1
EN BANC inhibited act, inhibited on account of public policy and public interest, constitutes the
[G.R. No. 19190. November 29, 1922.]
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.
SYLLABUS
1. BANKS AND BANKING; "CREDIT AND LOAN." DEFINED AND
DISTINGUISHED. — The "credit" of an individual means his ability to borrow money by
virtue of the confidence or trust reposed by a lender that he will pay what he may
promise. A "loan" means the delivery by one party and the receipt by the other party of a
given sum of money, upon an agreement, expresses or implied, to repay the sum loaned,
with or without interest. The concession of a "credit" necessarily involves the granting of
"loans" up to the limit of the amount fixed in the "credit."
2. ID.' "LOAN" AND "DISCOUNT" DISTINGUISHED. — To discount a paper is a
mode of loaning money, with these distinctions: (1) In a discount, interest is deducted in
advanced, 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.
3. STATUTES; INTERPRETATION AND CONSTRUCTION; IN GENERAL. — In
the interpretation and construction of statutes, the primary rule is to ascertain and give
effect to the intention of the Legislature.
4. ID.; ID.; SECTION 35 OF ACT NO. 2747; PROHIBITION AGAINST
INDIRECT LOANS. — The purpose of the Legislature in enacting section 35 of Act No.
2747 was to erect a wall of safety against temptation for a director of the Philippine
National 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.
5. ID.; ID.; ID. — A loan to a partnership of which the wife of a director is a
member falls within the prohibition in section 35 of Act No. 2747 against indirect loans.
6. ID., ID.; ID.; PROHIBITION ON CORPORATION. — When the corporation
itself is forbidden to do an act, the prohibition extends to the board of directors, and to
each director separately and individually.
7. ID.; REPEAL; EFFECT UPON VIOLATIONS OF THE OLD LAW. — Where
an Act of the Legislature which penalizes an offense 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 sentence offenders charged with violations of
the old law.
8. CRIMINAL LAW; ACT NO. 2747; GOOD FAITH AS A DEFENSE — Under
section 35 of Act No. 2747, criminal intent is not necessarily material. The doing of the
crime.
9. ID.; ID.; ID.; — The law will not allow private profit from a trust, and will not
listen to any proof of honest intent.
DECISION
MALCOLM, J p:
By telegrams and a letter of confirmation to the manager of the Aparri branch of
the Philippine National Bank, Venancio Conception, President of the Philippine National
Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor
of "Puno y Conception, S. en C." in the amount of P300,000. This special authorization
was essential in view of the memorandum order of President Conception 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 Conception, 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. Conception 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 propositions of appellant one by one.
The questions 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 Venacio 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 the 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 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
Conception, S. en C.," by Venancio Conception, President of the Philippine National
Bank, a "loan" or 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 placed no restriction upon discount transactions. It be 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?
2
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 a partnership
of which the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil Code serve to establish the familiar relationship
called a conjugal partnership. (Articles 1315, 1393, 1401, 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 of 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 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 filing 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
 3
the repeal of these sections of Act No. 2747 by Act No. 2747 by Act No. 2938 has served Judgment is affirmed, with the costs of this instance against the appellant. So
to take away the basis for criminal prosecution. ordered.
This same question has been previously submitted and has received an answer Araullo, C.J., Johnson, Street, Avanceña, Villamor, Ostrand,
adverse to such contention in the cases of United States vs. Cuna ([1908], 12 Phil., 241); Johns, and Romualdez, JJ., concur.
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 ||| (People v. Concepcion, G.R. No. 19190, [November 29, 1922], 44 PHIL 126-134)
penalizes an offense, such repeal does not have the effect of thereafter depriving the
courts of jurisdiction to try, convict, and sentence 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 provision of the law, but on a person violating any provision of the
law, but on a person violating any provision of the same, and imposing imprisonment as
part of the penalty, the prohibition, contained in said 35 is without penal sanction.
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 director separately and
individually. (People vs. Concepcion, supra.)
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 inhabited act, inhibited on account of public policy and public interest, constitutes the
crime. 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 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, any
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.
4

FIRST DIVISION
[G.R. No. 154878. March 16, 2007.]
CAROLYN M. GARCIA, petitioner, vs. RICA MARIE S.
THIO, respondent.
DECISION
CORONA, J p:
Assailed in this petition for review on certiorari 1 are the June 19, 2002 decision 2 and August
20, 2002 resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside
the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn
M. Garcia a crossed check 4 dated February 24, 1995 in the amount of US$100,000 payable
to the order of a certain Marilou Santiago. 5 Thereafter, petitioner received from respondent
every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount
of US$3,000 6 and P76,500 7 on July 26, 8 August 26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check 9 dated June 29,
1995 in the amount of P500,000, also payable to the order of Marilou
Santiago. 10Consequently, petitioner received from respondent the amount of P20,000 every
month on August 5, September 5, October 5 and November 5, 1995. 11
According to petitioner, respondent failed to pay the principal amounts of the loans
(US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a
complaint for sum of money and damages in the RTC of Makati City, Branch 58 against
respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month
from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5,
1995, plus attorney's fees and actual damages. 12
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on
October 26, 1995. 13 The amount of this loan was covered by the first check. On June 29,
1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of
4%, the maturity date of which was on November 5, 1995. 14 The amount of this loan was
covered by the second check. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the time. 15 Respondent paid the stipulated
5
monthly interest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands. 16
Respondent denied that she contracted the two loans with petitioner and countered that it was
Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by
petitioner to give the crossed checks to Santiago. 17 She issued the checks for P76,000 and
P20,000 not as payment of interest but to accommodate petitioner's request that respondent
use her own checks instead of Santiago's. 18
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. 19 It found that
respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3%
and P500,000 at a monthly interest of 4%: 20
WHEREFORE, finding preponderance of evidence to sustain the instant
complaint, judgment is hereby rendered in favor of [petitioner],
sentencing [respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3%
per month from October 26, 1995 until fully paid; CcAESI
2. P500,000.00 with interest thereon at 4% per month from November 5,
1995 until fully paid.
3. P100,000.00 as and for attorney's fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, [respondent's] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED. 21
On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of
loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to
substantiate her claim that [respondent] indeed borrowed money from
her. There is nothing in the record that shows that [respondent]
received money from [petitioner]. What is evident is the fact that
[respondent] received a MetroBank [crossed] check dated February 24,
1995 in the sum of US$100,000.00, payable to the order of Marilou
Santiago and a CityTrust [crossed] check dated June 29, 1995 in the
amount of P500,000.00, again payable to the order of Marilou Santiago,
both of which were issued by [petitioner]. The checks received by
[respondent], being crossed, may not be encashed but only
deposited in the bank by the payee thereof, that is, by Marilou
Santiago herself.
It must be noted that crossing a check has the following effects: (a) the
check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once — to one who has an account with
the bank; (c) and the act of crossing the check serves as warning to the
holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not
the issuance and delivery to the payee in contemplation of law since the
latter is not the person who could take the checks as a holder, i.e., as a
payee or indorsee thereof, with intent to transfer title thereto. Neither
could she be deemed as an agent of Marilou Santiago with respect to
the checks because she was merely facilitating the transactions
between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there
were really no contracts of loan that existed between the parties. . . .
(emphasis supplied) 22
Hence this petition. 23
As a rule, only questions of law may be raised in a petition for review on certiorari under Rule
45 of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the
factual findings of the CA (which held that there were no contracts of loan between petitioner
and respondent) and the RTC (which held that there were contracts of loan) are
contradictory. 24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of
the object of the contract. 25 This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the
debtor when the checks were encashed) the debtor acquires ownership of such money or
loan proceeds and is bound to pay the creditor an equal amount. 26
It is undisputed that the checks were delivered to respondent. However, these checks were
crossed and payable not to the order of respondent but to the order of a certain Marilou
Santiago. Thus the main question to be answered is: who borrowed money from petitioner —
respondent or Santiago?
Petitioner insists that it was upon respondent's instruction that both checks were made
payable to Santiago. 27 She maintains that it was also upon respondent's instruction that both
checks were delivered to her (respondent) so that she could, in turn, deliver the same to
Santiago. 28 Furthermore, she argues that once respondent received the checks, the latter
had possession and control of them such that she had the choice to either forward them to
Santiago (who was already her debtor), to retain them or to return them to petitioner. 29
We agree with petitioner. Delivery is the act by which the res or substance thereof is placed
within the actual or constructive possession or control of another. 30 Although respondent did
not physically receive the proceeds of the checks, these instruments were placed in her
control and possession under an arrangement whereby she actually re-lent the amounts to
Santiago. STcHDC
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago. 31 It was highly
improbable that petitioner would grant two loans to a complete stranger without requiring as
6
much as promissory notes or any written acknowledgment of the debt considering that the
amounts involved were quite big. Respondent, on the other hand, already had transactions
with Santiago at that time. 32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared
in both parties' list of witnesses) testified that respondent's plan was for petitioner to lend her
money at a monthly interest rate of 3%, after which respondent would lend the same amount
to Santiago at a higher rate of 5% and realize a profit of 2%. 33 This explained why
respondent instructed petitioner to make the checks payable to Santiago. Respondent has not
shown any reason why Ruiz' testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of
P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest.
For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for
four months. 34 According to respondent, she merely accommodated petitioner's request for
her to issue her own checks to cover the interest payments since petitioner was not personally
acquainted with Santiago. 35 She claimed, however, that Santiago would replace the checks
with cash. 36 Her explanation is simply incredible. It is difficult to believe that respondent
would put herself in a position where she would be compelled to pay interest, from her own
funds, for loans she allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided
by the rule that for evidence to be believed, it must not only proceed
from the mouth of a credible witness, but must be credible in itself such
as the common experience of mankind can approve as probable under
the circumstances. We have no test of the truth of human testimony
except its conformity to our knowledge, observation, and experience.
Whatever is repugnant to these belongs to the miraculous, and is
outside of juridical cognizance. 37
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not
petitioner, who was listed as one of her (Santiago's) creditors. 38
Last, respondent inexplicably never presented Santiago as a witness to corroborate her
story. 39 The presumption is that "evidence willfully suppressed would be adverse if
produced." 40 Respondent was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow
the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of
the RTC making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for
the US$100,000 and P500,000 loans respectively. There was no written proof of the interest
payable except for the verbal agreement that the loans would earn 3% and 4% interest per
month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has
been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should
be that which may have been stipulated in writing. Furthermore, the

interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code. 41
Hence, respondent is liable for the payment of legal interest per annum to be computed from
November 21, 1995, the date when she received petitioner's demand letter. 42From the
finality of the decision until it is fully paid, the amount due shall earn interest at 12% per
annum, the interim period being deemed equivalent to a forbearance of credit.43
The award of actual damages in the amount of P50,000 and P100,000 attorney's fees is
deleted since the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August
20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and
SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-
266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the
amounts of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995
until the finality of the decision. The total amount due as of the date of finality will earn interest
of 12% per annum until fully paid. The award of actual damages and attorney's fees is
deleted. cda
SO ORDERED.
Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.
Footnotes
1.Under Rule 45 of the Rules of Court.
2.Penned by former Associate Justice Eubulo G. Verzola (deceased) and concurred in by
Associate Justices Bernardo P. Abesamis (retired) and Josefina Guevara-Salonga
of the Third Division of the Court of Appeals; rollo, pp. 98-102.
3.Id., pp. 104-105.
4.This was Metrobank check no. 26910; id., pp. 70, 224 and 368.
5.Id., pp. 60, 100-101, 224.
6.Id., pp. 60-61. According to respondent, she originally issued four postdated checks each
in the amount of P76,000 on the same dates mentioned but these were not
encashed and instead each check was replaced by Santiago with US$3,000 in
cash given by respondent to petitioner; id., p. 224.
7.This was the peso equivalent of US$3,000 computed at the exchange rate of P25.50 to
$1.00; id., pp. 17 and 88. These postdated checks were deposited on their
respective due dates and honored by the drawee bank; id., p. 225.
8.According to respondent, this check was replaced by Santiago with cash in the amount of
US$3,000.
9.This was City Trust check no. 467257; rollo, pp. 90 and 327.
10.Id., pp. 60, 101 and 225.
11.Id., p. 109.
7
12.Docketed as Civil Case No. 96-266; rollo, pp. 15, 60 and 364.
13.Id., p. 109.
14.Id., p. 110.
15.Id., p. 16.
16.Id., p. 110.
17.Id., p. 224.
18.Id.
19.Id., pp. 60-95.
20.Id., pp. 79 and 89.
21.Id., pp. 94-95.
22.Id., pp. 100-101, citation omitted.
23.The issues submitted for resolution are the following:
(A) Is actual and physical delivery of the money loaned directly from the lender to the
borrower the only way to perfect a contract of loan?
(B) Does the respondent's admission that she paid interests to the petitioner on the
amounts represented by the two checks given to her by said petitioner render said
respondent in estoppel to question that there was no loan transaction between her
and the petitioner?
(C) Is respondent's written manifestation in the trial court, through counsel, that she
interposes no objection to the admission of petitioner's documentary exhibits for
the multiple purposes specified in the latter's Formal Offer of Documentary
Exhibits a judicial admission governed by Rule 129, Section 4, Rules of Court?
(D) Is this Honorable Court bound by the conclusions of fact relied upon by the [CA] in
issuing its disputed Decision?
(E) Have the [RTC's] findings of fact on the lone issue on which respondent litigated in the
[RTC], viz. existence of privity of contract between petitioner and respondent,
been overturned or set aside by the [CA]?
(F) May the respondent validly change the theory of her case from one of privity of
contract between her and the petitioner in the [RTC], to one of not being a holder
in due course of the crossed checks payable to a third party in the [CA] and before
this Honorable Court?
(G) Is the petitioner's entitlement to interest, despite absence of a written stipulation on the
payment thereof, justified?
(H) Is the deletion by the [CA] of the [RTC's] award of attorney's fees and actual damages
in favor of the petitioner justified? Id., pp. 401-402.
 8
24.Philippine National Bank v. Andrada Electric & Engineering Co., G.R. No. 142936, 17
April 2002, 381 SCRA 244, 253, citing Fuentes v. CA, 335 Phil. 1163, 1167-1169
(1997).

25.Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, 597.

26.Article 1953 of the Civil Code states:

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.

27.Rollo, p. 39.

28.Id.

29.Id., pp. 39-40.

30.Buenaflor v. Court of Appeals, G.R. No. 142021, 29 November 2000, 346 SCRA 563,
569, citing Black's Law Dictionary, 5th ed.

31.Rollo, p. 64.

32.Id., p. 70.

33.Id., pp. 76 and 85.

34.Id., pp. 16-17, 224-225, 411.

35.Id., p. 224.

36.Id., p. 70.

37.People v. Mala, G.R. No. 152351, 18 September 2003, 411 SCRA 327, 337,
citing People v. Dayag, 155 Phil. 421, 431 (1974).

38.Rollo, pp. 88 and 94.

39.Id., p. 93.

40.Sec. 3 (e), Rule 131, Rules of Court.

41.Eusebio-Calderon v. People, G.R. No. 158495, 21 October 2004, 441 SCRA 137, 148-
149, citing Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12
July 1994, 234 SCRA 78, 95; Cabrera v. People, G.R. No. 150618, 24 July 2003,
407 SCRA 247, 261.

42.Rollo, p. 65.

43.Cabrera v. People, supra.

||| (Garcia v. Thio, G.R. No. 154878, [March 16, 2007], 547 PHIL 341-351)

SECOND DIVISION
[G.R. No. L-24968. April 27, 1972.]
SAURA IMPORT & EXPORT CO., INC., plaintiff-
appellee, vs. DEVELOPMENT BANK OF THE
PHILIPPINES, defendant-appellant.
Mabanag, Eliger & Associates & Saura, Magno & Associates for plaintiff-appellee.
Jesus A. Avaceña and Hilario G. Orsolino for defendant-appellant.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; PERFECTION UPON
ACCEPTANCE OF PROMISE TO DELIVER SOMETHING BY WAY OF SIMPLE LOAN; ART.
1954 OF THE CIVIL CODE. — Where the application of Saura Inc. for a loan of P500,000.00
was approved by resolution of the defendant, and the corresponding mortgage executed and
registered, there is undoubtedly offer and acceptance and We hold that there was indeed a
perfected consensual contract as recognized in Article 1954 of the Civil Code.
2. ID.; ID.; ID.; ID.; DEFENDANT DID NOT DEVIATE FROM PERFECTED CONTRACT IN
CASE AT BAR. — The terms laid down in RFC Resolution No. 145 passed on Jan. 7, 1954
which resolution approved the loan application state that: "the proceeds of the loan shall be
utilized exclusively for the following purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase price of machinery and equipment —
P240,900.00, for working capital — P9,100.00." There is no serious dispute that RFC
entertained the loan application of Saura Inc., on the assumption that the factory to be
constructed would utilize locally grown raw materials principally kenaf . It was in line with such
assumption that when RFC, by Resolution 9083 approved on December 17, 1954, restored
the loan to the original amount of P500,000.00, it imposed two conditions to wit: (1) that the
raw materials needed by the borrower-corporation to carry out its operation are available in
the immediate vicinity and (2) that there is prospect of increased production thereof to provide
adequately for the requirements of the factory." The imposition of those conditions was by no
means a deviation from the terms of the agreement, but rather a step in its implementation.
There was nothing in said conditions that contradicted RFC Resolution No. 145.
3. ID.; ID.; ID.; ID.; DEVIATION MADE BY PLAINTIFF. — Evidently Saura Inc., realized that it
could not meet the conditions required by RFC in Resolution 9083, and so wrote its letter of
9
January 21, 1955, stating that local jute "will not be available in sufficient quantity this year or
probably next year," and asking that out of the loan agreed upon, the sum of P67,586.09 be
released "for raw materials and labor." This was a deviation from the terms laid down in
Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of
part of the proceeds of the loan to purposes other than those agreed upon.
4. ID.; ID.; EXTINGUISHMENT OF OBLIGATION BY MUTUAL DESISTANCE; IN INSTANT
CASE. — When RFC turned down the request of Saura Inc., the negotiations which had been
going on for the implementation of the agreement reached an impasse. Saura Inc., obviously
was in no position to comply with RFC's conditions. So instead of doing so and insisting that
the loan be released as agreed upon, Saura Inc., asked that the mortgage be cancelled,
which was done on June 15, 1955. The action thus taken by both parties was in the nature of
mutual desistance — what Manresa terms "mutuo disenso" — which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement by the parties can create a contract, mutual disagreement by the parties can cause
its extinguishment.
DECISION
MAKALINTAL, J p:
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was
rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines
(DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co.,
Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the
complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is
from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for
the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the
jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased
by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co.,
and arrived in Davao City in July 1953; and that to secure its release without first paying the
draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory buildings to be constructed, the
land site thereof, and the machinery and equipment to be installed. Among the other terms
spelled out in the resolution were the following:
"1. That the proceeds of the loan shall be utilized
exclusively for the following purposes:
For construction of factory building P250,000.00

For payment of the balance of purchase
price of machinery & equipment 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 re-
examination of the project to be financed with the loan applied for, as stated in Resolution No.
736, the parties named their respective committees of engineers and technical men to meet
with each other and undertake the necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the same "should not be taken as an
acquiescence on (its) part to novate, or accept new conditions to, the agreement already
entered into," referring to its acceptance of the terms and conditions mentioned in Resolution
No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of
mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the re-
examination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board
of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present,
10
it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was
approved as follows:
"RESOLUTION No. 3989. Reducing the Loan Granted
Saura Import & Export Co., Inc. under Resolution No. 145, C.S.,
from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736,
c.s., authorizing the re-examination of all the various aspects of
the loan granted the Saura Import & Export Co. under Resolution
No. 145, c.s., for the purpose of financing the manufacture of jute
sacks in Davao, with special reference as to the advisability of
financing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard
Ramon E. Saura and after extensive discussion on the subject
the Board, upon recommendation of the Chairman, RESOLVED
that the loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to
time to place the factory in actual operation: PROVIDED that all
terms and conditions of Resolution No. 145, c.s., not inconsistent
herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note
for China Engineers Ltd. jointly and severally with the other co-signers, wrote RFC that his
company no longer wished to avail of the loan and therefore considered the same cancelled
as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration
of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 . . . in view of a notification . . .
from the China Engineers, Ltd., expressing their desire to consider the loan cancelled insofar
as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC
that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if
RFC releases to us the P500,000.00 originally approved by you."
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
"That in view of observations made of the shortage and
high cost of imported raw materials, the Department of
Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-
corporation to carry out its operation are available in the
immediate vicinity; and
2. That there is prospect of increased production
thereof to provide adequately for the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December
22, 1954, wherein it was explained that the certification by the Department of Agriculture and
Natural Resources was required "as the intention of the original approval (of the loan) is to
develop the manufacture of sacks on the basis of locally available raw materials." This point is
important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not
deny that the factory he was building in Davao was for the manufacture of bags from local raw
materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by
and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to
finance, manage and operate a Kenaf mill plant, to manufacture copra and corn bags,
runners, floor mattings, carpets, draperies, out of 100% local raw materials,
principal kenaf." The explanatory note on page 1 of the same brochure states that the venture
"is the first serious attempt in this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in the Island of Mindanao where the
proposed jutemill is located . . ."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in
the first place, and to require, in its Resolution No. 9083, a certification from the Department of
Agriculture and Natural Resources as to the availability of local raw materials to provide
adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's
stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study
made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or
probably even next year;" (2) requesting "assurances (from RFC) that my company and
associates will be able to bring in sufficient jute materials as may be necessary for the full
operation of the jute mill;" and (3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equipment
per attached list to enable the jute
mill to operate P182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the opening
of the letter of credit for raw jute
for $25,000 00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
"Dear Sirs:
This is with reference to your letter of January 21,
1955, regarding the release of your loan under consideration of
P500,000. As stated in our letter of December 22, 1954, the
releases of the loan, if revived, are proposed to be made from
11
time to time, subject to availability of funds towards the end that
the sack factory shall be placed in actual operating status. We
shall be able to act on your request for revised purposes and
manner of releases upon re-appraisal of the securities offered for
the loan.
With respect to our requirement that the Department of
Agriculture and Natural Resources certify that the raw materials
needed are available in the immediate vicinity and that there is
prospect of increased production thereof to provide adequately
the requirements of the factory, we wish to reiterate that the
basis of the original approval is to develop the manufacture of
sacks on the basis of the locally available raw materials. Your
statement that you will have to rely on the importation of jute and
your request that we give you assurance that your company will
be able to bring in sufficient jute materials as may be necessary
for the operation of your factory, would not be in line with our
principle in approving the loan."
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the
matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955
RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura
himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage
contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank
and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year
within which to pay its obligation on the trust receipt heretofore mentioned. It appears further
that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on
May 15, 1955.
On January 9, 1964, almost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of
RFC (as predecessor of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had entered into, in connection with its jute
mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract
between the parties and that the defendant was guilty of breach thereof. The defendant
pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms
thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934
of the Civil Code, which provides:
"ART. 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
perfected until the delivery of the object of the contract."
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
 12
mortgage was executed and registered. But this fact alone falls short of resolving the basic Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio,
claim that the defendant failed to fulfill its obligation and that the plaintiff is therefore entitled to JJ., concur.
recover damages.
Makasiar, J., took no part.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption
that the factory to be constructed would utilize locally grown raw materials,
principally kenaf. There is no serious dispute about this. It was in line with such assumption
that when RFC, by Resolution No. 9033 approved on December 17, 1954, restored the loan to Footnotes
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 1.8 Manresa, p. 294.
adequately for the requirements of the factory." The imposition of those conditions was by no 2.Castan, p. 560.
means a deviation from the terms of the agreement, but rather a step in its implementation.
There was nothing in said conditions that contradicted the terms laid down in RFC Resolution ||| (Saura Import & Export Co., Inc. v. Development Bank of the Phils., G.R. No. L-24968,
No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be [April 27, 1972], 150-A PHIL 251-261)
utilized exclusively for the following purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase price of machinery and equipment —
P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not
meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that
local jute "will not be available in sufficient quantity this year or probably next year," and
asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials
and labor." This was a deviation from the terms laid down in Resolution No. 145 and
embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the
loan to purposes other than those agreed upon.

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

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any
alleged breach of contract by RFC, or even point out that the latter's stand was legally
unjustified. Its request for cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latter's noncompliance. In 1962 it even
applied with DBP for another loan to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at
its own request, that Saura, Inc. brought this action for damages. All these circumstances
demonstrate beyond doubt that the said agreement had been extinguished by mutual
desistance — and that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the other
issues raised in the respective briefs of the parties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.

SECOND DIVISION
[G.R. No. 133632. February 15, 2002.]
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF
APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.
Benedicto Tale Versoza & Associates for petitioner.
Vicente B. Chuidian for private respondent.
SYNOPSIS
The appellate court affirmed the judgment of the Regional Trial Court of Pasig City in a case
for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity)
against private respondents ALS Management and Development Corporation and Antonio K.
Litonjua, consolidated with Civil Case No. 52093, for damages with prayer for the issuance of
a writ of preliminary injunction by the private respondents against said petitioner. The trial
court held that private respondents were not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and
made in bad faith. In the instant petition, petitioner contended that the Court of Appeals erred
in ruling that because a simple loan is perfected upon the delivery of the object of the contract,
the loan contract in this case was perfected only on September 13, 1982. Petitioner claimed
that a contract of loan is a consensual contract, and a loan contract is perfected at the time
the contract of mortgage is executed conformably with the Court's ruling in Bonnevie v. Court
of Appeals. In the present case, the loan contract was perfected on March 31, 1981, the date
when the mortgage deed was executed, hence, the amortization and interests on the loan
should be computed from said date.
The Supreme Court affirmed the judgment of the Court of Appeals with modification as to the
damages. The Court ruled that a loan contract is not a consensual contract but a real contract.
It is perfected only upon the delivery of the object of the contract. Petitioner
13
misapplied Bonnevie. The contract in Bonnevie declared by the Court as a perfected
consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan. In the present case, the loan contract
between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on
September 13, 1982, the date of the second release of the loan. Following the intentions of
the parties on the commencement of the monthly amortization, as found by the Court of
Appeals, private respondents' obligation to pay commenced only on October 13, 1982, a
month after the perfection of the contract.
SYLLABUS
1. CIVIL LAW; CONTRACTS; LOAN; NOT A CONSENSUAL CONTRACT BUT A REAL
CONTRACT; IT IS PERFECTED ONLY UPON DELIVERY OF THE OBJECT OF THE
CONTRACT; CASE AT BAR. — A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract. Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected
consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan. In Saura Import and Export Co. Inc. vs.
Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000
with respondent bank. The latter approved the application through a board resolution.
Thereafter, the corresponding mortgage was executed and registered. However, because of
acts attributable to petitioner, the loan was not released. Later, petitioner instituted an action
for damages. We recognized in this case, a perfected consensual contract which under
normal circumstances could have made the bank liable for not releasing the loan. However,
since the fault was attributable to petitioner therein, the court did not award it damages. A
perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery
of the object of the contract for its perfection and which gives rise to obligations only on the
part of the borrower. In the present case, the loan contract between BPI, on the one hand, and
ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of the parties on the commencement of
the monthly amortization, as found by the Court of Appeals, private respondents' obligation to
pay commenced only on October 13, 1982, a month after the perfection of the contract.
2. ID.; ID.; ID.; INVOLVES RECIPROCAL OBLIGATION WHEREIN THE OBLIGATION OR
PROMISE OF EACH PARTY IS THE CONSIDERATION FOR THAT OF THE OTHER. — We
also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other. As
averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon
the consideration that ALS and Litonjua shall pay the monthly amortization commencing on
May 1, 1981, one month after the supposed release of the loan. It is a basic principle in
reciprocal obligations that neither party incurs in delay, if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. Only when a party has
performed his part of the contract can he demand that the other party also fulfills his own
obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for
the payment of the monthly amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. Therefore, in computing the amount due
as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting
date is October 13, 1982 and not May 1, 1981. HESCcA

3. ID.; DAMAGES; NO BASIS FOR AWARD OF MORAL AND EXEMPLARY DAMAGES;
NOMINAL DAMAGES AWARDED TO RESPONDENTS BY REASON OF PETITIONER'S
NEGLIGENCE. — As admitted by private respondents themselves, they were irregular in their
payment of monthly amortization. Conformably with our ruling in SSS, we can not properly
declare BPIIC in bad faith. Consequently, we should rule out the award of moral and
exemplary damages. However, in our view, BPIIC was negligent in relying merely on the
entries found in the deed of mortgage, without checking and correspondingly adjusting its
records on the amount actually released to private respondents and the date when it was
released. Such negligence resulted in damage to private respondents, for which an award of
nominal damages should be given in recognition of their rights which were violated by BPIIC.
For this purpose, the amount of P25,000 is sufficient.
DECISION
QUISUMBING, J p:
This petition for certiorari assails the decision dated February 28, 1997, of the Court of
Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court
affirmed the judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case
No. 11831, for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for
brevity) against private respondents ALS Management and Development Corporation and
Antonio K. Litonjua, 1 consolidated with (b) Civil Case No. 52093, for damages with prayer for
the issuance of a writ of preliminary injunction by the private respondents against said
petitioner.
The trial court had held that private respondents were not in default in the payment of their
monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature
and made in bad faith. It awarded private respondents the amount of P300,000 for moral
damages, P50,000 for exemplary damages, and P50,000 for attorney's fees and expenses for
litigation. It likewise dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16¼% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of
a house on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to
AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private
respondents ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and
assumed the P500,000 balance of Roa's indebtedness with AIDC. The latter, however, was
not willing to extend the old interest rate to private respondents and proposed to grant them a
new loan of P500,000 to be applied to Roa's debt and secured by the same property, at an
interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal
balance payable within ten years in equal monthly amortization of P9,996.58 and penalty
interest at the rate of 21% per annum per day from the date the amortization became due and
payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the
above stipulations with the provision that payment of the monthly amortization shall
commence on May 1, 1981.
14
On August 13, 1982, ALS and Litonjua updated Roa's arrearages by paying BPIIC the sum of
P190,601.35. This reduced Roa's principal balance to P457,204.90 which, in turn, was
liquidated when BPIIC applied thereto the proceeds of private respondents' loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be
what was left of their loan after full payment of Roa's loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the
ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30,
1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and
31/100 Pesos (P475,585.31). A notice of sheriff's sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They
alleged, among others, that they were not in arrears in their payment, but in fact made an
overpayment as of June 30, 1984. They maintained that they should not be made to pay
amortization before the actual release of the P500,000 loan in August and September 1982.
Further, out of the P500,000 loan, only the total amount of P464,351.77 was released to
private respondents. Hence, applying the effects of legal compensation, the balance of
P35,648.23 should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093,
thus:
WHEREFORE, judgment is hereby rendered in favor of ALS
Management and Development Corporation and Antonio K. Litonjua and
against BPI Investment Corporation, holding that the amount of loan
granted by BPI to ALS and Litonjua was only in the principal sum of
P464,351.77, with interest at 20% plus service charge of 1% per annum,
payable on equal monthly and successive amortizations at P9,283.83 for
ten (10) years or one hundred twenty (120) months. The amortization
schedule attached as Annex "A" to the "Deed of Mortgage" is
correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI
caused their publication in a newspaper of general circulation as defaulting debtors, and
therefore orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorney's fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for
being premature.
Costs against BPI.
SO ORDERED. 2
Both parties appealed to the Court of Appeals. However, private respondents' appeal was
dismissed for non-payment of docket fees.

On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion
reads:
WHEREFORE, finding no error in the appealed decision the same is
hereby AFFIRMED in toto.
SO ORDERED. 3
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the
delivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua
was perfected only on September 13, 1982, the date when BPIIC released the purported
balance of the P500,000 loan after deducting therefrom the value of Roa's indebtedness.
Thus, payment of the monthly amortization should commence only a month after the said
date, as can be inferred from the stipulations in the contract. This, despite the express
agreement of the parties that payment shall commence on May 1, 1981. From October 1982
to June 1984, the total amortization due was only P194,960.43. Evidence showed that private
respondents had an overpayment, because as of June 1984, they already paid a total amount
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private respondents'
delinquency in the payment of their loan. This fact constituted sufficient ground for moral
damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this
petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL
CONTRACT IN THE LIGHT OF THE RULE LAID DOWN
IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL
AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN
THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND
OPPOSED TO THE RULE LAID DOWN IN SOCIAL
SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA
707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a
simple loan is perfected upon the delivery of the object of the contract, the loan contract in this
case was perfected only on September 13, 1982. Petitioner claims that a contract of loan is a
consensual contract, and a loan contract is perfected at the time the contract of mortgage is
executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the
present case, the loan contract was perfected on March 31, 1981, the date when the
mortgage deed was executed, hence, the amortization and interests on the loan should be
computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on
August 1982, the loan was actually released on March 31, 1981, when BPIIC issued a
cancellation of mortgage of Frank Roa's loan. This finds support in the registration on March
31, 1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of
the property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover,
petitioner claims, the delay in the release of the loan should be attributed to private
respondents. As BPIIC only agreed to extend a P500,000 loan, private respondents were
required to reduce Frank Roa's loan below said amount. According to petitioner, private
respondents were only able to do so in August 1982.
15
In their comment, private respondents assert that based on Article 1934 of the Civil Code, 4 a
simple loan is perfected upon the delivery of the object of the contract, hence a real contract.
In this case, even though the loan contract was signed on March 31, 1981, it was perfected
only on September 13, 1982, when the full loan was released to private respondents. They
submit that petitioner misread Bonnevie. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that the contract to extend the loan was
perfected on March 31, 1981 but the contract of loan itself was only perfected upon the
delivery of the full loan to private respondents on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was
perfected on March 31, 1981, and their payment did not start a month thereafter, still no
default took place. According to private respondents, a perfected loan agreement imposes
reciprocal obligations, where the obligation or promise of each party is the consideration of the
other party. In this case, the consideration for BPIIC in entering into the loan contract is the
promise of private respondents to pay the monthly amortization. For the latter, it is the promise
of BPIIC to deliver the money. In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is incumbent
upon him. Therefore, private respondents conclude, they did not incur in delay when they did
not commence paying the monthly amortization on May 1, 1981, as it was only on September
13, 1982 when petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract. 5 Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected
consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the
application through a board resolution. Thereafter, the corresponding mortgage was executed
and registered. However, because of acts attributable to petitioner, the loan was not released.
Later, petitioner instituted an action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have made the bank liable for
not releasing the loan. However, since the fault was attributable to petitioner therein, the court
did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery
of the object of the contract for its perfection and which gives rise to obligations only on the
part of the borrower. 6
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua,
on the other, was perfected only on September 13, 1982, the date of the second release of the
loan. Following the intentions of the parties on the commencement of the monthly
amortization, as found by the Court of Appeals, private respondents' obligation to pay
commenced only on October 13, 1982, a month after the perfection of the contract. 7
We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other. 8 As
averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon
the consideration that ALS and Litonjua shall pay the monthly amortization commencing on
May 1, 1981, one month after the supposed release of the loan. It is a basic principle in
reciprocal obligations that neither party incurs in delay, if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. 9 Only when a party

has performed his part of the contract can he demand that the other party also fulfills his own
obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for
the payment of the monthly amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. Therefore, in computing the amount due
as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting
date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual
release of the loan and whether private respondents were the cause of the delay in the
release of the loan, are factual. Since petitioner has not shown that the instant case is one of
the exceptions to the basic rule that only questions of law can be raised in a petition for review
under Rule 45 of the Rules of Court, 10 factual matters need not tarry us now. On these points
we are bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and
exemplary damages for it did not act maliciously when it initiated the foreclosure proceedings.
It merely exercised its right under the mortgage contract because private respondents were
irregular in their monthly amortization. It invoked our ruling in Social Security System vs. Court
of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As
concluded by the Court of Appeals "the negligence of the appellant is not
so gross as to warrant moral and temperate damages," except that, said
Court reduced those damages by only P5,000.00 instead of eliminating
them. Neither can we agree with the findings of both the Trial Court and
respondent Court that the SSS had acted maliciously or in bad faith. The
SSS was of the belief that it was acting in the legitimate exercise of its
right under the mortgage contract in the face of irregular payments made
by private respondents and placed reliance on the automatic
acceleration clause in the contract. The filing alone of the foreclosure
application should not be a ground for an award of moral damages in the
same way that a clearly unfounded civil action is not among the grounds
for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said
damages because it insisted on the payment of amortization on the loan even before it was
released. Further, it did not make the corresponding deduction in the monthly amortization to
conform to the actual amount of loan released, and it immediately initiated foreclosure
proceedings when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of
monthly amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC
in bad faith. Consequently, we should rule out the award of moral and exemplary damages. 11
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed
of mortgage, without checking and correspondingly adjusting its records on the amount
actually released to private respondents and the date when it was released. Such negligence
resulted in damage to private respondents, for which an award of nominal damages should be
given in recognition of their rights which were violated by BPIIC. 12 For this purpose, the
amount of P25,000 is sufficient.
16
Lastly, as in SSS where we awarded attorney's fees because private respondents were
compelled to litigate, we sustain the award of P50,000 in favor of private respondents as
attorney's fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of
damages. The award of moral and exemplary damages in favor of private respondents is
DELETED, but the award to them of attorney's fees in the amount of P50,000 is UPHELD.
Additionally, petitioner is ORDERED to pay private respondents P25,000 as nominal
damages. Costs against petitioner. ACTIcS
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
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 xxx 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.
||| (BPI Investment Corp. v. Court of Appeals, G.R. No. 133632, [February 15, 2002], 427 PHIL
350-363)
SPECIAL SECOND DIVISION
[G.R. No. 174269. August 25, 2010.]
POLO S. PANTALEON, petitioner, vs. AMERICAN EXPRESS
INTERNATIONAL, INC., respondent.
RESOLUTION
BRION, * J p:
We resolve the motion for reconsideration filed by respondent American
Express International, Inc. (AMEX) dated June 8, 2009, 1 seeking to reverse our Decision
dated May 8, 2009 where we ruled that AMEX was guilty of culpable delay in fulfilling its
obligation to its cardholder — petitioner Polo Pantaleon. Based on this conclusion, we
held AMEX liable for moral and exemplary damages, as well as attorney's fees and costs
of litigation. 2
FACTUAL ANTECEDENTS
The established antecedents of the case are narrated below.
17
AMEX is a resident foreign corporation engaged in the business of providing
credit services through the operation of a charge card system. Pantaleon has been an
AMEX cardholder since 1980. 3
In October 1991, Pantaleon, together with his wife (Julialinda),
daughter (Regina), and son (Adrian Roberto), went on a guided European tour. On
October 25, 1991, the tour group arrived in Amsterdam. Due to their late arrival, they
postponed the tour of the city for the following day. 4
The next day, the group began their sightseeing at around 8:50 a.m. with a trip
to the Coster Diamond House (Coster). To have enough time for take a guided city tour of
Amsterdam before their departure scheduled on that day, the tour group planned to
leave Coster by 9:30 a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces
worth a total of US$13,826.00. Pantaleon presented his American Express credit card to
the sales clerk to pay for this purchase. He did this at around 9:15 a.m. The sales clerk
swiped the credit card and asked Pantaleon to sign the charge slip, which was then
electronically referred to AMEX's Amsterdam office at 9:20 a.m. 5 TSaEcH
At around 9:40 a.m., Coster had not received approval from AMEX for the
purchase so Pantaleon asked the store clerk to cancel the sale. The store manager,
however, convinced Pantaleon to wait a few more minutes. Subsequently, the store
manager informed Pantaleon that AMEX was asking for bank references; Pantaleon
responded by giving the names of his Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon presented his credit card,
AMEX still had not approved the purchase. Since the city tour could not begin until the
Pantaleons were onboard the tour bus, Coster decided to release at around 10:05 a.m.
the purchased items to Pantaleon even without AMEX's approval.
When the Pantaleons finally returned to the tour bus, they found their travel
companions visibly irritated. This irritation intensified when the tour guide announced that
they would have to cancel the tour because of lack of time as they all had to be in Calais,
Belgium by 3 p.m. to catch the ferry to London. 6
From the records, it appears that after Pantaleon's purchase was transmitted
for approval to AMEX's Amsterdam office at 9:20 a.m.; was referred to AMEX's Manila
office at 9:33 a.m.; and was approved by the Manila office at 10:19 a.m. At 10:38 a.m.,
AMEX's Manila office finally transmitted the Approval Code to AMEX's Amsterdam office.
In all, it took AMEX a total of 78 minutes to approve Pantaleon's purchase and to
transmit the approval to the jewelry store. 7
After the trip to Europe, the Pantaleon family proceeded to the United States.
Again, Pantaleon experienced delay in securing approval for purchases using his
American Express credit card on two separate occasions. He experienced the first delay
when he wanted to purchase golf equipment in the amount of US$1,475.00 at the
Richard Metz Golf Studio in New York on October 30, 1991. Another delay occurred when
he wanted to purchase children's shoes worth US$87.00 at the Quiency Market in Boston
on November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for
the humiliation and inconvenience he and his family experienced due to the delays in
obtaining approval for his credit card purchases. AMEX responded by explaining that the
delay in Amsterdam was due to the amount involved — the charged purchase of
US$13,826.00 deviated from Pantaleon's established charge purchase pattern.

Dissatisfied with this explanation, Pantaleon filed an action for damages against the
credit card company with the Makati City Regional Trial Court (RTC).
On August 5, 1996, the RTC found AMEX guilty of delay, and awarded
Pantaleon P500,000.00 as moral damages, P300,000.00 as exemplary damages,
P100,000.00 as attorney's fees, and P85,233.01 as litigation expenses.
On appeal, the CA reversed the awards. 8 While the CA recognized that delay
in the nature of mora accipiendi or creditor's default attended AMEX's approval of
Pantaleon's purchases, it disagreed with the RTC's finding that AMEX had breached its
contract, noting that the delay was not attended by bad faith, malice or gross negligence.
The appellate court found that AMEX exercised diligent efforts to effect the approval of
Pantaleon's purchases; the purchase at Coster posed particularly a problem because it
was at variance with Pantaleon's established charge pattern. As there was no proof that
AMEX breached its contract, or that it acted in a wanton, fraudulent or malevolent
manner, the appellate court ruled that AMEX could not be held liable for any form of
damages. SaDICE
Pantaleon questioned this decision via a petition for review on certiorari with
this Court.
In our May 8, 2009 decision, we reversed the appellate court's decision and
held that AMEX was guilty of mora solvendi, or debtor's default. AMEX, as debtor, had an
obligation as the credit provider to act on Pantaleon's purchase requests, whether to
approve or disapprove them, with "timely dispatch." Based on the evidence on record, we
found that AMEX failed to timely act on Pantaleon's purchases.
We GRANT the motion for reconsideration.
Based on the testimony of AMEX's credit authorizer Edgardo Jaurique, the
approval time for credit card charges would be three to four seconds under regular
circumstances. In Pantaleon's case, it took AMEX 78 minutes to approve the Amsterdam
purchase. We attributed this delay to AMEX's Manila credit authorizer, Edgardo Jaurique,
who had to go over Pantaleon's past credit history, his payment record and his credit and
bank references before he approved the purchase. Finding this delay unwarranted, we
reinstated the RTC decision and awarded Pantaleon moral and exemplary damages, as
well as attorney's fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues that this Court erred when it
found AMEX guilty of culpable delay in complying with its obligation to act with timely
dispatch on Pantaleon's purchases. While AMEX admits that it normally takes seconds to
approve charge purchases, it emphasizes that Pantaleon experienced delay in
Amsterdam because his transaction was not a normal one. To recall, Pantaleon sought to
charge in a single transaction jewelry items purchased from Coster in the total amount
of US$13,826.00 or P383,746.16. While the total amount of Pantaleon's previous
purchases using his AMEX credit card did exceed US$13,826.00, AMEX points out that
these purchases were made in a span of more than 10 years, not in a single transaction.
Because this was the biggest single transaction that Pantaleon ever made
using his AMEX credit card, AMEX argues that the transaction necessarily required the
credit authorizer to carefully review Pantaleon's credit history and bank references.
AMEX maintains that it did this not only to ensure Pantaleon's protection (to minimize the
possibility that a third party was fraudulently using his credit card), but also to protect
itself from the risk that Pantaleon might not be able to pay for his purchases on credit.
This careful review, according to AMEX, is also in keeping with the extraordinary degree
of diligence required of banks in handling its transactions. AMEX concluded that in these
18
lights, the thorough review of Pantaleon's credit record was motivated by legitimate
concerns and could not be evidence of any ill will, fraud, or negligence by AMEX.
AMEX further points out that the proximate cause of Pantaleon's humiliation
and embarrassment was his own decision to proceed with the purchase despite his
awareness that the tour group was waiting for him and his wife. Pantaleon could have
prevented the humiliation had he cancelled the sale when he noticed that the credit
approval for the Coster purchase was unusually delayed.
In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was
guilty of mora solvendi, or delay on the part of the debtor, in complying with its obligation
to him. Based on jurisprudence, a just cause for delay does not relieve the debtor in
delay from the consequences of delay; thus, even if AMEX had a justifiable reason for the
delay, this reason would not relieve it from the liability arising from its failure to timely act
on Pantaleon's purchase. HESAIT
In response to AMEX's assertion that the delay was in keeping with its duty to
perform its obligation with extraordinary diligence, Pantaleon claims that this duty
includes the timely or prompt performance of its obligation.
As to AMEX's contention that moral or exemplary damages cannot be awarded
absent a finding of malice, Pantaleon argues that evil motive or design is not always
necessary to support a finding of bad faith; gross negligence or wanton disregard of
contractual obligations is sufficient basis for the award of moral and exemplary damages.
OUR RULING
Brief historical background
A credit card is defined as "any card, plate, coupon book, or other credit device
existing for the purpose of obtaining money, goods, property, labor or services or
anything of value on credit." 9 It traces its roots to the charge card first introduced by the
Diners Club in New York City in 1950. 10 American Express followed suit by introducing
its own charge card to the American market in 1958. 11
In the Philippines, the now defunct Pacific Bank was responsible for bringing
the first credit card into the country in the 1970s. 12 However, it was only in the early
2000s that credit card use gained wide acceptance in the country, as evidenced by the
surge in the number of credit card holders then. 13
Nature of Credit Card Transactions
To better understand the dynamics involved in credit card transactions, we turn
to the United States case of Harris Trust & Savings Bank v. McCray 14 which explains:
The bank credit card system involves a tripartite relationship between
the issuer bank, the cardholder, and merchants participating in the
system. The issuer bank establishes an account on behalf of the person
to whom the card is issued, and the two parties enter into an agreement
which governs their relationship. This agreement provides that the bank
will pay for cardholder's account the amount of merchandise or services
purchased through the use of the credit card and will also make cash
loans available to the cardholder. It also states that the cardholder shall
be liable to the bank for advances and payments made by the bank and
that the cardholder's obligation to pay the bank shall not be affected or

impaired by any dispute, claim, or demand by the cardholder with
respect to any merchandise or service purchased.
The merchants participating in the system agree to honor the bank's
credit cards. The bank irrevocably agrees to honor and pay the sales
slips presented by the merchant if the merchant performs his
undertakings such as checking the list of revoked cards before
accepting the card. . . . . EcATDH
These slips are forwarded to the member bank which originally issued
the card. The cardholder receives a statement from the bank periodically
and may then decide whether to make payment to the bank in full within
a specified period, free of interest, or to defer payment and ultimately
incur an interest charge.
We adopted a similar view in CIR v. American Express International, Inc.
(Philippine branch), 15 where we also recognized that credit card issuers are not limited
to banks. We said:
Under RA 8484, the credit card that is issued by banks in general, or by
non-banks in particular, refers to "any card . . . or other credit device
existing for the purpose of obtaining . . . goods . . . or services . . . on
credit;" and is being used "usually on a revolving basis." This means that
the consumer-credit arrangement that exists between the issuer and the
holder of the credit card enables the latter to procure goods or services
"on a continuing basis as long as the outstanding balance does not
exceed a specified limit." The card holder is, therefore, given "the power
to obtain present control of goods or service on a promise to pay for
them in the future."
Business establishments may extend credit sales through the use of the
credit card facilities of a non-bank credit card company to avoid the risk
of uncollectible accounts from their customers. Under this system, the
establishments do not deposit in their bank accounts the credit card
drafts that arise from the credit sales. Instead, they merely record their
receivables from the credit card company and periodically send the
drafts evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these
business establishments, but it does not redeem the drafts at full price.
The agreement between them usually provides for discounts to be taken
by the company upon its redemption of the drafts. At the end of each
month, it then bills its credit card holders for their respective drafts
redeemed during the previous month. If the holders fail to pay the
amounts owed, the company sustains the loss.
Simply put, every credit card transaction involves three contracts, namely: (a)
the sales contract between the credit card holder and the merchant or the business
establishment which accepted the credit card; (b) the loan agreement between the credit
card issuer and the credit card holder; and lastly, (c) the promise to pay between the
credit card issuer and the merchant or business establishment. 16
Credit card issuer — cardholder
relationship
19
When a credit card company gives the holder the privilege of charging items at
establishments associated with the issuer, 17 a necessary question in a legal analysis is
— when does this relationship begin? There are two diverging views on the matter.
In City Stores Co. v. Henderson, 18 another U.S. decision, held that:
The issuance of a credit card is but an offer to extend a line of open
account credit. It is unilateral and supported by no consideration. The
offer may be withdrawn at any time, without prior notice, for any reason
or, indeed, for no reason at all, and its withdrawal breaches no duty —
for there is no duty to continue it — and violates no rights. DcTAIH
Thus, under this view, each credit card transaction is considered a separate offer and
acceptance.
Novack v. Cities Service Oil Co. 19 echoed this view, with the court ruling that
the mere issuance of a credit card did not create a contractual relationship with the
cardholder.
On the other end of the spectrum is Gray v. American Express
Company 20 which recognized the card membership agreement itself as a binding
contract between the credit card issuer and the card holder. Unlike in the Novack and
the City Stores cases, however, the cardholder in Gray paid an annual fee for the
privilege of being an American Express cardholder.
In our jurisdiction, we generally adhere to the Gray ruling, recognizing the
relationship between the credit card issuer and the credit card holder as a contractual
one that is governed by the terms and conditions found in the card membership
agreement. 21 This contract provides the rights and liabilities of a credit card company to
its cardholders and vice versa.
We note that a card membership agreement is a contract of adhesion as its
terms are prepared solely by the credit card issuer, with the cardholder merely affixing his
signature signifying his adhesion to these terms. 22 This circumstance, however, does
not render the agreement void; we have uniformly held that contracts of adhesion are "as
binding as ordinary contracts, the reason being that the party who adheres to the contract
is free to reject it entirely." 23 The only effect is that the terms of the contract are
construed strictly against the party who drafted it. 24
On AMEX's obligations to Pantaleon
We begin by identifying the two privileges that Pantaleon assumes he is entitled
to with the issuance of his AMEX credit card, and on which he anchors his claims. First,
Pantaleon presumes that since his credit card has no pre-set spending limit, AMEX has
the obligation to approve all his charge requests. Conversely, even if AMEX has no such
obligation, at the very least it is obliged to act on his charge requests within a specific
period of time.
i.Use of credit card a mere offer to enter into loan agreements
Although we recognize the existence of a relationship between the credit card
issuer and the credit card holder upon the acceptance by the cardholder of the terms of
the card membership agreement (customarily signified by the act of the cardholder in
signing the back of the credit card), we have to distinguish this contractual
relationship from the creditor-debtor relationship which only arises after the credit
card issuer has approved the cardholder's purchase request. The first relates merely
to an agreement providing for credit facility to the cardholder. The latter involves the

actual credit on loan agreement involving three contracts, namely: the sales
contract between the credit card holder and the merchant or the business establishment
which accepted the credit card; the loan agreement between the credit card issuer and
the credit card holder; and the promise to pay between the credit card issuer and the
merchant or business establishment. HDIaET
From the loan agreement perspective, the contractual relationship begins to
exist only upon the meeting of the offer 25 and acceptance of the parties involved. In
more concrete terms, when cardholders use their credit cards to pay for their purchases,
they merely offer to enter into loan agreements with the credit card company. Only after
the latter approves the purchase requests that the parties enter into binding loan
contracts, in keeping with Article 1319 of the Civil Code, which provides:
Article 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
This view finds support in the reservation found in the card membership
agreement itself, particularly paragraph 10, which clearly states that AMEX "reserve[s]
the right to deny authorization for any requested Charge." By so providing, AMEX
made its position clear that it has no obligation to approve any and all charge requests
made by its card holders.
ii.AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the purchase requests of its credit
cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of
the Civil Code, which provides the requisites to hold a debtor guilty of culpable delay,
states:
Article 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation. . . . .
The three requisites for a finding of default are: (a) that the obligation is
demandable and liquidated; (b) the debtor delays performance; and (c) the creditor
judicially or extrajudicially requires the debtor's performance. 26
Based on the above, the first requisite is no longer met because AMEX, by the
express terms of the credit card agreement, is not obligated to approve Pantaleon's
purchase request. Without a demandable obligation, there can be no finding of default.
Apart from the lack of any demandable obligation, we also find that Pantaleon
failed to make the demand required by Article 1169 of the Civil Code.
As previously established, the use of a credit card to pay for a purchase is only
an offer to the credit card company to enter a loan agreement with the credit card
holder.Before the credit card issuer accepts this offer, no obligation relating to the
loan agreement exists between them. On the other hand, a demand is defined as the
"assertion of a legal right; . . . an asking with authority, claiming or challenging as
due." 27 A demand presupposes the existence of an obligation between the
parties. CHDaAE
Thus, every time that Pantaleon used his AMEX credit card to pay for his
purchases, what the stores transmitted to AMEX were his offers to execute loan
contracts. These obviously could not be classified as the demand required by law to
20
make the debtor in default, given that no obligation could arise on the part of AMEX until
after AMEX transmitted its acceptance of Pantaleon's offers. Pantaleon's act of "insisting
on and waiting for the charge purchases to be approved by AMEX" 28 is not the demand
contemplated by Article 1169 of the Civil Code.
For failing to comply with the requisites of Article 1169, Pantaleon's charge that
AMEX is guilty of culpable delay in approving his purchase requests must fail.
iii.On AMEX's obligation to act on the offer within a specific period of time
Even assuming that AMEX had the right to review his credit card history before
it approved his purchase requests, Pantaleon insists that AMEX had an obligation to act
on his purchase requests, either to approve or deny, in "a matter of seconds" or "in timely
dispatch." Pantaleon impresses upon us the existence of this obligation by emphasizing
two points: (a) his card has no pre-set spending limit; and (b) in his twelve years of using
his AMEX card, AMEX had always approved his charges in a matter of seconds.
Pantaleon's assertions fail to convince us.
We originally held that AMEX was in culpable delay when it acted on the Coster
transaction, as well as the two other transactions in the United States which took AMEX
approximately 15 to 20 minutes to approve. This conclusion appears valid and
reasonable at first glance, comparing the time it took to finally get the Coster purchase
approved (a total of 78 minutes), to AMEX's "normal" approval time of three to four
seconds (based on the testimony of Edgardo Jaurigue, as well as Pantaleon's previous
experience). We come to a different result, however, after a closer look at the factual and
legal circumstances of the case.
AMEX's credit authorizer, Edgardo Jaurigue, explained that having no pre-set
spending limit in a credit card simply means that the charges made by the cardholder are
approved based on his ability to pay, as demonstrated by his past spending, payment
patterns, and personal resources. 29 Nevertheless, every time Pantaleon charges a
purchase on his credit card, the credit card company still has to determine whether
it will allow this charge, based on his past credit history. This right to review a card
holder's credit history, although not specifically set out in the card membership
agreement, is a necessary implication of AMEX's right to deny authorization for any
requested charge.
As for Pantaleon's previous experiences with AMEX (i.e., that in the past 12
years, AMEX has always approved his charge requests in three or four seconds), this
record does not establish that Pantaleon had a legally enforceable obligation to expect
AMEX to act on his charge requests within a matter of seconds. For one, Pantaleon failed
to present any evidence to support his assertion that AMEX acted on purchase requests
in a matter of three or four seconds as an established practice. More importantly, even if
Pantaleon did prove that AMEX, as a matter of practice or custom, acted on its
customers' purchase requests in a matter of seconds, this would still not be enough to
establish a legally demandable right; as a general rule, a practice or custom is not a
source of a legally demandable or enforceable right. 30 ICAcHE
We next examine the credit card membership agreement, the contract that
primarily governs the relationship between AMEX and Pantaleon. Significantly, there is
no provision in this agreement that obligates AMEX to act on all cardholder
purchase requests within a specifically defined period of time. Thus, regardless of
whether the obligation is worded was to "act in a matter of seconds" or to "act in timely
dispatch," the fact remains that no obligation exists on the part of AMEX to act within a
specific period of time. Even Pantaleon admits in his testimony that he could not recall

any provision in the Agreement that guaranteed AMEX's approval of his charge requests
within a matter of minutes. 31
Nor can Pantaleon look to the law or government issuances as the source of
AMEX's alleged obligation to act upon his credit card purchases within a matter of
seconds. As the following survey of Philippine law on credit card transactions
demonstrates, the State does not require credit card companies to act upon its
cardholders' purchase requests within a specific period of time.
Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of
1998, approved on February 11, 1998, is the controlling legislation that regulates the
issuance and use of access devices, 32 including credit cards. The more salient portions
of this law include the imposition of the obligation on a credit card company to disclose
certain important financial information 33 to credit card applicants, as well as a definition
of the acts that constitute access device fraud.
As financial institutions engaged in the business of providing credit, credit card
companies fall under the supervisory powers of the Bangko Sentral ng
Pilipinas (BSP). 34BSP Circular No. 398 dated August 21, 2003 embodies the BSP's
policy when it comes to credit cards —
The Bangko Sentral ng Pilipinas (BSP) shall foster the development of
consumer credit through innovative products such as credit cards under
conditions of fair and sound consumer credit practices. The BSP
likewise encourages competition and transparency to ensure more
efficient delivery of services and fair dealings with customers. (Emphasis
supplied)
Based on this Circular, ". . . [b]efore issuing credit cards, banks and/or their
subsidiary credit card companies must exercise proper diligence by ascertaining that
applicants possess good credit standing and are financially capable of fulfilling their credit
commitments." 35 As the above-quoted policy expressly states, the general intent is to
foster "fair and sound consumer credit practices."
Other than BSP Circular No. 398, a related circular is BSP Circular No. 454,
issued on September 24, 2004, but this circular merely enumerates the unfair collection
practices of credit card companies — a matter not relevant to the issue at hand. DaCTcA
In light of the foregoing, we find and so hold that AMEX is neither contractually
bound nor legally obligated to act on its cardholders' purchase requests within any
specific period of time, much less a period of a "matter of seconds" that Pantaleon uses
as his standard. The standard therefore is implicit and, as in all contracts, must be based
on fairness and reasonableness, read in relation to the Civil Code provisions on human
relations, as will be discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a) AMEX had neither a contractual
nor a legal obligation to act upon Pantaleon's purchases within a specific period of time;
and (b) AMEX has a right to review a cardholder's credit card history. Our recognition of
these entitlements, however, does not give AMEX an unlimited right to put off
action on cardholders' purchase requests for indefinite periods of time. In acting on
cardholders' purchase requests, AMEX must take care not to abuse its rights and cause
injury to its clients and/or third persons. We cite in this regard Article 19, in conjunction
with Article 21, of the Civil Code, which provide:
21
Article 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due and
observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
Article 19 pervades the entire legal system and ensures that a person suffering
damage in the course of another's exercise of right or performance of duty, should find
himself without relief. 36 It sets the standard for the conduct of all persons, whether
artificial or natural, and requires that everyone, in the exercise of rights and the
performance of obligations, must: (a) act with justice, (b) give everyone his due, and (c)
observe honesty and good faith. It is not because a person invokes his rights that he can
do anything, even to the prejudice and disadvantage of another. 37
While Article 19 enumerates the standards of conduct, Article 21 provides the
remedy for the person injured by the willful act, an action for damages. We explained how
these two provisions correlate with each other in GF Equity, Inc. v. Valenzona: 38
[Article 19], known to contain what is commonly referred to as the
principle of abuse of rights, sets certain standards which must be
observed not only in the exercise of one's rights but also in the
performance of one's duties. These standards are the following: to act
with justice; to give everyone his due; and to observe honesty and good
faith. The law, therefore, recognizes a primordial limitation on all rights;
that in their exercise, the norms of human conduct set forth in Article 19
must be observed. A right, though by itself legal because recognized
or granted by law as such, may nevertheless become the source of
some illegality. When a right is exercised in a manner which does
not conform with the norms enshrined in Article 19 and results in
damage to another, a legal wrong is thereby committed for which
the wrongdoer must be held responsible. But while Article 19 lays
down a rule of conduct for the government of human relations and for
the maintenance of social order, it does not provide a remedy for its
violation. Generally, an action for damages under either Article 20 or
Article 21 would be proper. CTDAaE
In the context of a credit card relationship, although there is neither a
contractual stipulation nor a specific law requiring the credit card issuer to act on the
credit card holder's offer within a definite period of time, these principles provide the
standard by which to judge AMEX's actions.
According to Pantaleon, even if AMEX did have a right to review his charge
purchases, it abused this right when it unreasonably delayed the processing of the Coster
charge purchase, as well as his purchase requests at the Richard Metz' Golf Studio and
Kids' Unlimited Store; AMEX should have known that its failure to act immediately on
charge referrals would entail inconvenience and result in humiliation, embarrassment,
anxiety and distress to its cardholders who would be required to wait before closing their
transactions. 39
It is an elementary rule in our jurisdiction that good faith is presumed and that
the burden of proving bad faith rests upon the party alleging it. 40 Although it took AMEX
some time before it approved Pantaleon's three charge requests, we find no evidence to
suggest that it acted with deliberate intent to cause Pantaleon any loss or injury, or acted

in a manner that was contrary to morals, good customs or public policy. We give
credence to AMEX's claim that its review procedure was done to ensure Pantaleon's own
protection as a cardholder and to prevent the possibility that the credit card was being
fraudulently used by a third person.
Pantaleon countered that this review procedure is primarily intended to protect
AMEX's interests, to make sure that the cardholder making the purchase has enough
means to pay for the credit extended. Even if this were the case, however, we do not find
any taint of bad faith in such motive. It is but natural for AMEX to want to ensure that it
will extend credit only to people who will have sufficient means to pay for their purchases.
AMEX, after all, is running a business, not a charity, and it would simply be ludicrous to
suggest that it would not want to earn profit for its services. Thus, so long as AMEX
exercises its rights, performs its obligations, and generally acts with good faith, with no
intent to cause harm, even if it may occasionally inconvenience others, it cannot be held
liable for damages.
We also cannot turn a blind eye to the circumstances surrounding the Coster
transaction which, in our opinion, justified the wait. In Edgardo Jaurigue's own words:
Q 21: With reference to the transaction at the Coster Diamond House
covered by Exhibit H, also Exhibit 4 for the defendant, the
approval came at 2:19 a.m. after the request was relayed at
1:33 a.m., can you explain why the approval came after about
46 minutes, more or less?
A21: Because we have to make certain considerations and evaluations
of [Pantaleon's] past spending pattern with [AMEX] at that time
before approving plaintiff's request because [Pantaleon] was at
that time making his very first single charge purchase of
US$13,826 [this is below the US$16,112.58 actually billed and
paid for by the plaintiff because the difference was already
automatically approved by [AMEX] office in Netherland[s] and
the record of [Pantaleon's] past spending with [AMEX] at
that time does not favorably support his ability to pay for
such purchase. In fact, if the foregoing internal policy of
[AMEX] had been strictly followed, the transaction would not
have been approved at all considering that the past spending
pattern of the plaintiff with [AMEX] at that time does not
support his ability to pay for such purchase. 41 AHCcET
xxx xxx xxx
Q: Why did it take so long?
A: It took time to review the account on credit, so, if there is any
delinquencies [sic] of the cardmember. There are factors on
deciding the charge itself which are standard measures in
approving the authorization. Now in the case of Mr. Pantaleon
although his account is single charge purchase of US$13,826.
[sic] this is below the US$16,000, plus actually billed . . . we
would have already declined the charge outright and asked
him his bank account to support his charge. But due to the
length of his membership as cardholder we had to make a
decision on hand. 42
22
As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for
AMEX's approval was because he had to go over Pantaleon's credit card history for the
past twelve months. 43 It would certainly be unjust for us to penalize AMEX for merely
exercising its right to review Pantaleon's credit history meticulously.
Finally, we said in Garciano v. Court of Appeals that "the right to recover [moral
damages] under Article 21 is based on equity, and he who comes to court to demand
equity, must come with clean hands. Article 21 should be construed as granting the right
to recover damages to injured persons who are not themselves at fault." 44 As will be
discussed below, Pantaleon is not a blameless party in all this.
Pantaleon's action was the proximate
cause for his injury
Pantaleon mainly anchors his claim for moral and exemplary damages on the
embarrassment and humiliation that he felt when the European tour group had to wait for
him and his wife for approximately 35 minutes, and eventually had to cancel the
Amsterdam city tour. After thoroughly reviewing the records of this case, we have come
to the conclusion that Pantaleon is the proximate cause for this embarrassment and
humiliation.
As borne by the records, Pantaleon knew even before entering Coster that the
tour group would have to leave the store by 9:30 a.m. to have enough time to take the
city tour of Amsterdam before they left the country. After 9:30 a.m., Pantaleon's son, who
had boarded the bus ahead of his family, returned to the store to inform his family that
they were the only ones not on the bus and that the entire tour group was waiting for
them. Significantly, Pantaleon tried to cancel the sale at 9:40 a.m. because he did not
want to cause any inconvenience to the tour group. However, when Coster's sale
manager asked him to wait a few more minutes for the credit card approval, he agreed,
despite the knowledge that he had already caused a 10-minute delay and that the city
tour could not start without him.
In Nikko Hotel Manila Garden v. Reyes, 45 we ruled that a person who
knowingly and voluntarily exposes himself to danger cannot claim damages for the
resulting injury: DaAETS
The doctrine of volenti non fit injuria ("to which a person assents is not
esteemed in law as injury") refers to self-inflicted injury or to the consent
to injury which precludes the recovery of damages by one who has
knowingly and voluntarily exposed himself to danger, even if he is not
negligent in doing so.
This doctrine, in our view, is wholly applicable to this case. Pantaleon himself
testified that the most basic rule when travelling in a tour group is that you must never be
a cause of any delay because the schedule is very strict. 46 When Pantaleon made up
his mind to push through with his purchase, he must have known that the group would
become annoyed and irritated with him. This was the natural, foreseeable consequence
of his decision to make them all wait.
We do not discount the fact that Pantaleon and his family did feel humiliated
and embarrassed when they had to wait for AMEX to approve the Coster purchase in
Amsterdam. We have to acknowledge, however, that Pantaleon was not a helpless victim
in this scenario — at any time, he could have cancelled the sale so that the group could
go on with the city tour. But he did not.

More importantly, AMEX did not violate any legal duty to Pantaleon under the
circumstances under the principle of damnum absque injuria, or damages without legal
wrong, loss without injury. 47 As we held in BPI Express Card v. CA: 48 DECSIT
We do not dispute the findings of the lower court that private respondent
suffered damages as a result of the cancellation of his credit card.
However, there is a material distinction between damages and injury.
Injury is the illegal invasion of a legal right; damage is the loss, hurt, or
harm which results from the injury; and damages are the recompense or
compensation awarded for the damage suffered. Thus, there can be
damage without injury in those instances in which the loss or harm
was not the result of a violation of a legal duty. In such cases, the
consequences must be borne by the injured person alone, the law
affords no remedy for damages resulting from an act which does not
amount to a legal injury or wrong. These situations are often
called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the
injuries of which he complains, he must establish that such injuries
resulted from a breach of duty which the defendant owed to the plaintiff
— a concurrence of injury to the plaintiff and legal responsibility by the
person causing it. The underlying basis for the award of tort
damages is the premise that an individual was injured in
contemplation of law. Thus, there must first be a breach of some duty
and the imposition of liability for that breach before damages may be
awarded; and the breach of such duty should be the proximate cause of
the injury.
Pantaleon is not entitled to damages
Because AMEX neither breached its contract with Pantaleon, nor acted with
culpable delay or the willful intent to cause harm, we find the award of moral damages to
Pantaleon unwarranted.
Similarly, we find no basis to award exemplary damages. In contracts,
exemplary damages can only be awarded if a defendant acted "in a wanton, fraudulent,
reckless, oppressive or malevolent manner." 49 The plaintiff must also show that he is
entitled to moral, temperate, or compensatory damages before the court may consider
the question of whether or not exemplary damages should be awarded. 50
As previously discussed, it took AMEX some time to approve Pantaleon's
purchase requests because it had legitimate concerns on the amount being charged; no
malicious intent was ever established here. In the absence of any other damages, the
award of exemplary damages clearly lacks legal basis.
Neither do we find any basis for the award of attorney's fees and costs of
litigation. No premium should be placed on the right to litigate and not every winning party
is entitled to an automatic grant of attorney's fees. 51 To be entitled to attorney's fees and
litigation costs, a party must show that he falls under one of the instances enumerated in
Article 2208 of the Civil Code. 52 This, Pantaleon failed to do. Since we eliminated the
award of moral and exemplary damages, so must we delete the award for attorney's fees
and litigation expenses.
Lastly, although we affirm the result of the CA decision, we do so for the
reasons stated in this Resolution and not for those found in the CA decision. HTcDEa
23
WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision
and GRANT the present motion for reconsideration. The Court of Appeals Decision dated
August 18, 2006 is hereby AFFIRMED. No costs.
SO ORDERED.
Carpio Morales, Velasco, Jr., Leonardo-de Castro and Bersamin, JJ., concur.
Footnotes
*Designated additional Member of the Special Second Division, per Raffle dated August 10,
2010.
1.Rollo, pp. 1504-1514.
2.Id. at 1488-1503.
3.Id. at 14-15.
4.Id. at 735-736.
5.Id. at 739-749.
6.Id. at 20-21.
7.Id., citing defendant's Exhibit "9-G," "9-H," and "9-I."
8.In a decision dated August 18, 2006 penned by Associate Justice E. J. Asuncion, with the
concurrence of Associate Justices J. Mendoza and A. Tayag.
9.Section 3 (f), Republic Act 8484.
10.See M.J. Stephey, A Brief History of: Credit Cards, TIME Magazine, April 23,
2009, http://www.time.com/time/magazine/article/0,9171,1893507,00.html.
11.http://home3.americanexpress.com/corp/os/history.asp.
12.See Advice on Wise Credit Card Use and Money Management, Business Section of the
February 9, 2009 issue of the Philippine
Star, http://www.philstar.com/Article.aspx?articleid=438524.
13.http://www.economywatch.com/credit-card/international/philippines-credit-cards.html.
14.21 Ill.App.3d 605, 316 N.E.2d 209 (1974).
15.G.R. No. 152609, June 29, 2005, 462 SCRA 197.
16.In Presta Oil, Inc. v. Van Waters & Rogers Corporation, the court characterized the
nature of this last contract, thus:
Credit cards are more automatic in their operation than checks or notes, but courts which
have examined whether a credit card is legal tender have concluded that it is not.
Instead, these courts held that the debt incurred in a credit card transaction is
discharged when the merchant receives payment from the card issuer.

276 F.Supp.2d 1128, (2003) citing Porter v. City of Atlanta, 259 Ga. 526, 384 S.E.2d 631,
634 (1989), cert denied *1137, 494 U.S. 1004, 110 S.Ct. 1297, 108 L.Ed.2d 474
(1990); Berry v. Hannigan, 7 Cal.App.4th 587, 9 Cal.Rptr.2d 213, 215 (1992), rev.
denied Sept. 02, 1992; Cade v. Montgomery Co., 83 Md.App. 419, 575 A.2d 744,
749 (1990), rev. denied Aug. 30, 1990,cert denied 498 U.S. 1085, 111 S.Ct. 960,
112 L.Ed.2d 1047 (1991).
17.Katz v. Carte Blanche Corp., 496 F.2d 747 (3d Cir. 1974).
18.116 Ga.App. 114, 156 S.E.2d 818 (1967).
19.149 NJ Super 542, 374 A.2d 89 (1977), aff'd, 159 NJ Super. 400, 388 A.2d 264 (1978).
20.743 F.2d 10, 240 US.App.D.C. 10 (1984).
21.See BPI Express v. CA, G.R. No. 120639, September 25, 1998; Aznar v. Citibank, G.R.
No. 164273, March 28, 2007; Sps. Ermitano v. CA, G.R. No. 127246, April 21,
1999; Acol v. Philippine Commercial Credit Card Incorporation, G.R. No. 135149,
July 25, 2006; Equitable Banking Corporation v. Calderon, G.R. No. 156168,
December 14, 2004; Bankard v. Feliciano, G.R. No. 141761, July 28, 2006.
22.See BPI Express Card Corp. v. Olalia, 423 Phil. 593, 599 (2001).
23.Polotan, Sr. vs. Court of Appeals, 296 SCRA 247, 255 [1998].
24.Palmares vs. Court of Appeals, G.R. No. 126490, 288 SCRA 422, 433 (1998),
citing Philippine Airlines vs. Court of Appeals, et al., G.R. No. 119706, 255 SCRA
48, 58 (1996).
25.An offer is defined as "a manifestation of willingness to enter into a bargain, so made as
to justify another person in understanding that his assent to that bargain is invited
and will conclude it." Black's Law Dictionary, 5th edition, p. 976.
26.See Selegna Management and Development Corporation v. UCPB, G.R. No. 165662,
May 3, 2006.
27.Black's Law Dictionary, 5th ed., p. 386.
28.Rollo, p. 1429.
29.Id. at 210.
30.See Makati Stock Exchange, Inc. v. Campos, G.R. No. 138814, April 16, 2009.
31.RTC records, p. 893-894.
32.Defined in Section 3 of RA 8484 as "any card, plate, code, account number, electronic
serial number, personal identification number, or other telecommunications
service, equipment, or instrumental identifier, or other means of account access
that can be used to obtain money, goods, services, or any other thing of value or
to initiate a transfer of funds (other than a transfer originated solely by paper
instrument)."
33.Credit card companies are required to provide information on the annual interest rates
on the amount of credit obtained by the card holder, the annual membership fees,
if any, the manner by which all charges and fees are computed, among others.
24
34.Section 3 of Republic Act No. 7653, or the New Central Bank Act, provides:
Section 3. Responsibility and Primary Objective. — The Bangko Sentral shall provide
policy directions in the areas of money, banking, and credit. It shall have
supervision over the operations of banks and exercise such regulatory powers as
provided in this Act and other pertinent laws over the operations of finance
companies and non-bank financial institutions performing quasi-banking functions,
hereafter referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price stability conducive to a
balanced and sustainable growth of the economy. It shall also promote and
maintain monetary stability and the convertibility of the peso.
35.Subsections X320.3 and 4301N.3 of BSP Circular No. 398.
36.Albano, Ed Vincent. Persons and Family Relations, 3rd Edition, 2006, p. 66, citing the
Report of the Code Commission, p. 39.
37.Id. at 67.
38.G.R. No. 156841, June 30, 2005, 462 SCRA 466.
39.Rollo, p. 50.
40.Barons Marketing Corp. v. Court of Appeals, G.R. No. 126486, February 9, 1998, 286
SCRA 96, 105.
41.RTC Records, p. 210.
42.Id. at 1064.
43.Id. at 1074.
44.G.R. No. 96126, August 10, 1992, citing Mabutas v. Calapan Electric Co. [CA], 50 O.G.
5828 (cited in Padilla, Civil Code Annotated, Vol. 1, 1975 ed., p. 87).
45.G.R. No. 154259, February 28, 2005.
46.RTC records, pp. 1299-1300.
47.See 17 C.J., 1125; Gilchrist v. Cuddy, 29 Phil. 542.
48.G.R. No. 120639, September 25, 1998.
49.CIVIL CODE, Article 2232.
50.Ibid. Article 2234.
51.Tanay Recreation Center and Development Corp. v. Fausto, 495 Phil. 400 (2005).
52.Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
||| (Pantaleon v. American Express International, Inc., G.R. No. 174269 (Resolution), [August
25, 2010], 643 PHIL 488-519)
SECOND DIVISION
[G.R. No. 115324. February 19, 2003.]
PRODUCERS BANK OF THE PHILIPPINES (now FIRST
INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS
AND FRANKLIN VIVES, respondents.
Domingo & Dizon for petitioner.
Mauricio Law Office for private respondent.
SYNOPSIS
25
Upon request of a friend, Franklin Vives accommodated Arturo Doronilla by opening a savings
account for Sterela Marketing, in coordination with Producer's Bank assistant branch
manager, Rufo Atienza. The purpose was for incorporation, and the agreement was that the
money would not be removed from Sterela's savings account and returned to Vives after thirty
(30) days. Later, however, part of the money had been withdrawn by Doronilla who also
opened a current account and authorized the bank to debit the savings account to cover
overdrawing in the current account. Vives filed a case for recovery of sum of money and both
the trial court and the appellate court ruled on the solidary liability of Producers Bank to Vives.
Hence, this appeal. IDSEAH
The Court affirmed the appealed decision. Under Art. 2180 of the Civil Code, employers shall
be held liable for damages caused by their employees acting within the scope of their
assigned tasks. The Bank, through its employee Atienza, was partly responsible for the loss of
Vives' money and is liable for its restitution. That despite limitation on the savings account
passbook issued to Mrs. Vives on behalf of Sterela, Doronilla was allowed to withdraw several
times without presentation of a passbook as required.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE TRIAL COURT ADOPTED
BY THE APPELLATE COURT, RESPECTED. — At the outset, it must be emphasized that
only questions of law may be raised in a petition for review filed with this Court. The Court has
repeatedly held that it is not its function to analyze and weigh all over again the evidence
presented by the parties during trial. The Court's jurisdiction is in principle limited to reviewing
errors of law that might have been committed by the Court of Appeals. Moreover, factual
findings of courts, when adopted and confirmed by the Court of Appeals, are final and
conclusive on this Court unless these findings are not supported by the evidence on record.
There is no showing of any misapprehension of facts on the part of the Court of Appeals in the
case at bar that would require this Court to review and overturn the factual findings of that
court, especially since the conclusions of fact of the Court of Appeals and the trial court are
not only consistent but are also amply supported by the evidence on record.
2. CIVIL LAW; SPECIAL CONTRACTS; LOAN; MUTUUM AND COMMODATUM,
DISTINGUISHED. — Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise: By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and return it,
in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest. Incommodatum, the bailor
retains the ownership of the thing loaned, while in simple loan, ownership passes to the
borrower. The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a consumable thing. Article 1936 of
the Civil Code provides: Consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object, as when it is merely for
exhibition. Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration

in determining the actual character of a contract. In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.
3. ID.; ID.; ID.; ADDITIONAL AMOUNT PAID TO ORIGINAL AMOUNT LOANED AS
INTEREST DID NOT CONVERT AGREEMENT OF COMMODATUM TO MUTUUM. —
Doronilla's attempts to return to private respondent the amount of P200,000.00 which the
latter deposited in Sterela's account together with an additional P12,000.00, allegedly
representing interest on the mutuum, did not convert the transaction from a commodatum into
a mutuum because such was not the intent of the parties and because the additional
P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the
Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing
loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent
the interest accruing to the latter's money deposited with petitioner.
4. ID.; EXTRA-CONTRACTUAL OBLIGATIONS; QUASI-DELICTS; EMPLOYERS LIABLE
FOR DAMAGES CAUSED BY EMPLOYEES ACTING WITHIN THE SCOPE OF THEIR
ASSIGNED TASKS. — Under Article 2180 of the Civil Code, employers shall be held primarily
and solidarily liable for damages caused by their employees acting within the scope of their
assigned tasks. To hold the employer liable under this provision, it must be shown that an
employer-employee relationship exists, and that the employee was acting within the scope of
his assigned task when the act complained of was committed. Case law in the United States
of America has it that a corporation that entrusts a general duty to its employee is responsible
to the injured party for damages flowing from the employee's wrongful act done in the course
of his general authority, even though in doing such act, the employee may have failed in its
duty to the employer and disobeyed the latter's instructions. ACTEHI
DECISION
CALLEJO, SR., J p:
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals dated June
25, 1991 in CA-G.R. CV No. 11791 and of its Resolution 2 dated May 5, 1994, denying the
motion for reconsideration of said decision filed by petitioner Producers Bank of the
Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his
business, the Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez
asked private respondent to deposit in a bank a certain amount of money in the bank account
of Sterela for purposes of its incorporation. She assured private respondent that he could
withdraw his money from said account within a month's time. Private respondent asked
Sanchez to bring Doronilla to their house so that they could discuss Sanchez's request. 3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronilla's private secretary, met and discussed the matter. Thereafter, relying on the
assurances and representations of Sanchez and Doronilla, private respondent issued a check
in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private
respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in
opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers
26
Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to
deposit the check. They had with them an authorization letter from Doronilla authorizing
Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open an account for
Sterela Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings
Account No. 10-1567 was thereafter issued to Mrs. Vives. 4
Subsequently, private respondent learned that Sterela was no longer holding office in the
address previously given to him. Alarmed, he and his wife went to the Bank to verify if their
money was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant
manager, who informed them that part of the money in Savings Account No. 10-1567 had
been withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told
them that Mrs. Vives could not withdraw said remaining amount because it had to answer for
some postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and
Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-
0320 for Sterela and authorized the Bank to debit Savings; Account No. 10-1567 for the
amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said
current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To
cover payment thereof, Doronilla issued three postdated checks, all of which were dishonored.
Atienza also said that Doronilla could assign or withdraw the money in Savings Account No.
10-1567 because he was the sole proprietor of Sterela. 5
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned
to him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve
Thousand Pesos (P212,000.00) in favor of private respondent. However, upon presentment
thereof by private respondent to the drawee bank, the check was dishonored. Doronilla
requested private respondent to present the same check on September 15, 1979 but when
the latter presented the check, it was again dishonored. 6
Private respondent referred the matter to a lawyer, who made a written demand upon
Doronilla for the return of his client's money. Doronilla issued another check for P212,000.00
in private respondent's favor but the check was again dishonored for insufficiency of funds. 7
Private respondent instituted an action for recovery of sum of money in the Regional Trial
Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The
case was docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla,
Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while
the case was pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch
157, promulgated its Decision in Civil Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
sentencing defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly
and severally —
(a) the amount of P200,000.00, representing the money deposited, with
interest at the legal rate from the filing of the complaint until the same is
fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for
exemplary damages;

(c) the amount of P40,000.00 for attorney's fees; and
(d) the costs of the suit.
SO ORDERED. 8
Petitioner appealed the trial court's decision to the Court of Appeals. In its Decision dated
June 25, 1991, the appellate court affirmed in toto the decision of the RTC 9 It likewise denied
with finality petitioner's motion for reconsideration in its Resolution dated May 5, 1994. 10
On June 30, 1994, petitioner filed the present petition, arguing that —
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA
AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THAT PETITIONER'S BANK MANAGER, MR. RUFO ATIENZA,
CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING
PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE
UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE
ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND
AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS
OF THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING
THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29
SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR
ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER
BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00
FOR ATTORNEY'S FEES AND THE COSTS OF SUIT. 11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply
thereto on September 25, 1995. The Court then required private respondent to submit a
rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to
27
petitioner's delay in furnishing private respondent with copy of the reply 12 and several
substitutions of counsel on the part of private respondent. 13 On January 17, 2001, the Court
resolved to give due course to the petition and required the parties to submit their respective
memoranda. 14 Petitioner filed its memorandum on April 16, 2001 while private respondent
submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple
loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by
private respondent to Doronilla was money, a consumable thing; and second, the transaction
was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent
deposited in Sterela's bank account. 15 Moreover, the fact that private respondent sued his
good friend Sanchez for his failure to recover his money from Doronilla shows that the
transaction was not merely gratuitous but "had a business angle" to it. Hence, petitioner
argues that it cannot be held liable for the return of private respondent's P200,000.00 because
it is not privy to the transaction between the latter and Doronilla. 16
It argues further that petitioner's Assistant Manager, Mr. Rufo Atienza, could not be faulted for
allowing Doronilla to withdraw from the savings account of Sterela since the latter was the
sole proprietor of said company. Petitioner asserts that Doronilla's May 8, 1979 letter
addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings account for
Sterela, did not contain any authorization for these two to withdraw from said account. Hence,
the authority to withdraw therefrom remained exclusively with Doronilla, who was the sole
proprietor of Sterela, and who alone had legal title to the savings account. 17 Petitioner points
out that no evidence other than the testimonies of private respondent and Mrs. Vives was
presented during trial to prove that private respondent deposited his P200,000.00 in Sterela's
account for purposes of its incorporation. 18Hence, petitioner should not be held liable for
allowing Doronilla to withdraw from Sterela's savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial court's decision
since the findings of fact therein were not accord with the evidence presented by petitioner
during trial to prove that the transaction between private respondent and Doronilla was
a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from Sterela's
savings account. 19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not
liable for the actual damages suffered by private respondent, and neither may it be held liable
for moral and exemplary damages as well as attorney's fees. 20
Private respondent, on the other hand, argues that the transaction between him and Doronilla
is not a mutuum but an accommodation, 21 since he did not actually part with the ownership
of his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela
so that a certification can be issued to the effect that Sterela had sufficient funds for purposes
of its incorporation but at the same time, he retained some degree of control over his money
through his wife who was made a signatory to the savings account and in whose possession
the savings account passbook was given. 22
He likewise asserts that the trial court did not err in finding that petitioner, Atienza's employer,
is liable for the return of his money. He insists that Atienza, petitioner's assistant manager,
connived with Doronilla in defrauding private respondent since it was Atienza who facilitated
the opening of Sterela's current account three days after Mrs. Vives and Sanchez opened a
savings account with petitioner for said company, as well as the approval of the authority to
debit Sterela's savings account to cover any overdrawings in its current account. 23

There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for
review filed with this Court. The Court has repeatedly held that it is not its function to analyze
and weigh all over again the evidence presented by the parties during trial. 24 The Court's
jurisdiction is in principle limited to reviewing errors of law that might have been committed by
the Court of Appeals. 25 Moreover, factual findings of courts, when adopted and confirmed by
the Court of Appeals, are final and conclusive on this Court unless these findings are not
supported by the evidence on record. 26 There is no showing of any misapprehension of facts
on the part of the Court of Appeals in the case at bar that would require this Court to review
and overturn the factual findings of that court, especially since the conclusions of fact of the
Court of Appeals and the trial court are not only consistent but are also amply supported by
the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was a commodatum and not a mutuum. A circumspect
examination of the records reveals that the transaction between them was
a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in
this wise:
By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called
a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be
paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable
thing, such as money, the contract would be a mutuum. However, there are some instances
where a commodatum may have for its object a consumable thing. Article 1936 of the Civil
Code provides:
Consumable goods may be the subject of commodatum if the purpose
of the contract is not the consumption of the object, as when it is merely
for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the end
of the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration
in determining the actual character of a contract. 27 In case of doubt, the contemporaneous
and subsequent acts of the parties shall be considered in such determination. 28
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows
that private respondent agreed to deposit his money in the savings account of Sterela
specifically for the purpose of making it appear "that said firm had sufficient capitalization for
28
incorporation, with the promise that the amount shall be returned within thirty (30)
days. 29 Private respondent merely "accommodated" Doronilla by lending his money without
consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the
transaction that the money would not be removed from Sterela's savings account and would
be returned to private respondent after thirty (30) days.
Doronilla's attempts to return to private respondent the amount of P200,000.00 which the
latter deposited in Sterela's account together with an additional P12,000.00, allegedly
representing interest on the mutuum, did not convert the transaction from a commodatum into
a mutuum because such was not the intent of the parties and because the additional
P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the
Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing
loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent
the interest accruing to the latter's money deposited with petitioner.
Neither does the Court agree with petitioner's contention that it is not solidarily liable for the
return of private respondent's money because it was not privy to the transaction between
Doronilla and private respondent. The nature of said transaction, that is, whether it is
a mutuum or a commodatum, has no bearing on the question of petitioner's liability for the
return of private respondent's money because the factual circumstances of the case clearly
show that petitioner, through its employee Mr. Atienza, was partly responsible for the loss of
private respondent's money and is liable for its restitution.
Petitioner's rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expressly states that —
"2. Deposits and withdrawals must be made by the depositor personally
or upon his written authority duly authenticated, and neither a deposit
nor a withdrawal will be permitted except upon the production of the
depositor savings bank book in which will be entered by the Bank the
amount deposited or withdrawn." 30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant
Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without
presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives),
not just once, but several times. Both the Court of Appeals and the trial court found that
Atienza allowed said withdrawals because he was party to Doronilla's "scheme" of defrauding
private respondent:
xxx xxx xxx
But the scheme could not have been executed successfully without the
knowledge, help and cooperation of Rufo Atienza, assistant manager
and cashier of the Makati (Buendia) branch of the defendant bank.
Indeed, the evidence indicates that Atienza had not only facilitated the
commission of the fraud but he likewise helped in devising the means by
which it can be done in such manner as to make it appear that the
transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendant's Buendia branch
precisely because Atienza was a key officer therein. The records show
that plaintiff had suggested that the P200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla and Dumagpi
insisted that it must be in defendant's branch Makati for "it will be easier
for them to get a certification." In fact before he was introduced to

plaintiff, Doronilla had already prepared a letter addressed to the
Buendia branch manager authorizing Angeles B. Sanchez and company
to open a savings account for Sterela in the amount of P200,000.00, as
"per coordination with Mr. Rufo Atienza, Assistant Manager of the
Bank . . ." (Exh. 1). This is a clear manifestation that the other
defendants had been in consultation with Atienza from the inception of
the scheme. Significantly, there were testimonies and admission that
Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and
business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the
"coordination" between Doronilla and Atienza, the latter knew before
hand that the money deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he was explicitly told by
Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even
declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank
records disclose that the only ones empowered to withdraw the same
were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were
Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the
usual banking procedure that withdrawals of savings deposits could only
be made by persons whose authorized signatures are in the signature
cards on file with the bank. He, however, said that this procedure was
not followed here because Sterela was owned by Doronilla. He
explained that Doronilla had the full authority to withdraw by virtue of
such ownership. The Court is not inclined to agree with Atienza. In the
first place, he was all the time aware that the money came from Vives
and did not belong to Sterela.. He was also told by Mrs. Vives that they
were only accommodating Doronilla so that a certification can be issued
to the effect that Sterela had a deposit of so much amount to be sued in
the incorporation of the firm. In the second place, the signature of
Doronilla was not authorized in so far as that account is concerned
inasmuch as he had not signed the signature card provided by the bank
whenever a deposit is opened. In the third place, neither Mrs. Vives nor
Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having
been presented. It is an accepted practice that whenever a withdrawal is
made in a savings deposit, the bank requires the presentation of the
passbook. In this case, such recognized practice was dispensed with.
The transfer from the savings account to the current account was
without the submission of the passbook which Atienza had given to Mrs.
Vives. Instead, it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela because the
original passbook had been surrendered to the Makati Branch in view of
a loan accommodation assigning the savings account (Exh. C). Atienza,
who undoubtedly had a hand in the execution of this certification, was
aware that the contents of the same are not true. He knew that the
passbook was in the hands of Mrs. Vives for he was the one who gave it
to her. Besides, as assistant manager of the branch and the bank official
29
servicing the savings and current accounts in question, he also was
aware that the original passbook was never surrendered. He was also
cognizant that Estrella Dumagpi was not among those authorized to
withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also
demonstrate that Atienza's active participation in the perpetration of the
fraud and deception that caused the loss. The records indicate that this
account was opened three days later after the P200,000.00 was
deposited. In spite of his disclaimer, the Court believes that Atienza was
mindful and posted regarding the opening of the current account
considering that Doronilla was all the while in "coordination" with him.
That it was he who facilitated the approval of the authority to debit the
savings account to cover any overdrawings in the current account (Exh.
2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the
loss subject of this case . . . . 31
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. To hold
the employer liable under this provision, it must be shown that an employer-employee
relationship exists, and that the employee was acting within the scope of his assigned task
when the act complained of was committed. 32 Case law in the United States of America has
it that a corporation that entrusts a general duty to its employee is responsible to the injured
party for damages flowing from the employee's wrongful act done in the course of his general
authority, even though in doing such act, the employee may have failed in its duty to the
employer and disobeyed the latter's instructions. 33
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not
deny that Atienza was acting within the scope of his authority as Assistant Branch Manager
when he assisted Doronilla in withdrawing funds from Sterela's Savings Account No. 10-1567,
in which account private respondent's money was deposited, and in transferring the money
withdrawn to Sterela's Current Account with petitioner. Atienza's acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of petitioner's interests 34 even
though in the process, Atienza violated some of petitioner's rules such as those stipulated in
its savings account passbook. 35 It was established that the transfer of funds from Sterela's
savings account to its current account could not have been accomplished by Doronilla without
the invaluable assistance of Atienza, and that it was their connivance which was the cause of
private respondent's loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the
Civil Code, petitioner is liable for private respondent's loss and is solidarily liable with Doronilla
and Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove
that it exercised due diligence to prevent the unauthorized withdrawals from Sterela's savings
account, and that it was not negligent in the selection and supervision of Atienza. Accordingly,
no error was committed by the appellate court in the award of actual, moral and exemplary
damages, attorney's fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals are AFFIRMED.
SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Austria-Martinez, JJ., concur.
Footnotes
1.Justice Asaali S. Isnani, Ponente, with Justices Rodolfo A. Nocon, Presiding Justice, and
Antonio M. Martinez, concurring.
30
27.Tanguilig v. Court of Appeals, 266 SCRA 78, 83-84 (1997), citing Kasilag v.
Rodriguez, 69 Phil. 217; 17A Am Jur 2d 27 Contracts, § 5, citing Wallace Bank &
Trust Co. v. First National Bank,40 Idaho 712, 237 P 284, 50 ALR 316.
28.Tanguilig v. Court of Appeals, supra, p. 84.

2.Rollo, pp. 54-55. 29.Rollo, pp. 40-41, 60.

3.Id. at 37. 30.Exhibit "B," Folder of Exhibits, p. 3, italics supplied.

4.Ibid. 31.Rollo, pp. 43-47, citing the Decision of the Regional Trial Court, pp. 5-8.

5.Id. at 37-38. 32.Castilex Industrial Corporation v. Vasquez, Jr., 321 SCRA 393 (1999).

6.Id. at 38. 33.18B Am Jur 2d, p. 947, Corporations § 2125, citing Pittsburgh, C.C. & S.L.R. Co. v.
Sullivan, 40 NE 138.
7.Id.
34.See note 31.
8.Id. at 63.
35.Exhibit "B," Folder of Exhibits, p. 3.
9.Id. at 35-47.

10.Id. at 54-55.

11.Id. at 18-19.
||| (Producers Bank of the Phil. v. Court of Appeals, G.R. No. 115324, [February 19, 2003],
12.Id. at 148, 181. 445 PHIL 702-717)
13.Id. at 176, 199.

14.Id. at 227.

15.Id. at 21.

16.Id. at 22.

17.Id. at 24-27.

18.Id. at 23.

19.Id. at 28.

20.Rollo, Petitioner's Memorandum, pp. 13-14.

21.Id. at 11-12.

22.Rollo, p. 75; Private respondent's Memorandum, pp. 8-9.

23.Id. at 75-77; Id. at 12-16.

24.Flores v. Uy, G.R. No. 121492, October 26, 2001; Lim v. People, G.R. No. 143231,
October 26, 2001.

25.Section 1, Rule 45, Revised Rules of Civil Procedure.

26.Bañas, Jr. v. Court of Appeals, 325 SCRA 259 (2000); Philippine National Construction
Corporation v. Mars Construction Enterprises, Inc., 325 SCRA 624 (2000).
 31
CARPIO, J p:

The Case
Before us is a petition for review 1 of the 21 June 2000 Decision 2 and 14 December 2000
Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside
the 11 November 1996 decision 3 of the Regional Trial Court of Quezon City, Branch
81, 4 affirming the 15 December 1995 decision 5 of the Metropolitan Trial Court of Quezon
City, Branch 31. 6

The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the
rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a
house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to
7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed
a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the
house for free provided Guevarra would maintain the cleanliness and orderliness of the
house. Guevarra promised that he would voluntarily vacate the premises on Pajuyo's demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon
City, Branch 31 ("MTC").

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the
lot where the house stands because the lot is within the 150 hectares set aside
byProclamation 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

FIRST DIVISION other person or persons claiming any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS

[G.R. No. 146364. June 3, 2004.] (P300.00) monthly as reasonable compensation for
the use of the premises starting from the last
demand;
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE
GUEVARRA, respondents. C) pay plaintiff the sum of P3,000.00 as and by way of
attorney's fees; and

D) pay the cost of suit.

DECISION SO ORDERED. 7

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").

On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the
RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error
in the decision appealed from, being in accord with the law and evidence
presented, and the same is hereby affirmed en toto.
SO ORDERED. 8
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14
December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with
the Court of Appeals, Guevarra filed with the Supreme Court a "Motion for Extension of Time
to File Appeal by Certiorari Based on Rule 42" ("motion for extension"). Guevarra theorized
that his appeal raised pure questions of law. The Receiving Clerk of the Supreme Court
received the motion for extension on 13 December 1996 or one day before the right to appeal
expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution 9 referring
the motion for extension to the Court of Appeals which has concurrent jurisdiction over the
case. The case presented no special and important matter for the Supreme Court to take
cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution 10 granting the motion for extension conditioned on the timeliness of the filing of
the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevarra's
petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the
court a quo in Civil Case No. Q-96-26943 is REVERSED and SET
ASIDE; and it is hereby declared that the ejectment case filed against
defendant-appellant is without factual and legal basis.
SO ORDERED. 11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of
Appeals should have dismissed outright Guevarra's petition for review because it was filed out
of time. Moreover, it was Guevarra's counsel and not Guevarra who signed the certification
against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyo's motion for
reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby
DENIED. No costs.
SO ORDERED. 12
The Ruling of the MTC
32
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house
and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house
only by tolerance. Thus, Guevarra's refusal to vacate the house on Pajuyo's demand made
Guevarra's continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship
between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return
possession of the house on demand.
The RTC rejected Guevarra's claim of a better right under Proclamation No. 137, the Revised
National Government Center Housing Project Code of Policies and other pertinent laws. In an
ejectment suit, the RTC has no power to decide Guevarra's rights under these laws. The RTC
declared that in an ejectment case, the only issue for resolution is material or physical
possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra
illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no
right or title over the lot because it is public land. The assignment of rights between Perez and
Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect.
Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where they
are.
The Court of Appeals reversed the MTC and RTC rulings, which held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and
tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but
a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate
court held that Guevarra has a better right over the property under Proclamation No. 137.
President Corazon C. Aquino ("President Aquino") issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical possession of the property. Under
Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and
Structures in the National Housing Project ("the Code"), the actual occupant or caretaker of
the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded
that Guevarra is first in the hierarchy of priority.
In denying Pajuyo's motion for reconsideration, the appellate court debunked Pajuyo's claim
that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarra's motion for extension filed before the
Supreme Court was stamped "13 December 1996 at 4:09 PM" by the Supreme Court's
Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a date,
contrary to Pajuyo's claim that the motion for extension was undated. Guevarra filed the
motion for extension on time on 13 December 1996 since he filed the motion one day before
the expiration of the reglementary period on 14 December 1996. Thus, the motion for
extension properly complied with the condition imposed by the Court of Appeals in its 28
January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file
the petition for review was deemed granted because of such compliance.

The Court of Appeals rejected Pajuyo's argument that the appellate court should have
dismissed the petition for review because it was Guevarra's counsel and not Guevarra who
signed the certification against forum-shopping. The Court of Appeals pointed out that Pajuyo
did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now
seek the dismissal of the case after he had extensively argued on the merits of the case. This
technicality, the appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS
AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION:
1) in GRANTING, instead of denying, Private Respondent's
Motion for an Extension of thirty days to file petition
for review at the time when there was no more period
to extend as the decision of the Regional Trial Court
had already become final and executory.
2) in giving due course, instead of dismissing, private
respondent's Petition for Review even though the
certification against forum-shopping was signed only
by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the
parties was in fact a commodatum, instead of a
Contract of Lease as found by the Metropolitan Trial
Court and in holding that "the ejectment case filed
against defendant-appellant is without legal and
factual basis".
4) in reversing and setting aside the Decision of the Regional
Trial Court in Civil Case No. Q-96-26943 and in
holding that the parties are in pari delicto being both
squatters, therefore, illegal occupants of the
contested parcel of land.
5) in deciding the unlawful detainer case based on the so-
called Code of Policies of the National Government
Center Housing Project instead of deciding the same
under the Kasunduan voluntarily executed by the
parties, the terms and conditions of which are the
laws between themselves. 13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the
substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarra's petition for
review because the RTC decision had already become final and executory when the appellate
33
court acted on Guevarra's motion for extension to file the petition. Pajuyo points out that
Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead
of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an
undated motion for extension of 30 days to file a petition for review. This Court merely referred
the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension
with this Court did not toll the running of the period to perfect the appeal. Hence, when the
Court of Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are
appealable to the Court of Appeals by petition for review in cases involving questions of fact or
mixed questions of fact and law. 14 Decisions of the regional trial courts involving pure
questions of law are appealable directly to this Court by petition for review. 15 These modes of
appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law.
Guevarra thus filed his motion for extension to file petition for review before this Court on 14
December 1996. On 3 January 1997, Guevarra then filed his petition for review with this
Court. A perusal of Guevarra's petition for review gives the impression that the issues he
raised were pure questions of law. There is a question of law when the doubt or difference is
on what the law is on a certain state of facts. 16 There is a question of fact when the doubt or
difference is on the truth or falsity of the facts alleged. 17
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarra's
petition for review raised these questions: (1) Do ejectment cases pertain only to possession
of a structure, and not the lot on which the structure stands? (2) Does a suit by a squatter
against a fellow squatter constitute a valid case for ejectment? (3) Should a Presidential
Proclamation governing the lot on which a squatter's structure stands be considered in an
ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment
and the Presidential Proclamation. At first glance, the questions Guevarra raised appeared
purely legal. However, some factual questions still have to be resolved because they have a
bearing on the legal questions raised in the petition for review. These factual matters refer to
the metes and bounds of the disputed property and the application of Guevarra as beneficiary
of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review.
In Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,18 we
declared that the Court of Appeals could grant extension of time in appeals by petition for
review. In Liboro v. Court of Appeals, 19 we clarified that the prohibition against granting an
extension of time applies only in a case where ordinary appeal is perfected by a mere notice
of appeal. The prohibition does not apply in a petition for review where the pleading needs
verification. A petition for review, unlike an ordinary appeal, requires preparation and research
to present a persuasive position. 20 The drafting of the petition for review entails more time
and effort than filing a notice of appeal. 21 Hence, the Court of Appeals may allow an
extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals, 22 we held
that Liboro's clarification of Lacsamana is consistent with the Revised Internal Rules of the
Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for
filing petitions for review with the Court of Appeals. The extension, however, should be limited

to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may
grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment becomes
a fact on the lapse of the reglementary period to appeal if no appeal is perfected. 23The RTC
decision could not have gained finality because the Court of Appeals granted the 30-day
extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarra's
motion for extension. The Court of Appeals gave due course to the motion for extension
because it complied with the condition set by the appellate court in its resolution dated 28
January 1997. The resolution stated that the Court of Appeals would only give due course to
the motion for extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for
extension are (1) the date of receipt of the judgment or final order or resolution subject of the
petition, and (2) the date of filing of the motion for extension. 24 It is the date of the filing of the
motion or pleading, and not the date of execution, that determines the timeliness of the filing
of that motion or pleading. Thus, even if the motion for extension bears no date, the date of
filing stamped on it is the reckoning point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed
his motion for extension before this Court on 13 December 1996, the date stamped by this
Court's Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for
extension exactly one day before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarra's appeal on technical
grounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismiss
the petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the
merits of the case. It was only when the Court of Appeals ruled in Guevarra's favor that Pajuyo
raised the procedural issues against Guevarra's petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision
on the merits, is estopped from attacking the jurisdiction of the court. 25 Estoppel sets in not
because the judgment of the court is a valid and conclusive adjudication, but because the
practice of attacking the court's jurisdiction after voluntarily submitting to it is against public
policy. 26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarra's failure
to sign the certification against forum shopping. Instead, Pajuyo harped on Guevarra's
counsel signing the verification, claiming that the counsel's verification is insufficient since it is
based only on "mere information." ACIESH
A party's failure to sign the certification against forum shopping is different from the party's
failure to sign personally the verification. The certificate of non-forum shopping must be signed
by the party, and not by counsel. 27 The certification of counsel renders the petition
defective. 28
On the other hand, the requirement on verification of a pleading is a formal and not a
jurisdictional requisite. 29 It is intended simply to secure an assurance that what are alleged in
the pleading are true and correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith. 30 The party need not sign the
verification. A party's representative, lawyer or any person who personally knows the truth of
the facts alleged in the pleading may sign the verification. 31
34
We agree with the Court of Appeals that the issue on the certificate against forum shopping
was merely an afterthought. Pajuyo did not call the Court of Appeals' attention to this defect at
the early stage of the proceedings. Pajuyo raised this procedural issue too late in the
proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to
Resolve the Issue of Possession
Settled is the rule that the defendant's claim of ownership of the disputed property will not
divest the inferior court of its jurisdiction over the ejectment case. 32 Even if the pleadings
raise the issue of ownership, the court may pass on such issue to determine only the question
of possession, especially if the ownership is inseparably linked with the possession. 33 The
adjudication on the issue of ownership is only provisional and will not bar an action between
the same parties involving title to the land. 34 This doctrine is a necessary consequence of the
nature of the two summary actions of ejectment, forcible entry and unlawful detainer, where
the only issue for adjudication is the physical or material possession over the real property. 35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the
owners of the contested property and that they are mere squatters. Will the defense that the
parties to the ejectment case are not the owners of the disputed lot allow the courts to
renounce their jurisdiction over the case? The Court of Appeals believed so and held that it
would just leave the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for
recovery of possession. The parties cannot present evidence to prove ownership or right to
legal possession except to prove the nature of the possession when necessary to resolve the
issue of physical possession. 36 The same is true when the defendant asserts the absence of
title over the property. The absence of title over the contested lot is not a ground for the courts
to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is — who is entitled
to the physical possession of the premises, that is, to the possession de facto and not to the
possession de jure. 37 It does not even matter if a party's title to the property is
questionable, 38 or when both parties intruded into public land and their applications to own
the land have yet to be approved by the proper government agency. 39 Regardless of the
actual condition of the title to the property, the party in peaceable quiet possession shall not
be thrown out by a strong hand, violence or terror. 40 Neither is the unlawful withholding of
property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the
owner himself. 41 Whatever may be the character of his possession, if he has in his favor
prior possession in time, he has the security that entitles him to remain on the property until a
person with a better right lawfully ejects him. 42 To repeat, the only issue that the court has to
settle in an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla, 43 the government owned the land in dispute. The government did not
authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the
land. The plaintiff had prior possession and had already introduced improvements on the
public land. The plaintiff had a pending application for the land with the Bureau of Lands when
the defendant ousted him from possession. The plaintiff filed the action of forcible entry
against the defendant. The government was not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle the issue of possession
because while the application of the plaintiff was still pending, title remained with the
government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed
with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even
before the resolution of the application. The plaintiff, by priority of his application and of his
entry, acquired prior physical possession over the public land applied for as against other
private claimants. That prior physical possession enjoys legal protection against other private
claimants because only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue 44 as squatters,
strictly speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant
entered the public land without the owner's permission. Title to the land remained with the
government because it had not awarded to anyone ownership of the contested public land.
Both the plaintiff and the defendant were in effect squatting on government property. Yet, we
upheld the courts' jurisdiction to resolve the issue of possession even if the plaintiff and the
defendant in the ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because
of the public need to preserve the basic policy behind the summary actions of forcible entry
and unlawful detainer. The underlying philosophy behind ejectment suits is to prevent breach
of the peace and criminal disorder and to compel the party out of possession to respect and
resort to the law alone to obtain what he claims is his. 45 The party deprived of possession
must not take the law into his own hands. 46 Ejectment proceedings are summary in nature
so the authorities can settle speedily actions to recover possession because of the overriding
need to quell social disturbances. 47
We further explained in Pitargue the greater interest that is at stake in actions for recovery of
possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to
take cognizance of possessory actions involving these public lands
before final award is made by the Lands Department, and before title is
given any of the conflicting claimants? It is one of utmost importance, as
there are public lands everywhere and there are thousands of settlers,
especially in newly opened regions. It also involves a matter of policy, as
it requires the determination of the respective authorities and functions
of two coordinate branches of the Government in connection with public
land conflicts.
Our problem is made simple by the fact that under the Civil Code, either
in the old, which was in force in this country before the American
occupation, or in the new, we have a possessory action, the aim and
purpose of which is the recovery of the physical possession of real
property, irrespective of the question as to who has the title thereto.
Under the Spanish Civil Code we had the accion interdictal, a summary
proceeding which could be brought within one year from dispossession
(Roman Catholic Bishop of Cebu vs.Mangaron, 6 Phil. 286, 291); and as
early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted the
common law action of forcible entry (section 80 of Act No. 190), the
object of which has been stated by this Court to be "to prevent breaches
of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal
would create that some advantage must accrue to those persons who,
35
believing themselves entitled to the possession of property, resort to
force to gain possession rather than to some appropriate action in the
court to assert their claims." (Supia and Batioco vs. Quintero and Ayala,
59 Phil. 312, 314.) So before the enactment of the first Public Land Act
(Act No. 926) the action of forcible entry was already available in the
courts of the country. So the question to be resolved is, Did the
Legislature intend, when it vested the power and authority to alienate
and dispose of the public lands in the Lands Department, to exclude the
courts from entertaining the possessory action of forcible entry between
rival claimants or occupants of any land before award thereof to any of
the parties? Did Congress intend that the lands applied for, or all public
lands for that matter, be removed from the jurisdiction of the judicial
Branch of the Government, so that any troubles arising therefrom, or any
breaches of the peace or disorders caused by rival claimants, could be
inquired into only by the Lands Department to the exclusion of the
courts? The answer to this question seems to us evident. The Lands
Department does not have the means to police public lands; neither
does it have the means to prevent disorders arising therefrom, or
contain breaches of the peace among settlers; or to pass promptly upon
conflicts of possession. Then its power is clearly limited to disposition
and alienation, and while it may decide conflicts of possession in order
to make proper award, the settlement of conflicts of possession which is
recognized in the court herein has another ultimate purpose, i.e., the
protection of actual possessors and occupants with a view to the
prevention of breaches of the peace. The power to dispose and alienate
could not have been intended to include the power to prevent or settle
disorders or breaches of the peace among rival settlers or claimants
prior to the final award. As to this, therefore, the corresponding branches
of the Government must continue to exercise power and jurisdiction
within the limits of their respective functions. The vesting of the Lands
Department with authority to administer, dispose, and alienate public
lands, therefore, must not be understood as depriving the other
branches of the Government of the exercise of the respective functions
or powers thereon, such as the authority to stop disorders and quell
breaches of the peace by the police, the authority on the part of the
courts to take jurisdiction over possessory actions arising therefrom not
involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American
courts to the effect that courts have no jurisdiction to determine the
rights of claimants to public lands, and that until the disposition of the
land has passed from the control of the Federal Government, the courts
will not interfere with the administration of matters concerning the same.
(50 C. J. 1093-1094.) We have no quarrel with this principle. The
determination of the respective rights of rival claimants to public lands is
different from the determination of who has the actual physical
possession or occupation with a view to protecting the same and
preventing disorder and breaches of the peace. A judgment of the court
ordering restitution of the possession of a parcel of land to the actual
occupant, who has been deprived thereof by another through the use of
force or in any other illegal manner, can never be "prejudicial
interference" with the disposition or alienation of public lands. On the
other hand, if courts were deprived of jurisdiction of cases involving

conflicts of possession, that threat of judicial action against breaches of
the peace committed on public lands would be eliminated, and a state of
lawlessness would probably be produced between applicants,
occupants or squatters, where force or might, not right or justice, would
rule.
It must be borne in mind that the action that would be used to solve
conflicts of possession between rivals or conflicting applicants or
claimants would be no other than that of forcible entry. This action, both
in England and the United States and in our jurisdiction, is a summary
and expeditious remedy whereby one in peaceful and quiet possession
may recover the possession of which he has been deprived by a
stronger hand, by violence or terror; its ultimate object being to prevent
breach of the peace and criminal disorder. (Supia and Batioco
vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is
mere possession as a fact, of physical possession, not a legal
possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to
possession is never in issue in an action of forcible entry; as a matter of
fact, evidence thereof is expressly banned, except to prove the nature of
the possession. (Second 4, Rule 72, Rules of Court.) With this nature of
the action in mind, by no stretch of the imagination can conclusion be
arrived at that the use of the remedy in the courts of justice would
constitute an interference with the alienation, disposition, and control of
public lands. To limit ourselves to the case at bar can it be pretended at
all that its result would in any way interfere with the manner of the
alienation or disposition of the land contested? On the contrary, it would
facilitate adjudication, for the question of priority of possession having
been decided in a final manner by the courts, said question need no
longer waste the time of the land officers making the adjudication or
award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code 48 embody the principle of pari delicto. We explained
the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims 'ex dolo malo non
eritur actio' and 'in pari delicto potior est conditio defedentis.' The law will
not aid either party to an illegal agreement. It leaves the parties where it
finds them. 49
The application of the pari delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the pari delicto rule would
violate well-established public policy. 50
In Drilon v. Gaurana, 51 we reiterated the basic policy behind the summary actions of forcible
entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and
detainer is that, regardless of the actual condition of the title to the
property, the party in peaceable quiet possession shall not be turned out
36
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 delictowould openly
invite mayhem and lawlessness. A squatter would oust another squatter from possession of
the lot that the latter had illegally occupied, emboldened by the knowledge that the courts
would leave them where they are. Nothing would then stand in the way of the ousted squatter
from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for
recovery of possession seek to prevent. 53 Even the owner who has title over the disputed
property cannot take the law into his own hands to regain possession of his property. The
owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are
squatters. The determination of priority and superiority of possession is a serious and urgent
matter that cannot be left to the squatters to decide. To do so would make squatters receive
better treatment under the law. The law restrains property owners from taking the law into their
own hands. However, the principle of pari delicto as applied by the Court of Appeals would
give squatters free rein to dispossess fellow squatters or violently retake possession of
properties usurped from them. Courts should not leave squatters to their own devices in cases
involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of
Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court
held that the pivotal issue in this case is who between Pajuyo and Guevarra has the "priority
right as beneficiary of the contested land under Proclamation No. 137." 54 According to the
Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because
Article VI of the Code declares that the actual occupant or caretaker is the one qualified to
apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation
site under Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of
the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation
No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage
of Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarra's unsubstantiated
claim that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the

survey the project administrator conducted, he and not Pajuyo appeared as the actual
occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137.
Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino
signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for
Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation
No. 137 allegedly segregated the disputed lot, Guevarra never applied as beneficiary
of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was reclaiming
possession of the property, Guevarra did not take any step to comply with the requirements
of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and
Guevarra has a pending application over the lot, courts should still assume jurisdiction and
resolve the issue of possession. However, the jurisdiction of the courts would be limited to the
issue of physical possession only.
In Pitargue, 55 we ruled that courts have jurisdiction over possessory actions involving public
land to determine the issue of physical possession. The determination of the respective rights
of rival claimants to public land is, however, distinct from the determination of who has the
actual physical possession or who has a better right of physical possession. 56 The
administrative disposition and alienation of public lands should be threshed out in the proper
government agency. 57
The Court of Appeals' determination of Pajuyo and Guevarra's rights under Proclamation No.
137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the
law. Courts should not preempt the decision of the administrative agency mandated by law to
determine the qualifications of applicants for the acquisition of public lands. Instead, courts
should expeditiously resolve the issue of physical possession in ejectment cases to prevent
disorder and breaches of peace. 58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyo's prior possession of the lot and ownership of the house
built on it. Guevarra expressly admitted the existence and due execution of theKasunduan.
The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas,
Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na
pansamantalang manirahan sa nasabing bahay at lote ng "walang
bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, sila'y kusang aalis
ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of
rent, but Guevarra was under obligation to maintain the premises in good condition. Guevarra
promised to vacate the premises on Pajuyo's demand but Guevarra broke his promise and
refused to heed Pajuyo's demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding
by a person from another of the possession of real property to which the latter is entitled after
37
the expiration or termination of the former's right to hold possession under a contract, express
or implied. 59
Where the plaintiff allows the defendant to use his property by tolerance without any contract,
the defendant is necessarily bound by an implied promise that he will vacate on demand,
failing which, an action for unlawful detainer will lie. 60 The defendant's refusal to comply with
the demand makes his continued possession of the property unlawful. 61The status of the
defendant in such a case is similar to that of a lessee or tenant whose term of lease has
expired but whose occupancy continues by tolerance of the owner. 62
This principle should apply with greater force in cases where a contract embodies the
permission or tolerance to use the property. The Kasunduan expressly articulated Pajuyo's
forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house
and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate
the property on demand. Guevarra's refusal to comply with Pajuyo's demand to vacate made
Guevarra's continued possession of the property unlawful.
We do not subscribe to the Court of Appeals' theory that the Kasunduan is one
of commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. 63 An
essential feature of commodatum is that it is gratuitous. Another feature of commodatum is
that the use of the thing belonging to another is for a certain period. 64 Thus, the bailor cannot
demand the return of the thing loaned until after expiration of the period stipulated, or after
accomplishment of the use for which the commodatum is constituted.65 If the bailor should
have urgent need of the thing, he may demand its return for temporary use. 66 If the use of
the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in
which case the contractual relation is called a precarium. 67 Under the Civil
Code, precarium is a kind of commodatum. 68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition of this obligation makes
the Kasunduan a contract different from a commodatum. The effects of theKasunduan are
also different from that of a commodatum. Case law on ejectment has treated relationship
based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal
of permission would result in the termination of the lease. 69 The tenant's withholding of the
property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration andcommodatum. 70 These contracts
certainly involve the obligation to deliver or return the thing received. 71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a
squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they
illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely
entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra
has a right to physical possession of the contested property. The Kasunduan is the undeniable
evidence of Guevarra's recognition of Pajuyo's better right of physical possession. Guevarra is
clearly a possessor in bad faith. The absence of a contract would not yield a different result,
as there would still be an implied promise to vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is
allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act." 72Guevarra
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. 75But in unlawful
detainer, the defendant unlawfully withholds possession after the expiration or termination of
his right to possess under any contract, express or implied. In such a case, prior physical
possession is not required. 76
Pajuyo's withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarra's
transient right to possess the property ended as well. Moreover, it was Pajuyo who was in
actual possession of the property because Guevarra had to seek Pajuyo's permission to
temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in
the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of actual
possession.
Pajuyo's absence did not affect his actual possession of the disputed property. Possession in
the eyes of the law does not mean that a man has to have his feet on every square meter of
the ground before he is deemed in possession. 77 One may acquire possession not only by
physical occupation, but also by the fact that a thing is subject to the action of one's
will. 78 Actual or physical occupation is not always necessary. 79
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and intruders
who clandestinely enter into titled government property cannot, by such act, acquire any legal
right to said property." 80 We made this declaration because the person who had title or who
had the right to legal possession over the disputed property was a party in the ejectment suit
and that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment
case. This case is between squatters. Had the government participated in this case, the courts
could have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case,
we cannot evict on our own the parties. Such a ruling would discourage squatters from
seeking the aid of the courts in settling the issue of physical possession. Stripping both the
38
plaintiff and the defendant of possession just because they are squatters would have the
same dangerous implications as the application of the principle of pari delicto. Squatters
would then rather settle the issue of physical possession among themselves than seek relief
from the courts if the plaintiff and defendant in the ejectment case would both stand to lose
possession of the disputed property. This would subvert the policy underlying actions for
recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on
the property until a person who has title or a better right lawfully ejects him. Guevarra is
certainly not that person. The ruling in this case, however, does not preclude Pajuyo and
Guevarra from introducing evidence and presenting arguments before the proper
administrative agency to establish any right to which they may be entitled under the law. 81
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the
issue of physical possession does not affect title to the property nor constitute a binding and
conclusive adjudication on the merits on the issue of ownership. 82 The owner can still go to
court to recover lawfully the property from the person who holds the property without legal
title. Our ruling here does not diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or unauthorized structures in
accordance with existing laws.
Attorney's Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorney's fees to Pajuyo. Attorney's
fees as part of damages are awarded only in the instances enumerated in Article 2208 of the
Civil Code. 83 Thus, the award of attorney's fees is the exception rather than the
rule. 84 Attorney's fees are not awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to litigate. 85 We therefore delete the
attorney's fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra.
Guevarra did not dispute this factual finding of the two courts. We find the amount reasonable
compensation to Pajuyo. The P300 monthly rental is counted from the last demand to vacate,
which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution
dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE.
The Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81
in Civil Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the
Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED
with MODIFICATION. The award of attorney's fees is deleted. No costs.
SO ORDERED. ASHECD
Davide, Jr., C .J ., Panganiban, Ynares-Santiago and Azcuna, JJ ., concur.
Footnotes
1.Under Rule 45 of the 1997 Rules of Court.
2.Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Quirino D.
Abad Santos, Jr. and Romeo A. Brawner, concurring.
3.Penned by Judge Wenceslao I. Agnir.
 39
4.Docketed as Civil Case No. Q-96-26943. REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V.
BAGTAS, defendant. FELICIDAD M. BAGTAS, Administratrix of the
5.Penned by Judge Mariano M. Singzon, Jr. Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.
6.Docketed as Civil Case No. 12432.

7.Rollo, p. 41. D. T. Reyes, Luison & Associates for petitioner-appellant.

8.Ibid., p. 49. Solicitor General for plaintiff-appellee.
9.Ibid., p. 221.

10.Ibid., p. 224. SYLLABUS

11.Ibid., p. 60.
1. CONTRACTS; LOAN OF BULLS FOR BREEDING PURPOSES; NATURE OF CONTRACT
12.Ibid., p. 73. AFFECTED BY PAYMENT OF FEE. — The loan by the Bureau of Animal Industry to the
defendant of three bulls for breeding purposes for a period of one year, later on renewed for
13.Rollo, p. 134. another as regards one bull, was subject to the payment by the borrower of breeding fee of
14.Macawiwili Gold Mining and Development Co., Inc. v. Court of Appeals, 358 Phil. 245 10% of the book value of the bulls. If the breeding fee be considered a compensation, the
(1998). contract would be a lease of the bulls; it could not be a contract of commodatum, because that
contract is essential gratuitous.
15.Ibid.
2. JUDGMENTS; PROCEEDINGS FOR ADMINISTRATIONS AND SETTLEMENT OF
16.Ibid. ESTATE OF THE DECEASED; ENFORCEMENT OF MONEY JUDGMENT. — Where special
proceedings for the administration and settlement of the estate of the deceased have been
17.Ibid. instituted, the money judgment rendered in favor of a party cannot be enforced by means of a
writ of execution, but must be presented to the probate court for payment by the administrator
18.227 Phil. 606 (1986). appointed by the court.
19.G.R. No. 101132, 29 January 1993, 218 SCRA 193.

20.Ibid.
DECISION
21.Ibid.

22.Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 110003, 9 February

2001, 351 SCRA 436.
PADILLA, J p:
23.City of Manila v. Court of Appeals, G.R. No. 100626, 29 November 1991, 204 SCRA
362. The Court of Appeals certified this case to this Court because only questions of law are raised.
24.Castilex Industrial Corporation v. Vasquez, Jr., 378 Phil. 1009 (1999). 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
25.Refugia v. Court of Appeals, 327 Phil. 982 (1996).
Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948
26.Ibid. 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
EN BANC 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
[G.R. No. L-17474. October 25, 1962.]
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
P499.62, both with interests, and costs; and that other just and equitable relief be granted it
(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 rendered 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 it
granted an ex-parte motion filed by the plaintiff on 28 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 V. Bagtas who died on 23 October 1951 and as administratrix of his
estate, was notified. On 7 January 1959 she filed a motion alleging that on 26 June 1952
the two bulls, Sindhi and Bhagnari, were returned to the Bureau of Animal Industry and
that sometime in November 1953 the third bull, the Sahiniwal, died from gunshot wounds
inflicted during a Huks 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 P859.5.3 be issued against the estate of defendant deceased
José 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
Huks 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 the returning the bull or paying its value to the appellee. The
contention is without merit. The loan by the appellee to the late defendant José 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 toforce majeure A contract of commodatum is
40
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 thing, 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 wit: 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 executor or 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 issued letters of administration of the estate of the late José V. Bagtas
and that "all persons having claims for money against the deceased José 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 money 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 abovequoted 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, 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 José
V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money
judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution
but must be presented to the probate court for payment by the appellant, the administratrix
appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as
to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon,
Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.
||| (Republic v. Bagtas, G.R. No. L-17474, [October 25, 1962], 116 PHIL 570-576)
EN BANC
[G.R. No. 46240. November 3, 1939.]
41
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-
appellants, vs. BECK, defendant-appellee.
Mauricio Carlos; for appellants.
Felipe Buencamino, Jr.; for appellee.
SYLLABUS
1. COMMODATUM; OBLIGATION OF THE PARTIES. — The contract entered
into between the parties is one of commodatum, because under t 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 latter's demand (Clause 7 of the contract, Exhibit "A"; articles 1740, paragraph,
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 electric lamps.
2. ID.; ID.; EXPENSES FOR DEPOSIT OF FURNITURE. — 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.
3. ID.; ID.; VALUE OF FURNITURE. — 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 later determined by the trial Court through evidence which the parties may desire to
present.
4. COSTS OF LITIGATION. — 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.
DECISION
IMPERIAL, J p:
 42
The plaintiff brought this action to compel the defendant to return to her certain conclusion that the plaintiff failed to comply with her obligation to get the furniture when
furniture which she lent him for his use. She appealed from the judgment of the Court of they were offered to her.
First Instance of Manila which ordered that the defendant return to her the three gas
As the defendant had voluntarily undertaken to return all the furniture to the
heaters and the four electric lamps found in the possession of the Sheriff of said city, that
plaintiff, upon the latter's demand, the Court could not legally compel her to bear the
she call for the other furniture from the said Sheriff of Manila at her own expense, and
expenses occasioned by the deposit of the furniture at the defendant's behest. The latter,
that the fees which the sheriff may charge for the deposit of the furniture be paid pro
as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a
rata by both parties, without pronouncement as to the costs.
duty to accept the offer to return the furniture, because the defendant wanted to retain the
The defendant was a tenant of the plaintiff and as such occupied the latter's three gas heaters and the four electric lamps.
house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the
As to the value of the furniture, we do not believe that the plaintiff is entitled to
contract of lease between the plaintiff and the defendant, the former gratuitously granted
the payment thereof by the defendant in case of his inability to return some of the
to the latter the use of the furniture described in the third paragraph of the stipulation of
furniture, because under paragraph 6 of the stipulation of facts, the defendant has neither
facts, subject to the condition that the defendant would return them to the plaintiff upon
agreed to nor admitted the correctness of the said value. Should the defendant fail to
the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and
deliver some of the furniture, the value thereof should be later determined by the trial
on September 14, 1936, these three notified the defendant of the conveyance, giving him
Court through evidence which the parties may desire to present.
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 his The costs in both instances should be borne by the defendant because the
use. The defendant answered that she may call for them in the house where they are plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The defendant
found. On November 5, 1936, the defendant, through another person, wrote to the was the one who breached the contract of commodatum, and without any reason he
plaintiff reiterating that she may call for the furniture in the ground floor of the house. On refused to return and deliver all the furniture upon the plaintiff's demand. In these
the 7th of the same month, the defendant wrote another letter to the plaintiff informing her circumstances, it is just and equitable that he pay the legal expenses and other judicial
that he could not give up the three gas heaters and the four electric lamps because he costs which the plaintiff would not have otherwise defrayed.
would use them until the 15th of the same month when the lease is due to expire. The
The appealed judgment is modified and the defendant is ordered to return and
plaintiff refused to get the furniture in view of the fact that the defendant had declined to
deliver to the plaintiff, in the residence or house of the latter, all the furniture described in
make delivers of all of them. On November 15th, before vacating the house, the
paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned
defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are
by the delivery to and deposit of the furniture with the Sheriff shall be for the account of
now on deposit in the warehouse situated at No. 1521, Rizal Avenue. in the custody of
the defendant. The defendant shall pay the costs in both instances. So ordered.
the said sheriff.
Avanceña, C.J., Villa-Real, Diaz, Laurel, Concepcionand Moran, JJ., concur.
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
||| (Quintos v. Beck, G.R. No. 46240, [November 3, 1939], 69 PHIL 108-112)
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 one-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 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.
The contract entered into between the parties is one of commodatum, 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 latter's 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 electric
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
 43
AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION
WITH EXTENSIONS OF CREDIT.

Section 1. This Act shall be known as the "Truth in Lending Act."

Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect
its citizens from a lack of awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed use of credit to the detriment
of the national economy.

Section 3. As used in this Act, the term

(1) "Board" means the Monetary Board of the Central Bank of the Philippines.

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

REPUBLIC ACT No. 3765