
which had been deducted when he pre-terminated his time deposit
account; and (4) the payment of actual, moral and exemplary
damages, as well as attorneys fees.
BPI-FB traversed this complaint, insisting that it was correct in
freezing the accounts of Franco and refusing to release his deposits,
claiming that it had a better right to the amounts which consisted of
part of the money allegedly fraudulently withdrawn from it by
Tevesteco and ending up in Francos accounts. BPI-FB asseverated
that the claimed consideration of 2,000,000.00 for the introduction
facilitated by Franco between George Daantos and Eladio Teves, on
the one hand, and Jaime Sebastian, on the other, spoke volumes of
Francos participation in the fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive
portion of which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered in favor of [Franco] and against [BPI-FB], ordering the latter
to pay to the former the following sums:
1. 76,500.00 representing the legal rate of interest on the
amount of 450,000.00 from May 18, 1990 to October 31,
1991;
2. 498,973.23 representing the balance on [Francos]
savings account as of May 18, 1990, together with the
interest thereon in accordance with the banks guidelines on
the payment therefor;
3. 30,000.00 by way of attorneys fees; and
4. 10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual
and legal anchor.
Costs against [BPI-FB].
SO ORDERED.28
Unsatisfied with the decision, both parties filed their respective
appeals before the CA. Franco confined his appeal to the Manila
RTCs denial of his claim for moral and exemplary damages, and the
diminutive award of attorneys fees. In affirming with modification the
lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby
AFFIRMED with modification ordering [BPI-FB] to pay [Franco]
63,189.00 representing the interest deducted from the time deposit
of plaintiff-appellant. 200,000.00 as moral damages and 100,000.00
as exemplary damages, deleting the award of nominal damages (in
view of the award of moral and exemplary damages) and increasing
the award of attorneys fees from 30,000.00 to 75,000.00.
Cost against [BPI-FB].
SO ORDERED.29
In this recourse, BPI-FB ascribes error to the CA when it ruled that:
(1) Franco had a better right to the deposits in the subject accounts
which are part of the proceeds of a forged Authority to Debit; (2)
Franco is entitled to interest on his current account; (3) Franco can
recover the 400,000.00 deposit in Quiaoits savings account; (4) the
dishonor of Francos checks was not legally in order; (5) BPI-FB is
liable for interest on Francos time deposit, and for moral and
exemplary damages; and (6) BPI-FBs counter-claim has no factual
and legal anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that
BPI-FB cannot unilaterally freeze Francos accounts and preclude him
from withdrawing his deposits. However, contrary to the appellate
courts ruling, we hold that Franco is not entitled to unearned interest
on the time deposit as well as to moral and exemplary damages.
First. On the issue of who has a better right to the deposits in
Francos accounts, BPI-FB urges us that the legal consequence of
FMICs forgery claim is that the money transferred by BPI-FB to
Tevesteco is its own, and considering that it was able to recover
possession of the same when the money was redeposited by Franco,
it had the right to set up its ownership thereon and freeze Francos
accounts.
BPI-FB contends that its position is not unlike that of an owner of
personal property who regains possession after it is stolen, and to
illustrate this point, BPI-FB gives the following example: where Xs
television set is stolen by Y who thereafter sells it to Z, and where Z
unwittingly entrusts possession of the TV set to X, the latter would
have the right to keep possession of the property and preclude Z from
recovering possession thereof. To bolster its position, BPI-FB cites
Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good
faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it from
the person in possession of the same.
If the possessor of a movable lost or of which the owner has been
unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid
therefor.
BPI-FBs argument is unsound. To begin with, the movable property
mentioned in Article 559 of the Civil Code pertains to a specific or
determinate thing.30 A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of
the same kind.31
In this case, the deposit in Francos accounts consists of money
which, albeit characterized as a movable, is generic and
fungible.32 The quality of being fungible depends upon the possibility
of the property, because of its nature or the will of the parties, being
substituted by others of the same kind, not having a distinct
individuality.33
Significantly, while Article 559 permits an owner who has lost or has
been unlawfully deprived of a movable to recover the exact same
thing from the current possessor, BPI-FB simply claims ownership of
the equivalent amount of money, i.e., the value thereof, which it had
mistakenly debited from FMICs account and credited to Tevestecos,
and subsequently traced to Francos account. In fact, this is what
BPI-FB did in filing the Makati Case against Franco, et al. It staked its
claim on the money itself which passed from one account to another,
commencing with the forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar
ownership,34 and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone
awry. Its primary function is to pass from hand to hand as a medium
of exchange, without other evidence of its title.35 Money, which had
passed through various transactions in the general course of banking
business, even if of traceable origin, is no exception.
Thus, inasmuch as what is involved is not a specific or determinate
personal property, BPI-FBs illustrative example, ostensibly based on
Article 559, is inapplicable to the instant case.
There is no doubt that BPI-FB owns the deposited monies in the
accounts of Franco, but not as a legal consequence of its
unauthorized transfer of FMICs deposits to Tevestecos account. BPI-
FB conveniently forgets that the deposit of money in banks is
governed by the Civil Code provisions on simple loan or mutuum. 36 As
there is a debtor-creditor relationship between a bank and its
depositor, BPI-FB ultimately acquired ownership of Francos deposits,
but such ownership is coupled with a corresponding obligation to pay
him an equal amount on demand.37Although BPI-FB owns the deposits
in Francos accounts, it cannot prevent him from demanding payment
of BPI-FBs obligation by drawing checks against his current account,
or asking for the release of the funds in his savings account. Thus,
when Franco issued checks drawn against his current account, he
had every right as creditor to expect that those checks would be
honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze
the accounts of Franco based on its mere suspicion that the funds
therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the
right to take whatever action it pleases on deposits which it
supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of
Appeals38 continues to resonate, thus:
The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not
hesitated to entrust his lifes savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some
interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience
in the settling of his monthly bills and the payment of ordinary
expenses. x x x.
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever directs. A
blunder on the part of the bank, such as the dishonor of the check
without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and
criminal litigation.
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is
duty bound to know the signatures of its customers. Having failed to
detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot
now shift liability thereon to Franco and the other payees of checks
issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final
judgment.
Further, it boggles the mind why BPI-FB, even without delving into the
authenticity of the signature in the Authority to Debit, effected the
transfer of 80,000,000.00 from FMICs to Tevestecos account, when
FMICs account was a time deposit and it had already paid advance
interest to FMIC. Considering that there is as yet no indubitable
evidence establishing Francos participation in the forgery, he
remains an innocent party. As between him and BPI-FB, the latter,
which made possible the present predicament, must bear the
resulting loss or inconvenience.
Second. With respect to its liability for interest on Francos current
account, BPI-FB argues that its non-compliance with the Makati
RTCs Order Lifting the Order of Attachment and the legal
consequences thereof, is a matter that ought to be taken up in that
court.
The argument is tenuous. We agree with the succinct holding of the
appellate court in this respect. The Manila RTCs order to pay
interests on Francos current account arose from BPI-FBs unjustified
refusal to comply with its obligation to pay Franco pursuant to their
contract of mutuum. In other words, from the time BPI-FB refused
Francos demand for the release of the deposits in his current
account, specifically, from May 17, 1990, interest at the rate of 12%
began to accrue thereon.39
Undeniably, the Makati RTC is vested with the authority to determine
the legal consequences of BPI-FBs non-compliance with the Order
Lifting the Order of Attachment. However, such authority does not
preclude the Manila RTC from ruling on BPI-FBs liability to Franco for
payment of interest based on its continued and unjustified refusal to
perform a contractual obligation upon demand. After all, this was the
core issue raised by Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoits account,
we find no reason to depart from the factual findings of both the
Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits
in his account are actually owned by Franco who simply
accommodated Jaime Sebastians request to temporarily transfer
400,000.00 from Francos savings account to Quiaoits
account.40 His testimony cannot be characterized as hearsay as the
records reveal that he had personal knowledge of the arrangement
made between Franco, Sebastian and himself.41
BPI-FB makes capital of Francos belated allegation relative to this
particular arrangement. It insists that the transaction with Quiaoit
was not specifically alleged in Francos complaint before the Manila
RTC. However, it appears that BPI-FB had impliedly consented to the
trial of this issue given its extensive cross-examination of Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in
all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to
amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is now within
the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation of
the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the
amendment to be made. (Emphasis supplied)
In all, BPI-FBs argument that this case is not the right forum for
Franco to recover the 400,000.00 begs the issue. To reiterate,
Quiaoit, testifying during the trial, unequivocally disclaimed
ownership of the funds in his account, and pointed to Franco as the
actual owner thereof. Clearly, Francos action for the recovery of his
deposits appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist
that the dishonor of Francos checks respectively dated September 11
and 18, 1989 was legally in order in view of the Makati RTCs
supplemental writ of attachment issued on September 14, 1989. It
posits that as the party that applied for the writ of attachment before
the Makati RTC, it need not be served with the Notice of Garnishment
before it could place Francos accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FBs
clever but transparent ploy to circumvent Section 4, 42 Rule 13 of the
Rules of Court. It should be noted that the strict requirement on
service of court papers upon the parties affected is designed to
comply with the elementary requisites of due process. Franco was
entitled, as a matter of right, to notice, if the requirements of due
process are to be observed. Yet, he received a copy of the Notice of
Garnishment only on September 27, 1989, several days after the two
checks he issued were dishonored by BPI-FB on September 20 and
21, 1989. Verily, it was premature for BPI-FB to freeze Francos
accounts without even awaiting service of the Makati RTCs Notice of
Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ
of attachment cannot be made without including in the main suit the
owner of the property attached by virtue thereof. Section 5, Rule 13
of the Rules of Court specifically provides that "no levy or
attachment pursuant to the writ issued x x x shall be enforced unless
it is preceded, or contemporaneously accompanied, by service of
summons, together with a copy of the complaint, the application for
attachment, on the defendant within the Philippines."
Franco was impleaded as party-defendant only on May 15, 1990. The
Makati RTC had yet to acquire jurisdiction over the person of Franco
when BPI-FB garnished his accounts.43 Effectively, therefore, the
Makati RTC had no authority yet to bind the deposits of Franco
through the writ of attachment, and consequently, there was no legal
basis for BPI-FB to dishonor the checks issued by Franco.
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such
liable for the advance interest it deducted from Francos time deposit
account, and for moral as well as exemplary damages, we find it
proper to reinstate the ruling of the trial court, and allow only the
recovery of nominal damages in the amount of 10,000.00. However,
we retain the CAs award of 75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account
and for moral and exemplary damages, the CA attributed bad faith to
BPI-FB because it (1) completely disregarded its obligation to Franco;
(2) misleadingly claimed that Francos deposits were under
garnishment; (3) misrepresented that Francos current account was
not on file; and (4) refused to return the 400,000.00 despite the fact
that the ostensible owner, Quiaoit, wanted the amount returned to
Franco.
In this regard, we are guided by Article 2201 of the Civil Code which
provides:
Article 2201. In contracts and quasi-contracts, the damages for which
the obligor who acted in good faith is liable shall be those that are
the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have
reasonable foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor
shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. (Emphasis
supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus of
self-protection and not out of malevolence or ill will. BPI-FB was not
in the corrupt state of mind contemplated in Article 2201 and should
not be held liable for all damages now being imputed to it for its
breach of obligation. For the same reason, it is not liable for the
unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it partakes of the nature of fraud. 44 We have held that
it is a breach of a known duty through some motive of interest or ill
will.45 In the instant case, we cannot attribute to BPI-FB fraud or even
a motive of self-enrichment. As the trial court found, there was no
denial whatsoever by BPI-FB of the existence of the accounts. The
computer-generated document which indicated that the current
account was "not on file" resulted from the prior debit by BPI-FB of
the deposits. The remedy of freezing the account, or the garnishment,
or even the outright refusal to honor any transaction thereon was
resorted to solely for the purpose of holding on to the funds as a
security for its intended court action, 46 and with no other goal but to
ensure the integrity of the accounts.
We have had occasion to hold that in the absence of fraud or bad
faith,47 moral damages cannot be awarded; and that the adverse
result of an action does not per se make the action wrongful, or the
party liable for it. One may err, but error alone is not a ground for
granting such damages.48
An award of moral damages contemplates the existence of the
following requisites: (1) there must be an injury clearly sustained by
the claimant, whether physical, mental or psychological; (2) there
must be a culpable act or omission factually established; (3) the
wrongful act or omission of the defendant is the proximate cause of
the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil
Code.49
Franco could not point to, or identify any particular circumstance in
Article 2219 of the Civil Code,50 upon which to base his claim for
moral damages.1wphi1
Thus, not having acted in bad faith, BPI-FB cannot be held liable for
moral damages under Article 2220 of the Civil Code for breach of
contract.51
We also deny the claim for exemplary damages. Franco should show
that he is entitled to moral, temperate, or compensatory damages
before the court may even consider the question of whether
exemplary damages should be awarded to him.52 As there is no basis
for the award of moral damages, neither can exemplary damages be
granted.
While it is a sound policy not to set a premium on the right to
litigate,53 we, however, find that Franco is entitled to reasonable
attorneys fees for having been compelled to go to court in order to
assert his right. Thus, we affirm the CAs grant of 75,000.00 as
attorneys fees.
Attorneys fees may be awarded when a party is compelled to litigate
or incur expenses to protect his interest,54 or when the court deems it
just and equitable.55 In the case at bench, BPI-FB refused to unfreeze
the deposits of Franco despite the Makati RTCs Order Lifting the
Order of Attachment and Quiaoits unwavering assertion that the
400,000.00 was part of Francos savings account. This refusal
constrained Franco to incur expenses and litigate for almost two (2)
decades in order to protect his interests and recover his deposits.
Therefore, this Court deems it just and equitable to grant Franco
75,000.00 as attorneys fees. The award is reasonable in view of the
complexity of the issues and the time it has taken for this case to be
resolved.56
Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the
Manila RTCs ruling, as affirmed by the CA, that BPI-FB is not entitled
to recover 3,800,000.00 as actual damages. BPI-FBs alleged loss of
profit as a result of Francos suit is, as already pointed out, of its own
making. Accordingly, the denial of its counter-claim is in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of
Appeals Decision dated November 29, 1995 is AFFIRMED with the
MODIFICATION that the award of unearned interest on the time
deposit and of moral and exemplary damages is DELETED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 106064 October 13, 2005

Spouses Renato Constantino, Jr. and Lourdes Constantino and their

minor children Renato Redentor, Anna Marika Lissa, Nina Elissa, and
Anna Karmina, Freedom From Debt Coalition, and Filomeno Sta. Ana
III,Petitioners,
vs.
Hon. Jose B. Cuisia, in his capacity as Governor of the Central Bank,
Hon. Ramon del Rosario, in his capacity as Secretary of Finance, Hon.
Emmanuel V. Pelaez, in his capacity as Philippine Debt Negotiating
Chairman, and the NATIONAL TREASURER, Respondents.

Tinga, J.:

The quagmire that is the foreign debt problem has especially

confounded developing nations around the world for decades. It has
defied easy solutions acceptable both to debtor countries and their
creditors. It has also emerged ascause celebre for various political
movements and grassroots activists and the wellspring of much
scholarly thought and debate.
The present petition illustrates some of the ideological and functional
differences between experts on how to achieve debt relief. However,
this being a court of law, not an academic forum or a convention on
development economics, our resolution has to hinge on the presented
legal issues which center on the appreciation of the constitutional
provision that empowers the President to contract and guarantee
foreign loans. The ultimate choice is between a restrictive reading of
the constitutional provision and an alimentative application thereof
consistent with time-honored principles on executive power and
the alter ego doctrine.
This Petition for Certiorari, Prohibition and Mandamus assails said
contracts which were entered into pursuant to the Philippine
Comprehensive Financing Program for 1992 ("Financing Program" or
"Program"). It seeks to enjoin respondents from executing additional
debt-relief contracts pursuant thereto. It also urges the Court to issue
an order compelling the Secretary of Justice to institute criminal and
administrative cases against respondents for acts which circumvent
or negate the provisions Art. XII of the Constitution. 1
Parties and Facts
The petition was filed on 17 July 1992 by petitioners spouses Renato
Constantino, Jr. and Lourdes Constantino and their minor children,
Renato Redentor, Anna Marika Lissa, Nina Elissa, and Anna Karmina,
Filomeno Sta. Ana III, and the Freedom from Debt Coalition, a non-
stock, non-profit, non-government organization that advocates a "pro-
people and just Philippine debt policy."2 Named respondents were the
then Governor of the Bangko Sentral ng Pilipinas, the Secretary of
Finance, the National Treasurer, and the Philippine Debt Negotiation
Chairman Emmanuel V. Pelaez.3 All respondents were members of the
Philippine panel tasked to negotiate with the countrys foreign
creditors pursuant to the Financing Program.
The operative facts are sparse and there is little need to elaborate on
them.
The Financing Program was the culmination of efforts that began
during the term of former President Corazon Aquino to manage the
countrys external debt problem through a negotiation-oriented debt
strategy involving cooperation and negotiation with foreign
creditors.4 Pursuant to this strategy, the Aquino government entered
into three restructuring agreements with representatives of foreign
creditor governments during the period of 1986 to 1991. 5 During the
same period, three similarly-oriented restructuring agreements were
executed with commercial bank creditors.6
On 28 February 1992, the Philippine Debt Negotiating Team, chaired
by respondent Pelaez, negotiated an agreement with the countrys
Bank Advisory Committee, representing all foreign commercial bank
creditors, on the Financing Program which respondents characterized
as "a multi-option financing
package."7 The Program was scheduled to be executed on 24 July
1992 by respondents in behalf of the Republic. Nonetheless,
petitioners alleged that even prior to the execution of the Program
respondents had already implemented its "buyback component"
when on 15 May 1992, the Philippines bought back 1.26 billion of
external debts pursuant to the Program.8
The petition sought to enjoin the ratification of the Program, but the
Court did not issue any injunctive relief. Hence, it came to pass that
the Program was signed in London as scheduled. The petition still has
to be resolved though as petitioners seek the annulment "of
any and all acts done by respondents, their subordinates and any
other public officer pursuant to the agreement and program in
question."9 Even after the signing of the Program, respondents
themselves acknowledged that the remaining principal objective of
the petition is to set aside respondents actions.10
Petitioners characterize the Financing Program as a package offered
to the countrys foreign creditors consisting of two debt-relief
options.11 The first option was a cash buyback of portions of the
Philippine foreign debt at a discount.12 The second option allowed
creditors to convert existing Philippine debt instruments into any of
three kinds of bonds/securities: (1) new money bonds with a five-year
grace period and 17 years final maturity, the purchase of which would
allow the creditors to convert their eligible debt papers into bearer
bonds with the same terms; (2) interest-reduction bonds with a
maturity of 25 years; and (3) principal-collateralized interest-
reduction bonds with a maturity of 25 years.13
On the other hand, according to respondents the Financing Program
would cover about U.S. $5.3 billion of foreign commercial debts and it
was expected to deal comprehensively with the commercial bank
debt problem of the country and pave the way for the countrys
access to capital markets.14 They add that the Program carried three
basic options from which foreign bank lenders could choose, namely:
to lend money, to exchange existing restructured Philippine debts
with an interest reduction bond; or to exchange the same Philippine
debts with a principal collateralized interest reduction bond. 15
Issues for Resolution
Petitioners raise several issues before this Court.
First, they object to the debt-relief contracts entered into pursuant to
the Financing Program as beyond the powers granted to the President
under Section 20,
Article VII of the Constitution.16 The provision states that the
President may contract or guarantee foreign loans in behalf of the
Republic. It is claimed that the buyback and securitization/bond
conversion schemes are neither "loans" nor "guarantees," and hence
beyond the power of the President to execute.
Second, according to petitioners even assuming that the contracts
under the Financing Program are constitutionally permissible, yet it is
only the President who may exercise the power to enter into these
contracts and such power may not be delegated to respondents.
Third, petitioners argue that the Financing Program violates several
constitutional policies and that contracts executed or to be executed
pursuant thereto were or will be done by respondents with grave
abuse of discretion amounting to lack or excess of jurisdiction.
Petitioners contend that the Financing Program was made available
for debts that were either fraudulently contracted or void. In this
regard, petitioners rely on a 1992 Commission on Audit (COA) report
which identified several "behest" loans as either contracted or
guaranteed fraudulently during the Marcos regime. 17 They posit that
since these and other similar debts, such as the ones pertaining to
the Bataan Nuclear Power Plant,18 were eligible for buyback or
conversion under the Program, the resultant relief agreements
pertaining thereto would be void for being waivers of the Republics
right to repudiate the void or fraudulently contracted loans.
For their part, respondents dispute the points raised by petitioners.
They also question the standing of petitioners to institute the present
petition and the justiciability of the issues presented.
The Court shall tackle the procedural questions ahead of the
substantive issues.
The Courts Rulings
Standing of Petitioners
The individual petitioners are suing as citizens of the Philippines;
those among them who are of age are suing in their additional
capacity as taxpayers.19 It is not indicated in what capacity the
Freedom from Debt Coalition is suing.
Respondents point out that petitioners have no standing to file the
present suit since the rule allowing taxpayers to assail executive or
legislative acts has been applied only to cases where the
constitutionality of a statute is involved. At the same time, however,
they urge this Court to exercise its wide discretion and waive
petitioners lack of standing. They invoke the transcendental
importance of resolving the validity of the questioned debt-relief
contracts and others of similar import.
The recent trend on locus standi has veered towards a liberal
treatment in taxpayers suits. In Tatad v. Garcia Jr.,20this Court
reiterated that the "prevailing doctrines in taxpayers suits are to
allow taxpayers to question contracts entered into by the national
government or government owned and controlled corporations
allegedly in contravention of law."21 A taxpayer is allowed to sue
where there is a claim that public funds are illegally disbursed, or
that public money is being deflected to any improper purpose, or that
there is a wastage of public funds through the enforcement of an
invalid or unconstitutional law.22
Moreover, a ruling on the issues of this case will not only determine
the validity or invalidity of the subject pre-termination and bond-
conversion of foreign debts but also create a precedent for other
debts or debt-related contracts executed or to be executed in behalf
of the President of the Philippines by the Secretary of Finance.
Considering the reported Philippine debt of 3.80 trillion as of
November 2004, the foreign public borrowing component of which
reached 1.81 trillion in November, equivalent to 47.6% of total
government borrowings,23 the importance of the issues raised and the
magnitude of the public interest involved are indubitable.
Thus, the Courts cognizance of this petition is also based on the
consideration that the determination of the issues presented will
have a bearing on the state of the countrys economy, its
international financial ratings, and perhaps even the Filipinos way of
life. Seen in this light, the transcendental importance of the issues
herein presented cannot be doubted.
Where constitutional issues are properly raised in the context of
alleged facts, procedural questions acquire a relatively minor
significance.24 We thus hold that by the very nature of the power
wielded by the President, the effect of using this power on the
economy, and the well-being in general of the Filipino nation, the
Court must set aside the procedural barrier of standing and rule on
the justiciable issues presented by the parties.
Ripeness/Actual Case Dimension
Even as respondents concede the transcendental importance of the
issues at bar, in their Rejoinder they ask this Court to dismiss
the Petition. Allegedly, petitioners arguments are mere attempts at
abstraction.25 Respondents are correct to some degree. Several
issues, as shall be discussed in due course, are not ripe for
adjudication.
The allegation that respondents waived the Philippines right to
repudiate void and fraudulently contracted loans by executing the
debt-relief agreements is, on many levels, not justiciable.
In the first place, records do not show whether the so-called behest
loansor other allegedly void or fraudulently contracted loans for that
matterwere subject of the debt-relief contracts entered into under
the Financing Program.
Moreover, asserting a right to repudiate void or fraudulently
contracted loans begs the question of whether indeed particular
loans are void or fraudulently contracted. Fraudulently contracted
loans are voidable and, as such, valid and enforceable until annulled
by the courts. On the other hand, void contracts that have already
been fulfilled must be declared void in view of the maxim that no one
is allowed to take the law in his own hands.26 Petitioners theory
depends on a prior annulment or declaration of nullity of the pre-
existing loans, which thus far have not been submitted to this Court.
Additionally, void contracts are unratifiable by their very nature; they
are null and void ab initio. Consequently, from the viewpoint of civil
law, what petitioners present as the Republics "right to repudiate" is
yet a contingent right, one which cannot be allowed as an
anticipatory basis for annulling the debt-relief contracts. Petitioners
contention that the debt-relief agreements are tantamount to waivers
of the Republics "right to repudiate" so-called behest loans is
without legal foundation.
It may not be amiss to recognize that there are many advocates of
the position that the Republic should renege on obligations that are
considered as "illegitimate." However, should the executive branch
unilaterally, and possibly even without prior court determination of
the validity or invalidity of these contracts, repudiate or otherwise
declare to the international community its resolve not to recognize a
certain set of "illegitimate" loans, adverse repercussions 27would
come into play. Dr. Felipe Medalla, former Director General of the
National Economic Development Authority, has warned, thus:
One way to reduce debt service is to repudiate debts, totally or
selectively. Taken to its limit, however, such a strategy would put the
Philippines at such odds with too many enemies. Foreign commercial
banks by themselves and without the cooperation of creditor
governments, especially the United States, may not be in a position
to inflict much damage, but concerted sanctions from commercial
banks, multilateral financial institutions and creditor governments
would affect not only our sources of credit but also our access to
markets for our exports and the level of development assistance. . . .
[T]he country might face concerted sanctions even if debts were
repudiated only selectively.
The point that must be stressed is that repudiation is not an
attractive alternative if net payments to creditors in the short and
medium-run can be reduced through an agreement (as opposed to a
unilaterally set ceiling on debt service payments) which provides for
both rescheduling of principal and capitalization of interest, or its
equivalent in new loans, which would make it easier for the country
to pay interest.28
Sovereign default is not new to the Philippine setting. In October
1983, the Philippines declared a moratorium on principal payments on
its external debts that eventually
lasted four years,29 that virtually closed the countrys access to new
foreign money30 and drove investors to leave the Philippine market,
resulting in some devastating consequences.31 It would appear then
that this beguilingly attractive and dangerously simplistic solution
deserves the utmost circumspect cogitation before it is resorted to.
In any event, the discretion on the matter lies not with the courts but
with the executive. Thus, the Program was conceptualized as an
offshoot of the decision made by then
President Aquino that the Philippines should recognize its sovereign
debts32 despite the controversy that engulfed many debts incurred
during the Marcos era. It is a scheme whereby the Philippines
restructured its debts following a negotiated approach instead of a
default approach to manage the bleak Philippine debt situation.
As a final point, petitioners have no real basis to fret over a possible
waiver of the right to repudiate void contracts. Even assuming that
spurious loans had become the subject of debt-relief contracts,
respondents unequivocally assert that the Republic did not waive any
right to repudiate void or fraudulently contracted loans, it having
incorporated a "no-waiver" clause in the agreements.33
Substantive Issues
It is helpful to put the matter in perspective before moving on to the
merits. The Financing Program extinguished portions of the countrys
pre-existing loans
through either debt buyback or bond-conversion. The buyback
approach essentially pre-terminated portions of public debts while
the bond-conversion scheme extinguished public debts through the
obtention of a new loan by virtue of a sovereign bond issuance, the
proceeds of which in turn were used for terminating the original loan.
First Issue: The Scope of Section 20, Article VII
For their first constitutional argument, petitioners submit that the
buyback and bond-conversion schemes do not constitute the loan
"contract" or "guarantee" contemplated in the Constitution and are
consequently prohibited. Sec. 20, Art. VII of the Constitution
provides, viz:
The President may contract or guarantee foreign loans in behalf of
the Republic of the Philippines with the prior concurrence of the
Monetary Board and subject to such limitations as may be provided
under law. The Monetary Board shall, within thirty days from the end
of every quarter of the calendar year, submit to the Congress a
complete report of its decisions on applications for loans to be
contracted or guaranteed by the government or government-owned
and controlled corporations which would have the effect of
increasing the foreign debt, and containing other matters as may be
provided by law.
On Bond-conversion
Loans are transactions wherein the owner of a property allows
another party to use the property and where customarily, the latter
promises to return the property after a specified period with payment
for its use, called interest.34 On the other hand, bonds are interest-
bearing or discounted government or corporate securities that
obligate the issuer to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the principal amount of the
loan at maturity.35 The word "bond" means contract, agreement, or
guarantee. All of these terms are applicable to the securities known
as bonds. An investor who purchases a bond is lending money to the
issuer, and the bond represents the issuers contractual promise to
pay interest and repay principal according to specific terms. A short-
term bond is often called a note.36
The language of the Constitution is simple and clear as it is broad. It
allows the President to contract and guarantee foreign loans. It
makes no prohibition on the issuance of certain kinds of loans or
distinctions as to which kinds of debt instruments are more onerous
than others. This Court may not ascribe to the Constitution meanings
and restrictions that would unduly burden the powers of the
President. The plain, clear and unambiguous language of the
Constitution should be construed in a sense that will allow the full
exercise of the power provided therein. It would be the worst kind of
judicial legislation if the courts were to misconstrue and change the
meaning of the organic act.
The only restriction that the Constitution provides, aside from the
prior concurrence of the Monetary Board, is that the loans must be
subject to limitations provided by law. In this regard, we note that
Republic Act (R.A.) No. 245 as amended by Pres. Decree (P.D.) No. 142,
s. 1973, entitled An Act Authorizing the Secretary of Finance to
Borrow to Meet Public Expenditures Authorized by Law, and for Other
Purposes, allows foreign loans to be contracted in the form of, inter
alia, bonds. Thus:
Sec. 1. In order to meet public expenditures authorized by law or to
provide for the purchase, redemption, or refunding of any obligations,
either direct or guaranteed of the Philippine Government, the
Secretary of Finance, with the approval of the President of the
Philippines, after consultation with the Monetary Board, is authorized
to borrow from time to time on the credit of the Republic of the
Philippines such sum or sums as in his judgment may be necessary,
and to issue therefor evidences of indebtedness of the Philippine
Government."
Such evidences of indebtedness may be of the following types:
....
c. Treasury bonds, notes, securities or other evidences of
indebtedness having maturities of one year or more but not
exceeding twenty-five years from the date of issue. (Emphasis
supplied.)
Under the foregoing provisions, sovereign bonds may be issued not
only to supplement government expenditures but also to provide for
the purchase,37 redemption,38 or refunding39 of any obligation, either
direct or guaranteed, of the Philippine Government.
Petitioners, however, point out that a supposed difference between
contracting a loan and issuing bonds is that the former creates a
definite creditor-debtor relationship between the parties while the
latter does not.40 They explain that a contract of loan enables the
debtor to restructure or novate the loan, which benefit is lost upon
the conversion of the debts to bearer bonds such that "the
Philippines surrenders the novatable character of a loan contract for
the irrevocable and unpostponable demandability of a bearer
bond."41 Allegedly, the Constitution prohibits the President from
issuing bonds which are "far more onerous" than loans.42
This line of thinking is flawed to say the least. The negotiable
character of the subject bonds is not mutually exclusive with the
Republics freedom to negotiate with bondholders for the revision of
the terms of the debt. Moreover, the securities market provides some
flexibilityif the Philippines wants to pay in advance, it can buy out its
bonds in the market; if interest rates go down but the Philippines
does not have money to retire the bonds, it can replace the old bonds
with new ones; if it defaults on the bonds, the bondholders shall
organize and bring about a re-negotiation or settlement. 43 In fact,
several countries have restructured their sovereign bonds in view
either of
inability and/or unwillingness to pay the indebtedness.44 Petitioners
have not presented a plausible reason that would preclude the
Philippines from acting in a similar fashion, should it so opt.
This theory may even be dismissed in a perfunctory manner since
petitioners are merely expecting that the Philippines would opt to
restructure the bonds but with the negotiable character of the bonds,
would be prevented from so doing. This is a contingency which
petitioners do not assert as having come to pass or even imminent.
Consummated acts of the executive cannot be struck down by this
Court merely on the basis of petitioners anticipatory cavils.
On the Buyback Scheme
In their Comment, petitioners assert that the power to pay public
debts lies with Congress and was deliberately
withheld by the Constitution from the President. 45 It is true that in the
balance of power between the three branches of government, it is
Congress that manages the countrys coffers by virtue of its taxing
and spending powers. However, the law-making authority has
promulgated a law ordaining an automatic appropriations provision
for debt servicing46 by virtue of which the President is empowered to
execute debt payments without the need for further appropriations.
Regarding these legislative enactments, this Court has held, viz:
Congress deliberates or acts on the budget proposals of the
President, and Congress in the exercise of its own judgment and
wisdom formulates an appropriation act precisely following the
process established by the Constitution, which specifies that no
money may be paid from the Treasury except in accordance with an
appropriation made by law.
Debt service is not included in the General Appropriation Act, since
authorization therefor already exists under RA Nos. 4860 and 245, as
amended, and PD 1967. Precisely in the light of this subsisting
authorization as embodied in said Republic Acts and PD for debt
service, Congress does not concern itself with details for
implementation by the Executive, but largely with annual levels and
approval thereof upon due deliberations as part of the whole
obligation program for the year. Upon such approval, Congress has
spoken and cannot be said to have delegated its wisdom to the
Executive, on whose part lies the implementation or execution of the
legislative wisdom.47
Specific legal authority for the buyback of loans is established under
Section 2 of Republic Act (R.A.) No. 240, viz:
Sec. 2. The Secretary of Finance shall cause to be paid out of any
moneys in the National Treasury not otherwise appropriated, or from
any sinking funds provided for the purpose by law, any interest falling
due, or accruing, on any portion of the public debt authorized by law.
He shall also cause to be paid out of any such money, or from any
such sinking funds the principal amount of any obligations which
have matured, or which have been called for redemption or for which
redemption has been demanded in accordance with terms prescribed
by him prior to date of issue: Provided, however, That he may, if he so
chooses and if the holder is willing, exchange any such obligation
with any other direct or guaranteed obligation or obligations of the
Philippine Government of equivalent value. In the case of interest-
bearing obligations, he shall pay not less than their face value; in the
case of obligations issued at a discount he shall pay the face value at
maturity; or, if redeemed prior to maturity, such portion of the face
value as is prescribed by the terms and conditions under which such
obligations were originally issued. (Emphasis supplied.)
The afore-quoted provisions of law specifically allow the President to
pre-terminate debts without further action from Congress.
Petitioners claim that the buyback scheme is neither a guarantee nor
a loan since its underlying intent is to extinguish debts that are not
yet due and demandable.48 Thus, they suggest that contracts entered
pursuant to the buyback scheme are unconstitutional for not being
among those contemplated in Sec. 20, Art. VII of the Constitution.
Buyback is a necessary power which springs from the grant of the
foreign borrowing power. Every statute is understood, by implication,
to contain all such provisions as may be necessary to effectuate its
object and purpose, or to make effective rights, powers, privileges or
jurisdiction which it grants, including all such collateral and
subsidiary consequences as may be fairly and logically inferred from
its terms.49 The President is not empowered to borrow money from
foreign banks and governments on the credit of the Republic only to
be left bereft of authority to implement the payment despite
appropriations therefor.
Even petitioners concede that "[t]he Constitution, as a rule, does not
enumeratelet alone enumerate allthe acts which the President (or
any other public officer) may not
do,"50 and "[t]he fact that the Constitution does not explicitly bar the
President from exercising a power does not mean that he or she does
not have that power."51 It is inescapable from the standpoint of
reason and necessity that the authority to contract foreign loans and
guarantees without restrictions on payment or manner thereof
coupled with the availability of the corresponding appropriations,
must include the power to effect payments or to make payments
unavailing by either restructuring the loans or even refusing to make
any payment altogether.
More fundamentally, when taken in the context of sovereign debts, a
buyback is simply the purchase by the sovereign issuer of its own
debts at a discount. Clearly then, the objection to the validity of the
buyback scheme is without basis.
Second Issue: Delegation of Power
Petitioners stress that unlike other powers which may be validly
delegated by the President, the power to incur foreign debts is
expressly reserved by the Constitution in the person of the President.
They argue that the gravity by which the exercise of the power will
affect the Filipino nation requires that the President alone must
exercise this power. They submit that the requirement of prior
concurrence of an entity specifically named by the Constitutionthe
Monetary Boardreinforces the submission that not respondents but
the President "alone and personally" can validly bind the country.
Petitioners position is negated both by explicit constitutional 52 and
legal53 imprimaturs, as well as the doctrine of qualified political
agency.
The evident exigency of having the Secretary of Finance implement
the decision of the President to execute the debt-relief contracts is
made manifest by the fact that the process of establishing and
executing a strategy for managing the governments debt is deep
within the realm of the expertise of the Department of Finance,
primed as it is to raise the required amount of funding, achieve its
risk and cost objectives, and meet any other sovereign debt
management goals.54
If, as petitioners would have it, the President were to personally
exercise every aspect of the foreign borrowing power, he/she would
have to pause from running the country long enough to focus on a
welter of time-consuming detailed activitiesthe propriety of
incurring/guaranteeing loans, studying and choosing among the many
methods that may be taken toward this end, meeting countless times
with creditor representatives to negotiate, obtaining the concurrence
of the Monetary Board, explaining and defending the negotiated deal
to the public, and more often than not, flying to the agreed place of
execution to sign the documents. This sort of constitutional
interpretation would negate the very existence of cabinet positions
and the respective expertise which the holders thereof are accorded
and would unduly hamper the Presidents effectivity in running the
government.
Necessity thus gave birth to the doctrine of qualified political agency,
later adopted in Villena v. Secretary of the Interior55 from American
jurisprudence, viz:
With reference to the Executive Department of the government, there
is one purpose which is crystal-clear and is readily visible without
the projection of judicial searchlight, and that is the establishment of
a single, not plural, Executive. The first section of Article VII of the
Constitution, dealing with the Executive Department, begins with the
enunciation of the principle that "The executive power shall be
vested in a President of the Philippines." This means that the
President of the Philippines is the Executive of the Government of the
Philippines, and no other. The heads of the executive departments
occupy political positions and hold office in an advisory capacity,
and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" (7 Writings, Ford ed., 498), and, in the
language of Attorney-General Cushing (7 Op., Attorney-General, 453),
"are subject to the direction of the President." Without minimizing the
importance of the heads of the various departments, their personality
is in reality but the projection of that of the President. Stated
otherwise, and as forcibly characterized by Chief Justice Taft of the
Supreme Court of the United States, "each head of a department is,
and must be, the President's alter ego in the matters of that
department where the President is required by law to exercise
authority" (Myers vs. United States, 47 Sup. Ct. Rep., 21 at 30; 272 U.
S., 52 at 133; 71 Law. ed., 160).56
As it was, the backdrop consisted of a major policy determination
made by then President Aquino that sovereign debts have to be
respected and the concomitant reality that the Philippines did not
have enough funds to pay the debts. Inevitably, it fell upon the
Secretary of Finance, as the alter ego of the President regarding "the
sound and efficient management of the financial resources of the
Government,"57 to formulate a scheme for the implementation of the
policy publicly expressed by the President herself.
Nevertheless, there are powers vested in the President by the
Constitution which may not be delegated to or exercised by an agent
or alter ego of the President. Justice Laurel, in
his ponencia in Villena, makes this clear:
Withal, at first blush, the argument of ratification may seem plausible
under the circumstances, it should be observed that there are certain
acts which, by their very nature, cannot be validated by subsequent
approval or ratification by the President. There are certain
constitutional powers and prerogatives of the Chief Executive of the
Nation which must be exercised by him in person and no amount of
approval or ratification will validate the exercise of any of those
powers by any other person. Such, for instance, in his power to
suspend the writ of habeas corpus and proclaim martial law (PAR. 3,
SEC. 11, Art. VII) and the exercise by him of the benign prerogative of
mercy (par. 6, sec. 11, idem).58
These distinctions hold true to this day. There are certain
presidential powers which arise out of exceptional circumstances,
and if exercised, would involve the suspension of fundamental
freedoms, or at least call for the supersedence of executive
prerogatives over those exercised by co-equal branches of
government. The declaration of martial law, the suspension of the
writ of habeas corpus, and the exercise of the pardoning power
notwithstanding the judicial determination of guilt of the accused, all
fall within this special class that demands the exclusive exercise by
the President of the constitutionally vested power. The list is by no
means exclusive, but there must be a showing that the executive
power in question is of similar gravitas and exceptional import.
We cannot conclude that the power of the President to contract or
guarantee foreign debts falls within the same exceptional class.
Indubitably, the decision to contract or guarantee foreign debts is of
vital public interest, but only
akin to any contractual obligation undertaken by the sovereign, which
arises not from any extraordinary incident, but from the established
functions of governance.
Another important qualification must be made. The Secretary of
Finance or any designated alter ego of the President is bound to
secure the latters prior consent to or subsequent ratification of his
acts. In the matter of contracting or guaranteeing foreign loans, the
repudiation by the President of the very acts performed in this regard
by the alter ego will definitely have binding effect. Had petitioners
herein succeeded in demonstrating that the President actually
withheld approval and/or repudiated the Financing Program, there
could be a cause of action to nullify the acts of respondents. Notably
though, petitioners do not assert that respondents pursued the
Program without prior authorization of the President or that the
terms of the contract were agreed upon without the Presidents
authorization. Congruent with the avowed preference of then
President Aquino to honor and restructure existing foreign debts, the
lack of showing that she countermanded the acts of respondents
leads us to conclude that said acts carried presidential approval.
With constitutional parameters already established, we may also
note, as a source of suppletory guidance, the provisions of R.A. No.
245. The afore-quoted Section 1 thereof empowers the Secretary of
Finance with the approval of the President and after consultation 59 of
the Monetary Board, "to borrow from time to time on the credit of the
Republic of the Philippines such sum or sums as in his judgment may
be necessary, and to issue therefor evidences of indebtedness of the
Philippine Government." Ineluctably then, while the President wields
the borrowing power it is the Secretary of Finance who normally
carries out its thrusts.
In our recent rulings in Southern Cross Cement Corporation v. The
Philippine Cement Manufacturers Corp.,60 this Court had occasion to
examine the authority granted by Congress to the Department of
Trade and Industry (DTI) Secretary to impose safeguard measures
pursuant to the Safeguard Measures Act. In doing so, the Court was
impelled to construe Section 28(2), Article VI of the Constitution,
which allowed Congress, by law, to authorize the President to "fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the
Government."61
While the Court refused to uphold the broad construction of the grant
of power as preferred by the DTI Secretary, it nonetheless tacitly
acknowledged that Congress could designate the DTI Secretary, in
his capacity as alter ego of the President, to exercise the authority
vested on the chief executive under Section 28(2), Article VI. 62 At the
same time, the Court emphasized that since Section 28(2), Article VI
authorized Congress to impose limitations and restrictions on the
authority of the President to impose tariffs and imposts, the DTI
Secretary was necessarily subjected to the same restrictions that
Congress could impose on the President in the exercise of this taxing
power.
Similarly, in the instant case, the Constitution allocates to the
President the exercise of the foreign borrowing power "subject to
such limitations as may be provided under law." Following Southern
Cross, but in line with the limitations as defined in Villena, the
presidential prerogative may be exercised by the Presidents alter
ego, who in this case is the Secretary of Finance.
It bears emphasis that apart from the Constitution, there is also a
relevant statute, R.A. No. 245, that establishes the parameters by
which the alter ego may act in behalf of the President with respect to
the borrowing power. This law expressly provides that the Secretary
of Finance may enter into foreign borrowing contracts. This law
neither amends nor goes contrary to the Constitution but merely
implements the subject provision in a manner consistent with the
structure of the Executive Department and the alter ego doctine. In
this regard, respondents have declared that they have followed the
restrictions provided under R.A. No. 245,63 which include the requisite
presidential authorization and which, in the absence of proof and
even allegation to the contrary, should be regarded in a fashion
congruent with the presumption of regularity bestowed on acts done
by public officials.
Moreover, in praying that the acts of the respondents, especially that
of the Secretary of Finance, be nullified as being in violation of a
restrictive constitutional interpretation, petitioners in effect would
have this Court declare R.A. No. 245 unconstitutional. We will not
strike
down a law or provisions thereof without so much as a direct attack
thereon when simple and logical statutory construction would
suffice.
Petitioners also submit that the unrestricted character of the
Financing Program violates the framers intent behind Section 20,
Article VII to restrict the power of the President. This intent,
petitioners note, is embodied in the proviso in Sec. 20, Art. VII, which
states that said power is "subject to such limitations as may be
provided under law." However, as previously discussed, the debt-relief
contracts are governed by the terms of R.A. No. 245, as amended by
P.D. No. 142 s. 1973, and therefore were not developed in an
unrestricted setting.
Third Issue: Grave Abuse of Discretion and
Violation of Constitutional Policies
We treat the remaining issues jointly, for in view of the foregoing
determination, the general allegation of grave abuse of discretion on
the part of respondents would arise from the purported violation of
various state policies as expressed in the Constitution.
Petitioners allege that the Financing Program violates the
constitutional state policies to promote a social order that will
"ensure the prosperity and independence of the nation" and free "the
people from poverty,64 foster "social justice in all phases of national
development,"65 and develop a self-reliant and independent national
economy effectively controlled by Filipinos;"66 thus, the contracts
executed or to be executed pursuant thereto were or would be tainted
by a grave abuse of discretion amounting to lack or excess of
jurisdiction.
Respondents cite the following in support of the propriety of their
acts:67 (1) a Department of Finance study showing that as a result of
the implementation of voluntary debt reductions schemes, the
countrys debt stock was reduced by U.S. $4.4 billion as of December
1991;68 (2) revelations made by independent individuals made in a
hearing before the Senate Committee on Economic Affairs indicating
that the assailed agreements would bring about substantial benefits
to the country;69 and (3) the Joint Legislative-Executive Foreign Debt
Councils endorsement of the approval of the financing package
containing the debt-
relief agreements and issuance of a Motion to Urge the Philippine
Debt Negotiating Panel to continue with the negotiation on the
aforesaid package.70
Even with these justifications, respondents aver that their acts are
within the arena of political questions which, based on the doctrine
of separation of powers,71 the judiciary must leave without
interference lest the courts substitute their judgment for that of the
official concerned and decide a matter which by its nature or law is
for the latter alone to decide.72
On the other hand, in furtherance of their argument on respondents
violation of constitutional policies, petitioners cite an article of Jude
Esguerra, The 1992 Buyback and Securitization Agreement with
Philippine Commercial Bank Creditors,73 in illustrating a best-case
scenario in entering the subject debt-relief agreements. The
computation results in a yield of $218.99 million, rather
than the $2,041.00 million claimed by the debt negotiators.74 On the
other hand, the worst-case scenario allegedly is that a net amount of
$1.638 million will flow out of the country as a result of the debt
package.75
Assuming the accuracy of the foregoing for the nonce, despite the
watered-down parameters of petitioners computations, we can make
no conclusion other than that respondents efforts were geared
towards debt-relief with marked positive results and towards
achieving the constitutional policies which petitioners so hastily
declare as having been violated by respondents. We recognize that as
with other schemes dependent on volatile market and economic
structures, the contracts entered into by respondents may possibly
have a net outflow and therefore negative result. However, even
petitioners call this latter event the worst-case scenario. Plans are
seldom foolproof. To ask the Court to strike down debt-relief
contracts, which, according to independent third party evaluations
using historically-suggested rates would result in "substantial debt-
relief,"76 based merely on the possibility of petitioners worst-case
scenario projection, hardly seems reasonable.
Moreover, the policies set by the Constitution as litanized by
petitioners are not a panacea that can annul every governmental act
sought to be struck down. The gist of petitioners arguments on
violation of constitutional policies and grave abuse of discretion boils
down to their allegation that the debt-relief agreements entered into
by respondents do not deliver the kind of debt-relief that petitioners
would want. Petitioners cite the aforementioned article in stating
that that "the agreement achieves little that cannot be gained
through less complicated means like postponing (rescheduling)
principal payments,"77 thus:
[T]he price of success in putting together this "debt-relief package"
(indicates) the possibility that a simple rescheduling agreement may
well turn out to be less expensive than this comprehensive "debt-
relief" package. This means that in the next six years the humble and
simple rescheduling process may well be the lesser evil because
there is that distinct possibility that less money will flow out of the
country as a result.
Note must be taken that from these citations, petitioners submit that
there is possibly a better way to go about debt rescheduling and, on
that basis, insist that the acts of respondents must be struck down.
These are rather tenuous grounds to condemn the subject
agreements as violative of constitutional principles.
Conclusion
The raison d etre of the Financing Program is to manage debts
incurred by the Philippines in a manner that will lessen the burden on
the Filipino taxpayersthus the term "debt-relief agreements." The
measures objected to by petitioners were not aimed at incurring
more debts but at terminating pre-existing debts and were backed by
the know-how of the countrys economic managers as affirmed by
third party empirical analysis.
That the means employed to achieve the goal of debt-relief do not sit
well with petitioners is beyond the power of this Court to remedy. The
exercise of the power of judicial review is merely to checknot
supplantthe Executive, or to simply ascertain whether he has gone
beyond the constitutional limits of his jurisdiction but not to exercise
the power vested in him or to determine the wisdom of his act. 78 In
cases where the main purpose is to nullify governmental acts
whether as unconstitutional or done with grave abuse of discretion,
there is a strong presumption in favor of the validity of the assailed
acts. The heavy onus is in on petitioners to overcome the
presumption of regularity.
We find that petitioners have not sufficiently established any basis
for the Court to declare the acts of respondents as unconstitutional.
WHEREFORE the petition is hereby DISMISSED. No costs. SO
ORDERED.

G.R. No. L-43446 May 3, 1988
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant,
vs.
NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, defendant-
appellee.
GRIO-AQUINO, J.:
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter
referred to as "FPFC" for brevity) appealed the dismissal of its
complaint against defendant National Waterworks and Sewerage
Authority (NAWASA) by the Court of First Instance of Manila on
September 5, 1973. The appeal was originally brought to the Court of
Appeals. However, finding that the principal purpose of the action was
to secure a judicial declaration that there exists 'extraordinary
inflation' within the meaning of Article 1250 of the New Civil Code to
warrant the application of that provision, the Court of Appeals,
pursuant to Section 3, Rule 50 of the Rules of Court, certified the
case to this Court for proper disposition.
On June 12,1961, the NAWASA entered into a contract with the
plaintiff FPFC for the latter to supply it with 4" and 6" diameter
centrifugally cast iron pressure pipes worth P270,187.50 to be used in
the construction of the Anonoy Waterworks in Masbate and the Barrio
San Andres-Villareal Waterworks in Samar. Defendant NAWASA paid in
installments on various dates, a total of One Hundred Thirty-Four
Thousand and Six Hundred Eighty Pesos (P134,680.00) leaving a
balance of One Hundred Thirty-Five Thousand, Five Hundred Seven
Pesos and Fifty centavos (P135,507.50) excluding interest. Having
completed the delivery of the pipes, the plaintiff demanded payment
from the defendant of the unpaid balance of the price with interest in
accordance with the terms of their contract. When the NAWASA failed
to pay the balance of its account, the plaintiff filed a collection suit
on March 16, 1967 which was docketed as Civil Case No. 66784 in the
Court of First Instance of Manila.
On November 23, 1967, the trial court rendered judgment in Civil Case
No. 66784 ordering the defendant to pay the unpaid balance of
P135,507.50 in NAWASA negotiable bonds, redeemable after ten years
from their issuance with interest at 6% per annum, P40,944.73 as
interest up to March 15, 1966 and the interest accruing thereafter to
the issuance of the bonds at 6% per annum and the costs. Defendant,
however, failed to satisfy the decision. It did not deliver the bonds to
the judgment creditor. On February 18, 1971, the plaintiff FPFC filed
another complaint which was docketed as Civil Case No. 82296,
seeking an adjustment of the unpaid balance in accordance with the
value of the Philippine peso when the decision in Civil Case No.
66784 was rendered on November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the complaint
on the ground that it is barred by the 1967 decision in Civil Case No.
66784.
The trial court, in its order dated May 26, 1971, denied the motion to
dismiss on the ground that the bar by prior judgment did not apply to
the case because the causes of action in the two cases are different:
the first action being for collection of the defendant's indebtedness
for the pipes, while the second case is for adjustment of the value of
said judgment due to alleged supervening extraordinary inflation of
the Philippine peso which has reduced the value of the bonds paid to
the plaintiff.
Article 1250 of the Civil Code provides:
In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of
the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there
is an agreement to the contrary..
The court suggested to the parties during the trial that they present
expert testimony to help it in deciding whether the economic
conditions then, and still prevailing, would justify the application of
Article 1250 of the Civil Code. The plaintiff presented voluminous
records and statistics showing that a spiralling inflation has marked
the progress of the country from 1962 up to the present. There is no
denying that the price index of commodities, which is the usual
evidence of the value of the currency has been rising.
The trial court pointed out, however, than this is a worldwide
occurence, but hardly proof that the inflation is extraordinary in the
sense contemplated by Article 1250 of the Civil Code, which was
adopted by the Code Commission to provide "a just solution" to the
"uncertainty and confusion as a result of Malabanan contracts
entered into or payments made during the last war." (Report of the
Code Commission, 132-133.)
Noting that the situation situation during the Japanese Occupation
"cannot that the be compared with the economic conditions today,"
the a. Malabanan trial court, on September 5, 1973, rendered
judgment dismissing the complaint.
The only issue before Us whether, on the basis of the continously
spiralling price index indisputably shown by the plaintiff, there exists
an extraordinary inflation of the currency justifying an adjustment of
defendant appellee's unpaid judgment obligation the plaintiff-
appellant.
Extraordinary inflation exists "when there is a decrease or increase
in the purchasing power of the Philippine currency which is unusual
or beyond the common fluctuation in the value said currency, and
such decrease or increase could not have reasonably foreseen or was
manifestly beyond contemplation the the parties at the time of the
establishment of the obligation. (Tolentino Commentaries and
Jurisprudence on the Civil Code Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of
what happened to the Deutschmark in 1920:
More recently, in the 1920's Germany experienced a
case of hyperinflation. In early 1921, the value of the
German mark was 4.2 to the U.S. dollar. By May of the
same year, it had stumbled to 62 to the U.S. dollar.
And as prices went up rapidly, so that by October
1923, it had reached 4.2 trillion to the U.S. dollar!
(Bernardo M. Villegas & Victor R. Abola, Economics,
An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then
every hour. Women were paid several times a day so that they could
rush out and exchange their money for something of value before
what little purchasing power was left dissolved in their hands. Some
workers tried to beat the constantly rising prices by throwing their
money out of the windows to their waiting wives, who would rush to
upload the nearly worthless paper. A postage stamp cost millions of
marks and a loaf of bread, billions." (Sidney Rutberg, "The Money
Balloon" New York: Simon and Schuster, 1975, p. 19, cited in
"Economics, An Introduction" by Villegas & Abola, 3rd Ed.)
While appellant's voluminous records and statistics proved that there
has been a decline in the purchasing power of the Philippine peso,
this downward fall of the currency cannot be considered
"extraordinary." It is simply a universal trend that has not spared our
country.
WHEREFORE, finding no reversible error in the appealed decision of
the trial court, We affirm it in toto. No costs.
SO ORDERED.
G.R. No. 137798 October 4, 2000

LUCIA R. SINGSON, petitioner,

vs.
CALTEX (PHILIPPINES), INC. respondent.

DECISION

GONZAGA-REYES, J.:

Petitioner seeks a review on certiorari of the decision of the former

Special Second Division of the Court of Appeals dated November 27,
1998,1 affirming the decision of the Regional Trial Court of Manila,
Branch 252 which dismissed petitioner's action for reformation of
contract and adjustment of rentals.
The facts of the case are undisputed ---
Petitioner and respondent entered into a contract of lease on July 16,
1968 over a parcel of land in Cubao, Quezon City. The land, which had
an area of 1,400 square meters and was covered by Transfer
Certificates of Title No. 43329 and 81636 issued by the Register of
Deeds of Quezon City, was to be used by respondent as a gasoline
service station.
The contract of lease provides that the lease shall run for a period of
twenty (20) years and shall abide by the following rental rates:
xxx xxx xxx
Rental. --- The LESSEE agrees to pay the following rental for said
premises:
P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m. per
month from the 11th to 20th years, payable monthly in advance within
the 1st 15 days of each month; provided that the rentals for the 1st 5
years less a discount of eleven (11) percent per annum computed on
a monthly diminishing balance, shall be paid to LESSOR upon
compliance of the three (3) conditions provided in clause (2) above.
LESSEE also agrees to pay lessor, the sum of Six Thousand Pesos
(P6,000.00) as demolition expenses, upon effectivity of this lease.
The rental herein provided for is in any event the maximum rental
which LESSOR may collect during the term of this lease or any
renewal or extension thereof. LESSEE further agrees for thirty (30)
days after written notice of such default has actually been delivered
to the General Manager of Caltex (Philippines), Inc. LESSOR shall
then have the right to terminate this lease on thirty (30) days written
notice to LESSEE. xxx xxx xxx 3
Thus, based on the foregoing provisions of the lease contract, the
monthly rental was fixed at P3,500.00 for the first ten years, and at
P4,200.00 for the succeeding ten years of the lease.
On June 23, 1983, or five years before the expiration of the lease
contract, petitioner asked respondent to adjust or increase the
amount of rentals citing that the country was experiencing
extraordinary inflation. In a letter dated August 3, 1983, respondent
refused petitioner's request and declared that the terms of the lease
contract are clear as to the rental amounts therein provided being
"the maximum rental which the lessor may collect during the term of
the lease."4
On September 21, 1983, petitioner instituted a complaint before the
RTC praying for, among other things, the payment by respondent of
adjusted rentals based on the value of the Philippine peso at the time
the contract of lease was executed. The complaint invoked Article
1250 of the Civil Code, stating that since the execution of the
contract of lease in 1968 an extraordinary inflation had supervened
resulting from the deterioration of worldwide economic conditions, a
circumstance that was not foreseen and could not have been
reasonably foreseen by the parties at the time they entered into
contract.
To substantiate its allegation of extraordinary inflation, petitioner
presented as witness Mr. Narciso Uy, Assistant Director of the
Supervising and Examining Sector of the Central Bank, who attested
that the inflation rate increased abruptly during the period 1982 to
1985, caused mainly by the devaluation of the peso. 5 Petitioner also
submitted into evidence a certification of the official inflation rates
from 1966 to 1986 prepared by the National Economic Development
Authority ("NEDA") based on consumer price index, which reflected
that at the time the parties entered into the subject contract, the
inflation rate was only 2.06%; then, it soared to 34.51% in 1974, and
in 1984, reached a high of 50.34%.6
In a decision rendered on July 15, 1991, the RTC dismissed the
complaint for lack of merit. This judgment was affirmed by the Court
of Appeals. Both courts found that petitioner was unable to prove the
existence of extraordinary inflation from 1968 to 1983 (or from the
year of the execution of the contract up to the year of the filing of the
complaint before the RTC) as to justify an adjustment or increase in
the rentals based upon the provisions of Article 1250 of the Civil
Code.
The Court of Appeals declared that although, admittedly, there was
an economic inflation during the period in question, it was not such
as to call for the application of Article 1250 which is made to apply
only to "violent and sudden changes in the price level or uncommon
or unusual decrease of the value of the currency. (It) does not
contemplate of a normal or ordinary decline in the purchasing power
of the peso."7
The Court of Appeals also found similarly with the trial court that the
terms of rental in the contract of lease dated July 16, 1968 are clear
and unequivocal as to the specific amount of the rental rates and the
fact that the rentals therein provided shall be the "maximum rental"
which petitioner as lessor may collect. Absent any showing that such
contractual provisions are contrary to law, morals, good customs,
public order or public policy, the Court of Appeals held that there was
no basis for not acknowledging their binding effect upon the parties.
It also upheld the application by the trial court of the ruling in Filipino
Pipe and Foundry Corporation vs. National Waterworks and Sewerage
Authority, 161 SCRA 32, where the Court held that although there has
been a decline in the purchasing power of the Philippine peso during
the period 1961 to 1971, such downward fall of the currency could not
be considered "extraordinary" and was simply a universal trend that
has not spared the Philippines.
Thus, the dispositive portion of the decision of the Court of Appeals
reads:
WHEREFORE, in view of the foregoing, the appeal is hereby
DISMISSED and the decision appealed from is hereby AFFIRMED.
SO ORDERED.8
Petitioner's motion for reconsideration of the above decision was
denied by the Court of Appeals in a resolution dated March 10, 1999.
Aggrieved, petitioner filed this petition for review on certiorari where
she assails as erroneous the decision of the Court of Appeals,
specifically, (1) in ruling that Article 1250 of the Civil Code is
inapplicable to the instant case, (2) in not recognizing the
applicability of the principle of rebus sic stantibus, and (3) in applying
the ruling in Filipino Pipe and Foundry Corporation vs. NAWASA .
Petitioner contends that the monthly rental of P3.00 per square meter
is patently inequitable. Based on the inflation rates supplied by
NEDA, there was an unusual increase in inflation that could not have
been foreseen by the parties; otherwise, they would not have entered
into a relatively long-term contract of lease. She argued that the
rentals in this case should not be regarded by their quantitative or
nominal value, but as "debts of value", that is, the rental rates should
be adjusted to reflect the value of the peso at the time the lease was
contracted.9
Petitioner also insists that the factual milieu of the present case is
distinct from that in Filipino Pipe and Foundry Corporation vs.
NAWASA. She pointed out that the inflation experienced by the
country during the period 1961 to 1971 (the pertinent time period in
the Filipino Pipe case) had a lowest of 1.35% in 1969 and a highest of
15.03% in 1971, whereas in the instant case, involving the period
1968 to 1983, there had been highly abnormal inflation rates like
34.51% in 1974 (triggered by the OPEC oil price increases in 1973)
and 50.34% in 1984 (caused by the assassination of Benigno Aquino,
Jr. in 1983). Petitioner argues that the placing of the country under
martial rule in 1972, the OPEC oil price increases in 1973, and the
Aquino assassination which triggered the EDSA revolution, were
fortuitous events that drastically affected the Philippine economy
and were beyond the reasonable contemplation of the parties.
To further bolster her arguments, petitioner invokes by analogy the
principle of rebus sic stantibus in public international law, under
which a vital change of circumstances justifies a state's unilateral
withdrawal from a treaty. In the herein case, petitioner posits that in
pegging the monthly rental rates of P2.50 and P3.00 per square
meter, respectively, the parties were guided by the economic
conditions prevalent in 1968, when the Philippines faced robust
economic prospects. Petitioner contends that between her and
respondent, a corporation engaged in high stakes business and
employing economic and business experts, it is the latter who had
the unmistakable advantage to analyze the feasibility of entering into
a 20-year lease contract at such meager rates.
The only issue crucial to the present appeal is whether there existed
an extraordinary inflation during the period 1968 to 1983 that would
call for the application of Article 1250 of the Civil Code and justify an
adjustment or increase of the rentals between the parties.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.
Article 1250 was inserted in the Civil Code of 1950 to abate the
uncertainty and confusion that affected contracts entered into or
payments made during World War II, and to help provide a just
solution to future cases.10 The Court has, in more than one occasion,
been asked to interpret the provisions of Article 1250, and to expound
on the scope and limits of "extraordinary inflation".
We have held extraordinary inflation to exist when there is a
decrease or increase in the purchasing power of the Philippine
currency which is unusual or beyond the common fluctuation in the
value of said currency, and such increase or decrease could not have
been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the
obligation.11
An example of extraordinary inflation, as cited by the Court in Filipino
Pipe and Foundry Corporation vs. NAWASA,supra, is that which
happened to the deutschmark in 1920. Thus:
"More recently, in the 1920s, Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark was 4.2 to
the U.S. dollar. By May of the same year, it had stumbled to 62 to the
U.S. dollar. And as prices went up rapidly, so that by October 1923, it
had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas &
Victor R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then
every hour.1wphi1 Women were paid several times a day so that
they could rush out and exchange their money for something of value
before what little purchasing power was left dissolved in their hands.
Some workers tried to beat the constantly rising prices by throwing
their money out of the windows to their waiting wives, who would
rush to unload the nearly worthless paper. A postage stamp cost
millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The
Money Balloon", New York: Simon and Schuster, 1975, p. 19, cited in
"Economics, An Introduction" by Villegas & Abola, 3rd Ed.)
The supervening of extraordinary inflation is never assumed. 12 The
party alleging it must lay down the factual basis for the application of
Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that the
voluminous records and statistics submitted by plaintiff-appellant
proved that there has been a decline in the purchasing power of the
Philippine peso, but this downward fall cannot be considered
"extraordinary" but was simply a universal trend that has not spared
our country.13 Similarly, in Huibonhoa vs. Court of Appeals,14 the Court
dismissed plaintiff-appellant's unsubstantiated allegation that the
Aquino assassination in 1983 caused building and construction costs
to double during the period July 1983 to February 1984. In Serra vs.
Court of Appeals,15 the Court again did not consider the decline in the
peso's purchasing power from 1983 to 1985 to be so great as to result
in an extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also raises as
basis for the application of Article 1250 the Philippine economic
crisis in the early 1980s --- when, based on petitioner's evidence, the
inflation rate rose to 50.34% in 1984. We hold that there is no legal or
factual basis to support petitioner's allegation of the existence of
extraordinary inflation during this period, or, for that matter, the
entire time frame of 1968 to 1983, to merit the adjustment of the
rentals in the lease contract dated July 16, 1968. Although by
petitioner's evidence there was a decided decline in the purchasing
power of the Philippine peso throughout this period, we are hard put
to treat this as an "extraordinary inflation" within the meaning and
intent of Article 1250. Rather, we adopt with approval the following
observations of the Court of Appeals on petitioner's evidence,
especially the NEDA certification of inflation rates based on
consumer price index:
xxx (a) from the period 1966 to 1986, the official inflation rate never
exceeded 100% in any single year; (b) the highest official inflation
rate recorded was in 1984 which reached only 50.34%; (c) over a
twenty one (21) year period, the Philippines experienced a single-digit
inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975, 1976,
1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972,
1973, 1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the
Philippines experienced double-digit inflation rates, the average of
those rates was only 20.88%; (e) while there was a decline in the
purchasing power of the Philippine currency from the period 1966 to
1986, such cannot be considered as extraordinary; rather, it is a
normal erosion of the value of the Philippine peso which is a
characteristic of most currencies.16

"Erosion" is indeed an accurate description of the trend of decline in

the value of the peso in the past three to four decades. Unfortunate
as this trend may be, it is certainly distinct from the phenomenon
contemplated by Article 1250.

Moreover, this Court has held that the effects of extraordinary

inflation are not to be applied without an official declaration thereof
by competent authorities.17

Lastly, the provisions on rentals in the lease contract dated July 16,
1968 between petitioner and respondent are clear and categorical,
and we have no reason to suppose that such lease contract does not
reflect or express their true intention and agreement. The contract is
the law between the parties and if there is indeed reason to adjust
the rent, the parties could have by themselves negotiated the
amendment of the contract.18

WHEREFORE, the petition seeking the reversal of the decision of the

Court of Appeals in CA-G.R. CV No. 54115 is DENIED.

SO ORDERED.