Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.

MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank,
between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was
essential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans
and discount negotiable documents to P5,000, which, in certain cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted
the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest, were taken up and paid by July 17,
1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion,
P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the
company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board of directors of this bank, was charged in the Court of First
Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to
imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly be made, reads as follows: "The National Bank shall not,
directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person
who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine
and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued adroitly and exhaustively in their printed brief, and again in
oral argument. Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one.
The question presented are reduced to their simplest elements in the opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a "loan" within
the meaning of section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the concession of a credit. In this statement of fact, counsel is
correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones
[1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express
or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the granting of
"loans" up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a
"discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to
discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction
upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction comes under the
first or the latter denomination.
Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of
loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is
always on double-name paper; a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes signed by the firm
"Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid
when the notes fell due; and (2) they were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the Binalbagan Estate case. Just as there it was declared
that the operations constituted a loan and not a discount, so should we here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect
loan" within the meaning of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection, it should be recalled that the wife of the defendant held
one-half of the capital of this partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this instance, the purpose of the Legislature is
plainly to erect a wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve two
masters — that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially interested in the success
or failure of his wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A
loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted to mingle his
personal and family affairs with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or
indirectly violating this section he shall be punished by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the bank, against the temptation to
which the directors and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank, and the legislature
unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty,
declared in express terms that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of the same Act,
when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who shall violate
any of the provisions of the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for
criminal prosecution.
This same question has been previously submitted and has received an answer adverse to such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People
vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and
it must again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same offense, such repeal does not
have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, in violation of
section 35 of Act No. 2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of said Act provides a punishment not on the bank when it
violates any provisions of the law, but on a personviolating any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said
section 35 is without penal sanction.lawph!l.net
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
inhibited 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 of the Insular Auditor, even conceding that such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a trust, and will not listen to
any proof of honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the appellant, and with reference to previous decisions of this
court on the same subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty
beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.
Araullo, C. J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-4150 February 10, 1910
FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, deceased, defendant-appellant.
Matias Hilado, for appellant.
Jose Felix Martinez, for appellee.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit against Agustina Jarra, the administratrix of the estate of Magdaleno Jimenea, alleging that in the latter part of
1901 Jimenea borrowed and obtained from the plaintiff ten first-class carabaos, to be used at the animal-power mill of his hacienda during the season of 1901-2, without
recompense or remuneration whatever for the use thereof, under the sole condition that they should be returned to the owner as soon as the work at the mill was terminated; that
Magdaleno Jimenea, however, did not return the carabaos, notwithstanding the fact that the plaintiff claimed their return after the work at the mill was finished; that Magdaleno
Jimenea died on the 28th of October, 1904, and the defendant herein was appointed by the Court of First Instance of Occidental Negros administratrix of his estate and she took
over the administration of the same and is still performing her duties as such administratrix; that the plaintiff presented his claim to the commissioners of the estate of Jimenea,
within the legal term, for the return of the said ten carabaos, but the said commissioners rejected his claim as appears in their report; therefore, the plaintiff prayed that judgment
be entered against the defendant as administratrix of the estate of the deceased, ordering her to return the ten first-class carabaos loaned to the late Jimenea, or their present
value, and to pay the costs.
The defendant was duly summoned, and on the 25th of September, 1906, she demurred in writing to the complaint on the ground that it was vague; but on the 2d of October of the
same year, in answer to the complaint, she said that it was true that the late Magdaleno Jimenea asked the plaintiff to loan him ten carabaos, but that he only obtained three
second-class animals, which were afterwards transferred by sale by the plaintiff to the said Jimenea; that she denied the allegations contained in paragraph 3 of the complaint; for
all of which she asked the court to absolve her of the complaint with the cost against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez notified the defendant and her counsel, Matias Hilado, that he had made an agreement with the
plaintiff to the effect that the latter would not compromise the controversy without his consent, and that as fees for his professional services he was to receive one half of the
amount allowed in the judgment if the same were entered in favor of the plaintiff.
The case came up for trial, evidence was adduced by both parties, and either exhibits were made of record. On the 10th of January, 1907, the court below entered judgment
sentencing Agustina Jarra, as administratrix of the estate of Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos, the remaining six second and third class carabaos,
or the value thereof at the rate of P120 each, or a total of P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and, by a writing dated January 19, moved for anew trial on the ground that the findings of fact were openly and
manifestly contrary to the weight of the evidence. The motion was overruled, the defendant duly excepted, and in due course submitted the corresponding bill of exceptions, which
was approved and submitted to this court.
The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of ten carabaos which are now claimed by the latter, as shown by two letters addressed by the
said Jimenea to Felix de los Santos; but in her answer the said defendant alleged that the late Jimenea only obtained three second-class carabaos, which were subsequently sold
to him by the owner, Santos; therefore, in order to decide this litigation it is indispensable that proof be forthcoming that Jimenea only received three carabaos from his son-in-law
Santos, and that they were sold by the latter to him.
The record discloses that it has been fully proven from the testimony of a sufficient number of witnesses that the plaintiff, Santos, sent in charge of various persons the ten
carabaos requested by his father-in-law, Magdaleno Jimenea, in the two letters produced at the trial by the plaintiff, and that Jimenea received them in the presence of some of
said persons, one being a brother of said Jimenea, who saw the animals arrive at the hacienda where it was proposed to employ them. Four died of rinderpest, and it is for this
reason that the judgment appealed from only deals with six surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-law Santos is not evidenced by any trustworthy documents such as those of transfer, nor were the
declarations of the witnesses presented by the defendant affirming it satisfactory; for said reason it can not be considered that Jimenea only received three carabaos on loan from
his son-in-law, and that he afterwards kept them definitely by virtue of the purchase.
By the laws in force the transfer of large cattle was and is still made by means of official documents issued by the local authorities; these documents constitute the title of
ownership of the carabao or horse so acquired. Furthermore, not only should the purchaser be provided with a new certificate or credential, a document which has not been
produced in evidence by the defendant, nor has the loss of the same been shown in the case, but the old documents ought to be on file in the municipality, or they should have
been delivered to the new purchaser, and in the case at bar neither did the defendant present the old credential on which should be stated the name of the previous owner of each
of the three carabaos said to have been sold by the plaintiff.
From the foregoing it may be logically inferred that the carabaos loaned or given on commodatum to the now deceased Magdaleno Jimenea were ten in number; that they, or at
any rate the six surviving ones, have not been returned to the owner thereof, Felix de los Santos, and that it is not true that the latter sold to the former three carabaos that the
purchaser was already using; therefore, as the said six carabaos were not the property of the deceased nor of any of his descendants, it is the duty of the administratrix of the
estate to return them or indemnify the owner for their value.
The Civil Code, in dealing with loans in general, from which generic denomination the specific one of commodatum is derived, establishes prescriptions in relation to the last-
mentioned contract by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the latter may use it during a certain period and return it to
the former, in which case it is called commodatum, or money or any other perishable thing, under the condition to return an equal amount of the same kind and quality, in which
case it is merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned. The bailee acquires the use thereof, but not its fruits; if any compensation is involved, to be paid by the
person requiring the use, the agreement ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum pass to the heirs of both contracting parties, unless the loan has been in consideration for the person of
the bailee, in which case his heirs shall not have the right to continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant upon demand, there is no doubt that she is under obligation to indemnify the owner thereof by paying him
their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall
be subjected to indemnify for the losses and damages caused thereby.
The obligation of the bailee or of his successors to return either the thing loaned or its value, is sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895, it sets
out with precision the legal doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor retains the ownership of the thing loaned, and at the expiration of the period, or after the use for which it was loaned
has been accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to pay him damages if through the fault of the bailee the thing should have
been lost or injured, it is clear that where public securities are involved, the trial court, in deferring to the claim of the bailor that the amount loaned be returned him by the bailee in
bonds of the same class as those which constituted the contract, thereby properly applies law 9 of title 11 of partida 5.
With regard to the third assignment of error, based on the fact that the plaintiff Santos had not appealed from the decision of the commissioners rejecting his claim for the recovery
of his carabaos, it is sufficient to estate that we are not dealing with a claim for the payment of a certain sum, the collection of a debt from the estate, or payment for losses and
damages (sec. 119, Code of Civil Procedure), but with the exclusion from the inventory of the property of the late Jimenea, or from his capital, of six carabaos which did not belong
to him, and which formed no part of the inheritance.
The demand for the exclusion of the said carabaos belonging to a third party and which did not form part of the property of the deceased, must be the subject of a direct decision of
the court in an ordinary action, wherein the right of the third party to the property which he seeks to have excluded from the inheritance and the right of the deceased has been
discussed, and rendered in view of the result of the evidence adduced by the administrator of the estate and of the claimant, since it is so provided by the second part of section
699 and by section 703 of the Code of Civil Procedure; the refusal of the commissioners before whom the plaintiff unnecessarily appeared can not affect nor reduce the
unquestionable right of ownership of the latter, inasmuch as there is no law nor principle of justice authorizing the successors of the late Jimenea to enrich themselves at the cost
and to the prejudice of Felix de los Santos.
For the reasons above set forth, by which the errors assigned to the judgment appealed from have been refuted, and considering that the same is in accordance with the law and
the merits of the case, it is our opinion that it should be affirmed and we do hereby affirm it with the costs against the appellant. So ordered.
Arellano, C.J., Johnson, Moreland and Elliott, JJ., concur.
Carson, J., reserves his vote.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-24968 April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to
pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was
filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase
price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and
Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed,
the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the
borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings
progresses, to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter
to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its
stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution,
"to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the
operations of jute mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in
accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in
Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in
appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding
deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of
Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No.
3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No.
736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing
the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute
mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted
the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the
factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company
no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the
mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as
they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of
the note if RFC releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign
the promissory notes jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-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 theIsland 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 equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,000. As stated in our letter of December 22, 1954, the
releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating
status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that
there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the
manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you
assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in
approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17,
1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the
Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore
mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging
failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff
from completing or paying contractual commitments it had entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant
pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be
perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is
therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally
kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the
original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the
immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was
by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in
RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory
building — P250,000.00; for payment of the balance of purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc.
realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or
probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in
Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse.
Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the
mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance — what Manresa terms "mutuo disenso"1
— which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment.2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was
legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In
1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had
been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been
extinguished by mutual desistance — and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
 ECOND DIVISION
[G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division of the respondent Court of Appeals promulgated on 21 December
1994[1], which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she
had entered into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real Estate Mortgage void, which Naguiat appealed to the
Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao
Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate
Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the amount of Ninety Five
Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute the loan granted by Naguiat to Queao. [3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles
covering the mortgaged properties.[4] On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a promissory note for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00), with interest at 12% per annum, payable on 11 September 1980.[5] Queao also issued a Security Bank and Trust Company check, postdated
11 September 1980, for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. On the following day, 12 September 1980, Queao requested Security
Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met
with Naguiat. At the meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was
Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before
the scheduled sale, Queao filed the case before the Pasay City RTC,[8] seeking the annulment of the mortgage deed. The trial court eventually stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void, and ordering Naguiat to return to Queao the owners duplicates of her
titles to the mortgaged lots.[10] Naguiat appealed the decision before the Court of Appeals, making no less than eleven assignments of error. The Court of Appeals promulgated the
decision now assailed before us that affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether Queao had actually received the loan proceeds which were supposed to
be covered by the two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed enjoys the presumption that
the recitals therein are true. Naguiat also questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of
the admissions of third persons.[11]
The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a function which this Court does not exercise in an appeal by certiorari.
Under Rule 45 which governs appeal by certiorari, only questions of law may be raised [12] as the Supreme Court is not a trier of facts.[13] The resolution of factual issues is the
function of lower courts, whose findings on these matters are received with respect and are in fact generally binding on the Supreme Court.[14] A question of law which the Court
may pass upon must not involve an examination of the probative value of the evidence presented by the litigants.[15] There is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower courts.[17] But Naguiats case does not fall under any of the
exceptions. In any event, both the decisions of the appellate and trial courts are supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that Queao received the loan proceeds. Capitalizing on the status of the mortgage deed as a public
document, she cites the rule that a public document enjoys the presumption of validity and truthfulness of its contents. The Court of Appeals, however, is correct in ruling that the
presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing evidence in this case that pointed to the absence of consideration.[18] This
Court has held that the presumption of truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the contrary, as in this
case.[19]
On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed or deposited. The mere issuance of the
checks did not result in the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall
produce the effect of payment only when they have been cashed. [20] It is only after the checks have produced the effect of payment that the contract of loan may be deemed
perfected. Art. 1934 of the Civil Code 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.
A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract.[21] In this case, the objects of the contract are the
loan proceeds which Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would
have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows
that the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that they could not bind her following the res inter alia acta alteri
nocere non debet rule. The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a
recognized exception to the rule.[22] Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of
Appeals, Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao the checks she issued or indorsed to Queao, pending
delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in connection with that
transaction that Queao came to know Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that occasion, on her own and without
Queao asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by estoppel[25] citing Article 1873 of the Civil Code.[26] Apparently, it considered that at the very least, as a
consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos
impression. In that situation, the rule is clear. One who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny
the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest belief that he is what he appears
to be.[27] The Court of Appeals is correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queao were
never encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit and the borrower did not receive the proceeds of the loan. That being
the case, it follows that the mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage contract is the same as that of the principal contract
from which it receives life, and without which it cannot exist as an independent contract. [28] A mortgage contract being a mere accessory contract, its validity would depend on the
validity of the loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.
 FIRST DIVISION

CAROLYN M. GARCIA, G.R. No. 154878

Petitioner,
Present:
-versus-

RICA MARIE S. THIO,

Respondent. Promulgated:
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CORONA, J.:

Assailed in this petition for review on certiorari[1] are the June 19, 2002 decision[2] and August 20, 2002 resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which
set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check [4] dated February 24, 1995 in the amount of US$100,000
payable to the order of a certain Marilou Santiago.[5] Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in
1995) the amount of US$3,000[6] and P76,500[7] on July 26,[8] August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check [9] dated June 29, 1995 in the amount of P500,000, also payable to the order of Marilou Santiago.[10]
Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.[11]

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a
complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a
month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages. [12]

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature
on October 26, 1995.[13] The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly
interest of 4%, the maturity date of which was on November 5, 1995.[14] The amount of this loan was covered by the second check. For both loans, no promissory note was
executed since petitioner and respondent were close friends at the time.[15] Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to
pay the principal amounts despite repeated demands.[16]

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely
asked by petitioner to give the crossed checks to Santiago.[17] She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioners request
that respondent use her own checks instead of Santiagos.[18]

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.[19] It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest
of 3% and 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;

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 attorneys fees; and

4. P50,000.00 as and for actual damages.

For lack of merit, [respondents] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.[21]

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable
to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of 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 onceto one who has an
account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely
facilitating the transactions between the former and [petitioner].

With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied) [22]
Hence this petition. [23]
As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual
findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there werecontracts of loan) are contradictory. [24]

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract. [25] This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and
is bound to pay the creditor an equal amount.[26]
It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the
main question to be answered is: who borrowed money from petitioner respondent or Santiago?

Petitioner insists that it was upon respondents instruction that both checks were made payable to Santiago.[27] She maintains that it was also upon respondents instruction that
both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.[28] Furthermore, she argues that once respondent received the checks, the
latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to
petitioner.[29]

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. [30] Although respondent did not
physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago. [31] It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that
time.[32]
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.[33] This explained why respondent instructed petitioner
to make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of 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 petitioners request for her to issue her own
checks to cover the interest payments since petitioner was not personally acquainted with Santiago. [35] She claimed, however, that Santiago would replace the checks with cash. [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 (Santiagos) 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 petitioners demand letter. [42]From
the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.[43]
The award of actual damages in the amount of P50,000 and P100,000 attorneys 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 attorneys fees is deleted.

SO ORDERED.
 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.
DECISION
CALLEJO, SR., J.:
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 months time. Private
respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchezs request. [3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas private secretary, met and discussed the matter. Thereafter, relying on the
assurances and representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela.
Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati
branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter
from Doronilla authorizing Sanchez and her companions, in coordination with Mr. Rufo Atienza, to open an account for Sterela Marketing Services in the amount of P200,000.00.
In opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs.
Vives.[4]
Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given to him. Alarmed, he and his wife went to the Bank to verify if
their money was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-
1567 had been withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said remaining amount because it had
to answer for some postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current
Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-
0320. In opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment thereof, Doronilla issued three postdated
checks, all of which were dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor of
Sterela.[5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from Doronilla, assuring him that his money was intact and would
be returned to him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private respondent. However,
upon presentment thereof by private respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to present the same check on September
15, 1979 but when the latter presented the check, it was again dishonored.[6]
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his clients money. Doronilla issued another check for P212,000.00
in private respondents favor but the check was again dishonored for insufficiency of funds.[7]
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 attorneys fees; and
(d) the costs of the suit.
SO ORDERED.[8]
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC.[9] It likewise
denied with finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.[10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES W AS
ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER
DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER
THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT
APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY
OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND
SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR
MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.[11]
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25, 1995. The Court then required private respondent to submit a
rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing private respondent with copy of the 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 Sterelas bank account. [15] Moreover, the fact that private
respondent sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was not merely gratuitous but had a business angle to it.
Hence, petitioner argues that it cannot be held liable for the return of private respondents P200,000.00 because it is not privy to the transaction between the latter and Doronilla.[16]
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla to withdraw from the savings account of Sterela since the latter
was the sole proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings
account for Sterela, did not contain any authorization for these two to withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with Doronilla,
who was the sole proprietor of Sterela, and who alone had legal title to the savings account.[17] Petitioner points out that no evidence other than the testimonies of private
respondent and Mrs. Vives was presented during trial to prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its incorporation. [18] Hence,
petitioner should not be held liable for allowing Doronilla to withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the findings of fact therein were not accord with the evidence presented by
petitioner during trial to prove that the transaction between private respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from
Sterelas savings account.[19]
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual damages suffered by private respondent, and neither may it be held
liable for moral and exemplary damages as well as attorneys fees.[20]
Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an accommodation,[21] since he did not actually part with the
ownership of his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient
funds for purposes of its incorporation but at the same time, he retained some degree of control over his money through his wife who was made a signatory to the savings account
and in whose possession the savings account passbook was given.[22]
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for the return of his money. He insists that Atienza, petitioners assistant
manager, connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterelas current account three days after Mrs. Vives and
Sanchez opened a savings account with petitioner for said company, as well as the approval of the authority to debit Sterelas savings account to cover any overdrawings in its
current account.[23]
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this Court. The Court has repeatedly held that it is not its function to
analyze and weigh all over again the evidence presented by the parties during trial.[24] The Courts jurisdiction is in principle limited to reviewing errors of law that might have been
committed by the Court of Appeals.[25] Moreover, factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court unless
these findings are not supported by the evidence on record.[26] There is no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that
would require this Court to review and overturn the factual findings of that court, especially since the conclusions of fact of the Court of Appeals and the trial court are not only
consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans
in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case
the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned
at the end of the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract.[27] In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such determination.[28]
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela
specifically for the purpose of making it appear that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be returned within thirty (30)
days.[29]Private respondent merely accommodated Doronilla by lending his money without consideration, as a favor to his good friend Sanchez. It was however clear to the parties
to the transaction that the money would not be removed from Sterelas savings account and would be returned to private respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas account together with an additional P12,000.00, allegedly
representing interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the additional
P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee in commodatum acquires the use of the
thing loaned but not its fruits. Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private respondents money because it was not privy to the transaction
between Doronilla and private respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitioners liability
for the return of private respondents money because the factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza, was partly responsible for
the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings Account No. 10-1567 expressly states that
2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated, and neither a deposit nor a withdrawal will be permitted
except upon the production of the depositor savings bank book in which will be entered by the Bank the amount deposited or withdrawn.[30]
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even
without presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals and the trial court
found that Atienza allowed said withdrawals because he was party to Doronillas scheme of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia)
branch of the defendant bank.Indeed, the evidence indicates that Atienza had not only facilitated the commission of the fraud but he likewise helped in devising the means by
which it can be done in such manner as to make it appear that the transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer therein. The records show that plaintiff had suggested that the
P200,000.00 be deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for it will be easier for
them to get a certification. In fact before he was introduced toplaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing Angeles B.
Sanchez and company to open a savings account for Sterela in the amount of P200,000.00, as per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x (Exh.
1). This is a clear manifestation that the other defendants had been in consultation with Atienza from the inception of the scheme. Significantly, there were testimonies and
admission that Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla and Atienza, the latter knew before hand that the money deposited did not
belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her husband and the deposit was
merely to accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered to withdraw the same were Inocencia Vives and Angeles B.
Sanchez. In the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual
banking procedure that withdrawals of savings deposits could only be made by persons whose authorized signatures are in the signature cards on file with the bank. He, however,
said that this procedure was not followed here because Sterela was owned by Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of such ownership.
The Court is not inclined to agree with Atienza. In the first place, he was all the time aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs.
Vives that they were only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much amount to be sued in the incorporation
of the firm. In the second place, the signature of Doronilla was not authorized in so far as that account is concerned inasmuch as he had not signed the signature card provided by
the bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice that whenever a withdrawal is made in a savings deposit, the bank
requires the presentation of the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings account to the current account was without the
submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate passbook was
issued to Sterela because the original passbook had been surrendered to the Makati branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza,
who undoubtedly had a hand in the execution of this certification, was aware that the contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives
for he was the one who gave it to her. Besides, as assistant manager of the branch and the bank official servicing the savings and current accounts in question, he also was aware
that the original passbook was never surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no effect
whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that Atienzas active participation in the perpetration of the fraud and deception that caused the
loss. The records indicate that this account was opened three days later after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza was
mindful and posted regarding the opening of the current account considering that Doronilla was all the while in coordination with him. That it was he who facilitated the approval of
the authority to debit the savings account to cover any overdrawings in the current account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x. [31]
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks.
To hold the employer liable under this provision, it must be shown that an employer-employee relationship exists, and that the employee was acting within the scope of his
assigned task when the act complained of was committed.[32] Case law in the United States of America has it that a corporation that entrusts a general duty to its employee is
responsible to the injured party for damages flowing from the employees wrongful act done in the course of his general authority, even though in doing such act, the employee may
have failed in its duty to the employer and disobeyed the latters instructions.[33]
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was acting within the scope of his authority as Assistant Branch
Manager when he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in which account private respondents money was deposited, and in
transferring the money withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in furtherance of
petitioners interests[34]even though in the process, Atienza violated some of petitioners rules such as those stipulated in its savings account passbook.[35] It was established that the
transfer of funds from Sterelas savings account to its current account could not have been accomplished by Doronilla without the invaluable assistance of Atienza, and that it was
their connivance which was the cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code, petitioner is liable for private respondents loss and is solidarily liable with
Doronilla and Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from
Sterelas savings account, and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the appellate court in the award of
actual, moral and exemplary damages, attorneys fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She appealed from the judgment of the Court of First Instance
of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the
other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties,
without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of
lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject
to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September
14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the
plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On November 5, 1936, the defendant, through
another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter
to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the
lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before
vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal
Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on
November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding
that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling
that both parties should pay their respective legal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for
reconsideration and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's
demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for
herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A;
articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he
should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the
plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely
applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to
her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to
accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because
under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the
furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one
who breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just
and equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house
of the latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture
with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances. So ordered.
 FIRST DIVISION
[G.R. No. 146364. June 3, 2004]
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for 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 Pajuyos
demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands because the lot is within the 150 hectares set aside by
Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra
insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).
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 Guevaras petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the
ejectment case filed against defendant-appellant is without factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have dismissed outright Guevarras petition for review because it was
filed out of time. Moreover, it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.[12]
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the
house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return
possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National Government Center Housing Project Code of Policies and other pertinent
laws. In an ejectment suit, the RTC has no power to decide Guevarras rights under these laws. The RTC declared that in an ejectment case, the only issue for resolution is
material or physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot because it is public land. The assignment of rights between
Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave
them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant
relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra has a better right over the property under Proclamation No.
137.President Corazon C. Aquino (President Aquino) issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under
Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project (the Code), the actual occupant or caretaker of
the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts
Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra filed the
motion for extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary period on 14 December 1996. Thus, the motion for
extension properly complied with the condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to
file the petition for review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for review because it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could
not now seek the dismissal of the case after he had extensively argued on the merits of the case. This technicality, the appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file petition for review at the time when there was no more period to extend as
the decision of the Regional Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review even though the certification against forum-shopping was signed only by counsel instead of
by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and in
holding that the ejectment case filed against defendant-appellant is without legal and factual basis.
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and in holding that the parties are in pari delicto being both squatters,
therefore, illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government Center Housing Project instead of deciding the same under the
Kasunduan voluntarily executed by the parties, the terms and conditions of which are the laws between themselves.[13]
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the RTC decision had already become final and executory when the
appellate court acted on Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC
decision.Instead of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a petition for review. This
Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension with this Court did not toll the running of the period to perfect
the appeal. Hence, when the Court of Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of Appeals by petition for review in cases involving questions of fact or
mixed questions of fact and law.[14] Decisions of the regional trial courts involving pure questions of law are appealable directly to this Court by petition for review.[15] These modes
of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for extension to file petition for review before this Court on 14
December 1996. On 3 January 1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for review gives the impression that the issues he
raised were pure questions of law. There is a question of law when the doubt or difference is on what the law is on a certain state of facts.[16] There is a question of fact when the
doubt or difference is on the truth or falsity of the facts alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised these questions: (1) Do ejectment cases pertain only to
possession of a structure, and not the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a
Presidential Proclamation governing the lot on which a squatters structure stands be considered in an ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential Proclamation. At first glance, the questions Guevarra raised
appeared purely legal. However, some factual questions still have to be resolved because they have a bearing on the legal questions raised in the petition for review. These factual
matters refer to the metes and bounds of the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate
Court,[18] we declared that the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the prohibition
against granting an extension of time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a petition for review
where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation and research to present a persuasive position.[20] The drafting of the
petition for review entails more time and effort than filing a notice of appeal.[21] Hence, the Court of Appeals may allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we held that Liboros clarification of Lacsamana is consistent with the Revised Internal
Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for review with the Court of Appeals. The extension,
however, should be limited to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment becomes a fact on the lapse of the reglementary period to appeal if no appeal is perfected.[23]
The RTC decision could not have gained finality because the Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension. The Court of Appeals gave due course to the motion for
extension because it complied with the condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give
due course to the motion for extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of receipt of the judgment or final order or resolution subject of
the petition, and (2) the date of filing of the motion for extension.[24] It is the date of the filing of the motion or pleading, and not the date of execution, that determines the timeliness
of the filing of that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing stamped on it is the reckoning point for determining the timeliness of
its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for extension before this Court on 13 December 1996, the date stamped
by this Courts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did not ask the appellate court to deny the motion for extension and
dismiss the petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in Guevarras
favor that Pajuyo raised the procedural issues against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is estopped from attacking the jurisdiction of the court.[25] Estoppel sets
in not because the judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the courts jurisdiction after voluntarily submitting to it is
against public policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the certification against forum shopping. Instead, Pajuyo harped on Guevarras
counsel signing the verification, claiming that the counsels verification is insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the partys failure to sign personally the verification. The certificate of non-forum shopping must be
signed by the party, and not by counsel.[27] The certification of counsel renders the petition defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite. [29] It is intended simply to secure an assurance that what are alleged in
the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith.[30] The party need not sign the
verification. A partys representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the verification.[31]
We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention to this
defect at the early stage of the proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court of its jurisdiction over the ejectment case.[32] Even if the pleadings
raise the issue of ownership, the court may pass on such issue to determine only the question of possession, especially if the ownership is inseparably linked with the
possession.[33] The adjudication on the issue of ownership is only provisional and will not bar an action between the same parties involving title to the land.[34] This doctrine is a
necessary consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is the physical or
material possession over the real property.[35]
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested property and that they are mere squatters. Will the defense that
the parties to the ejectment case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case? The Court of Appeals believed so and held that
it would just leave the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The parties cannot present evidence to prove ownership or right to
legal possession except to prove the nature of the possession when necessary to resolve the issue of physical possession. [36] The same is true when the defendant asserts the
absence of title over the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical possession of the premises, that is, to the possession de facto and not
to the possession de jure.[37] It does not even matter if a partys title to the property is questionable,[38] or when both parties intruded into public land and their applications to own
the land have yet to be approved by the proper government agency.[39] Regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall
not be thrown out by a strong hand, violence or terror.[40] Neither is the unlawful withholding of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner himself. [41] Whatever may be the character of his possession, if he has in his
favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him.[42] To repeat, the only issue that
the court has to settle in an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did not authorize either the plaintiff or the defendant in the case of forcible entry case to
occupy the land. The plaintiff had prior possession and had already introduced improvements on the public land. The plaintiff had a pending application for the land with the
Bureau of Lands when the defendant ousted him from possession. The plaintiff filed the action of forcible entry against the defendant. The government was not a party in the case
of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the application of the plaintiff was still pending, title remained with the
government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits
even before the resolution of the application. The plaintiff, by priority of his application and of his entry, acquired prior physical possession over the public land applied for as
against other private claimants. That prior physical possession enjoys legal protection against other private claimants because only a court can take away such physical
possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in 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 owners permission. Title to the land remained with the government because it had not awarded to anyone ownership of the contested
public land. Both the plaintiff and the defendant were in effect squatting on government property. Yet, we upheld the courts jurisdiction to resolve the issue of possession even if
the plaintiff and the defendant in the ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to preserve the basic policy behind the summary actions of
forcible entry and unlawful detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party out of
possession to respect and resort to the law alone to obtain what he claims is his. [45] The party deprived of possession must not take the law into his own hands.[46] Ejectment
proceedings are summary in nature so the authorities can settle speedily actions to recover possession because of the overriding need to quell social disturbances.[47]
We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving these public lands before final award is made by the
Lands Department, and before title is given any of the conflicting claimants? It is one of utmost importance, as there are public lands everywhere and there are thousands of
settlers, especially in newly opened regions. It also involves a matter of policy, as it requires the determination of the respective authorities and functions of two coordinate
branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the American occupation, or in the new, we have a
possessory action, the aim and purpose of which is the recovery of the physical possession of real property, irrespective of the question as to who has the title thereto. Under the
Spanish Civil Code we had the accion interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of Cebu vs.
Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the Philippine Commission) we implanted the
common law action of forcible entry (section 80 of Act No. 190), the object of which has been stated by this Court to be to prevent breaches of the peace and criminal disorder
which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons
who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in the court to assert their
claims. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No. 926) the action of forcible entry was already
available in the courts of the country. So the question to be resolved is, Did the Legislature intend, when it vested the power and authority to alienate and dispose of the public
lands in the Lands Department, to exclude the courts from entertaining the possessory action of forcible entry between rival claimants or occupants of any land before award
thereof to any of the parties? Did Congress intend that the lands applied for, or all public lands for that matter, be removed from the jurisdiction of the judicial Branch of the
Government, so that any troubles arising therefrom, or any breaches of the peace or disorders caused by rival claimants, could be inquired into only by the Lands Department to
the exclusion of the courts? The answer to this question seems to us evident. The Lands Department does not have the means to police public lands; neither does it have the
means to prevent disorders arising therefrom, or contain breaches of the peace among settlers; or to pass promptly upon conflicts of possession. Then its power is clearly
limited to disposition and alienation, and while it may decide conflicts of possession in order to make proper award, the settlement of conflicts of possession which is
recognized in the court herein has another ultimate purpose, i.e., the protection of actual possessors and occupants with a view to the prevention of breaches of the
peace. The power to dispose and alienate could not have been intended to include the power to prevent or settle disorders or breaches of the peace among rival
settlers or claimants prior to the final award. As to this, therefore, the corresponding branches of the Government must continue to exercise power and jurisdiction within the
limits of their respective functions. The vesting of the Lands Department with authority to administer, dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of the exercise of the respective functions or powers thereon, such as the authority to stop disorders
and quell breaches of the peace by the police, the authority on the part of the courts to take jurisdiction over possessory actions arising therefrom not involving,
directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts have no jurisdiction to determine the rights of claimants to public lands, and that
until the disposition of the land has passed from the control of the Federal Government, the courts will not interfere with the administration of matters concerning the same. (50 C.
J. 1093-1094.) We have no quarrel with this principle. The determination of the respective rights of rival claimants to public lands is different from the determination of who has the
actual physical possession or occupation with a view to protecting the same and preventing disorder and breaches of the peace. A judgment of the court ordering restitution of the
possession of a parcel of land to the actual occupant, who has been deprived thereof by another through the use of force or in any other illegal manner, can never be prejudicial
interference with the disposition or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of cases involving conflicts of possession, that
threat of judicial action against breaches of the peace committed on public lands would be eliminated, and a state of lawlessness would probably be produced
between applicants, occupants or squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting applicants or claimants would be no other than that of
forcible entry. This action, both in England and the United States and in our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet possession may
recover the possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the peace and criminal disorder.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical possession, not a legal possession. (Mediran vs.
Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove
the nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can conclusion be arrived at that the use
of the remedy in the courts of justice would constitute an interference with the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it be
pretended at all that its result would in any way interfere with the manner of the alienation or disposition of the land contested? On the contrary, it would facilitate adjudication, for
the question of priority of possession having been decided in a final manner by the courts, said question need no longer waste the time of the land officers making the adjudication
or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior est conditio defedentis. The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them.[49]
The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these exceptions is where the application of the pari delicto rule would
violate well-established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of forcible entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the title to the property, the party in peaceable quiet
possession shall not be turned out by strong hand, violence or terror. In affording this remedy of restitution the object of the statute is to prevent breaches of the peace and criminal
disorder which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who,
believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in the courts to assert their claims. This is the
philosophy at the foundation of all these actions of forcible entry and detainer which are designed to compel the party out of possession to respect and resort to the law alone to
obtain what he claims is his.[52]
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with danger. To shut out relief to squatters on the ground of pari delicto
would openly invite mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the latter had illegally occupied, emboldened by the
knowledge that the courts would leave them where they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession seek to prevent.[53] Even the owner who has title over the
disputed property cannot take the law into his own hands to regain possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The determination of priority and superiority of possession is a serious and
urgent matter that cannot be left to the squatters to decide. To do so would make squatters receive better treatment under the law. The law restrains property owners from taking
the law into their own hands. However, the principle of pari delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or violently
retake possession of properties usurped from them. Courts should not leave squatters to their own devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to rule on the issue of physical possession. Nevertheless, the
appellate court held that the pivotal issue in this case is who between Pajuyo and Guevarra has the priority right as beneficiary of the contested land under Proclamation No.
137.[54] According to the Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual occupant or
caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes and
bounds of the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage
of Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged
that in the survey the project administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino
signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as beneficiary
of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take any step to comply with the
requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a pending application over the lot, courts should still assume
jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts would be limited to the issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving public land to determine the issue of physical possession. The determination of the
respective rights of rival claimants to public land is, however, distinct from the determination of who has the actual physical possession or who has a better right of physical
possession.[56] The administrative disposition and alienation of public lands should be threshed out in the proper government agency.[57]
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries
of the law. Courts should not preempt the decision of the administrative agency mandated by law to determine the qualifications of applicants for the acquisition of public lands.
Instead, courts should expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder and breaches of peace. [58]
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it. Guevarra expressly admitted the existence and due execution of the
Kasunduan.The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing
bahay at lote ng walang bayad.Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was under obligation to maintain the premises in good condition.
Guevarra promised to vacate the premises on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from another of the possession of real property to which the latter is
entitled after the expiration or termination of the formers right to hold possession under a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is necessarily bound by an implied promise that he will vacate on
demand, failing which, an action for unlawful detainer will lie.[60] The defendants refusal to comply with the demand makes his continued possession of the property unlawful. [61] The
status of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance of the owner.[62]
This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use the property. The Kasunduan expressly articulated Pajuyos
forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would
vacate the property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it.[63] An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period.[64] Thus, the bailor cannot
demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted.[65] If the bailor
should have urgent need of the thing, he may demand its return for temporary use.[66] If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing
at will, in which case the contractual relation is called a precarium.[67] Under the Civil Code, precarium is a kind of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it
obligated him to maintain the property in good condition. The imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects of the
Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship
where the withdrawal of permission would result in the termination of the lease.[69] The tenants withholding of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to
Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.[70]
These contracts certainly involve the obligation to deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the
land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property. The Kasunduan is the
undeniable evidence of Guevarras recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not
yield a different result, as there would still be an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act. [72]
Guevarra bases his argument on the preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any rent. There is also no proof that Pajuyo is a professional
squatter who rents out usurped properties to other squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for socialized
housing. The only issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions between forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff
is deprived of physical possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession.[75] But in
unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right to possess under any contract, express or implied. In such a case,
prior physical possession is not required.[76]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess the property ended as well. Moreover, it was Pajuyo who was in
actual possession of the property because Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in
theKasunduan. Control over the property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not mean that a man has to have his feet on every square
meter of the ground before he is deemed in possession.[77] One may acquire possession not only by physical occupation, but also by the fact that a thing is subject to the action of
ones will.[78]Actual or physical occupation is not always necessary.[79]
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that squatters and intruders who clandestinely enter into titled government property cannot, by such act, acquire
any legal right to said property.[80] We made this declaration because the person who had title or who had the right to legal possession over the disputed property was a party in the
ejectment suit and that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is between squatters. Had the government participated in this case, the
courts could have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on our own the parties. Such a ruling would discourage squatters from
seeking the aid of the courts in settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession just because they are squatters would have
the same dangerous implications as the application of the principle of pari delicto. Squatters would then rather settle the issue of physical possession among themselves than seek
relief from the courts if the plaintiff and defendant in the ejectment case would both stand to lose possession of the disputed property. This would subvert the policy underlying
actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until a person who has title or a better right lawfully ejects him.
Guevarra is certainly not that person. The ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing evidence and presenting arguments before the
proper administrative agency to establish any right to which they may be entitled under the law.[81]
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical possession does not affect title to the property nor constitute a
binding and conclusive adjudication on the merits on the issue of ownership. [82] The owner can still go to court to recover lawfully the property from the person who holds the
property without legal title. Our ruling here does not diminish the power of government agencies, including local governments, to condemn, abate, remove or demolish illegal or
unauthorized structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of damages are awarded only in the instances enumerated in Article 2208
of the Civil Code. Thus, the award of attorneys fees is the exception rather than the rule.[84] Attorneys fees are not awarded every time a party prevails in a suit because of the
[83]

policy that no premium should be placed on the right to litigate.[85] We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not dispute this factual finding of the two courts. We find the amount reasonable
compensation to Pajuyo. The P300 monthly rental is counted from the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET
ASIDE.The Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 December
1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is deleted. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-38745 August 6, 1975

LUCIA TAN, plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants..

CASTRO, J.:
This appeal was certified to this Court by the Court of Appeals as involving questions purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis Occidental (Branch I) in an action instituted by the plaintiff-appellee Lucia Tan against the defendants-
appellants Arador Valdehueza and Rediculo Valdehueza (docketed as civil case 2574) for (a) declaration of ownership and recovery of possession of the parcel of land described
in the first cause of action of the complaint, and (b) consolidation of ownership of two portions of another parcel of (unregistered) land described in the second cause of action of
the complaint, purportedly sold to the plaintiff in two separate deeds of pacto de retro.
After the issues were joined, the parties submitted the following stipulation of facts:
1. That parties admit the legal capacity of plaintiff to sue; that defendants herein, Arador, Rediculo, Pacita, Concepcion and Rosario, all surnamed Valdehueza, are
brothers and sisters; that the answer filed by Arador and Rediculo stand as the answer of Pacita, Concepcion and Rosario.
2. That the parties admit the identity of the land in the first cause of action.
3. That the parcel of land described in the first cause of action was the subject matter of the public auction sale held on May 6, 1955 at the Capitol Building in Oroquieta,
Misamis Occidental, wherein the plaintiff was the highest bidder and as such a Certificate of Sale was executed by MR. VICENTE D. ROA who was then the Ex-Officio Provincial
Sheriff in favor of LUCIA TAN the herein plaintiff. Due to the failure of defendant Arador Valdehueza to redeem the said land within the period of one year as being provided by
law, MR. VICENTE D. ROA who was then the Ex-Officio Provincial Sheriff executed an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA TAN.
A copy of the NOTICE OF SHERIFFS SALE is hereby marked as 'Annex A', the CERTIFICATE OF SALE is marked as 'Annex B' and the ABSOLUTE DEED OF SALE is hereby
marked as Annex C and all of which are made as integral parts of this stipulation of facts.
4. That the party-plaintiff is the same plaintiff in Civil Case No. 2002; that the parties defendants Arador, Rediculo and Pacita, all Valdehueza were the same parties-
defendants in the same said Civil Case No. 2002; the complaint in Civil Case No. 2002 to be marked as Exhibit 1; the answer as Exhibit 2 and the order dated May 22, 1963 as
Exhibit 3, and said exhibits are made integral part of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have executed two documents of DEED OF PACTO DE RETRO SALE in favor of the
plaintiff herein, LUCIA TAN of two portions of a parcel of land which is described in the second cause of action with the total amount of ONE THOUSAND FIVE HUNDRED PESOS
(P1,500.00), Philippine Currency, copies of said documents are marked as 'Annex D' and Annex E', respectively and made as integral parts of this stipulation of facts.
6. That from the execution of the Deed of Sale with right to repurchase mentioned in the second cause of action, defendants Arador Valdehueza and Rediculo
Valdehueza remained in the possession of the land; that land taxes to the said land were paid by the same said defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a complaint for injunction filed by Tan on July 24, 1957 against the Valdehuezas, to enjoin them "from entering the above-
described parcel of land and gathering the nuts therein ...." This complaint and the counterclaim were subsequently dismissed for failure of the parties "to seek for the immediate
trial thereof, thus evincing lack of interest on their part to proceed with the case.1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D" (dated August 5, 1955) was not registered in the Registry of Deeds, while the Deed of Pacto de
Retro referred to as "Annex E" (dated March 15, 1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff:
1. Declaring Lucia Tan the absolute owner of the property described in the first cause of action of the amended complaint; and ordering the herein defendants not to
encroach and molest her in the exercise of her proprietary rights; and, from which property they must be dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo Valdehueza jointly and severally to pay to the plaintiff, Lucia Tan, on Annex 'E' the amount of P1,200, with
legal interest of 6% as of August 15, 1966, within 90 days to be deposited with the Office of the Court within 90 days from the date of service of this decision, and that in default of
such payment the property shall be sold in accordance with the Rules of Court for the release of the mortgage debt, plus costs;
3. And as regards the land covered by deed of pacto de retro annex 'D', the herein defendants Arador Valdehueza and Rediculo Valdehueza are hereby ordered to pay
the plaintiff the amount of P300 with legal interest of 6% from August 15, 1966, the said land serving as guaranty of the said amount of payment;
4. Sentencing the defendants Arador Valdehueza and Rediculo Valdehueza to pay jointly and severally to the herein plaintiff Lucia Tan the amount of 1,000.00 as
attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first cause of action that there exists res judicata; and
That the lower court erred in making a finding on the second cause of action that the transactions between the parties were simple loan, instead, it should be declared as equitable
mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides that a dismissal for failure to prosecute "shall have the effect of an adjudication upon
the merits," the Valdehuezas submit that the dismissal of civil case 2002 operated, upon the principle of res judicata, as a bar to the first cause of action in civil case 2574. We rule
that this contention is untenable as the causes of action in the two cases are not identical. Case 2002 was for injunction against the entry into and the gathering of nuts from the
land, while case 2574 seeks to "remove any doubt or cloud of the plaintiff's ownership ..." (Amended complaint, Rec. on App., p. 27), with a prayer for declaration of ownership and
recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent judgments, 2 we hold that the failure of Tan, in case 2002, to secure an injunction against the
Valdehuezas to prevent them from entering the land and gathering nuts is not inconsistent with her being adjudged, in case 2574, as owner of the land with right to recover
possession thereof. Case 2002 involved only the possession of the land and the fruits thereof, while case 2574 involves ownership of the land, with possession as a mere attribute
of ownership. The judgment in the first case could not and did not encompass the judgment in the second, although the second judgment would encompass the first. Moreover, the
new Civil Code provides that suitors in actions to quiet title "need not be in possession of said property. 3
2. The trial court treated the registered deed of pacto de retro as an equitable mortgage but considered the unregistered deed of pacto de retro "as a mere case of simple
loan, secured by the property thus sold under pacto de retro," on the ground that no suit lies to foreclose an unregistered mortgage. It would appear that the trial judge had not
updated himself on law and jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil Code and decisions of this Court circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of a mortgage even as between the parties, but under article 2125 of the new
Civil Code (in effect since August 30,1950), this is no longer so.4
If the instrument is not recorded, the mortgage is nonetheless binding between the parties. (Article 2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and the realty taxes having been paid by them, the contracts which purported to be pacto de retro transactions are
presumed to be equitable mortgages,5 whether registered or not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed that they remained in possession of the land and gave the proceeds of the harvest to
the plaintiff; it is thus argued that they would suffer double prejudice if they are to pay legal interest on the amounts stated in the pacto de retro contracts, as the lower court has
directed, and that therefore the court should have ordered evidence to be adduced on the harvest.
The record does not support this claim. Nowhere in the original and the amended complaints is an allegation of delivery to the plaintiff of the harvest from the land involved in the
second cause of action. Hence, the defendants' answer had none to affirm.
In submitting their stipulation of facts, the parties prayed "for its approval and maybe made the basis of the decision of this Honorable Court. " (emphasis supplied) This, the court
did. It cannot therefore be faulted for not receiving evidence on who profited from the harvest.
4. The imposition of legal interest on the amounts subject of the equitable mortgages, P1,200 and P300, respectively, is without legal basis, for, "No interest shall be due
unless it has been expressly stipulated in writing." (Article 1956, new Civil Code) Furthermore, the plaintiff did not pray for such interest; her thesis was a consolidation of
ownership, which was properly rejected, the contracts being equitable mortgages.
With the definitive resolution of the rights of the parties as discussed above, we find it needless to pass upon the plaintiffs petition for receivership. Should the circumstances so
warrant, she may address the said petition to the court a quo.
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts of P1,200 and P300 mentioned in Annexes E and D shall bear interest at six percent per
annum from the finality of this decision; and (b) the parcel of land covered by Annex D shall be treated in the same manner as that covered by Annex E, should the defendants fail
to pay to the plaintiff the sum of P300 within 90 days from the finality of this decision. In all other respects the judgment is affirmed. No costs.
Makalintal, C.J., Makasiar, Esguerra and Muñoz Palma, JJ., concur.
Teehankee, J., is on leave.
Martin, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47878 July 24, 1942
GIL JARDENIL, plaintiff-appellant,
vs.
HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee.
MORAN, J.:
This is an action for foreclosure of mortgage. The only question raised in this appeal is: Is defendant-appellee bound to pay the stipulated interest only up to the date of maturity as
fixed in the promissory note, or up to the date payment is effected? This question is, in our opinion controlled by the express stipulation of the parties.
Paragraph 4 of the mortgage deed recites:
Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS (P2,4000.00), moneda filipina, que el Sr. Hepti Solas se compromete a pagar al Sr.
Jardenil en o antes del dia treintaiuno (31) de marzo de mil novecientos treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por ciento (12%) anual a partir
desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de marzo de mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti Solas cede y traspasa, por via de
primera hipoteca, a favor del Sr. Jardenil, sus herederos y causahabientes, la parcela de terreno descrita en el parrafo primero (1.º) de esta escritura.
Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until March 31, 1934. As the contract is silent as to whether after that date, in
the event of non-payment, the debtor would continue to pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon the
debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated."
(Emphasis supplied.)
A writing must be interpreted according to the legal meaning of its language (section 286, Act No. 190, now section 58, Rule 123), and only when the wording of the written
instrument appears to be contrary to the evident intention of the parties that such intention must prevail. (Article 1281, Civil Code.) There is nothing in the mortgage deed to show
that the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the mortgage of granting to the mortgagor on the same date of
execution of the deed of mortgage, an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the
mortgagor should pay during the additional period (see Exhibit B attached to the complaint), indicates that the true intention of the parties was that no interest should be paid
during the period of grace. What reason the parties may have therefor, we need not here seek to explore.
Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their agreement, for if such mistake existed, plaintiff would have undoubtedly
adduced evidence to establish it and asked that the deed be reformed accordingly, under the parcel-evidence rule.
We hold therefore, that as the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the
parties and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, same should be given its full force and effect. When a party
sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay any claim more than what its clear stipulations accord. His omission, to
which the law attaches a definite warning as an in the instant case, cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate.
Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400 from November 8, 1932 to March 31, 1934. And it being a fact that extra judicial
demands have been made which we may assume to have been so made on the expiration of the year of grace, he shall be entitled to legal interest upon the principal and the
accrued interest from April 1, 1935, until full payment.
Thus modified judgment is affirmed, with costs against appellant.
Yulo, C.J., Ozaeta and Bocobo, JJ., concur.
 THIRD DIVISION

BOBIE ROSE V. FRIAS, G.R. No. 155223

represented by her Attorney-in-

fact, MARIE F. FUJITA,

Petitioner

- versus -

FLORA SAN DIEGO-SISON,

Respondent.
x------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-in-fact, Marie Regine F. Fujita (petitioner) seeking to annul the Decision[1]
dated June 18, 2002 and the Resolution[2] dated September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.

Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro Manila, which she acquired from Island Masters Realty and
Development Corporation (IMRDC) by virtue of a Deed of Sale dated Nov. 16, 1990. [3] The property is covered by TCT No. 168173 of the Register of Deeds of Makati in the name
of IMRDC.[4]

On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the SECOND PARTY, entered into a Memorandum of Agreement [5]over
the property with the following terms:

NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) receipt of which is hereby acknowledged by the FIRST PARTY from the
SECOND PARTY, the parties have agreed as follows:

1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract within which to notify the FIRST PARTY of her intention to purchase
the aforementioned parcel of land together within (sic) the improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS (P6,400,000.00). Upon
notice to the FIRST PARTY of the SECOND PARTYs intention to purchase the same, the latter has a period of another six months within which to pay the remaining balance of
P3.4 million.

2. That prior to the six months period given to the SECOND PARTY within which to decide whether or not to purchase the above-mentioned property, the FIRST PARTY may
still offer the said property to other persons who may be interested to buy the same provided that the amount of P3,000,000.00 given to the FIRST PARTY BY THE SECOND
PARTY shall be paid to the latter including interest based on prevailing compounded bank interest plus the amount of the sale in excess of P7,000,000.00 should the property be
sold at a price more than P7 million.

3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this contract, no interest shall be charged by the SECOND PARTY on the
P3 million however, in the event that on the sixth month the SECOND PARTY would decide not to purchase the aforementioned property, the FIRST PARTY has a period of
another six months within which to pay the sum of P3 million pesos provided that the said amount shall earn compounded bank interest for the last six months only. Under this
circumstance, the amount of P3 million given by the SECOND PARTY shall be treated as [a] loan and the property shall be considered as the security for the mortgage which can
be enforced in accordance with law.

x x x x.[6]

Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check dated February 28, 1990, instead of 1991, which rendered said check
stale.[7] Petitioner then gave respondent TCT No. 168173 in the name of IMRDC and the Deed of Absolute Sale over the property between petitioner and IMRDC.

Respondent decided not to purchase the property and notified petitioner through a letter [8] dated March 20, 1991, which petitioner received only on June 11, 1991,[9] reminding
petitioner of their agreement that the amount of two million pesos which petitioner received from respondent should be considered as a loan payable within six months. Petitioner
subsequently failed to pay respondent the amount of two million pesos.

On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint [10] for sum of money with preliminary attachment against petitioner. The case was
docketed as Civil Case No. 93-65367 and raffled to Branch 30. Respondent alleged the foregoing facts and in addition thereto averred that petitioner tried to deprive her of the
security for the loan by making a false report[11] of the loss of her owners copy of TCT No. 168173 to the Tagig Police Station on June 3, 1991, executing an affidavit of loss and by
filing a petition[12] for the issuance of a new owners duplicate copy of said title with the RTC of Makati, Branch 142; that the petition was granted in an Order[13] dated August 31,
1991; that said Order was subsequently set aside in an Order dated April 10, 1992[14] where the RTC Makati granted respondents petition for relief from judgment due to the fact
that respondent is in possession of the owners duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to conduct an investigation of petitioner for perjury
and false testimony. Respondent prayed for the ex-parte issuance of a writ of preliminary attachment and payment of two million pesos with interest at 36% per annum from
December 7, 1991, P100,000.00 moral, corrective and exemplary damages and P200,000.00 for attorneys fees.

In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary attachment upon the filing of a bond in the amount of two million pesos.[15]

Petitioner filed an Amended Answer[16] alleging that the Memorandum of Agreement was conceived and arranged by her lawyer, Atty. Carmelita Lozada, who is also respondents
lawyer; that she was asked to sign the agreement without being given the chance to read the same; that the title to the property and the Deed of Sale between her and the IMRDC
were entrusted to Atty. Lozada for safekeeping and were never turned over to respondent as there was no consummated sale yet; that out of the two million pesos cash paid, Atty.
Lozada took the one million pesos which has not been returned, thus petitioner had filed a civil case against her; that she was never informed of respondents decision not to
purchase the property within the six month period fixed in the agreement; that when she demanded the return of TCT No. 168173 and the Deed of Sale between her and the
IMRDC from Atty. Lozada, the latter gave her these documents in a brown envelope on May 5, 1991 which her secretary placed in her attache case; that the envelope together
with her other personal things were lost when her car was forcibly opened the following day; that she sought the help of Atty. Lozada who advised her to secure a police report, to
execute an affidavit of loss and to get the services of another lawyer to file a petition for the issuance of an owners duplicate copy; that the petition for the issuance of a new
owners duplicate copy was filed on her behalf without her knowledge and neither did she sign the petition nor testify in court as falsely claimed for she was abroad; that she was a
victim of the manipulations of Atty. Lozada and respondent as shown by the filing of criminal charges for perjury and false testimony against her; that no interest could be due as
there was no valid mortgage over the property as the principal obligation is vitiated with fraud and deception. She prayed for the dismissal of the complaint, counter-claim for
damages and attorneys fees.

Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,[17] the dispositive portion of which reads:
WHEREFORE, judgment is hereby RENDERED:

1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two (32%) per cent per annum beginning December 7, 1991 until fully paid.
2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on the attachment bond with legal interest thereon counted from the date of
this decision until fully paid.

3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and exemplary damages.

4) Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost of litigation.[18]

The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos with compounded interest pursuant to their Memorandum of Agreement;
that the fraudulent scheme employed by petitioner to deprive respondent of her only security to her loaned money when petitioner executed an affidavit of loss and instituted a
petition for the issuance of an owners duplicate title knowing the same was in respondents possession, entitled respondent to moral damages; and that petitioners bare denial
cannot be accorded credence because her testimony and that of her witness did not appear to be credible.

The RTC further found that petitioner admitted that she received from respondent the two million pesos in cash but the fact that petitioner gave the one million pesos to Atty.
Lozada was without respondents knowledge thus it is not binding on respondent; that respondent had also proven that in 1993, she initially paid the sum of P30,000.00 as
premium for the issuance of the attachment bond, P20,000.00 for its renewal in 1994, and P20,000.00 for the renewal in 1995, thus plaintiff should be reimbursed considering that
she was compelled to go to court and ask for a writ of preliminary attachment to protect her rights under the agreement.

Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC decision with modification, the dispositive portion of which reads:

WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of interest is reduced from 32% to 25% per annum, effective June 7,
1991 until fully paid.[19]
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly as a loan; respondent did not replace the mistakenly dated check of
one million pesos because she had decided not to buy the property and petitioner knew of her decision as early as April 1991; the award of moral damages was warranted since
even granting petitioner had no hand in the filing of the petition for the issuance of an owners copy, she executed an affidavit of loss of TCT No. 168173 when she knew all along
that said title was in respondents possession; petitioners claim that she thought the title was lost when the brown envelope given to her by Atty. Lozada was stolen from her car
was hollow; that such deceitful conduct caused respondent serious anxiety and emotional distress.

The CA concluded that there was no basis for petitioner to say that the interest should be charged for six months only and no more; that a loan always bears interest otherwise it is
not a loan; that interest should commence on June 7, 1991[20] with compounded bank interest prevailing at the time the two million was considered as a loan which was in June
1991; that the bank interest rate for loans secured by a real estate mortgage in 1991 ranged from 25% to 32% per annum as certified to by Prudential Bank,[21] that in fairness to
petitioner, the rate to be charged should be 25% only.

Petitioners motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.

Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:

(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM
OF AGREEMENT.

(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.

(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IS PROPER EVEN IF NOT
MENTIONED IN THE TEXT OF THE DECISION.[22]
Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per annum as modified by the CA which should run from June 7, 1991 until
fully paid, is contrary to the parties Memorandum of Agreement; that the agreement provides that if respondent would decide not to purchase the property, petitioner has the period
of another six months to pay the loan with compounded bank interest for the last six months only; that the CAs ruling that a loan always bears interest otherwise it is not a loan is
contrary to Art. 1956 of the New Civil Code which provides that no interest shall be due unless it has been expressly stipulated in writing.

We are not persuaded.

While the CAs conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a simple loan may be gratuitous or with a stipulation to pay interest,[23] we find
no error committed by the CA in awarding a 25% interest per annum on the two-million peso loan even beyond the second six months stipulated period.

The Memorandum of Agreement executed between the petitioner and respondent on December 7, 1990 is the law between the parties. In resolving an issue based upon a
contract, we must first examine the contract itself, especially the provisions thereof which are relevant to the controversy.[24] The general rule is that if the terms of an agreement
are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail.[25] It is further required that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.[26]

In this case, the phrase for the last six months only should be taken in the context of the entire agreement. We agree with and adopt the CAs interpretation of the phrase in this
wise:

Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-appellee (respondent) to make up her mind whether or not to
purchase defendant-appellants (petitioner's) property. The second six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiff-
appelleedecided not to buy the subject property in which case interest will be charged for the last six months only, referring to the second six-month period. This means that no
interest will be charged for the first six-month period while appellee was making up her mind whether to buy the property, but only for the second period of six months after
appellee had decided not to buy the property. This is the meaning of the phrase for the last six months only. Certainly, there is nothing in their agreement that suggests that
interest will be charged for six months only even if it takes defendant-appellant an eternity to pay the loan.[27]

The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring to the second six-month period, does not mean that interest
will no longer be charged after the second six-month period since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the
date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of Agreement shall be considered as a loan, the monetary interest for the
last six months continued to accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to
accrue since the debtor continues to use such principal amount.[28] It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the
same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor.[29]

Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the certification issued by Prudential Bank, the interest rate for loans in
1991 ranged from 25% to 32% per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer assailed.

In Bautista v. Pilar Development Corp.,[30] we upheld the validity of a 21% per annum interest on a P142,326.43 loan. In Garcia v. Court of Appeals,[31] we sustained the agreement
of the parties to a 24% per annum interest on an P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the CA to a P2 million loan is fair and reasonable.

Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent scheme to deprive respondent of her security for the loan; that such
finding is baseless since petitioner was acquitted in the case for perjury and false testimony filed by respondent against her.

We are not persuaded.

Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may
proceed independently of the criminal proceedings and regardless of the result of the latter.[32]
While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her, those actions are entirely distinct from the collection of sum of money with
damages filed by respondent against petitioner.

We agree with the findings of the trial court and the CA that petitioners act of trying to deprive respondent of the security of her loan by executing an affidavit of loss of the title and
instituting a petition for the issuance of a new owners duplicate copy of TCT No. 168173 entitles respondent to moral damages. Moral damages may be awarded in
culpacontractual or breach of contract cases when the defendant acted fraudulently or in bad faith. Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud.[33]

The Memorandum of Agreement provides that in the event that respondent opts not to buy the property, the money given by respondent to petitioner shall be treated as a loan and
the property shall be considered as the security for the mortgage. It was testified to by respondent that after they executed the agreement on December 7, 1990, petitioner gave
her the owners copy of the title to the property, the Deed of Sale between petitioner and IMRDC, the certificate of occupancy, and the certificate of the Secretary of the IMRDC
who signed the Deed of Sale.[34] However, notwithstanding that all those documents were in respondents possession, petitioner executed an affidavit of loss that the owners copy
of the title and the Deed of Sale were lost.

Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was of the belief that since she had demanded from Atty. Lozada the return of the
title, she thought that the brown envelope with markings which Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of Sale as those documents were in
the same brown envelope which she gave to Atty. Lozada prior to the transaction with respondent. [35] Such statement remained a bare statement. It was not proven at all since
Atty. Lozada had not taken the stand to corroborate her claim. In fact, even petitioners own witness, Benilda Ynfante (Ynfante), was not able to establish petitioner's claim that the
title was returned by Atty. Lozada in view of Ynfante's testimony that after the brown envelope was given to petitioner, the latter passed it on to her and she placed it in petitioners
attach case[36] and did not bother to look at the envelope.[37]

It is clear therefrom that petitioners execution of the affidavit of loss became the basis of the filing of the petition with the RTC for the issuance of new owners duplicate copy of
TCT No. 168173. Petitioners actuation would have deprived respondent of the security for her loan were it not for respondents timely filing of a petition for relief whereby the RTC
set aside its previous order granting the issuance of new title. Thus, the award of moral damages is in order.
The entitlement to moral damages having been established, the award of exemplary damages is proper. [38] Exemplary damages may be imposed upon petitioner by way of
example or correction for the public good.[39] The RTC awarded the amount of P100,000.00 as moral and exemplary damages. While the award of moral and exemplary damages
in an aggregate amount may not be the usual way of awarding said damages, [40] no error has been committed by CA. There is no question that respondent is entitled to moral and
exemplary damages.

Petitioner argues that the CA erred in awarding attorneys fees because the trial courts decision did not explain the findings of facts and law to justify the award of attorneys fees as
the same was mentioned only in the dispositive portion of the RTC decision.

We agree.

Article 2208[41] of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be
granted.[42] Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They 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. [43] The award of attorney's fees is the exception rather than the general rule. As such, it is
necessary for the trial court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. The matter of attorney's fees
cannot be mentioned only in the dispositive portion of the decision.[44] They must be clearly explained and justified by the trial court in the body of its decision. On appeal, the CA is
precluded from supplementing the bases for awarding attorneys fees when the trial court failed to discuss in its Decision the reasons for awarding the same. Consequently, the
award of attorney's fees should be deleted.

WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are
AFFIRMED with MODIFICATION that the award of attorneys fees is DELETED.

No pronouncement as to costs.
 THIRD DIVISION
[G.R. No. 142277. December 11, 2002]
ARWOOD INDUSTRIES, INC., petitioner, vs. D.M. CONSUNJI, INC., respondent.
DECISION
CORONA, J .:
This is a petition for review of the decision[1] dated November 12, 1999 of the Court of Appeals, which affirmed, with modification, the decision [2] dated April 1, 1997 of the Regional
Trial Court, Branch 153, Pasig City in Civil Case No. 63489.
The core issue of this petition is the propriety of the imposition of two percent (2%) interest on the amount adjudged by the trial court and later affirmed by the Court of Appeals in
favor of respondent D.M. Consunji, Inc. and against petitioner Arwood Industries, Inc.
The factual backdrop of this case is as follows:
Petitioner and respondent, as owner and contractor, respectively, entered into a Civil, Structural and Architectural Works Agreement[3] (Agreement) dated February 6, 1989 for the
construction of petitioner's Westwood Condominium at No. 23 Eisenhower St., Greenhills, San Juan, Metro Manila. The contract price for the condominium project aggregated
P20,800,000.00.
Despite the completion of the condominium project, the amount of P962,434.78 remained unpaid by petitioner. Repeated demands by respondent for petitioner to pay went
unheeded.
Thus, on August 13, 1993, respondent, as plaintiff in Civil Case No. 63489 filed its complaint [4] for the recovery of the balance of the contract price and for damages against
petitioner.
Respondent specifically prayed for the payment of the (a) amount of P962,434.78 with interest of 2% per month or a fraction thereof, from November 1990 up to the time of
payment; (b) the amount of P250,000 as attorney's fees and litigation expenses; (c) amount of P150,000 as exemplary damages and (d) costs of suit.[5]
After trial, the court below resolved to grant the relief prayed for by respondent, thus:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendant ordering the latter to pay the former the following:
(1) the sum of P962,434.78 representing the balance of contract price with interest at 2% per month from November 1990 up to the time of payment;
(2) the amount of P150,000.00 as attorney's fees; and
(3) Cost(s) of suit.
SO ORDERED.[6]
Petitioner appealed to the Court of Appeals, particularly opposing the finding of the trial court with regard to the imposition of the monetary interest of 2% per month on the
adjudicated amount.
The Court of Appeals upheld the trial court despite dauntless demurring by petitioner. Respondent court found basis in Article 6.03 of the Agreement concerning the imposition of
the 2% interest, which reads:
Payment shall be made by the OWNER to the CONTRACTOR within fifteen (15) calendar days after receipt of the Construction Manager's Certificate. In the event OWNER
delays the payments (i.e. beyond the stipulated time) to the CONTRACTOR of monthly progress billings, the CONTRACTOR shall have the option to either suspend the
works on the Project until such payments have been remitted by the OWNER or continue the work but the OWNER shall be required to pay the interest at a rate of two
(2%) percent per month or the fraction thereof in days of the amount due for payment by the OWNER. The same interest shall be added to the billing of the following month.
Furthermore, the progress payments shall be reduced by a portion of the downpayment made by the OWNER corresponding to the value of the work completed.[7]
Respondent court, however, modified the decision of the trial court by deleting the award of attorney's fees for the following reasons:
Finally, defendant-appellant argues that the court a quo erred in awarding attorneys fees because the same was not mentioned in the body of the decision.
On this ultimate point, We agree.
In the case of Del Rosario vs. Court of Appeals (267 SCRA 158, 175), the Supreme Court held that:
Finally, like the adjudication of actual or compensatory damages, the award of attorneys fees must be deleted. The matter was dealt with only in the dispositive portion of the Trial
Courts decision. Since the judgment does not say why attorneys fees were awarded, there is no basis for such award, which should consequently be removed. So did this Court
rule, for instance, in Scott Consultants and Resource Development Corp., Inc. et al. (242 SCRA 393, 406):
It is settled that the award of attorneys fees is the exception rather than the rule and counsels fees are not to be awarded every time a party wins. The power of the court to award
attorneys fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court
must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorneys fees.[8]
Petitioner moved to reconsider, unsuccessfully.
Hence, this petition for review. The only issue is the correctness of imposing a 2% per month interest on the award of P962,434.78.
Petitioner argues that the trial court's decision has no basis in imposing the 2% interest per month. Although the Agreement contained a provision with regard to the interest, this
provision was not mentioned by the trial court in awarding interest in the dispositive portion. This provision of the Agreement does not apply to the claim of respondent but refers to
the monthly progress billings. The amount of P962,434.78 is not a monthly progress billing and should not therefore be subject to interest.
Furthermore, the pre-trial order of the trial court dated February 4, 1994 did not include interest as one of the issues to be resolved and determined during the trial; the parties
agreed that the main issue was
x x x whether or not defendant is liable to pay the balance of P964,434.78 as stated in the Complaint.[9]
Thus, the trial court erroneously disposed of the issue on payment of interest.
Petitioner points to the error of the Court of Appeals in basing its decision (on the issue of interest) on Article 6.03 of the Agreement. It reasons that while there was a formal offer
of the Agreement and its sub-markings, the provision on interest was neither sub-marked nor formally offered in evidence.[10] Hence, the imposition of interest is wanting in basis as
it is not even explicitly alleged in the complaint before the trial court.
Petitioner's stance hardly deserves this Court's attention.
The Agreement or the contract between the parties is the formal expression of the parties rights, duties and obligations. It is the best evidence of the intention of the parties. Thus,
when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors
in interest, no evidence of such terms other than the contents of the written agreement.[11]
Consequently, upon the fulfillment by respondent of its obligation to complete the construction project, petitioner had the correlative duty to pay for respondents services. However,
petitioner refused to pay the balance of the contract price. From the moment respondent completed the construction of the condominium project and petitioner refused to pay in
full, there was delay on the part of petitioner. This delay was never disputed.
Delay in the performance of an obligation is looked upon with disfavor because, when a party to a contract incurs delay, the other party who performs his part of the contract
suffers damages thereby. Dilationes in lege sunt idiosae.[12] Obviously, respondent suffered damages brought about by the failure of petitioner to comply with its obligation on time.
And, sans elaboration of the matter at hand, damages take the form of interest. Accordingly, the appropriate measure of damages in this case is the payment of interest at the rate
agreed upon, which is 2% interest for every month of delay.
It must be noted that the Agreement provided the contractor, respondent in this case, two options in case of delay in monthly payments, to wit: a) suspend work on the project until
payment is remitted by the owner or b) continue the work but the owner shall be required to pay interest at a rate of two percent (2%) per month or a fraction thereof. Evidently,
respondent chose the latter option, as the condominium project was in fact already completed. The payment of the 2% monthly interest, therefore, cannot be jettisoned overboard.
Since the Agreement stands as the law between the parties,[13] this Court cannot ignore the existence of such provision providing for a penalty for every months delay. Facta legem
facunt inter partes.[14] Neither can petitioner impugn the Agreement to which it willingly gave its consent. From the moment petitioner gave its consent, it was bound not only to fulfill
what was expressly stipulated in the Agreement but also all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[15] Petitioners
attempt to mitigate its liability to respondent should thus fail.
As a last-ditch effort to evade liability, petitioner argues that the amount of P962,434.78 claimed by respondent and later awarded by the lower courts does not refer to monthly
progress billings, the delayed payment of which would earn interest at 2% per month.
We disagree.
Petitioner appears confused by a semantics problem. Monthly progress billings certainly form part of the contract price. If the amount claimed by respondent is not the monthly
progress billings provided in the contract, what then does such amount represent? Petitioner has not in point of fact convincingly supplied an answer to this query. Neither has
petitioner shown any effort to clarify the meaning of monthly progress billings to support its position. This leaves us no choice but to agree with respondent that the phrase monthly
progress billings refers to a portion of the contract price payable by the owner (petitioner) of the project to the contractor (respondent) based on the percentage of completion of the
project or on work accomplished at a particular stage. It refers to that portion of the contract price still to be paid as work progresses, after the downpayment is made.[16]
This definition is, indeed, not without basis. Articles 6.02 and 6.03 of the Agreement, which respectively provides that the (b)alance shall be paid in monthly progress payments
based on actual value of the work accomplished[17] and that the progress payments shall be reduced by a portion of the downpayment made by the OWNER corresponding to the
value of the work completed give sense to respondents interpretation of monthly progress billings.
Even supposing that petitioner has a different definition of monthly progress billings, it must nonetheless be interpreted in favor of herein respondent because Article 6.03 of the
Agreement, which gives respondent the options in case of petitioners default in payment, was obviously stipulated for respondents benefit.[18]
Thus, respondent correctly contends that the amount claimed, which is part of the contract price, would not have accumulated had petitioner been diligent in the monthly payment
of the work accomplished by respondent.
Respondents claim, it must be noted, includes payment of the sum of P962,474.78, exclusive of damages. The Complaint of plaintiff-respondent prayed for the amount of
P962,474.78 exclusive of damages. Petitioner had all the opportunity to squarely meet the issue on interest at the pre-trial as it was deemed included in the phrase exclusive of
damages. The appeal to the respondent court on the matter of interest was, therefore, a belated effort to object to the contents of the Agreement. Petitioner cannot resort to this
sneaky scheme. Objection to evidence cannot be raised for the first time on appeal; when a party desires the court to reject the evidence offered, he must so state in the form of
objection. Without such objection, he cannot raise the question for the first time on appeal. [19] And, since there was no timely objection to the contents of the Agreement, the
Agreement and its contents form part of the evidence of the case. All the parties to the case, therefore, are considered bound by any favorable or unfavorable effects resulting from
the evidence.[20]
Needless to state, it is not indispensable that Article 6.03 of the Agreement be sub-marked and formally offered in evidence during the pre-trial before said provision may take
effect. For one, the provision on the payment of monthly interest is included in the Agreement, the existence and validity of which, to reiterate, were not objected to by petitioner.
For another, the payment of interest as penalty is a necessary consequence of petitioners failure to exercise diligence in the discharge of its obligation under the contract.
Moreover, even assuming that there was a default of stipulation or agreement on interest, respondent may still recover on the basis of the general provision of law, which is Article
2209 of the Civil Code, thus:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.
Article 2209 of the Civil Code, as abovementioned, specifies the appropriate measure of damages where the obligation breached consisted of the payment of sum of money.
Article 2209 was, in extent, explicated by the Court in State Investment House, Inc. vs. Court of Appeals, [21] which provides:
The appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money, is the payment of penalty interest at
the rate agreed upon; and in the absence of a stipulation of a particular rate of penalty interest, then the payment of additional interest at a rate equal to the regular monetary
interest; and if no regular interest had been agreed upon, then payment of legal interest or six percent (6%) per annum. [22]
Hence, even in the absence of a stipulation on interest, under Article 2209 of the Civil Code, respondent would still be entitled to recover the balance of the contract price with
interest.Respondent court, therefore, correctly interpreted the terms of the agreement which provides that the OWNER shall be required to pay the interest at a rate of two percent
(2%) per month or the fraction thereof in days of the amount due for payment by the OWNER.
We, therefore, find no basis to alter the findings of the Court of Appeals affirming the decision of the trial court.
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, and Morales, JJ., concur.
Panganiban, J., on official business.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-43579 June 14, 1938
JOSUE SONCUYA, plaintiff-appellant,
vs.
JUAN AZARRAGA, ET AL., defendants-appellants.
DIAZ, J.:
This case is now before us on appeal from the Court of First Instance of Capiz. After trial, the plaintiff filed a second amended complaint, which the lower court at first refused to
consider, but later on admitted after it was convinced that the allowance thereof was proper in order to make the allegations conform to the established facts. This was done
without the defendants interposing any exception, notwithstanding that they had previously opposed the admission of the amendment. They not afterwards and not now, in their
brief on appeal, question the aforesaid amendment.
It appears from the allegations of the complaint thus amended that the plaintiff has four causes of action. Under the first cause he seeks to recover from the defendants the sum of
P118,635.68 as damages, which he alleges to have been caused by the defendants in fraudulently depriving him of the possession of four parcels of land with a total area of 296
hectares, 58 ares and 92 centares, which they, with knowledge that said real properties belonged to him exclusively, registered in their names in the registry of property and
mortgaged in favor of "Hijos de I. de la Rama" to pay a certain obligation which they had contracted with the Panay Municipal Cadastre. Under the second cause, plaintiff seeks to
recover P6,080 as the supposed value of the heads of cattle belonging to him, which the tenants of the defendants had slaughtered. Under the third cause, he seeks payment of
the sum of P5,575 as the supposed value of 1,115 coconut trees which he had planted on the four parcels of land in question. Under the fourth and last cause of action, plaintiff
prays that the defendants surnamed Azarraga, with the exception of Joaquin Azarraga, be ordered to make up to 123 hectares, 13 ares and 99 centares the land which the latter
had sold to him, because plaintiff did not take possession of the land, except a portion thereof, having an area of 72 hectares, 83 ares and 5 centares. In other words, the
defendants should deliver to the plaintiff an additional 50 hectares , 30 ares and 94 centares inasmuch as the participation of said Joaquin Azarraga in the estate left to him and his
brothers, his co-defendants herein, by their common grandfather, Juan Azarraga y Galvez, which Joaquin Azarraga sold to plaintiff, had that area according to the deed of
partition, executed by all of them, and the plan of said estate which was subsequently drawn up.
In their answer of February 26, 1931, the defendants Azarraga interposed a general denial of each and all the allegations of the plaintiff's complaint, excepting those relating the
following special defenses; First, that the complaint does not allege facts constituting causes of action; second, that the plaintiff and his predecessor in interest were negligent in
failing to inscribe in the office of the register of deeds the supposed encumbrances in their favor over the lands in question, granting that said encumbrances had ever existed;
third, that the plaintiff knew and was personally informed that the lands aforesaid would be surveyed at their instance and inscribed in their names as their own property, but that
he did nothing to defend or protect his rights either during the pendency of the proceedings for the registration of the lands in question or during the period prescribed by law after
the issuance of a decree and title, within which the validity of the same may be assailed; fourth, that at the time of filing their application for registration as well as of the issuance of
the decree ordering the inscription in their names in the registry of property of the lands in question, they were the sole owners of the same, and that admitting for the sake of
argument the theory of the plaintiff that he had a right to said lands, it was nothing more than an expectation that he would be someday their owner; fifth, that the plaintiff had no
right to apply for or obtain from the court a writ of preliminary injunction, wherefore, that obtained was illegal; and sixth, that the right of action of the plaintiff, if any, had prescribed.
The defendants Azarraga further alleged the following counterclaims:
(a) That plaintiff is liable to them in damages in the sum of P100,000 because while the contract which the defendants had entered into with Leodegario Azarraga was still in force,
the plaintiff took possession of their lands not covered by the said contract; that he set loose therein his cattle, utilizing the same as grazing ground in a negligent manner and
without taking the necessary steps to avoid damages to their plantations; that notwithstanding repeated requests, the plaintiff refused to fence the lands in which he had set loose
his animals, thereby causing damages and destruction to their plantations; that the animals belonging to the plaintiff not only destroyed and damaged the coconut, palay and corn
plantation existing already on the lands before said animals were brought thereto, but also destroyed their farms and plantations on their enclosed lands; that all this was due to
the neglect and carelessness of the plaintiff; that by reason of his refusal to enclosed the lands converted into grazing grounds, the defendants were unable to derive any benefits
from their lands or to sell or rent them to those who desire to do so.
(b) That the plaintiff is further liable and should be sentenced to pay them in damages the sum of P 15,000 for having caused the annotation in the corresponding registry of the
book of the office of the register of deeds of the Province of Capiz of a notice of lis pendens not only with regard to the 150 hectares, 48 ares and 50 centares which he claims in
his complaint, but also with regard to the whole area of 246 hectares, 27 ares and 98 centares, described in the original certificate of title No. 9785 issued in the name of the
defendants; that as a result of this act of the plaintiff, they could not enter into any transactions over that unquestioned portion of the land to which said title relates.
(c) That the plaintiff is likewise liable and the defendants pray that he should be sentenced to pay them the sum of P30,000 also in damages, for having sought and secured the
issuance of an order of preliminary attachment of their properties described in certificates of title No. 9804 and 10361.
(d) That the plaintiff is liable and should be sentenced to pay them in damages the sum of P10,000 for having asked and secured from the court on February 7, 1931 a writ of
preliminary injunction in the same case, thereby preventing the defendants from exercising acts of ownership not only on the four parcels in questions, but also on all the other
lands belonging to them.
(e) That in case it is adjudged that the lands in controversy had been improperly inscribed by the defendants in their names in the registry of property, they pray that the plaintiff be
ordered to reimburse them in the sum of P5,000 which represent the taxes paid by them on said lands, plus interest from the dates said taxes were paid;
(f) The defendants lastly pray that upon the dissolution of the writ of preliminary injunction issued against them on the date above-stated and the cancellation of the annotation of
said writ in the corresponding book of the office of the register of deeds of Capiz, the plaintiff be sentenced to pay the costs of the suit.
"Hijos de I. de la Rama" and Panay Municipal Cadastre were included in the complaint only for the purpose of enjoining the former from increasing to P25,000 the credit it had
extend to the defendants Azarraga, who had already obtained P16,000 on a mortgage of the lands in questions executed by them in its favor; and of restraining the latter from
collecting from said loan of P25,000, extended by "Hijos de I. de la Rama" to the defendants, the credit which it claims to have against them under a contract whereby they bound
themselves to provide it with funds to carry on the enterprise for which it has been organized.
"Hijos de I. de la Rama" showed very little interest in the case, for, according to the lower court, it merely filed an answer with a general denial.
Panay Municipal Cadastre, in its answer, denied all the allegations of the complaint in so far as it might be affected thereby, and alleged as special defense that the plaintiff had no
right to ask for, and much less obtain, a writ of preliminary injunction against it. It further alleged as a counterclaim that the said plaintiff has become liable to it in damages in the
sum of P15,000, plus P5,000, plus P5,000 every month, beginning February 7, 1931, because the plaintiff prevented if from receiving from the defendants Azarraga or from "Hijos
de I. de la Rama" the sums which they had bound themselves to deliver under a contract which they had executed on September 20, 1929. After trial, the court rendered judgment
as follows:
Wherefore, the defendants Juan, Jose, Salvador, Joaquin, Emilio, Luis, Rosario, Julio, all surnamed Azarraga, are hereby sentenced to pay the plaintiff, jointly and severally, the
sum of P24,627.98, with legal interest from November 10, 1926, as damages because they fraudulently deprived the plaintiff of his lands in Bay-ang, and likewise to pay the
plaintiff, jointly and severally, the sum of P5,575 with legal interest from November 10, 1926, representing the value of 1,115 coconut trees as improvements on said lands, and,
with the exception of Joaquin Azarraga, to pay the plaintiff, jointly and severally, the sum of P5,030.94 with interest at the legal rate from November 10, 1926 for eviction and
warranty.
In case the defendants Azarraga have no unencumbered properties or can not redeem the mortgage over their properties, with which to satisfy the indemnity for damages, the
payment of said indemnity shall be charged against the bond of the sureties, who secured the lifting of the attachment on the properties of the defendants.
The writ of preliminary injunction issued in this case on February 7, 1931 against the defendants Azarraga, Hijos de I. de la Rama and Panay Municipal Cadastre is hereby made
final, with the exception of that portion which enjoins Hijos de I. de la Rama from delivering to the defendants surnamed Azarraga and Panay Municipal Cadastre more than the
sum of P16,000, which had already been delivered, and which likewise enjoins the latter from demanding from said entity more than the above-mentioned sum of P16,000, which
portion is hereby declared dissolved.
The plaintiff is absolved from the counterclaims interposed by the defendants Azarraga and by the Panay Municipal Cadastre. The defendants Azarraga and by the Panay
Municipal Cadastre. The defendants Azarraga shall pay the costs.
From the foregoing judgment the defendants as well as the plaintiff appealed, and in their respective briefs they assign the following errors;
ASSIGNMENTS OF ERROR OF THE DEFENDANTS
I. The trial court erred in holding that the true nature of the stipulation between Attorney Leodegario Azarraga and the heirs of Don Juan and the heirs of Don Juan Azarraga y
Galvez as contained in the plan of partition Exhibit "A" is one of cession of property in payment of a debt known in Spanish law as "dacion en pago."
II. the trial court erred in not holding that the stipulation between Attorney Leodegario Azarraga and the heirs of the deceased Juan Azarraga y Galvez to the effect that the lands
were to become the property of Attorney Leodegario Azarraga in case the defendants failed to pay his fees within five years and that during this period the said attorney had the
usufruct and possession of the lands, as contained in Exhibit "A", is one of pacto comisorio, which is prohibited by article 1884 of the Civil Code.
III. The trial court erred in finding that the three parcels of land in question, lots Nos. 81, 82, and 83, were sold by Attorney Leodegario Azarraga to the plaintiff herein.
IV. The trial court erred in not holding that the right established by Attorney Leodegario Azarraga by virtue of Exhibit "A" and transferred to the plaintiff is at most an attorney's lien
over the properties in question and that the action of the plaintiff as transferee of this lien should be to compel the defendants to recognize it as a lien.
V. The trial court erred in holding that the defendants procured the registration of the lands in question by fraudulent means.
VI. The trial court erred in not holding that the plaintiff, having no real right over the lands in question, the omission of his name from the application is not fraudulent and not fatal to
the registration of the lands.
VII. The trial court erred in not holding that the plaintiff, being a mere usufructuary of the lands in question for a limited period of time by grace of the owners, was not entitled to be
mentioned in the application for registration and to be notified personally of its proceedings.
VIII. The trial court erred in not holding that the plaintiff had been negligent in not asking for the review of the decree within one year, and in not holding that the plaintiff purposely
allowed the one-year period, within which he could petition for review of the decree, to elapse in order that he might have a cause of action for damages against the defendants.
IX. The trial court erred in permitting the plaintiff to prove the market value of the lands in question although there was absolutely no allegation to that effect in the complaint
notwithstanding the objection thereto and the exception taken by the defendants.
X. The trial court erred in not holding that Joaquin Azarraga has not intervened in the registration of the lands in question, he being only a coowner pro indiviso and as such has
not been guilty of fraud in connection with the registration of the lands.
XI. The trial court erred in not holding that the plaintiff had no real right over the land referred to in Exhibit 'E' in view of the fact that the said document had not been registered.
XII. The trial court erred in holding that the land referred to in Exhibit "E" contains an area of 164 hectares instead of 63 hectares only.
XIII. the trial court erred in finding that the total area of lots 81, 82, and 83, which are the subject matter of the "pactum commissorium" between Attorney Leodegario Azarraga and
the defendants, is 243 hectares instead of 87 hectares only.
XIV. The trial court erred in sentencing the defendants to pay to the plaintiff the sum of P35,233.92 and in not absolving them from the complaint.
XV. The trial court erred in disallowing all the five counterclaims of the defendants amounting to P58,000.
ASSIGNMENTS OF ERROR OF THE PLAINTIFF
(a) The lower court erred in not finding that the market value of the lands in litigation in 1926 was P118,635.68;
(b) The lower court erred in not sentencing the defendants to pay the plaintiff the sum of P6,080 as indemnity for the wrongful slaughter of his animals; and
(c) The lower court erred in not sentencing the defendants to pay the plaintiff, jointly and severally, the sum of P13,290.68 as indemnity, plus legal interest from November 10,
1926.
The salient facts established at the trial which may serve as a basis for an intelligent discussion of the questions raised by the parties and for a proper decision of the same, may
be briefly stated as follows:
By reason of the proceedings had in case No. 11489 of the Court of First Instance of Manila, entitled "Testate Estate of the Deceased Juan Azarraga y Galvez", the defendants
surnamed Azarraga became indebted to Attorney Leodegario Azarraga, who represented them in said case, for attorney's fees, which on October 21, 1919 the court, which took
cognizance of the case, fixed at P3,000 (Exhibit B).
The defendants Azarraga had previously agreed among themselves to pay Attorney Leodegario Azarraga attorney's fees in the manner set out in Exhibit A, which they executed
on January 20, 1919 and approved by the court on August 29, of the same year. (Exhibit C.) The pertinent part of the aforesaid Exhibit A reads as follows:
The parties also agree that the parcels of land located in Bay-ang, New Washington, Capiz, P. I., which are enumerated in the inventory of this partition as Nos. 81, 82 and 83, are
specially mortgaged and subject to the payment of the fees of said attorney of the testate estate, which fees shall be fixed by the court, and said attorney may hold said lands
under no obligation to pay any rent until his fees shall have been fully paid: Provided, however, that if, at the end of the period of five years from the date of the approval of this
project of partition, said parties shall not have been able to pay in full the fees of said attorney, then said parcels of land, Nos. 81, 82 and 83, located in Bay-ang, shall be definitely
adjudicated to said attorney, Mr. Leodegario Azarraga, as his property, in payment of his fees, and all sums which he may have received from time to time from the interested
parties in these testate proceedings, within the said period, shall be returned to said parties: Provided, further, that in case said interested parties in the testate proceedings shall
be able to pay in full the fees of the attorney for the estate before the expiration of said period of five years, then said parcels of land situated in Bay-ang shall continue in the
possession of said attorney for an additional period of three years from the date of the last payment in the event that said attorney may have kept livestock in said lands.
About nine months after the court approved Exhibit A, or to be exact, on June 9, 1920, which was long before the expiration of the period of five years within which the defendants
Azarraga were bound to pay Attorney Leodegario Azarraga his fees, which had been fixed at P3,000, said attorney decided to sell and did sell to the plaintiff his credit against the
defendants for the sum of P2,500 with all the rights inherent therein in accordance with the agreements and stipulations appearing in said document (Exhibit C). One of said
agreement was that Attorney Leodegario Azarraga would take possession of the said parcels of land and, occupy the same, if he so desired, without paying any rent or annuity,
until fees shall have been fully paid. Said parcels were identical with lots Nos. 81, 82 and 83 described in paragraph II of the plaintiff's second amended complaint.
When the plaintiff became the creditor of the defendants Azarraga by virtue of the sale and cession which Attorney Azarraga had made in his favor of the rights which said attorney
had under Exhibit A, he allowed the defendants an extension of a few years over the five years with in which they would have to pay him his credit, or up to February 16, 1926, but
with the express condition that they would pay him interest at the rate of 12 per cent per annum, from August 30, 1924 (Exhibit 5). This term was later extended to April 26, 1926
on the request of the defendants, but also with the condition that they would pay the plaintiff the same interest of 12 per cent. (Exhibits l and M.) The plaintiff granted another
extension to expire on October 31, 1928, but subject to the condition that instead of seven thousand and odd pesos, which undoubtedly referred to the interest of 12 per cent per
annum charged the defendants, they should pay him P12,000 (Exhibit 2). In said two amounts of P7,000 and P12,000 the sum of P4,000 which the plaintiff had given to the
defendant Joaquin Azarraga and which will be dealt with further in detail, was included.
Aside from the above transactions between the plaintiff and the defendants Azarraga, one of the latter, Joaquin Azarraga, executed in favor of the former, the deed known as
Exhibit E of the record and dated October 14, 1922, by which he sold to the plaintiff, for the sum of P4,000, his portion of the inheritance in the testate estate of the late Juan
Azarraga y Galvez, consisting of an undivided tract of land containing an estimated area of 63 hectares and located in Bay-ang Chico, New Washington, Capiz. It is further stated
therein that the period of redemption would be five years to be counted from February 16, 1921, which was later extended to April 26, 1926. In granting him this extension, the
plaintiff imposed on Joaquin Azarraga the condition that he should pay him interest at the rate of 12 per cent from the expiration of the first term (Exhibit M; par. III of the second
amended complaint of plaintiff; and page 5 of the brief of the plaintiff as appellant). A second extension was further granted, but under the condition that he should, together with
his brothers, pay the plaintiff instead of seven thousand and odd pesos, representing the interest referred to in the preceding paragraph, in which the P3,000 mentioned in Exhibit
A were included, P12,000 (Exhibit 20. The deed referred to was never annotated or inscribed in any register in the office of the register of deeds of said province.
By virtue of the transfer made to him by Joaquin Azarraga and also of the terms conditions enumerated in said Exhibit A, the plaintiff took possession of practically the whole land
of the defendants Azarraga, located in Bay-ang, placing therein livestock from the month of August, 1920 and in the same year built sheepfolds therein, besides erecting some
wire fences. When the plaintiff took possession of part of the land in question in August, 1920 and another part thereof in February, 1922, after the execution in his favor of the
deed of transfer, which is a clarification of Exhibit E, he found fruit-bearing and young coconut trees, the latter being more numerous. In 1925, 1926 and 1927, Joaquin Azarraga,
either by himself or his laborers, planted therein hundreds of coconut trees of which but a few hundreds, as we the case with the old ones, remained on account of the long
droughts or other causes. There is nothing definite in the record to show the exact number of animals which the plaintiff had brought to Bay-ang or the cause of the death of some
of them. It seems that some had been wounded, by whom it is not known, much less it is known whether they were wounded by men of the defendants Azarraga. The plaintiff
himself has not spoken with certainly; his statements on this point are mere conjectures uncorroborated by anybody or anything (transcript of stenographic notes, pages 145-147).
There have been also no exact accounts as to whether the animals of the plaintiff where those which destroyed the coconut trees planted on the land by Joaquin Azarraga during
the years 1925, 1926 and 1927 above-mentioned, or were the animals of other persons.
Sometimes in May, 1928, the plaintiff went to the house of the defendants Joaquin Azarraga to collect not only his credit against all the defendants Azarraga, but also the special
credit which, according to him, he had against Joaquin Azarraga. And on October 9, 1928, he addressed a letter to each and every one of the defendants including Joaquin
Azarraga whom he expressly mentioned therein, and, among other things, told them that:
Last May, Messrs. Salvador and Joaquin came to an agreement with me whereby they were to redeem the land in Bay-ang for seven thousand and odd pesos las September, and
in default thereof to transfer in my name the Torrens title of the portion belonging to me; but until now neither of these has been done.
For this reason and in view of the fact that you have not stated in the Torrens title of the land in Bay-ang when you applied for the same, the two encumbrances thereon in my
favor, I am compelled by this omission, which is a clear disregard of my rights, to seek redress therefor in the courts, if you refuse the same to me. Therefore, if you desire to
redeem the land, you may do so for the sum of twelve thousand pesos (P12,000) until the 31st of this month of October; but should you not wish to redeem it, then in order to
avoid the inconvenience of a law suit, I would request that on the same day or prior thereto that you shall have at least submitted to the court your motion praying for an order
approving the segregation and transfer of the portion of said land which belongs to me, together with the corresponding plan, namely, that corresponding to the land which shall be
in my name in the Torrens title. In the understanding that if said date, October 31st, arrives, and you have not done anything either one way or the other, then through your own
fault, I would be compelled to resort to the courts to ask protection of my rights before I lose them, urging the court to order you to pay me by reason of such fraudulent omission a
sum more than double the amount above-mentioned. (Exhibit 2.)
The land in Bay-ang to which the above-transcribed letters refers is the same land made up by the four parcels mentioned in paragraph II of the second amended complaint of the
plaintiff, as parcels 81, 82, 83 and that having an area of 63 hectares.
Between the date of the execution of the document Exhibit A (January 20, 1919) and the date of said letter Exhibit 2 (October 9, 1928), the defendants secured the inscription in
the registry of property and the issuance in their favor of the corresponding certificate of title of the lands described in original certificate of title No. 9785, by virtue of the decree of
registration of October 27, 1925 (Exhibit Q). Of this fact the plaintiff had full knowledge by reason of the letter dated July 9, 1924, which was sent to him by the defendant Juan
Azarraga, wherein the latter, besides asking for an extension of three years, informed him (plaintiff) of the registration proceedings which were then going on. (Exhibit 1.) The
plaintiff did not then nor thereafter take any step to oppose the same, or to ask at least for the revision of the decree of registration, which was issued later, within the period of one
year prescribed by law. To this letter, the plaintiff replied on the 30th of the same month and year, stating, among other things:
Now that I am somewhat relieved from the pressure of work, I am writing to inform you that, although I need cash to meet my pressing financial obligations, your requests have
compelled me to grant you, as administrator the undivided properties of the Azarraga brothers, an extension of the term for the payment of the credit which encumbers the land in
Bay-ang, and, consequently, of the redemption of the same, up to February 16, 1926. Said land and its encumbrances are described in the deed of sale of the said credit with all
the rights inherent therein, executed by Mr. Leodegario Azarraga in favor of the undersigned on July 9, 1920.
As the granting of this extension is causing me a real sacrifice and a great financial strain, in justice and equity, I also ask from you, as administrator of the undivided properties of
the Azarraga brothers, the lucrum cessans so that from August 30, 1924 the aforesaid credit of P3,000 shall earn 12 per cent annual interest.
This letter will serve you as evidence of the granting of the extension of the term for redemption of the said land in Bay-ang and, therefore, there is no necessity for executing
another document to that effect. (Exhibit 5.)
At the time of the filing of the original complaint, plaintiff simultaneously asked for and obtained on February 7, 1931, upon posting a bond in the amount of P2,000, a writ of
preliminary injunction against the defendants (Exh. 15), and in due time caused the annotation in the office of the register of deeds of the Province of Capiz of a notice of lis
pendens not only with regard to the portion having an area of 150 hectares, 48 ares and 50 centares of the lands of the defendants Azarraga, but also with regard to the whole
area of 246 hectares, 27 ares and 98 centares described in original certificate of title No. 9785.
The plaintiff also secured from the Court of First Instance a preliminary attachment of the properties of the defendants, described in certificates of title No. 9804 and 10351, on
February 5, 1929 (Exhibit R); and the same was annotated in the registry of property in the same month. Seven months after, or on September 9, of said year, the aforementioned
attachment was lifted by order of September 7, 1929 (Exhibit X) upon the filing of a bond required by the court in the sum of P12,500 by the interested parties. Said bond having
been filed by the defendants, the court, on the same day, ordered the cancellation of the notice of lis pendens annotated in the office of the register of deeds and the inscription of
all the necessary annotations. (Exhibit Y.)
As clearly proven as the foregoing are the facts that the defendant "Hijos de I. de la Rama" entered into a contract with its co-defendants Azarraga for the purpose of granting them
a credit of P25,000, having delivered to them on different occasions after the execution by said defendants of a deed of mortgage Exhibit 16 in its favor on September 20, 1929, as
part of the aforementioned sum, the total amount of P16,000. The Azarragas needed said amount for carrying on the business for which the defendant Panay Municipal Cadastre,
Inc., had been organized, as set forth in said Exhibit 16 and clarified in Exhibit 17.
By virtue of the writ of injunction issued by the lower court on February 7, 1931, enjoining the defendants Azarraga and the Panay Municipal Cadastre from obtaining from their co-
defendant "Hijos de I. de la Rama" another loan, arise from the P16,000 which they had previously obtained (Exhibit 14), said defendant "Hijos de I. de la Rama" did not extend the
credit, which it had opened to its co-defendants, to P25,000 as required by the contracts Exhibits 16 and 17 above-referred to. In connection with the issuance of the writ of
preliminary injunction, the following facts must be mentioned: After the plaintiff commenced the present case against the defendants Azarraga on January 28, 1929 by means of
his original complaint, he instituted another action against them, which was civil case No. 2643, for the purpose of obtaining a writ of injunction to prevent them from securing the
aforementioned loan of P25,000 from "Hijos de I. de la Rama". This latter case reached this court on certiorari filed on March 22, 1930. As its sole object was the issuance of a writ
of preliminary injunction, this court, reiterating once more the ruling that said remedy is purely subsidiary available only in aid of the right sought to be enforced in the action
wherein the same is issued, and that a separate action to secure the same does not lie as it would permit of multiplicity of suits with the consequent needless expenses (Panay
Municipal Cadastre vs. Garduño and Soncuya, 55 Phil., 574, 578), granted the certiorari prayed for on January 22, 1931, thus setting aside the writ of preliminary injunction issued
by the court of Capiz on October 21, 1929, hence, it was in being for not more than one year, three months and one day.
The writ of preliminary injunction subsequently issued on February 7, 1931, has remained in force up to the present, as the lower court declared in its judgment that it shall be final
with respect to the P9,000 still owing from "Hijos de I, de la Rama" on account of the loan which it had agreed to extend to the other defendants.
The works for which the Panay Municipal Cadastre had been organized were begun in October, 1929. According to the testimony of Gaspar Ferraren, for all the work which they
intended of Gaspar Ferraren, for all the work which they intended to undertake, they needed a capital of not more than P40,000 to make a gross profit of P100,000. Of this
estimated capital they invested the P16,000, obtained from "Hijos de I. de la Rama", which immediately yielded a return of P6,000. He also stated that the Panay Municipal
Cadastre completed half of its works with only the capital obtained from "Hijos de I. de la Rama" (P16,000), plus its first profit of P6,000 and that it made a profit of P24,277.15
meaning thereby that with the aforemention P16,000 it obtained P30,277. 15, or a net profit of P14,277.15.
Another fact which has been clearly established by the testimony of the plaintiff himself is that he decided to sell all the animals which he had placed on the land in question
because he became discouraged by the destruction of said animals by the tenants of the defendants Azarraga. This fact, however, has been established not by competent
evidence, but by hearsay testimony, which was of course timely objected to; and, although he testified in the same breath that he had still some cattle there, he could not state
their exact number, but limited himself to saying "I cannot tell whether there were fifty of them." (Transcript, page 14.)
In his subsequent dealings with the defendants Azarraga, including Joaquin Azarraga, as in his pleadings and testimony, the plaintiff, in referring to the amount of P2,700 or
P3,000, the value of the credit which he had purchased from Attorney Leodegario Azarraga, and to that of P4,000 which he gave to Joaquin Azarraga on the date and under the
circumstances stated in Exhibit E, he alluded to, and considered them as his "credit". Thus, on page 176 of the transcript of the stenographic notes, he said: ". . . land mortgaged to
me . . .;" and on pages 192 and 194 of said transcript, he also said: "Now I am not collecting the credit; I am collecting the damages. Although they may have sold that property to
me for P1, if its commercial value has increased after they have deprive me of the same, I should collect from them such value;" and ". . . I want so say again that what I am
collecting now is not the credit which I have against them, but the damages they have caused me by depriving me of the property."
The facts of the case being as above set out, the questions raised by the parties in their respective assignments of error, should now be considered. In fact, the most important or
those discussed in the first fourteen errors attributed by the defendants to the lower court, and in the first and last errors, which plaintiff, in turn, assigned, may be reduced to the
following:
I. Was the contract entered into by-the Azarraga brothers, the defendants herein, with Attorney Leodegario Azarraga from whom the plaintiff derived his right, a sale with pacto de
retro, or an assignment in payment of a debt, or was it an antichresis partaking of the nature of what was anciently known as pacto comisorio, or a mortgage, or was it merely a
loan with real estate security?
II. Was the contract executed by the defendant Joaquin Azarraga, on the one hand, and the plaintiff, on the other, embodied in Exhibit E, a sale with pacto de retro or simply a loan
with real estate security?
The first question offers no difficulty if account is taken of the established facts and the conduct of the interested parties after the expiration of the term of five years fixed in Exhibit
A. When the plaintiff extended the period to February 16, 1926 within which the defendants Azarraga could pay him his credit, but imposed on them the condition that they pay him
12 per cent annual interest from August 30, 1924 on the principal of P3,000 (Exh. 5) and gave them another extension up to April 26, 1926, under the same conditions as regard
interest (Exh. M), what perhaps could have been considered as a antichresis or pacto comisorio — not an assignment in payment of a debt, or a sale with pacto de retro because
there is nothing in Exhibit A to indicate that such was the intention of the defendants Azarraga or, at least, that they bound themselves to deliver the land in question to the plaintiff
and that the latter should pay them the value thereof; and because there was what may be considered the resolutory condition of five years — was converted into a simple loan by
the decisive circumstance that plaintiff chose to collect thereafter, and the obligors agreed to pay him, 12 per cent annual interest. It is only in contracts of loan, with or without
guaranty, that interest may be demanded (articles 1108, 1740, 1755, 1868, 1876, and 1881 of the Civil Code. As a matter of fact, the contract embodied in Exhibit A was novated
by Exhibits 5 and M, and the plaintiff wanted to have it novated for the third time by means of Exhibit 2. It does not appear of record, however, that the defendants Azarraga ever
assented to the latter novation. Perhaps, their refusal to agree to the same was due to the fact that the plaintiff wanted to raise their old obligation (P3,000 or P2,700 of all the
Azarraga brothers, plus P4,000 which Joaquin Azarraga alone owed, which two accounts both the plaintiff and the defendants considered as amounting to P7,000, exclusive of the
annual interest of 12 per cent) to the round sum of P12,000. From all this it may easily be inferred that the obligation which the defendants had imposed upon themselves by
Exhibit A had ceased to exist and became a simple loan with security, if so desired, of the lands in question, but without prejudice to third parties as neither Exhibit A nor the deed
of assignment Exhibit C, executed by Leodegario Azarraga in favor of the plaintiff, was inscribed in the registry of deeds.
There is also no difficulty in disposing of the second question, considering the various novations which, as has been said, had taken place and had been extended not only to the
Azarraga brothers with respect to their obligation of P3,000 or P2,700, but also to the defendant Joaquin Azarraga as regard his personal debt of P4,000. We must not lose sight of
the fact that the plaintiff never considered the contract entered into by him with Joaquin Azarraga as, strictly speaking, a sale with pacto de retro. And if he had ever considered it
as such, it is, nevertheless, true that he novated it on February 16, 1926, considering it from the time on as a simple loan, inasmuch as on that date he began to charge the said
defendant 12 per cent annual interest with the latter's assent and confirmity. This clearly appears in Exhibit M which must be considered together with paragraphs 7 and 8 of
Exhibit E, as the plaintiff himself does in his brief (brief for the plaintiff as appellant, pages 4 and 5), because the term of five years to which said Exhibit E refers and which should
have expired on February 16, 1926 was extended by the said plaintiff, by Exhibit M, up to April 26, 1926 under the aforementioned condition that he should be paid 12 per cent
annual interest.
Consequently, the contention of the defendants that the plaintiff did not and could never receive the lands in question as an assignment in payment of a debt, and much less did he
acquire them by purchase with pacto de retro, is well taken. It must also be noted that at no time did the plaintiff claim any rights of dominion over the lands since he did not even
intimate to the defendants, either directly or indirectly, that for their failure to pay him his credit within the time provided therefor, he become the absolute owner thereof.
Notwithstanding the fact that all the extensions he had given defendants had expired, he did not, even only for tax declaration purposes, declare the lands as his property. Having
reached this conclusion, it is needless to state that the plaintiff has no right to the various sums which he seeks in his complaint and to which he refers in the first and last errors
assigned by him. If, as has been shown, he never became the owner of the lands in question, he can neither claim payment of the value of the same nor ask to be indemnified for
the deprivation of their possession. The plaintiff, moreover, has no reason to complain that his lien, if his right over said lands could be termed as such, was not annotated in the
certificate of title which the defendants Azarraga had obtained, or that the latter did not ask that it be stated therein that the lands to which it refers are charged with his credit
against them; inasmuch as he was himself negligent in that he did not ask the court, while the registration case relating to said lands was being heard, for the annotation of what
he considered necessary to protect his rights, and in not seeking the revision of modification of the decree of registration within the period of one year provided for the purpose.
As to the fifteenth error attributed to the lower court by the defendants Azarraga, we hold that, in view of the established facts above-related, they have failed to show satisfactorily
that they have any right under all or any of their several counterclaims. If the coconut trees planted by Joaquin Azarraga on a portion of the land in question were indeed lost or
destroyed, it was due more to his own negligence than to the of the plaintiff; for he well knew on planting them in 1925, 1926 and 1927 that the plaintiff maintained therein, with his
(Joaquin Azarraga's) approval, livestock which might destroy them, and he did not take the necessary precautions against such occurrence. This is, of course, upon the
supposition that his coconut plantations died by reason of the devastation caused by the animals of the plaintiff. The preponderance of the evidence, however, has shown that they
died on account of the drought alone.
We likewise hold that the issuance of the writs of preliminary injunction and attachment at the instance of the plaintiff did not prejudice the defendants, inasmuch as there is no
competent evidence of record to the contrary. On the other hand, there is evidence to show that from the loan which the defendants Azarraga had obtained from "Hijos de I. de la
Rama" they derived a net profit of P14,277.15 within the short period of one year and a few months.
There is no support for the contention of the defendants that they suffered damages by reason of the preliminary attachment ordered by the lower court because they were unable
to sell one of their houses to the Calibo Institute for the price agreed upon by them and said entity. The record shows that they lost nothing because the Calibo Institute is at
present occupying a portion of said house and they may, if they so desire, sell it even now to the occupant. It does not appear, on the other hand, that the latter desisted from
buying it on finding a better building.
As to the second error assigned by the plaintiff, it suffices to recall that the established facts do not show that the tenants of the defendants were responsible for the killing and
wounding of the animals belonging to him or that said tenants acted upon the instigation of the defendants. Consequently, the plaintiff's claim to this effect is entirely without merit.
In view of all the foregoing and in resume, we hold that the plaintiff alone has the right (1) to recover from the defendants Azarraga, by virtue of the assignment and sale made to
him by Attorney Leodegario Azarraga of the latters' credit of P2,700 against the said defendants, the aforesaid sum plus interest at the rate of 12 per cent per annum from August
30, 1924; (2) to recover from the defendant Joaquin Azarraga, in particular, the sum of P4,000 plus interest at the rate of 12 per cent per annum from April 26, 1926. We also hold
that the defendants are not entitled to anything under their counterclaims.
Wherefore, reversing the appealed judgment,
(a) All the defendants are hereby sentenced to pay jointly the sum of P2,700 to the plaintiff, with 12 per cent annual interest from August 30, 1924 until said sum is fully paid; ;and
(b) The defendant Joaquin Azarraga is sentenced to pay the plaintiff the sum of P4,000 plus interest at the rate of 12 per cent per annum from April 26, 1926, until fully paid.
The plaintiff is absolved from defendants' counterclaims and the writ of preliminary injunction issued by the lower court on February 7, 1931, is hereby dissolved. There is no
special pronouncement as to costs. So ordered.
Avanceña, C.J., Villa-Real, Abad Santos, Imperial and Concepcion, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6313 May 14, 1954
THE ROYAL SHIRT FACTORY, INC., plaintiff-appellee,
vs.
CO BON TIC, defendant-appellant.
MONTEMAYOR, J.:
The present appeal involves an action originally brought in the Municipal Court of Manila by the plaintiff, the ROYAL SHIRT COURT, INC., to recover from defendant CO BON TIC
the sum of P1,422 said to represent the balance of the purchase price of 350 pairs of "Balleteenas" shoes at P7 a pair, with interest at 12 per cent per annum from August 27,
1948, and 25 per cent of said sum as attorney's fees, and costs.
The principal issues in the Municipal Court was the nature of the sale of the 350 pairs of shoes by plaintiff to defendant — whether it was an outright sale as contended by the
plaintiff, or a sale merely on consignment as claimed by the defendant who wanted to return the shoes not yet sold by him. There was also involved the question of the amount
already paid by the defendant to the plaintiff. The Municipal Court held that the contract was of sale on consignment; that of the 350 pairs of shoes consigned, 207 pairs were sold
at the rate of P8 a pair, amounting to a total of P1,656; and that defendant had paid the sum of P1,028 to plaintiff on account of the purchase price of the shoes sold, excluding the
amount of P420, value of Check No. 790264 issued by defendant as payment but returned to him by the plaintiff and not replaced with cash. Judgment was rendered sentencing
the defendant to pay plaintiff the sum of P628 with interest thereon at the legal rate from the date of the filing of the complaint, and to return to plaintiff the 143 pairs of shoes still
unsold, unless he preferred to retain and pay for them at the rate of P8 a pair within a period of fifteen days from receipt of a copy of the decision.
The defendant appealed from the judgment to the Court of First Instance of Manila, and after trial, the appellate court held that the transaction involved was one of outright sale at
P7 per pair of shoes, sales tax included, the court accepting the version given by the plaintiff to the effect that on the basis of the order slip (Exhibit A), the defendant had 9 days
from delivery of the shoes to make his choice of the two alternatives, that is to consider the sale of the 350 pairs of shoes closed at the flat rate of P7 per pair, sales tax included,
or, at the expiration of 9 days to pay for the shoes sold at P8 per pair, and to return the remaining unsold ones to plaintiff; and that, inasmuch as defendant, at the expiration of the
9 days stipulated, failed to return the shoes, and actually began making partial payments on account of the purchase price agreed upon, the transaction in the nature of a straight
sale, was considered closed. The court also found as did the Municipal Court that the amount of P420 represented by Check No. 790624 was never replaced or exchanged for
cash by the defendant upon its return to him, and consequently, it may not be considered as part payment.
Judgment was rendered in favor of the plaintiff and against the defendant and the latter was ordered to pay to the former the sum of P1,422, the unpaid balance of the sales price
of 350 pairs of shoes in question, with interest on the amount due at the rate of 12 per cent per annum from August 27, 1948 until final payment plus the amount of 25 per cent of
the same sum for attorney's fees as stipulated, and costs. After failing to get a reconsideration of the judgment, the defendant appealed the case to the Court of Appeals which
Tribunal after the submission of the briefs for both parties, and acting upon a motion filed by counsel for the appellant that the case be certified to the Supreme Court for the reason
that the question raised in his first and second assignment of errors involved the jurisdiction of the trial court, granted the same and certified the appeal to us for final determination
pursuant to Section 17, par. 2 (3) of Republic Act. 296.
Under the first and second assignment of errors, the defendant raises the question of jurisdiction of the Court of First Instance of Manila in reviewing and passing upon the issues
already passed upon and decided by the Municipal Court but not appealed from by plaintiff. It is the theory of the appellant that as for instance, when the Municipal Court found
that the transaction between plaintiff and defendant was a sale on consignment and plaintiff failed to appeal from that decision, that part of the judgment became final as to him
(plaintiff), and should be regarded as res adjudicata, and that the Court of First Instance in the exercise of its appellate not original jurisdiction may not review and pass upon the
same question or issue, and that in so doing it exceeded its appellate jurisdiction. Defendant further contends and cites authorities in support of his contention that regardless of
the provisions of Rule 40, section 9, of the Rules of Court whose provisions are to the effect that a perfected appeal from a decision of the justice of the peace or the municipal
court shall operate to vacate the said judgment and shall stand for trial de novoupon its merits in accordance with the regular procedure in that court as though the same had never
been tried before and had been originally commenced there, an appeal brings up for review only that which was decided against the appellant so that that part of the judgment
favorable to him is not reviewable if the other party does not appeal; that a party who has not appealed a judgment cannot assail it, neither can he ask for a judgment more
favorable to him than that rendered in the court below; that the party who has not appealed a judgment signifies his acceptance of the correctness of the said judgment, and that in
the appeal his position is merely defensive and he may only refute appellant's assignment of errors and sustain the judgment of the trial court.
The above contention of appellant might possibly hold with regards to appeals from judgments of Courts of First Instance to the Court of Appeals or to the Supreme Court in that
one cannot seek further remedy or relief in the appeal not taken by him than that granted him by the trial court, unless of course, the appellate court motu propriotakes cognizance
of palpable errors committed by the trial court and proceeds to correct the same even if the correction favors the appellee (Section 5, Rule 53, Rules of Court). However, we have
a special legal provision governing an appeal from justice of the peace or municipal courts to Courts of First Instance, the very Rule 40, section 9, of the Rules of Court cited by
defendant-appellant. Such appeal serves to vacate the judgment appealed from and the action will stand for trial de novo upon its merits as though the same had never been tried
before and had been originally commenced in the Court of First Instance. The Court of First Instance will try the case without regard to the proof presented in the Justice of the
Peace or Municipal Court or the conclusions arrived by said court. The Court of First Instance will not affirm, reverse, or modify the rulings or the judgment appealed from for the
simple reason that there is no ruling or judgment to affirm, reverse or modify because all the proceedings had in the justice of the peace or municipal court, including the judgment,
do not in contemplation of law exist, having been vacated; and the only instance when said judgment appealed from is revived in when the appeal is withdrawn or dismissed
(Crisostomo vs. Director of Prisons. 41 Phil., 368; Colegio de San Jose vs. Sison, 56 Phil., 344, 351; Lizo vs. Carandang 2 Off. Gaz., 302, March 1943; Co Tiamco vs. Diaz,* 42
Off. Gaz., 1169, 1231; Lichauco vs. Guash, 42 Off. Gaz., 1863, 1865; Rule 40, Sec. 9, Rules of Court). From all this it is evident that the contention of the appellant is untenable;
and that any and all issues involved in a case originating in an inferior court, whether or not passed upon by said court and whether or not appealed upon by any or both parties,
are thrown open and may be passed upon by the Court of First Instance when the case is appealed to it. Consequently, the Court of First Instance of Manila had jurisdiction and
authority to rule on the issue as to the nature of the transaction between plaintiff and defendants as to the sale of the shoes. Now, was it an absolute sale or a sale on
consignment?
Exhibit A of the plaintiff which was accepted, admitted and considered by the Court of First Instance of Manila is an order slip which lists down and classifies the 350 shoes in
question according to color, and contains the following condition of the sale in the handwriting of Mr. Chebat, the agent of the plaintiff who sold the shoes to the defendant —
CONDICION (Terms)
Al cabo de 9 dias, pagar todo a razon de P7 al par, o pagar lo vendido a P8 el par.
Explaining said condition, Mr. Chebat testifying, said that it meant that the defendant could either consider the sale as one on consignment, sell as many shoes as he could at any
price, pay for them at P8 a pair and at the end of nine days return the shoes unsold to the plaintiff, or, consider the sale of the 350 shoes as absolute at P7 a pair; and that since
the defendant did not return any of the shoes at the expiration of 9 days he must be held to have chosen the second alternative, namely, that he bought the whole stock of shoes
at P7 a pair. It will be noted, however, that Exhibit "A" was never accepted much less signed by the defendant or his sales manager Mr. Bernardo Geronimo, and therefore, cannot
bind the defendant and so is but a self-serving evidence which should not have been admitted and considered by the trial court.
Disregarding Exhibit "A", the nature of the transaction must be judged by other evidence, including the conduct of the parties at the time of making the contract and subsequent
thereto (Art. 1282 of the old Civil Code and Art. 1371 of the new Civil Code). Exhibit "B" of the plaintiff is an invoice of the same 350 pairs of shoes whose price including sales tax
is listed as P2,450. It was evidently not only accepted by the defendant but on it he noted down in his own handwriting the different partial payments of P500, P528 and lastly of
the controversial P420 by check. It will also be noticed that the defendant in making said notations of payment considered the full purchase price of the 350 pairs of shoes at P7.00
or P2,450, and it was against said total that he had been making the payments, putting down the balance after each payment. For instance, after paying P500 on account, he put
P1,950 as balance, and after paying another P528, he put down as balance P1,422. In other words, he obviously accepted the straight sale to him on credit of the whole 350 pairs
of shoes for P2,450 and made partial payments on account thereof. In making said partial payments, he made no mention whatsoever of the number of shoes sold by him and the
number of shoes remaining unsold, which he should have done had the sale been on the consignment basis. On the other hand, he merely mentioned the balance of the purchase
price after deducting the several partial payments made by him. Furthermore, if the sale had been on consignment, a stipulation as to the period of time for the return of the unsold
shoes should have been made; but evidently that had not been done and defendant kept the shoes unsold more or less indefinitely, but giving the same excuse that he could not
return them to the plaintiff because he did not know where to return them. The plaintiff Royal Shirt Factory, Inc., is quite well-known. Is has a store at the Escolta and according to
the invoice (Exhibit B), it is an importer, wholesaler and manufacturer, and it could not have been hard, much less impossible for the defendant to return the shoes unsold by him
had the transaction really been a sale on consignment. So, on this issue of the nature of the transaction between the parties, we agree with the trial court that it was a straight sale
at the rate of P7 per pair of shoes.
As regards Check No. 790264 of the China Banking Corporation, Exhibit F, in the amount of P420 with which defendant attempted to make another partial payment as appears in
Exhibit 'B', both parties agree that since the check was postdated, it was returned by the plaintiff to the defendant who however claims that he replaced it with cash. This was
stoutly denied by plaintiff. After a careful review of the evidence, we agree with the trial court that the preponderance thereof is to the effect that the amount of said check of P420
was never replaced by the defendant. It is also interesting to note that the Municipal Court of Manila where this issue was first considered, came to the same conclusion that the
defendant never replaced the amount of this check in cash.
The decision appealed from the sentences the defendant to pay to the plaintiff P1,422 with interest at 12 percent per annum from August 27, 1948, plus 25 per cent of the same
sum for attorney's fees, besides costs. This rate of interest and the 25 per cent for attorney's fees appears in Exhibit "B" in printed form as terms or conditions. In Exhibit "A", the
order slip, the conditions of sale also printed provide for 20 per cent only as attorney's fees and no rate of interest in case of litigation. Had the defendant signed Exhibit "A", which
he did not, he would have been bound by it and would be liable to 20 per cent of any amount due from him, but because of the absence of stipulation as to the rate of interest he
would be paying only the legal rate of 6 per cent per annum. There is no explanation of this difference in conditions of sale about rate of interest and attorney's fees found in the
order slip (Exhibit "A") and the invoice (Exhibit "B") both of the plaintiff. Anyway, neither did the defendant sign Exhibit "B". If we hold defendant bound by Exhibit "B" at all, it is
because of his tacit acceptance of the total value of 350 pairs of shoes and by his notation against it of his partial payments. We do not think it fair for him to be bound also by the
printed terms of the conditions of sale. Moreover, we find under said printed form the clause in pencil: "as agreed with Mr. Chebat." We may even say that said clause in
handwriting may be considered as having overruled what was printed as to the rate of interest and the attorney's fees. We therefore hold that the defendant should only pay 6 per
cent interest on the amount due him from the date of the filing of the complaint, with costs, and nothing for attorney's fees. It is also interesting to note that this was the same ruling
of the Municipal Court on this point.
With the above modification, the decision appealed from is hereby affirmed, with costs.
Paras, C.J., Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-33582 March 30, 1982
THE OVERSEAS BANK OF MANILA, petitioner,
vs.
VICENTE CORDERO and COURT OF APPEALS, respondents.

ESCOLIN, J.:
Again, We are confronted with another case involving the Overseas Bank of Manila, filed by one of its depositors.
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila, holding petitioner bank liable to
respondent Vicente Cordero in the amount of P80,000.00 representing the latter's time deposit with petitioner, plus interest thereon at 6% per annum until fully paid, and costs.
On July 20, 1967, private respondent opened a one-year time deposit with petitioner bank in the amount of P80,000.00 to mature on July 20, 1968 with interest at the rate of 6%
per annum. However, due to its distressed financial condition, petitioner was unable to pay Cordero his said time deposit together with the interest. To enforce payment, Cordero
instituted an action in the Court of First Instance of Manila.
Petitioner, in its answer, raised as special defense the finding by the Monetary Board of its state of insolvency. It cited the Resolution of August 1, 1968 of the Monetary Board
which authorized petitioner's board of directors to suspend all its operations, and the Resolution of August 13, 1968 of the same Board, ordering the Superintendent of Banks to
take over the assets of petitioner for purposes of liquidation.
Petitioner contended that although the Resolution of August 13, 1968 was then pending review before the Supreme Court, 1 it effectively barred or abated the action of respondent
for even if judgment be ultimately rendered in favor of Cordero, satisfaction thereof would not be possible in view of the restriction imposed by the Monetary Board, prohibiting
petitioner from issuing manager's and cashier's checks and the provisions of Section 85 of Rep. Act 337, otherwise known as the General Banking Act, forbidding its directors and
officers from making any payment out of its funds after the bank had become insolvent. It was further claimed that a judgment in favor of respondent would create a preference in
favor of a particular creditor to the prejudice of other creditors and/or depositors of petitioner bank.
After pre-trial, petitioner filed on November 29, 1968, a motion to dismiss, reiterating the same defenses raised in its answer. Finding the same unmeritorious, the lower court
denied the motion and proceeded with the trial on the merits. In due time, the lower court rendered the aforesaid decision. Dissatisfied, petitioner appealed to the Court of Appeals,
which affirmed the decision of the lower court.
Hence, this petition for review on certiorari.
The issues raised in this petition are quite novel. Petitioner stands firm on its contentions that the suit filed by respondent Cordero for recovery of his time deposit is barred or
abated by the state of insolvency of petitioner as found by the Monetary Board of the Central Bank of the Philippines; and that the judgment rendered in favor of respondent would
in effect create a preference in his favor to the prejudice of other creditors of the bank.
Certain supervening events, however, have rendered these issues moot and academic. The first of these supervening events is the letter of Julian Cordero, brother and attorney-
in-fact of respondent Vicente Cordero, addressed to the Commercial Bank of Manila (Combank), successor of petitioner Overseas Bank of Manila. In this letter dated February 13,
1981, copy of which was furnished this Court, it appears that respondent Cordero had received from the Philippine Deposit Insurance Company the amount of P10,000.00.
The second is a Manifestation by the same Julian Cordero dated July 3, 1981, acknowledging receipt of the sum of P73,840.00. Said Manifestation is in the nature of a quitclaim,
pertinent portions of which We quote:
I, the undersigned acting for and in behalf of my brother Vicente R. Cordero who resides in Canada and by virtue of a Special Power of Attorney issued by Vicente Romero, our
Consul General in Vancouver, Canada, xerox copy attached, do hereby manifest to this honorable court that we have decided to waive all and any damages that may be awarded
to the above-mentioned case and we hereby also agree to accept the amount of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) representing the principal and
interest as computed by the Commercial Bank of Manila. We also agree to hold free and harmless the Commercial Bank of Manila against any claim by any third party or any suit
that may arise against this agreement of payment.
... We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) with our full satisfaction. ...
When asked to comment on this Manifestation, counsel for Combank filed on August 12, 1981 a Comment confirming and ratifying the same, particularly the portions which state:
We also agree to hold free and harmless the Commercial Bank any third party or any suit that may arise against this agreement of payment, and
We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) with our full satisfaction.
However, upon further examination, this Court noted the absence of the alleged special power of attorney executed by private respondent in favor of Julian Cordero. When
directed to produce the same, Julian Cordero submitted the following explanatory Comment, to which was attached the special power of attorney executed by respondent Vicente
Cordero:
3. This manifestation (referring to the Manifestation of July 3, 1981) applies only to third party claims, suit and other damages. It does not mean waiving the interest it
should earn while the bank is closed and also the attorney's fees as decided by the lower court. It is very clear. I did not waive the attorney's fees because it belongs to our
attorney and interest because it belongs to us and we are entitled to it.
Thus, with the principal claim of respondent having been satisfied, the only remaining issue to be determined is whether respondent is entitled to (1) interest on his time deposit
during the period that petitioner was closed and (2) to attorney's fees.
We find the answer to be in the negative.
The pronouncement made by this Court, per Justice Barredo, in the recent case of Overseas Bank of Manila vs. Court of Appeals 2 is explicit and categorical. We quote:
It is a matter of common knowledge which we take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of
its operation, it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged
properties or their proceeds and generally engage in other banking and financing activities, from which it can derive income, it is inconceivable how it can carry on as a depository
obligated to pay stipulated interest. ... Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases
the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the bank's operations by the Central Bank has been subsequently declared illegal by the Supreme Court, for before the
Court's order, the bank had no alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical significance of the subsequent action of the
Supreme Court, the stubborn fact remained that the petitioner was totally crippled from then on from earning the income needed to meet its obligations to its depositors. If such a
situation cannot, strictly speaking be legally denominated as "force majeure" as maintained by private respondent, We hold it is a matter of simple equity that it be treated as such.
And concluding, this Court stated:
Parenthetically, We may add for the guidance of those who might be concerned and so that unnecessary litigations may be avoided from further clogging the dockets of the courts
that in the light of the consideration expounded in the above opinion, the same formula that exempts petitioner from the payment of interest to its depositors during the whole
period of factual stoppage of its operations by orders of the Central Bank, modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court,
should be, as a matter of consistency, applicable or followed in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure.
Neither can respondent Cordero recover attorney's fees. The trial court found that herein petitioner's refusal to pay was not due to a wilful and dishonest refusal to comply with its
obligation but to restrictions imposed by the Central Bank. 3 Since respondent did not appeal from this decision, he is now barred from contesting the same.
WHEREFORE, that portion of the lower court's decision ordering petitioner to pay interest on Cordero's time deposit is set aside. It appearing that the amount of the latter's time
deposit had been fully paid, this case is hereby dismissed. No costs.
SO ORDERED.
Barredo (Chairman), Aquino, Concepcion, Jr., De Castro and Ericta, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-29352 October 4, 1971

EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA
RAMOS LEDESMA, RODOLFO RAMOS, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent.

REYES, J.B.L., J.:

This is a petition for Certiorari, Prohibition and Mandamus with prayer for the issuance of a writ of preliminary injunction to restrain respondent Central Bank of the Philippines
(hereinafter designated as the CB) from enforcing and implementing the Monetary Board Resolution No. 1263, adopted on 30 July 1968, excluding the Overseas Bank of Manila
(hereinafter termed the OBM) from clearing with the Central Bank, that was ordered implemented on 31 July 1968 (Annex "11"), and Resolution No. 1290, adopted on 1 August
1968, granting authority to the OBM Board of Directors to suspend operations thereof, which was implemented on 2 August 1968 (Annex "13").
The herein petition is based on the following grounds:
(a) That the aforesaid resolutions were not legally issued and were promulgated by respondent CB through the Monetary Board in excess of jurisdiction and with grave
abuse of discretion;
(b) That the said resolutions are prejudicial to the national interest and against public policy, as they would erode confidence in the banking system and undermine the
integrity and stability thereof, contrary to the purpose and spirit of the Central Bank Act;
(c) That said resolutions have caused and will cause further irreparable losses, damages and injuries to the depositors, creditors and stockholders of the OBM;
(d) That said resolutions were promulgated without due process of law, would constitute deprivation of property likewise without due process of law, and will amount to
impairment of the obligations of contract; and
(e) That there is no appeal nor any plain, speedy and adequate remedy in the ordinary course of law.
From the pleadings and annexes, the following appears:
The OBM is a commercial banking corporation duly organized and existing under the laws of the Philippines with principal office at Rosario Street, Manila. Petitioners are the
majority and controlling stockholders thereof. The OBM was opened for business on 6 January 1964 with authorized capital of P30 million, P10 million subscribed and P8 million
thereof paid, but had been suspended by respondent from clearing with the CB and from lending operations for various violations of the banking laws and implementing
regulations. Petitioners charged that the OBM became financially distressed because of this suspension and the deprivation by the CB of all the usual credit facilities and
accommodations accorded to the other banks. The alleged exactions of onerous fines and penalties by respondent was likewise blamed for the aggravated situation. For its
deficiencies it was made subject to penalties of 12% interest on overdrawings and 36% per annum on reserve deficiencies, which by 1968 amounted to several millions.
By April, 1967, the financial situation of the OBM had caused mounting concern in the CB. Petitioner Ramos and the OBM management finally met with respondent CB on the
necessity and urgency of rehabilitating the OBM through the extension of necessary financial assistance.
The upshot of these conferences appears from the correspondence exchanged between the CB and the OBM.
On 2 May 1967, the Governor of the Central Bank, Andres Castillo, upon instructions of the Monetary Board, wrote a letter (Petition, Annex "B") stating:
This is with reference to the conference had between Mr. Emerito Ramos, Sr., Chairman of your Board, and the undersigned, the Deputy Governor, the Acting Superintendent of
Banks, and the Officer-in-Charge, Accounting Department of this Bank, last Friday evening on the present very precarious condition of the Overseas. In the conference, we
described to Mr. Ramos at length the circumstances which led to the present precarious conditions of the bank. We stressed the imminent danger of the bank's being thrown out of
clearing, in accordance with existing Central Bank regulations, on account of its continuous adverse clearing balances, and of the immediate necessity of putting up additional
capital in the amount of at least P3 million, which Mr. Ramos promised to put up when he last appeared before the Monetary Board.
I informed Mr. Ramos that if his bank is thrown out of clearing, the Central Bank will proceed in accordance with the existing policy under which he and other stockholders
representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be managed by the Philippine
National Bank. If the PNB takes over management in such eventuality, the Central Bank could also announce that it is ready to support the Philippine National Bank in order to
allay the fears of depositors and creditors.
In view of the OBM stockholders' reluctance to execute the Voting Trust suggested, the Monetary Board adopted Resolution No. 2015 dated 16 October 1967, having the following
terms (Petition, Annex "F"):
(1) To require Mr. Emerito M. Ramos, Sr., the principal stockholder of the Overseas Bank of Manila, to submit a listing of his properties and to mortgage or assign the
same to the Central Bank to cover the overdraft balance therewith of the Overseas Bank of Manila;
(2) To require the stockholders of the Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a
complete reorganization and/or transfer the management of the bank to a nominee of the Monetary Board;
Further conference ensued, and on 30 October 1967 Governor Castillo of the CB wrote again (Petition, Annex "G" ):
I wish to refer to the conference had between your goodself and the members of the Monetary Board at Malacañang of 16 October 1967, relative to the financial condition and
state of affairs of the Overseas Bank of Manila, of which the substantial majority of stock is owned by you and your family and corporations controlled by you.
Among other things, the Monetary Board, having in mind the overdrawing in your deposit account with the Central Bank which, on that date, stood at P22.3 million, together with
the balance of your past due emergency loan with the Central Bank amounting to P10.3 million exclusive of accumulated interest, decided that, as a measure to stave off
liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument
similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank. On 23 October 1967, the Legal Counsel of this Bank submitted to you a
draft of such "Voting Trust Agreement" desired by the Monetary Board. However, on 25 October 1967, you handed the legal Counsel your own draft of a "Trust Agreement" which,
in essence, is not a voting trust agreement as desired by the Monetary Board and reiterated in its Resolution No. 2020 dated 20 October 1967 and confirmed on 24 October 1967.
This was followed up by another letter of 8 November 1967 (Petition, Annex "H"):
In line with the conference this morning between your goodself and the undersigned, the Deputy Governor, the Acting Superintendent of Banks, and the Central Bank Legal
Counsel, and your manifestation of readiness to abide by the decisions of the Monetary Board on all matters involving the Overseas Bank of Manila, it is requested that the voting
trust agreement prepared by the Legal Counsel of this Bank be now signed by you and other members of your family and by the proper officials of the corporations which are
stockholders of the bank and which are controlled by you and your family.
It is also requested that the execution of the mortgages on the properties you offered as security for the obligations of the Overseas Bank of Manila to the Central Bank be
finalized, and the shares of stock belonging to you and your family in your corporations and enterprises be endorsed in favor of the Central Bank and delivered to us as soon as
possible.
Finally, on 20 November 1967, the petitioners herein executed the Voting Trust Agreement prepared by attorneys of the CB (Petition, Annex "A") with petitioners as Cestuis Que
Trust1 and respondent CB's Superintendent of Banks as the Trustee. The Trustee entered into the agreement pursuant to the authority given by respondent's Monetary Board
under M. B. Resolution No. 2017, dated 17 October 1967. The salient features of the said Voting Trust Agreement are the following:
(a) Objectives. The objectives are stated in the "Whereas Clauses", the pertinent portions of which read: "... the abovenamed stockholders of the Overseas Bank of Manila
believe that it is for and/or the interest and benefit of the bank depositors, creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation,
normalization and stabilization of the Overseas Bank of Manila;" and "... TRUSTEE has likewise signified his willingness to accept such trust in pursuance of the objectives above-
mentioned;" (Emphasis supplied)
(b) Term. The life of the trust shall be for three (3) years from 20 November 1967, but the Trustee at its option, may relinquish the trust upon approval of the Monetary
Board. It is provided further that if, at the expiration of the three-year period the purposes for which the trust has been constituted have not as yet been fully achieved, the trust
agreement shall be considered automatically extended for such period to be determined by the Monetary Board, similarly terminable within such further period at the discretion of
the Monetary Board;
(c) Powers and authority. The trustee is given all and full authority, subject to the limitations set forth in the law and other conditions in the contract to: (1) direct the
management of the affairs and accounts and properties of the OBM; (2) vote its directors and choose the officers and employees; (3) improve, modify, reorganize its operation
policies, standards, systems, methods, structure, organization, personnel, staffing pattern, etc.; (4) hold and vote on the shares of stocks transferred to him as trustee; (5)
safeguard the interests of depositors, creditors and stockholders; and (6) in general, to exercise all such powers and discharge all such functions as inherently pertain to the cestui
que trust as owners, and/or for the sound management of a banking institution;
(d) Consideration. The cestui que trust hound themselves, among others, to pay the trustee during the life of the trust an annual honorarium subject to certain conditions.
Petitioners likewise conveyed by way of mortgage to the CB all their private properties and holdings to secure the obligations of the OBM to the CB, but there is no agreement as
to the value of these properties, petitioners contending that they are worth over 141 million, but the CB appraised them at around 67 million (Petition, Annexes "B" and "C").
But as early as 25 September 1967, Mr. Martin Oliva, who had become president of OBM only since 13 March 1967, had written to the Superintendent of Banks that transactions
worth around P48 million, of which over P43 million were time deposits, at usurious rates of interest, had not been incorporated in the Bank's books nor reported to the Board of
Directors. It was explained2 that the OBM management had resorted to these unrecorded transactions because the suspension of its lending activities after 14 months of operation
reduced OBM to virtual inactivity, and it had to agree to pay high premiums or interests on such deposits because this high costs is comparatively cheaper than the Central Bank's
interests on overdrawings at the rate of 12% per annum and a penalty of 36% per annum on reserve deficiencies.
Oliva's letter prompted a further investigation of OBM records by the CB examiners that revealed allegedly unrecorded deposits and transactions (which is disputed by Petitioners)
amounting to 48,007,211 as of 13 September 1967 (reduced to P35 million when petition was filed); diversion of deposits to accounts controlled by certain OBM officials (so-called
COFICO and EMRACO accounts) and loans to the Ramos family and firms controlled by them. 3Petitioners contend that these transactions were recorded in subsidiary ledger
accounts that were linked to the general ledger accounts of the Bank under the so-called EMRACO and COFICO accounts, and finally incorporated in OBM's regular books in
September, 1967 upon instructions of President Martin Oliva.4 And as to the loans to the Ramos family and firms, the same had been written off when around 31 July 1967 the
Ramoses conveyed to the OBM properties worth P54.096 million.
On 27 October 1967, the Superintendent of Banks reported that the condition of the OBM was one of insolvency, calling for application of Section 29 of the Central Bank Act and
liquidation of OBM. However, with the listing of Ramos properties worth 100 million, it was added, a new possibility emerged to recapitalize the OBM in 100 million.5
2. However, with the letter dated October 26, 1967 of Mr. Martin R. Oliva, President of the Overseas Bank of Manila, giving a list of the Ramos properties worth P100
million (?), a radically different possibility has emerged.
If the valuation of the P100 million (net of encumbrances to the parties other than the CB and TOBM) to the properties is true, or substantially true, then the new "possibility" may
be briefly stated thus:
A Recapitalization of the Overseas Bank of Manila on the amount of P100 million will save the bank, because — as a general proposition, subject of course to corroborative
quantification — such a magnitude of capital can make good the bad loans as well as the funds that cannot be legitimately accounted for, and can absorb the losses in bad debts,
can provide it with funds for viable operations, and thus ultimately give adequate protection to depositors and creditors.
In the same memorandum report, considering the need for liquid funds, the Superintendent of Banks suggested the following alternatives:
(1) The OBM be required to acquire the properties in payment for frozen or bad loans or for unaccountable funds, and then mortgage the properties to CB for emergency
advances, or
(2) The owners be required to mortgage the properties to the CB directly, and for CB to extend loans to OBM depending on the needs.
Three days later, 30 October 1967, the Central Bank governor wrote to the petitioner, Emerito Ramos, reiterating the need for the OBM stockholders to execute a voting trust
agreement "to stave of liquidation", which letter was followed by another of 8 November 1967, requiring the execution of the Voting Trust Agreement by the OBM stockholders and
of the mortgage of their properties to secure OBM obligations to the Central Bank and the endorsement of the shares of stock held by them in their corporations and enterprises
(Petition, Annexes "G" and "H", quoted previously). Petitioners duly complied (Annexes "A", "C" and "S") in November, 1967.
On 5 December 1967, new directors and officers drafted from the CB itself, the PNB and DBP were elected and installed and they took over the management and control of the
Overseas bank.
On 14 June 1968, the CB announced that only P10 million were available as emergency loan to OBM and requested the management of the latter (appointed under the Voting
Trust Agreement to replace the old Board elected by the stockholders) to project how it could help bail out OBM.
OBM president, Mr. Orosa, submitted a "Projected Cash Flow Statement" 6, concluding —
It is pointed out here that with the P10 million loan from the CB, the extremely distressed financial condition of TOBM will continue to prevail. At best, the P10 million loan will
enable TOBM to resume limited lending operations on a highly selected basis and diminish its estimated loss by some P492.5 thousand assuming that the loans to be extended
have a high turnover rate and a 100% repayment ratio. Thus, with the P10 million CB loan, the annual loss has been estimated to be P8.9 million. To be able to breakdown in
operations, therefore, TOBM needs loanable funds estimated at P196 million, placing the cost of such funds at 1½ %.
In a memorandum submitted to Governor Calalang 12 days later, 22 July, Mr. Orosa unburdened himself and deployed CB for hemming and hawing. This caused, he said the loss
of "psychological advantage" initially gained by PNB's take over of the OBM management. He reminded the CB Governor about the OBM management's request on 6 January
1968 for a P20 million loan to enable OBM to get on its feet. "At that time", he said, "the aid we are recommending, properly used, would have staved off panic and restored some
confidence."
Eight months of indecision has made depositors lose faith and as a result, we are faced with more court suits and withdrawals than ever before and more obligations have
matured.7
The next day, 23 July 1968, the Superintendent of Banks recommended to the Monetary Board that OBM be liquidated under Section 29, Republic Act 265, if its "capital structure
cannot be strengthened to meet the requirements of Section 22 of RA 337",8 and if "massive financing cannot be given to enable the bank to expand its risk assets." He concluded
that:
... The bank's continuance in business under its present extremely precarious financial condition, without the necessary capital injection and financial aid, will involve not merely
probable, but certain further losses to its depositors and other creditors and may have further adverse effects on the banking system.
Thereafter, on 13 August 1968, as heretofore stated, the CB Monetary Board adopted Resolution No. 1333, ordering the Superintendent of Banks to proceed to the liquidation of
the OBM, under Section 29 of the Central Bank Act. As already noted, implementation of this resolution was restrained by this Court.
Petitioners aver that no adequate financial assistance was granted to the OBM after the execution of the Voting Trust Agreement. They further ]claim that the said agreement is not
only bilateral, imposing reciprocal obligations for valuable consideration, but was also entered into by respondent CB in the performance of its duties under the law; and that under
said agreement the obligation of the CB was to act and work for the "rehabilitation, normalization and stabilization" of the OBM, through the extension of adequate and necessary
financial assistance to stave off liquidation, is legally demandable, as well as a duty specifically enjoined and imposed by law. And that in violation of its obligations, the CB, "after
eight months of delay", adopted the questioned resolutions, without notice to or hearing the petitioners.
By resolution of this Court, the respondents were required to answer the petition and set for hearing the petition for a writ of injunction. However, on 13 August 1968, the CB
adopted Resolution No. 1333 (Annex "12", Answer) forbidding the OBM from doing business and instructing the Superintendent of Banks to take charge of the Bank's assets and
to take action under Section 29 of the Central Bank Act (Republic Act 265), which amounted to a directive for the liquidation of the OBM. Implementation of the resolution was,
upon petitioners' motion, restrained by the Court on 14 August 1968.
Justifying Resolutions 1263 and 1290, CB in its answer cited specific instances of OBM's "unusual and irregular transactions" discovered by examiners or "revealed by OBM
officials themselves". By way of affirmative defenses, CB averred that:
1. The CB is not a party to the Voting Trust agreement, and therefore cannot be compelled to implement it.
2. Assuming that CB is obliged to rehabilitate OBM, it cannot give more loans to the latter than that already given to it as of 30 July 1968, without violating Section 90 of
the Central Bank Act since neither OBM nor its stockholders could put up additional capital and additional collaterals to secure CB's future advances.
3. It would be illegal and contrary to public interest to construe the voting trust agreement as imposing upon CB the duty to rescue OBM at all cost.
4. No bank has an absolute right to take part in inter-bank clearing, because Section 100, Republic Act 265, requires a bank as a condition to such participation to keep
deposit reserves, which the OBM does not have — in fact it had overdrawn its reserve account with the CB beyond the maximum fixed by law.
Several petitions for intervention were denied by the Court.
The issues involved appear to be:
(a) Whether or not this Supreme Court has jurisdiction to restrain the implementation of CB Resolution No. 1333;
(b) Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM;
(c) Whether or not CB Resolutions Nos. 1263, 1290 and 1333 were adopted in abuse of discretion.
On the first issue of jurisdiction, the respondent Central Bank defines its position in its Rejoinder Memorandum, pages 3-5, as follows:
"We respectfully maintain,"..., that even as this Honorable Court had ample jurisdiction over the said petition, any action based on the approval and implementation of the third
resolution, Res. 1333 on 13 August 1968 comes already within the exclusive original jurisdiction of the Court of First Instance, in accordance with the provisions itself of Section 29
of the Central Bank Act, Rep. Act 265, under which said resolution was promulgated.
xxx xxx xxx
The point ... is that the situation has changed entirely because of the approval of Res. 1333 on August 13, 1968, after the main petition had already been filed and given due
course. This resolution has made the two previous questioned resolutions academic and the main petition pointless.
The CB stand is that to assail Resolution 1333 of the Monetary Board ordering the liquidation of the Overseas Bank, an action must be filed in the Court of First Instance of Manila
by the Bank itself, and not by petitioning stockholders, allegedly in view of the provisions of Section 29, Republic Act No. 265, paragraph 3, reading:
At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order
requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further
proceedings and to surrender charge of its assets.
This argument must be rejected, for it overlooks the fact that before the Central Bank adopted said Resolution No. 1333 on 13 August 1968 this Court had already taken
cognizance of the petition herein, assailing Resolutions Nos. 1263 and 1290 of the Monetary Board as "patent acts of liquidation," violative of its alleged commitment to rehabilitate
the overseas Bank; and the Court, in fact, already had required the Central Bank to answer the petition on 12 August 1962, prior to the adoption of Resolution No. 1333. The latter
resolution is clearly an act in pursuance of the policy outlined in the previous resolutions (1263 and 1290) enjoined by this Court. Hence, if jurisdiction was already acquired ito
delve into the validity of Resolutions 1263 and 1290 (and this the Central Bank admits), there is no cogent reason why, after such jurisdiction had been acquired, the Court should
be deprived thereof by the subsequent adoption of Resolution 1333, particularly because the latter, in relation to the antecedent facts, appears to be no more than a deliberate
effort to evade the jurisdiction of this Court, and have the case thrown back to the Court of First Instance.
In People vs. Pegarum, this Court quoted with approval the rule that:
... the jurisdiction of a court depends upon the state of facts existing at the time it is invoked, and if the jurisdiction once attaches to the person and subject matter of the litigation,
the subsequent happening of events, although they are of such a character as would have prevented jurisdiction from attaching in the first instance, will not operate to oust
jurisdiction already attached.
This rule coincides with well-established principles of American law9 to the same effect.
The basic guidelines in the exercise of this Court's original jurisdiction to issue prerogative writs were expressed in Dimayuga vs. Fernandez, 43 Phil. 306-307, thus:
... It is true, as respondents contend, that as a general rule, a court of equity will not restrain the authorities of either a state or municipality from the enforcement of a criminal law,
and among the earlier decisions, there was no exception to that rule. By the modern authorities, an exception is sometimes made, and the writ is granted, where it is necessary for
the orderly administration of justice, or to prevent the use of the strong arm of the law in an oppressive or vindictive manner, or a multiplicity of actions.
In legal effect, that was the decision of this court in Kwong Sing vs. City of Manila. (41 Phil. 103)
The writ of prohibition is somewhat sui generis, and is more or less in the sound legal discretion of the court and is intended to prevent the unlawful and oppressive exercise of
legal authority, and to bring about the orderly administration of justice.
Nor would it serve the interest of justice to dismiss the case at this stage and let a new petition be filed in another court. In Bay View vs. Manila Hotel Worker's Union (L-21803, 17
December 1966), this Court, through Mr. Justice Conrado V. Sanchez, pointed out the evils attending split jurisdictions, saying:
To draw a tenuous jurisdictional line is to undermine stability in ... litigations. A piece meal resort to one Court and another gives rise to multiplicity of suits. ... The time to be lost,
effort wasted, anxiety augmented, additional expense incurred — these are considerations which weigh heavily against split jurisdiction. Indeed it is more in keeping with orderly
administration of justice that all the causes of action here be cognizable and heard by only one court... (Cas. cit., 18 SCRA 953).
On Previous occasions, this Court has overruled the defense of jurisdiction in the interest of public welfare and for the advanced agreement of public policy, where, as in this case,
an extraordinary situation existed. 10 There is no denying that creditors, depositors and the banking community are all interested in a quick determination whether the Overseas
Bank may, under the circumstances, be closed or allowed to continue operating at the exclusive discretion of respondent Central Bank.
The plea that the Overseas Bank is not a party to the case at bar need not give concern. The petitioners are the controlling stockholders of that Bank, and are qualified to
represent its interests, so that a judgment may be enforced for or against it, although it is not impleaded by name in the suits (V. Albert vs. Court of First Instance, L-26361, 29 May
1968, 23 SCRA 948, 964). This is particularly true considering that the present management of the OBM (Overseas Bank of Manila) is at present composed of respondent's
nominees, pursuant to the Trust Agreement, and they can hardly be expected to resist the plans and actions of respondent Central Bank (CB).
On the second issue, whether or not the respondent CB agreed to rehabilitate the OBM, Of which petitioner are the majority stockholders, it is believed that a review of the letters
from the CB to the petitioners (hereinbefore quoted), considered together with the terms of the Voting Trust Agreement, leaves no doubt that the CB did agree and commit itself to
the continued operation of, and rehabilitation of, the OBM. As early as 2 May 1967, the respondent CB, through its Monetary Board, caused then Governor Castillo to advise
petitioners that —
he and other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be
managed by the Philippine National Bank. If the PNB takes over management in such eventuality, the Central Bank could also announce that it is ready to support the Philippine
National Bank in order to allay the fears of depositors and creditors. (Pet., Annex "B") (Emphasis supplied)
CB Resolution No. 2015 of 16 October 1967 (Petition, Annex "F"), in addition to requiring a mortgage or assignment of petitioners' personal properties to CB, confirmed the quoted
memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only difference that instead of the Philippine National Bank, the trust
would be executed in favor of the CB as trustee to enable it to reorganize and transfer management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967,
after a conference at Malacañang, the CB governor once more wrote to Ramos that the Monetary Board —
decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the
Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank (Petition, Annex "G")
(Emphasis supplied)
The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement "as a measure to stave off liquidation"; for it is well-
known, and it is not denied, that when the Republic Bank previously became distressed, the CB had advanced funds, to rehabilitate it and allow it to resume operating.
Accordingly, the voting trust agreement that was finally executed (Annex "A"), and which was admittedly prepared by the Legal Counsel of the Central Bank, recited in its preamble
as an objective of the voting trust agreement, that:
... the above named stockholders of the Overseas Bank of Manila believe that it is for and/or interest and benefit of the bank depositors, creditors, and stockholders, that this trust
agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila.
and that the Superintendent of Banks as
... Trustee has likewise signified his willingness to accept such trust in pursuance of the objectives above mentioned. ... (Emphasis supplied)
While the trust agreement on its face creates obligations only for the Superintendent of Banks as trustee, his commitments were undeniably those of the Central Bank itself, since
it was the latter that had from the very beginning insisted upon such voting trust being executed. For the Superintendent of Banks was an officer of the CB, the chief of its
Department of Supervision and Examination of all banking institutions operating in the country, subject to the instructions of the Monetary Board at all times, pursuant to Section 25
of the CB charter, Republic Act No. 265; and it is not credible that he should have understand that he was entering into the trust agreement in his personal capacity.
Bearing in mind that the communications, Annexes "B" and "G," as well as the voting trust agreement, Annex "A," had been prepared by the CB, and the well-known rule that
ambiguities therein are to be construed against the party that caused them, 11 the record becomes clear that, in consideration of the execution of the voting trust agreement by the
petitioner stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967, Annex "F," Petition), the CB had
agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors." (Annex "B"), and to stave off liquidation" by providing
adequate funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank (Portion, Annex
"G," ante). While no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate,
normalize and stabilize a distressed bank.
Even in the absence of contract, the record plainly shows that the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if
the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the
Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the profit of the CB (which thus acquired
additional security for its own advances), the CB may not now renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors and other
creditors, under the rule of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur. 2d, 656-657; Ed. Note, 115 ALR, 157).
The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified, since there are numerous cases in which
an estoppel has been predicated on promises or assurances as to future conduct. The doctrine of "promissory estoppel" is by no means new, although the name has been
adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended
that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other
injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action or forbearance
would reasonably have been expected by the promissor. Mere omission by the promisee to do whatever the promisor promised to do has been held insufficient "forbearance" to
give rise to a promissory estoppel. (19 Am. Jur., loc. cit.)
Disingenuously, the CB pleaded that the Voting Trust agreement was binding only upon the trustee, the Superintendent of Banks. But as already pointed out this proposition is
unacceptable since the trust could have no private interest in the matters. Not only that, but CB subsequently caused its own team of nominees to take over the direction and
management of the OBM, through the voting of the shares conveyed to the trustee. Even more, in August, 1970, the CB gave notice that it would not extend or renew the voting
trust, and attempted to turn back the shares covered by it to the petitioners, thereby recognizing the obligations under the agreement as its own, and repudiating its original
disclaimer thereof.
How did the CB subsequently treat its commitments?
After execution of the Voting Trust Agreement, on 20 November 1967, the CB elected and installed new directors and officers drafted from the Central Bank itself, the Philippine
National Bank and the Development Bank of the Philippines. The new team assumed the management and control of the OBM and elected Augusto E. Orosa as bank president.
On 6 January 1968, the new management requested for a thirty million peso loan to enable the OBM to get on its feet. How this request for aid was treated appears in a
memorandum to the new CB governor, dated 22 July 1968 (Petitioner's Reply Memorandum, Annex "X," Record, pages 526-527). Mr. Orosa stated:
MEMORANDUM TO:
Governor Alfonso Calalang
SUBJECT: POSITION PAPER OF THE OVERSEAS BANK
OF MANILA
BACKGROUND
A selected PNB team formally took over the management of the Overseas Bank of Manila on December 7, 1967.
On January 16, 1968 we completed a report on the financial standing of the Bank, the original of which is in your possession. In that report, we recommended that the balance of
the unpaid capital stock of P11 million be fully paid and P20 million be advanced by the Central Bank to enable the Bank to resume normal operations. At that time, we gathered
from the books of account that the Bank faced obligations to be immediately met amounting to about P30 million as against liquid assets of more than P12 million or an immediate
cash requirement of about P17 million. Nevertheless, and this is a very important point, our feeling was that at that time the aid we are recommending, properly used, would have
staved off panic and restored some confidence.
The entrance of the PNB team actually was a great initial psychological advantage; we have used that advantage to full extent: the advantage has faded.
PRESENT POSITION
Eight months of indecision has made depositors lose faith and as a result, we are faced with more court suits and withdrawals than ever before and more obligations have
matured.
We are made to understand that an advance of P19 million has been approved for the Bank and that an initial release of P10 million is under study. Last July 10, 1968, we wrote
the Superintendent of Banks complying with his request to render a projection of what we can do with P10 million.
There is a great leeway with what we can do with P10 million depending on the conditions which will accompany its grant. Even under the most liberal conditions that we can
imagine, P10 million will not save the Bank. We are, however, not aware whether this proposed P10 million will be the start of a series of advances nor as to how much ultimately
the Central Bank will be willing to finance the rehabilitation.
We are faced with both internal and external problems that are daily increasing in difficulty. If we are requested to make a projection which we believe is a reasonable request, the
present management should be made privy to the following:
(1) What is the real policy of the Central Bank regarding the future of TOBM;
(2) What is the policy of the Central Bank regarding present rates of interest and penalties on prevailing deficiencies;
(3) What is the rate of interest to be charged on the fresh advances;
(4) What are the conditions to be meted out regarding leeway and operations of TOBM;
(5) Any other strings that may be attached.
(6) What is the policy of Central Banking regarding unrecorded time deposits.
All these points will greatly affect any projection.
REQUEST:
That the PNB management team be withdrawn from TOBM.
It is obvious from this memorandum that far from heeding the request of its own team for an advance of P30 million (or P17 million in cash) to enable the OBM to resume normal
operations, the Central Bank did nothing to support the OBM between 6 January to 14 June, for almost six months, and kept even its own management team largely in the dark as
to what to expect. 0n 14 June, CB advised that only P10 million were to be made available (i.e., one third of the requirements estimated necessary by its own representatives).
This amount was naturally considered insufficient to normalize, much less rehabilitate, the OBM. And yet all this while, the CB was holding petitioners' mortgages on their private
properties worth at least P67 million in 1967 by the CB's own appraisal. Petitioners claimed they were worth P100 million which can not be very far from the truth, considering the
continual rise in real estate values.
Not content with procrastinating for 6 months, without taking positive steps to normalize OBM as it had agreed to do, nor even announcing its support of its own management team
or disclosing its policy regarding the future of OBM, (the CB finally adopted the resolutions now attacked by herein petitioner stockholders. On 30 July 1968, it excluded the OBM
from clearing with the CB (Resol. No. 1263) the contingency that the Voting Trust and the mortgage of the petitioners' private properties were to guard against. On 1 August 1968,
CB authorized (and virtually directed) its nominee Board of Directors to suspend operations (Resol. No. 1290); and thirteen days thereafter (13 August 1968), the CB directed its
Superintendent of Banks to proceed to liquidate OBM (Resol. No. 1333) under Section 29 of Republic Act No. 265 (Central Bank Charter), providing that —
SEC. 29. Proceedings upon insolvency. — Whenever, upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, it shall be
disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the
Superintendent forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the
institution to do business in the Philippines and shall take charge of its assets and proceeds according to law.
If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Solicitor General, file a petition in the Court of
First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The
Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking
institution to money.
We are constrained to agree with petitioners that the conduct of the CB from and after January, 1968, reveals a calculated attempt to evade rehabilitating OBM despite its
promises. What is more aggravating is that by the ordered liquidation, depositors and other creditors would have to share in the assets of the OBM, while the CB's own credits for
advances were secured by the new mortgages it had obtained from the petitioners, thereby gaining for it what amounts to an illegal preference. To cap it all, the CB disregarded its
representations and promises to rehabilitate and normalize the financial condition of OBM, as it had previously done with the Republic Bank, without even offering to discharge the
mortgages, given by petitioners in consideration for its promises, or notifying petitioners that it desired to rescind its contract, or bringing action in court for the purpose. And all the
while CB knew that the situation of the OBM was deteriorating daily, with penalties at 3% per month continually accumulating, while its creditors, depositors and stockholders
awaited the promised aid that never came, and which apparently CB never intended to give.
The deception practiced by the Central Bank, not only on petitioners but on its own management team, was in violation of Articles 1159 and 1315 of the Civil Code of the
Philippines:
ART. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis supplied)
The Supreme Court expounded the import of these legal provisions in Abelarde vs. Lopez, 74 Phil. 344, 348, stating:
Cleverness should never take the place of the loyal, upright and straightforward observance of plighted undertakings.
The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounting controlled by
certain bank officials, and other irregularities. It is well to note, however, that these "unrecorded" deposits were revealed to the CB as early as 25 September 1967 by the then
President of the OBM, Mr. Martin Oliva, who had no hand in such irregularities and who informed the Superintendent of Banks that time deposits worth P43,188,009.29 had not
been carried in the books and had not been reported to the OBM directors. 12 In fact, on 29 September 1967, the CB had already ordered its examiners to investigate the Bank's
records and determine the parties responsible. 13 Notwithstanding knowledge of these irregularities, the CB did not withdraw its promised support, and insisted on the execution of
the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the irregularities disclosed were not to be blamed on the OBM itself or its depositors
and creditors, but on the officials responsible; and further, that the OBM could still be saved by adequate aid and management reform, which was required by CB's duty to maintain
the stability of the banking system and the preservation of public confidence in it.
The respondent CB cites American cases to the effect that the courts can not interfere with CB's discretion in determining whether or not a distressed bank should be supported or
liquidated. In none of the cases cited, however, does it appear that the CB engaged to support the distressed bank in exchange for control of its management and additional
mortgages in its favor, and, therefore, the authorities cited are not in point. Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith.
We conclude that having induced the petitioners to part with additional security in reliance upon its (CB's) promises and commitments to avert liquidation and to support, normalize
and rehabilitate the OBM, the respondent CB is duty bound to comply in good faith with such promises. Consequently, being contrary thereto, CB Resolutions Nos. 1263, 1290
and 1333 should be annulled and set aside for having been adopted in abuse of discretion, equivalent to excess of jurisdiction. And never having attempted to comply, nor even to
begin compliance, with its commitments and promises, the respondent CB is precluded to invoke the expiration of the period specified for the duration of its obligations under the
Voting Trust Agreement. Such period should, in justice and equity, be deemed to start running from and after the CB begins due performance of its commitments, promises and
representations in good faith.
WHEREFORE, the writs prayed for in the petition are hereby granted, and respondent Central Bank's resolutions Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of
Manila to participate in clearing, direct the suspension of its operations, and ordering liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank
of the Philippines is directed to comply with it obligations under the Voting Trust Agreement, and to desist from taking action in violation thereof. Costs against respondent Central
Bank of the Philippines.
Dizon, Teehankee, and Villamor, JJ., concur.
Concepcion, Barredo and Makasiar, C.J., took no part.
Zaldivar, J., concurs in the result.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-33205 August 31, 1987
LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, petitioners,
vs.
SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO, respondents.

FERNAN, J.:
This is an appeal by certiorari involving purely questions of law from the decision rendered by respondent judge in Civil Case No. Q-12275 entitled "Social Security System versus
Lirag Textile Mills, Inc. and Basilio L. Lirag."
The antecedent facts, as stipulated by the parties during the trial, are as follows:
1. That on September 4, 1961, the plaintiff [herein respondent Social Security System] and the defendants [herein petitioners] Lirag Textile Mills, Inc. and Basilio Lirag
entered into a Purchase Agreement under which the plaintiff agreed to purchase from the said defendant preferred shares of stock worth ONE MILLION PESOS [P1,000,000.00]
subject to the conditions set forth in such agreement;...
2. That pursuant to the Purchase Agreement of September 4, 1961, the plaintiff, on January 31, 1962, paid the defendant Lirag Textile Mills, Inc. the sum of FIVE
HUNDRED THOUSAND PESOS [P500,000.00] for which the said defendant issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos [P10000] per share
as evidenced by stock Certificate No. 128, ...
3. That further in pursuance of the Purchase Agreement of September 4, 1961, the plaintiff paid to the Lirag Textile Mills, Inc. the sum of FIVE UNDRED THOUSAND
PESOS [P500,000.00] for which the said defendant issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos [P100.00] per share as evidenced by Stock
Certificate No. 139, ...
4. That in accordance with paragraph 3 of the Purchase Agreement of September 4, 1961 which provides for the repurchase by the Lirag Textile Mills, Inc. of the shares
of stock at regular intervals of one year beginning with the 4th year following the date of issue, Stock Certificates Nos. 128 and 139 were to be repurchased by the Lirag Textile
Mills, Inc. thus:
CERT. No. AMOUNT DATE OF REDEMPTION
128 P100,000.00 February 14, 1965
100,000.00 February 14, 1966
100,000.00 February 14, 1967
100,000.00 February 14, 1968
100,000.00 February 14, 1969
139 P100,000.00 July 3, 1966
100,000.00 July 3,1967
100,000.00 July 3,1968
100,000.00 July 3, 1969
100,000.00 July 3,1970
5. That to guarantee the redemption of the stocks purchased by the plaintiff, the payment of dividends, as well as the other obligations of the Lirag Textile Mills, Inc.,
defendants Basilio L. Lirag signed the Purchase Agreement of September 4, 1961 not only as president of the defendant corporation, but also as surety so that should the Lirag
Textile Mills, Inc. fail to perform any of its obligations in the said Purchase Agreement, the surety shall immediately pay to the vendee the amounts then outstanding pursuant to
Condition No. 4, to wit:
To guarantee the redemption of the stocks herein purchased, the payment of the dividends, as well as other obligations of the VENDOR herein, the SURETY hereby binds himself
jointly and severally liable with the VENDOR so that should the VENDOR fail to perform any of its obligations hereunder, the SURETY shall immediately pay to the VENDEE the
amounts then outstanding. '
6. That defendant corporation failed to redeem certificates of Stock Nos. 128 and 139 by payment of the amounts mentioned in paragraph 4 above;
7. That the Lirag Textile Mills, lnc. has not paid dividends in the amounts and within the period set forth in paragraph 10 of the complaint;*
8. That letters of demands have been sent by the plaintiff to the defendant to redeem the foregoing stock certificates and pay the dividends set forth in paragraph 10 of
the complaint, but the Lirag Textile Mills, Inc. has not made such redemption nor made such dividend payments;
9. That defendant Basilio L. Lirag likewise received letters of demand from the plaintiff requiring him to make good his obligation as surety;
10. That notwithstanding such letters of demand to the defendant Basilio L. Lirag, Stock Certificates Nos. 128 and 139 issued to plaintiff are still unredeemed and no
dividends have been paid on said stock certificates;
11. That paragraph 5 of the Purchase Agreement provides that should the Lirag Textile Mills, Inc. fail to effect any of the redemptions stipulated therein, the entire
obligation shall immediately become due and demandable and the Lirag Textile Mills, Inc., shall, furthermore, be liable to the plaintiff in an amount equivalent to twelve per cent
[12%] of the amount then outstanding as liquidated damages;
12. That the failure of the Lirag Textile Mills, Inc. to redeem the foregoing certificates of stock and pay dividends thereon were due to financial reverses, to wit:
[a] Unrestrained smuggling into the country of textiles from the United States and other countries;
[b] Unrestricted entry of supposed remmants which competed with textiles of domestic produce to the disadvantage and economic prejudice of the latter;
[c] Scarcity of money and the unavailability of financing facilities;
[d] Payment of interest on matured loans extended to defendant corporation;
[e] Construction of the Montalban plant of the defendant corporation financed largely through reparation benefits;
[f] Labor problems occasioned by the fact that the defendant company is financial (sic) unable to improve, in a substantial way, the economic plight of its workers as a
result of which two costly strikes had occurred, one in 1965 and another in 1968; and
[g] The occurrence of a fire which destroyed more than 1 million worth of raw cotton, paralyzed operations partially, increased overhead costs and wiped out any expected
profits that year;
13. That it has been the policy of the plaintiff to be represented in the board of directors of the corporation or entity which has obtained financial assistance from the System
be it in terms of loans, mortgages or equity investments. Thus, pursuant to paragraph 6 of the Purchase Agreement of September 4, 1961 which provides as follows:
The VENDEE shall be allowed to have a representative in the Board of Directors of the VENDOR with the right to participate in the discussions and to vote therein;
14. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan were each issued one common share of stock as a qualifying share to their election to the Board of
Directors of the Lirag Textiles Mills, Inc.;
15. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan, during their respective tenure as member of the Board of Directors of the Lirag Textile Mills, Inc.
attended the meetings of the said Board, received per diems for their attendance therein in the same manner and in the same amount as any other member of the Board of
Directors, participated in the deliberations therein and freely exercised their right to vote in such meetings. However, the per diems received by the SSS representative do not go to
the coffers of the System but personally to the representative in the said board of directors. 1
For failure of Lirag Textile Mills, Inc. and Basilio L. Lirag to comply with the terms of the Purchase Agreement, the SSS filed an action for specific performance and damages before
the then Court of First Instance of Rizal, Quezon City, praying that therein defendants Lirag Textile Mills, Inc. and Basilio L. Lirag be adjudged liable for [1] the entire obligation of
P1M which became due and demandable upon defendants' failure to repurchase the stocks as scheduled; [21 dividends in the amount of P220,000.00; [31 liquidated damages in
an amount equivalent to twelve percent (12%) of the amount then outstanding; [4] exemplary damages in the amount of P100,000.00 and [5] attorney's fees of P20,000.00.
Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of the complaint, but were denied the relief sought. Thus, they filed their answer with counterclaim, denying the
existence of any obligation on their part to redeem the preferred stocks, on the ground that the SSS became and still is a preferred stockholder of the corporation so that
redemption of the shares purchased depended upon the financial ability of said corporation. Insofar as defendant Basilio Lirag is concerned, it was alleged that his liability arises
only if the corporation is liable and does not perform its obligations under the Purchase Agreement. They further contended that no liability on their part has arisen because of the
financial condition of the corporation upon which such liability was made to depend, particularly the non-realization of any profit or earned surplus. Thus, the other claims for
dividends, liquidated damages and exemplary damages are allegedly without basis.
After entering into the Stipulation of Facts above-quoted, the parties filed their respective memoranda and submitted the case for decision.
The lower court, ruling that the purchase agreement was a debt instrument, decided in favor of SSS and sentenced Lirag Textile Mills, Inc. and Basilio L. Lirag to pay SSS jointly
and severally P1,000,000.00 plus legal interest until the said amount is fully paid; P220,000.00 representing the 8% per annum dividends on the preferred shares plus legal
interest up to the time of actual payment; P146,400.00 as liquidated damages; and P10,000.00 as attorney's fees. The counterclaim of Lirag Textile Mills, Inc. and Basilio L. Lirag
was dismissed.
Hence, this petition.
Petitioners assign the following errors:
1. The trial court erred in deciding that the Purchase Agreement is a debt instrument;
2. Respondent judge erred in holding petitioner corporation liable for the payment of the 8% preferred and cumulative dividends on the preferred shares since the
purchase agreement provides that said dividends shall be paid from the net profits and earned surplus of petitioner corporation and respondent SSS has admitted that due to
losses sustained since -1964, no dividends had been and can be declared by petitioner corporation;
3. Respondent judge erred in sentencing petitioners to pay P146,400.00 in liquidated damages;
4. Respondent judge erred in sentencing petitioners to pay P10,000.00 by way of attorney's fees;
5. Respondent judge erred in sentencing petitioners to pay interest from the time of firing the complaint u to the time of full payment both on the P1,000,000.00 invested
by respondent SSS in petitioner's corporation and on the P220,000.00 which the SSS claims as dividends due on its investments;
6. Respondent judge erred in holding that petitioner Lirag is liable to redeem the P1,000,000.00 worth of preferred shares purchased by respondent SSS from petitioner
corporation and the 8% cumulative dividend, it appearing that Lirag was merely a surety and not an insurer of the obligation;
7. Respondent judge erred in dismissing the counterclaim of petitioners.
The fundamental issue in this case is whether or not the Purchase Agreement entered into by petitioners and respondent SSS is a debt instrument.
Petitioners claim that respondent SSS merely became and still is a preferred stockholder of the petitioner corporation, the redemption of the shares purchased by said respondent
being dependent upon the financial ability of petitioner corporation. Petitioner corporation, thus, has no obligation to redeem the preferred stocks.
On the other hand, respondent SSS claims that the Purchase Agreement is a debt instrument, imposing upon the petitioners the obligation to pay the amount owed, and creating
as between them the relation of creditor and debtor, not that of a stockholder and a corporation.
We uphold the lower court's finding that the Purchase Agreement is, indeed, a debt instrument. Its terms and conditions unmistakably show that the parties intended the
repurchase of the preferred shares on the respective scheduled dates to be an absolute obligation which does not depend upon the financial ability of petitioner corporation. This
absolute obligation on the part of petitioner corporation is made manifest by the fact that a surety was required to see to it that the obligation is fulfilled in the event of the principal
debtor's inability to do so. The unconditional undertaking of petitioner corporation to redeem the preferred shares at the specified dates constitutes a debt which is defined "as an
obligation to pay money at some fixed future time, or at a time which becomes definite and fixed by acts of either party and which they expressly or impliedly, agree to perform in
the contract. 2
A stockholder sinks or swims with the corporation and there is no obligation to return the value of his shares by means of repurchase if the corporation incurs losses and financial
reverses, much less guarantee such repurchase through a surety.
As private respondent rightly contends, if the parties intended it [SSS] to be merely a stockholder of petitioner corporation, it would have been sufficient that Preferred Certificates
Nos. 128 and 139 were issued in its name as the preferred certificates contained all the rights of a stockholder as well as certain obligations on the part of petitioner corporation.
However, the parties did in fact execute the Purchase Agreement, at the same time that the petitioner corporation issued its preferred stock to the respondent SSS. The Purchase
Agreement serves to define the rights and obligations of the parties and to establish firmly the liability of petitioners in case of breach of contract. The Certificates of Preferred
Stock serve as additional evidence of the agreement between the parties, though the precise terms and conditions thereof must be read together with, and regarded as qualified
by the terms and conditions of the Purchase Agreement.
The rights given by the Purchase Agreement to respondent SSS are rights not enjoyed by ordinary stockholders. This fact could only lead to the conclusion made by the trial court
that:
The aforementioned rights specially stipulated for the benefit of the plaintiff [respondent SSS] suggest eloquently an intention on the part of the plaintiff [respondent SSS] to
facilitate a loan to the defendant corporation upon the latter's request. In order to afford protection to the plaintiff which otherwise is provided by means of collaterals, as the plaintiff
exacts in its grants of loans in its ordinary transactions of this kind, as it is looked upon more as a lending institution rather than as an investing agency, the purchase agreement
supplied these protective rights which would otherwise be furnished by collaterals to the loan. Thus, the membership in the board is to have a watchdog in the operation of the
business of the corporation, so as to insure against mismanagement which may result in losses not entirely unavoidable since payment for purposes of redemption as well as the
dividends is expressly stipulated to come from profits and/or surplus. Such a right is never exacted by an ordinary stockholder merely investing in the corporation. 3
Moreover, the Purchase Agreement provided that failure on the part of petitioner to repurchase the preferred shares on the scheduled due dates renders the entire obligation due
and demandable, with petitioner in such eventuality liable to pay 12% of the then outstanding obligation as liquidated damages. These features of the Purchase Agreement, taken
collectively, clearly show the intent of the parties to be bound therein as debtor and creditor, and not as corporation and stockholder.
Petitioners' contention that it is beyond the power and competence of petitioner corporation to redeem the preferred shares or pay the accrued dividends due to financial reverses
can not serve as legal justification for their failure to perform under the Purchase Agreement. The Purchase Agreement constitutes the law between the parties and obligations
arising ex contractu must be fulfilled in accordance with the stipulations. 4 Besides, it was precisely this eventuality that was sought to be avoided when respondent SSS required a
surety for the obligation.
Thus, it follows that petitioner Basilio L. Lirag cannot deny liability for petitioner corporation's default. As surety, Basilio L. Lirag is bound immediately to pay respondent SSS the
amount then outstanding.
The obligation of a surety differs from that of a guarantor in that the surety insures the debt, whereas the guarantor merely insures solvency of the debtor; and the surety
undertakes to pay if the principal does not pay, whereas a guarantor merely binds itself to pay if the principal is unable to pay. 5
On the liability of petitioners to pay 8% cumulative dividend, We agree with the observation of the lower court that the dividends stipulated by the parties served evidently as
interests. 6 The amount thereof was fixed at 8% per annum and was not made to depend upon or to fluctuate with the amount of profits or surplus realized, a clear indication that
the parties intended to give a sure and fixed earnings on the principal loan. The fact that the dividends were supposed to be paid out of net profits and earned surplus, of which
there were none, does not excuse petitioners from the payment thereof, again for the reason that the undertaking of petitioner Basilio L. Lirag as surety, included the payment of
dividends and other obligations then outstanding.
The award of the sum of P146,400.00 in liquidated damages representing 12% of the amount then outstanding is correct, considering that petitioners in the stipulation of facts
admitted having failed to fulfill their obligations under the Purchase Agreement. The grant of liquidated damages in the amount stated is expressly provided for in the Purchase
Agreement in case of contractual breach.
The pronouncement of the lower court for the payment of interests on both the unredeemed shares and unpaid dividends is also in order. Per stipulation of facts, petitioners did not
deny the fact of non-payment of dividends nor their failure to purchase the preferred shares. Since these involve sums of money which are overdue, they are bound to earn legal
interest from the time of demand, in this case, judicial, i.e., the time of filing the action.
Petitioner Basilio L. Lirag is precluded from denying his liability under the- Purchase Agreement. After his firm representation to "pay immediately to the VENDEE the amounts then
outstanding" evidencing his commitment as SURETY, he is estopped from denying the same. His signature in the agreement carries with it the official imprimatur as petitioner
corporation's president, in his personal capacity as majority stockholder, as surety and as solidary obligor. The essence of his obligation as surety is to pay immediately without
qualification whatsoever if petitioner corporation does not pay. To have another interpretation of petitioner Lirag's liability as surety would violate the integrity of the Purchase
Agreement as well as the clear and unmistakable intent of the parties to the same.
WHEREFORE, the decision in Civil Case No. Q-12275 entitled "Social Security System vs. Lirag Textile Mills, Inc. and Basilio L. Lirag" is hereby affirmed in toto. Costs against
petitioners.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25704 April 24, 1968
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,
vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.
Luis A. Guerrero for plaintiff-appellee.
Burgos and Sarte for defendants-appellants.
BENGZON, J.P., J.:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for
recovery of alleged unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the complaint, plus attorney's fees of P5,000.00. Alleging that post dated
checks issued by defendants to pay said account were dishonored, that defendants' industrial partner, Chellaram I. Mohinani, had left the country, and that defendants have
removed or disposed of their property, or are about to do so, with intent to defraud their creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total amount of P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00;
that plaintiff charged and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action against
defendants and should not be permitted to recover under the law. A counterclaim for P2,000.00 attorney's fees was interposed.
Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath the allegations of usury.
After trial, decision was rendered, on November 10, 1965. The court found that there remained due from defendants an unpaid principal amount of P20,287.50; that plaintiff
charged usurious interests, of which P1,048.15 had actually been deducted in advance by plaintiff from the loan; that said amount of P1,048.15 should therefore be deducted from
the unpaid principal of P20,287.50, leaving a balance of P19,247.35 1 still payable to the plaintiff. Said court held that notwithstanding the usurious interests charged, plaintiff is not
barred from collecting the principal of the loan or its balance of P19,247.35. Accordingly, it stated, in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay to the plaintiff the amount of P19,247.35, with legal interest thereon from May 29, 1964
until paid, plus an additional sum of P2,000.00 as damages for attorney's fee; and, in case the assets of defendant partnership be insufficient to satisfy this judgment in full,
ordering the defendant David Syjueco to pay to the plaintiff one-half (1/2) of the unsatisfied portion of this judgment.
With costs against the defendants.1äwphï1.ñët
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may the creditor recover the principal of the loan? (2) Should attorney's fees be
awarded in plaintiff's favor?
To refute the lower court's decision which is based on the doctrine laid down by this Court in Lopez v. El Hogar Filipino, 47 Phil. 249, holding that a contract of loan with usurious
interest is valid as to the loan but void as to the usurious interest, appellants argue that in light of the New Civil Code provisions said doctrine no longer applies. In support thereof,
they cite the case decided by the Court of Appeals in Sebastian v. Bautista, 58 O.G. No. 15, p. 3146.
The Sebastian case was an action for recovery of a parcel of land. The Court of First Instance therein decided in plaintiff's favor, on the ground that the so-called sale with pacto de
retro of said land was in fact only an equitable mortgage. In affirming the trial court, the writer of the opinion of the Court of Appeals went further to state the view that the loan
secured by said mortgage was usurious in nature, and, thus, totally void. Such reasoning of the writer, however, was not concurred in by the other members of the Court, who
concurred in the result and voted for affirmance on the grounds stated by the trial court. Furthermore, the affirmance of the existence of equitable mortgage necessarily implies the
existence of a valid contract of loan, because the former is an accessory contract to the latter.
Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes criminal offense, both parties being in pari delicto, they shall
have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be
applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise.
Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of pari delictoexpressed in Article 1411, supra, applies, so that neither party
can bring action against each other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the
borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover on the contract.
So — they continue — the New Civil Code provisions must be upheld as against the Usury Law, under which a loan with usurious interest is not totally void, because of Article
1961 of the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code." (Emphasis
ours.)
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for
departing from previous interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to the interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's nullity proceeds from illegality of the cause or object of said contract.
However, appellants fail to consider that a contract of loan with usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory
stipulation is to pay interest thereon.2
And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the principal debt
shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders a nullity the legal terms as to payments of the principal debt. Article 1420 of
the New Civil Code provides in this regard: "In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal.
The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.
Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec. 6, any person who for a loan shall have paid a higher rate or greater sum or
value than is allowed in said law, may recover the whole interest paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the date of payment." Article 1413, in speaking of "interest paid in excess of the interest allowed by the usury laws"
means the whole usurious interest; that is, in a loan of P1,000, with interest of P20% per annum P200 for one year, if the borrower pays said P200, the whole P200 is the usurious
interest, not just that part thereof in excess of the interest allowed by law. It is in this case that the law does not allow division. The whole stipulation as to interest is void, since
payment of said interest is the cause or object and said interest is illegal. The only change effected, therefore, by Article 1413, New Civil Code, is not to provide for the recovery of
the interest paid in excess of that allowed by law, which the Usury Law already provided for, but to add that the same can be recovered "with interest thereon from the date of
payment."
The foregoing interpretation is reached with the philosophy of usury legislation in mind; to discourage stipulations on usurious interest, said stipulations are treated as wholly void,
so that the loan becomes one without stipulation as to payment of interest. It should not, however, be interpreted to mean forfeiture even of the principal, for this would unjustly
enrich the borrower at the expense of the lender. Furthermore, penal sanctions are available against a usurious lender, as a further deterrence to usury.
The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the
debt earns interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void.
Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code).
The court a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint.
As regards, however, the attorney's fees, the court a quo stated no basis for its award, beyond saying that as a result of defendants' refusal to pay the amount of P19,247.35
notwithstanding repeated demands, plaintiff was obliged to retain the services of counsel. The rule as to attorney's fees is that the same are not recoverable, in the absence of
stipulation. Several exceptions to this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an exception, the act of plaintiff in engaging counsel's services due to
refusal of defendants to pay his demand, does not justify award of attorney's fees (Estate of Buan v. Camaganacan, L-21569, Feb. 28, 1966). Defendants, moreover, had reason
to resist the claim, since there was yet no definite ruling of this Court on the point of law involved herein in light of the New Civil Code. Said award should therefore be deleted.
WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is deleted therefrom, and the correction of the clerical error as to the principal still
recoverable, from P19,247.35 to P19,239.35, the appealed judgment is hereby affirmed. No costs. So ordered.
Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar, J., took no part.
Concepcion, C.J., is on leave.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-32644 October 4, 1930
CU UNJIENG E HIJOS, plaintiff-appelle,
vs.
THE MABALACAT SUGAR CO., ET AL., defendants.
THE MABALACAT SUGAR CO., appellant.

STREET, J.:
This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for the purpose of recovering from the Mabalacat Sugar Company an indebtedness
amounting to more than P163,00, with interest, and to foreclose a mortgage given by the debtor to secure the same, as well as to recover stipulated attorney's fee and the sum of
P1,206, paid by the plaintiff for insurance upon the mortgaged property, with incidental relief. In the complaint Siuliong & Co., Inc., was joined as defendant, as a surety of the
Mabalacat Sugar Company, and as having a third mortgage on the mortgaged property. The Philippine National Bank was also joined by reason of its interest as second
mortgagee of the land covered by the mortgage to the plaintiff. After the cause had been brought to issue by the answers of the several defendants, the cause was heard and
judgment rendered, the dispositive portion of the decision being as follows:
Por las consideraciones expuestas, el Juzgado condena a The Mabalacat Sugar Company a pagar a la demandante la suma de P163,534.73, con sus intereses de 12 por ciento
al ano, compuestos mensualmente desde el 1. de mayo de 1929. Tambien se le condena a pagar a dicha demandante la suma de P2,412 por las primas de seguros abonadas
por esta, con sus intereses de 12 por ciento al ano, compuestos tambien mensualmente desde el 15 de mayo de 1928, mas la de P7,500 por honorarios de abogados y las costas
del juicio. Y si esta deuda no se pagare dentro del plazo de tres meses, se ejecutaran los bienes hipotecados de acuerdo con la ley.
Si del producto de la venta hubiese algun remanente, este se destinara al pago del credito del Banco Nacional, o sea de P32,704.69, con sus intereses de 9 por ciento al ano
desde el 7 de junio de 1929, sin perjuicio de la orden de ejecucion que pudiera expedirse en el asundo No. 26435 del Juzgado de Primera Instancia de Manila.
Se condena ademas a The Mabalacat Sugar Company al pago de la suma de P3,205.78 reclamada por Siuliong & Co., con sus intereses de 9 por ciento al ano desde el 29 de
julio de 1926 hasta su completo pago, ordenandola que rinda cuentas del azucar por ella producido y pague la comision correspondiente bajo la base de 5 por ciento de su valor,
descontandose, desde luego, las cantidades ya pagadas.
Se absuelve de la demanda de Cu Unjieng e Hijos a Siuliong & Co., Inc.1awph!l.net
From this judgment the defendant, the Mabalacat Sugar Company, appealed.
The first point assigned as error has relation to the question whether the action was prematurely stated. In this connection we note that the mortgage executed by the Mabalacat
Sugar Company contains, in paragraph 5, a provision to the effect that non-compliance on the part of the mortgage debtor with any of the obligations assumed in virtue of this
contract will cause the entire debt to become due and give occasion for the foreclosure of the mortgage. The debtor party failed to comply with the obligation, imposed upon it in
the mortgage, to pay the mortgage debt in the stipulated installments at the time specified in the contract. It results that the creditor was justified in treating the entire mortgage
debt as having been accelerated by such failure of the debtor in paying the installments.
It appears, however, that on or about October 20, 1928, the mortgage creditor, Cu Unjieng e Hijos, agreed to extend the time for payment of the mortgage indebtedness until June
30, 1929, with certain interim payments to be made upon specified dates prior to the contemplated final liquidation of the whole indebtedness. But the debtor party failed to make
the interim payments due on February 25, 1929, March 25, 1929, and April 25, 1929, and failed altogether to pay the balance due, according to the terms of this extension, on
June 30, 1929. Notwithstanding the failure of the debtor to comply with the terms of this extension, it is insisted for the appellant that this agreement for the extension of the time of
payment had the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity of the debt by non-compliance with the terms of the
mortgage. As the trial court pointed out, this contention is untenable. The agreement to extend the time of payment was voluntary and without consideration so far as the creditor is
concerned; and the failure of the debtor to comply with the terms of the extension justified the creditor in treating it as of no effect. The first error is therefore without merit.
The second error is directed to the propriety of the interest charges made by the plaintiff in estimating the amount of the indebtedness. In this connection we note that, under the
second clause of the mortgage, interest should be calculated upon the indebtedness at the rate of 12 per cent per annum. In the same clause, but in a separate paragraph, there is
another provision with respect to the payment of interest expressed in Spanish in the following words:
Los intereses seran pagados mensualmente a fin de cada mes, computados teniendo en cuenta el capital del prestamo aun no pagado.
Translated into English this provision reads substantially as follows: "Interest, to be computed upon the still unpaid capital of the loan, shall be paid monthly, at the end of each
month."
It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded;
and rests for the computation of compound interest can certainly be made monthly, as well as quarterly, semiannually, or annually. But in the absence of express stipulation for the
accumulation of compound interest, no interest can be collected upon interest until the debt is judicially claimed, and then the rate at which interest upon accrued interest must be
computed is fixed at 6 per cent per annum.
In the present case, however, the language which we have quoted above does not justify the charging of interest upon interest, so far as interest on the capital is concerned. The
provision quoted merely requires the debtor to pay interest monthly at the end of each month, such interest to be computed upon the capital of the loan not already paid. Clearly
this provision does not justify the charging of compound interest upon the interest accruing upon the capital monthly. It is true that in subsections (a), (b) and (c) of article IV of the
mortgage, it is stipulated that the interest can be thus computed upon sums which the creditor would have to pay out (a) to maintain insurance upon the mortgaged property, (b) to
pay the land tax upon the same property, and (c) upon disbursements that might be made by the mortgagee to maintain the property in good condition. But the chief thing is that
interest cannot be thus accumulated on unpaid interest accruing upon the capital of the debt.
The trial court was of the opinion that interest could be so charged, because of the Exhibit 1 of the Mabalacat Sugar Company, which the court considered as an interpretation by
the parties to the contract and a recognition by the debtor of the propriety of compounding the interest earned by the capital. But the exhibit referred to is merely a receipt showing
that the sum of P256.28 was, on March 19, 1928, paid by the debtor to the plaintiff as interest upon interest. But where interest is improperly charged, at an unlawful rate, the mere
voluntary payment of it to the creditor by the debtor is not binding. Such payment, in the case before us, was usurious, being in excess of 12 per cent which is allowed to be
charged, under section 2 of the Usury Law, when a debt is secured by mortgage upon real property. The Exhibit 1 therefore adds no support to the contention of the plaintiff that
interest upon interest can be accumulated in the manner adopter by the creditor in this case. The point here ruled is in exact conformity with the decision of this court in Bachrach
Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held that interest cannot be allowed in the absence of stipulation, or in default thereof, except when the debt
is judicially claimed; and when the debt is judicially claimed, the interest upon the interest can only be computed at the rate of 6 per cent per annum.
It results that the appellant's second assignment of error is well taken, and the compound interest must be eliminated from the judgment. With respect to the amount improperly
charged, we accept the estimate submitted by the president and manager of the Mabalacat Sugar Company, who says that the amount improperly included in the computation
made by the plaintiff's bookkeeper is P879.84, in addition to the amount of P256.28 covered by Exhibit 1 of the Mabalacat Sugar Company. But the plaintiff creditor had the right to
charge interest, in the manner adopted by it, upon insurance premiums which it had paid out; and if any discrepancy of importance is discoverable by the plaintiff in the result here
reached, it will be at liberty to submit a revised computation in this court, upon motion for reconsideration, wherein interest shall be computed in accordance with this opinion, that
is to say, that no accumulation of interest will be permitted at monthly intervals, as regards the capital of the debt, but such unpaid interest shall draw interest at the rate of 6 per
cent from the date of the institution of the action.
In the third assignment of error the appellant complains, as excessive, of the attorney's fees allowed by the court in accordance with stipulation in the mortgage. The allowance
made on the principal debt was around 4 per cent, and about the same upon the fee allowed to the bank. Under the circumstances we think the debtor has no just cause for
complaint upon this score.
The fourth assignment of error complains of the failure of the trial court to permit an amendment to be filed by the debtor to its answer, the application therefore having been made
on the day when the cause had been set for trial, with notice that the period was non-extendible. The point was a matter in the discretion of the court, and no abuse of discretion is
shown.
From what has been stated, it follows that the appealed judgment must be modified by deducting the sum of P1,136.12 from the principal debt, so that the amount of said
indebtedness shall be P162,398.61, with interest at 12 per cent per annum, from May 1, 1929. In other respects the judgment will be affirmed, and it is so ordered, with cost
against the appellant.
Avanceña, C.J., Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 111180 November 16, 1995

DAISIE T. DAVID, petitioner,
vs.
COURT OF APPEALS, RAMON R. VILLAR, respondents.

MENDOZA, J.:
Petitioner Daisie T. David worked as secretary of private respondent Ramon R. Villar, a businessman in Angeles City. Private respondent is a married man and the father of four
children, all grown-up. After a while, the relationship between petitioner and private respondent developed into an intimate one, as a result of which a son, Christopher J., was born
on March 9, 1985 to them. Christopher J. was followed by two more children, both girls, namely Christine, born on June 9, 1986, and Cathy Mae on April 24, 1988.
The relationship became known to private respondent's wife when Daisie took Christopher J, to Villar's house at Villa Teresa in Angeles City sometime in 1986 and introduced him
to Villar's legal wife.
After this, the children of Daisie were freely brought by Villar to his house as they were eventually accepted by his legal family.
In the summer of 1991, Villar asked Daisie to allow Christopher J., then six years of age, to go with his family to Boracay. Daisie agreed, but after the trip, Villar refused to give
back the child. Villar said he had enrolled Christopher J. at the Holy Family Academy for the next school year.
On July 30, 1991, Daisie filed a petition for habeas corpus on behalf of Christopher J.
After hearing, the Regional Trial Court, Branch 58 at Angeles City, rendered a decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner and against the respondent:
1. the rightful custody of the minor Christopher J. T. David is hereby given to the natural mother, the herein petitioner Daisie T. David;
2. respondent is hereby ordered to give a temporary support of P3,000.00 a month to the subject minor Christopher J. T. David, Christine David and Cathy Mae David to
take effect upon the finality of this decision; and
3. to pay the costs of this suit.
SO ORDERED.
On appeal, the Court of Appeals reversed, holding:
We agree with the respondent-appellant's view that this is not proper in a habeas corpus case.
Law and jurisprudence wherein the question of custody of a minor child may be decided in a habeas corpus case contemplate a situation where the parents are married to each
other but are separated. This is so because under the Family Code, the father and mother have joint parental authority over their legitimate children and in case of separation of
the parents there is need to determine rightful custody of their children. The same does not hold true in an adulterous relationship, as in the case at bar, the child born out of such
a relationship is under the parental authority of the mother by express provision of the law. Hence, the question of custody and support should be brought in a case singularly filed
for the purpose. In point of fact, this is more advisable in the case at bar because the trial court did not acquire jurisdiction over the other minor children of the petitioner-appellee
and respondent-appellant and, therefore, cannot properly provide for their support.
Admittedly, respondent-appellant is financially well-off, he being a very rich businessman; whereas, petitioner-appellee depends upon her sisters and parents for support. In fact,
he financially supported petitioner-appellee and her three minor children. It is, therefore, for the best interest of Christopher J that he should temporarily remain under the custody
of respondent-appellant until the issue on custody and support shall have been determined in a proper case.
WHEREFORE, the decision appealed from is hereby SET ASIDE, and a NEW ONE ENTERED dismissing the petition for habeas corpus in Special Proceeding No. 4489.
Daisie in turn filed this petition for review of the appellate court's decision.
Rule 102, §1 of the Rules of Court provides that "the writ of habeas corpus shall extend to all cases of illegal confinement or detention by which any person is deprived of his
liberty, or by which the rightful custody of any person is withheld from the person entitled thereto."
It is indeed true, as the Court of Appeals observed, that the determination of the right to the custody of minor children is relevant in cases where the parents, who are married to
each other, are for some reason separated from each other. It does not follow, however, that it cannot arise in any other situation. For example, in the case of Salvaña v. Gaela,1 it
was held that the writ of habeas corpus is the proper remedy to enable parents to regain the custody of a minor daughter even though the latter be in the custody of a third person
of her free will because the parents were compelling her to marry a man against her will.
In the case at bar, Christopher J. is an illegitimate child since at the time of his conception, his father, private respondent Ramon R. Villar, was married to another woman other
than the child's mother. As such, pursuant to Art. 176 of the Family Code, Christopher J. is under the parental authority of his mother, the herein petitioner, who, as a consequence
of such authority, is entitled to have custody of him.2 Since, admittedly, petitioner has been deprived of her rightful custody of her child by private respondent, she is entitled to
issuance of the writ of habeas corpus.
Indeed, Rule 1021 §1 makes no distinction between the case of a mother who is separated from her husband and is entitled to the custody of her child and that of a mother of an
illegitimate child who, by law, is vested with sole parental authority, but is deprived of her rightful custody of her child.
The fact that private respondent has recognized the minor child may be a ground for ordering him to give support to the latter, but not for giving him custody of the child. Under Art.
213 of the Family Code, "no child under seven years of age shall be separated from the mother unless the court finds compelling reasons to order otherwise." 3
Nor is the fact that private respondent is well-off a reason for depriving petitioner of the custody of her children, especially considering that she has been able to rear and support
them on her own since they were born. Petitioner is a market vendor earning from P2,000 to P3,000 per month in 1993 when the RTC decision was rendered. She augments her
income by working as secretary at the Computer System Specialist, Inc. earning a monthly income of P4,500.00. She has an arrangement with her employer so that she can
personally attend to her children. She works up to 8:00 o'clock in the evening to make up for time lost during the day. That she receives help from her parents and sister for the
support of the three children is not a point against her. Cooperation, compassion, love and concern for every member of the family are characteristics of the close family ties that
bind the Filipino family and have made it what it is.
Daisie and her children may not be enjoying a life of affluence that private respondent promises if the child lives with him. It is enough, however, that petitioner is earning a decent
living and is able to support her children according to her means.
The Regional Trial Court ordered private respondent to give temporary support to petitioner in the amount of P3,000.00 a month, pending the filing of an action for support, after
finding that private respondent did not give any support to his three children by Daisie, except the meager amount of P500.00 a week which he stopped giving them on June 23,
1992. He is a rich man who professes love for his children. In fact he filed a motion for the execution of the decision of the Court of Appeals, alleging that he had observed his son
"to be physically weak and pale because of malnutrition and deprivation of the luxury and amenities he was accustomed to when in the former custody of the respondent." He
prayed that he be given the custody of the child so that he can provide him with the "proper care and education."
Although the question of support is proper in a proceeding for that purpose, the grant of support in this case is justified by the fact that private respondent has expressed
willingness to support the minor child. The order for payment of allowance need not be conditioned on the grant to him of custody of the child. Under Art. 204 of the Family Code, a
person obliged to give support can fulfill his obligation either by paying the allowance fixed by the court or by receiving and maintaining in the family dwelling the person who is
entitled to support unless, in the latter case, there is "a moral or legal obstacle thereto."
In the case at bar, as has already been pointed out, Christopher J., being less than seven years of age at least at the time the case was decided by the RTC, cannot be taken from
the mother's custody. Even now that the child is over seven years of age, the mother's custody over him will have to be upheld because the child categorically expressed
preference to live with his mother. Under Art. 213 of the Family Code, courts must respect the "choice of the child over seven years of age, unless the parent chosen is unfit" and
here it has not been shown that the mother is in any way unfit to have custody of her child. Indeed, if private respondent loves his child, he should not condition the grant of support
for him on the award of his custody to him (private respondent).
WHEREFORE, the decision of the Court of Appeals is REVERSED and private respondent is ORDERED to deliver the minor Christopher J. T. David to the custody of his mother,
the herein petitioner, and to give him temporary support in the amount of P3,000.00, pending the fixing of the amount of support in an appropriate action.
SO ORDERED.
Narvasa, C.J., Regalado and Puno, JJ., concur.
Francisco, J., is on leave.
 EN BANC

[G.R. No. 48389. July 27, 1942.]

CLEOFE VELEZ, Plaintiff-Appellant, v. MAXIMO BALZARZA and FLAVIA MABILIN, Defendants-Appellees.

DECISION
BOCOBO, J.:

On November 16, 1937, plaintiff in an amended complaint prayed for the return of certain parcels of land which she alleged ha d been sold by defendants to
plaintiff’s deceased husband, Ramon Neri San Jose, with right of repurchase. She further alleged that defendants had remained in possession of said land
under a contract of lease, but that for over two years defendants had not paid the agreed rentals. In paragraph 4 of the complaint, she stated that "in the
distribution of the estate of the deceased Ramon Neri San Jose who died on November 7, 1932, duly approved by this Honorable Court, the said lands were
adjudicated as share of the herein plaintiff." In their amended answer, defendants alleged that the real agreement was a loan secured by a mortgage of
those lands; and that whereas the amount borrowed was only P2,400, defendants had however already paid P4,420.88. Defendants therefore prayed for
the return of the excess, or P2,029.88.

At the trial, the parties agreed to the following stipulation of facts: that plaintiff has a right to bring this suit; that the real question involved is the collection
of a debt; that defendants admit having executed Exhibits A to E; that plaintiff admits defendants have made the payments according to the receipts
marked as Exhibits 1 to 22; and that the lands described in the above-mentioned documents have been given as a security for the payment of the
obligation of defendants.

The trial court found that the total amount loaned on various dates by the deceased Neri to the defendants, was P3,067; that defendants paid P4,429.88, of
which P3,997.25 was received by Neri and P432.63 by plaintiff; that these payments were not made by way of interests or rents, but as payments for the
principal; that defendants overpaid the amount of P1,362.88. The court below exonerated defendants from the complaint and ordered plaintiff to return to
defendants the sum of P432.63 which she, plaintiff, had received from defendants although said amount was not due, applying article 1895 of the Civil
Code. As for the amount received by deceased Neri, the court held that the same not having been presented before the committe e on appraisal and claims
during the administration of the estate of said Neri, defendants are not entitled to its return. Plaintiff appealed from the judgment.

It is necessary to inquire into the contractual relations between Neri and defendants. Exhibit A, dated December 24, 1927, purports to be a sale of four
parcels of land for the price of P600, with a right of repurchase within three years. Exhibit D, dated March 16, 1928, likewise purports to be a sale of three
parcels of land for P400, with a right of repurchase within three years. Each of these two contracts has the following stipulation: "El comprador Ramon Neri
San Jose toma posesión de las fincas vendidas, y él sera quien cosechara todos los productos que dan o puedan dar las fincas aqui vendidas durante el
plazo de retracto y puede hacer y ejercitar todos los actos de dominio con tal que no esté en pugna con el derecho de recompra de los vendedores. " (In
Exhibit D the last words of this clause are "del vendedor" because only defendant Balzarza signed the contract.) Exhibits B, C, and E are contracts of loan,
dated respectively, December 24, 1927; February 2, 1928; and February 6, 1930, for various amounts, from Neri to defendants. Each of these three
documents recites that defendants received a certain amount from Neri; that on November 23, 1927, defendants sold three parcels of land to Neri; and that
defendants have promised to Neri that upon return of the amount mentioned in said document of November 23, 1927, defendants w ill return the sum
borrowed by means of the present contract.

Evidently all these five loans appearing in Exhibits A to E were secured by the mortgage of the seven parcels of land mentioned in Exhibits A and D. These
transactions being loans, according to the stipulation of facts, the question is whether the payments were intended to be applied to the principal, as
contended by defendants, or were considered as either rents or interests, upon the theory advanced by plaintiff.

The payments could not have been intended as rents because in accordance with a clause in the contract, Neri took possession of the lands and collected
the fruits thereof. The creditor having enjoyed the beneficial use of the lands delivered as security for the loan, it appear s to have been the intention of the
parties that the creditor should be compensated thereby. Furthermore, in none of the contracts offered in evidence is there any promise made by
defendants to pay rents. It would have been strange for such a clause to appear in Exhibits A and D wherein it was stipulated that the creditor took
possession of the lands and would reap the fruits of the same. It is true that in the receipts signed by Neri and by plaintif f these payments are called rents.
But these receipts have been prepared by Neri and by plaintiff, and defendants in their ignorance did not look into the wording, being merely satisfied that
they were proofs of payment.

If these payments were not rents, plaintiff-appellant maintains they must have been interests. Neither is this contention tenable because no interest is due
unless it is expressly stipulated. (Article 1755, Civil Code.) Moreover, as under the contract the lender took possession of the lands and reaped the fruits
thereof, it must have been thought by the parties that it was unfair to make the borrower pay interest in addition. It is also significant that the borrower
paid a total of P1,143.50 up to August 5, 1929 (a period of 1 year, 8 months and 13 days from the initial loan) when the debt up to that date was only
P2,100. If such amount of P1,143.50 was collected as interest, then out and out usury was committed by the lender, which cannot be presumed.

Counsel for appellant argues that as the deceased Ramon Neri San Jose "was publicly known as a money lender" the parties must have had in mind the
payment of interests. However, the alleged occupation of said Neri does not appear in the stipulation of facts or anywhere else in the evidence. But even if
that fact appeared in the record, it would not constitute sufficient compliance with the requisite of article 1755 of the Civil Code that interest must be
expressly stipulated.

In Guzman v. Balarag (11 Phil., 503, 508-509 [year 1908]), the plaintiff therein loaned P1,500 to defendant who mortgaged his house and lot. Plaintiff took
possession of the premises and collected rents from third persons. It was claimed by the plaintiff that these rents received by him should be applied to t he
payment of interest. But this Court held otherwise, saying:jgc:chanrobles.com.ph

"If the debtor Pascual Balarag is only under the obligation to pay the creditor, Guzman, the 1,500 pesos received as a loan, without interest, upon
permitting the latter to collect the rent of property owned by the debtor and keep the amounts so collected, it must be assumed that it was in order to
provide for the refund of the debt arising from the loan. It is not possible to apply the money except in settlement of the debt, unless the allegations of the
debtor be disproven; the record does not contain any proof of the contrary allegation to the effect that it was stipulated that the rent collected should be
applied to the payment of interest, and the allegation of the defendant debtor is all the more convincing and irrefutable, in asmuch as it has not in any way
been demonstrated that interest on the loan was stipulated."cralaw virtua1aw library

Therefore, the trial court was right in finding that these payments were applied to the principal.

At this juncture, article 1756 of the Civil Code comes into view. It provides that, "The borrower who has paid interests with out their being stipulated, cannot
recover them nor apply them to the principal." It seems plausible to argue that although the parties originally intended no interest when the loans were
made, nevertheless if defendants wished to pay and did pay interest, according to said article 1756 they can neither recover the amounts nor apply them to
the principal. However, the trial court found as a fact that "los pagos hechos no fueron ni en concepto de intereses ni de alquileres, sino como pagos del
capital." ("the payments made were not either by way of interests nor of rents but as payments for the principal.") The court further found that "the
question would have been different if the defendants had admitted, or if it had been proved that the payments made by the defendants were by way of
interest."cralaw virtua1aw library

The liability of plaintiff to return the excess payments is in keeping with article 1895 of the Civil Code which provides that, "when something is received
which there is no right to collect, and which by mistake has been unduly delivered, the obligation to restore it arises." The two requisites are present: (1)
there is no right to collect these excess sums; and (2) the amounts have been paid through mistake by defendants. Such mistake is shown by the fact that
the parties in their contracts never intended that either rents or interest should be paid, and by the further fact that when these payments were made, they
were intended by defendants to be applied to the principal, but they overpaid the amounts loaned to them.

Article 1895 of the Civil Code above quoted, is therefore applicable. This legal provision, which deter mines the quasi-contract of solutio indebiti, is one of
the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another. In the Roman Law Digest the maxim
was formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et injuria fieri locupletiorem." And the Partidas declared: "Ninguno non
deue enriquecerse tortizeramente con daño de otro." Such axiom has grown through the centuries in legislation, in the science of law and in court decisions.
The lawmaker has found it one of the helpful guides in framing statutes and codes. Thus, it is unfolded in many articles scat tered in the Spanish Civil Code.
(See for example, articles 360, 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored aphorism has also
been adopted by jurists in their study of the conflict of rights. It has been accepted by the courts, which have not hesitate d to apply it when the exigencies
of right and equity demanded its assertion. It is a part of that affluent reservoir of justice upon which judicial discretion draws whenever the statutory laws
are inadequate because they do not speak or do so with a confused voice.

As for the amount to be returned by plaintiff, the trial court held that plaintiff should return only the excess sum she actually received (P432.63) but not the
overpayment made to the deceased Neri. If the defendants had appealed from the latter phase of the judgment, perhaps the application of section 749 of
the Code of Civil Procedure (now Rule 89, section 5 of the new Rules of Court) might have been studied. Under that provision, contingent claims which
become absolute after the settlement of the estate of a deceased person may be enforced proportionately against the distributees of the estate, and in the
instant case this claim against Neri did not become absolute till the discovery of the mistake, after the distribution of his estate. But defendants not having
appealed, this aspect of the case will not be passed upon.

Wherefore, the judgment appealed from is affirmed, with costs against the appellant. So ordered.

Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.

 SECOND DIVISION
[G.R. No. 128990. September 21, 2000]
INVESTORS FINANCE CORPORATION, petitioner, vs. AUTOWORLD SALES CORPORATION, and PIO BARRETTO REALTY DEVELOPMENT CORPORATION,
respondents.
DECISION
BELLOSILLO, J.:
INVESTORS FINANCE CORPORATION seeks a review of the Decision of the Court of Appeals which ruled that the financing firm had entered into a usurious loan transaction
with Autoworld Sales Corporation, thus entitling the latter to reimbursement of excess interest payments amounting to P2,586,035.44.[1]
Petitioner Investors Finance Corporation, then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation), is a financing company
doingbusiness with private respondent Autoworld Sales Corporation
(AUTOWORLD) since 1975. Anthony Que, president of AUTOWORLD, also held the same position at its affiliate corporation, private respondent Pio Barretto Realty Corporation
(BARRETTO).
Sometime in August 1980 Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that
time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied.
But sometime thereafter, FNCBs Assistant Vice President, Mr. Leoncio Araullo, informed Anthony Que that although it could not grant direct loans it could extend funds to
AUTOWORLD by purchasing any of its outstanding receivables at a discount. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP")
transaction to enable AUTOWORLD to acquire the additional capital it needed. The mechanics of the proposed IPP transaction was -
(1) First, Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12,999,999.60 payable in sixty (60) equal monthly installments
of P216,666.66.Consequently, BARRETTO would acquire P12,999,999.60 worth of receivables from AUTOWORLD;
(2) FNCB would then purchase the receivables worth P12,999,999.60 from BARRETTO at a discounted value of P6,980,000.00 subject to the condition that such amount would be
flowed back to AUTOWORLD;
(3) BARRETTO, would in turn, execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of the P12,999,999.60 purchase price directly to
FNCB;[2] and
(4) Lastly, to secure the payment of the receivables under the Deed of Assignment, BARRETTO would mortgage the property subject of the sale to FNCB.
On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed IPP transaction. [3] The lawyers of FNCB then drafted the contracts
needed and furnished Anthony Que with copies thereof.[4]
On 9 February 1981 the parties signed three (3) contracts to implement the IPP transaction:
(1) Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD, situated in San Miguel, Manila, together with the improvements thereon, covered by TCT No.
129763 for the price of P12,999,999.60 payable in sixty (60) consecutive and equal monthly installments of P216,666.66.
(2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights, title and interest to all the money and other receivables due from AUTOWORLD
under the Contract to Sell, subject to the condition that the assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the event that the payor
(AUTOWORLD) defaulted in the payment of its obligations.
(3) Real Estate Mortgage whereby BARRETTO, as assignor, mortgaged the property subject of the Contract to Sell to FNCB as security for payment of its obligation under the
Deed of Assignment.[5]
After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB.
On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per annum.[6] AUTOWORLD
and BARRETTO, as co-makers, then signed a promissory note in favor of FNCB worth P5,604,480.00 payable in sixty (60) consecutive monthly installments of P93,408.00. [7] To
secure the promissory note, AUTOWORLD mortgaged a parcel of land located in Sampaloc, Manila, to FNCB.[8] Thereafter, AUTOWORLD began paying the installments.
In December 1982, after paying nineteen (19) monthly installments of P216,666.66 on the first transaction (IPP worth P6,980,000.00) and three (3) monthly installments of
P93,408.00 on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their
outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total
amount of P10,026,736.78, where P6,784,551.24 was the amount to settle the first transaction while P3,242,165.54 was the amount to settle the second transaction.[9]
On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latters computation of its outstanding balances.[10] On 27 December 1982 FNCB replied that it would
only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded.[11] Thus, despite its objections, AUTOWORLD reluctantly paid
FNCB P10,026,736.78 through its UCPB account.[12]
On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84. [13] According to AUTOWORLD, it overpaid P2,586,035.44 to
settle the first transaction and P418,262.00 to settle the second transaction.[14]
The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court
of Makati to annul the Contract to Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise prayed for the nullification of the Promissory
Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982.
In its complaint, AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled. FNCB should refund
the amounts of P2,586,035.44 as excess payment for the first transaction and P418,262.00 as excess payment for the second transaction. AUTOWORLD also asked for
P500,000.00 as exemplary damages and P100,000.00 as attorneys fees.
FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. Instead, the parties entered into a legitimate Installment Paper Purchase ("IPP")
transaction, or purchase of receivables at a discount, which FNCB could legally engage in as a financing company. With regard to the second transaction, the existence of a
usurious interest rate had no bearing on the P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No. 871 dated 21 July 1981 had
effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days. FNCB also prayed for P2,000,000.00 as moral damages and
P500,000.00 as attorneys fees.
On 18 January 1985 FNCB filed a Third-Party Complaint against BARRETTO based on the Deed of Assignment, which expressly provided that FNCB as assignee had a right of
recourse against BARRETTO as assignor in case AUTOWORLD defaulted in its payments.[15]
BARRETTO countered that it could not be held liable for AUTOWORLD's alleged default in its payments since the Deed of Assignment, together with the Contract to Sell and the
Real Estate Mortgage, was simulated and perfected only to facilitate a usurious loan. It prayed for P1,600,000.00 as damages and P100,000.00 as attorneys fees.[16]
On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the
discounting of receivables. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan. On the other hand, it was ordered
to pay FNCB P50,000.00 for attorney's fees.[17]
The Court of Appeals modified the decision of the trial court and concluded that the IPP transaction, comprising of the three (3) contracts perfected on 9 February 1981, was
merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2,586,035.44 as
excess interest payments over the 12% ceiling rate. However, with regard to the second transaction, the appellate court ruled that at the time it was executed the ceiling rates
imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest. [18] The appellate court deleted the award of P50,000.00 as attorney's
fees in favor of FNCB explaining that the filing of the complaint against FNCB was exercised in good faith. Hence, this petition of FNCB.
We stress at the outset that this petition concerns itself only with the first transaction involving the alleged "IPP" worth P6,980,000.00, which was implemented through the three (3)
contracts of 9 February 1981. As to the second transaction, which involves the P3,000,000.00 loan, we agree with the appellate court that it was executed when the ceiling rates of
interest had already been removed, hence the parties were free to fix any interest rate.
The pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were executed to implement a legitimate Installment Paper Purchase (IPP) transaction or
merely to conceal a usurious loan. Generally, the courts only need to rely on the face of written contracts to determine the intention of the parties. However, the law will not permit
a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a
construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however
ingenious, to becloud the crime of usury.[19] The following circumstances show that such scheme was indeed employed:
First, petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO.[20] As far as it was concerned, it merely purchased receivables at a
discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981. Whether the Contract to Sell was fictitious or not would have no effect on its right to
claim the receivables of BARRETTO from AUTOWORLD since the two contracts were entirely separate and distinct from each other.
Curiously however, petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved [21]which were executed on the same day.[22] Also, petitioner
was the one who procured the services of the Asian Appraisal Company to determine the fair market value of the land to be sold way back in September of 1980 or six (6) months
prior to the sale.[23] If it were true that petitioner was never privy to the Contract to Sell, then why was it interested in appraising the lot six (6) months prior to the sale? And why did
petitioners own lawyers prepare the Contract to Sell? Obviously, petitioner actively participated in the sale to ensure that the appraised lot would serve as adequate collateral for
the usurious loan it gave to AUTOWORLD.
Second, petitioner insists that the 9 February 1981 transaction was a legitimate IPP transaction where it only bought the receivables of BARRETTO from AUTOWORLD amounting
to P12,999,999.60 at a discounted price of P6,980,000.00. However, per instruction of petitioner in its letter to BARRETTO dated 17 November 1980 the whole purchase price of
the receivables was to be "flowed back" to AUTOWORLD.[24] And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply
the proceeds worth P6,980,000.00, thus -
Gentlemen:
This serves to inform you of the various application of the proceeds (P6,980,000.00) of your real estate transaction per your authorization/letter dated 2.10.81:
1. P1,937,884.20 - Paid to Paramount Finance Corp. on Feb 16, 1981, inclusive of P2.00 SC for Managers Check.
2. P111,818.87 - Paid to Agcaoili and Associates of Feb. 16, 1981 inclusive of P2.00 SC for Managers Check for the preparation of documents, legal review , registration and
transfer of ownership.
3. P3,179,700.00 - Paid to FNCB Finance on Feb. 20, 1981 for full payment of DB transaction (Account No. 06156)
4 P3,108.40 - Payment for the appraisal fee conducted by the Asian Appraisal Company. Inc.
5. P100.00 - Payment for the title search fee conducted by Agcaoili and Associates.
6. P2,500.00 - Payment for legal and professional fee (Agcaoili and Associates)
7. P638,601.60 - Payment to FNCB Finance for the partial payment of DB transaction (Account No. 40150 - sold units)
8. P122,640.00 - Payment to FNCB Finance for the partial payment of DB transaction (Account No. 406149 - sold units)
9. P983,646.93 - Balance after application, Payable to Pio Barreto Dev. Inc.
P6,980,000.00 - Total
Should you need any clarification on the matter, please do not hesitate to call on the undersigned.
Very truly yours,
L.V. Araullo, Asst Vice-President[25]
It can be seen that out of the nine (9) items of appropriation stated above, Item Nos. 2 - 8 had to be returned to petitioner. Thus, in compliance with the aforesaid letter,
BARRETTO had to yield P4,058,468.47 of the P6,980,000.00 to petitioner to settle some of AUTOWORLD's previous debts to it.[26] Any remaining amount after the application of
the proceeds would thenbe surrendered to AUTOWORLD in compliance with the letter of 17 November 1980; none went to BARRETTO.
The foregoing circumstances confirm that the P6,980,000.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner. Had
petitioner entered into a legitimate purchase of receivables, then BARRETTO, as seller, would have received the whole purchase price, and free to dispose of such proceeds in
any manner it wanted.It would not have been obliged to follow the "Application of Proceeds" stated in petitioners letter.
Third, in its 17 November 1980 letter to BARRETTO, petitioner itself designated the proceeds of the "IPP" transaction as a loan. [27] In that letter, petitioner stated that the loan
proceeds amounting to P6,980,000.00 would be released to BARRETTO only upon submission of the documents it required. And as previously mentioned, one of the required
documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6,980,000.00 should be flowed back to AUTOWORLD. If it were a genuine IPP
transaction then petitioner would not have designated the money to be released as loan proceeds and BARRETTO would have been the end recipient of such proceeds with no
obligation to turn them over to AUTOWORLD.
Fourth, after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3,000,000.00 to AUTOWORLD. This time however, with no
more ceiling rates to hinder it, petitioner imposed a 28% effective interest rate on the loan. [28] And no longer having a need to cloak the exorbitant interest rate, the promissory note
evidencing the second transaction glaringly bore the 28% interest rate on its face. [29] We are therefore of the impression that had there been no interest rate ceilings in 1981,
petitioner would not have resorted to the fictitious IPP transaction; instead, it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%.
Gregorio Anonas, Senior Vice President of petitioner, effectively admitted that it only employed discounting of receivables due to the ceiling rates imposed by the Usury Law. Thus
he testified -
Q: And is it not a fact further that FNCB Finance at the time could not or would not want to extend direct loan because of a ceiling fixed by the Usury Law on interest?
A: We havent at that time giving direct loan, it is a discounting business.
Q: You mean never have you extended direct loan?
A: We did at a certain period of time and then we stopped, we go to discounting business because we transferred to direct loan.
Q: After the ceiling was removed, ceiling on interest was removed, you again, FNCB, extended direct loan, correct?
A: Yes, sir.
Q: Shall we say that the reason why you did not extend direct loan was because you did not want to be confined on the ceiling on interest under Usury Law?
A: Probably yes, because as you know the cost, in the operating cost of finance company is extremely different from a bank and we cannot survive, and this normally has been the
case.
Q: And so, therefore, the only way you could generate more income for your company would be to encourage discounting of receivables?
A: That was our business. It is not to generate more income, that is our business. x x x x [30]
Thus, although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables, the circumstances cited prove that the
P6,980,000.00 was really a usurious loan extended to AUTOWORLD.
Petitioner anchors its defense on Sec. 7 of the Usury Law which states -
Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for
valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of the Act and said purchase was not a part of the
original usurious transaction. In any case however, the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and, in
any case of litigation, also the costs and such attorneys fees as may be allowed by the court.
Indeed, the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers. But even the law has anticipated the potential abuse of such
transactions to conceal usurious loans. Thus, the law itself made a qualification. It would recognize legitimate purchase of negotiable mercantile paper, whether usurious or
otherwise, only if the purchaser had no intention of evading the provisions of the Usury Law and that the purchase was not a part of the original usurious transaction. Otherwise,
the law would not hesitate to annul such contracts. Thus, Art. 1957 of the Civil Code provides -
Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws on usury shall be void. The borrower may recover in accordance with the laws on
usury.
In the case at bar, the attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usurious
loan. These contracts should therefore be declared void. Having declared the transaction between the parties as void, we are now tasked to determine how much reimbursement
AUTOWORLD is entitled to. The Court of Appeals, adopting the computation of AUTOWORLD in its plaintiff-appellants brief, ruled -
According to plaintiff-appellant, defendant-appellee was able to collect P3,921,217.78[31] in interests from appellant. This is not denied by the appellee. Computed at 12% the
effective interest should have been P1,545,400.00.[32] Hence, appellant may recover P2,586,035.44,[33] representing overpayment arising from usurious interest rate charged by
appellee.[34]
While we do not dispute the appellate courts finding that the first transaction was a usurious loan, we do not agree with the amount of reimbursement awarded to
AUTOWORLD.Indeed, it erred in awarding only the interest paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the principal debt.[35] However, the
stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per annum or P200.00 per year, if
the borrower pays P200.00, the whole P200.00 would be considered usurious interest, not just the portion thereof in excess of the interest allowed by law. [36]
In the instant case, AUTOWORLD obtained a loan of P6,980,000.00. Thereafter, it paid nineteen (19) consecutive installments of P216,666.66 amounting to a total of
P4,116,666.54,and further paid a balance of P6,784,551.24 to settle it. All in all, it paid the aggregate amount of P10,901,217.78 for a debt of P6,980,000.00. For the 23-month
period of the existence of the loan covering the period February 1981 to January 1982, AUTOWORLD paid a total of P3,921,217.78 in interests.[37] Applying the 12% interest
ceiling rate mandated by the Usury Law, AUTOWORLD should have only paid a total of P1,605,400.00 in interests.[38] Hence, AUTOWORLD is entitled to recover the whole
usurious interest amounting to P3, 921,217.78.
We are not unaware of Sanchez v. Buenviaje[39] where the Court allowed the usurer to recover legal interest on the principal amount loaned. But such interest arose from the
debtors delay in paying the principal from the time of the creditors demand. That is the reason why legal interest was counted only from the time the creditor filed his complaint for
the recovery of a debt. In this case however, the debtor was never in delay. As a matter of fact, AUTOWORLD paid the principal of P6,980,000.00 and the whole usurious interest
of P3,921,217.88 upon petitioners insistent demand. Thus, the case of Sanchez v. Buenviaje herein cited will not apply to petitioner and it will not be entitled to legal interest on the
amount of the principal loan.
Under Sec. 6 of the Usury Law, AUTOWORLD is also entitled to reasonable attorneys fees and costs -
SEC. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance, shall have paid or delivered a higher rate or greater sum or value than is hereinbefore
allowed, to be taken or received, may recover the whole interest, commission, premiums, penalties and surcharges paid or delivered with costs and attorneys fees in such
sum as may be allowed by the court in an action against a person or corporation who took or received them if such action is brought within two years after such payment or
delivery (emphasis ours).
Although the Court has discretion to fix the amount of attorney's fees, it has no discretion to deny it altogether. Thus, in Delgado v. Valgona,[40] we held -
When the right of action to recover interest paid upon a usurious contract is established, a reasonable attorneys fee should be allowed as a matter of course, the same as costs
are awarded. The purpose of the law is to encourage persons who have suffered from contracts of this character to come into court and vindicate their rights, and the imposition
upon the usurer of the obligation to pay attorneys fee will serve at once as an encouragement to the oppressed and as a wholesome deterrent to the taking of usurious interests.
Quite obviously, Anthony Que, the President of AUTOWORLD, actively and knowingly participated in the execution of the usurious loan transaction. As a seasoned businessman
he must have been aware of the consequences of his business dealings. But, although we find his actions extremely reprehensible, we must abide by the principle laid down in Go
Chioco v. Martinez[41] where we held that the pari delicto rule does not apply to usury cases which entitle the borrower to recover the whole interest paid; otherwise, the avowed
policy of discouraging usurious transactions would not be served, for the mere invocation of the pari delicto rule would allow the usurer to reap the benefits of his unlawful act.
WHEREFORE, the assailed Decision of the Court of Appeals dated 24 May 1996 declaring the 9 February 1981 transaction as a usurious loan is AFFIRMED, subject to the
MODIFICATION that petitioner Investors Finance Corporation is ordered to pay private respondent Autoworld Sales Corporation the amount of P3,921,217.78 representing the
entire usurious interest it paid on the 9 February 1981 loan, as well as P50,000.00 as attorney's fees and the costs.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
 THIRD DIVISION
[G.R. No. 125944. June 29, 2001]
SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs. JOSE AVELINO SALAZAR, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the decision of the Court of Appeals in CA-G.R. CV No. 37899, affirming the
decision of the Regional Trial Court, Branch 16, Malolos, Bulacan, in Civil Case No. 375-M-91, Spouses Danilo and Ursula Solangon vs. Jose Avelino Salazar for annulment of
mortgage. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the defendant Salazar, as follows:
1. Ordering the dismissal of the complaint;
2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;
3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorneys fees; and
4. To pay the costs.
SO ORDERED.[1]
The facts as summarized by the Court of Appeals in its decision being challenged are:
On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the
defendant-appellee, to secure payment of a loan of P60,000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month (Exh. B).
On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land to the defendant-appellee, to secure payment
of a loan of P136,512.00, payable within a period of one (1) year, with interest thereon at the legal rate (Exh. 1).
On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land in favor of defendant-appellee, to
secure payment of a loan in the amount of P230,000.00 payable within a period of four (4) months, with interest thereon at the legal rate (Exh. 2, Exh. C).
This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan form the defendant-
appellee, and that was for the amount of P60,000.00, the payment of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were merely
continuations of the first one, which is null and void because it provided for unconscionable rate of interest. Moreover, the defendant-appellee assured them that he will not
foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a reasonable time thereafter. They have already paid the defendant-appellee P78,000.00
and tendered P47,000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the loan P230,000.00 plus interest.
On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-described mortgages were executed to secure three separate loans of P60,000.00
P136,512.00 and P230,000.00, and that the first two loans were paid, but the last one was not. He denied having represented that he will not foreclose the mortgage as long as the
plaintiffs-appellants pay interest.
In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the following errors:
1. The Court of Appeals erred in holding that three (3) mortgage contracts were executed by the parties instead of one (1);
2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate mortgage with an interest of 72% per cent per annum or 6% per month is not unconscionable;
4. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN PAID when the mortgagee himself states in his ANSWER that the same was already paid;
and
5. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the appellants.
In his comment, respondent Jose Avelino Salazar avers that the petition should not be given due course as it raises questions of facts which are not allowed in a petition for review
on certiorari.
We find no merit in the instant petition.
The core of the present controversy is the validity of the third contract of mortgage which was foreclosed.
Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the amount of P60,000.00 secured by the first mortgage of August 1986. According to
them, they signed the third mortgage contract in view of respondents assurance that the same will not be foreclosed. The trial court, which is in the best position to evaluate the
evidence presented before it, did not give credence to petitioners corroborated testimony and ruled:
The testimony is improbable. The real estate mortgage was signed not only by Ursula Solangon but also by her husband including the Promissory Note appended to it. Signing a
document without knowing its contents is contrary to common experience. The uncorroborated testimony of Ursula Solangon cannot be given weight.[2]
Petitioners likewise insist that, contrary to the finding of the Court of appeals, they had paid the amount of P136,512.00, or the second loan. In fact, such payment was confirmed
by respondent Salazar in his answer to their complaint.
It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, only
questions of law may be raised and they must be distinctly set forth. The settled rule is that findings of fact of the lower courts (including the Court of Appeals) are final and
conclusive and will not be reviewed on appeal except: (1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and such findings are contrary to the admission of both appellant
and appellee; (6) when the findings of the Court of Appeals are contrary to those of the trial court; and (7) when the findings of fact are conclusions without citation of specific
evidence on which they are based.[3]
None of these instances are extant in the present case.
Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that the Court of Appeals erred in decreeing that the stipulated interest rate of 72% per
annum or 6% per month is not unconscionable.
The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury Law had been repealed by Central Bank Circular No. 905 there is no more
maximum rate of interest and the rate will just depend on the mutual agreement of the parties. Obviously, this was in consonance with our ruling in Liam Law v. Olympic Sawmill
Co.[4]
The factual circumstances of the present case require the application of a different jurisprudential instruction. While the Usury Law ceiling on interest rates was lifted by C.B.
Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.[5] In Medel v. Court of Appeals,[6] this court had the occasion to rule on this question - whether or not the stipulated rate of interest at 5.5% per month
on a loan amounting to P500,000.00 is usurious. While decreeing that the aforementioned interest was not usurious, this Court held that the same must be equitably reduced for
being iniquitous, unconscionable and exorbitant, thus:
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.
However, we can not consider the rate usurious because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now legally inexistent.
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 did not repeal nor in any way amend the Usury Law but
simply suspended the latters effectivity. Indeed, we have held that a Central Bank Circular can not repeal a law. Only a law can repeal another law. In the recent case of Florendo
v. Court of Appeals, the Court reiterated the ruling that by virtue of CB Circular 905, the Usury Law has been rendered ineffective. Usury Law has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon.
Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and
hence, contrary to morals (contra bonos mores), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable. (Emphasis supplied)
In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous
and inordinate. Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.
WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12 % per
annum.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
 FIRST DIVISION
[G.R. No. 144712. July 4, 2002]
SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V. RAMOS, respondent.
DECISION
DAVIDE, JR., C.J.:
Before us is a petition for review on certiorari assailing the 5 November 1999 Decision[1] and the 18 August 2000 Resolution[2] of the Court of Appeals in CA G.R. CV No. 52848.
The former affirmed the 5 June 1995 and 7 September 1995 Orders of the Regional Trial Court, Malolos, Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latter denied
petitioners motion for reconsideration.
The case at bar stemmed from the petition[3] for consolidation of title or ownership filed on 5 July 1993 with the trial court by herein respondent Rodrigo V. Ramos (hereafter
RAMOS) against herein petitioners, Spouses Silvestre and Celia Pascual (hereafter the PASCUALs). In his petition, RAMOS alleged that on 3 June 1987, for and in consideration
of P150,000, the PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang,
Bulacan, Bulacan, covered by Transfer Certificate of Title (TCT) No. 305626 of the Registry of Deeds of Bulacan. This document was annotated at the back of the title. The
PASCUALs did not exercise their right to repurchase the property within the stipulated one-year period; hence, RAMOS prayed that the title or ownership over the subject parcels
of land and improvements thereon be consolidated in his favor.
In their Answer,[4] the PASCUALs admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150,000 but averred that what the parties
had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no agreement limiting the period within which to exercise the right to
repurchase and that they had even overpaid RAMOS. Furthermore, they interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the
petition; (b) RAMOS had no legal capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action; (e) the claim or
demand set forth in RAMOSs pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) RAMOS has not complied with the required confrontation and
conciliation before the barangay.
By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a Deed of Cancellation, Release or Discharge of the Deed of Absolute Sale with Right to
Repurchase or a Deed of Real Estate Mortgage; deliver to them the owners duplicate of TCT No. T-305626; return the amount they had overpaid; and pay each of them moral
damages and exemplary damages in the amounts of P200,000 and P50,000, respectively, plus attorneys fees of P100,000; appearance fee of P1,500 per hearing; litigation
expenses; and costs of suit.
After the pre-trial, the trial court issued an order[5] wherein it identified the following issues: (1) whether the Deed of Absolute Sale with Right to Repurchase is an absolute sale or a
mere mortgage; (2) whether the PASCUALs have paid or overpaid the principal obligation; (3) whether the ownership over the parcel of land may be consolidated in favor of
RAMOS; and (4) whether damages may be awarded.
Among the documents offered in evidence by RAMOS during the trial on the merits was a document denominated as Sinumpaang Salaysay[6] signed by RAMOS and Silvestre
Pascual, but not notarized. The contents of the document read:
Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at kasalukuyang naninirahan sa Bambang, Bulacan, Bulacan, ay nagsasabing buong katotohanan at
sumusumpasa aking mga salaysay sa kasulatang ito:
1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan ng puhunan ay lumapit ako at nakiusap kay Rodrigo Ramos ng Taal, Pulilan,
Bulacan na pautangin ako ng halagang P150,000.00.
2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo ng seven percent (7%) o P10,500.00 isang buwan (7% per month).
3. Na bilang sangla (collateral security) sa aking utang, kami ay nagkasundo na mag-execute ng Deed of Sale with Right to Repurchase para sa aking
bahay at lupa (TCT No. 305626) sa Bo. Taliptip, Bambang, Bulacan, Bulacan ngayong June 3, 1987 at binigyan ako ni Mr. Ramos ng isang taon
hanggang June 3, 1988 upang mabiling muli ang aking isinanla sa kaniya sa kasunduang babayaran kong lahat ang capital na P150,000.00 pati na
ang P10,500.00 na tubo buwan buwan.
4. Na bilang karagdagang condition, si RODRIGO RAMOS ay pumayag sa aking kahilingan na kung sakali na hindi ko mabayaran ng buo ang aking
pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon, ang nakasanglang bahay at lupa ay hindi muna niya iilitin (foreclose) o
ipalilipat sa pangalan niya at hindi muna kamipaaalisin sa tinitirhan naming bahay hanggat ang tubo (interest) na P10,500.00 ay nababayaran ko
buwan buwan.
5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos na pagkatapos ng isang taon mula ngayon hanggang June 3, 1988 at puro interest
lamang ang aking naibabayadbuwan-buwan, kung sakaling hindi ako makabayad ng tubo for six (6) consecutive months (1/2 year after June 3,
1988 (6 na buwang hindi bayad ang interest ang utang ko) si Rodrigo Ramos ay binibigyan ko ng karapatan at kapangyarihan na mag-mayari ng
aming bahay at lupa at kami ng aking pamilya ay kusang loob na aalis sa nasabing bahay at lupa na lumalabas na ibinenta ko sa kaniya dahil hindi
ako nakasunod sa aming mga pinagkasunduang usapan.
6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi maghahabol ng ano mang sukli sa pagkakailit ng aming bahay at lupa kung sakali
mang dumating sa ganuong pagkakataon o sitwasyon o di kayay magsasampa ng reklamo kanino man.
Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng aming mga pangalan ngayong ika-3 ng Hunyo, 1987.
(Sgd.)Rodrigo Ramos Sgd.) Silvestre Pascual
Nagpautang Umutang
For their part, the PASCUALs presented documentary evidence consisting of acknowledgment receipts [7] to prove the payments they had made.
The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of which was secured by a mortgage of the property
covered by TCT No. 305626. It also found that the PASCUALs had made payments in the total sum of P344,000, and that with interest at 7% per annum, the PASCUALs had
overpaid the loan by P141,500. Accordingly, in its Decision[8] of 15 March 1995 the trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff in the following manner:
1. Dismissing the plaintiffs petition;
2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with Right to Repurchase on the dorsal side of TCT No. 305626;
3. Awarding the defendants the sum of P141,500.00 as overpayment on the loan and interests;
4. Granting the defendants attorneys fee in the sum of P15,000.00 and P3,000.00 for litigation expenses.
With costs against the plaintiff.
RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in using an interest rate of 7% per annum in the computation of the total amount of
obligation because what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. The total interest due from 3 June 1987 to 3 April 1995 was P987,000.
Deducting therefrom the interest payments made in the sum of P344,000, the amount of P643,000 was still due as interest. Adding the latter to the principal sum of P150,000, the
total amount due from the PASCUALs as of 3 April 1995 was P793,000.
Finding merit in the motion for reconsideration, which was not opposed by the PASCUALs, the trial court issued on 5 June 1995 an Order[9] modifying its decision by deleting the
award of P141,500 to the PASCUALs as overpayment of the loan and interest and ordering them to pay RAMOS P511,000 representing the principal loan plus interest. The trial
court acknowledged that it had inadvertently declared the interest rate to be 7% per annum when, in fact, the Sinumpaang Salaysay stipulated 7% per month. It noted that during
trial, the PASCUALs never disputed the stipulated interest rate. However, the court declared that the 7% per month interest is too burdensome and onerous. Invoking the
protective mantle of Article 24 of the Civil Code, which mandates the courts to be vigilant for the protection of a party at a disadvantage due to his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the trial court unilaterally reduced the interest rate from 7% per month to 5% per month. Thus, the interest due from 3
June 1987 to 3 April 1995 was P705,000.Deducting therefrom the payments made by the PASCUALs in the amount of P344,000, the net interest due was P361,000. Adding
thereto the loan principal of P150,000, the total amount due from the PASCUALs was P511,000.
Aggrieved by the modification of the decision, the PASCUALs filed a motion to reconsider the Order of 5 June 1995. They alleged that the motion for reconsideration filed by
RAMOS was a mere scrap of paper because they received a copy of said motion only a day before the hearing, in violation of the 3-day-notice rule. Moreover, they had already
paid the interests and had in fact overpaid the principal sum of P150,000. Besides, RAMOS, being an individual, could not charge more than 1% interest per month or 12% per
annum; and, the interest of either 5% or 7% a month is exorbitant, unconscionable, unreasonable, usurious and inequitable.
RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance with the 3-day-notice rule was cured when the trial court gave them an opportunity to file
their opposition, but despite the lapse of the period given them, no opposition was filed. It is not correct to say that he was not allowed to collect more than 1% per month interest
considering that with the moratorium on the Usury Law, the allowable interest is that agreed upon by the parties. In the absence of any evidence that there was fraud, force or
undue influence exerted upon the PASCUALs when they entered into the transaction in question, their agreement embodied in the Sinumpaang Salaysay should be respected.
Furthermore, the trial court had already reduced the interest rate to 5% per month, a rate which is not exorbitant, unconscionable, unreasonable and inequitable.
Their motion for reconsideration having been denied in the Order[10] of 7 September 1995, the PASCUALs seasonably appealed to the Court of Appeals. They pointed out that
since the only prayer of RAMOS in his petition was to have the title or ownership over the subject land and the improvements thereon consolidated in his favor and he did not have
any prayer for general relief, the trial court had no basis in ordering them to pay him the sum of P511,000.
In its Decision[11] of 5 November 1999, the Court of Appeals affirmed in toto the trial courts Orders of 5 June 1995 and 7 September 1995. It ruled that while RAMOSs petition for
consolidation of title or ownership did not include a prayer for the payment of the balance of the petitioners obligation and a prayer for general relief, the issue of whether there was
still a balance from the amount loaned was deemed to have been raised in the pleadings by virtue of Section 5, Rule 10 of the Rules of Court, which provides that [w]hen issues
not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. In the course
of the trial, receipts were presented by the PASCUALs evidencing the payments they had made. Taken in conjunction with the Sinumpaang Salaysay which specified the interest
rate at 7% per month, a mathematical computation readily leads to the conclusion that there is still a balance due from the PASCUALs, even at a reduced interest rate of 5%
interest per month.
With the denial of their motion for reconsideration of the decision by the Court of Appeals, the PASCUALs filed before us the instant petition raising the sole issue of whether they
are liable for 5% interest per month from 3 June 1987 to 3 April 1995. Invoking this Courts ruling in Medel v. Court of Appeals,[12] they argue that the 5% per month interest is
excessive, iniquitous, unconscionable and exorbitant. Moreover, respondent should not be allowed to collect interest of more than 1% per month because he tried to hide the real
transaction between the parties by imposing upon them to sign a Deed of Absolute Sale with Right to Repurchase.
For his part, RAMOS contends that the issue raised by petitioners cannot be entertained anymore because it was neither raised in the complaint nor ventilated during the trial. In
any case, there was nothing illegal on the rate of interest agreed upon by the parties, since the ceilings on interest rates prescribed under the Usury Law had expressly been
removed, and hence parties are left freely at their discretion to agree on any rate of interest. Moreover, there was no scheme to hide a usurious transaction. RAMOS then prays
that the challenged decision and resolution be affirmed and that petitioners be further ordered to pay legal interest on the interest due from the time it was demanded.
We see at once the proclivity of the PASCUALs to change theory almost every step of the case.
By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually raising as issue the validity of the stipulated interest rate. It must be stressed that they never
raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the
basis of the overpayment was alleged. In their pre-trial brief, the PASCUALs made a long list of issues, but not one of them touched on the validity of the stipulated interest rate.
Their own evidence clearly shows that they have agreed on, and have in fact paid interest at, the rate of 7% per month. Exhibits 1 to 8 specifically mentioned that the payments
made were for the interest due on the P150,000 loan of the PASCUALs. In the course of the trial, the PASCUALs never put in issue the validity of the stipulated interest rate.
After the trial court sustained petitioners claim that their agreement with RAMOS was actually a loan with real estate mortgage, the PASCUALs should not be allowed to turn their
back on the stipulation in that agreement to pay interest at the rate of 7% per month. The PASCUALs should accept not only the favorable aspect of the courts declaration that the
document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same
document should be paid.Besides, when RAMOS moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should
be 7% per month, the PASCUALs never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995, the PASCUALs argued that
the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in their Appellants Brief, the only argument raised by
the PASCUALs was that RAMOSs petition did not contain a prayer for general relief and, hence, the trial court had no basis for ordering them to pay RAMOS P511,000
representing the principal and unpaid interest. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the PASCUALs made an issue of the
interest rate and prayed for its reduction to 12% per annum.
In Manila Bay Club Corp. v. Court of Appeals,[13] this Court ruled that if an issue is raised only in the motion for reconsideration of the decision of the Court of Appeals, the effect is
that it is as if it was never duly raised in that court at all.
Our ruling in Medel v. Court of Appeals[14] is not applicable to the present case. In that case, the excessiveness of the stipulated interest at the rate of 5.5 % per month was put in
issue by the defendants in the Answer. Moreover, in addition to the interest, the debtors were also required, as per stipulation in the promissory note, to pay service charge of 2%
per annum and a penalty charge of 1% per month plus attorneys fee of equivalent to 25% of the amount due. In the case at bar, there is no other stipulation for the payment of an
extra amount except interest on the principal loan. Thus, taken in conjunction with the stipulated service charge and penalty, the interest rate of 5.5% in the Medel case was found
to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby making such stipulation null and void.
Considering the variance in the factual circumstances of the Medel case and the instant case, we are not prepared to apply the former lest it be construed that we can strike down
anytime interest rates agreed upon by parties in a loan transaction.
It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which
they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy.[15]
The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs. There is nothing from the records and, in fact, there is no allegation showing that
petitioners were victims of fraud when they entered into the agreement with RAMOS. Neither is there a showing that in their contractual relations with RAMOS, the PASCUALs
were at a disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the
courts as mandated by Article 24 of the Civil Code. Apropos in our ruling in Vales vs. Villa:
All men are presumed to be sane and normal and subject to be moved by substantially the same motives. When of age and sane, they must take care of themselves. In their
relations with others in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash and contest, sometimes with gain and advantage to all,
sometimes to a few only, with loss and injury to others. In these contests men must depend upon themselves upon their own abilities, talents, training, sense, acumen, judgment.
The fact that one may be worsted by another, of itself, furnishes no cause of complaint. One man cannot complain because another is more able, or better trained, or has better
sense or judgment than he has; and when the two meet on a fair field the inferior cannot murmur if the battle goes against him. The law furnishes no protection to the inferior
simply because he is inferior, any more than it protects the strong because he is strong. The law furnishes protection to both alike to one no more or less than to the other. It
makes no distinction between the wise and the foolish, the great and the small, the strong and the weak. The foolish may lose all they have to the wise; but that does not mean
that the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him
from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not
because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts,
use miserable judgment, and lose money by then indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation
of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it.[16]
With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue
influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to impose upon parties
contractual stipulations different from what they have agreed upon. As declared in the decision of Cuizon v. Court of Appeals,[17]
It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have
made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain.
Thus, we cannot supplant the interest rate, which was reduced to 5% per month without opposition on the part of RAMOS.
We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by imposing upon them the execution of a Deed of Absolute Sale
with Right to Repurchase, he should not be allowed to collect more than 1% per month interest. It is undisputed that simultaneous with the execution of the said deed was the
execution of the Sinumpaang Salaysay, which set forth the true agreement of the parties. The PASCUALs cannot then claim that they did not know the real transaction.
RAMOSs claim that the interest due should earn legal interest cannot be acted upon favorably because he did not appeal from the Order of the trial court of 5 June 1995, which
simply ordered the payment by the PASCUALs of the amount of P511,000 without interest thereon. No relief can be granted a party who does not appeal.[18] Therefore, the order
of the trial court should stand.
Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v. Valle was reproduced by his counsel without the proper citation. Such act constitutes
plagiarism. Atty. Felimon B. Mangahas is hereby warned that a repetition of such act shall be dealt with accordingly.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 52848 is AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.
Vitug, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-59096 October 11, 1985
PACITA F. REFORMINA and HEIRS OF FRANCISCO REFORMINA, petitioners,
vs.
THE HONORABLE VALERIANO P. TOMOL, JR., as Judge of the Court of First Instance, Branch XI, CEBU CITY, SHELL REFINING COMPANY (PHILS.), INC., and
MICHAEL, INCORPORATED, respondents.

CUEVAS, J.:
How much, by way of legal interest, should a judgment debtor pay the judgment creditor- is the issue raised by the REFORMINAS (herein petitioners) in this Petition for Review on
certiorari of the Resolution of the Hon. respondent Judge Valeriano P. Tomol, Jr. of the then Court of First Instance of Cebu-Branch XI, issued in Civil Case No.
R-11279, an action for Recovery of Damages for injury to Person and Loss of Property.
The dispositive portion of the assailed Resolution reads as follows—
In light (sic) of the foregoing, the considered view here that by legal interest is meant six (6%) percent as provided for by Article 2209 of the Civil Code. Let a writ of execution be
issued.
SO ORDERED.1
Petitioners' motion for the reconsideration of the questioned Resolution having been denied, they now come before Us through the instant petition praying for the setting aside of
the said Resolution and for a declaration that the judgment in their favor should bear legal interest at the rate of twelve (12%) percent per annum pursuant to Central Bank Circular
No. 416 dated July 29, 1974.
Hereunder are the pertinent antecedents:
On June 7, 1972, judgment was rendered by the Court of First instance of Cebu in Civil Case No. R-11279, 2 the dispositive portion of which reads—
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons:
(a) ...
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita Ill together with its accessories, fishing gear
and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result
of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until
paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs.
On appeal to the then Court of Appeals, the trial court's judgment was modified to reads as follows—
WHEREFORE. the judgment appealed from is modified such that defendants-appellants Shell Refining Co. (Phils.), Inc. and Michael, Incorporated are hereby ordered to pay ...
The two (2) defendants- appellants are also directed to pay P100,000.00 with legal interests from the filing of the complaint until paid as compensatory and moral damages and
P41,000.00 compensation for the value of the lost boat with legal interest from the filing of the complaint until fully paid to Pacita F. Reformina and the heirs of Francisco
Reformina. The liability of the two defendants for an the awards is solidary.
xxx xxx xxx
Except as modified above, the rest of the judgment appealed from is affirmed. The defendants-appellants shall pay costs in favor of the plaintiffs. Appellants Shell and Michael and
third party defendant Anita L. Abellanosa shall shoulder their respective costs.
SO ORDERED. 3
The said decision having become final on October 24, 1980, the case was remanded to the lower court for execution and this is where the controversy started. In the computation
of the "legal interest" decreed in the judgment sought to be executed, petitioners claim that the "legal interest" should be at the rate of twelve (12%) percent per annum, invoking in
support of their aforesaid submission, Central Bank of the Philippines Circular No. 416. Upon the other hand, private respondents insist that said legal interest should be at the rate
of six (6%) percent per annum only, pursuant to and by authority of Article 2209 of the New Civil Code in relation to Articles 2210 and 2211 thereof.
In support of their stand, petitioners contend that Central Bank Circular No. 416 which provides —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, otherwise known as the "Usury Law" the Monetary Board in its Resolution No. 1622 dated July 29,
1974, has prescribed that the rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as
to such rate of interest, shall be twelve (12%) per cent per annum. This Circular shall take effect immediately. (Italics supplied)
includes the judgment sought to be executed in this case, because it is covered by the phrase 2nd the rate allowed in judgments in the absence of express contract as to such rate
of interest ... " in the aforequoted circular.
The petition is devoid of merit. Consequently, its dismissal is in order.
Central Bank Circular No. 416 which took effect on July 29, 1974 was issued and promulgated by the Monetary Board pursuant to the authority granted to the Central Bank by P.D.
No. 116, which amended Act No. 2655, otherwise known as the Usury Law. The amendment from which said authority emanated reads as follows—
Section 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or
credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That such changes shall not be made oftener than once
every twelve months.
In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for consumer loans or renewals thereof as well as such loans made by
pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. (Italics supplied)
Acting pursuant to this grant of authority, the Monetary Board increased the rate of legal interest from that of six (6%) percent per annum originally allowed under Section I of Act
No. 2655 to twelve (12%) percent per annum.
It will be noted that Act No. 2655 deals with interest on (1) loans; (2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments.
The issue now is—what kind of judgment is referred to under the said law. Petitioners maintain that it covers all kinds of monetary judgment.
The contention is devoid of merit.
The judgments spoken of and referred to are Judgments in litigations involving loans or forbearance of any 'money, goods or credits. Any other kind of monetary judgment which
has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the
authority granted to the Central Bank. The Monetary Board may not tread on forbidden grounds. It cannot rewrite other laws. That function is vested solely with the legislative
authority. It is axiomatic in legal hermeneutics that statutes should be construed as a whole and not as a series of disconnected articles and phrases. In the absence of a clear
contrary intention, words and phrases in statutes should not be interpreted in isolation from one another. 4 A word or phrase in a statute is always used in association with other
words or phrases and its meaning may thus be modified or restricted by the latter.5
Another formidable argument against the tenability of petitioners' stand are the whereases of PD No. 116 which brought about the grant of authority to the Central Bank and which
reads thus—
WHEREAS, the interest rate, together with other monetary and credit policy instruments, performs a vital role in mobilizing domestic savings and attracting capital resources into
preferred areas of investments;
WHEREAS, the monetary authorities have recognized the need to amend the present Usury. Law to allow for more flexible interest rate ceilings that would be more responsive to
the requirements of changing economic conditions;
WHEREAS, the availability of adequate capital resources is, among other factors, a decisive element in the achievement of the declared objective of accelerating the growth of the
national economy.
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any
loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil
Code which reads—
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.
The above provision remains untouched despite the grant of authority to the Central Bank by Act No. 2655, as amended. To make Central Bank Circular No. 416 applicable to any
case other than those specifically provided for by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising legislative functions
which was beyond the intendment of P.D. No. 116.
IN VIEW OF THE FOREGOING CONSIDERATIONS, and finding the instant petition to be without merit, the same is hereby DISMISSED with costs against petitioners.
SO ORDERED.
Concepcion, Jr., Abad Santos, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente, Alampay and Patajo, JJ., concur.
Makasiar, CJ., with separate opinion of Justice Plana.
Aquino, J., concurs in the result.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common
carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is
filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the
insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines
under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be
in bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for
Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which
contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants.
Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated
to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was
discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned
over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad
order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment
was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of
Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to
defendant Metro Port Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier
(Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes",
are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed
that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents
intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall
be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while
in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF
PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE
COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF
SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this
Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them
(Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional
cases when such presumption of fault is not observed but these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court.
In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253
[1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier,
or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and
not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we
take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the
plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was
neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon.
The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of
legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established
with reasonable certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear
and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result
of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until
paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until
fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution
which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of
interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be
twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which
has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the
authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any
loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil
Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss
of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of
the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum but sustained the time
computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from
the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October
1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a
decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the
loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum
being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from
finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary
award was in contravention of law." The Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it
explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any
money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz,
143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is
actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the
imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the
judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for review on certiorari from the decision, dated 27 February 1985,
of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its
resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with
interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent
to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of
the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of employment contract. For having been illegally dismissed, the
petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of
Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-
appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of
P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the
trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the
part of the trial judge, a petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular
No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas,14decided on 08 May 1992, involved the expropriation of certain
parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court15
declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the
amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of
interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of
the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and
the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v.
Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals
(1988), and American Express International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily
discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance16 of
money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the
transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully
paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum,17depending on whether or not the amount involved is a loan or
forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the
legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not
known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v.
IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that
12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion,
depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of
thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts18 is breached, the contravenor can be held liable for
damages.19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. 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.21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.22 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 116923 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of
the court24 at the rate of 6% per annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty.26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the
amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.