for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil
Collated by: JL Aguilar
FIRST DIVISION[G.R. No. 103576. August 22, 1996]
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and
REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
DECISION
VITUG, J.:
Would it be valid and effective to have a clause in a chattel mortgage that purports
to likewise extend its coverage to obligations yet to be contracted or incurred? This
question is the core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme
Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of
the company, a chattel mortgage in favor of private respondent Producers Bank of the
Philippines. The mortgage stood by way of security for petitioner's corporate loan of
three million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was
to this effect -
"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform
the full obligation or obligations above-stated according to the terms thereof, then this
mortgage shall be null and void. x x x.
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal
of the former note, as an extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit, acceptances and bills of exchange,
releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or accommodations without the
necessity of executing a new contract and this mortgage shall have the same force and effect as
if the said promissory note or notes and/or accommodations were existing on the date thereof.
This mortgage shall also stand as security for said obligations and any and all other obligations
of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such
obligations have been contracted before, during or after the constitution of this mortgage."[1]
In due time, the loan of P3,000,000.00 was paid by petitioner
corporation. Subsequently, in 1981, it obtained from respondent bank additional
financial accommodations totalling P2,700,000.00.[2] These borrowings were on due
date also fully paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner corporation
a loan of one million pesos (P1,000,000.00) covered by four promissory notes for
P250,000.00 each.Due to financial constraints, the loan was not settled at
maturity.[3] Respondent bank thereupon applied for an extrajudicial foreclosure of the
chattel mortgage, hereinbefore cited, with the Sheriff of Caloocan City, prompting
petitioner corporation to forthwith file an action for injunction, with damages and a prayer
Case No. C-12081). Ultimately, the court dismissed the complaint and ordered the
foreclosure of the chattel mortgage. It held petitioner corporation bound by the
stipulations, aforequoted, of the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals[4] which, on 14 August
1991, affirmed, "in all respects," the decision of the court a quo. The motion for
reconsideration was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially denied on 04
March 1992 by this Court for having been insufficient in form and substance. Private
respondent filed a motion to dismiss the petition while petitioner corporation filed a
compliance and an opposition to private respondent's motion to dismiss. The Court
denied petitioner's first motion for reconsideration but granted a second motion for
reconsideration, thereby reinstating the petition and requiring private respondent to
comment thereon.[5]
Except in criminal cases where the penalty of reclusion perpetua or death is
imposed[6] which the Court so reviews as a matter of course, an appeal from judgments
of lower courts is not a matter of right but of sound judicial discretion. The circulars of
the Court prescribing technical and other procedural requirements are meant to weed
out unmeritorious petitions that can unnecessarily clog the docket and needlessly
consume the time of the Court. These technical and procedural rules, however, are
intended to help secure, not suppress, substantial justice. A deviation from the rigid
enforcement of the rules may thus be allowed to attain the prime objective for, after all,
the dispensation of justice is the core reason for the existence of courts. In this instance,
once again, the Court is constrained to relax the rules in order to give way to and uphold
the paramount and overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal security,
such as a guaranty or a suretyship, the faithful performance of the obligation by the
principal debtor is secured by the personal commitment of another (the guarantor or
surety). In contracts of real security, such as a pledge, a mortgage or an antichresis,
that fulfillment is secured by an encumbrance of property - in pledge, the placing of
movable property in the possession of the creditor; in chattel mortgage, by the
execution of the corresponding deed substantially in the form prescribed by law; in real
estate mortgage, by the execution of a public instrument encumbering the real property
covered thereby; and in antichresis, by a written instrument granting to the creditor the
right to receive the fruits of an immovable property with the obligation to apply such
fruits to the payment of interest, if owing, and thereafter to the principal of his credit -
upon the essential condition that if the principal obligation becomes due and the debtor
defaults, then the property encumbered can be alienated for the payment of the
obligation,[7] but that should the obligation be duly paid, then the contract is
automatically extinguished proceeding from the accessory character[8] of the
agreement. As the law so puts it, once the obligation is complied with, then the contract
of security becomes, ipso facto, null and void.[9]
While a pledge, real estate mortgage, or antichresis may exceptionally secure
after-incurred obligations so long as these future debts are accurately described, [10] a
chattel mortgage, however, can only cover obligations existing at the time the mortgage
is constituted. Although a promise expressed in a chattel mortgage to include debts that
are yet to be contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old contract conformably with
the form prescribed by the Chattel Mortgage Law.[11] Refusal on the part of the borrower
to execute the agreement so as to cover the after-incurred obligation can constitute an
act of default on the part of the borrower of the financing agreement whereon the
promise is written but, of course, the remedy of foreclosure can only cover the debts
extant at the time of constitution and during the life of the chattel mortgage sought to be
foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with
the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under
Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an
affidavit is not appended to the agreement, the chattel mortgage would still be valid
between the parties (not against third persons acting in good faith[12]), the fact, however,
that the statute has provided that the parties to the contract must execute an oath that
- laws on obligations and contracts, as well as the clear provisions of the Chattel Mortgage Law
"x x x (the) mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid obligation,
and one not entered into for the purpose of fraud."[13]
makes it obvious that the debt referred to in the law is a current, not an obligation that
is yet merely contemplated. In the chattel mortgage here involved, the only obligation
specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the
payment of the obligation automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et
al.,[14] the Court said -
"x x x A mortgage that contains a stipulation in regard to future advances in the credit will take
effect only from the date the same are made and not from the date of the mortgage." [15]
The significance of the ruling to the instant problem would be that since the 1978 chattel
mortgage had ceased to exist coincidentally with the full payment of the P3,000,000.00
loan,[16]there no longer was any chattel mortgage that could cover the new loans that
were concluded thereafter.
We find no merit in petitioner corporation's other prayer that the case should be
remanded to the trial court for a specific finding on the amount of damages it has
sustained "as a result of the unlawful action taken by respondent bank against it."[17] This
prayer is not reflected in its complaint which has merely asked for the amount of
P3,000,000.00 by way of moral damages.[18] In LBC Express, Inc. vs. Court of
Appeals,[19] we have said:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and griefs of life - all of which cannot be
suffered by respondent bank as an artificial person."[20]
While Chua Pac is included in the case, the complaint, however, clearly states that he
has merely been so named as a party in representation of petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his
client's cause. It instead turned out to be, however, a source of disappointment for this
Court to read in petitioner's reply to private respondent's comment on the petition his
so-called "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the trial court, respondent Court
of Appeals should be required to justify its decision which completely disregarded the basic
and well-settled jurisprudence of this Honorable Court; that in the event that its explanation is
wholly unacceptable, this Honorable Court should impose appropriate sanctions on the erring
justices. This is one positive step in ridding our courts of law of incompetent and dishonest
magistrates especially members of a superior court of appellate jurisdiction."[21] (Italics
supplied.)
The statement is not called for. The Court invites counsel's attention to the admonition
in Guerrero vs. Villamor;[22] thus:
"(L)awyers x x x should bear in mind their basic duty `to observe and maintain the respect due
to the courts of justice and judicial officers and x x x (to) insist on similar conduct by others.'
This respectful attitude towards the court is to be observed, `not for the sake of the temporary
incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is
`through a scrupulous preference for respectful language that a lawyer best demonstrates his
observance of the respect due to the courts and judicial officers x x x.'"[23]
The virtues of humility and of respect and concern for others must still live on even in
an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower
court are set aside without prejudice to the appropriate legal recourse by private
respondent as may still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect
in dealing with the courts.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.
Padilla, J., took no part in view of lessor-lessee relationship with respondent bank.
Bellosillo, J., on leave.
 FIRST DIVISION
[G.R. No. 146364. June 3, 2004]
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE
GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14
December 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The
Court of Appeals set aside the 11 November 1996 decision[3] of the Regional Trial Court
of Quezon City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the
Metropolitan Trial Court of Quezon City, Branch 31.[6]
The Antecedents
In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro
Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo
then constructed a house made of light materials on the lot. Pajuyo and his family lived
in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra)
executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra
to live in the house for free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and
demanded that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court
of Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of
possession over the lot where the house stands because the lot is within the 150
hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed
out that from December 1985 to September 1994, Pajuyo did not show up or
communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to
the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The
dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person
or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00)
monthly as reasonable compensation for the use of the premises
starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch
81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive
portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision
appealed from, being in accord with the law and evidence presented, and the same is hereby
affirmed en toto.
SO ORDERED.[8]
Guevarra received the RTC decision on 29 November 1996. Guevarra had only
until 14 December 1996 to file his appeal with the Court of Appeals. Instead of filing his
appeal with the Court of Appeals, Guevarra filed with the Supreme Court a Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for
extension). Guevarra theorized that his appeal raised pure questions of law. The
Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution[9] referring the motion for extension to the Court of Appeals which has
concurrent jurisdiction over the case. The case presented no special and important
matter for the Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution[10] granting the motion for extension conditioned on the timeliness of the filing
of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on
Guevaras petition for review. On 11 April 1997, Pajuyo filed his Comment.
 On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
decision. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No.
Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment
case filed against defendant-appellant is without factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that
the Court of Appeals should have dismissed outright Guevarras petition for review
because it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra
who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos
motion for reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.[12]
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra
is the house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra
to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on
Pajuyos demand made Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant
relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound
Guevarra to return possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137,
the Revised National Government Center Housing Project Code of Policies and other
pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights
under these laws. The RTC declared that in an ejectment case, the only issue for
resolution is material or physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo
and Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a
squatter. Perez had no right or title over the lot because it is public land. The assignment
of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and
Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in
equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a
landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not
a lease contract but a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the
appellate court held that Guevarra has a better right over the property under
Proclamation No. 137.President Corazon C. Aquino (President Aquino) issued
Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical
possession of the property. Under Article VI of the Code of Policies Beneficiary
Selection and Disposition of Homelots and Structures in the National Housing Project
(the Code), the actual occupant or caretaker of the lot shall have first priority as
beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the
hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked
Pajuyos claim that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before
the Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts
Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a
date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra
filed the motion for extension on time on 13 December 1996 since he filed the motion
one day before the expiration of the reglementary period on 14 December 1996. Thus,
the motion for extension properly complied with the condition imposed by the Court of
Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the
thirty-day extension to file the petition for review was deemed granted because of such
compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should
have dismissed the petition for review because it was Guevarras counsel and not
Guevarra who signed the certification against forum-shopping. The Court of Appeals
pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals
held that Pajuyo could not now seek the dismissal of the case after he had extensively
argued on the merits of the case. This technicality, the appellate court opined, was
clearly an afterthought.
 The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND
DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents
Motion for an Extension of thirty days to file petition for
review at the time when there was no more period to
extend as the decision of the Regional Trial Court had
already become final and executory.
2) in giving due course, instead of dismissing, private
respondents Petition for Review even though the
certification against forum-shopping was signed only by
counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the
parties was in fact a commodatum, instead of a Contract
of Lease as found by the Metropolitan Trial Court and in
holding that the ejectment case filed against defendant-
appellant is without legal and factual basis.
4) in reversing and setting aside the Decision of the Regional
Trial Court in Civil Case No. Q-96-26943 and in holding
that the parties are in pari delicto being both squatters,
therefore, illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-
called Code of Policies of the National Government Center
Housing Project instead of deciding the same under the
Kasunduan voluntarily executed by the parties, the terms
and conditions of which are the laws between
themselves.[13]
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in
the substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright
Guevarras petition for review because the RTC decision had already become final and
executory when the appellate court acted on Guevarras motion for extension to file the
petition. Pajuyo points out that Guevarra had only one day before the expiry of his period
to appeal the RTC decision.Instead of filing the petition for review with the Court of
Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to
file a petition for review. This Court merely referred the motion to the Court of
Appeals. Pajuyo believes that the filing of the motion for extension with this Court did
not toll the running of the period to perfect the appeal. Hence, when the Court of Appeals
received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction
are appealable to the Court of Appeals by petition for review in cases involving
questions of fact or mixed questions of fact and law. [14] Decisions of the regional trial
courts involving pure questions of law are appealable directly to this Court by petition
for review.[15] These modes of appeal are now embodied in Section 2, Rule 41 of the
1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of
law. Guevarra thus filed his motion for extension to file petition for review before this
Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for
review with this Court. A perusal of Guevarras petition for review gives the impression
that the issues he raised were pure questions of law. There is a question of law when
the doubt or difference is on what the law is on a certain state of facts.[16] There is a
question of fact when the doubt or difference is on the truth or falsity of the facts
alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the
facts. Guevarras petition for review raised these questions: (1) Do ejectment cases
pertain only to possession of a structure, and not the lot on which the structure stands?
(2) Does a suit by a squatter against a fellow squatter constitute a valid case for
ejectment? (3) Should a Presidential Proclamation governing the lot on which a
squatters structure stands be considered in an ejectment suit filed by the owner of the
structure?
These questions call for the evaluation of the rights of the parties under the law
on ejectment and the Presidential Proclamation. At first glance, the questions Guevarra
raised appeared purely legal. However, some factual questions still have to be resolved
because they have a bearing on the legal questions raised in the petition for
review. These factual matters refer to the metes and bounds of the disputed property
and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition
for review. In Lacsamana v. Second Special Cases Division of the Intermediate
Appellate Court,[18] we declared that the Court of Appeals could grant extension of time
in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the
prohibition against granting an extension of time applies only in a case where ordinary
appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A petition for review, unlike an
ordinary appeal, requires preparation and research to present a persuasive
position.[20] The drafting of the petition for review entails more time and effort than filing
a notice of appeal.[21] Hence, the Court of Appeals may allow an extension of time to file
a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of
Appeals,[22] we held that Liboros clarification of Lacsamana is consistent with the
Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91.
They all allow an extension of time for filing petitions for review with the Court of
Appeals. The extension, however, should be limited to only fifteen days save in
exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment
becomes a fact on the lapse of the reglementary period to appeal if no appeal is
perfected.[23] The RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarras motion for extension. The Court of Appeals gave due course to the motion
for extension because it complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that the Court of Appeals would
only give due course to the motion for extension if filed on time. The motion for extension
met this condition.
The material dates to consider in determining the timeliness of the filing of the
motion for extension are (1) the date of receipt of the judgment or final order or resolution
subject of the petition, and (2) the date of filing of the motion for extension. [24] It is the
date of the filing of the motion or pleading, and not the date of execution, that determines
the timeliness of the filing of that motion or pleading. Thus, even if the motion for
extension bears no date, the date of filing stamped on it is the reckoning point for
determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC
decision. Guevarra filed his motion for extension before this Court on 13 December
1996, the date stamped by this Courts Receiving Clerk on the motion for extension.
Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the
reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on
technical grounds, Pajuyo did not ask the appellate court to deny the motion for
extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only when the Court of Appeals ruled
in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition
for review.
A party who, after voluntarily submitting a dispute for resolution, receives an
adverse decision on the merits, is estopped from attacking the jurisdiction of the
court.[25] Estoppel sets in not because the judgment of the court is a valid and conclusive
adjudication, but because the practice of attacking the courts jurisdiction after voluntarily
submitting to it is against public policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss
Guevarras failure to sign the certification against forum shopping. Instead, Pajuyo
harped on Guevarras counsel signing the verification, claiming that the counsels
verification is insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from
the partys failure to sign personally the verification. The certificate of non-forum
shopping must be signed by the party, and not by counsel.[27] The certification of counsel
renders the petition defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and
not a jurisdictional requisite.[29] It is intended simply to secure an assurance that what
are alleged in the pleading are true and correct and not the product of the imagination
or a matter of speculation, and that the pleading is filed in good faith.[30] The party need
not sign the verification. A partys representative, lawyer or any person who personally
knows the truth of the facts alleged in the pleading may sign the verification.[31]
We agree with the Court of Appeals that the issue on the certificate against forum
shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention
to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue
too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of
Jurisdiction to Resolve the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property
will not divest the inferior court of its jurisdiction over the ejectment case. [32] Even if the
pleadings raise the issue of ownership, the court may pass on such issue to determine
only the question of possession, especially if the ownership is inseparably linked with
the possession.[33] The adjudication on the issue of ownership is only provisional and
will not bar an action between the same parties involving title to the land.[34] This doctrine
is a necessary consequence of the nature of the two summary actions of ejectment,
forcible entry and unlawful detainer, where the only issue for adjudication is the physical
or material possession over the real property.[35]
In this case, what Guevarra raised before the courts was that he and Pajuyo are
not the owners of the contested property and that they are mere squatters. Will the
defense that the parties to the ejectment case are not the owners of the disputed lot
allow the courts to renounce their jurisdiction over the case? The Court of Appeals
believed so and held that it would just leave the parties where they are since they are
in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an
action for recovery of possession. The parties cannot present evidence to prove
ownership or right to legal possession except to prove the nature of the possession
when necessary to resolve the issue of physical possession.[36] The same is true when
the defendant asserts the absence of title over the property. The absence of title over
the contested lot is not a ground for the courts to withhold relief from the parties in an
ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who
is entitled to the physical possession of the premises, that is, to the possession de
facto and not to the possession de jure.[37] It does not even matter if a partys title to the
property is questionable,[38] or when both parties intruded into public land and their
applications to own the land have yet to be approved by the proper government
agency.[39] Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or
terror.[40] Neither is the unlawful withholding of property allowed. Courts will always
uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even
against the owner himself.[41] Whatever may be the character of his possession, if he
has in his favor prior possession in time, he has the security that entitles him to remain
on the property until a person with a better right lawfully ejects him. [42] To repeat, the
only issue that the court has to settle in an ejectment suit is the right to physical
possession.
In Pitargue v. Sorilla,[43] the government owned the land in dispute. The
government did not authorize either the plaintiff or the defendant in the case of forcible
entry case to occupy the land. The plaintiff had prior possession and had already
introduced improvements on the public land. The plaintiff had a pending application for
the land with the Bureau of Lands when the defendant ousted him from possession. The
plaintiff filed the action of forcible entry against the defendant. The government was not
a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of
possession because while the application of the plaintiff was still pending, title remained
with the government, and the Bureau of Public Lands had jurisdiction over the case. We
disagreed with the defendant. We ruled that courts have jurisdiction to entertain
ejectment suits even before the resolution of the application. The plaintiff, by priority of
his application and of his entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical possession enjoys
legal protection against other private claimants because only a court can take away
such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue[44] as
squatters, strictly speaking, their entry into the disputed land was illegal. Both the
plaintiff and defendant entered the public land without the owners permission. Title to
the land remained with the government because it had not awarded to anyone
ownership of the contested public land. Both the plaintiff and the defendant were in
effect squatting on government property. Yet, we upheld the courts jurisdiction to
resolve the issue of possession even if the plaintiff and the defendant in the ejectment
case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical
possession because of the public need to preserve the basic policy behind the summary
actions of forcible entry and unlawful detainer. The underlying philosophy behind
ejectment suits is to prevent breach of the peace and criminal disorder and to compel
the party out of possession to respect and resort to the law alone to obtain what he
claims is his.[45] The party deprived of possession must not take the law into his own
hands.[46] Ejectment proceedings are summary in nature so the authorities can settle
speedily actions to recover possession because of the overriding need to quell social
disturbances.[47]
We further explained in Pitargue the greater interest that is at stake in actions for
recovery of possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
possessory actions involving these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting claimants? It is one of utmost
importance, as there are public lands everywhere and there are thousands of settlers, especially
in newly opened regions. It also involves a matter of policy, as it requires the determination of
the respective authorities and functions of two coordinate branches of the Government in
connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was
in force in this country before the American occupation, or in the new, we have a possessory
action, the aim and purpose of which is the recovery of the physical possession of real
property, irrespective of the question as to who has the title thereto. Under the Spanish Civil
Code we had the accion interdictal, a summary proceeding which could be brought within one
year from dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and
as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190
of the Philippine Commission) we implanted the common law action of forcible entry (section
80 of Act No. 190), the object of which has been stated by this Court to be to prevent breaches
of the peace and criminal disorder which would ensue from the withdrawal of the remedy,
and the reasonable hope such withdrawal would create that some advantage must accrue to
those persons who, believing themselves entitled to the possession of property, resort to force
to gain possession rather than to some appropriate action in the court to assert their claims.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the
first Public Land Act (Act No. 926) the action of forcible entry was already available in the
courts of the country. So the question to be resolved is, Did the Legislature intend, when it
vested the power and authority to alienate and dispose of the public lands in the Lands
Department, to exclude the courts from entertaining the possessory action of forcible entry
between rival claimants or occupants of any land before award thereof to any of the parties?
Did Congress intend that the lands applied for, or all public lands for that matter, be removed
from the jurisdiction of the judicial Branch of the Government, so that any troubles arising
therefrom, or any breaches of the peace or disorders caused by rival claimants, could be
inquired into only by the Lands Department to the exclusion of the courts? The answer to this
question seems to us evident. The Lands Department does not have the means to police public
lands; neither does it have the means to prevent disorders arising therefrom, or contain
breaches of the peace among settlers; or to pass promptly upon conflicts of possession. Then
its power is clearly limited to disposition and alienation, and while it may decide conflicts of
possession in order to make proper award, the settlement of conflicts of possession which is
recognized in the court herein has another ultimate purpose, i.e., the protection of actual
possessors and occupants with a view to the prevention of breaches of the peace. The power
to dispose and alienate could not have been intended to include the power to prevent or settle
disorders or breaches of the peace among rival settlers or claimants prior to the final
award. As to this, therefore, the corresponding branches of the Government must continue to
exercise power and jurisdiction within the limits of their respective functions. The vesting of
the Lands Department with authority to administer, dispose, and alienate public lands,
therefore, must not be understood as depriving the other branches of the Government of the
exercise of the respective functions or powers thereon, such as the authority to stop disorders
and quell breaches of the peace by the police, the authority on the part of the courts to take
jurisdiction over possessory actions arising therefrom not involving, directly or indirectly,
alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that
courts have no jurisdiction to determine the rights of claimants to public lands, and that until
the disposition of the land has passed from the control of the Federal Government, the courts
will not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.)
We have no quarrel with this principle. The determination of the respective rights of rival
claimants to public lands is different from the determination of who has the actual physical
possession or occupation with a view to protecting the same and preventing disorder and
breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel
of land to the actual occupant, who has been deprived thereof by another through the use of
force or in any other illegal manner, can never be prejudicial interference with the disposition
or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of
cases involving conflicts of possession, that threat of judicial action against breaches of the
peace committed on public lands would be eliminated, and a state of lawlessness would
probably be produced between applicants, occupants or squatters, where force or might, not
right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession
between rivals or conflicting applicants or claimants would be no other than that of forcible
entry. This action, both in England and the United States and in our jurisdiction, is a summary
and expeditious remedy whereby one in peaceful and quiet possession may recover the
possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate
object being to prevent breach of the peace and criminal disorder. (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of
physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or
right to possession is never in issue in an action of forcible entry; as a matter of fact, evidence
thereof is expressly banned, except to prove the nature of the possession. (Second 4, Rule 72,
Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can
conclusion be arrived at that the use of the remedy in the courts of justice would constitute an
interference with the alienation, disposition, and control of public lands. To limit ourselves to
the case at bar can it be pretended at all that its result would in any way interfere with the
manner of the alienation or disposition of the land contested? On the contrary, it would
facilitate adjudication, for the question of priority of possession having been decided in a final
manner by the courts, said question need no longer waste the time of the land officers making
the adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto.
We explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari
delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement.
It leaves the parties where it finds them.[49]
The application of the pari delicto principle is not absolute, as there are
exceptions to its application. One of these exceptions is where the application of the pari
delicto rule would violate well-established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary
actions of forcible entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless
of the actual condition of the title to the property, the party in peaceable quiet possession shall
not be turned out by strong hand, violence or terror. In affording this remedy of restitution the
object of the statute is to prevent breaches of the peace and criminal disorder which would
ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would
create that some advantage must accrue to those persons who, believing themselves entitled to
the possession of property, resort to force to gain possession rather than to some appropriate
action in the courts to assert their claims. This is the philosophy at the foundation of all these
actions of forcible entry and detainer which are designed to compel the party out of possession
to respect and resort to the law alone to obtain what he claims is his. [52]
Clearly, the application of the principle of pari delicto to a case of ejectment
between squatters is fraught with danger. To shut out relief to squatters on the ground
of pari delicto would openly invite mayhem and lawlessness. A squatter would oust
another squatter from possession of the lot that the latter had illegally occupied,
emboldened by the knowledge that the courts would leave them where they are. Nothing
would then stand in the way of the ousted squatter from re-claiming his prior possession
at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or
actions for recovery of possession seek to prevent.[53] Even the owner who has title over
the disputed property cannot take the law into his own hands to regain possession of
his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment
suit are squatters. The determination of priority and superiority of possession is a
serious and urgent matter that cannot be left to the squatters to decide. To do so would
make squatters receive better treatment under the law. The law restrains property
owners from taking the law into their own hands. However, the principle of pari
delicto as applied by the Court of Appeals would give squatters free rein to dispossess
fellow squatters or violently retake possession of properties usurped from them. Courts
should not leave squatters to their own devices in cases involving recovery of
possession.
 Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of
ejectment. The Court of Appeals refused to rule on the issue of physical possession.
Nevertheless, the appellate court held that the pivotal issue in this case is who between
Pajuyo and Guevarra has the priority right as beneficiary of the contested land under
Proclamation No. 137.[54] According to the Court of Appeals, Guevarra enjoys
preferential right under Proclamation No. 137 because Article VI of the Code declares
that the actual occupant or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of
a relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes
and bounds of the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by
Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is within
the coverage of Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra
merely alleged that in the survey the project administrator conducted, he and not Pajuyo
appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation
No. 137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President
Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his
earliest demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as
beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo
was reclaiming possession of the property, Guevarra did not take any step to comply
with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation
No. 137 and Guevarra has a pending application over the lot, courts should still assume
jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts
would be limited to the issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions
involving public land to determine the issue of physical possession. The determination
of the respective rights of rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has a better right of
physical possession.[56] The administrative disposition and alienation of public lands
should be threshed out in the proper government agency.[57]
The Court of Appeals determination of Pajuyo and Guevarras rights under
Proclamation No. 137 was premature. Pajuyo and Guevarra were at most merely
potential beneficiaries of the law. Courts should not preempt the decision of the
administrative agency mandated by law to determine the qualifications of applicants for
the acquisition of public lands. Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and breaches of peace.[58]
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of
the house built on it. Guevarra expressly admitted the existence and due execution of
the Kasunduan.The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay
nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing
bahay at lote ng walang bayad.Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and
lot free of rent, but Guevarra was under obligation to maintain the premises in good
condition. Guevarra promised to vacate the premises on Pajuyos demand but Guevarra
broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which the
latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without
any contract, the defendant is necessarily bound by an implied promise that he will
vacate on demand, failing which, an action for unlawful detainer will lie. [60] The
defendants refusal to comply with the demand makes his continued possession of the
property unlawful.[61] The status of the defendant in such a case is similar to that of a
lessee or tenant whose term of lease has expired but whose occupancy continues by
tolerance of the owner.[62]
This principle should apply with greater force in cases where a contract embodies
the permission or tolerance to use the property. The Kasunduan expressly articulated
Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to
maintain the house and lot in good condition. Guevarra expressly vowed in
the Kasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the
property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one
of commodatum.
 In a contract of commodatum, one of the parties delivers to another something
not consumable so that the latter may use the same for a certain time and return it.[63] An
essential feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for a certain
period.[64] Thus, the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for which
the commodatum is constituted.[65] If the bailor should have urgent need of the thing, he
may demand its return for temporary use.[66] If the use of the thing is merely tolerated
by the bailor, he can demand the return of the thing at will, in which case the contractual
relation is called a precarium.[67] Under the Civil Code, precarium is a kind
of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not require Guevarra
to pay rent, it obligated him to maintain the property in good condition. The imposition
of this obligation makes the Kasunduan a contract different from a commodatum. The
effects of the Kasunduan are also different from that of a commodatum. Case law on
ejectment has treated relationship based on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of permission would result in the termination
of the lease.[69] The tenants withholding of the property would then be unlawful. This is
settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one
of commodatum, Guevarra as bailee would still have the duty to turn over possession
of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum.[70] These contracts certainly involve the obligation to
deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him,
Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract
involving the land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between
squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn
the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested
property. The Kasunduan is the undeniable evidence of Guevarras recognition of
Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad
faith. The absence of a contract would not yield a different result, as there would still be
an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and
that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal
[72]
act. Guevarra bases his argument on the preferential right given to the actual
occupant or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra
stayed in the property without paying any rent. There is also no proof that Pajuyo is a
professional squatter who rents out usurped properties to other squatters. Moreover, it
is for the proper government agency to decide who between Pajuyo and Guevarra
qualifies for socialized housing. The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is
one of the distinctions between forcible entry and unlawful detainer. [74] In forcible entry,
the plaintiff is deprived of physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must allege and prove prior
possession.[75] But in unlawful detainer, the defendant unlawfully withholds possession
after the expiration or termination of his right to possess under any contract, express or
implied. In such a case, prior physical possession is not required.[76]
Pajuyos withdrawal of his permission to Guevarra terminated
the Kasunduan. Guevarras transient right to possess the property ended as
well. Moreover, it was Pajuyo who was in actual possession of the property because
Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra
had to follow the conditions set by Pajuyo in theKasunduan. Control over the property
still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property.
Possession in the eyes of the law does not mean that a man has to have his feet on
every square meter of the ground before he is deemed in possession. [77] One may
acquire possession not only by physical occupation, but also by the fact that a thing is
subject to the action of ones will.[78]Actual or physical occupation is not always
necessary.[79]
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that squatters
and intruders who clandestinely enter into titled government property cannot, by such
act, acquire any legal right to said property.[80] We made this declaration because the
person who had title or who had the right to legal possession over the disputed property
was a party in the ejectment suit and that party instituted the case against squatters or
usurpers.
In this case, the owner of the land, which is the government, is not a party to the
ejectment case. This case is between squatters. Had the government participated in
this case, the courts could have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in
this case, we cannot evict on our own the parties. Such a ruling would discourage
squatters from seeking the aid of the courts in settling the issue of physical
possession. Stripping both the plaintiff and the defendant of possession just because
they are squatters would have the same dangerous implications as the application of
the principle of pari delicto. Squatters would then rather settle the issue of physical
possession among themselves than seek relief from the courts if the plaintiff and
defendant in the ejectment case would both stand to lose possession of the disputed
property. This would subvert the policy underlying actions for recovery of possession.

Since Pajuyo has in his favor priority in time in holding the property, he is entitled
to remain on the property until a person who has title or a better right lawfully ejects
him. Guevarra is certainly not that person. The ruling in this case, however, does not
preclude Pajuyo and Guevarra from introducing evidence and presenting arguments
before the proper administrative agency to establish any right to which they may be
entitled under the law.[81]

In no way should our ruling in this case be interpreted to condone squatting. The
ruling on the issue of physical possession does not affect title to the property nor
constitute a binding and conclusive adjudication on the merits on the issue of
ownership.[82] The owner can still go to court to recover lawfully the property from the
person who holds the property without legal title. Our ruling here does not diminish the
power of government agencies, including local governments, to condemn, abate,
remove or demolish illegal or unauthorized structures in accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to
Pajuyo. Attorneys fees as part of damages are awarded only in the instances
enumerated in Article 2208 of the Civil Code.[83] Thus, the award of attorneys fees is the
exception rather than the rule.[84] Attorneys fees are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right to
litigate.[85] We therefore delete the attorneys fees awarded to Pajuyo.

We sustain the P300 monthly rentals the MTC and RTC assessed against
Guevarra. Guevarra did not dispute this factual finding of the two courts. We find the
amount reasonable compensation to Pajuyo. The P300 monthly rental is counted from
the last demand to vacate, which was on 16 February 1995.

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and
Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129
are SET ASIDE.The Decision dated 11 November 1996 of the Regional Trial Court of Republic of the Philippines
Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 SUPREME COURT
December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case Manila
No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is
deleted. No costs. EN BANC
SO ORDERED.
G.R. No. L-17474 October 25, 1962
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna,
JJ., concur.
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late
Jose V. Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law
are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through
the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of
P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one
year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government
charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7
May 1949 of the contract, the borrower asked for a renewal for another period of one
year. However, the Secretary of Agriculture and Natural Resources approved a
renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the
Director of Animal Industry that he would pay the value of the three bulls. On 17
October 1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the Director
of Animal Industry advised him that the book value of the three bulls could not be
reduced and that they either be returned or their book value paid not later than 31
October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to
return them. So, on 20 December 1950 in the Court of First Instance of Manila the
Republic of the Philippines commenced an action against him praying that he be
ordered to return the three bulls loaned to him or to pay their book value in the total
sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with
interests, and costs; and that other just and equitable relief be granted in (civil No.
12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan Valley,
particularly in the barrio of Baggao, and of the pending appeal he had taken to the
Secretary of Agriculture and Natural Resources and the President of the Philippines
from the refusal by the Director of Animal Industry to deduct from the book value of the
bulls corresponding yearly depreciation of 8% from the date of acquisition, to which
depreciation the Auditor General did not object, he could not return the animals nor
pay their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total
value of the three bulls plus the breeding fees in the amount of P626.17 with
interest on both sums of (at) the legal rate from the filing of this complaint
and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court
granted on 18 October and issued on 11 November 1958. On 2 December 1958
granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment
of a special sheriff to serve the writ outside Manila. Of this order appointing a special
sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the
defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his
estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June
1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry
and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot
wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ
of execution be quashed and that a writ of preliminary injunction be issued. On 31
January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply
thereto. On the same day, 6 February, the Court denied her motion. Hence, this
appeal certified by the Court of Appeals to this Court as stated at the beginning of this
opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late
defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent
of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as
evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its
objection of 31 January 1959 to the appellant's motion to quash the writ of execution
the appellee prays "that another writ of execution in the sum of P859.53 be issued
against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable
for the two bulls which already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by
the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal,
Baggao, Cagayan, where the animal was kept, and that as such death was due
to force majeure she is relieved from the duty of returning the bull or paying its value
to the appellee. The contention is without merit. The loan by the appellee to the late
defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards
one bull, was subject to the payment by the borrower of breeding fee of 10% of the
book value of the bulls. The appellant contends that the contract
was commodatum and that, for that reason, as the appellee retained ownership or title
to the bull it should suffer its loss due to force majeure. A contract of commodatum is
essentially gratuitous.1 If the breeding fee be considered a compensation, then the
contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith, because she had
continued possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable, because article 1942 of the Civil
Code provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous
event:
 (2) If he keeps it longer than the period stipulated . . . was the same who represented the administratrix in the special proceedings instituted
for the administration and settlement of his estate. The appellee or its attorney or
representative could not be expected to know of the death of the defendant or of the
(3) If the thing loaned has been delivered with appraisal of its value, unless
administration proceedings of his estate instituted in another court that if the attorney
there is a stipulation exempting the bailee from responsibility in case of a
for the deceased defendant did not notify the plaintiff or its attorney of such death as
fortuitous event;
required by the rule.

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one
As the appellant already had returned the two bulls to the appellee, the estate of the
bull was renewed for another period of one year to end on 8 May 1950. But the
late defendant is only liable for the sum of P859.63, the value of the bull which has not
appellant kept and used the bull until November 1953 when during a Huk raid it was
been returned to the appellee, because it was killed while in the custody of the
killed by stray bullets. Furthermore, when lent and delivered to the deceased husband
administratrix of his estate. This is the amount prayed for by the appellee in its
of the appellant the bulls had each an appraised book value, to with: the Sindhi, at
objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant
P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not
for the quashing of the writ of execution.
stipulated that in case of loss of the bull due to fortuitous event the late husband of the
appellant would be exempt from liability.
Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal
The appellant's contention that the demand or prayer by the appellee for the return of
(Q-200), the money judgment rendered in favor of the appellee cannot be enforced by
the bull or the payment of its value being a money claim should be presented or filed
means of a writ of execution but must be presented to the probate court for payment
in the intestate proceedings of the defendant who died on 23 October 1951, is not
by the appellant, the administratrix appointed by the court.
altogether without merit. However, the claim that his civil personality having ceased to
exist the trial court lost jurisdiction over the case against him, is untenable, because
section 17 of Rule 3 of the Rules of Court provides that — ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.
After a party dies and the claim is not thereby extinguished, the court shall
order, upon proper notice, the legal representative of the deceased to Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes,
appear and to be substituted for the deceased, within a period of thirty (30) Dizon, Regala and Makalintal, JJ., concur.
days, or within such time as may be granted. . . . Barrera, J., concurs in the result.

and after the defendant's death on 23 October 1951 his counsel failed to comply with
section 16 of Rule 3 which provides that —

Whenever a party to a pending case dies . . . it shall be the duty of his

attorney to inform the court promptly of such death . . . and to give the name
and residence of the executory administrator, guardian, or other legal
representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad SECOND DIVISION
M. Bagtas had been issue letters of administration of the estate of the late Jose
Bagtas and that "all persons having claims for monopoly against the deceased Jose
V. Bagtas, arising from contract express or implied, whether the same be due, not
due, or contingent, for funeral expenses and expenses of the last sickness of the said
decedent, and judgment for monopoly against him, to file said claims with the Clerk of [G.R. No. 115324. February 19, 2003]
this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from
the date of the first publication of this order, serving a copy thereof upon the
aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the
said deceased," is not a notice to the court and the appellee who were to be notified of
the defendant's death in accordance with the above-quoted rule, and there was no
reason for such failure to notify, because the attorney who appeared for the defendant
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL
BANK), petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN
VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals
dated June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution[2] dated May 5,
1994, denying the motion for reconsideration of said decision filed by petitioner
Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor
and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and Services (Sterela for
brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain
amount of money in the bank account of Sterela for purposes of its incorporation. She
assured private respondent that he could withdraw his money from said account within
a months time. Private respondent asked Sanchez to bring Doronilla to their house so
that they could discuss Sanchezs request.[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella
Dumagpi, Doronillas private secretary, met and discussed the matter. Thereafter,
relying on the assurances and representations of Sanchez and Doronilla, private
respondent issued a check in the amount of Two Hundred Thousand Pesos
(P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia
Vives, to accompany Doronilla and Sanchez in opening a savings account in the name
of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However,
only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They
had with them an authorization letter from Doronilla authorizing Sanchez and her
companions, in coordination with Mr. Rufo Atienza, to open an account for Sterela
Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.[4]
Subsequently, private respondent learned that Sterela was no longer holding
office in the address previously given to him. Alarmed, he and his wife went to the Bank
to verify if their money was still intact. The bank manager referred them to Mr. Rufo
Atienza, the assistant manager, who informed them that part of the money in Savings
Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00
remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by
Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account
No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized
the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account, Sterela,
through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza
also said that Doronilla could assign or withdraw the money in Savings Account No. 10-
1567 because he was the sole proprietor of Sterela.[5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June
29, 1979, he received a letter from Doronilla, assuring him that his money was intact
and would be returned to him. On August 13, 1979, Doronilla issued a postdated check
for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private
respondent. However, upon presentment thereof by private respondent to the drawee
bank, the check was dishonored. Doronilla requested private respondent to present the
same check on September 15, 1979 but when the latter presented the check, it was
again dishonored.[6]
Private respondent referred the matter to a lawyer, who made a written demand
upon Doronilla for the return of his clients money. Doronilla issued another check
for P212,000.00 in private respondents favor but the check was again dishonored for
insufficiency of funds.[7]
Private respondent instituted an action for recovery of sum of money in the
Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi
and petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal
actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez
passed away on March 16, 1985 while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case
No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo
J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin
Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate
from the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.[8]
Petitioner appealed the trial courts decision to the Court of Appeals. In its
Decision dated June 25, 1991, the appellate court affirmed in toto the decision of the
RTC.[9] It likewise denied with finality petitioners motion for reconsideration in its
Resolution dated May 5, 1994.[10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE
TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT
VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE
OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD
LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE
RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT
APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE
BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED
DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE
LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS
APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF
THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND
SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF
P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR
MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEYS FEES AND THE COSTS OF SUIT.[11]
Private respondent filed his Comment on September 23, 1994. Petitioner filed its
Reply thereto on September 25, 1995. The Court then required private respondent to
submit a rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997,
due to petitioners delay in furnishing private respondent with copy of the reply [12] and
several substitutions of counsel on the part of private respondent.[13] On January 17,
2001, the Court resolved to give due course to the petition and required the parties to
submit their respective memoranda.[14]Petitioner filed its memorandum on April 16, 2001
while private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla
is a simple loan (mutuum) since all the elements of a mutuum are present: first, what
was delivered by private respondent to Doronilla was money, a consumable thing; and
second, the transaction was onerous as Doronilla was obliged to pay interest, as
evidenced by the check issued by Doronilla in the amount of P212,000.00, or P12,000
more than what private respondent deposited in Sterelas bank account. [15] Moreover,
the fact that private respondent sued his good friend Sanchez for his failure to recover
his money from Doronilla shows that the transaction was not merely gratuitous but had
a business angle to it. Hence, petitioner argues that it cannot be held liable for the return
of private respondents P200,000.00 because it is not privy to the transaction between
the latter and Doronilla.[16]
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not
be faulted for allowing Doronilla to withdraw from the savings account of Sterela since
the latter was the sole proprietor of said company. Petitioner asserts that Doronillas May
8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these two to withdraw
from said account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the
savings account.[17] Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that private
respondent deposited his P200,000.00 in Sterelas account for purposes of its
incorporation.[18] Hence, petitioner should not be held liable for allowing Doronilla to
withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts
decision since the findings of fact therein were not accord with the evidence presented
by petitioner during trial to prove that the transaction between private respondent and
Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to
withdraw from Sterelas savings account.[19]
Finally, petitioner claims that since there is no wrongful act or omission on its part,
it is not liable for the actual damages suffered by private respondent, and neither may
it be held liable for moral and exemplary damages as well as attorneys fees.[20]
Private respondent, on the other hand, argues that the transaction between him
and Doronilla is not a mutuum but an accommodation,[21] since he did not actually part
with the ownership of his P200,000.00 and in fact asked his wife to deposit said amount
in the account of Sterela so that a certification can be issued to the effect that Sterela
had sufficient funds for purposes of its incorporation but at the same time, he retained
some degree of control over his money through his wife who was made a signatory to
the savings account and in whose possession the savings account passbook was
given.[22]
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas
employer, is liable for the return of his money. He insists that Atienza, petitioners
assistant manager, connived with Doronilla in defrauding private respondent since it
was Atienza who facilitated the opening of Sterelas current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as
well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.[23]
There is no merit in the petition.
 At the outset, it must be emphasized that only questions of law may be raised in
a petition for review filed with this Court. The Court has repeatedly held that it is not its
function to analyze and weigh all over again the evidence presented by the parties
during trial.[24] The Courts jurisdiction is in principle limited to reviewing errors of law that
might have been committed by the Court of Appeals.[25] Moreover, factual findings of
courts, when adopted and confirmed by the Court of Appeals, are final and conclusive
on this Court unless these findings are not supported by the evidence on
record.[26] There is no showing of any misapprehension of facts on the part of the Court
of Appeals in the case at bar that would require this Court to review and overturn the
factual findings of that court, especially since the conclusions of fact of the Court of
Appeals and the trial court are not only consistent but are also amply supported by the
evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction
between private respondent and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them was
a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable
so that the latter may use the same for a certain time and return it, in which case the contract is
called a commodatum; or money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there
are some instances where a commodatum may have for its object a consumable
thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when
the intention of the parties is to lend consumable goods and to have the very same
goods returned at the end of the period agreed upon, the loan is a commodatum and
not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract.[27] In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such
determination.[28]
As correctly pointed out by both the Court of Appeals and the trial court, the
evidence shows that private respondent agreed to deposit his money in the savings
account of Sterela specifically for the purpose of making it appear that said firm had
sufficient capitalization for incorporation, with the promise that the amount shall be
returned within thirty (30) days.[29]Private respondent merely accommodated Doronilla
by lending his money without consideration, as a favor to his good friend Sanchez. It
was however clear to the parties to the transaction that the money would not be
removed from Sterelas savings account and would be returned to private respondent
after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00
which the latter deposited in Sterelas account together with an additional P12,000.00,
allegedly representing interest on the mutuum, did not convert the transaction from
a commodatum into a mutuum because such was not the intent of the parties and
because the additional P12,000.00 corresponds to the fruits of the lending of
the P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee
in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only
proper for Doronilla to remit to private respondent the interest accruing to the latters
money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily
liable for the return of private respondents money because it was not privy to the
transaction between Doronilla and private respondent. The nature of said transaction,
that is, whether it is a mutuum or a commodatum, has no bearing on the question of
petitioners liability for the return of private respondents money because the factual
circumstances of the case clearly show that petitioner, through its employee Mr.
Atienza, was partly responsible for the loss of private respondents money and is liable
for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives
on behalf of Sterela for Savings Account No. 10-1567 expressly states that
2. Deposits and withdrawals must be made by the depositor personally or upon his written
authority duly authenticated, and neither a deposit nor a withdrawal will be permitted
except upon the production of the depositor savings bank book in which will be entered by
the Bank the amount deposited or withdrawn.[30]
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza,
the Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw
therefrom even without presenting the passbook (which Atienza very well knew was in
the possession of Mrs. Vives), not just once, but several times. Both the Court of
Appeals and the trial court found that Atienza allowed said withdrawals because he was
party to Doronillas scheme of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of
the defendant bank.Indeed, the evidence indicates that Atienza had not only facilitated the
commission of the fraud but he likewise helped in devising the means by which it can be done
in such manner as to make it appear that the transaction was in accordance with banking
procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza
was a key officer therein. The records show that plaintiff had suggested that the P200,000.00
be deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted
that it must be in defendants branch in Makati for it will be easier for them to get a
certification. In fact before he was introduced toplaintiff, Doronilla had already prepared a
letter addressed to the Buendia branch manager authorizing Angeles B. Sanchez and company
to open a savings account for Sterela in the amount of P200,000.00, as per coordination with
Mr. Rufo Atienza, Assistant Manager of the Bank x x x (Exh. 1). This is a clear manifestation
that the other defendants had been in consultation with Atienza from the inception of the
scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-law
of a certain Romeo Mirasol, a friend and business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination between
Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to
Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia
Vives that the money belonged to her and her husband and the deposit was merely to
accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that the
only ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In
the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia
Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that
withdrawals of savings deposits could only be made by persons whose authorized signatures
are in the signature cards on file with the bank. He, however, said that this procedure was not
followed here because Sterela was owned by Doronilla. He explained that Doronilla had the
full authority to withdraw by virtue of such ownership. The Court is not inclined to agree with
Atienza. In the first place, he was all the time aware that the money came from Vives and did
not belong to Sterela. He was also told by Mrs. Vives that they were only accommodating
Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much
amount to be sued in the incorporation of the firm. In the second place, the signature of
Doronilla was not authorized in so far as that account is concerned inasmuch as he had not
signed the signature card provided by the bank whenever a deposit is opened. In the third
place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an
accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires
the presentation of the passbook. In this case, such recognized practice was dispensed
with. The transfer from the savings account to the current account was without the submission
of the passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela
because the original passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand
in the execution of this certification, was aware that the contents of the same are not true. He
knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to
her. Besides, as assistant manager of the branch and the bank official servicing the savings and
current accounts in question, he also was aware that the original passbook was never
surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to
withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that
Atienzas active participation in the perpetration of the fraud and deception that caused the
loss. The records indicate that this account was opened three days later after the P200,000.00
was deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and
posted regarding the opening of the current account considering that Doronilla was all the
while in coordination with him. That it was he who facilitated the approval of the authority to
debit the savings account to cover any overdrawings in the current account (Exh. 2) is not hard
to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x
x x.[31]
Under Article 2180 of the Civil Code, employers shall be held primarily and
solidarily liable for damages caused by their employees acting within the scope of their
assigned tasks. To hold the employer liable under this provision, it must be shown that
an employer-employee relationship exists, and that the employee was acting within the
scope of his assigned task when the act complained of was committed.[32] Case law in
the United States of America has it that a corporation that entrusts a general duty to its
employee is responsible to the injured party for damages flowing from the employees
wrongful act done in the course of his general authority, even though in doing such act,
the employee may have failed in its duty to the employer and disobeyed the latters
instructions.[33]
There is no dispute that Atienza was an employee of petitioner. Furthermore,
petitioner did not deny that Atienza was acting within the scope of his authority as
Assistant Branch Manager when he assisted Doronilla in withdrawing funds from
Sterelas Savings Account No. 10-1567, in which account private respondents money
was deposited, and in transferring the money withdrawn to Sterelas Current Account
with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were
obviously done in furtherance of petitioners interests[34]even though in the process,
Atienza violated some of petitioners rules such as those stipulated in its savings account
passbook.[35] It was established that the transfer of funds from Sterelas savings account
to its current account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance which was the cause
of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article
2180 of the Civil Code, petitioner is liable for private respondents loss and is solidarily
liable with Doronilla and Dumagpi for the return of the P200,000.00 since it is clear that
petitioner failed to prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterelas savings account, and that it was not negligent in the selection
and supervision of Atienza. Accordingly, no error was committed by the appellate court THE UNITED STATES, plaintiff-appellee,
in the award of actual, moral and exemplary damages, attorneys fees and costs of suit vs.
to private respondent. NICOMEDES MORALES and CRISPINA MORCO, defendants.
NICOMEDES MORALES, appellant.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and
Resolution of the Court of Appeals are AFFIRMED.
Fermin Mariano, for appellant.
SO ORDERED. Office of the Solicitor-General Harvey, for appellee.

Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.

MORELAND, J.:

The defendants were accused of the crime of estafa under article 535, subdivision 5,
of the Penal Code. Nicomedes Morales was convicted in the court below and
condemned to four months and one day of arresto mayor, to indemnify the party
injured in the sum of P666.05, to the accessories mentioned in article 61 of the Penal
Code, and to pay the costs of the action. Crispina Morco was acquitted, Nicomedes
Morales appealed.

It appears that the defendants received from Hatin Cafure to sell on commission
certain jewels and jewelry of the value of something more than P1,000. They sold all
of said jewels and jewelry, and upon a settlement of their accounts with said Hatin
Cafure it was found that there was due to him from the defendants the sum of
P666.05. They defendants did not pay him that sum in cash, nor did they return to him
the jewels and jewelry which that sum represented.

In receiving the said articles from Hatin Cafure the defendants gave to him a receipt in
substantially the following form:

Received of Mr. Atim Kapuri goods taken on commission which amount to

P1,384.10 on account of him who subscribes.

Legaspi, 14th of March, 1905.

(Signed) NICOMEDES MORALES.

This receipt constitutes the only written evidence of the terms of the agreement upon
which the property was taken by the defendants.

Republic of the Philippines The defendants upon the trial and in their defense introduced in evidence promissory
SUPREME COURT notes amounting to the said sum of P666.05, given to the defendants by persons to
Manila whom had been sold the jewels and jewelry amounting to that sum. These notes the
defendants had several times tendered to the owner as the proceeds of the jewelry
EN BANC sold. The defendants offered, if the owner would give them time, to collect these notes
and pay him the proceeds. It appears undisputed that the sales of the jewelry were
made in good faith by the defendants and that the promissory notes taken from the
G.R. No. L-5168 February 19, 1910 purchasers of said jewelry by the defendants were bona fide in every respect. It does
not appear whether the notes were good, bad, or indifferent, collectible or
uncollectible. Neither does it appear what they were actually worth. The only evidence
produced by the prosecution and, therefor, the only evidence upon which the
defendants were convicted, was, as before stated, that they had taken the property in
question upon the terms and conditions mentioned in the receipt above quoted and
that they had failed to return either jewelry or the value thereof, but, instead, had also
said jewelry on credit and taken promissory notes from the purchasers for the
purchase price.
While the question in this precise from has never heretofore been presented to this
court, we are of the opinion that the principles laid down, either expressly or impliedly,
in many similar cases, are applicable to this. This court has uniformly required, either
expressly or impliedly, that to convict there must be some evidence of conversion of
the property to the benefit of the accused or of some other person — that there must
be an intention to convert. A number of cases decided by this court have been cited by
the fiscal to sustain the conviction in this case. It may not be amiss to examine them.
In the case of the United State vs. Pascual (10 Phil. Rep., 621), this court passed
upon the question only of whether or not to constitute estafa within the terms of article
535, subdivision 5, it was necessary that the property be secured from the possession
of the owner by deceit or fraud; and it was there held that "deceit with intent to
defraud, in obtaining the money or other personal property afterwards
misappropriated, is not always an essential requisites."
In the case of the United States vs. Leaño (6 Phil. Rep., 368), it appeared that a
certain ring of the value of P750 was delivered to the defendants on condition that
they return the same within a week or pay the value thereof if sold. It was further
understood that if the defendants could not sell the ring for more than a certain sum
fixed by the contract it should not be sold. The week having elapsed and the
defendants having failed to comply with their agreement, the owner sought to obtain
possession of it and found that it had been pledged by the defendants with a
pawnbroker for the sum of P180. The court held (p. 371) that under the facts of the
case:
The defendants appropriated, misapplied, and converted the said ring to their own
use by pledging the same with a pawnbroker, though they had secured the same
under the pretext of selling it to person desiring to buy it."
In the case of the United States vs. Alabanza (11 Phil. Rep., 475), it appeared that
Mercedes Alabanza received from one named Aquino a gold rosary, valued at P100,
for sale on commission, with the obligation to sell the rosary and to account for the
value of the same; that, notwithstanding the fact that the time within which the
agreement was to be performed had elapsed and in spite of repeated demands made
for the return of the rosary or the payment of its value, the accused did nothing; that
the accused claimed in explanation of her refusal to comply with the agreement that
she delivered the rosary to another person for sale on commission and that the latter
took it to Cagayan to be sold there and that it had not been returned. It was clearly
proved on the trial that the person to whom the accused claimed she had given the
rosary for sale on commission had died of cholera in Vigan four years prior to the date
of the alleged delivery. In that case the court said (p. 479):
It should be observed, on the other hand, that the Penal Code punished not
only the appropriation but also the conversion of property received under
the obligation to return it, as in the present case.
The evidence here was very clear that the accused intended to convert the rosary to
her own use and that she actually did do so. The court further said in that case (p.
478):
That in the behavior of the accused the elements which constitute the crime
of estafa are present, i. e., the deceit by which it was intended to defraud, . .
..
In the case of the United states vs. Zamora (2 Phil. Rep., 582), it appeared that on the
10th day of July, 1901, the defendant received from the complaining witness for sale
on commission the jewelry mentioned in the complaint, and, although repeatedly
requested by the owner to return the same, failed to do so. In discussing the question
the court said (p. 583):
It is contended for the defense that no time was fixed within which the
defendant was to make sale of or return the property. It was proven that it is
the custom, when jewelry is taken out for sale, that if taken in the morning it
is to be returned in the evening, or at least within two or three days.
Independent of any such custom, and in the absence of any time fixed for its
return, it was the duty of the party so receiving it to return it upon the
demand of the owner.
The complaining witness testified that upon several occasions she
demanded of the defendant the return of the jewelry; that the defendant
failed to comply, on each occasion asking for two or three days longer, and
up to the date of the trial, which was over one year from the date of the
delivery of the property, he had failed to make a return of the jewelry or to
give any account thereof.
We think the evidence in this entirely sufficient to show the conversion of the
property by the defendant to his own use.
In this case the defendant made no effort to explain what he had done with the
property or to give any account thereof or of the proceeds thereof. The evidence of
conversion to his own use was clear.
In the case of the United States vs. Ongtengco (4 Phil. Rep., 144) it appeared that the
defendant received from the complaint jewelry of the value of P1,510; that it was
delivered on the condition that the defendant sell it on commission and if not sold to
return the same or, if sold, the value thereof on the 31st day of July of the same year;
that the defendant willfully and feloniously misapplied, embezzled, and appropriated to
himself the said jewelry and the value thereof without the consent and to the prejudice
of the complainant. In that case the court held (p. 146):
Instead of doing this he appropriated to himself the said jewelry by false
pretenses and in bad faith, thus deceiving the owner of the jewelry, to her
prejudice.
The guilt of the accused is evident, since up to the time the complaint was
filed he had neither returned the jewelry nor given any account of the same
or of the price thereof . The fact that he pleaded not guilty; that he gave the
owner of the jewelry part of what he embezzled, 300 pesos; that he
delivered some jewelry (which was afterwards returned to him) as a
guaranty for his obligation; and, finally, the fact that he made a third person
offer to reimburse the amount embezzled, do not exempt him from liability,
since neither the jewelry was returned nor the price thereof was paid to the
owner of the same, and whatever acts the defendant did, they all prove
that he embezzled the jewelry or the value thereof .
Here again the conversion of the property to the use of the accused was clearly
proved.
In the case of the United States vs. Ramirez (9 Phil. Rep., 67) it appeared that the
defendant received from George W. Walker the sum of P65 for the purpose of
investing the same in the business of buying and selling fish in this city, with the
obligation to account for and deliver the said sum of P65 or the proceeds thereof,
either in money or property of the said business, to the said Walker; that
notwithstanding the lapse of seven months and twenty- seven days, the accused did
not account for the money received nor produce the fish which he ought to have
bought with the P65; that the defendant made no explanation whatever of what
became of the P65 or, if used, what be came of the fish bought therewith. The court
held that under the circumstances of the case there was sufficient evidence to hold
that the defendant had converted the said money to her own use and that she was
therefor guilty of estafa.
In the case of the United States vs. Anacleto (3 Phil. Rep., 172), it appeared that the
defendant asked one Modesto for some jewelry to sell, giving as a person for that
request that she knew of some prospective purchasers. The woman Modesto
thereupon delivered them to the accused on the 10th of June. She never recovered
either the jewels or their value. She attempted to do so continuously for more than four
months. The defendant refused and failed to give any account whatever of the jewels
or what had become of them other than to say that she had sold them, neglecting to
state to whom she had sold them, for what price she had sold them, or whether or not
she had received the pay for them. The court in that case said (p.174):
The crime was committed by fraud and deceit, on the pretext that the
defendants had some prospective purchasers for the jewelry. Relying upon
this statement the owner delivered the jewels.
Here the evidence of conversion to the use of the accused was entirely clear. It should
be noted also that the defendant denied having received the jewelry.
In the case of the United States vs. Singuimuto (3 Phil. Rep., 176) it appeared that the
defendant received 300 sacks of rice for sale on commission and was to deliver their
value to Lieut. William H. Bell, and that he denied ever having received the said 300
sacks of rice. He was convicted because of his denial as well as for having sold the
same and converted the proceeds to his own use.
In the case of the United States vs. Guzman (1 Phil. Rep., 138) it appeared that on
October 16, 1900, the defendant went to the house of another woman in the district of
Santa Cruz and, on the pretext that she had a purchaser who wished to see the
jewels, took from the latter several pieces of gold jewelry, set with diamonds, of the
total value of P730. These the defendant promised to return or in case they were sold
to pay over their value on the afternoon of the same day. As she did not do so, the son
of the owner of the jewelry went next day in search of the defendant. He was unable to
find her until after some days had passed. Then the defendant pleaded with the owner
of the jewels that she be given an extension of time for their return. She failed,
however, upon various pretexts to return the jewels. In explanation of what became of
the jewels the defendant asserted that she had delivered them to a broker, who stated
that she either lost them or that they were stolen from her. The court held upon this
evidence that the defendant was guilty of estafa. The evidence of misappropriation or
conversion to the use of defendant or of some other person was clear.
In the case of the United States vs. Ner (4 Phil. Rep., 131) it appeared that the
defendant received from another certain jewelry belonging to the latter, consisting of
four rings, three pairs of earrings, and two breastpins, all set with diamonds, of the
total value of P869; that this jewelry had been given to the defendant to be sold by him
on commission; that instead of doing so the defendant, with the intention of profiting
thereby, misapplied and embezzled the value of said jewelry to the prejudice of the
owner thereof. The court found the defendant guilty, predicating that decision upon the
foregoing facts and upon the further fact that the defendant "did not given any account
as to the whereabouts of the jewelry or the value thereof ."
In the case of the United States vs. Jockers (7 Phil. Rep., 464) it appeared, as stated
by the court, that "the accused was employed by Weingarten Brothers to peddle on
commission in the city of Manila cheap jewelry, collars, cuffs, underwear, and other
articles of like nature. On the 16th of February, 1906, he informed his employers that
he had a special opportunity to make a sale to two Turks who were to meet him that
evening at the Waldorf Hotel. Upon this representation he was intrusted with goods
valued at P267.18 Philippine currency, for which it was understood he would render
an account the following day, the terms of his commission obligating him to return the
goods intrusted or the money received therefor, less his commission."
The court said (p.465):
It does not appear whether this representation was or was not made in good
faith, but the accused failed to return on the following morning as agreed,
and he left the city of Manila, taking the goods intrusted to him to some of
the outlying barrios and municipalities, where he remained until the 24th of
February, when he was arrested at the instance of his employers.
During his absence he sold various articles from his stock amounting to
P37.77 Philippine currency, for which he failed to make an accounting, the
rest of the goods being found in his possession and being returned to his
employers.
The information charges the accused with estafa of all the goods intrusted
to him, but we are of opinion that, as to the goods unsold and which were
returned to the owners, the charge of estafa can not be maintained. The
evidence of record strongly tends to establish the fact that in taking the
goods intrusted to him outside of the city of Manila he was merely seeking a
better field for his peddling operations and that it was not his intention to
appropriate these goods to his own use or to make away with the proceeds
after selling them. The fact that he did not return at the time stipulated, and
the fact that he went beyond the limits of the city of Manila without the
permission of his employers, taken by themselves and without any other
evidence as to his motive, might and probably would be sufficient to raise
the presumption that it was the accused's intention to make away with all
the goods intrusted to him, but his conduct during his absence appears to
have been wholly inconsistent with such as intention, and we think in view of
all the circumstances that it affirmatively appears that he at no time
entertained such a plan.
In this case the defendant was declared not guilty of the conversion of the goods
unsold because of the lack of intention to convert to his own use, but he was held to
be guilty of converting the proceeds resulting from the sale of the remaining
merchandise, amounting to P37.77.
It is apparent that the cases above set forth do not sustain the contention of the
prosecution that the defendants in the case at bar guilty of the crime of estafa. In all
those cases there was present evidence of the conversion of the goods by the
defendant to his own use or to the use of some other person.
Paragraph 5 of article 535 of the Penal Code is as follows:
ART. 535. The following shall incur the penalties of the preceding articles:
xxx xxx xxx
5. Those who, to the prejudice of another, shall appropriate or misapply any
money, goods, or any kind of personal property which they may have
received as a deposit on commission for administration or in any other
character producing the obligation to deliver or return the same, or who shall
deny having received it.
Commenting upon that subdivision, Groizard, volume 5, page 16, says;
Other classes of estafa:
A new type now presents itself for study. In the four numbers which we have
just commented upon the acts therein punished have deceit, artifice,
machination, or cunning employed by the agent to obtain the defeat the
confidence of the passive subject of the crime as a common factor and
prevailing circumstance. With regard to the persons accused in the present
case such fraudulent activity as is employed by the guilty in order to obtain
possession of a thing, or to effect a fraud, does not exist, or exists in but few
cases and in limited proportions. Impudence, barefacedness, covetousness,
and disloyalty employed in taking advantage of an opportunity take here the
place formerly occupied by deceit. It has been rightly stated by the Supreme
Court "that if the crime of estafa generally contains the element of deceit,
the one specially defined in paragraph 5 of article 548 of the Penal Code
(equivalent to No. 5 of article 535 of that for the Philippines) implies on the
part of the person committing it a more or less serious abuse of confidence,
it being the purpose of the criminal to obtain and benefit, to the prejudice or
fraud of third persons, availing himself of any of the means specified in the
code." (Decision of November 26, 1884.)
Viada, discussing this same subdivision, says in his Commentaries on the Penal Code
(vol. 3, 4th ed., p. 514):1
In the matter of estafa, this is unquestionably the article which is most
frequently applied in practice, it being also the one that presents the most
difficulties. It is therefore advisable to take carefully into consideration the
essential elements of the same. The fact of having received a thing
constitutes the first element, and in this the said crime differs from that of
theft, the first element of which is the taking of the thing. It is important to
bear in mind such an essential circumstance so as not to mistake the one
crime for the other. In Question 11 of the commentary on article 533, we
have already seen that, by reason of having overlooked such an important
distinction, the appeal in casacion interposed by the public prosecutor in the
case therein dealt with was rejected. The second requisite consists in that
the thing received be money, goods, or any other personal property, in a
word, anything which, owing to its value, may be an article of trade, among
which we think are deeds and documents the appropriation or
misappropriation of which might cause a material prejudice — as, for
example, a deed of sale, a promissory note, a receipt for money, etc. The
third element of this crime consists in that the above-stated things may have
 been received by virtue of deposit, on commission, or for administration, or
under any other title producing the obligation to deliver or return them; that
is, to deliver or return the same thing that was received (not an equivalent
thereto in kind or quality), as happens with the deposit, commission, and
administration specially dealth with in said article, and also, for example, in
the contract of commodatum by which the bailee is required to return the
same thing that he received for a stated use. Finally, the fourth and last
requisite essential to the crime defined in this number consists in
the appropriation or misappropriation of the thing by whoever received it
under such a title and which obligences him to make restitution thereof, or
denying the fact that he received it.
The proposition that an accused may not be convicted of estafa without proof of the
misappropriation or improper diversion of the property intrusted to his care to his own
use or to the use of another, sanctioned as we have seen by the supreme court of
Spain and by the great commentators on the Penal Code, and by the decisions of this
court, is supported by the American authorities also. (Pullan vs. State, 78 Ala., 31, 56
Am. Rep., 21; Ex Parte Hedley, 31 Cal., 109; Lycan vs. People, 107 Ill., 423;
State vs. Snell, 9 R. I., 112; Webb vs. State, 8 Tex. App., 310; Griffin vs.State, 4 Tex.
App., 390; State vs. Hill, 47 Neb., 456; Chaplin vs. Lee, 18 Neb., 440;
State vs. Adams, 108 Mo., 208; State vs. O'Kean, 35 La. Ann., 901; Ker vs. People,
110 Ill., 627; U. S. vs. Sander, 6 McLean (U. S.) 598; Commonwealth vs. Smith, 129
Mass., 104; State vs. Baumhager, 28 Minn., 226; Calkins vs. State, 18 Ohio State,
366; People vs. Gray, 66 Cal., 271; People vs. Treadwell, 69 Cal., 226;
Spalding vs. People, 172 Ill., 40; State vs.Smith, 47 La. Ann., 432;
Commonwealth vs. Tuckerman, 10 Gray (Mass.) 173; People vs. Hurst, 62 Mich., 276;
People vs. Galland, 55 Mich., 628; People vs. Wadsworth, 63 Mich., 500;
State vs. Fritchler, 54 Mo., 424; State vs.Noland, 111 Mo., 473; People vs. Wyman,
102 Cal., 552; U. S. vs. Fish, 24 Fed. Rep., 585; Ross vs. Innis, 35 Ill., 487;
People vs. Lapique, 120 Cal., 25.)
This court has held that the mere failure to return the goods is not sufficient proof of
conversion.
In the case of the United States vs. Dominguez (2 Phil. Rep., 580) the court says (p.
581):
We find it necessary to pass upon only one of the questions presented by
the record. The appellant makes the following statement in his brief in this
court:
"There is no doubt that the defendant has the character of a
receiver, consequently it is his duty to return what he has received
in trust. This being the case, the punishable act involved in a
refusal to so return implies a damage to the depositor or his
assignee, inasmuch as the latter is illegally deprived of something
which belongs to him; and this refusal and damage is covered by
the fifth clause of article 535 of the Penal Code."
This is not the law. The paragraph cited from the Penal Code says that the
depository shall be guilty of estafa, not if he refuses to return the thing
deposited but if he denies that he ever received it. In this case the
defendant has never denied that he received the rice as a deposit; on the
contrary, when the demand was made upon him by the private prosecutor
on December 7, 1901, he said that he had delivered it to Alejandro Cornejo
a few days before the death of Borras, the bailor, by the written order of the
letter. The defendant never having denied that he received the deposit, he
can not be convicted unless it is proved that he has appropriated or diverted
it. The mere refusal to return the article is not itself sufficient to prove this. In
addition to this refusal, there must be evidence in the case from which the
court can see that the depository has appropriated it to his own use or to
that of another. There is no such evidence. On the contrary, it is entirely
probable that, after the departure of the defendant from Libmanan on
September 20, 1898, two days after the uprising of the civil guard in Nueva
Caceres, the rice was seized by the revolutionists and appropriated to their
own uses.
This court has held also that a sale of goods, taken to be sold on commission, for a
less price than that agreed upon is not conversion, misappropriation, or diversion of
the property.
In the case of the United States vs. Torres et al. (11 Phil. Rep., 606) it was held that
when an agent who has been intrusted with goods to be sold at a price fixed by the
owner sells them at less than the price fixed and appropriates to his own use the
money realized, the crime of estafa which he thereby commits consists in the
misappropriation and not in the wrongful sale. in that case Ramona R. Evangelista
delivered certain jewels to Juliana Torres under the obligation on the part of Juliana
Torres to sell them at a fixed price for each jewels or in case she could not sell them at
that price to return them on a certain date. She sold a ring for P300 for which the
selling price was fixed by her agreement at P600. She also sold a pair of earrings for
P100 for which the price fixed in the agreement was P200. The question before the
court was, Did the act of the commission agent in selling goods received for less than
the price fixed by the contract of commission constitute the crime of estafa? In
discussing this question, the court said (p. 608):
If the act of selling the goods received on commission at a price lower than
the one fixed constitutes the crime of estafa, then the owner of the thing
sold has not lost its legal possession, and it should be restored to him either
by the guilty person or by the third person who, in an illegal manner,
obtained the possession of the thing illegally sold; and in that case the
articles of the Penal Code above cited are applicable, and the thing
misappropriated should be returned either by the guilty person or by the
third person who unlawfully restrains it in his possession as the object of an
estafa committed by the one who sold it to him.
But, if the act in question does not constitute estafa, since the act of
transferring a thing sold to a third party in such a manner, as it were
 between principal and agent is not punished by any statute, although illegal
on the part of the latter, yet after all it was not illegal as between the seller
and the purchaser, and it is sufficient that it was not illegal (it not proceeding
from a crime) in order that the acquisition be legal and the possession be
just and lawful. The unlawful conduct of the seller in exceeding the powers
of his commission does not affect the purchaser in good faith, who was not
proven to have been aware of the illegality of such conduct.
In deciding this question we hold:
That the fact of an agent selling the thing received on commission for a
lower price than the one fixed does not constitute the crime of estafa, it not
being penalized as such in the Penal Code; but the act of the commission
agent in misappropriating the price obtained by the sale, whatever it may
be, constitutes estafa, because it constitutes an appropriation for his private
purposes of the money received on commission, or realized by the
commission which he undertook.
xxx xxx xxx
The crime did not consist in the sale of the thing, since the owner thereof
delivered it to the seller for that purpose; but it consisted in the seller's
misappropriating the proceeds of the sale, . . . .
property for the benefit of the accused or of any other person. No intent to convert,
misappropriate, or misapply has been shown. He kept none of the proceeds of the
sales. Those, such as they were, he turned over to the owner. The fact that he did not
return the jewelry is not sufficient. (U. S. vs.Dominguez, supra; State vs. O'Kean, 35
La. Ann., 910; People vs. Hurst, 62 Mich., 276.) The fact that he did not sell in
accordance with the terms of the contract (if that is that fact — the only writing
between the parties, Exhibit, showing the contrary) is not sufficient. (United
States vs. Torres, supra.) To permit the accused to sell the property for a sum
ridiculously and ruinously (to the owner) below that fixed by the contract is fully as
dangerous to the interests of the owner as to permit him to sell on credit. If he is
exempt from criminal responsibility in the one case there appears no reason why he
should not be in the other.
The proof failing utterly to show a conversion of the property to the use of defendant or
of any other person, the defendant should be acquitted.
The judgment of the court below is, therefore, reversed, the defendant acquitted, and
his immediate discharge from custody ordered.
Arellano, C.J., Mapa, Johnson and Carson, JJ., concur.
Torres, J., dissents.

This latter case goes a long way toward being decisive of the case at bar upon the
facts as well as the law. In that case the contract expressly prohibited the sale of the
jewelry for a price less than that fixed by the agreement between the parties. If the
accused might sell a ring for P300, the selling price of which was fixed by the
agreement at not less than P600, and not be guilty of misappropriation or
misapplication, at what price would he need to sell before he would be guilty? At
P200? At P100? Whether or not he would be guilty does not depend upon the amount
for which he sells, but upon the quality of his act. His sale at an unreasonable price
may be unwise, unbusinesslike, and ruinous; but it is not criminal. It may be gross
neglect of duty, but it is not crime. His civil liability is apparent; but his criminal liability
remains yet to be established. Such a sale would be an extremely suspicious
circumstance and but little additional evidence would be required to establish the
crime; but the point is that more evidence would be required. The important thing
is the purpose with which it was done — the intent. It is that which qualifies the act as
criminal or not criminal. The amount for which the jewelry was sold does not, of itself,
determine the quality of the act from the standpoint of the criminal law. The real SECOND DIVISION
question is, Was it done for his own benefit or for the benefit of another? To be sure,
such sale injured the other party to the contract. But that is not sufficient. There must
be the intent to benefit himself or another. This is the doctrine almost universally
recognized, as seen by the authorities above cited.
[G.R. No. 141485. June 30, 2005]
In the case at bar there is wanting, under the authorities, almost every element of the
crime charged. There was no conversion, misappropriation, or diversion of the
PABLITO MURAO and NELIO HUERTAZUELA, petitioners, vs. PEOPLE OF THE
PHILIPPINES, respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioners pray for the reversal of the Decision of the Court of Appeals in CA-G.R. CR
No. 21134, dated 31 May 1999,[1] affirming with modification the Judgment of the
Regional Trial Court (RTC) of Puerto Princesa City, Palawan, in Criminal Case No.
11943, dated 05 May 1997,[2] finding petitioners guilty beyond reasonable doubt of the
crime of estafa under Article 315(1)(b) of the Revised Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial
Enterprises (LMICE), a company engaged in the business of selling and refilling fire
extinguishers, with branches in Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon,
Isabela, and Laguna. Petitioner Nelio Huertazuela is the Branch Manager of LMICE in
Puerto Princesa City, Palawan.[3]
On 01 September 1994, petitioner Murao and private complainant Chito Federico
entered into a Dealership Agreement for the marketing, distribution, and refilling of fire
extinguishers within Puerto Princesa City.[4] According to the Dealership Agreement,
private complainant Federico, as a dealer for LMICE, could obtain fire extinguishers
from LMICE at a 50% discount, provided that he sets up his own sales force, acquires
and issues his own sales invoice, and posts a bond with LMICE as security for the credit
line extended to him by LMICE. Failing to comply with the conditions under the said
Dealership Agreement, private complainant Federico, nonetheless, was still allowed to
act as a part-time sales agent for LMICE entitled to a percentage commission from the
sales of fire extinguishers.[5]
The amount of private complainant Federicos commission as sales agent for
LMICE was under contention. Private complainant Federico claimed that he was entitled
to a commission equivalent to 50% of the gross sales he had made on behalf of
LMICE,[6] while petitioners maintained that he should receive only 30% of the net sales.
Petitioners even contended that as company policy, part-time sales agents were entitled
to a commission of only 25% of the net sales, but since private complainant Federico
helped in establishing the LMICE branch office in Puerto Princesa City, he was to
receive the same commission as the full-time sales agents of LMICE, which was 30%
of the net sales.[7]
Private complainant Federicos first successful transaction as sales agent of
LMICE involved two fire extinguishers sold to Landbank of the Philippines (Landbank),
Puerto Princesa City Branch, for the price of P7,200.00. Landbank issued a check,
dated 08 November 1993, pay to the order of L.M. Industrial Comml. Enterprises c/o
Chito Federico, for the amount of P5,936.40,[8] after deducting from the original sales
price the 15% discount granted by private complainant Federico to Landbank and the
3% withholding tax. Private complainant Federico encashed the check at Landbank and
remitted only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his
commission from the sale.[9]
Petitioners alleged that it was contrary to the standard operating procedure of
LMICE that private complainant Federico was named payee of the Landbank check on
behalf of LMICE, and that private complainant Federico was not authorized to encash
the said check. Despite the supposed irregularities committed by private complainant
Federico in the collection of the payment from Landbank and in the premature
withholding of his commission from the said payment, petitioners forgave private
complainant Federico because the latter promised to make-up for his misdeeds in the
next transaction.[10]
Private complainant Federico, on behalf of LMICE, subsequently facilitated a
transaction with the City Government of Puerto Princesa for the refill of 202 fire
extinguishers. Because of the considerable cost, the City Government of Puerto
Princesa requested that the transaction be split into two purchase orders, and the City
Government of Puerto Princesa shall pay for each of the purchase orders
separately.[11] Pursuant to the two purchase orders, LMICE refilled and delivered all 202
fire extinguishers to the City Government of Puerto Princesa: 154 units on 06 January
1994, 43 more units on 12 January 1994, and the last five units on 13 January 1994.[12]
The subject of this Petition is limited to the first purchase order, Purchase Order
No. GSO-856, dated 03 January 1994, for the refill of 99 fire extinguishers, with a total
cost of P309,000.00.[13] On 16 June 1994, the City Government of Puerto Princesa
issued Check No. 611437 to LMICE to pay for Purchase Order No. GSO-856, in the
amount of P300,572.73, net of the 3% withholding tax.[14] Within the same day,
petitioner Huertazuela claimed Check No. 611437 from the City Government of Puerto
Princesa and deposited it under the current account of LMICE with PCIBank. [15]
On 17 June 1994, private complainant Federico went to see petitioner
Huertazuela at the LMICE branch office in Puerto Princesa City to demand for the
amount of P154,500.00 as his commission from the payment of Purchase Order No.
GSO-856 by the City Government of Puerto Princesa. Petitioner Huertazuela, however,
refused to pay private complainant Federico his commission since the two of them could
not agree on the proper amount thereof.[16]
Also on 17 June 1994, private complainant Federico went to the police station to
file an Affidavit-Complaint for estafa against petitioners.[17] Petitioners submitted their
Joint Counter-Affidavit on 12 July 1994.[18] The City Prosecution Office of Puerto
Princesa City issued a Resolution, dated 15 August 1994, finding that a prima facie case
for estafa existed against the petitioners and recommending the filing of an information
for estafa against both of them.[19]
The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of
Puerto Princesa City, Palawan, Branch 52, reads as follows
INFORMATION
The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of the crime
of ESTAFA, committed as follows:
That on or about the 16th day of June, 1994, at Puerto Princesa City, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, conspiring and confederating together
and mutually helping one another, after having received the amount of P309,000.00 as
payment of the 99 tanks of refilled fire extinguisher (sic) from the City Government of Puerto
Princesa, through deceit, fraud and misrepresentation, did then and there willfully, unlawfully
and feloniously defraud one Chito Federico in the following manner, to wit: said accused, well
knowing that Chito Federico agent of LM Industrial Commercial Enterprises is entitled to 50%
commission of the gross sales as per their Dealership Contract or the amount of P154,500.00 as
his commission for his sale of 99 refilled fire extinguishers worth P309,000.00, and accused
once in possession of said amount of P309,000.00 misappropriate, misapply and convert the
amount of P154,500.00 for their own personal use and benefit and despite repeated demands
made upon them by complainant to deliver the amount of P154,500.00, accused failed and
refused and still fails and refuses to do so, to the damage and prejudice of said Chito Federico
in the amount of P154,500.00, Philippine Currency.[20]
After holding trial, the RTC rendered its Judgment on 05 May 1997 finding
petitioners guilty beyond reasonable doubt as co-principals of the crime of estafa
defined and penalized in Article 315(1)(b) of the Revised Penal Code. Estafa, under the
said provision, is committed by
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow . . .
1. With unfaithfulness or abuse of confidence, namely:
(a)
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery of or to return the same, even
though such obligation be totally or partially guaranteed by a bond; or by denying having
received such money, goods, or other property; . . .
In the same Judgment, the RTC expounded on its finding of guilt, thus
For the afore-quoted provision of the Revised Penal Code to be committed, the following
requisites must concur:
1. That money, goods or other personal property be received by the offender in
trust, or on commission, or for administration, or under any other
obligation involving the duty to make delivery of, or to return, the same;
2. That there be misappropriation or conversion of such money or property by
the offender, or denial on his part of such receipt;
3. That such misappropriation or conversion or denial is to the prejudice of
another; and
4. That there is demand made by the offended party to the offender. (Reyes,
Revised Penal Code of the Philippines, p. 716; Manuel Manahan, Jr. vs.
Court of Appeals, Et Al., G.R. No. 111656, March 20, 1996)
All the foregoing elements are present in this case. The aborted testimony of Mrs. Norma
Dacuan, Cashier III of the Treasurers Office of the City of Puerto Princesa established the fact
that indeed, on June 16, 1994, co-accused Nelio Huertazuela took delivery of Check No.
611437 with face value of P300,572.73, representing payment for the refill of 99 cylinders of
fire extinguishers. Although the relationship between complaining witness Chito Federico and
LMIC is not fiduciary in nature, still the clause any other obligation involving the duty to make
delivery of or to return personal property is broad enough to include a civil obligation
(Manahan vs. C.A., Et. Al., Mar. 20, 1996).
The second element cannot be gainsaid. Both Pablito Murao and Nelio Huertazuela
categorically admitted that they did not give to Chito Federico his commission. Instead, they
deposited the full amount of the consideration, with the PCIBank in the Current Account of
LMIC.
The refusal by the accused to give Chito Federico what ever percentage his commission
necessarily caused him prejudice which constitute the third element of estafa. Demand for
payment, although not an essential element of estafa was nonetheless made by the complainant
but was rebuffed by the accused. The fraudulent intent by the accused is indubitably indicated
by their refusal to pay Chito Federico any percentage of the gross sales as commission. If it
were true that what the dealer/sales Agent is entitled to by way of commission is only 30% of
the gross sales, then by all means the accused should have paid Chito Federico 30%. If he
refused, they could have it deposited in his name. In that way they may not be said to have
misappropriated for themselves what pertained to their Agent by way of commission.
WHEREFORE, premises considered judgment is hereby rendered finding the accused
PABLITO MURAO and NELIO HUERTAZUELA guilty beyond reasonable doubt as co-
principals, of the crime of estafa defined and penalized in Article 315 par. 1(b) of the Revised
Penal Code, and applying the provisions of the Indeterminate Sentence Law, both accused are
hereby sentenced to an indeterminate penalty ranging from a minimum of TWO (2) YEARS,
FOUR (4) MONTHS and ONE (1) DAY of prision correccional in its medium period, to a
maximum of TWENTY (20) YEARS of reclusion temporal in its maximum period; to pay
Chito Federico, jointly and severally:
a. Sales Commission equivalent to
50% of P309,000.00 or ------------------- P154,500.00
with legal interest thereon from
June 17, 1994 until fully paid;
b. Attorneys fees ---------------------------- P 30,0000.00.[21]
 Resolving the appeal filed by the petitioners before it, the Court of Appeals, in its
Decision, dated 31 May 1999, affirmed the aforementioned RTC Judgment, finding
petitioners guilty of estafa, but modifying the sentence imposed on the petitioners. The
dispositive portion of the Decision of the Court of Appeals reads
WHEREFORE, the appealed decision is hereby AFFIRMED with the MODIFICATION that
appellants PABLITO MURAO and NELIO HUERTAZUELA are hereby each sentenced to an
indeterminate penalty of eight (8) years and One (1) day of prision mayor, as minimum, to
Twenty (20) years of reclusion temporal, as maximum. The award for attorneys fee
of P30,000.00 is deleted because the prosecution of criminal action is the task of the State
prosecutors. All other aspects of the appealed decision are maintained.[22]
When the Court of Appeals, in its Resolution, dated 19 January 2000, [23] denied
their Motion for Reconsideration, petitioners filed the present Petition for
Review[24] before this Court, raising the following errors allegedly committed by the
Court of Appeals in its Decision, dated 31 May 1999
I even though private complainant Federico personally helped in hauling and carrying the
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED
WHEN IT RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA UNDER ARTICLE
315 1(B) OF THE REVISED PENAL CODE UNDER THE FOREGOING SET OF FACTS,
WHEN IT IS CLEAR FROM THE SAID UNDISPUTED FACTS THAT THE LIABILITY
IS CIVIL IN NATURE.
II
WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT UPHOLD (sic)
PRIVATE COMPLAINANTS CLAIM THAT HE IS ENTITLED TO A FIFTY (50%)
PERCENT COMMISSION WITHOUT EVIDENCE TO SUPPORT SUCH CLAIM.
This Court finds the instant Petition impressed with merit. Absent herein are two
essential elements of the crime of estafa by misappropriation or conversion under Article
315(1)(b) of the Revised Penal Code, namely: (1) That money, goods or other personal
property be received by the offender in trust, or on commission, or for administration, or
under any other obligation involving the duty to make delivery of, or to return, the same;
and (2) That there be a misappropriation or conversion of such money or property by
the offender.
The findings of the RTC and the Court of Appeals that petitioners committed
estafa rest on the erroneous belief that private complainant Federico, due to his right to
commission, already owned 50% of the amount paid by the City Government of Puerto
Princesa to LMICE by virtue of Check No. 611437, so that the collection and deposit of
the said check by petitioners under the account of LMICE constituted misappropriation
or conversion of private complainant Federicos commission.
However, his right to a commission does not make private complainant
Federico a joint owner of the money paid to LMICE by the City Government of Puerto
Princesa, but merely establishes the relation of agent and principal.[25] It is unequivocal
that an agency existed between LMICE and private complainant Federico. Article 1868
of the Civil Code defines agency as a special contract whereby a person binds himself
to render some service or to do something in representation or on behalf of another,
with the consent or authority of the latter. Although private complainant Federico never
had the opportunity to operate as a dealer for LMICE under the terms of the Dealership
Agreement, he was allowed to act as a sales agent for LMICE. He can negotiate for and
on behalf of LMICE for the refill and delivery of fire extinguishers, which he, in fact, did
on two occasions with Landbank and with the City Government of Puerto Princesa.
Unlike the Dealership Agreement, however, the agreement that private complainant
Federico may act as sales agent of LMICE was based on an oral agreement.[26]
As a sales agent, private complainant Federico entered into negotiations with
prospective clients for and on behalf of his principal, LMICE. When negotiations for the
sale or refill of fire extinguishers were successful, private complainant Federico
prepared the necessary documentation. Purchase orders, invoices, and receipts were
all in the name of LMICE. It was LMICE who had the primary duty of picking up the
empty fire extinguishers, filling them up, and delivering the refilled tanks to the clients,
fire extinguishers during pick-up from and delivery to clients.
All profits made and any advantage gained by an agent in the execution of his
agency should belong to the principal.[27] In the instant case, whether the transactions
negotiated by the sales agent were for the sale of brand new fire extinguishers or for
the refill of empty tanks, evidently, the business belonged to LMICE. Consequently,
payments made by clients for the fire extinguishers pertained to LMICE. When petitioner
Huertazuela, as the Branch Manager of LMICE in Puerto Princesa City, with the
permission of petitioner Murao, the sole proprietor of LMICE, personally picked up
Check No. 611437 from the City Government of Puerto Princesa, and deposited the
same under the Current Account of LMICE with PCIBank, he was merely collecting what
rightfully belonged to LMICE. Indeed, Check No. 611437 named LMICE as the lone
payee. Private complainant Federico may claim commission, allegedly equivalent to
50% of the payment received by LMICE from the City Government of Puerto Princesa,
based on his right to just compensation under his agency contract with LMICE, [28] but
not as the automatic owner of the 50% portion of the said payment.
Since LMICE is the lawful owner of the entire proceeds of the check payment
from the City Government of Puerto Princesa, then the petitioners who collected the
payment on behalf of LMICE did not receive the same or any part thereof in trust, or on
commission, or for administration, or under any other obligation involving the duty to
make delivery of, or to return, the same to private complainant Federico, thus, the RTC
correctly found that no fiduciary relationship existed between petitioners and private
complainant Federico. A fiduciary relationship between the complainant and the
accused is an essential element of estafa by misappropriation or conversion, without
which the accused could not have committed estafa.[29]
The RTC used the case of Manahan, Jr. v. Court of Appeals[30] to support its
position that even in the absence of a fiduciary relationship, the petitioners still had the
civil obligation to return and deliver to private complainant Federico his commission.
The RTC failed to discern the substantial differences in the factual background of
the Manahan case from the present Petition. The Manahan case involved the lease of
a dump truck. Although a contract of lease may not be fiduciary in character, the lessee
clearly had the civil obligation to return the truck to the lessor at the end of the lease
period; and failure of the lessee to return the truck as provided for in the contract may
constitute estafa. The phrase or any other obligation involving the duty to make delivery
of, or to return the same refers to contracts of bailment, such as, contract of lease of
personal property, contract of deposit, and commodatum, wherein juridical possession
of the thing was transferred to the lessee, depositary or borrower, and wherein the latter
is obligated to return the same thing.[31]
In contrast, the current Petition concerns an agency contract whereby the
principal already received payment from the client but refused to give the sales agent,
who negotiated the sale, his commission. As has been established by this Court in the
foregoing paragraphs, LMICE had a right to the full amount paid by the City Government
of Puerto Princesa. Since LMICE, through petitioners, directly collected the payment,
then it was already in possession of the amount, and no transfer of juridical possession
thereof was involved herein. Given that private complainant Federico could not claim
ownership over the said payment or any portion thereof, LMICE had nothing at all to
deliver and return to him. The obligation of LMICE to pay private complainant Federico
his commission does not arise from any duty to deliver or return the money to its
supposed owner, but rather from the duty of a principal to give just compensation to its
agent for the services rendered by the latter.
Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999, defined
the words convert and misappropriate in the following manner
that the said civil liability of petitioners to pay private complainant Federico his
commission arises from a violation of the agency contract and not from a criminal
act.[34] It would be improper and unwarranted for this Court to impose in a criminal action
the civil liability arising from a civil contract, which should have been the subject of a
separate and independent civil action.[35]
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR No.
21134, dated 31 May 1999, affirming with modification the Judgment of the RTC of
Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997, finding
petitioners guilty beyond reasonable doubt of estafa by conversion or misappropriation
under Article 315(1)(b) of the Revised Penal Code, and awarding the amount
of P154,500.00 as sales commission to private complainant Federico, is hereby
REVERSED and SET ASIDE. A new Judgment is hereby entered ACQUITTING
petitioners based on the foregoing findings of this Court that their actions did not
constitute the crime of estafa by conversion or misappropriation under Article 315(1)(b)
of the Revised Penal Code. The cash bonds posted by the petitioners for their
provisional liberty are hereby ordered RELEASED and the amounts thereof
RETURNED to the petitioners, subject to the usual accounting and auditing procedures.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

The High Court in Saddul v. Court of Appeals [192 SCRA 277] enunciated that the words
convert and misappropriate in the crime of estafa punished under Art. 315, par. 1(b) connote an
act of using or disposing of anothers property as if it were ones own, or if devoting it to a
purpose or use different from that agreed upon. To misappropriate to ones use includes, not
only conversion to ones personal advantage, but also every attempt to dispose of the property
of another without right.[32]

Based on the very same definition, this Court finds that petitioners did not convert nor
misappropriate the proceeds from Check No. 611437 because the same belonged to
LMICE, and was not anothers property. Petitioners collected the said check from the
City Government of Puerto Princesa and deposited the same under the Current Account
of LMICE with PCIBank. Since the money was already with its owner, LMICE, it could
not be said that the same had been converted or misappropriated for one could not very Republic of the Philippines
well fraudulently appropriate to himself money that is his own. [33] SUPREME COURT
Although petitioners refusal to pay private complainant Federico his commission Manila
caused prejudice or damage to the latter, said act does not constitute a crime,
particularly estafa by conversion or misappropriation punishable under Article 315(1)(b) EN BANC
of the Revised Penal Code. Without the essential elements for the commission thereof,
petitioners cannot be deemed to have committed the crime.
G.R. No. L-4150 February 10, 1910
While petitioners may have no criminal liability, petitioners themselves admit their
civil liability to the private complainant Federico for the latters commission from the sale, FELIX DE LOS SANTOS, plaintiff-appelle,
whether it be 30% of the net sales or 50% of the gross sales. However, this Court is vs.
precluded from making a determination and an award of the civil liability for the reason
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, Counsel for the defendant excepted to the foregoing judgment, and, by a writing dated
deceased, defendant-appellant. January 19, moved for anew trial on the ground that the findings of fact were openly
and manifestly contrary to the weight of the evidence. The motion was overruled, the
defendant duly excepted, and in due course submitted the corresponding bill of
Matias Hilado, for appellant.
exceptions, which was approved and submitted to this court.
Jose Felix Martinez, for appellee.

The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of
TORRES, J.:
ten carabaos which are now claimed by the latter, as shown by two letters addressed
by the said Jimenea to Felix de los Santos; but in her answer the said defendant
On the 1st of September, 1906, Felix de los Santos brought suit against Agustina alleged that the late Jimenea only obtained three second-class carabaos, which were
Jarra, the administratrix of the estate of Magdaleno Jimenea, alleging that in the latter subsequently sold to him by the owner, Santos; therefore, in order to decide this
part of 1901 Jimenea borrowed and obtained from the plaintiff ten first-class carabaos, litigation it is indispensable that proof be forthcoming that Jimenea only received three
to be used at the animal-power mill of his hacienda during the season of 1901-2, carabaos from his son-in-law Santos, and that they were sold by the latter to him.
without recompense or remuneration whatever for the use thereof, under the sole
condition that they should be returned to the owner as soon as the work at the mill
The record discloses that it has been fully proven from the testimony of a sufficient
was terminated; that Magdaleno Jimenea, however, did not return the carabaos,
number of witnesses that the plaintiff, Santos, sent in charge of various persons the
notwithstanding the fact that the plaintiff claimed their return after the work at the mill
ten carabaos requested by his father-in-law, Magdaleno Jimenea, in the two letters
was finished; that Magdaleno Jimenea died on the 28th of October, 1904, and the
produced at the trial by the plaintiff, and that Jimenea received them in the presence
defendant herein was appointed by the Court of First Instance of Occidental Negros
of some of said persons, one being a brother of said Jimenea, who saw the animals
administratrix of his estate and she took over the administration of the same and is still
arrive at the hacienda where it was proposed to employ them. Four died of rinderpest,
performing her duties as such administratrix; that the plaintiff presented his claim to
and it is for this reason that the judgment appealed from only deals with six surviving
the commissioners of the estate of Jimenea, within the legal term, for the return of the
carabaos.
said ten carabaos, but the said commissioners rejected his claim as appears in their
report; therefore, the plaintiff prayed that judgment be entered against the defendant
as administratrix of the estate of the deceased, ordering her to return the ten first-class The alleged purchase of three carabaos by Jimenea from his son-in-law Santos is not
carabaos loaned to the late Jimenea, or their present value, and to pay the costs. evidenced by any trustworthy documents such as those of transfer, nor were the
declarations of the witnesses presented by the defendant affirming it satisfactory; for
said reason it can not be considered that Jimenea only received three carabaos on
The defendant was duly summoned, and on the 25th of September, 1906, she
loan from his son-in-law, and that he afterwards kept them definitely by virtue of the
demurred in writing to the complaint on the ground that it was vague; but on the 2d of
purchase.
October of the same year, in answer to the complaint, she said that it was true that the
late Magdaleno Jimenea asked the plaintiff to loan him ten carabaos, but that he only
obtained three second-class animals, which were afterwards transferred by sale by By the laws in force the transfer of large cattle was and is still made by means of
the plaintiff to the said Jimenea; that she denied the allegations contained in official documents issued by the local authorities; these documents constitute the title
paragraph 3 of the complaint; for all of which she asked the court to absolve her of the of ownership of the carabao or horse so acquired. Furthermore, not only should the
complaint with the cost against the plaintiff. purchaser be provided with a new certificate or credential, a document which has not
been produced in evidence by the defendant, nor has the loss of the same been
shown in the case, but the old documents ought to be on file in the municipality, or
By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez notified
they should have been delivered to the new purchaser, and in the case at bar neither
the defendant and her counsel, Matias Hilado, that he had made an agreement with
did the defendant present the old credential on which should be stated the name of
the plaintiff to the effect that the latter would not compromise the controversy without
the previous owner of each of the three carabaos said to have been sold by the
his consent, and that as fees for his professional services he was to receive one half
plaintiff.
of the amount allowed in the judgment if the same were entered in favor of the plaintiff.

From the foregoing it may be logically inferred that the carabaos loaned or given on
The case came up for trial, evidence was adduced by both parties, and either exhibits
commodatum to the now deceased Magdaleno Jimenea were ten in number; that
were made of record. On the 10th of January, 1907, the court below entered judgment
they, or at any rate the six surviving ones, have not been returned to the owner
sentencing Agustina Jarra, as administratrix of the estate of Magdaleno Jimenea, to
thereof, Felix de los Santos, and that it is not true that the latter sold to the former
return to the plaintiff, Felix de los Santos, the remaining six second and third class
three carabaos that the purchaser was already using; therefore, as the said six
carabaos, or the value thereof at the rate of P120 each, or a total of P720 with the
carabaos were not the property of the deceased nor of any of his descendants, it is
costs.
the duty of the administratrix of the estate to return them or indemnify the owner for
their value.
The Civil Code, in dealing with loans in general, from which generic denomination the
specific one of commodatum is derived, establishes prescriptions in relation to the
last-mentioned contract by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the other,
either anything not perishable, in order that the latter may use it during a
certain period and return it to the former, in which case it is called
commodatum, or money or any other perishable thing, under the condition
to return an equal amount of the same kind and quality, in which case it is
merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned.
The bailee acquires the use thereof, but not its fruits; if any compensation is
involved, to be paid by the person requiring the use, the agreement ceases
to be a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum
pass to the heirs of both contracting parties, unless the loan has been in
consideration for the person of the bailee, in which case his heirs shall not
have the right to continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant upon demand,
there is no doubt that she is under obligation to indemnify the owner thereof by paying
him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud, negligence, or
delay, and those who in any manner whatsoever act in contravention of the
stipulations of the same, shall be subjected to indemnify for the losses and
damages caused thereby.
The obligation of the bailee or of his successors to return either the thing loaned or its
value, is sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895,
it sets out with precision the legal doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor retains the
ownership of the thing loaned, and at the expiration of the period, or after
the use for which it was loaned has been accomplished, it is the imperative
duty of the bailee to return the thing itself to its owner, or to pay him
damages if through the fault of the bailee the thing should have been lost or
injured, it is clear that where public securities are involved, the trial court, in
deferring to the claim of the bailor that the amount loaned be returned him
by the bailee in bonds of the same class as those which constituted the
contract, thereby properly applies law 9 of title 11 of partida 5.
With regard to the third assignment of error, based on the fact that the plaintiff Santos
had not appealed from the decision of the commissioners rejecting his claim for the
recovery of his carabaos, it is sufficient to estate that we are not dealing with a claim
for the payment of a certain sum, the collection of a debt from the estate, or payment
for losses and damages (sec. 119, Code of Civil Procedure), but with the exclusion
from the inventory of the property of the late Jimenea, or from his capital, of six
carabaos which did not belong to him, and which formed no part of the inheritance.
The demand for the exclusion of the said carabaos belonging to a third party and
which did not form part of the property of the deceased, must be the subject of a direct
decision of the court in an ordinary action, wherein the right of the third party to the
property which he seeks to have excluded from the inheritance and the right of the
deceased has been discussed, and rendered in view of the result of the evidence
adduced by the administrator of the estate and of the claimant, since it is so provided
by the second part of section 699 and by section 703 of the Code of Civil Procedure;
the refusal of the commissioners before whom the plaintiff unnecessarily appeared
can not affect nor reduce the unquestionable right of ownership of the latter, inasmuch
as there is no law nor principle of justice authorizing the successors of the late
Jimenea to enrich themselves at the cost and to the prejudice of Felix de los Santos.
For the reasons above set forth, by which the errors assigned to the judgment
appealed from have been refuted, and considering that the same is in accordance with
the law and the merits of the case, it is our opinion that it should be affirmed and we
do hereby affirm it with the costs against the appellant. So ordered.
Arellano, C.J., Johnson, Moreland and Elliott, JJ., concur.
Carson, J., reserves his vote.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by respondent
Court of Appeals in the present two cases between petitioner and two private
respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the
Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No.
3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of
Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge
of the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and
Civil Case No. 3655 (429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar
Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357
to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial
court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in
CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on
the ownership of lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good faith
from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in
commodatum up to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as owner for eleven
years, hence there is no possibility of acquisitive prescription which requires 10 years
possession with just title and 30 years of possession without; that the principle of res
judicata on these findings by the Court of Appeals will bar a reopening of these
questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in
the two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows
—
... The documents and records presented reveal that the whole controversy started
when the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for
brevity) filed with the Court of First Instance of Baguio Benguet on September 5, 1962
an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at
Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the
sites of the Catholic Church building, convents, high school building, school
gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the
Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition
on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on
the merits, the land registration court promulgated its Decision, dated November 17,
1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of
Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision
of the land registration court to the then Court of Appeals, docketed as CA-G.R. No.
38830-R. The Court of Appeals rendered its decision, dated May 9, 1977, reversing
the decision of the land registration court and dismissing the VICAR's application as to
Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration
case (and two sets of plaintiffs in the two cases now at bar), the first lot being
presently occupied by the convent and the second by the women's dormitory and the
sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the
Court of Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio
Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed
their motion for reconsideration praying that both Lots 2 and 3 be ordered registered in
the names of the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977, the
Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan
Valdez on the ground that there was "no sufficient merit to justify reconsideration one
way or the other ...," and likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari
of the decision of the Court of Appeals dismissing his (its) application for registration of
Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of the
Mountain Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the Heirs of
Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme Court
a petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and
Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O.
Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both petitions
(of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the
other) for lack of merit. Upon the finality of both Supreme Court resolutions in G.R. No.
L-46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court of
First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that
the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by
Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that
the Court of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of
Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a
petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R,
entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its
decision dated May 16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano
filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3;
and the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979,
likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano
presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano
(Exh. C ); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the
land to them; and the reasonable rentals for the use of the land at P10,000.00 per
month. On the other hand, defendant Vicar presented the Register of Deeds for the
Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8).
The defendant dispensed with the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the witness stand, would testify that
defendant Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in dispute,
submitted the case on the sole issue of whether or not the decisions of the Court of
Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect
declared the plaintiffs the owners of the land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting
up the defense of ownership and/or long and continuous possession of the two lots in
question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs contend that the question of
possession and ownership have already been determined by the Court of Appeals
(Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh.
1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains
that the principle of res judicata would not prevent them from litigating the issues of
long possession and ownership because the dispositive portion of the prior judgment
in CA-G.R. No. 038830-R merely dismissed their application for registration and titling
of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the
decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to petitioner
are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3
WERE ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE
PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND
3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE
FORMER OWNERS WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE
RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST
FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT
APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS
ALREADY HAD FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN
1951 AND JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN
RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE
PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA
G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED
ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND
THEIR PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A
CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS
2 AND 3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS
LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN since 1906. The predecessors of private respondents, not petitioner Vicar, were in
GOOD FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS possession of the questioned lots since 1906.
BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA
G.R. NO. 038830. 3
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in
question, but not Lots 2 and 3, because the buildings standing thereon were only
The petition is bereft of merit. constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for
taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the
Bishop but said Bishop was appointed only in 1947, the church was constructed only
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148
in 1951 and the new convent only 2 years before the trial in 1963.
and 05149, when it clearly held that it was in agreement with the findings of the trial
court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No.
38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court of When petitioner Vicar was notified of the oppositor's claims, the parish priest offered
Appeals Decision CA-G.R. No. 38830-R) did not positively declare private to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of
respondents as owners of the land, neither was it declared that they were not owners petitioner Vicar only in 1962.
of the land, but it held that the predecessors of private respondents were possessors
of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951. Petitioner
Private respondents were able to prove that their predecessors' house was borrowed
was in possession as borrower in commodatum up to 1951, when it repudiated the
by petitioner Vicar after the church and the convent were destroyed. They never asked
trust by declaring the properties in its name for taxation purposes. When petitioner
for the return of the house, but when they allowed its free use, they became bailors
applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept of
in commodatum and the petitioner the bailee. The bailees' failure to return the subject
owner only for eleven years. Ordinary acquisitive prescription requires possession for
matter of commodatum to the bailor did not mean adverse possession on the part of
ten years, but always with just title. Extraordinary acquisitive prescription requires 30
the borrower. The bailee held in trust the property subject matter of commodatum. The
years. 4
adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title
On the above findings of facts supported by evidence and evaluated by the Court of by way of ordinary acquisitive prescription because of the absence of just title.
Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in
respondent appellate court's ruling that said findings are res judicatabetween the
The Court of Appeals found that the predecessors-in-interest and private respondents
parties. They can no longer be altered by presentation of evidence because those
were possessors under claim of ownership in good faith from 1906; that petitioner
issues were resolved with finality a long time ago. To ignore the principle of res
Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of
judicata would be to open the door to endless litigations by continuous determination
trust came only in 1951.
of issues without end.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in
G.R. No. 38830-R. Its findings of fact have become incontestible. This Court declined
CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding
to review said decision, thereby in effect, affirming it. It has become final and
petitioner to be entitled to register the lands in question under its ownership, on its
executory a long time ago.
evaluation of evidence and conclusion of facts.

Respondent appellate court did not commit any reversible error, much less grave
The Court of Appeals found that petitioner did not meet the requirement of 30 years
abuse of discretion, when it held that the Decision of the Court of Appeals in CA-G.R.
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
No. 38830-R is governing, under the principle of res judicata, hence the rule, in the
requirement of 10 years possession for ordinary acquisitive prescription because of
present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by
the absence of just title. The appellate court did not believe the findings of the trial
evidence established in that decision may no longer be altered.
court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired
also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for
were never mentioned in the application for registration. lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by
respondent Court of Appeals is AFFIRMED, with costs against petitioner.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and
Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, 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.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on
M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the
contract of lease between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture described in the third paragraph of the
stipulation of facts, subject to the condition that the defendant would return them to the
plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and
Rosario Lopez and on September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one of the clauses of
the contract of lease. There after the plaintiff required the defendant to return all the
furniture transferred to him for them in the house where they were found.
On November 5, 1936, the defendant, through another person, wrote to the
plaintiff reiterating that she may call for the furniture in the ground floor of the house.
On the 7th of the same month, the defendant wrote another letter to the plaintiff
informing her that he could not give up the three gas heaters and the four electric
lamps because he would use them until the 15th of the same month when the lease in
due to expire. The plaintiff refused to get the furniture in view of the fact that the
defendant had declined to make delivery of all of them. On November 15th,
before vacating the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse situated at No.
1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly
applied the law: in holding that they violated the contract by not calling for all the
furniture on November 5, 1936, when the defendant placed them at their disposal; in
not ordering the defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the Sheriff at their
expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the
deposit of the furniture; in ruling that both parties should pay their respective legal
expenses or the costs; and in denying pay their respective legal expenses or the
costs; and in denying the motions for reconsideration and new trial. To dispose of the
case, it is only necessary to decide whether the defendant complied with his obligation
to return the furniture upon the plaintiff's demand; whether the latter is bound to bear
the deposit fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under
it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving
for herself the ownership thereof; by this contract the defendant bound himself to
return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract,
Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation
voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's
residence or house. The defendant did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his benefit the three gas
heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely applicable. The trial court, therefore,
erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as
bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a
duty to accept the offer to return the furniture, because the defendant wanted to retain
the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to return some of the furniture
because under paragraph 6 of the stipulation of facts, the defendant has neither
agreed to nor admitted the correctness of the said value. Should the defendant fail to
deliver some of the furniture, the value thereof should be latter determined by the trial Present:
Court through evidence which the parties may desire to present.
PUNO, C.J., Chairperso
n,
The costs in both instances should be borne by the defendant because the plaintiff is
SANDOVAL-GUTIERREZ,
the prevailing party (section 487 of the Code of Civil Procedure). The defendant was
- v e r s u s - CORONA,
the one who breached the contract of commodatum, and without any reason he
AZCUNA and
refused to return and deliver all the furniture upon the plaintiff's demand. In these
GARCIA, JJ.
circumstances, it is just and equitable that he pay the legal expenses and other judicial
costs which the plaintiff would not have otherwise defrayed.
RICA MARIE S. THIO,
Respondent. Promulgated:
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 March 16, 2007
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 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
the furniture with the Sheriff shall be for the account of the defendant. the defendant
shall pay the costs in both instances. So ordered.
DECISION
Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.
CORONA, J.:

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

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

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

Petitioner alleged that on February 24, 1995, respondent borrowed from her the
amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would
FIRST DIVISION 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
CAROLYN M. GARCIA, G.R. No. 154878 4%, the maturity date of which was on November 5, 1995.[14] The amount of this loan was
Petitioner,
covered by the second check. For both loans, no promissory note was executed since petitioner
and respondent were close friends at the time.[15] Respondent paid the stipulated monthly interest
for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated
demands.[16]
Respondent denied that she contracted the two loans with petitioner and countered
that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely
asked by petitioner to give the crossed checks to Santiago.[17] She issued the checks for P76,000
and P20,000 not as payment of interest but to accommodate petitioners request that respondent
use her own checks instead of Santiagos.[18]
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. [19] It
found that respondent borrowed from petitioner the amounts of US$100,000 with monthly
interest of 3% and P500,000 at a monthly interest of 4%:[20]
WHEREFORE, finding preponderance of evidence to sustain
the instant complaint, judgment is hereby rendered in favor of [petitioner],
sentencing [respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso
equivalent with interest thereon at 3% per month from October 26,
1995 until fully paid;
2. P500,000.00 with interest thereon
at 4% per month from November 5, 1995 until fully paid.
3. P100,000.00 as and for attorneys
fees; and
4. P50,000.00 as and for actual
damages.
For lack of merit, [respondents] counterclaim is perforce
dismissed.
With costs against [respondent].
IT IS SO ORDERED.[21]
On appeal, the CA reversed the decision of the RTC and ruled that there was no
contract of loan between the parties:
A perusal of the record of the case shows that [petitioner]
failed to substantiate her claim that [respondent] indeed borrowed money
from her. There is nothing in the record that shows that [respondent]
received money from [petitioner]. What is evident is the fact that
[respondent] received a MetroBank [crossed] check dated February 24,
1995 in the sum of US$100,000.00, payable to the order of Marilou
Santiago and a CityTrust [crossed] check dated June 29, 1995 in the
amount of P500,000.00, again payable to the order of Marilou Santiago,
both of which were issued by [petitioner]. The checks received by
[respondent], being crossed, may not be encashed but only deposited
in the bank by the payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following
effects: (a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only onceto one who has an account with
the bank; (c) and the act of crossing the check serves as warning to the
holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise,
he is not a holder in due course.
Consequently, the receipt of the [crossed] check by
[respondent] is not the issuance and delivery to the payee in contemplation
of law since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer title
thereto. Neither could she be deemed as an agent of Marilou Santiago with
respect to the checks because she was merely facilitating the transactions
between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred
that there were really no contracts of loan that existed between the parties.
x x x (emphasis supplied)[22]
Hence this petition.[23]
As a rule, only questions of law may be raised in a petition for review on certiorari
under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e.,
when the factual findings of the CA (which held that there were no contracts of loan between
petitioner and respondent) and the RTC (which held that there werecontracts of loan) are
contradictory.[24]
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the
delivery of the object of the contract.[25] This is evident in Art. 1934 of the Civil Code which
provides:
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor
when the checks were encashed) the debtor acquires ownership of such money or loan proceeds
and is bound to pay the creditor an equal amount.[26]
It is undisputed that the checks were delivered to respondent. However, these checks
were crossed and payable not to the order of respondent but to the order of a certain Marilou
Santiago. Thus the main question to be answered is: who borrowed money from petitioner
respondent or Santiago?
 Petitioner insists that it was upon respondents instruction that both checks were made
payable to Santiago.[27] She maintains that it was also upon respondents instruction that both
checks were delivered to her (respondent) so that she could, in turn, deliver the same
to Santiago.[28] Furthermore, she argues that once respondent received the checks, the latter had
possession and control of them such that she had the choice to either forward them to Santiago
(who was already her debtor), to retain them or to return them to petitioner. [29]
We agree with petitioner. Delivery is the act by which the res or substance thereof is
placed within the actual or constructive possession or control of another. [30] Although respondent
did not physically receive the proceeds of the checks, these instruments were placed in her
control and possession under an arrangement whereby she actually re-lent the amounts
to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago.[31] It was
highly improbable that petitioner would grant two loans to a complete stranger without requiring
as much as promissory notes or any written acknowledgment of the debt considering that the
amounts involved were quite big. Respondent, on the other hand, already had transactions
with Santiago at that time.[32]
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name
appeared in both parties list of witnesses) testified that respondents plan was for petitioner to
lend her money at a monthly interest rate of 3%, after which respondent would lend the same
amount to Santiago at a higher rate of 5% and realize a profit of 2%. [33] This explained why
respondent instructed petitioner to make the checks payable to Santiago. Respondent has not
shown any reason why Ruiz testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the
amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly
interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each
for four months.[34] According to respondent, she merely accommodated petitioners request for
her to issue her own checks to cover the interest payments since petitioner was not personally
acquainted with Santiago.[35] She claimed, however, that Santiago would replace the checks with
cash.[36] Her explanation is simply incredible. It is difficult to believe that respondent would put
herself in a position where she would be compelled to pay interest, from her own funds, for loans
she allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by
the rule that for evidence to be believed, it must not only proceed from the
mouth of a credible witness, but must be credible in itself such as the
common experience of mankind can approve as probable under the
circumstances. We have no test of the truth of human testimony except its
conformity to our knowledge, observation, and experience. Whatever is
repugnant to these belongs to the miraculous, and is outside of juridical
cognizance.[37]
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was
respondent, not petitioner, who was listed as one of her (Santiagos) creditors. [38]
Last, respondent inexplicably never presented Santiago as a witness to corroborate
her story.[39] The presumption is that evidence willfully suppressed would be adverse if
produced.[40] Respondent was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not
borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the
ruling of the RTC making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly
interest for the US$100,000 and P500,000 loans respectively. There was no written proof of the
interest payable except for the verbal agreement that the loans would earn 3% and 4% interest
per month. Article 1956 of the Civil Code provides that [n]o interest shall be due unless it has
been expressly stipulated in writing.
Be that as it may, while there can be no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil
Code.[41]
Hence, respondent is liable for the payment of legal interest per annum to be
computed from November 21, 1995, the date when she received petitioners demand
letter.[42]From the finality of the decision until it is fully paid, the amount due shall earn interest
at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.[43]
The award of actual damages in the amount of P50,000 and P100,000 attorneys fees
is deleted since the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision
and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577
are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court
in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is
directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest
from November 21, 1995 until the finality of the decision. The total amount due as of the date
of finality will earn interest of 12% per annum until fully paid. The award of actual damages and
attorneys fees is deleted.
SO ORDERED.
RENATO C. CORONA
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
 FIRST DIVISION
G.R. No. 160758 January 15, 2014
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT
CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal
obligation is premature, and should be undone for being void and ineffectual. The
mortgagee who has been meanwhile given possession of the mortgaged property by
virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may
be required to restore the possession of the property to the mortgagor and to pay
reasonable rent for the use of the property during the intervening period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the
adverse decision promulgated on March 26, 2003 in C.A.-G.R. CV No.
59491,1 whereby the Court of Appeals (CA) upheld the judgment rendered on January
6, 19982 by the Regional Trial Court, Branch 25, in Iloilo City (RTC) annulling the
extra-judicial foreclosure of the real estate and chattel mortgages at the instance of
DBP because the debtor-mortgagor, Guariña Agricultural and Realty Development
Corporation (Guariña Corporation), had not yet defaulted on its obligations in favor of
DBP.
Antecedents
In July 1976, Guariña Corporation applied for a loan from DBP to finance the
development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, in the
amount of ₱3,387,000.00, was approved on August 5, 1976. 3Guariña Corporation
executed a promissory note that would be due on November 3, 1988. 4 On October 5,
1976, Guariña Corporation executed a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. On May 17, 1977,
Guariña Corporation executed a chattel mortgage over the personal properties
existing at the resort complex and those yet to be acquired out of the proceeds of the
loan, also to secure the performance of the obligation. 5 Prior to the release of the loan,
DBP required Guariña Corporation to put up a cash equity of ₱1,470,951.00 for the
construction of the buildings and other improvements on the resort complex.
The loan was released in several instalments, and Guariña Corporation used the
proceeds to defray the cost of additional improvements in the resort complex. In all,
the amount released totalled ₱3,003,617.49, from which DBP withheld ₱148,102.98
as interest.6
Guariña Corporation demanded the release of the balance of the loan, but DBP
refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the
latter's objection. DBP found upon inspection of the resort project, its developments
and improvements that Guariña Corporation had not completed the construction
works.7 In a letter dated February 27, 1978,8 and a telegram dated June 9,
1978,9 DBP thus demanded that Guariña Corporation expedite the completion of the
project, and warned that it would initiate foreclosure proceedings should Guariña
Corporation not do so.10
Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings. A notice of foreclosure sale was sent to Guariña
Corporation. The notice was eventually published, leading the clients and patrons of
Guariña Corporation to think that its business operation had slowed down, and that its
resort had already closed.11
On January 6, 1979, Guariña Corporation sued DBP in the RTC to demand specific
performance of the latter's obligations under the loan agreement, and to stop the
foreclosure of the mortgages (Civil Case No. 12707).12However, DBP moved for the
dismissal of the complaint, stating that the mortgaged properties had already been
sold to satisfy the obligation of Guariña Corporation at a public auction held on
January 15, 1979 at the Costa Mario Resort Beach Resort in Oton, Iloilo. 13 Due to this,
Guariña Corporation amended the complaint on February 6, 197914 to seek the
nullification of the foreclosure proceedings and the cancellation of the certificate of
sale. DBP filed its answer on December 17, 1979,15 and trial followed upon the
termination of the pre-trial without any agreement being reached by the parties.16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At
first, the RTC denied the application but later granted it upon DBP's motion for
reconsideration. Aggrieved, Guariña Corporation assailed the granting of the
application before the CA on certiorari (C.A.-G.R. No. 12670-SP entitled Guariña
Agricultural and Realty Development Corporation v. Development Bank of the
Philippines). After the CA dismissed the petition for certiorari, DBP sought the
implementation of the order for the issuance of the writ of possession. Over Guariña
Corporation's opposition, the RTC issued the writ of possession on June 16, 1982.17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707,
disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial
sales of the mortgaged properties of the plaintiff by the Office of the Provincial Sheriff
of Iloilo on January 15, 1979 are null and void, so with the consequent issuance of IV
certificates of sale to the defendant of said properties, the registration thereof with the
Registry of Deeds and the issuance of the transfer certificates of title involving the real
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR
property in its name.
IN ORDERING DBP TO RETURN TO PLAINTIFF THE ACTUAL POSSESSION AND
ENJOYMENT OF ALL THE FORECLOSED PROPERTIES AND TO PAY PLAINTIFF
It is also resolved that defendant give back to the plaintiff or its representative the REASONABLE RENTAL FOR THE USE OF THE FORECLOSED BEACH RESORT.
actual possession and enjoyment of all the properties foreclosed and possessed by it.
To pay the plaintiff the reasonable rental for the use of its beach resort during the
V
period starting from the time it (defendant) took over its occupation and use up to the
time possession is actually restored to the plaintiff.
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP
WHICH MERELY EXERCISED ITS RIGHTS UNDER THE MORTGAGE
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as it
CONTRACT.19
takes possession and management of the beach resort and resume its business
operation.
In its decision promulgated on March 26, 2003,20 however, the CA sustained the
RTC's judgment but deleted the award of attorney's fees, decreeing:
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of ₱50,000.00.

WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998, rendered
So ORDERED.18
by the Regional Trial Court of Iloilo City, Branch 25 in Civil Case No. 12707 for
Specific Performance with Preliminary Injunction is hereby AFFIRMED with
Decision of the CA MODIFICATION, in that the award for attorney's fees is deleted.

On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and SO ORDERED.21
insisted that:
DBP timely filed a motion for reconsideration, but the CA denied its motion on October
I 9, 2003.

THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN Hence, this appeal by DBP.
DECLARING DBP'S FORECLOSURE OF THE MORTGAGED PROPERTIES AS
INVALID AND UNCALLED FOR.
Issues

II
DBP submits the following issues for consideration, namely:

THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED

WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED
BY DBP TO JUSTIFY FORECLOSURE AS "NOT SUFFICIENT." ON THE
MARCH 26, 2003 AND ITS RESOLUTION DATED OCTOBER 9, DENYING
CONTRARY, THE MORTGAGE WAS FORECLOSED BY EXPRESS AUTHORITY
PETITIONER'S MOTION FOR RECONSIDERATION WERE ISSUED IN
OF PARAGRAPH NO. 4 OF THE MORTGAGE CONTRACT AND SECTION 2 OF
ACCORDANCE WITH LAW, PREVAILING JURISPRUDENTIAL DECISION AND
P.D. 385 IN ADDITION TO THE QUESTIONED PAR. NO. 26 PRINTED AT THE
SUPPORTED BY EVIDENCE;
BACK OF THE FIRST PAGE OF THE MORTGAGE CONRACT.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE

III
USUAL COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV NO.
59491 AND THEREFORE IN ACCORDANCE WITH THE "LAW OF THE CASE
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED DOCTRINE."22
PROPERTIES TO DBP AS INVALID UNDER ARTICLES 2113 AND 2141 OF THE
CIVIL CODE.
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit financing
scheme for the development of a beach resort, and the releases of the proceeds
would be subject to conditions that included the verification of the progress of works in
the project to forestall diversion of the loan proceeds; and that under Stipulation No.
26 of the mortgage contract, further loan releases would be terminated and the
account would be considered due and demandable in the event of a deviation from the
purpose of the loan,23 including the failure to put up the required equity and the
diversion of the loan proceeds to other purposes.24 It assails the declaration by the CA
that Guariña Corporation had not yet been in default in its obligations despite
violations of the terms of the mortgage contract securing the promissory note.
Guariña Corporation counters that it did not violate the terms of the promissory note
and the mortgage contracts because DBP had fully collected the interest
notwithstanding that the principal obligation did not yet fall due and become
demandable.25
The submissions of DBP lack merit and substance.
The agreement between DBP and Guariña Corporation was a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to
another who acquires ownership thereof, on the condition that the same amount or
quality shall be paid.26 Loan is a reciprocal obligation, as it arises from the same cause
where one party is the creditor, and the other the debtor.27 The obligation of one party
in a reciprocal obligation is dependent upon the obligation of the other, and the
performance should ideally be simultaneous. This means that in a loan, the creditor
should release the full loan amount and the debtor repays it when it becomes due and
demandable.28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security,
executed real estate and chattel mortgages. However, it was never established that
appellee was already in default. Appellant, in a telegram to the appellee reminded the
latter to make good on its construction works, otherwise, it would foreclose the
mortgage it executed. It did not mention that appellee was already in default. The
records show that appellant did not make any demand for payment of the promissory
note. It appears that the basis of the foreclosure was not a default on the loan but
appellee's failure to complete the project in accordance with appellant's standards. In
fact, appellant refused to release the remaining balance of the approved loan after it
found that the improvements introduced by appellee were below appellant's
expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the
instant case bound itself to grant appellee the loan amount of ₱3,387,000.00 condition
on appellee's payment of the amount when it falls due. Furthermore, the loan was
evidenced by the promissory note which was secured by real estate mortgage over
several properties and additional chattel mortgage. Reciprocal obligations are those
which arise from the same cause, and in which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent upon the obligation of the other
(Areola vs. Court of Appeals, 236 SCRA 643). They are to be performed
simultaneously such that the performance of one is conditioned upon the
simultaneous fulfilment of the other (Jaime Ong vs. Court of Appeals, 310 SCRA 1).
The promise of appellee to pay the loan upon due date as well as to execute sufficient
security for said loan by way of mortgage gave rise to a reciprocal obligation on the
part of appellant to release the entire approved loan amount. Thus, appellees are
entitled to receive the total loan amount as agreed upon and not an incomplete
amount.
The appellant did not release the total amount of the approved loan. Appellant
therefore could not have made a demand for payment of the loan since it had yet to
fulfil its own obligation. Moreover, the fact that appellee was not yet in default
rendered the foreclosure proceedings premature and improper.
The properties which stood as security for the loan were foreclosed without any
demand having been made on the principal obligation. For an obligation to become
due, there must generally be a demand. Default generally begins from the moment the
creditor demands the performance of the obligation. Without such demand, judicial or
extrajudicial, the effects of default will not arise (Namarco vs. Federation of United
Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of Misamis Occidental, 88
SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of the
approved loan. As a consequence, the real estate mortgage of appellee becomes
unenforceable, as it cannot be entirely foreclosed to satisfy appellee's total debt to
appellant (Central Bank of the Philippines vs. Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows
that appellee is still entitled to possession of the foreclosed properties. However,
appellant took possession of the same by virtue of a writ of possession issued in its
favor during the pendency of the case. Thus, the trial court correctly ruled when it
ordered appellant to return actual possession of the subject properties to appellee or
its representative and to pay appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's
fees is the exception rather than the rule and counsel's fees are not to be awarded
every time a party wins a suit. Attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to
litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38).29
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed the factual findings of the RTC,
the Court is bound to uphold such findings, for it is axiomatic that the trial court's
factual findings as affirmed by the CA are binding on appeal due to the Court not
being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had
no right yet to exact on Guariña Corporation the latter's compliance with its own
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not
perform its obligation, the other party cannot be obliged to perform what is expected of
it while the other's obligation remains unfulfilled.30 In other words, the latter party does
not incur delay.31
Still, DBP called upon Guariña Corporation to make good on the construction works
pursuant to the acceleration clause written in the mortgage contract (i.e., Stipulation
No. 26),32 or else it would foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a
mortgage constituted on real or personal property to protect the creditor's interest in
case of the default of the debtor. By its nature, however, a mortgage remains an
accessory contract dependent on the principal obligation, 33 such that enforcement of
the mortgage contract will depend on whether or not there has been a violation of the
principal obligation. While a creditor and a debtor could regulate the order in which
they should comply with their reciprocal obligations, it is presupposed that in a loan
the lender should perform its obligation - the release of the full loan amount - before it
could demand that the borrower repay the loaned amount. In other words, Guariña
Corporation would not incur in delay before DBP fully performed its reciprocal
obligation.34
Considering that it had yet to release the entire proceeds of the loan, DBP could not
yet make an effective demand for payment upon Guariña Corporation to perform its
obligation under the loan. According to Development Bank of the Philippines v.
Licuanan,35 it would only be when a demand to pay had been made and was
subsequently refused that a borrower could be considered in default, and the lender
could obtain the right to collect the debt or to foreclose the mortgage.1âwphi1 Hence,
Guariña Corporation would not be in default without the demand.
Assuming that DBP could already exact from the latter its compliance with the loan
agreement, the letter dated February 27, 1978 that DBP sent would still not be
regarded as a demand to render Guariña Corporation in default under the principal
contract because DBP was only thereby requesting the latter "to put up the deficiency
in the value of improvements."36
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the
mortgaged properties at its instance were premature, and, therefore, void and
ineffectual.37
Being a banking institution, DBP owed it to Guariña Corporation to exercise the
highest degree of diligence, as well as to observe the high standards of integrity and
performance in all its transactions because its business was imbued with public
interest.38 The high standards were also necessary to ensure public confidence in the
banking system, for, according to Philippine National Bank v. Pike:39 "The stability of
banks largely depends on the confidence of the people in the honesty and efficiency of
banks." Thus, DBP had to act with great care in applying the stipulations of its
agreement with Guariña Corporation, lest it erodes such public confidence. Yet, DBP
failed in its duty to exercise the highest degree of diligence by prematurely foreclosing
the mortgages and unwarrantedly causing the foreclosure sale of the mortgaged
properties despite Guariña Corporation not being yet in default. DBP wrongly relied on
Stipulation No. 26 as its basis to accelerate the obligation of Guariña Corporation, for
the stipulation was relevant to an Omnibus Agricultural Loan, to Guariña Corporation's
loan which was intended for a project other than agricultural in nature.
Even so, Guariña Corporation did not elevate the actionability of DBP's negligence to
the CA, and did not also appeal the CA's deletion of the award of attorney's fees
allowed by the RTC.1âwphi1 With the decision of the CA consequently becoming final
and immutable as to Guariña Corporation, we will not delve any further on DBP's
actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already constituted
the law of the case. Hence, the CA could not decide the appeal in C.A.-G.R. CV No.
59491 differently.
Guariña Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not
constitute the law of the case because C.A.-G.R. No. 12670-SP concerned the issue
of possession by DBP as the winning bidder in the foreclosure sale, and had no
bearing whatsoever to the legal issues presented in C.A.-G.R. CV No. 59491.
Law of the case has been defined as the opinion delivered on a former appeal, and
means, more specifically, that whatever is once irrevocably established as the
controlling legal rule of decision between the same parties in the same case continues
to be the law of the case, whether correct on general principles or not, so long as the 3.
facts on which such decision was predicated continue to be the facts of the case Guarifia Corporation is legally entitled to the
before the court.40 restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
The concept of law of the case is well explained in Mangold v. Bacon,41 an American
case, thusly: Having found and pronounced that the extrajudicial foreclosure by DBP was
premature, and that the ensuing foreclosure sale was void and ineffectual, the Court
affirms the order for the restoration of possession to Guarifia Corporation and the
The general rule, nakedly and boldly put, is that legal conclusions announced on a first
payment of reasonable rentals for the use of the resort. The CA properly held that the
appeal, whether on the general law or the law as applied to the concrete facts, not
premature and invalid foreclosure had unjustly dispossessed Guarifia Corporation of
only prescribe the duty and limit the power of the trial court to strict obedience and
its properties. Consequently, the restoration of possession and the payment of
conformity thereto, but they become and remain the law of the case in all other steps
reasonable rentals were in accordance with Article 561 of the Civil Code, which
below or above on subsequent appeal. The rule is grounded on convenience,
expressly states that one who recovers, according to law, possession unjustly lost
experience, and reason. Without the rule there would be no end to criticism,
shall be deemed for all purposes which may redound to his benefit to have enjoyed it
reagitation, reexamination, and reformulation. In short, there would be endless
without interruption.
litigation. It would be intolerable if parties litigants were allowed to speculate on
changes in the personnel of a court, or on the chance of our rewriting propositions
once gravely ruled on solemn argument and handed down as the law of a given case. WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003; and
An itch to reopen questions foreclosed on a first appeal would result in the foolishness ORDERS the petitioner to pay the costs of suit.
of the inquisitive youth who pulled up his corn to see how it grew. Courts are allowed,
if they so choose, to act like ordinary sensible persons. The administration of justice is
SO ORDERED.
a practical affair. The rule is a practical and a good one of frequent and beneficial use.

LUCAS P. BERSAMIN
The doctrine of law of the case simply means, therefore, that when an appellate court
has once declared the law in a case, its declaration continues to be the law of that
case even on a subsequent appeal, notwithstanding that the rule thus laid down may
have been reversed in other cases.42 For practical considerations, indeed, once the
appellate court has issued a pronouncement on a point that was presented to it with
full opportunity to be heard having been accorded to the parties, the pronouncement
should be regarded as the law of the case and should not be reopened on remand of
the case to determine other issues of the case, like damages. 43 But the law of the
case, as the name implies, concerns only legal questions or issues thereby
adjudicated in the former appeal.

The foregoing understanding of the concept of the law of the case exposes DBP's
insistence to be unwarranted.

To start with, the ex parte proceeding on DBP's application for the issuance of the writ
of possession was entirely independent from the judicial demand for specific
performance herein. In fact, C.A.-G.R. No. 12670-SP, being the interlocutory appeal
concerning the issuance of the writ of possession while the main case was pending, Republic of the Philippines
was not at all intertwined with any legal issue properly raised and litigated in C.A.-G.R. SUPREME COURT
CV No. 59491, which was the appeal to determine whether or not DBP's foreclosure Manila
was valid and effectual. And, secondly, the ruling in C.A.-G.R. No. 12670-SP did not
settle any question of law involved herein because this case for specific performance
was not a continuation of C.A.-G.R. No. 12670-SP (which was limited to the propriety SECOND DIVISION
of the issuance of the writ of possession in favor of DBP), and vice versa.
G.R. No. L-33084 November 14, 1988
ROSE PACKING COMPANY, INC., petitioner,
vs.
THE COURT OF APPEALS, HON. PEDRO C. NAVARRO, Judge of the Court of
First Instance of Rizal (Br. III), PHILIPPINE COMMERCIAL & INDUSTRIAL BANK
& PROVINCIAL SHERIFF OF RIZAL, respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals in
CA-G.R. No. 43198-R promulgated on December 16,1970 (Rollo, pp. 237-249), the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, this Court hereby renders
judgment:
1. Denying the petition to set aside and annul the questioned
orders dated January 31, 1969 and May 7,1969 rendered by
respondent Judge, the same having been issued in consonance
with the exercise of the Court's discretion.
2. Declaring valid the foreclosure sale of May 9, 1969 but finding
the consolidation of ownership over the properties sold at such
sale to have been prematurely executed thereby rendering it
void ab initio.
3. In accordance with this Court's resolution dated May 8, 1970,
petitioner is hereby granted sixty (60) days from receipt of a copy
of this decision within which to redeem the properties sold at the
foreclosure sale of May 9, 1969.
4. Dismissing the charge of contempt against PCIB and its
Executive Vice-President and General Manager, Eugenio R.
Unson,. for lack of merit.
and its Resolution 2 dated January 12, 1971 (Rollo, p. 280), denying petitioner's
motion for reconsideration, as wen as its Resolution 3 dated January 22, 1971 (Rollo,
p. 281) denying petitioner's supplement to motion for reconsideration.
The facts of the case as presented by petitioner and as embodied in the decision of
the Court of Appeals are as follows:
On December 12, 1962 respondent bank (PCIB) approved a letter- request by
petitioner for the reactivation of its overdraft line of P50,000.00, discounting line of
P100,000.00 and a letter of credit-trust receipt line of P550,000.00 as wen as an
application for a loan of P300,000.00, on fully secured real estate and chattel
mortgage and on the further condition that respondent PCIB appoint as it did appoint
its executive
vice-president Roberto S. Benedicto as its representative in petitioner's board of
directors.
On November 3, 1965 the National Investment & Development Corporation (NIDC),
the wholly owned investment subsidiary of the Philippine National Bank, approved a
P2.6 million loan application of petitioner with certain conditions. Pursuant thereto, the
NIDC released to petitioner on November 7, 1965 the amount of P100,000.00.
Subsequently, petitioner purchased five (5) parcels of land in Pasig, Rizal making a
down payment thereon.
On January 5,1966, the NIDC released another P100,000.00 to petitioner and on
January 12, 1966, the aforesaid releases totalling P200,000.00 were applied to the
payment of preferred stock which NIDC subscribed in petitioner corporation to partially
implement its P1,000,000.00 investment scheme as per agreement. Thereafter, the
NIDC refused to make further releases on the approved loan of petitioner.
On August 3, 1966 and October 5, 1966, respondent PCIB approved additional
accomodations to petitioner consisting of a P710,000.00 loan for the payment of the
balance of the purchase price of those lots in Pasig required to be bought,
P500,000.00 loan for operating capital, P200,000.00 loan to be paid directly to
petitioner's creditors, while consolidating all previous accommodations at
P1,597,000.00—all of which were still secured by chattel and real estate mortgages.
However, PCIB released only P300,000.00 of the P710,000.00 approved loan for the
payment of the Pasig lands and some P300,000.00 for operating capital.
On June 29,1967, the Development Bank of the Philippines approved an application
by petitioner for a loan of P1,840,000.00 and a guarantee for $652,682.00 for the
purchase of can making equipment. Immediately upon receipt of notice of the approval
of the Development Bank of the loan, petitioner advised respondent PCIB of the
availability of P800,000.00 to partially pay off its account and requested the release of
the titles to the Pasig lots for delivery to the Development Bank of the Philippines.
Respondent PCIB verbally advised petitioner of its refusal, stating that all obligations
should be liquidated before the release of the titles to the Pasig properties. Following
the PCIB's rejection of petitioner's counter-proposal, petitioner purchased a parcel of
land at Valenzuela, Bulacan with the P800,000.00 DBP loan, with the latter's consent.
On January 5, 1968 respondent PCIB filed a complaint against petitioner and Rene
Knecht, its president for the collection of petitioner's indebtedness to respondent bank,
which complaint was docketed as Civil Case No. 71697 of the Court of First Instance
of Manila.
On January 22, 1968, PCIB gave petitioner notice that it would cause the real estate
mortgage to be foreclosed at an auction sale, which it scheduled for February
27,1968. Thus, respondent Sheriff served notice of sheriffs sale (of the real properties
mortgaged to respondent PCIB) on July 18,1968 at 10:00 a.m., more particularly,
T.C.T. No. 73620 (barrio Sto. Domingo, municipality of Cainta); T.C.T. No. 177019
(barrio of San Joaquin, Pasig, Rizal); and T.C.T. No. 175595 (barrio San Joaquin,
Pasig, Rizal). Subsequently, on July 15, 1968, petitioner filed a complaint docketed as
Civil Case No. 11015 in the Court of First Instance of Rizal to enjoin respondents
PCIB and the sheriff from proceeding with the foreclosure sale, to ask the lower court
to fix a new period for the payment of the obligations of petitioner to PCIB and for
other related matters. Petitioner likewise prayed, pending final judgment, for the
issuance ex-parte of a writ of preliminary injunction enjoining herein respondents from
proceeding with the foreclosure sale scheduled to be held on July 18, 1968.
On January 31, 1969, the lower court issued ail order denying the application for
preliminary injunction and dissolving its restraining order which had been issued on
July 17, 1968. Petitioner promptly filed a motion for reconsideration which was denied
by the lower court on May 7, 1969.
On May 8, 1969 petitioner filed with respondent Court of Appeals a petition for
certiorari with application for a restraining order and preliminary injunction against the
foreclosure sale (Rollo, p. 54).<äre||anº•1àw> On May 13, 1969 respondent Court
resolved to issue a writ of preliminary injunction upon filing by petitioner of a bond in
the amount of P60,000.00. However, petitioner moved for amendment of the Order
issuing the preliminary injunction, on the ground that the aforementioned resolution of
respondent Court came too late to stop the foreclosure sale which was held on May 9,
1969, praying instead that the preliminary injunction should now enjoin respondents,
particularly respondent Provincial Sheriff, from proceeding to give effect to the
foreclosure sale of May 9, 1969; that said sheriff should refrain from issuing a deed of
certificate of sale pursuant thereto and from registering the certificate of deed of sale
in the Registry of Deeds; and to toll or stop the running of the period of redemption.
Respondent Court resolved to deny said motion in its Resolution dated May 28, 1969
(Rollo, pp. 237-242).
On May 8, 1970, on urgent motion of petitioner, respondent Court granted petitioner a
period of sixty (60) days from receipt of the decision to be rendered in
CA-G.R. No. 43198 within which to redeem its properties sold, should the said
decision be one declaring the execution sale in dispute to be valid (Rollo, p. 231).
Meantime, on May 12, 1970, an affidavit of consolidation of ownership executed by
Eugenio R. Unson for and in behalf of respondent PCIB concerning the properties
involved in the instant petition for certiorari, was registered with the Register of Deeds
of Pasig, Rizal at 8:00 a.m.. Consequently, the old transfer certificates of title covering
the aforementioned properties were cancelled and new ones issued in the name of
respondent PCIB, the buyer at the foreclosure sale. In view thereof, petitioner filed a
motion charging respondent PCIB and its Executive Vice-President and Assistant
General Manager Eugenio R. Unson with contempt of court. Petitioner prayed that (a)
the Deed of Sale dated May 12, 1970 and the consolidation of ownership of the same
date be declared null and void; (b) that the new transfer certificates of title TCT Nos.
286174, 286175, and 286176—be cancelled and the old ones, TCT Nos.
177019,175595, and 73620 be restored or revived by the Register of Deeds of Rizal;
and (c) that the respondent PCIB be ordered to surrender and deposit the TCT Nos.
177019, 175595, and 73620 with respondent Court for safekeeping (Rollo. p. 243).
On December 16, 1970 respondent Court promulgated the questioned decision (Rollo,
pp. 237-249). On January 12, 1971 it resolved (Rollo, p. 280) to deny petitioner's
motion for reconsideration dated January 5, 1971 (Rollo, p. 250) and on January 22,
1971 it again resolved (Rollo, p. 281) to deny petitioner's supplement to motion for
reconsideration dated January 18, 1971 (Rollo, p. 260).
The instant Petition for Review on certiorari (Rollo, p. 12) was filed with the Court on
February 16, 1971. On February 23, 1971, the Court resolved to give due course to
the petition and ordered the issuance of preliminary injunction enjoining respondents
from enforcing or implementing the appealed decision of respondent Court of Appeals,
upon petitioner's posting a bond of P50,000.00 (Rollo, p. 584). The writ of preliminary
injunction was issued on April 28, 1971 (Rollo, p. 619).
The Brief for Petitioner was filed on June 18, 1971 (Rollo, p. 631). The Brief for the
Respondents was filed on September 20, 1971 (Rollo, p. 655). The Reply Brief was
filed on December 6, 1971 (Rollo, p. 678).
On April 2, 1971 respondent PCIB filed a motion for leave to lease real estate
properties in custodia legis, more specifically the 31, 447 sq.m. lot located at Sto.
Domingo, Cainta, Rizal covered by TCT No. 286176 (Rollo, p. 697). Petitioner filed its
opposition to the motion on May 27, 1971 (Rollo, p. 712). The reply to the opposition
was filed on December 6,1971 (Rollo, p. 730); the rejoinder to respondent PCIB's
reply to opposition, on November 19, 1971 (Rollo, p. 736). Meantime the case was
transferred to the Second Division, by a Resolution of the First Division dated January
17, 1983
(Rollo, p. 752).
The issues raised in this case are the following:
1. WHETHER OR NOT RESPONDENT COURT ERRED IN
FINDING THAT THE LOWER COURT DID NOT COMMIT AN
ABUSE OF DISCRETION IN DENYING PETITIONER'S
APPLICATION FOR A PRELIMINARY INJUNCTION AND
DISSOLVING THE RESTRAINING ORDER PREVIOUSLY
ISSUED. (Brief for Petitioner, pp. 21-47);
2. WHETHER OR NOT RESPONDENT COURT ERRED IN
DECLARING VALID THE FORECLOSURE SALE ON MAY
9,1969 OF THE MORTGAGED PROPERTIES EN
MASSE WHEN THEY REFER TO SEVERAL REAL ESTATE
MORTGAGES EXECUTED ON DIFFERENT DATES. (Brief for
Petitioner, pp. 47-50).
The main issue is whether or not private respondents have the right to the extrajudicial
foreclosure sale of petitioner's mortgaged properties before trial on the merits. The
answer is in the negative.
Petitioner filed Civil Case No. 11015 in the Court of First Instance of Rizal, Branch II,
to obtain judgment (1) enjoining defendants (respondents herein) from proceeding
with the foreclosure sale of the subject real estate mortgages, (2) fixing a new period
for the payment of the obligations of plaintiff to defendant PCIB sufficiently long to
enable it to recover from the effects of defendant PCIB's inequitable acts, (3) ordering
defendant PCIB to immediately give up management of plaintiffs canning industry and
to pay plaintiff such damages as it may prove in the concept of actual, compensatory
and exemplary or corrective damages, aside from attorney's fees and expenses of
litigation, plus costs (Rollo, p. 98). It is to be noted that petitioner filed the above case
mainly to forestall the foreclosure sale of the mortgaged properties before final
judgment. The issuance of a writ of preliminary injuction could have preserved
the status quo of the parties in relation to the subject matter litigated by them during
the pendency of the action (Lasala v. Fernandez, 5 SCRA 79 [1962]; De Lara v.
Cloribel, 14 SCRA 269 [1965]; Locsin v. Climaco, 26 SCRA 816 [1969].
When the lower court denied the issuance of the writ prayed for and dissolved the
restraining order it had previously issued, in its order dated January 31, 1969 (Rollo, p.
138) it practically adjudicated the case before trial on the merits.
While petitioner corporation does not deny, in fact, it admits its indebtedness to
respondent bank (Brief for Petitioner, pp. 7-11), there were matters that needed the
preservation of the status quo between the parties. The foreclosure sale was
premature.
First was the question of whether or not petitioner corporation was already in default.
In its letter dated August 12,1966 to petitioner corporation, among the conditions that
respondent bank set for the consolidation of the outstanding obligations of petitioner
was the liquidation of the said obligations together with the latter's other obligations in
the financing scheme already approved by the NIDC and PDCP. To quote:
a) These facilities shall be temporary and shall be fully liquidated,
together with other obligations from a refinancing scheme already
approved by the NIDC and PDCP totalling Pl million in equity and
P2.6 million in long term financing. In this connection, the firm
shall present to this Bank a certified copy of the terms and
conditions of the approval by the NIDC and PDCP. (Brief for the
Respondent, p. 41).
In other words, the loans of petitioner corporation from respondent bank were
supposed to become due only at the time that it receives from the NIDC and PDCP
the proceeds of the approved financing scheme. As it is, the conditions did not
happen. NIDC refused to make further releases after it had made two releases
totalling P200,000.00 which were all applied to the payment of the preferred stock
NIDC subscribed in petitioner corporation to partially implement its P1,000,000.00
investment scheme (Brief for Petitioner, p. 9). The efficacy or obligatory force of a
conditional obligation is subordinated to the happening of a future and uncertain event
so that if the suspensive condition does not take place, the parties would stand as if
the conditional obligation had never existed (Gaite v. Fonacier, 2 SCRA 831
[1961]).<äre||anº•1àw>
Petitioner corporation alleges that there had been no demand on the part of
respondent bank previous to its filing a complaint against petitioner and Rene Knecht
personally for collection on petitioner's indebtedness (Brief for Petitioner, p. 13). For
an obligation to become due there must generally be a demand. Default generally
begins from the moment the creditor demands the performance of the obligation.
Without such demand, judicial or extrajudicial, the effects of default will not arise
(Namarco v. Federation of United Namarco Distributors, Inc. 49 SCRA 238 [1973];
Borje v. CFI of Misamis Occidental, 88 SCRA 576 [1979]). Whether petitioner
corporation is already in default or not and whether demand had been properly made
or not had to be determined in the lower court.
Granting that the findings of the lower court after trial on the merits answer both
questions in the affirmative, another question that had to be determined was the
question of cause or consideration.
The loan agreements between petitioner and respondent Bank are reciprocal
obligations (the obligation or promise of each party is the consideration for that of the
other Penacio v. Ruaya, 110 SCRA 46 [1981], cited. in Central Bank of the Philippines
v. Court of Appeals, 139 SCRA 46 [1985] ). A contract of loan is not a unilateral
contract as respondent Bank thinks it is (Brief for the Respondent, p. 19). The promise
of petitioner to pay is the consideration for the obligation of respondent bank to furnish
the loan (Ibid.).
Respondent bank had complete control of the financial affairs and the management of
petitioner corporation. It appointed its executive vice-president Roberto S. Benedicto
as its representative in petitioner's board of directors, giving him the position of
vice-president in petitioner corporation (Brief for Petitioner, p. 7). Upon the resignation
of Roberto S. Benedicto as vice-president and member of the board of directors of
petitioner corporation on December 29, 1965 (Brief for Petitioner, p. 8), respondent
bank designated Rafael Ledesma as its representative in petitioner corporation's
board of directors, due representation in the board of petitioner being a condition for
the loan granted to the petitioner (Rollo, p. 166). In fact, Rafael Ledesma was
designated Chairman of the Board of Directors (Rollo, p. 169). Respondent bank
required petitioner to appoint Sycip, Gorrez, Velayo & Co. as full-time comptroller-
treasurer of the corporation at a monthly salary of P1,500.00 (Brief for Petitioner, p. 9;
Brief for the Respondent, p. 41). On January 2, 1967, it also required petitioner to
replace its then manager, the Management & Investment Development Associates
(MIDA) and to appoint instead Edmundo Ledesma at a monthly salary of P3,000.00
and transportation allowance of P1,000.00 plus an assistant manager, Venancio
Concepcion at a salary of P1,000.00 a month. During the next 18 months'
management by defendant's designated manager, no meeting of the board of
directors of petitioner was called- Edmundo Ledesma exercised full control and
management (Brief for Petitioner, pp. 10-11; Rollo, p. 167). Respondent Bank has not
given up management of petitioner's food canning industry and continues to hold it.
Even Atty. Juan de Ocampo has been retained by petitioner as corporate counsel, at
the insistence of respondent bank (Brief for Petitioner, p. 14). This has not been
denied by respondent bank.
Respondent bank's designation of its own choice of people holding key positions in
petitioner corporation tied the hands of petitioner's board of directors to make
decisions for the interest of petitioner corporation, in fact, undermined the latter's
financial stability. During the 18 months of Edmundo Ledesma's management,
petitioner's factory produced some P200,000.00 worth of canned goods which
according to petitioner is only equivalent to its normal production in three weeks (Brief
for Petitioner, pp.10-11). Respondent bank justifies the underproduction by averring
that petitioner at that time did not have sufficient capital to operate the factory, and
that said factory was only operating for the purpose of avoiding spoilage and
deterioration of the raw materials then in store at the petitioner's factory (Rollo. p. 168)
and yet respondent bank insists, that it had released the entire amount of P500,000.00
loan to petitioner (Rollo, p. 167) earmarked for operating capital purposes (Brief for the
Respondent, p. 43) and admits having granted a P40,000.00 loan at a higher interest
of 14% per annum to petitioner at the request of the same Edmundo Ledesma (Rollo,
p. 167). After the Development Bank of the Philippines had approved on June 29,
1967 a loan of P1,840,000.00 applied for by petitioner in 1961, respondent bank
informed of the availability of P800,000.00 to pay off partially petitioner's account with
it and requested to release the titles of the Pasig parcels for delivery to the
Development Bank of the Philippines, and the amount actually released by the
Development Bank, Rafael Ledesma, in his capacity as Chairman of petitioner's board
of directors wrote a letter to the Development Bank of the Philippines stating that Rene
Knecht, petitioner's president, had no authority to borrow for petitioner, being a mere
figurehead president, although Rene Knecht, controlled 87% of the stockholding of
petitioner and the by-laws authorized the president to borrow for the company (Brief
for Petitioner, pp. 11-13).<äre||anº•1àw> That Rafael Ledesma wrote a letter to the
Development Bank of the Philippines is admitted by respondent bank (Rollo, p. 169).
The Development Bank of the Philippines refused to make further releases on the
approved loan or to issue the dollar guaranty for the importation of can making
machinery. It was Atty. Juan de Ocampo, the corporate counsel retained by petitioner
at the insistence of respondent bank that instituted the collection suit and
extra-judicial foreclosure for respondent bank against petitioner (Brief for Petitioner,
pp. 13-14; Rollo, p. 79).
It is apparent that it is respondent bank practically managing petitioner corporation
through its representatives occupying key positions therein. Not even the president of
petitioner corporation could escape control by respondent bank through the
Comptroller Treasurer assigned "to countersign all checks and other disbursements
and decide on all financial matters regarding the operations and who shall see to it
that operations are carried out" (Brief for the Respondent, p. 41). There is basis for
petitioner's complaint of interference by respondent bank with petitioner's financing
(Brief for Petitioner, pp. 3132) and such interference is only a consequence of
respondent bank's management of petitioner corporation through the officers
occupying key positions therein. Thus, if ever petitioner corporation was in financial
straits instead of being rehabilitated this can be attributed to the mismanagement of
respondent corporation through its representatives in petitioner corporation.
In a similar case, Filipinas Marble Corporation v. Intermediate Appellate Court (142
SCRA 180 [1986]) where the lending institution took over the management of the
borrowing corporation and led that corporation to bankcruptcy through
mismanagement or misappropriation of the funds, defeating the very purpose of the
loan which is to develop the projects of the corporation, the Court ruled that it is as if
the loan was never delivered to it and thus, there was failure on the part of the
respondent DBP to deliver the consideration for which the mortgage and the
assignment of deed were executed.
It cannot be determined at this point how much of the total loan, most especially the
P500,000.00 loan for operating capital and the P40,000.00 loan of the manager,
Edmundo Ledesma, had been mismanaged or misspent by respondent bank through
its representatives. This matter should rightfully be litigated below in the main action
(Filipinas Marble Corportion v. Intermediate Appellate Court. (supra).
Furthermore, respondent bank was in default in fulfilling its reciprocal obligation under
their loan agreement. By its own admission it failed to release the P710,000.00 loan
(Rollo, p. 167) it approved on October 13, 1966 (Brief for Respondent, p. 44) in which
case, petitioner corporation, under Article 1191 of the Civil Code, may choose
between specific performance or rescission with damages in either case (Central Bank
of the Philippines v. Court of Appeals, 139 SCRA 46 [1985]).
As a consequence, the real estate mortgage of petitioner corporation cannot be
entirely foreclosed to satisfy its total debt to respondent bank. (Central Bank of the
Philippines v. Court of Appeals, supra.)
The issue of whether the foreclosure sale of the mortgaged properties en masse was
valid or not must be answered in the negative. The rule of indivisibility of a real estate
mortgage refers to the provisions of Article 2089 of the Civil Code, which provides:
Art. 2089. A pledge or mortgage is indivisible, even though the
debt may be divided among the successors in interest of the
debtor or of the creditor.
Therefore the debtor's heir who has paid a part of the debt cannot
ask for the proportionate extinguishment of the pledge or
mortgage as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the debt
return the pledge or cancel the mortgage, to the prejudice of the
other heirs who have not been paid.
 From these provisions is excepted the case in which, there being
several things given in mortgage or pledge, each one of them
guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment
of the pledge or mortgage as the portion of the debt for which
each thing is specially answerable is satisfied.
Respondent bank cites the above-quoted article in its argument that the mortgage
contract is indivisible and that the loan it secures cannot be divided among the
different lots (Brief for Respondent, p. 27). Respondent Court upheld the validity of the
sale en masse (Rollo, p. 246).
The rule, however, is not applicable to the instant case as it presupposes several heirs
of the debtor or creditor which does not obtain in this case (Central Bank of the
Philippines v. Court of Appeals, supra.) Furthermore, granting that there was
consolidation of the entire loan of petitioner corporations approved by respondent
bank, the rule of indivisibility of mortgage cannot apply where there was failure of
consideration on the part of respondent bank for the mismanagement of the affairs of
petitioner corporation and where said bank is in default in complying with its obligation
to release to petitioner corporation the amount of P710,000.00. In fact the real estate
mortgage itself becomes unenforceable (Central Bank of the Philippines v. Court of
Appeals, supra). Finally, it is noted that as already stated hereinabove, the exact
amount of petitioner's total debt was still unknown.
PREMISES CONSIDERED, (1) the decision of the Court of Appeals is REVERSED
insofar as it sustained: (a) the lower court's denial of petitioner's application for
preliminary injunction and (b) the validity of the foreclosure sale; (2) the lower court is
ordered to proceed with the trial on the merits of the main case together with a
determination of exactly how much are petitioner's liabilities in favor of respondent
bank PCIB so that proper measures may be taken for their eventual liquidation; (3) the
preliminary injunction issued by this Court on April 28, 1971 remains in force until the
merits of the main case are resolved; and (4) the motion of respondent bank dated
April 1, 1981 for leave to lease the real properties in custodia legis is DENIED.
SO ORDERED.
Melencio-Herrera (Chairperson), Padilla, and Sarmiento, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T.
CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in
his capacity as statutory receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of
the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying
the decision dated February 15, 1972 of the Court of First Instance of Agusan, which
dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino,
who, as a security for the loan, executed on the same day a real estate mortgage over
his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No.
T-305, and which mortgage was annotated on the said title the next day. The
approved loan application called for a lump sum P80,000.00 loan, repayable in semi-
annual installments for a period of 3 years, with 12% annual interest. It was required
that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to
develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was
made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a
promissory note for P17,000.00 at 12% annual interest, payable within 3 years from
the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64,
rec.). An advance interest for the P80,000.00 loan covering a 6-month period
amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this
pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after
being informed by the Bank that there was no fund yet available for the release of the
P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer,
promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island
Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which
provides:
 In view of the chronic reserve deficiencies of the Island Savings
Bank against its deposit liabilities, the Board, by unanimous vote,
decided as follows:
1) To prohibit the bank from making new loans and investments
[except investments in government securities] excluding
extensions or renewals of already approved loans, provided that
such extensions or renewals shall be subject to review by the
Superintendent of Banks, who may impose such limitations as
may be necessary to insure correction of the bank's deficiency as
soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to
put up the required capital to restore its solvency, issued Resolution No. 967 which
prohibited Island Savings Bank from doing business in the Philippines and instructed
the Acting Superintendent of Banks to take charge of the assets of Island Savings
Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00
covered by the promissory note, filed an application for the extra-judicial foreclosure of
the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and
the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First
Instance of Agusan for injunction, specific performance or rescission and damages
with preliminary injunction, alleging that since Island Savings Bank failed to deliver the
P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by
ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per
annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real
estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued
a temporary restraining order enjoining the Island Savings Bank from continuing with
the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the
dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the
restraining order, filed by the Central Bank and by the Acting Superintendent of Banks
(pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision,
finding unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island
Savings Bank the amount of PI 7 000.00 plus legal interest and legal charges due
thereon, and lifting the restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino,
modified the Court of First Instance decision by affirming the dismissal of Sulpicio M.
Tolentino's petition for specific performance, but it ruled that Island Savings Bank can
neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31.
rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance
prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt
covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00
subsists, can his real estate mortgage be foreclosed to satisfy
said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal
obligations, the obligation or promise of each party is the consideration for that of the
other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA
1 [1969]); and when one party has performed or is ready and willing to perform his
part of the contract, the other party who has not performed or is not ready and willing
to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island Savings Bank to
furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate
mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan.
From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965,
and lasted for a period of 3 years or when the Monetary Board of the Central Bank
issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank
from doing further business. Such prohibition made it legally impossible for Island
Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of
the Monetary Board to take over insolvent banks for the protection of the public is
recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the
validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default
of Island Savings Bank in complying with its obligation of releasing the P63,000.00
balance because said resolution merely prohibited the Bank from making new loans
and investments, and nowhere did it prohibit island Savings Bank from releasing the
balance of loan agreements previously contracted. Besides, the mere pecuniary
inability to fulfill an engagement does not discharge the obligation of the contract, nor
does it constitute any defense to a decree of specific performance (Gutierrez Repide
vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a
debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken
as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-
deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering
a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00
balance. The act of Island Savings Bank, in asking the advance interest for 6 months
on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out
of the P80,000.00 loan was released. A person cannot be legally charged interest for
a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted
interest was an exercise of his right to it, which right exist independently of his right to
demand the completion of the P80,000.00 loan. The exercise of one right does not
affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan
collateral cannot exempt it from complying with its reciprocal obligation to furnish the
entire P80,000.00 loan. 'This Court previously ruled that bank officials and employees
are expected to exercise caution and prudence in the discharge of their functions
(Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of
the bank's officials and employees that before they approve the loan application of
their customers, they must investigate the existence and evaluation of the properties
being offered as a loan security. The recent rush of events where collaterals for bank
loans turn out to be non-existent or grossly over-valued underscore the importance of
this responsibility. The mere reliance by bank officials and employees on their
customer's representation regarding the loan collateral being offered as loan security
is a patent non-performance of this responsibility. If ever bank officials and employees
totally reIy on the representation of their customers as to the valuation of the loan
collateral, the bank shall bear the risk in case the collateral turn out to be over-valued.
The representation made by the customer is immaterial to the bank's responsibility to
conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio
M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-
valuation because of their failure to raise the same in their pleadings (pp. 198-199,
t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise
the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under
their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may
choose between specific performance or rescission with damages in either case. But
since Island Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio
M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only
for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default
only insofar as such amount is concerned, as there is no doubt that the bank failed to
give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M.
Tolentino accepted and executed a promissory note to cover it, the bank was deemed
to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The
promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under
the promissory note made him a party in default, hence not entitled to rescission
(Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it
shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00 within 3 years,
he would be entitled to ask for rescission of the entire loan because he cannot
possibly be in default as there was no date for him to perform his reciprocal obligation
to pay.
Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish
the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his
P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a
breach of their reciprocal obligations, the liability of the first infractor shall be equitably
tempered by the courts. WE rule that the liability of Island Savings Bank for damages
in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his overdue
P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00
debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just that he should
account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be
entirely foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as
that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the
debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in
the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt
(Art. 2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because Island Savings
Bank had not made any release on the loan, does not make the real estate mortgage
void for lack of consideration. It is not necessary that any consideration should pass at
the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125
SCRA 122 [1983]). lt may either be a prior or subsequent matter. But when the
consideration is subsequent to the mortgage, the mortgage can take effect only when
the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE
176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO
there is partial failure of consideration, the mortgage becomes unenforceable to the SATISFY HIS TOTAL INDEBTEDNESS; AND
extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974
ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY
mortgage is less than the sum named in the mortgage, the mortgage cannot be
DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN
enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson,
FAVOR OF SULPICIO M. TOLENTINO.
Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).

NO COSTS. SO ORDERED.
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00
loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such
extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering
the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a P17,000.00 debt. Aquino (Chairman) and Abad Santos, JJ., took no part.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the
Civil Code is inapplicable to the facts of this case.

Article 2089 provides:

A pledge or mortgage is indivisible even though the debt may be

divided among the successors in interest of the debtor or creditor.

Therefore, the debtor's heirs who has paid a part of the debt can
not ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.

Neither can the creditor's heir who have received his share of the
debt return the pledge or cancel the mortgage, to the prejudice of
other heirs who have not been paid.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted

presupposes several heirs of the debtor or creditor which does not obtain in this case.
Hence, the rule of indivisibility of a mortgage cannot apply

WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY

11, 1977 IS HEREBY MODIFIED, AND

1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF

HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 EN BANC
REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM
MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL [G.R. No. 9459. October 19, 1914. ]
AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
THE UNITED STATES, Plaintiff-Appellee, v. SEVERINO
CAMARA, Defendant-Appellant.

Lucio Villareal, for Appellant.
Solicitor-General Corpus, for Appellee.
SYLLABUS
1. ESTAFA; CONTRACT OF SALE. — Paragraph 5 of article 535 of the Penal
Code does not, nor can it, specify a contract of sale as being one that gives
rise to the obligation to surrender or to return the thing received, as occurs
with contracts for safe-keeping, or of commission, or administration, and
others such as commodatum, which certainly involve the obligation to
surrender or return the thing received.
2. ID.; ID.; — A person who buys rice on credit becomes the owner of it
and indebted for its price, but is not guilty of the crime of estafa by reason
of not paying for it.
3. ID.; ID. — If a debtor sells to his creditor a piece of land, the agreed
and accepted price of which is equal to the balance owing on a current
account, and the creditor grants to the debtor the right to repurchase the
land within a fixed period, a grave error is committed in filing a complaint
for estafa in order to collect the sum alleged to be owing, when such
amount is nothing but the price of the resale should the vendor desire to
repurchase the land he had sold.
DECISION
ARELLANO, C.J. :
Severino Camara was charged before the Court of First Instance of
Tayabas "with having, in December, 1912, taken and received from Calixto
Berbari, as the representative of Berbari Hermanos, the sum of P425.10 for
the purchase, on commission, of copra, and with having appropriated the
said sum to himself, to the prejudice of Berbari Hermanos." (Complaint
filed by the fiscal.)
The record shows that from this sum of P425.10 there must be deducted
the amount of P8.50, which, according to the document presented in
evidence by the said Calixto Berbari, is the value of one sack of rice that
Berbari sold to Camara on credit. This being the actual fact, the charge
made in the complaint is unfounded, to wit, that the defendant
appropriated to himself money, goods, or other personal property received
on commission for the purchase of copra, and therefore he cannot be guilty
of the crime of estafa, but is a debtor for the price of the sale. Paragraph 5
of article 535 of the Penal Code does not, nor can it, specify a contract of
sale as one that gives rise to the obligation to deliver or to return the thing
received, as occurs with contracts for safe-keeping, or of commission, or
administration, and others such as commodatum, which certainly involve
the obligation to deliver or return the thing received. A person who buys
rice on credit becomes the owner of it and indebted for its price, but is not
guilty of the crime of estafa by reason of not paying for it. Hence, the sum
which the defendant is alleged to have embezzled is not P425.10, as stated
in the complaint, but P416.60.
Besides this reduction, the trial court makes another of ~36.06, the value
of the copra furnished by the defendant, as admitted by Berbari in his
testimony. Consequently the amount specified in the complaint should be
reduced to P380.54.
Severino Camara was an agent of Berbari Hermanos for the purchase of
copra on their order and account. On February 1, 1913, the manager of
Berbari Hermanos filed a complaint of estafa for the aforesaid sum of
P425.10. During the trial he was required to present a statement of the
accounts of Severino Camara with the firm, which he did, and that
statement now appears in evidence on page 61 of the record. The title
reads as follows: "Extract from the account current of Mr. Severino Camara
with Messrs. Berbari Hermanos, Atimonan." And at the close: "1913 —
January 31 — Balance due us from him (for this balance he was sued in the
justice of the peace court of Atimonan) P425.10." It is evident that the sum
mentioned in the complaint as having been taken and received on
commission is the balance of an account containing entries of amounts
received by Camara and amounts received by Berbari Hermanos.
As the settlement of account ended with a balance sued for in the justice of
the peace court, it also began with a balance likewise sued for in the Court
of First Instance. The account begins thus: "1911 — September 30 —
Balance in our favor, as per receipts (for this balance suit was instituted
against him), P413.35." Notwithstanding this, in May, 1912, the account
with Severino Camara was resumed to the extent that, on October 31st of
that year, the debit amounted to P3,467.69 and the credit to P1,621.82.
In this trial, the manager of Berbari Hermanos, on cross-examination by
the defense, testified that in November, 1912, Camara was sued before the
Court of First Instance for the sum of P1,700 and was absolved; and that
Camara executed a contract of sale, under right of repurchase, of two
parcels of coconut land, containing an area of 6 hectares planted to 700
coconut trees, for the price of P1,722.50, stipulating the term of one year
for their redemption. This price of P1,722.50 was undoubtedly security for
the payment of the said balance of P1,700 and appears in the said settle-
ment of November 12, 1912. Hence, on this date, November 12, 1912,
there was no balance in favor of Berbari Hermanos for which action could
be brought as a sum embezzled, but there was only an amount owed by
the defendant as the price he would have to pay in case of the repurchase
of those two parcels of land. Subsequent to this date and up to December
29, 1912, various items continued to be debited, up to a total of P729.58,
among which were four of P8.50; each of which must have been, as was
seen, the price of one sack of rice, and various items were also credited to
an aggregate total of P770. Hence there is a balance, not in favor of, but
against Berbari Hermanos, and yet, on January 31, 1913 there appeared
the ’balance in their favor sued for in the justice of the peace court of
Atimonan" that is the subject matter of the present case, to wit, P425.10.
Such are the actual facts disclosed by the record. They are the proven
facts. A grave error is committed by bringing a criminal complaint for
estafa in order to collect a sum alleged to be due, when such amount is
nothing but the price of the parcels of land which the vendor sold, should
he desire to repurchase them, for, if the repurchase is not effected. the
vendor, far from being a debtor, is for various reasons a creditor.
And even though the said settlement of the account kept by the creditor
himself should disclose that a balance was actually due him, he is not
entitled to bring a criminal action for estafa by reason of such balance in
order to obtain its payment by first imprisoning the debtor.
A mere shortage in an account does not prove the misappropriation and
abstraction for which punishment is provided in the code. (Decisions of
June 9, 1884, and November 7, 1889.) If a previous settlement is
necessary in order to determine the balance, as in the present case, where
the court ordered one to be made, the crime of estafa does not exist.
(Decision of May 5, 1886.) Delay in the execution of a commission, or in
the delivery of a sum received by reason thereof, only involves civil
liability. (Decisions of November 24, 1886, and December 23, 1890.) In
the case at bar there was not even any delay, for, after all, there was only
an agreement to repurchase pending. When, in February, 1912, the
criminal complaint was filed, the defendant was not in debt to the
complainant, even if we take into account the items owed for the rice
purchased on credit, which cannot form the basis of an action for estafa.
The judgment appealed from is reversed and the defendant is acquitted,
without special finding as to the costs in this instance.
Torres, Johnson, Carson, Moreland and Araullo, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 84719 January 25, 1991
YONG CHAN KIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge,
RTC, 6th Judicial Region, Branch 28 Iloilo City and Court of Appeals (13th
Division) respondents.
Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.
Hector P. Teodosio for private respondent.
PADILLA, J.:
This petition seeks the review on certiorari of the following:
1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial
Court (Guimbal-Igbaras-Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal
Case No. 628,1 and the affirming decision of the Regional Trial Court,
Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30
July 1987;2
2. The decision of the Court of Appeals, dated 29 April 1988, 3
dismissing petitioner's appeal/petition for review for having been filed out of time, and
the resolution, dated 19 August 1988, denying petitioner's motion for reconsideration. 4
The antecedent facts are as follows:
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture
Department of the Southeast Asian Fisheries Development Center (SEAFDEC) with
head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the
Research Division, he conducted prawn surveys which required him to travel to
various selected provinces in the country where there are potentials for prawn culture.
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his
travels to different places in Luzon from 16 June to 21 July 1982, a period of thirty five
(35) days. Under this travel order, he received P6,438.00 as cash advance to defray
his travel expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268,
requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30
June to 4 July 1982, a period of five (5) days. For this travel order, petitioner received
a cash advance of P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation, submitting
Travel Expense Reports to the Accounting Section. When the Travel Expense Reports
were audited, it was discovered that there was an overlap of four (4) days (30 June to
3 July 1982) in the two (2) travel orders for which petitioner collected per diemstwice.
In sum, the total amount in the form of per diems and allowances charged and
collected by petitioner under Travel Order No. 2222, when he did not actually and
physically travel as represented by his liquidation papers, was P1,230.00.
Petitioner was required to comment on the internal auditor's report regarding the
alleged anomalous claim for per diems. In his reply, petitioner denied the alleged
anomaly, claiming that he made make-up trips to compensate for the trips he failed to
undertake under T.O. 2222 because he was recalled to the head office and given
another assignment.
In September 1983, two (2) complaints for Estafa were filed against the petitioner
before the Municipal Circuit Trial Court at Guimbal, Iloilo, docketed as Criminal Case
Nos. 628 and 631.
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a
decision, the dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the
accused, Yong Chan Kim, guilty beyond reasonable doubt for the crime of
Estafa penalized under paragraph l(b) of Article 315, Revised Penal Code.
Records disclose there is no aggravating circumstance proven by the
prosecution. Neither there is any mitigating circumstance proven by the
accused. Considering the amount subject of the present complaint, the
imposable penalty should be in the medium period of arresto mayor in its
maximum period to prision correccional in its minimum period in accordance
with Article 315, No. 3, Revised Penal Code. Consonantly, the Court hereby
sentences the accused to suffer an imprisonment ranging from four (4)
months as the minimum to one (1) year and six (6) months as the maximum
in accordance with the Indeterminate Sentence Law and to reimburse the
amount of P1,230.00 to SEAFDEC.
The surety bond of the accused shall remain valid until final judgment in
accordance herewith.
Costs against the accused.5
Criminal Case No. 631 was subsequently dismissed for failure to prosecute.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal
Case No. 628. On 30 July 1987, the Regional Trial Court in Iloilo City in Criminal Case
No. 20958 affirmed in toto the trial court's decision.6
The decision of the Regional Trial Court was received by petitioner on 10 August
1987. On 11 August 1987, petitioner, thru counsel, filed a notice of appeal with the
Regional Trial Court which ordered the elevation of the records of the case to the then
Intermediate Appellate Court on the following day, 12 August 1987. The records of the
case were received by the Intermediate Appellate Court on 8 October 1987, and the
appeal was docketed as CA-G.R. No. 05035.
On 30 October 1987, petitioner filed with the appellate court a petition for review. As
earlier stated, on 29 April 1988, the Court of Appeals dismissed the petition for having
been filed out of time. Petitioner's motion for reconsideration was denied for lack of
merit.
Hence, the present recourse.
On 19 October 1988, the Court resolved to require the respondents to comment on
the petition for review. The Solicitor General filed his Comment on 20 January 1989,
after several grants of extensions of time to file the same.
In his Comment, the Solicitor General prayed for the dismissal of the instant petition
on the ground that, as provided for under Section 22, Batas Pambansa 129, Section
22 of the Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules of
Criminal Procedure, the petitioner should have filed a petition for review with the then
Intermediate Appellate Court instead of a notice of appeal with the Regional Trial
Court, in perfecting his appeal from the RTC to the Intermediate Appellate Court, since
the RTC judge was rendered in the exercise of its appellate jurisdiction over municipal
trial courts. The failure of petitioner to file the proper petition rendered the decision of
the Regional Trial Court final and executory, according to the Solicitor General.
Petitioner's counsel submitted a Reply (erroneously termed Comment)7 wherein she
contended that the peculiar circumstances of a case, such as this, should be
considered in order that the principle barring a petitioner's right of review can be made
flexible in the interest of justice and equity.
In our Resolution of 29 May 1989, we resolved to deny the petition for failure of
petitioner to sufficiently show that the Court of Appeals had committed any reversible
error in its questioned judgment which had dismissed petitioner's petition for review for
having been filed out of time.8
Petitioner filed a motion for reconsideration maintaining that his petition for review did
not limit itself to the issue upon which the appellate court's decision of 29 April 1988
was based, but rather it delved into the substance and merits of the case. 9
On 10 August 1990, we resolved to set aside our resolution dismissing this case and
gave due course to the petition. In the said resolution, we stated:
In several cases decided by this Court, it had set aside technicalities in the
Rules in order to give way to justice and equity. In the present case, we note
that the petitioner, in filing his Notice of Appeal the very next day after
receiving the decision of the court a quo lost no time in showing his intention
to appeal, although the procedure taken was not correct. The Court can
overlook the wrong pleading filed, if strict compliance with the rules would
mean sacrificing justice to technicality. The imminence of a person being
deprived unjustly of his liberty due to procedural lapse of counsel is a strong
and compelling reason to warrant suspension of the Rules. Hence, we shall
consider the petition for review filed in the Court of Appeals as a
Supplement to the Notice of Appeal. As the Court declared in a recent
decision, '. . . there is nothing sacred about the procedure of pleadings. This
Court may go beyond the pleadings when the interest of justice so warrants.
It has the prerogative to suspend its rules for the same purpose. . . .
Technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration
from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]
Conscience cannot rest in allowing a man to go straight to jail, closing the
door to his every entreaty for a full opportunity to be heard, even as he has
made a prima facie showing of a meritorious cause, simply because he had
chosen an appeal route, to be sure, recognized by law but made
inapplicable to his case, under altered rules of procedure. While the Court of
Appeals can not be faulted and, in fact, it has to be lauded for correctly
applying the rules of procedure in appeals to the Court of Appeals from
decisions of the RTC rendered in the exercise of its appellate jurisdiction,
yet, this Court, as the ultimate bulwark of human rights and individual liberty,
will not allow substantial justice to be sacrified at the altar of procedural
rigor.10
In the same resolution, the parties were required to file their respective memoranda,
and in compliance with said resolution, petitioner filed his memorandum on 25 October
1989, while private respondent SEAFDEC filed its required memorandum on 10 April
1990. On the other hand, the Solicitor General filed on 13 March 1990 a
Recommendation for Acquittal in lieu of the required memorandum.
Two (2) issues are raised by petitioner to wit:
I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT
TRIAL COURT (GUIMBAL, ILOILO) AND THE REGIONAL TRIAL COURT,
BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS AND
EVIDENCE OR CONTRARY TO LAW AND THAT THE TWO COURTS A
QUO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OF JURISDICTION OR HAVE ACTED WITHOUT OR IN
EXCESS OF JURISDICTION.
II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF
APPEALS IS CONTRARY TO LAW, ESTABLISHED JURISPRUDENCE,
EQUITY AND DUE PROCESS.
The second issue has been resolved in our Resolution dated 10 August 1990, when
we granted petitioner's second motion for reconsideration. We shall now proceed to
the first issue.
We find merit in the petition.
It is undisputed that petitioner received a cash advance from private respondent
SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise admitted that
within the period covered by T.O. 2222, petitioner was recalled to the head station in
Iloilo and given another assignment which was covered by T.O. 2268. The dispute
arose when petitioner allegedly failed to return P1,230.00 out of the cash advance
which he received under T.O. 2222. For the alleged failure of petitioner to return the
amount of P1,230.00, he was charged with the crime of Estafa under Article 315, par.
1(b) of the Revised Penal Code, which reads as follows:
Art. 315. Swindling (Estafa). Any person who shall defraud another by any
of the means mentioned herein below shall be punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence, namely:
(a) x x x xxx xxx
(b) By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of; or to
return, the same, even though such obligation be fatally or
partially guaranteed by a bond; or by denying having received
such money, goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be
proven that he had the obligation to deliver or return the same money, good or
personal property that he had received.11
Was petitioner under obligation to return the same money (cash advance) which he
had received? We belive not. Executive Order No. 10, dated 12 February 1980
provides as follows:
B. Cash Advance for Travel
 xxx xxx xxx
4. All cash advances must be liquidated within 30 days after date of
projected return of the person. Otherwise, corresponding salary deduction
shall be made immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such as
herein petitioner, who liquidates a cash advance is in fact paying back his debt in the
form of a loan of money advanced to him by his employer, as per diems and
allowances. Similarly, as stated in the assailed decision of the lower court, "if the
amount of the cash advance he received is less than the amount he spent for actual
travel . . . he has the right to demand reimbursement from his employer the amount he
spent coming from his personal funds.12 In other words, the money advanced by either
party is actually a loan to the other. Hence, petitioner was under no legal obligation to
return the same cash or money, i.e., the bills or coins, which he received from the
private respondent.13
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called
a commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.
Art. 1953.— A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality.
The ruling of the trial judge that ownership of the cash advanced to the petitioner by
private respondent was not transferred to the latter is erroneous. Ownership of the
money was transferred to the petitioner. Even the prosecution witness, Virgilio Hierro,
testified thus:
Q When you gave cash advance to the accused in this Travel Order No.
2222 subject to liquidation, who owns the funds, accused or SEAFDEC?
How do you consider the funds in the possession of the accused at the time
when there is an actual transfer of cash? . . .
A The one drawing cash advance already owns the money but subject to
liquidation. If he will not liquidate, be is obliged to return the amount.
Qxxx xxx xxx
So why do you treat the itinerary of travel temporary when in fact as of that
time the accused owned already the cash advance. You said the cash
advance given to the accused is his own money. In other words, at the time
you departed with the money it belongs already to the accused?
A Yes, but subject for liquidation. He will be only entitled for that credence if
he liquidates.
Q If other words, it is a transfer of ownership subject to a suspensive
condition that he liquidates the amount of cash advance upon return to
station and completion of the travel?
A Yes, sir.
(pp. 26-28, tsn, May 8, 1985).14
Since ownership of the money (cash advance) was transferred to petitioner, no
fiduciary relationship was created. Absent this fiduciary relationship between petitioner
and private respondent, which is an essential element of the crime of estafa by
misappropriation or conversion, petitioner could not have committed estafa.15
Additionally, it has been the policy of private respondent that all cash advances not
liquidated are to be deducted correspondingly from the salary of the employee
concerned. The evidence shows that the corresponding salary deduction was made in
the case of petitioner vis-a-vis the cash advance in question.
WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit
Trial Court in Guimbal, Iloilo in Criminal Case No. 628, finding petitioner guilty of
estafa under Article 315, par. 1 (b) of the Revised Penal Code and the affirming
decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No.
20958, promulgated on 30 July 1987 are both hereby SET ASIDE. Petitioner is
ACQUITTED of criminal charge filed against him.