Republic of the Philippines

SUPREME COURT
Manila
EN BANC

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

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

For payment of the balance of purchase

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

price of machinery and equipment 240,900.00

Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiffappellee.

T O T A L P500,000.00

For working capital 9,100.00

Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

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;

MAKALINTAL, J.:p

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;"

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

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 Kenafmill 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 equipment 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 opening of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January
21, 1955, regarding the release of your loan
under consideration of P500,000. As stated in
our letter of December 22, 1954, the releases of
the loan, if revived, are proposed to be made
from time to time, subject to availability of funds
towards the end that the sack factory shall be
placed in actual operating status. We shall be
able to act on your request for revised 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 utilizedexclusively 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.

I
Whether the real estate mortgage executed by the spouses
Lozano in favor of respondent bank was validly and legally
executed.
II
Whether the extrajudicial foreclosure of the said mortgage was
validly and legally effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent
was justified in refusing their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is
three-fold. They primarily attack the validity of the mortgage executed by the
Lozano spouses in favor of respondent Bank. Next, they attack the validity of the
extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the
validity of the deed of mortgage, they contended that when it was executed on
December 6, 1966, there was yet no principal obligation to secure as the loan of
P75,000.00 was not received by the Lozano spouses "So much so that in the
absence of a principal obligation, there is want of consideration in the accessory
contract, which consequently impairs its validity and fatally affects its very
existence." (Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed
itself, it is clearly seen that the mortgage deed was executed for and on condition of
the loan granted to the Lozano spouses. The fact that the latter did not collect from
the respondent Bank the consideration of the mortgage on the date it was executed
is immaterial. A contract of loan being a consensual contract, the herein contract of
loan was perfected at the same time the contract of mortgage was executed. The
promissory note executed on December 12, 1966 is only an evidence of

indebtedness and does not indicate lack of consideration of the mortgage at the
time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent
renewals of the original loan, using as security the same property which the Lozano
spouses had already sold to petitioners, rendered the mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which
prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged
properties, without the written consent of the mortgagee, as well as the additional
proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee
shall assume the mortgage in the terms and conditions under which it is constituted.
These provisions are expressly made part and parcel of the Deed of Sale with
Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the
sale with assumption of mortgage. Coupled with the fact that the sale/assignment
was not registered so that the title remained in the name of the Lozano spouses,
insofar as respondent Bank was concerned, the Lozano spouses could rightfully and
validly mortgage the property. Respondent Bank had every right to rely on the
certificate of title. It was not bound to go behind the same to look for flaws in the
mortgagor's title, the doctrine of innocent purchaser for value being applicable to an
innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De
Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a
mortgage follows the property whoever the possessor may be and subjects the
fulfillment of the obligation for whose security it was constituted. Finally, it can also
be said that petitioners voluntarily assumed the mortgage when they entered into
the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from
impugning its validity whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the
following grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period
required by law.
c) publication of the notice of auction sale in the Luzon Weekly
Courier was not in accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground.
Respondent Bank not being a party to the Deed of Sale with Assumption of
Mortgage, it can validly claim that it was not aware of the same and hence, it may
not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not
entitled to any notice because as of May 14, 1968, he had transferred and assigned
all his rights and interests over the property in favor of intervenor Raoul Bonnevie

and respondent Bank not likewise informed of the same. For the same reason, Raoul
Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not require
personal notice on the mortgagor. The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for
not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall
also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or
city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30,
July 7 and July 14, 1968 and notices of the sale were posted for not less than twenty
days in at least three (3) public places in the Municipality where the property is
located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable
because said case involved a judicial foreclosure and the sale to the vendee of the
mortgaged property was duly registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was
not in accordance with law, namely: once a week for at least three consecutive
weeks, the Court of Appeals ruled that the publication of notice on June 30, July 7
and July 14, 1968 satisfies the publication requirement under Act No. 3135
notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No.
3135 merely requires that such notice shall be published once a week for at least
three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs.
Mercado, 61 Phil. 632, does not mean that notice should be published for three full
weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was
not in accordance with law as said newspaper is not of general circulation must
likewise be disregarded. The affidavit of publication, executed by the Publisher,
business/advertising manager of the Luzon Weekly Courier, stares that it is "a
newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was
published in said paper on June 30, July 7 and July 14, 1968. This constitutes prima
facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18
SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide
subscription list of paying subscribers; that it is published at regular intervals." (Basa
vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so
long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of
three witnesses that they do read the Luzon Weekly Courier is no proof that said
newspaper is not a newspaper of general circulation in the province of Rizal.

Whether or not the notice of auction sale was posted for the period required by law
is a question of fact. It can no longer be entertained by this Court. (see Reyes, et al.
vs. CA, et al., 107 SCRA 126). Nevertheless, the records show that copies of said
notice were posted in three conspicuous places in the municipality of Pasig, Rizal
namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal Hall. In
the same manner, copies of said notice were also posted in the place where the
property was located, namely: the Municipal Building of San Juan, Rizal; the
Municipal Market and on Benitez Street. The following statement of Atty. Santiago
Pastor, head of the legal department of respondent bank, namely:
Q How many days were the notices posted in
these two places, if you know?
A We posted them only once in one day. (TSN, p.
45, July 25, 1973)
is not a sufficient countervailing evidence to prove that there was no compliance
with the posting requirement in the absence of proof or even of allegation that the
notices were removed before the expiration of the twenty- day period. A single act of
posting (which may even extend beyond the period required by law) satisfies the
requirement of law. The burden of proving that the posting requirement was not
complied with is now shifted to the one who alleges non-compliance.

petitioner is the new owner of the property nor request that all correspondence and
notice should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12,
1968 extends the maturity of said loan up to said date and accordingly on June 10,
1968 when defendant applied for the foreclosure of the mortgage, the loan was not
yet due and demandable, is totally incorrect and misleading. The undeniable fact is
that the loan matured on December 26, 1967. On June 10, 1968, when respondent
Bank applied for foreclosure, the loan was already six months overdue. Petitioners'
payment of interest on July 12, 1968 does not thereby make the earlier act of
respondent Bank inequitous nor does it ipso facto result in the renewal of the loan.
In order that a renewal of a loan may be effected, not only the payment of the
accrued interest is necessary but also the payment of interest for the proposed
period of renewal as well. Besides, whether or not a loan may be renewed does not
solely depend on the debtor but more so on the discretion of the bank. Respondent
Bank may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals
is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Aquino, J., concur.

On the question of whether or not the petitioners had a right to redeem the
property, We hold that the Court of Appeals did not err in ruling that they had no
right to redeem. No consent having been secured from respondent Bank to the sale
with assumption of mortgage by petitioners, the latter were not validly substituted
as debtors. In fact, their rights were never recorded and hence, respondent Bank is
charged with the obligation to recognize the right of redemption only of the Lozano
spouses. But even granting that as purchaser or assignee of the property, as the
case may be, the petitioners had acquired a right to redeem the property,
petitioners failed to exercise said right within the period granted by law. Thru
certificate of sale in favor of appellee was registered on September 2, 1968 and the
one year redemption period expired on September 3, 1969. It was not until
September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and
offered to redeem the property. Moreover, on September 29, 1969, Honesto had at
that time already transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that
respondent Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the
letter of lose Lozano to respondent Bank dated December 8, 1966 advising the latter
that Honesto Bonnevie was authorized to make payments for the amount secured by
the mortgage on the subject property, to receive acknowledgment of payments,
obtain the Release of the Mortgage after full payment of the obligation and to take
delivery of the title of said property. On the assumption that the letter was received
by respondent Bank, a careful reading of the same shows that the plaintiff was
merely authorized to do acts mentioned therein and does not mention that

Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.
Concepcion J J., took no part.
De Castro, J., is on leave.
Footnotes
1 Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ.,
concurring.
2 4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in
any manner encumber the mortgaged properties without the
written consent of MORTGAGEE. If in spite of this stipulation, a
mortgaged property is sold, the Vendee shall assume the
mortgaged in the terms and conditions under which it is
constituted, it being understood that the assumption of the
Vendee (does) not release the Vendor of his obligation to the
MORTGAGEE; on the contrary, both the Vendor and the Vendee
shall be jointly and severally liable for said mortgage obligation. ...
SECOND DIVISION

[G.R. No. 133632. February 15, 2002]

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS
and
ALS
MANAGEMENT
&
DEVELOPMENT
CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the
Court of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No.
38887. The appellate court affirmed the judgment of the Regional Trial Court of
Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage by
petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents
ALS Management and Development Corporation and Antonio K. Litonjua,
[1]
consolidated with (b) Civil Case No. 52093, for damages with prayer for the
issuance of a writ of preliminary injunction by the private respondents against said
petitioner.
The trial court had held that private respondents were not in default in the
payment of their monthly amortization, hence, the extrajudicial foreclosure
conducted by BPIIC was premature and made in bad faith. It awarded private
respondents the amount of P300,000 for moral damages, P50,000 for exemplary
damages, and P50,000 for attorneys fees and expenses for litigation. It likewise
dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner
BPIIC, for the construction of a house on his lot in New Alabang Village,
Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and
Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed
the P500,000 balance of Roas indebtedness with AIDC. The latter, however, was not
willing to extend the old interest rate to private respondents and proposed to grant
them a new loan of P500,000 to be applied to Roas debt and secured by the same
property, at an interest rate of 20% per annum and service fee of 1% per annum on
the outstanding principal balance payable within ten years in equal monthly
amortization ofP9,996.58 and penalty interest at the rate of 21% per annum per day
from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed
containing the above stipulations with the provision that payment of the monthly
amortization shall commence on May 1, 1981.

On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying
BPIIC the sum of P190,601.35. This reduced Roas principal balance to P457,204.90
which, in turn, was liquidated when BPIIC applied thereto the proceeds of private
respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private
respondents on the ground that they failed to pay the mortgage indebtedness which
from May 1, 1981 toJune 30, 1984, amounted to Four Hundred Seventy Five
Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of
sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against
BPIIC. They alleged, among others, that they were not in arrears in their payment,
but in fact made an overpayment as of June 30, 1984. They maintained that they
should not be made to pay amortization before the actual release of the P500,000
loan in August and September 1982. Further, out of the P500,000 loan, only the total
amount of P464,351.77 was released to private respondents. Hence, applying the
effects of legal compensation, the balance ofP35,648.23 should be applied to the
initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos.
11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and
Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77, with interest at 20% plus service charge of
1% per annum, payable on equal monthly and successive amortizations at
P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization
schedule attached as Annex A to the Deed of Mortgage is correspondingly
reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when
BPI caused their publication in a newspaper of general circulation as defaulting
debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.

Costs against BPI.

SO ORDERED.[2]
Both parties appealed to the Court of Appeals. However, private respondents
appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the
dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby
AFFIRMED in toto.
SO ORDERED.[3]
In its decision, the Court of Appeals reasoned that a simple loan is perfected
only upon the delivery of the object of the contract. The contract of loan between
BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date when
BPIIC released the purported balance of the P500,000 loan after deducting therefrom
the value of Roas indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the stipulations
in the contract. This, despite the express agreement of the parties that payment
shall commence on May 1, 1981. From October 1982 to June 1984, the total
amortization due was only P194,960.43. Evidence showed that private respondents
had an overpayment, because as of June 1984, they already paid a total amount
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose
the mortgage and cause the publication in newspapers concerning private
respondents delinquency in the payment of their loan. This fact constituted
sufficient ground for moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied,
hence this petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL
CONTRACT IN THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS.
COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI
EXEMPLARY DAMAGES
IRREGULAR PAYMENTS
LAID DOWN IN SOCIAL
120 SCRA 707.

SHOULD BE HELD LIABLE FOR MORAL AND

AND ATTORNEYS FEES IN THE FACE OF
MADE BY ALS AND OPPOSED TO THE RULE
SECURITY SYSTEM VS. COURT OF APPEALS,

On the first issue, petitioner contends that the Court of Appeals erred in ruling
that because a simple loan is perfected upon the delivery of the object of the
contract, the loan contract in this case was perfected only on September 13,
1982. Petitioner claims that a contract of loan is a consensual contract, and a loan

contract is perfected at the time the contract of mortgage is executed conformably

with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case,
the loan contract was perfected on March 31, 1981, the date when the mortgage
deed was executed, hence, the amortization and interests on the loan should be
computed from said date.
Petitioner also argues that while the documents showed that the loan was
released only on August 1982, the loan was actually released on March 31, 1981,
when BPIIC issued a cancellation of mortgage of Frank Roas loan. This finds support
in the registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa
in favor of ALS, transferring the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the
release of the loan should be attributed to private respondents. As BPIIC only
agreed to extend a P500,000 loan, private respondents were required to reduce
Frank Roas loan below said amount. According to petitioner, private respondents
were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the
Civil Code,[4] a simple loan is perfected upon the delivery of the object of the
contract, hence a real contract. In this case, even though the loan contract was
signed on March 31, 1981, it was perfected only on September 13, 1982, when the
full loan was released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that the contract to extend the
loan was perfected on March 31, 1981 but the contract of loan itself was only
perfected upon the delivery of the full loan to private respondents on September 13,
1982.
Private respondents further maintain that even granting, arguendo, that the
loan contract was perfected on March 31, 1981, and their payment did not start a
month thereafter, still no default took place. According to private respondents, a
perfected loan agreement imposes reciprocal obligations, where the obligation or
promise of each party is the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is the promise of private
respondents to pay the monthly amortization. For the latter, it is the promise of
BPIIC to deliver the money. In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. Therefore, private respondents conclude, they did not incur in
delay when they did not commence paying the monthly amortization on May 1,
1981, as it was only on September 13, 1982 when petitioner fully complied with its
obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual
contract but a real contract. It is perfected only upon the delivery of the object of
the contract.[5] Petitioner misapplied Bonnevie. The contract in Bonnevie declared
by this Court as a perfected consensual contract falls under the first clause of Article
1934, Civil Code. It is an accepted promise to deliver something by way of simple
loan.

In Saura Import and Export Co. Inc. vs. Development Bank of the
Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000 with respondent
bank. The latter approved the application through a board resolution. Thereafter, the
corresponding mortgage was executed and registered. However, because of acts
attributable to petitioner, the loan was not released. Later, petitioner instituted an
action for damages. We recognized in this case, a perfected consensual contract
which under normal circumstances could have made the bank liable for not
releasing the loan. However, since the fault was attributable to petitioner therein,
the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real contract of loan which
requires the delivery of the object of the contract for its perfection and which gives
rise to obligations only on the part of the borrower.[6]
In the present case, the loan contract between BPI, on the one hand, and ALS
and Litonjua, on the other, was perfected only on September 13, 1982, the date of
the second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals,
private respondents obligation to pay commenced only on October 13, 1982, a
month after the perfection of the contract.[7]
We also agree with private respondents that a contract of loan involves a
reciprocal obligation, wherein the obligation or promise of each party is the
consideration for that of the other. [8] As averred by private respondents, the promise
of BPIIC to extend and deliver the loan is upon the consideration that ALS and
Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month
after the supposed release of the loan. It is a basic principle in reciprocal obligations
that neither party incurs in delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. [9] Only when a party
has performed his part of the contract can he demand that the other party also
fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization
after September 13, 1982for it was only then when it complied with its obligation
under the loan contract. Therefore, in computing the amount due as of the date
when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date
is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the
date of actual release of the loan and whether private respondents were the cause
of the delay in the release of the loan, are factual. Since petitioner has not shown
that the instant case is one of the exceptions to the basic rule that only questions of
law can be raised in a petition for review under Rule 45 of the Rules of Court,
[10]
factual matters need not tarry us now. On these points we are bound by the
findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for
moral and exemplary damages for it did not act maliciously when it initiated the

foreclosure proceedings. It merely exercised its right under the mortgage contract
because private respondents were irregular in their monthly amortization. It invoked
our ruling in Social Security System vs. Court of Appeals, 120 SCRA 707, where we
said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by
the Court of Appeals the negligence of the appellant is not so gross as to warrant
moral and temperate damages, except that, said Court reduced those damages by
only P5,000.00 instead of eliminating them. Neither can we agree with the findings
of both the Trial Court and respondent Court that the SSS had acted maliciously or in
bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its
right under the mortgage contract in the face of irregular payments made by private
respondents and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a ground for an
award of moral damages in the same way that a clearly unfounded civil action is not
among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be
liable for said damages because it insisted on the payment of amortization on the
loan even before it was released. Further, it did not make the corresponding
deduction in the monthly amortization to conform to the actual amount of loan
released, and it immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in
their payment of monthly amortization. Conformably with our ruling in SSS, we can
not properly declare BPIIC in bad faith. Consequently, we should rule out the award
of moral and exemplary damages.[11]
However, in our view, BPIIC was negligent in relying merely on the entries
found in the deed of mortgage, without checking and correspondingly adjusting its
records on the amount actually released to private respondents and the date when it
was released. Such negligence resulted in damage to private respondents, for which
an award of nominal damages should be given in recognition of their rights which
were violated by BPIIC.[12] For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private
respondents were compelled to litigate, we sustain the award of P50,000 in favor of
private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals
and its resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the
award of damages. The award of moral and exemplary damages in favor of private
respondents is DELETED, but the award to them of attorneys fees in the amount
of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

SECOND 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 Mortgageshe 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.

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
affirmed. Costs against petitioner.

is

denied

and

the

assailed

decision

is

SO ORDERED.
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

Bellosillo,
JJ., concur.

(Chairman),

Quisumbing,

Austria-Martinez, and Callejo,

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

Sr.,

G.R. No. 154878

March 16, 2007

CAROLYN M. GARCIA, Petitioner,

vs.
RICA MARIE S. THIO, Respondent.
DECISION
CORONA, J.:
Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and
August 20, 2002 resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577
which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of
Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner
Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of
US$100,000 payable to the order of a certain Marilou Santiago. 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$3,0006 and P76,5007 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 ofP500,000, 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.161awphi1.nt

Respondent denied that she contracted the two loans with petitioner and countered
that it was Marilou Santiago to whom petitioner lent the money. She claimed she
was merely asked by petitioner to give the crossed checks to Santiago. 17 She issued
the checks for 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.

Republic of the Philippines

Supreme Court
Manila

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 andP500,000 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.

SPECIAL SECOND DIVISION

POLO S. PANTALEON,

G.R. No. 174269

Petitioner,
-

Present:

versus -

AMERICAN EXPRESS INTERNATIONAL, INC.,

Respondent.

CARPIO MORALES, J.,

Acting Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION, and
*
BERSAMIN, JJ.
Promulgated:
August 25, 2010

x----------------------------------------------------------------------------------------x
RESOLUTION

BRION, J.:

We resolve the motion for reconsideration filed by respondent American

Express International, Inc. (AMEX) dated June 8, 2009,[1] seeking to reverse our
Decision dated May 8, 2009 where we ruled that AMEX was guilty of culpable delay
in fulfilling its obligation to its cardholder petitioner Polo Pantaleon. Based on this

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.

conclusion, we held AMEX liable for moral and exemplary damages, as well as
attorneys fees and costs of litigation.[2]
FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of providing

credit services through the operation of a charge card system. Pantaleon has been
an AMEX cardholder since 1980.[3]

When the Pantaleons finally returned to the tour bus, they found their travel
companions visibly irritated. This irritation intensified when the tour guide
announced that they would have to cancel the tour because of lack of time as they

In October 1991, Pantaleon, together with his wife (Julialinda), daughter

all had to be in Calais, Belgium by 3 p.m. to catch the ferry to London.[6]

(Regina), and son (Adrian Roberto), went on a guided European tour. On October 25,
1991, the tour group arrived in Amsterdam. Due to their late arrival, they postponed
the tour of the city for the following day.

[4]

From the records, it appears that after Pantaleons purchase was transmitted
for

approval

to

AMEXs Amsterdam office

at 9:20

a.m.;

was

referred

to

AMEXsManila office at 9:33 a.m.; and was approved by the Manila office at 10:19
The next day, the group began their sightseeing at around 8:50 a.m. with a

a.m. At 10:38 a.m., AMEXs Manila office finally transmitted the Approval Code to

trip to the Coster Diamond House (Coster). To have enough time for take a guided

AMEXs Amsterdam office. In all, it took AMEX a total of 78 minutes to

city tour of Amsterdam before their departure scheduled on that day, the tour

approve Pantaleons purchase and to transmit the approval to the jewelry

group planned to leave Coster by 9:30 a.m. at the latest.

store.[7]

While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces

After the trip to Europe, the Pantaleon family proceeded to the United States.

worth a total of US$13,826.00. Pantaleon presented his American Express credit

Again, Pantaleon experienced delay in securing approval for purchases using his

card to the sales clerk to pay for this purchase. He did this at around 9:15 a.m. The

American Express credit card on two separate occasions. He experienced the first

sales clerk swiped the credit card and asked Pantaleon to sign the charge slip, which

delay when he wanted to purchase golf equipment in the amount of US$1,475.00 at

was then electronically referred to AMEXs Amsterdam office at 9:20 a.m.[5]

the Richard Metz Golf Studio in New York on October 30, 1991. Another delay
occurred when he wanted to purchase childrens shoes worth US$87.00 at the

At around 9:40 a.m., Coster had not received approval from AMEX for the

Quiency Market in Boston on November 3, 1991.

purchase so Pantaleon asked the store clerk to cancel the sale. The store manager,
however, convinced Pantaleon to wait a few more minutes. Subsequently, the store

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology

manager informed Pantaleon that AMEX was asking for bank references; Pantaleon

for the humiliation and inconvenience he and his family experienced due to the

responded by giving the names of his Philippine depository banks.

delays in obtaining approval for his credit card purchases. AMEX responded by
explaining that the delay in Amsterdam was due to the amount involved the

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card,

charged purchase of US$13,826.00 deviated from Pantaleons

established

AMEX still had not approved the purchase. Since the city tour could not begin until

charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an

the Pantaleons were onboard the tour bus, Coster decided to release at

action for damages against the credit card company with the Makati City Regional

around 10:05 a.m. the purchased items to Pantaleon even without AMEXs approval.

Trial Court (RTC).

circumstances. In

Pantaleons

the Amsterdam purchase. We

case,

it

took

attributed

this

AMEX
delay

78

minutes

to

to

approve

AMEXs Manila credit

authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history, his
On August 5, 1996, the RTC found AMEX guilty of delay, and awarded
Pantaleon P500,000.00

as

moral

damages, P300,000.00

as

exemplary

damages,P100,000.00 as attorneys fees, and P85,233.01 as litigation expenses.

payment record and his credit and bank references before he approved the
purchase. Finding this delay unwarranted, we reinstated the RTC decision and
awarded Pantaleon moral and exemplary damages, as well as attorneys fees and
costs of litigation.

On appeal, the CA reversed the awards.

[8]

While the CA recognized that

delay in the nature of mora accipiendi or creditors default attended AMEXs

THE MOTION FOR RECONSIDERATION

approval of Pantaleons purchases, it disagreed with the RTCs finding that AMEX had
breached its contract, noting that the delay was not attended by bad faith, malice or

In its motion for reconsideration, AMEX argues that this Court erred when it

gross negligence. The appellate court found that AMEX exercised diligent efforts to

found AMEX guilty of culpable delay in complying with its obligation to act with

effect the approval of Pantaleons purchases; the purchase at Coster posed

timely dispatch on Pantaleons purchases. While AMEX admits that it normally takes

particularly a problem because it was at variance with Pantaleons established

seconds to approve charge purchases, it emphasizes that Pantaleon experienced

charge pattern. As there was no proof that AMEX breached its contract, or that it

delay in Amsterdam because his transaction was not a normal one. To recall,

acted in a wanton, fraudulent or malevolent manner, the appellate court ruled that

Pantaleon sought to charge in a single transaction jewelry items purchased from

AMEX could not be held liable for any form of damages.

Coster in the total amount of US$13,826.00 or P383,746.16. While the total amount
of Pantaleons previous purchases using his AMEX credit card did exceed

Pantaleon

questioned

this

decision via a

petition

for

review

on certiorari with this Court.

US$13,826.00, AMEX points out that these purchases were made in a span of more
than 10 years, not in a single transaction.

In our May 8, 2009 decision, we reversed the appellate courts decision and

Because this was the biggest single transaction that Pantaleon ever made

held that AMEX was guilty of mora solvendi, or debtors default. AMEX, as debtor,

using his AMEX credit card, AMEX argues that the transaction necessarily required

had an obligation as the credit provider to act on Pantaleons purchase requests,

the credit authorizer to carefully review Pantaleons credit history and bank

whether to approve or disapprove them, with timely dispatch. Based on the

references. AMEX maintains that it did this not only to ensure Pantaleons protection

evidence on record, we found that AMEX failed to timely act on Pantaleons

(to minimize the possibility that a third party was fraudulently using his credit card),

purchases.

but also to protect itself from the risk that Pantaleon might not be able to pay for his
purchases on credit. This careful review, according to AMEX, is also in keeping with

Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the

approval time for credit card charges would be three to four seconds under regular

the

extraordinary

degree

of

diligence

required

of

banks

in

handling

its

transactions. AMEX concluded that in these lights, the thorough review of

Pantaleons credit record was motivated by legitimate concerns and could not be

Brief historical background

evidence of any ill will, fraud, or negligence by AMEX.

A credit card is defined as any card, plate, coupon book, or other credit
AMEX further points out that the proximate cause of Pantaleons humiliation

device existing for the purpose of obtaining money, goods, property, labor or

and embarrassment was his own decision to proceed with the purchase despite his

services or anything of value on credit. [9] It traces its roots to the charge card first

awareness that the tour group was waiting for him and his wife. Pantaleon could

introduced by the Diners Club in New York City in 1950.[10] American Express

have prevented the humiliation had he cancelled the sale when he noticed that the

followed suit by introducing its own charge card to the American market in 1958.[11]

credit approval for the Coster purchase was unusually delayed.

In the Philippines, the now defunct Pacific Bank was responsible for bringing
In his Comment dated February 24, 2010, Pantaleon maintains that AMEX

the first credit card into the country in the 1970s. [12] However, it was only in the

was guilty of mora solvendi, or delay on the part of the debtor, in complying with its

early 2000s that credit card use gained wide acceptance in the country, as

obligation to him. Based on jurisprudence, a just cause for delay does not relieve the

evidenced by the surge in the number of credit card holders then. [13]

debtor in delay from the consequences of delay; thus, even if AMEX had a justifiable
reason for the delay, this reason would not relieve it from the liability arising from its

Nature of Credit Card Transactions

failure to timely act on Pantaleons purchase.

To better understand the dynamics involved in credit card transactions, we
In response to AMEXs assertion that the delay was in keeping with its duty
to perform its obligation with extraordinary diligence, Pantaleon claims that this duty
includes the timely or prompt performance of its obligation.

As to AMEXs contention that moral or exemplary damages cannot be

awarded absent a finding of malice, Pantaleon argues that evil motive or design is
not always necessary to support a finding of bad faith; gross negligence or wanton
disregard of contractual obligations is sufficient basis for the award of moral and
exemplary damages.

OUR RULING

We GRANT the motion for reconsideration.

turn to the United States case of Harris Trust & Savings Bank v. McCray[14] which
explains:
The bank credit card system involves a tripartite
relationship between the issuer bank, the cardholder, and
merchants participating in the system. The issuer bank establishes
an account on behalf of the person to whom the card is issued,
and the two parties enter into an agreement which governs their
relationship. This agreement provides that the bank will pay for
cardholders account the amount of merchandise or services
purchased through the use of the credit card and will also make
cash loans available to the cardholder. It also states that the
cardholder shall be liable to the bank for advances and payments
made by the bank and that the cardholders obligation to pay the
bank shall not be affected or impaired by any dispute, claim, or
demand by the cardholder with respect to any merchandise or
service purchased.
The merchants participating in the system agree to honor
the banks credit cards. The bank irrevocably agrees to honor and
pay the sales slips presented by the merchant if the merchant
performs his undertakings such as checking the list of revoked
cards before accepting the card. x x x.

These slips are forwarded to the member bank which

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

Credit card issuer

cardholder relationship

When a credit card company gives the holder the privilege of charging
We adopted a similar view in CIR v. American Express International, Inc.
(Philippine branch),[15] where we also recognized that credit card issuers are not

items at establishments associated with the issuer, [17] a necessary question in a

legal analysis is when does this relationship begin? There are two diverging views
on the matter. In City Stores Co. v. Henderson,[18] another U.S. decision, held that:

limited to banks. We said:

The issuance of a credit card is but an offer to extend a

line of open account credit. It is unilateral and supported by no
consideration. The offer may be withdrawn at any time, without
prior notice, for any reason or, indeed, for no reason at all, and its
withdrawal breaches no duty for there is no duty to continue it
and violates no rights.

Under RA 8484, the credit card that is issued by banks in

general, or by non-banks in particular, refers to any card
x x x or other credit device existing for the purpose of
obtaining x x x goods x x x or services x x x on credit; and
is being used usually on a revolving basis. This means that the
consumer-credit arrangement that exists between the issuer and
the holder of the credit card enables the latter to procure goods or
services on a continuing basis as long as the outstanding balance
does not exceed a specified limit. The card holder is, therefore,
given the power to obtain present control of goods or service on a
promise to pay for them in the future.

Thus, under this view, each credit card transaction is considered a separate offer
and acceptance.

Business establishments may extend credit sales through

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

Novack v. Cities Service Oil Co.[19] echoed this view, with the court ruling
that the mere issuance of a credit card did not create a contractual relationship with
the cardholder.

On

The credit card company, in turn, sends checks as payment

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

Company
contract

which

accepted

the

credit

card;

(b)

the loan

agreement between the credit card issuer and the credit card holder; and lastly, (c)
the promise to paybetween the credit card issuer and the merchant or business
establishment.[16]

end

of

the

spectrum

is Gray

v.

American

Express

which recognized the card membership agreement itself as a binding

between

the

credit

card

issuer

and

the

card

holder.

Unlike

in

annual fee for the privilege of being an American Express cardholder.

(a) the sales contract between the credit card holder and the merchant or the
establishment

other

the Novack and the City Stores cases, however, the cardholder in Gray paid an

Simply put, every credit card transaction involves three contracts, namely:

business

the
[20]

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the

relationship between the credit card issuer and the credit card holder as a
contractual one that is governed by the terms and conditions found in the card
membership agreement.[21] This contract provides the rights and liabilities of a credit
card company to its cardholders and vice versa.

cardholder. The latter involves the actual credit on loan agreement involving three
We note that a card membership agreement is a contract of adhesion as its

contracts, namely: the sales contract between the credit card holder and the

terms are prepared solely by the credit card issuer, with the cardholder merely

merchant or the business establishment which accepted the credit card; the loan

affixing his signature signifying his adhesion to these terms.

[22]

This circumstance,

agreement between the credit card issuer and the credit card holder; and

however, does not render the agreement void; we have uniformly held that

the promise to pay between the credit card issuer and the merchant or business

contracts of adhesion are as binding as ordinary contracts, the reason being that

establishment.

the party who adheres to the contract is free to reject it entirely. [23] The only effect
is that the terms of the contract are construed strictly against the party who drafted
it.[24]

From the loan agreement perspective, the contractual relationship begins to

exist only upon the meeting of the offer [25] and acceptance of the parties involved. In
more concrete terms, when cardholders use their credit cards to pay for their
purchases, they merely offer to enter into loan agreements with the credit card
company. Only after the latter approves the purchase requests that the parties enter

On AMEXs obligations to Pantaleon

into binding loan contracts, in keeping with Article 1319 of the Civil Code, which
provides:

We begin by identifying the two privileges that Pantaleon assumes he is

entitled to with the issuance of his AMEX credit card, and on which he anchors his
claims. First, Pantaleon presumes that since his credit card has no pre-set spending

Article 1319. Consent is manifested by the meeting of the

offer and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counteroffer.

limit, AMEX has the obligation to approve all his charge requests. Conversely, even if
AMEX has no such obligation, at the very least it is obliged to act on his charge
requests within a specific period of time.

This view finds support in the reservation found in the card membership
agreement itself, particularly paragraph 10, which clearly states that AMEX
reserve[s] the right to deny authorization for any requested Charge. By

i.

Use of credit card a mere offer to enter into loan agreements

so providing, AMEX made its position clear that it has no obligation to approve any
and all charge requests made by its card holders.

Although we recognize the existence of a relationship between the credit

card issuer and the credit card holder upon the acceptance by the cardholder of the

ii. AMEX not guilty of culpable delay

terms of the card membership agreement (customarily signified by the act of the
cardholder in signing the back of the credit card), we have to distinguish this

Since AMEX has no obligation to approve the purchase requests of its credit

contractual relationship from the creditor-debtor relationship which only

cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article

arises after the credit card issuer has approved the cardholders purchase
request. The first relates merely to an agreement providing for credit facility to the

1169 of the Civil Code, which provides the requisites to hold a debtor guilty of

until after AMEX transmitted its acceptance of Pantaleons offers. Pantaleons act of

culpable delay, states:

insisting on and waiting for the charge purchases to be approved by AMEX [28] is not

Article 1169. Those obliged to deliver or to do something

incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation. x x x.

the demand contemplated by Article 1169 of the Civil Code.

For failing to comply with the requisites of Article 1169, Pantaleons charge
The three requisites for a finding of default are: (a) that the obligation is
demandable and liquidated; (b) the debtor delays performance; and (c) the creditor
judicially or extrajudicially requires the debtors performance.[26]

that AMEX is guilty of culpable delay in approving his purchase requests must fail.
iii. On AMEXs obligation to act on the offer within a specific period of
time

Based on the above, the first requisite is no longer met because AMEX, by

Even assuming that AMEX had the right to review his credit card history

the express terms of the credit card agreement, is not obligated to approve

before it approved his purchase requests, Pantaleon insists that AMEX had an

Pantaleons purchase request. Without a demandable obligation, there can be no

obligation to act on his purchase requests, either to approve or deny, in a matter of

finding of default.

seconds or in timely dispatch. Pantaleon impresses upon us the existence of this

obligation by emphasizing two points: (a) his card has no pre-set spending limit; and

Apart from the lack of any demandable obligation, we also find that
Pantaleon failed to make the demand required by Article 1169 of the Civil Code.

As previously established, the use of a credit card to pay for a purchase is

(b) in his twelve years of using his AMEX card, AMEX had always approved his
charges in a matter of seconds.

Pantaleons assertions fail to convince us.

only an offer to the credit card company to enter a loan agreement with the credit
card holder. Before the credit card issuer accepts this offer, no obligation

We originally held that AMEX was in culpable delay when it acted on the

relating to the loan agreement exists between them. On the other hand, a

Coster transaction, as well as the two other transactions in the United States which

demand is defined as the assertion of a legal right; xxx an asking with authority,

took AMEX approximately 15 to 20 minutes to approve. This conclusion appears

claiming or challenging as due. [27] A demand presupposes the existence of an

valid and reasonable at first glance, comparing the time it took to finally get the

obligation between the parties.

Coster purchase approved (a total of 78 minutes), to AMEXs normal approval time

of three to four seconds (based on the testimony of Edgardo Jaurigue, as well as

Thus, every time that Pantaleon used his AMEX credit card to pay for his
purchases, what the stores transmitted to AMEX were his offers to execute loan
contracts. These obviously could not be classified as the demand required by law to
make the debtor in default, given that no obligation could arise on the part of AMEX

Pantaleons previous experience). We come to a different result, however, after a

closer look at the factual and legal circumstances of the case.

AMEXs credit authorizer, Edgardo Jaurigue, explained that having no preset spending limit in a credit card simply means that the charges made by the

Nor can Pantaleon look to the law or government issuances as the source of

cardholder are approved based on his ability to pay, as demonstrated by his past

AMEXs alleged obligation to act upon his credit card purchases within a matter of

spending, payment patterns, and personal resources.

[29]

Nevertheless, every time

seconds. As the following survey of Philippine law on credit card transactions

Pantaleon charges a purchase on his credit card, the credit card company

demonstrates, the State does not require credit card companies to act upon its

still has to determine whether it will allow this charge, based on his past

cardholders purchase requests within a specific period of time.

credit history. This right to review a card holders credit history, although not
specifically set out in the card membership agreement, is a necessary implication of
AMEXs right to deny authorization for any requested charge.

As for Pantaleons previous experiences with AMEX (i.e., that in the past 12
years, AMEX has always approved his charge requests in three or four seconds), this
record does not establish that Pantaleon had a legally enforceable obligation to
expect AMEX to act on his charge requests within a matter of seconds. For one,
Pantaleon failed to present any evidence to support his assertion that AMEX acted
on purchase requests in a matter of three or four seconds as an established practice.
More importantly, even if Pantaleon did prove that AMEX, as a matter of practice or
custom, acted on its customers purchase requests in a matter of seconds, this
would still not be enough to establish a legally demandable right; as a general rule,
a practice or custom is not a source of a legally demandable or enforceable right. [30]

We next examine the credit card membership agreement, the contract that
primarily governs the relationship between AMEX and Pantaleon. Significantly, there
is no provision in this agreement that obligates AMEX to act on all
cardholder purchase requests within a specifically defined period of time.
Thus, regardless of whether the obligation is worded was to act in a matter of
seconds or to act in timely dispatch, the fact remains that no obligation exists on
the part of AMEX to act within a specific period of time. Even Pantaleon admits in his
testimony that he could not recall any provision in the Agreement that guaranteed
AMEXs approval of his charge requests within a matter of minutes. [31]

Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of

seconds that Pantaleon uses as his standard. The standard therefore is implicit and,

1998, approved on February 11, 1998, is the controlling legislation that regulates

as in all contracts, must be based on fairness and reasonableness, read in relation to

the issuance and use of access devices, [32] including credit cards. The more salient

the Civil Code provisions on human relations, as will be discussed below.

portions of this law include the imposition of the obligation on a credit card company
to disclose certain important financial information [33] to credit card applicants, as

AMEX acted with good faith

well as a definition of the acts that constitute access device fraud.

Thus far, we have already established that: (a) AMEX had neither a
As financial institutions engaged in the business of providing credit, credit

contractual nor a legal obligation to act upon Pantaleons purchases within a specific

card companies fall under the supervisory powers of the Bangko Sentral ng Pilipinas

period of time; and (b) AMEX has a right to review a cardholders credit card

[34]

(BSP).

BSP Circular No. 398 dated August 21, 2003 embodies the BSPs policy

when it comes to credit cards

The Bangko Sentral ng Pilipinas (BSP) shall foster the
development of consumer credit through innovative products such
as credit cards under conditions of fair and sound consumer
credit practices. The BSP likewise encourages competition and
transparency to ensure more efficient delivery of services and fair
dealings with customers. (Emphasis supplied)

history. Our recognition of these entitlements, however, does not give AMEX
an unlimited right to put off action on cardholders purchase requests for
indefinite periods of time. In acting on cardholders purchase requests, AMEX
must take care not to abuse its rights and cause injury to its clients and/or third
persons. We cite in this regard Article 19, in conjunction with Article 21, of the Civil
Code, which provide:

Based on this Circular, x x x [b]efore issuing credit cards, banks and/or

their

subsidiary

credit

card

companies

must

exercise

proper

diligence

by

ascertaining that applicants possess good credit standing and are financially capable
of fulfilling their credit commitments. [35] As the above-quoted policy expressly
states, the general intent is to foster fair and sound consumer credit
practices.

Article 19. Every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his
due and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another
in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.

Article 19 pervades the entire legal system and ensures that a person

Other than BSP Circular No. 398, a related circular is BSP Circular No. 454,
issued on September 24, 2004, but this circular merely enumerates the unfair
collection practices of credit card companies a matter not relevant to the issue at
hand.

suffering damage in the course of anothers exercise of right or performance of duty,

should find himself without relief.[36] It sets the standard for the conduct of all
persons, whether artificial or natural, and requires that everyone, in the exercise of
rights and the performance of obligations, must: (a) act with justice, (b) give
everyone his due, and (c) observe honesty and good faith. It is not because a person

In light of the foregoing, we find and so hold that AMEX is neither

contractually bound nor legally obligated to act on its cardholders purchase
requests within any specific period of time, much less a period of a matter of

invokes his rights that he can do anything, even to the prejudice and disadvantage
of another.[37]

While Article 19 enumerates the standards of conduct, Article 21 provides

It is an elementary rule in our jurisdiction that good faith is presumed and

the remedy for the person injured by the willful act, an action for damages. We

that the burden of proving bad faith rests upon the party alleging it. [40] Although it

explained how these two provisions correlate with each other in GF Equity, Inc. v.

took AMEX some time before it approved Pantaleons three charge requests, we find

Valenzona:

[38]

no evidence to suggest that it acted with deliberate intent to cause Pantaleon any

[Article 19], known to contain what is commonly referred

to as the principle of abuse of rights, sets certain standards which
must be observed not only in the exercise of one's rights but also
in the performance of one's duties. These standards are the
following: to act with justice; to give everyone his due; and to
observe honesty and good faith. The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the norms
of human conduct set forth in Article 19 must be observed. A
right, though by itself legal because recognized or granted
by law as such, may nevertheless become the source of
some illegality. When a right is exercised in a manner
which does not conform with the norms enshrined in
Article 19 and results in damage to another, a legal wrong
is thereby committed for which the wrongdoer must be
held responsible. But while Article 19 lays down a rule of
conduct for the government of human relations and for the
maintenance of social order, it does not provide a remedy for its
violation. Generally, an action for damages under either Article 20
or Article 21 would be proper.

loss or injury, or acted in a manner that was contrary to morals, good customs or
public policy. We give credence to AMEXs claim that its review procedure was done
to ensure Pantaleons own protection as a cardholder and to prevent the possibility
that the credit card was being fraudulently used by a third person.

Pantaleon countered that this review procedure is primarily intended to

protect AMEXs interests, to make sure that the cardholder making the purchase has
enough means to pay for the credit extended. Even if this were the case, however,
we do not find any taint of bad faith in such motive. It is but natural for AMEX to
want to ensure that it will extend credit only to people who will have sufficient
means to pay for their purchases. AMEX, after all, is running a business, not a

In the context of a credit card relationship, although there is neither a

contractual stipulation nor a specific law requiring the credit card issuer to act on
the credit card holders offer within a definite period of time, these principles provide

charity, and it would simply be ludicrous to suggest that it would not want to earn
profit for its services. Thus, so long as AMEX exercises its rights, performs its
obligations, and generally acts with good faith, with no intent to cause harm, even if
it may occasionally inconvenience others, it cannot be held liable for damages.

the standard by which to judge AMEXs actions.

We also cannot turn a blind eye to the circumstances surrounding the

According to Pantaleon, even if AMEX did have a right to review his charge
purchases, it abused this right when it unreasonably delayed the processing of the
Coster charge purchase, as well as his purchase requests at the Richard Metz Golf
Studio and Kids Unlimited Store; AMEX should have known that its failure to act
immediately

on

charge referrals

would

entail

inconvenience and

result in

humiliation, embarrassment, anxiety and distress to its cardholders who would be

required to wait before closing their transactions.[39]

Coster transaction which, in our opinion, justified the wait. In Edgardo Jaurigues own
words:
Q 21: With reference to the transaction at the Coster Diamond
House covered by Exhibit H, also Exhibit 4 for the defendant, the
approval came at 2:19 a.m. after the request was relayed at1:33
a.m., can you explain why the approval came after about 46
minutes, more or less?
A21: Because we have to make certain considerations and
evaluations of [Pantaleons] past spending pattern with [AMEX] at
that time before approving plaintiffs request because [Pantaleon]
was at that time making his very first single charge purchase
of US$13,826 [this is below the US$16,112.58 actually billed and
paid for by the plaintiff because the difference was already

automatically approved by [AMEX] office in Netherland[s] and the

record of [Pantaleons] past spending with [AMEX] at that
time does not favorably support his ability to pay for such
purchase. In fact, if the foregoing internal policy of [AMEX] had
been strictly followed, the transaction would not have been
approved at all considering that the past spending pattern of the
plaintiff with [AMEX] at that time does not support his ability to
pay for such purchase.[41]
x x x x
Q: Why did it take so long?
A: It took time to review the account on credit, so, if there is any
delinquencies [sic] of the cardmember. There are factors on
deciding the charge itself which are standard measures in
approving the authorization. Now in the case of Mr. Pantaleon
although his account is single charge purchase of US$13,826. [sic]
this is below the US$16,000. plus actually billed x x x we would
have already declined the charge outright and asked him his bank
account to support his charge. But due to the length of his
membership as cardholder we had to make a decision on hand.[42]

records of this case, we have come to the conclusion that Pantaleon is the proximate
cause for this embarrassment and humiliation.

As borne by the records, Pantaleon knew even before entering Coster that
the tour group would have to leave the store by 9:30 a.m. to have enough time to
take the city tour of Amsterdam before they left the country. After 9:30 a.m.,
Pantaleons son, who had boarded the bus ahead of his family, returned to the store
to inform his family that they were the only ones not on the bus and that the entire
tour group was waiting for them. Significantly, Pantaleon tried to cancel the sale
at 9:40 a.m. because he did not want to cause any inconvenience to the
tour group. However, when Costers sale manager asked him to wait a few more
minutes for the credit card approval, he agreed, despite the knowledge that he had

As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for

already caused a 10-minute delay and that the city tour could not start without him.

AMEXs approval was because he had to go over Pantaleons credit card history for
the past twelve months.[43] It would certainly be unjust for us to penalize AMEX for
merely exercising its right to review Pantaleons credit history meticulously.

In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who

knowingly and voluntarily exposes himself to danger cannot claim damages for the
resulting injury:

Finally, we said in Garciano v. Court of Appeals that the right to recover

[moral damages] under Article 21 is based on equity, and he who comes to court to
demand equity, must come with clean hands. Article 21 should be construed as

The doctrine of volenti non fit injuria (to which a person

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

granting the right to recover damages to injured persons who are not themselves at
fault.[44] As will be discussed below, Pantaleon is not a blameless party in all this.
Pantaleons action was the
proximate cause for his
injury

This doctrine, in our view, is wholly applicable to this case. Pantaleon

himself testified that the most basic rule when travelling in a tour group is that you
must never be a cause of any delay because the schedule is very strict.[46] When
Pantaleon made up his mind to push through with his purchase, he must have

Pantaleon mainly anchors his claim for moral and exemplary

damages on the embarrassment and humiliation that he felt when the European
tour group had to wait for him and his wife for approximately 35 minutes, and
eventually had to cancel the Amsterdam city tour. After thoroughly reviewing the

known that the group would become annoyed and irritated with him. This was the
natural, foreseeable consequence of his decision to make them all wait.

We do not discount the fact that Pantaleon and his family did feel

Similarly, we find no basis to award exemplary damages. In contracts,

humiliated and embarrassed when they had to wait for AMEX to approve the Coster

exemplary damages can only be awarded if a defendant acted in a wanton,

purchase in Amsterdam. We have to acknowledge, however, that Pantaleon was not

fraudulent, reckless, oppressive or malevolent manner. [49] The plaintiff must also

a helpless victim in this scenario at any time, he could have cancelled the sale so

show that he is entitled to moral, temperate, or compensatory damages before the

that the group could go on with the city tour. But he did not.

court may consider the question of whether or not exemplary damages should be
awarded.[50]

More importantly, AMEX did not violate any legal duty to Pantaleon under
the circumstances under the principle of damnum absque injuria, or damages
without legal wrong, loss without injury.[47] As we held in BPI Express Card v. CA:[48]
We do not dispute the findings of the lower court that
private respondent suffered damages as a result of the
cancellation of his credit card. However, there is a material
distinction between damages and injury. Injury is the illegal
invasion of a legal right; damage is the loss, hurt, or harm which
results from the injury; and damages are the recompense or
compensation awarded for the damage suffered. Thus, there can
be damage without injury in those instances in which the
loss or harm was not the result of a violation of a legal
duty. In such cases, the consequences must be borne by
the injured person alone, the law affords no remedy for
damages resulting from an act which does not amount to a legal
injury or wrong. These situations are often called damnum absque
injuria.
In other words, in order that a plaintiff may maintain an
action for the injuries of which he complains, he must establish
that such injuries resulted from a breach of duty which the
defendant owed to the plaintiff - a concurrence of injury to the
plaintiff and legal responsibility by the person causing it. The
underlying basis for the award of tort damages is the
premise that an individual was injured in contemplation of
law. Thus, there must first be a breach of some duty and the
imposition of liability for that breach before damages may be
awarded; and the breach of such duty should be the proximate
cause of the injury.

As previously discussed, it took AMEX some time to approve Pantaleons

purchase requests because it had legitimate concerns on the amount being charged;
no malicious intent was ever established here. In the absence of any other damages,
the award of exemplary damages clearly lacks legal basis.

Neither do we find any basis for the award of attorneys fees and costs of
litigation. No premium should be placed on the right to litigate and not every
winning party is entitled to an automatic grant of attorney's fees. [51] To be entitled to
attorneys fees and litigation costs, a party must show that he falls under one of the
instances enumerated in Article 2208 of the Civil Code.[52] This, Pantaleon failed to
do. Since we eliminated the award of moral and exemplary damages, so must we
delete the award for attorney's fees and litigation expenses.

Lastly, although we affirm the result of the CA decision, we do so for the

reasons stated in this Resolution and not for those found in the CA decision.

WHEREFORE, premises
Pantaleon is not entitled to damages

considered,

we SET

ASIDE our May

2009 Decision and GRANT the present motion for reconsideration. The Court of
Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs.

Because AMEX neither breached its contract with Pantaleon, nor acted with
culpable delay or the willful intent to cause harm, we find the award of moral
damages to Pantaleon unwarranted.

8,

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-8321

October 14, 1913

ALEJANDRA MINA, ET AL., plaintiffs-appellants,

vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
N. Segundo for appellants.
Iigo Bitanga for appellees.

ARELLANO, C.J.:
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla
acquired during his lifetime, on March 12, 1874, a lot in the center of the town of
Laoag, the capital of the Province of Ilocos Norte, the property having been awarded
to him through its purchase at a public auction held by the alcalde mayor of that
province. The lot has a frontage of 120 meters and a depth of 15.
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on
a part of the said lot, embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs,
Alejandro Mina, et al., were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children
of Ruperta Pascual were recognized likes without discussion, though it is not said
how, and consequently are entitled to the said building, or rather, as Ruperta
Pascual herself stated, to only six-sevenths of one-half of it, the other half belonging,
as it appears, to the plaintiffs themselves, and the remaining one-seventh of the first
one-half to the children of one of the plaintiffs, Elena de Villanueva. The fact is that
the plaintiffs and the defendants are virtually, to all appearance, the owners of the
warehouse; while the plaintiffs are undoubtedly, the owners of the part of the lot
occupied by that building, as well as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian
of her minor children, the herein defendants, petitioned the Curt of First Instance of
Ilocos Norte for authorization to sell "the six-sevenths of the one-half of the
warehouse, of 14 by 11 meters, together with its lot." The plaintiffs that is
Alejandra Mina, et al. opposed the petition of Ruperta Pascual for the reason that
the latter had included therein the lot occupied by the warehouse, which they

claimed was their exclusive property. All this action was taken in a special
proceeding in re guardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court,
through motion, to decide the question of the ownership of the lot before it pass
upon the petition for the sale of the warehouse. But the court before determining the
matter of the ownership of the lot occupied by the warehouse, ordered the sale of
this building, saying:
While the trial continues with respect to the ownership of the lot, the court
orders the sale at public auction of the said warehouse and of the lot on
which it is built, with the present boundaries of the land and condition of
the building, at a price of not less than P2,890 Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the
other defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot,
and the court decided it by holding that this land belonged to the owner of the
warehouse which had been built thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court and
held that the appellants were the owners of the lot in question. 1
When the judgment became final and executory, a writ of execution issued and the
plaintiffs were given possession of the lot; but soon thereafter the trial court
annulled this possession for the reason that it affected Cu Joco, who had not been a
party to the suit in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of
having the sale of the said lot declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as follows:
9. That the herein plaintiffs excepted to the judgment and appealed
therefrom to the Supreme Court which found for them by holding that they
are the owners of the lot in question, although there existed and still exists
a commodatum by virtue of which the guardianship (meaning
the defendants) had and has the use, and the plaintiffs the ownership, of
the property, with no finding concerning the decree of the lower court that
ordered the sale.
The obvious purport of the cause "although there existed and still exists a
commodatum," etc., appears to be that it is a part of the decision of the Supreme
Court and that, while finding the plaintiffs to be the owners of the lot, we recognized
in principle the existence of a commodatum under which the defendants held the
lot. Nothing could be more inexact. Possibly, also, the meaning of that clause is that,

notwithstanding the finding made by the Supreme Court that the plaintiffs were the
owners, these former and the defendants agree that there existed, and still exists, a
commodatum, etc. But such an agreement would not affect the truth of the contents
of the decision of this court, and the opinions held by the litigants in regard to this
point could have no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least influence
in our previous decision to require our making any finding in regard thereto, for, with
or without that decree, the Supreme Court had to decide the ownership of the lot
consistently with its titles and not in accordance with the judicial acts or proceedings
had prior to the setting up of the issue in respect to the ownership of the property
that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant agree that the
plaintiffs have the ownership, and they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident,
whatsoever be the manner in which the sale was effected, whether judicially or
extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of
the sale being a transfer of the ownership of the thing, it is evident that he who has
only the mere use of the thing cannot transfer its ownership. The sale of a thing
effected by one who is not its owner is null and void. The defendants never were the
owners of the lot sold. The sale of it by them is necessarily null and void. On cannot
convey to another what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the
authorization conferred upon me on the 31st of July, 1909, by the Court of
First Instance of Ilocos Norte, proceeded with the sale at public auction of
the six-sevenths part of the one-half of the warehouse constructed of
rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public
auction all the land and all the rights title, interest, and ownership in the
said property to Cu Joco, who was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his
heirs and assigns, all the interest, ownership and inheritance rights and
others that, as the guardian of the said minors, I have and may have in the
said property, etc.
The purchaser could not acquire anything more than the interest that might be held
by a person to whom realty in possession of the vendor might be sold, for at a
judicial auction nothing else is disposed of. What the minor children of Ruperta

Pascual had in their possession was the ownership of the six-sevenths part of onehalf of the warehouse and the use of the lot occupied by his building. This, and
nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of
the lot; neither the other half, nor the remaining one-seventh of the said first half, of
the warehouse. Consequently, the sale made to him of this one-seventh of one-half
and the entire other half of the building was null and void, and likewise with still
more reason the sale of the lot the building occupies.
The purchaser could and should have known what it was that was offered for sale
and what it was that he purchased. There is nothing that can justify the acquisition
by the purchaser of the warehouse of the ownership of the lot that this building
occupies, since the minors represented by Ruperta Pascual never were the owners of
the said lot, nor were they ever considered to be such.
The trial court, in the judgment rendered, held that there were no grounds for the
requested annulment of the sale, and that the plaintiffs were entitled to the P600
deposited with the clerk of the court as the value of the lot in question. The
defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved from the
complaint, without express finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be
compelled to accept the price set on the lot by expert appraisers, not even though
the plaintiffs be considered as coowner of the warehouse. It would be much indeed
that, on the ground of coownership, they should have to abide by and tolerate the
sale of the said building, which point this court does not decide as it is not a
question submitted to us for decision, but, as regards the sale of the lot, it is in all
respects impossible to hold that the plaintiffs must abide by it and tolerate, it, and
this conclusion is based on the fact that they did not give their consent (art. 1261,
Civil Code), and only the contracting parties who have given it are obliged to comply
(art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of the
sale of the lot; but subsequently the plaintiffs, through motion, asked for an
amendment by their complaint in the sense that the action should be deemed to be
one for the recovery of possession of a lot and for the annulment of its sale. The
plaintiff's petition was opposed by the defendant's attorney, but was allowed by the
court; therefore the complaint seeks, after the judicial annulment of the sale of the
lot, to have the defendants sentenced immediately to deliver the same to the
plaintiffs.
Such a finding appears to be in harmony with the decision rendered by the Supreme
Court in previous suit, wherein it was held that the ownership of the lot lay in the
plaintiffs, and for this reason steps were taken to give possession thereof to the
defendants; but, as the purchaser Cu Joco was not a party to that suit, the present
action is strictly one for recover against Cu Joco to compel him, once the sale has
been annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:

1. That it is a fact admitted by the litigating parties, both in this and in the
previous suit, that Andres Fontanilla, the defendants' predecessor in
interest, erected the warehouse on the lot, some thirty years ago, with the
explicit consent of his brother Francisco Fontanilla, the plaintiff's
predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the
defendants are the coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres
Fontanilla nor his successors paid any consideration or price whatever for
the use of the lot occupied by the said building; whence it is, perhaps, that
both parties have denominated that use a commodatum.

uncle Andres. With that expectation in view, it appears more likely that Francisco
intended to allow his brother Andres a surface right; but this right supposes the
payment of an annual rent, and Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on another's
ground, the question should be decided in accordance with the statutes that, thirty
years ago, governed accessions to real estate, and which were Laws 41 and 42, title
28, of the third Partida, nearly identical with the provisions of articles 361 and 362 of
the Civil Code. So, then, pursuant to article 361, the owner of the land on which a
building is erected in good faith has a right to appropriate such edifice to himself,
after payment of the indemnity prescribed in articles 453 and 454, or to oblige the
builder to pay him the value of the land. Such, and no other, is the right to which the
plaintiff are entitled.

Upon the premise of these facts, or even merely upon that of the first of them, the
sentencing of the defendants to deliver the lot to the plaintiffs does not follow as a
necessary corollary of the judicial declaration of ownership made in the previous
suit, nor of that of the nullity of the sale of the lot, made in the present case.

For the foregoing reasons, it is only necessary to annul the sale of the said lot which
was made by Ruperta Pascual, in representation of her minor children, to Cu Joco,
and to maintain the latter in the use of the lot until the plaintiffs shall choose one or
the other of the two rights granted them by article 361 of the Civil Code.1awphil.net

The defendants do not hold lawful possession of the lot in question.1awphil.net

The judgment appealed from is reversed and the sale of the lot in question is held to
be null and void and of no force or effect. No special finding is made as to the costs
of both instances.

But, although both litigating parties may have agreed in their idea of the
commodatum, on account of its not being, as indeed it is not, a question of fact but
of law, yet that denomination given by them to the use of the lot granted by
Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts
are not to be interpreted in conformity with the name that the parties thereto agree
to give them, but must be construed, duly considering their constitutive elements,
as they are defined and denominated by law.
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
the certain period and return it to the former, in which case it is
calledcommodatum . . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing
belonging to another shall for a certain period. Francisco Fontanilla did not fix any
definite period or time during which Andres Fontanilla could have the use of the lot
whereon the latter was to erect a stone warehouse of considerable value, and so it is
that for the past thirty years of the lot has been used by both Andres and his
successors in interest. The present contention of the plaintiffs that Cu Joco, now in
possession of the lot, should pay rent for it at the rate of P5 a month, would destroy
the theory of the commodatum sustained by them, since, according to the second
paragraph of the aforecited article 1740, "commodatum is essentially gratuitous,"
and, if what the plaintiffs themselves aver on page 7 of their brief is to be believed,
it never entered Francisco's mind to limit the period during which his brother Andres
was to have the use of the lot, because he expected that the warehouse would
eventually fall into the hands of his son, Fructuoso Fontanilla, called the adopted son
of Andres, which did not come to pass for the reason that Fructuoso died before his

Torres, Johnson, Carson, Moreland and Trent, 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.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for 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.

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.

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.

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.

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

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.
Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.
Republic vs. Court of Appeals, No. L-46145, 146 SCRA 15 , November 26,
1986
G.R. No. L-46145 November 26, 1986
REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner,
vs.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY, represented
by RICARDO BALOY, ET AL., respondents.
Pelaez, Jalondoni, Adriano and Associates for respondents.
PARAS, J.:p
This case originally emanated from a decision of the then Court of First Instance of
Zambales in LRC Case No. 11-0, LRC Record No. N-29355, denying respondents'

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

IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses,

judgment appealed from the application is approved, and once this decision shall
have become final, if ever it would be, let decree issue in favor of applicants with the
personal circumstances outlined in the application, costs against private oppositors.
Petitioner now comes to Us with the following:
ASSIGNMENT OF ERRORS:
1. Respondent court erred in holding that to bar private respondents from asserting
any right under their possessory information title there is need for a court order to
that effect.
2. Respondent court erred in not holding that private respondents' rights by virtue of
their possessory information title was lost by prescription.
3. Respondent court erred in concluding that applicants have registerable title.
A cursory reading of Sec. 3, Act 627 reveals that several steps are to be followed
before any affected land can "be conclusively adjudged to be public land." Sec. 3,
Act 627 reads as follows:
SEC. 3. Immediately upon receipt of the notice from the civil Governor in the
preceeding section mentioned it shall be the duty of the judge of the Court of Land
Registration to issue a notice, stating that the lands within the limits aforesaid have
been reserved for military purposes, and announced and declared to be military
reservations, and that claims for all private lands, buildings, and interests therein,
within the limits aforesaid, must be presented for registration under the Land
Registration Act within six calendar months from the date of issuing the notice, and
that all lands, buildings, and interests therein within the limits aforesaid not so
presented within the time therein limited will be conclusively adjudged to be public
lands and all claims on the part of private individuals for such lands, buildings, or an
interest therein not so presented will be forever barred. The clerk of the Court of
Land Registration shall immediately upon the issuing of such notice by the judge
cause the same to be published once a week for three successive weeks in two
newspapers, one of which newspapers shall be in the English Language, and one in
the Spanish language in the city or province where the land lies, if there be no such
Spanish or English newspapers having a general circulation in the city or province
wherein the land lies, then it shall be a sufficient compliance with this section if the
notice be published as herein provided, in a daily newspaper in the Spanish
language and one in the English language, in the City of Manila, having a general
circulation. The clerk shall also cause a duly attested copy of the notice in the
Spanish language to be posted in conspicuous place at each angle formed by the
lines of the limits of the land reserved. The clerk shall also issue and cause to be
personally served the notice in the Spanish language upon every person living upon
or in visible possession of any part of the military reservation. If the person in
possession is the head of the family living upon the hand, it shall be sufficient to
serve the notice upon him, and if he is absent it shall be sufficient to leave a copy at
his usual place of residence. The clerk shall certify the manner in which the notices
have been published, posted, and served, and his certificate shall be conclusive
proof of such publication, posting, and service, but the court shall have the power to
cause such further notice to be given as in its opinion may be necessary.
Clearly under said provisions, private land could be deemed to have become public
land only by virtue of a judicial declaration after due notice and hearing. It runs
contrary therefore to the contention of petitioners that failure to present claims set
forth under Sec. 2 of Act 627 made the land ipso facto public without any deed of
judicial pronouncement. Petitioner in making such declaration relied on Sec. 4 of Act
627 alone. But in construing a statute the entire provisions of the law must be
considered in order to establish the correct interpretation as intended by the lawmaking body. Act 627 by its terms is not self-executory and requires implementation
by the Court of Land Registration. Act 627, to the extent that it creates a forfeiture,
is a penal statute in derogation of private rights, so it must be strictly construed so
as to safeguard private respondents' rights. Significantly, petitioner does not even
allege the existence of any judgment of the Land Registration court with respect to

the land in question. Without a judgment or order declaring the land to be public, its
private character and the possessory information title over it must be respected.
Since no such order has been rendered by the Land Registration Court it necessarily
follows that it never became public land thru the operation of Act 627. To assume
otherwise is to deprive private respondents of their property without due process of
law. In fact it can be presumed that the notice required by law to be given by
publication and by personal service did not include the name of Domingo Baloy and
the subject land, and hence he and his lane were never brought within the operation
of Act 627 as amended. The procedure laid down in Sec. 3 is a requirement of due
process. "Due process requires that the statutes which under it is attempted to
deprive a citizen of private property without or against his consent must, as in
expropriation cases, be strictly complied with, because such statutes are in
derogation of general rights." (Arriete vs. Director of Public Works, 58 Phil. 507, 508,
511).
We also find with favor private respondents' views that court judgments are not to
be presumed. It would be absurd to speak of a judgment by presumption. If it could
be contended that such a judgment may be presumed, it could equally be
contended that applicants' predecessor Domingo Baloy presumably seasonably filed
a claim, in accordance with the legal presumption that a person takes ordinary care
of his concerns, and that a judgment in his favor was rendered.
The finding of respondent court that during the interim of 57 years from November
26, 1902 to December 17, 1959 (when the U.S. Navy possessed the area) the
possessory rights of Baloy or heirs were merely suspended and not lost by
prescription, is supported by Exhibit "U," a communication or letter No. 1108-63,
dated June 24, 1963, which contains an official statement of the position of the
Republic of the Philippines with regard to the status of the land in question. Said
letter recognizes the fact that Domingo Baloy and/or his heirs have been in
continuous possession of said land since 1894 as attested by an "Informacion
Possessoria" Title, which was granted by the Spanish Government. Hence, the
disputed property is private land and this possession was interrupted only by the
occupation of the land by the U.S. Navy in 1945 for recreational purposes. The U.S.
Navy eventually abandoned the premises. The heirs of the late Domingo P. Baloy,
are now in actual possession, and this has been so since the abandonment by the
U.S. Navy. A new recreation area is now being used by the U.S. Navy personnel and
this place is remote from the land in question.
Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes
of the character of a commodatum. It cannot therefore militate against the title of
Domingo Baloy and his successors-in-interest. One's ownership of a thing may be
lost by prescription by reason of another's possession if such possession be under
claim of ownership, not where the possession is only intended to be transient, as in
the case of the U.S. Navy's occupation of the land concerned, in which case the
owner is not divested of his title, although it cannot be exercised in the meantime.
WHEREFORE, premises considered, finding no merit in the petition the appealed
decision is hereby AFFIRMED.
SO ORDERED.
Feria (Chairman), Alampay and Feliciano, * JJ., concur.
Gutierrez, Jr., J., concurs in the results.
Fernan J., took no part.

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. 100320 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]

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

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]

I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE
TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES
WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.

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 forP212,000.00 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:

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;

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

IV.

(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;

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;

(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]

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]

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.

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

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 additionalP12,000.00 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:
X

But the scheme could not have been executed successfully without the knowledge,
help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati
(Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza
had not only facilitated the commission of the fraud but he likewise helped in
devising the means by which it can be done in such manner as to make it appear
that the transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely
because Atienza was a key officer therein. The records show that plaintiff had
suggested that the P200,000.00 be deposited in his bank, the Manila Banking
Corporation, but Doronilla and Dumagpi insisted that it must be in defendants
branch in Makati for it will be easier for them to get a certification. In fact before
he was introduced to plaintiff, Doronilla had already prepared a letter addressed to
the Buendia branch manager authorizing Angeles B. Sanchez and company to open
a savings account for Sterela in the amount ofP200,000.00, 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.