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 for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil 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 personalcommitment 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 -
"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 laws on obligations and contracts, as well as the clear provisions of the Chattel Mortgage Law 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.

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK, ET AL., defendants,
THE FIRST NATIONAL CITY BANK OF NEW YORK, defendant-appellee.

Office of the Solicitor General for plaintiff-appellant.

Picazo, Lichauco and Agcaoili for defendant-appellee.

BAUTISTA ANGELO, J.:

The Republic of the Philippines filed on September 25, 1957 before the Court of First Instance of Manila a complaint for escheat of certain unclaimed bank deposits
balances under the provisions of Act No. 3936 against several banks, among them the First National City Bank of New York. It is alleged that pursuant to Section 2 of
said Act defendant banks forwarded to the Treasurer of the Philippines a statement under oath of their respective managing officials of all the credits and deposits
held by them in favor of persons known to be dead or who have not made further deposits or withdrawals during the period of 10 years or more. Wherefore, it is
prayed that said credits and deposits be escheated to the Republic of the Philippines by ordering defendant banks to deposit them to its credit with the Treasurer of
the Philippines.

In its answer the First National City Bank of New York claims that, while it admits that various savings deposits, pre-war inactive accounts, and sundry accounts
contained in its report submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totalling more than P100,000.00, which remained dormant for 10 years
or more, are subject to escheat however, it has inadvertently included in said report certain items amounting to P18,589.89 which, properly speaking, are not credits
or deposits within the contemplation of Act No. 3936. Hence, it prayed that said items be not included in the claim of plaintiff.

After hearing the court a quo rendered judgment holding that cashier's is or manager's checks and demand drafts as those which defendant wants excluded from the
complaint come within the purview of Act No. 3936, but not the telegraphic transfer payment which orders are of different category. Consequently, the complaint
was dismissed with regard to the latter. But, after a motion to reconsider was filed by defendant, the court a quo changed its view and held that even said demand
drafts do not come within the purview of said Act and so amended its decision accordingly. Plaintiff has appealed.lawphil.net

Section 1, Act No. 3936, provides:

Section 1. "Unclaimed balances" within the meaning of this Act shall include credits or deposits of money, bullion, security or other evidence of
indebtedness of any kind, and interest thereon with banks, as hereinafter defined, in favor of any person unheard from for a period of ten years or more.
Such unclaimed balances, together with the increase and proceeds thereof, shall be deposited with the Insular Treasure to the credit of the Government of
the Philippine Islands to be as the Philippine Legislature may direct.

It would appear that the term "unclaimed balances" that are subject to escheat include credits or deposits money, or other evidence of indebtedness of any kind with
banks, in favor of any person unheard from for a period of 10 years or more. And as correctly stated by the trial court, the term "credit" in its usual meaning is a sum
credited on the books of a company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by
reason of property or estates, to make a promised payment ( In re Ford, 14 F. 2d 848, 849). It is the correlative to debt or indebtedness, and that which is due to any
person, a distinguished from that which he owes (Mountain Motor Co. vs. Solof, 124 S.E., 824, 825; Eric vs. Walsh, 61 Atl. 2d 1, 4; See also Libby vs. Hopkins, 104 U.S.
303, 309; Prudential Insurance Co. of America vs. Nelson, 101 F. 2d, 441, 443; Barnes vs. Treat, 7 Mass. 271, 274). The same is true with the term "deposits" in banks
where the relationship created between the depositor and the bank is that of creditor and debtor (Article 1980, Civil Code; Gullas vs. National Bank, 62 Phil. 915;
Gopoco Grocery, et al. vs. Pacific Coast Biscuit Co., et al., 65 Phil. 443).

The questions that now arise are: Do demand draft and telegraphic orders come within the meaning of the term "credits" or "deposits" employed in the law? Can
their import be considered as a sum credited on the books of the bank to a person who appears to be entitled to it? Do they create a creditor-debtor relationship
between drawee and the payee?

The answers to these questions require a digression the legal meaning of said banking terminologies.

To begin with, we may say that a demand draft is a bill of exchange payable on demand (Arnd vs. Aylesworth, 145 Iowa 185; Ward vs. City Trust Company, 102 N.Y.S.
50; Bank of Republic vs. Republic State Bank, 42 S.W. 2d, 27). Considered as a bill of exchange, a draft is said to be, like the former, an open letter of request from,
and an order by, one person on another to pay a sum of money therein mentioned to a third person, on demand or at a future time therein specified (13 Words and
Phrases, 371). As a matter of fact, the term "draft" is often used, and is the common term, for all bills of exchange. And the words "draft" and "bill of exchange" are
used indiscriminately (Ennis vs. Coshoctan Nat. Bank, 108 S.E., 811; Hinnemann vs. Rosenback, 39 N.Y. 98, 100, 101; Wilson vs. Bechenau, 48 Supp. 272, 275).

On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law (Act No. 2031) does not operate as an assignment of funds in the hands
of the drawee who is not liable on the instrument until he accepts it. This is the clear import of Section 127. It says: "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereon and the drawee is not liable on the bill unless and until he accepts the same."
In other words, in order that a drawee may be liable on the draft and then become obligated to the payee it is necessary that he first accepts the same. In fact, our
law requires that with regard to drafts or bills of exchange there is need that they be presented either for acceptance or for payment within a reasonable time after
their issuance or after their last negotiation thereof as the case may be (Section 71, Act 2031). Failure to make such presentment will discharge the drawer from
liability or to the extent of the loss caused by the delay (Section 186, Ibid.)

Since it is admitted that the demand drafts herein involved have not been presented either for acceptance or for payment, the inevitable consequence is that the
appellee bank never had any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the payee concerned and as such the aforesaid
drafts cannot be considered as credits subject to escheat within the meaning of the law.

But a demand draft is very different from a cashier's or manager's cheek, contrary to appellant's pretense, for it has been held that the latter is a primary obligation of
the bank which issues it and constitutes its written promise to pay upon demand. Thus, a cashier's check has been clearly characterized in In Re Bank of the United
States, 277 N.Y.S. 96. 100, as follows:

A cashier's check issued by a bank, however, is not an ordinary draft. The latter is a bill of exchange payable demand. It is an order upon a third party
purporting to drawn upon a deposit of funds. Drinkall v. Movious State Bank, 11 N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep. 693; State v. Tyler
County State Bank (Tex. Com. App.) 277 S.W. 625, 42 A.L.R. 1347. A cashier's check is of a very different character. It is the primary obligation of the bank
which issues it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and constitutes its written promise to pay upon demand (Steinmetz v. Schultz, 59 S.D. 603,
241 N.W. 734)....lawphil.net

The following definitions cited by appellant also confirm this view:

A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a bill of exchange drawn by a bank on itself and accepted in advance
by the act of issuance (10 C.J.S. 409).
 A cashier's check issued on request of a depositor is the substantial equivalent of a certified check and the deposit represented by the check passes to the
credit of the checkholder, who is thereafter a depositor to that amount (Lummus Cotton Gin Co. v. Walker, 70 So. 754, 756, 195 Ala. 552).

A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in advance by the act of issuance, is not subject to countermand
by the payee after indorsement, and has the same legal effects as a certificate deposit or a certified check (Walker v. Sellers, 77 So. 715, 201 Ala. 189).

A demand draft is not therefore of the same category as a cashier's check which should come within the purview of the law.

The case, however, is different with regard to telegraphic payment order. It is said that as the transaction is for the establishment of a telegraphic or cable transfer
the agreement to remit creates a contractual obligation a has been termed a purchase and sale transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer upon
making payment completes the transaction insofar as he is concerned, though insofar as the remitting bank is concerned the contract is executory until the credit is
established (Ibid.) We agree with the following comment the Solicitor General: "This is so because the drawer bank was already paid the value of the telegraphic
transfer payment order. In the particular cases under consideration it appears in the books of the defendant bank that the amounts represented by the telegraphic
payment orders appear in the names of the respective payees. If the latter choose to demand payment of their telegraphic transfers at the time the same was (were)
received by the defendant bank, there could be no question that this bank would have to pay them. Now, the question is, if the payees decide to have their money
remain for sometime in the defendant bank, can the latter maintain that the ownership of said telegraphic payment orders is now with the drawer bank? The latter
was already paid the value of the telegraphic payment orders otherwise it would not have transmitted the same to the defendant bank. Hence, it is absurd to say that
the drawer banks are still the owners of said telegraphic payment orders."

WHEREFORE, the decision of the trial court is hereby modified in the sense that the items specifically referred to and listed under paragraph 3 of appellee bank's
answer representing telegraphic transfer payment orders should be escheated in favor of the Republic of the Philippines. No costs.

Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur.

Bengzon, C.J., Padilla, Labrador and Concepcion, JJ., took no part.

FRANCISCO HERRERA, plaintiff-appellant,

vs.
PETROPHIL CORPORATION, defendant-appellee.

Paterno R. Canlas Law Offices for plaintiff-appellant.

CRUZ, J.:

This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of First Instance of Rizal on a pure question of law. 1

The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on the factual antecedents.

The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered into a
"Lease Agreement" whereby the former leased to the latter a portion of his property for a period of twenty (20) years from said date, subject inter alia to the
following conditions:

3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400 sqm. and are to be expropriated later on (sic) or P560 per month and
Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance
within the 1st twenty days of each year; provided, a financial aid in the sum of P15,000 to clear the leased premises of existing improvements thereon is
paid in this manner; P10,000 upon execution of this lease and P5,000 upon delivery of leased premises free and clear of improvements thereon within 30
days from the date of execution of this agreement. The portion on the side of the leased premises with an area of 365 sqrm. more or less, will be occupied
by LESSEE without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month
discounted at 12% interest per annum or a total net amount of P130,288.47 before registration of lease. Leased premises shall be delivered within 30 days
after 1st partial payment of financial aid. 2

On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the plaintfff-appellant advance rentals for the first eight years, subtracting
therefrom the amount of P101,010.73, the amount it computed as constituting the interest or discount for the first eight years, in the total sum P180,288.47. On
August 20, 1970, the defendant-appellee, explaining that there had been a mistake in computation, paid to the appellant the additional sum of P2,182.70, thereby
reducing the deducted amount to only P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest, claiming this had been illegally deducted from him
in violation of the Usury Law. 4 He also prayed for moral damages and attorney's fees. In its answer, the defendant-appellee admitted the factual allegations of the
complaint but argued that the amount deducted was not usurious interest but a given to it for paying the rentals in advance for eight years. 5 Judgment on the
pleadings was rendered for the defendant. 6

Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the interest collected out of the rentals paid
for the first eight years; that such interest was excessive and violative of the Usury Law; and that he had neither agreed to nor accepted the defendant-appellant's
computation of the total amount to be deducted for the eight years advance rentals. 7
The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, which read:

6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable by law, because the total interest
on the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interest should be computed excluding the first year
rental because at the time the amount of P281, 199.20 was paid it was already due under the lease contract hence no interest should be collected from
the rental for the first year, the amount of P29,536.42 only as the total interest should have been deducted by defendant from the sum of P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and above that allowed by law.

As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the
contract is there any showing that the parties intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be construed as a
repayment of a loan because there was no grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-
appellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or discount.

The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may establish such stipulations, clauses, terms and
condition as they may want to include; and as long as such agreements are not contrary to law, morals, good customs, public policy or public order, they shall have
the force of law between them. 8

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money already in his
possession. 9 There was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to deduct from the total
payments because they were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine,
and any reduction thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is
therefore governed by the laws on usury. 10

To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be repayable absolutely and in all
events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law." 11

It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned;
that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than
the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared. 12

Concerning the computation of the deductible discount, the trial court declared:

As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant) shag pay the lessor (plaintiff) eight (8) years in advance rentals
based on P2,930.20 per month discounted at 12% interest per annum. Thus, the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12
months) and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first eight (8) years should
be only P33,755.90 (P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendant claimed it to be.

The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading. He just computed the annual discount to
be at P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into consideration the naked fact that the rentals due on the eight year
were paid in advance by seven (7) years, the rentals due on the seventh year were paid in advance by six (6) years, those due on the sixth year by five (5)
years, those due on the fifth year by four (4) years, those due on the fourth year by three (3) years, those due on the third year by two (2) years, and those
due on the second year by one (1) year, so much so that the total number of years by which the annual rental of P4,129.4880 was paid in advance is
twenty-eight (28), resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as the discount. However, defendant was most fair to
plaintiff. It did not simply multiply the annual rental discount by 28 years. It computed the total discount with the principal diminishing month to month as
shown by Annex 'A' of its memorandum. This is why the total discount amount to only P 8,828.03.

The allegation of plaintiff that defendant made the computation in a compounded manner is erroneous. Also after making its own computations and after
examining closely defendant's Annex 'A' of its memorandum, the court finds that defendant did not charge 12% discount on the rentals due for the first
year so much so that the computation conforms with the provision of the Lease Agreement to the effect that the rentals shall be 'payable yearly in
advance within the 1st 20 days of each year. '

We do not agree. The above computation appears to be too much technical mumbo-jumbo and could not have been the intention of the parties to the transaction.
Had it been so, then it should have been clearly stipulated in the contract. Contracts should be interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment. 13

The plaintfff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and this amount would be the same for each of
the eight years. There is no showing that the intricate computation applied by the trial court was explained to him by the defendant-appellee or that he knowingly
accepted it.

The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a 12% reduction for advance rentals for all
of twenty eight years. That is absurd. It is not normal for a person to agree to a reduction corresponding to twenty eight years advance rentals when all he is receiving
in advance rentals is for only eight years.
The deduction shall be for only eight years because that was plainly what the parties intended at the time they signed the lease agreement. "Simplistic" it may be, as
the Solicitor General describes it, but that is how the lessor understood the arrangement. In fact, the Court will reject his subsequent modification that the interest
should be limited to only seven years because the first year rental was not being paid in advance. The agreement was for a uniform deduction for the advance rentals
for each of the eight years, and neither of the parties can deviate from it now.

On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was P281,347.20 from which was deducted the
total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum of P182,471.17 already paid will leave a balance of
P65,114.35 still due the plaintiff-appellant.

The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single stipulation invoked by the respondent for the
flat reduction of P130,288.47.

WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil Corporation is ordered to pay plaintiff-appellant the amount of
Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legal rate until fully paid, plus Ten Thousand Pesos
(P10,000.00) as attorney's fees. Costs against the defendant-appellee.

SO ORDERED.

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant.

Attorney-General Villa-Real for appellee.

MALCOLM, J.:

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio Concepcion, President of the Philippine
National Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This
special authorization was essential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local
manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to P10,000. Pursuant to this
authorization, credit aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The
notes, together with the interest, were taken up and paid by July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S.
Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the
administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board of directors of this bank, was charged in the
Court of First Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and
was sentenced to imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly be made, reads as follows: "The National
Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch banks." Section 49 of the
same Act provides: "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment
not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but were
repealed by Act No. 2938, approved on January 30, 1921.

Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued adroitly and exhaustively in their printed brief,
and again in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one.

The question presented are reduced to their simplest elements in the opinion which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a
"loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the concession of a credit. In this statement of fact,
counsel is correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan).

The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise.
(Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a given sum of
money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a
"credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine National Bank, a
"loan" or a "discount"?

Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount."

In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was
intended to apply to discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred to loans
alone, and placed no restriction upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to
ascertain if the instant transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction. But in its last analysis, to discount a paper is
only a mode of loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration
of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes
signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not deducted from the
face of the notes, but was paid when the notes fell due; and (2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the Binalbagan Estate case. Just as there it
was declared that the operations constituted a loan and not a discount, so should we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, an
"indirect loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection, it should be recalled that the wife of the
defendant held one-half of the capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this instance, the purpose of
the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar
maxim that no man may serve two masters — that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that
the husband is financially interested in the success or failure of his wife's business venture, a loan to partnership of which the wife of a director is a member, falls
within the prohibition.

Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be
specially noted.) A loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted
to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for
collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said:

What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be
convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and imprisonment?" We say to protect the stockholders,
depositors and creditors of the bank, against the temptation to which the directors and officers might be exposed, and the power which as such they must
necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this
relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should
not borrow, etc., of the bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made indirectly to him through his
firm.

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of the
same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who
shall violate any of the provisions of the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served
to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an answer adverse to such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil.,
241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has
been the holding, and it must again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the
same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with violations
of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, in
violation of section 35 of Act No. 2747, penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of said Act provides a punishment not on the
bank when it violates any provisions of the law, but on a personviolating any provisions of the same, and imposing imprisonment as a part of the penalty, the
prohibition contained in said section 35 is without penal sanction.lawph!l.net

The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director separately and
individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C." constitute a legal defense?

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

Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated, criminal intent is not necessarily material. The
doing of the inhibited act, inhibited on account of public policy and public interest, constitutes the crime. And, in this instance, as previously demonstrated, the acts
of the President of the Philippine National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling
effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a
trust, and will not listen to any proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the appellant, and with reference to previous
decisions of this court on the same subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and that the
defendant has been proved guilty beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the limits of
the punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

Araullo, C. J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

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

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

Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.

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

MAKALINTAL, J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines
(DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the
date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay
the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the
Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt
in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following:
 1. That the proceeds of the loan shall be utilized exclusively for the following purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with
the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory
buildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc.
wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability
only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00,
an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the
latter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the
resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present
conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be
prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the
loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and
undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence
on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in
Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April 17.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the
RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to
P300,000.00. Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd.
Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the
purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present
conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon
recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution
No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his
company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the
registration of the mortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it
was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the
loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-
signer of the note if RFC releases to us the P500,000.00 originally approved by you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now
willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:
 That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural
Resources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."

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

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification
from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory.
Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of
Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and
associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made
as follows:

a) For the payment of the receipt for jute mill

machineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-

ment per attached list to enable the jute
mill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-

ing of the letter of credit for raw jute
for $25,000.00.

2) P25,000.00 to be released upon arrival

of raw jute.

3) P17,586.09 to be released as soon as the

mill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of
P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made
from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating
status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the
securities offered for the loan.

With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials
needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide
adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the
manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the
importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute
materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the
loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so,
on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor
of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt
heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages,
alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby
preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach
thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or
abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:

ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and
the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation
and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December
17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation
to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the
requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its
implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely — "that
the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building — P250,000.00; for payment of the balance of
purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions
required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking
that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No.
145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

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

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

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

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.

Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.

Makasiar, J., took no part.

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents.

Edgardo I. De Leon for petitioners.

Siguion Reyna, Montecillo & Associates for private respondent.

GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals, now Intermediate Appellate Court, in CA-G.R. No. 61193-R,
entitled "Honesto Bonnevie vs. Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution denying the motion for reconsideration.

The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance of Rizal against respondent Philippine Bank of Commerce
sought the annulment of the Deed of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and
Josefa P. Lozano as well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks consideration and
(b) the mortgage was executed by one who was not the owner of the mortgaged property. It further alleged that the property in question was foreclosed pursuant to
Act No. 3135 as amended, without, however, complying with the condition imposed for a valid foreclosure. Granting the validity of the mortgage and the extrajudicial
foreclosure, it finally alleged that respondent Bank should have accepted petitioner's offer to redeem the property under the principle of equity said justice.

On the other hand, the answer of defendant Bank, now private respondent herein, specifically denied most of the allegations in the complaint and raised the
following affirmative defenses: (a) that the defendant has not given its consent, much less the requisite written consent, to the sale of the mortgaged property to
plaintiff and the assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his address;
(c) that it was notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law on contracts requires defendant's consent
before Jose Lozano can be released from his bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim;
(e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid despite countless reminders and demands; of that the property in
question remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff;
(g) that it is an established banking practice that payments against accounts need not be personally made by the debtor himself; and (h) that it is not true that the
mortgage, at the time of its execution and registration, was without consideration as alleged because the execution and registration of the securing mortgage, the
signing and delivery of the promissory note and the disbursement of the proceeds of the loan are mere implementation of the basic consensual contract of loan.

After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a motion for intervention. The intervention was premised on the Deed of
Assignment executed by petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner Honesto Bonnevie over
the subject property. The intervention was ultimately granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits.

On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as follows:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered dismissing the complaint with costs against the plaintiff and
the intervenor.

After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to respondent Court of Appeals assigning the following errors:

1. The lower court erred in not finding that the real estate mortgage executed by Jose Lozano was null and void;

2. The lower court erred in not finding that the auction sale decide on August 19, 1968 was null and void;

3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the property;

4. The lower court erred in not finding that the defendant acted in bad faith; and

5. The lower court erred in dismissing the complaint.

On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower court, and on October 3. 1978 denied the motion for
reconsideration. Hence, the present petition for review.

The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby adopt the facts found the trial court and found by the Court of
Appeals to be consistent with the evidence adduced during trial, to wit:

It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property which they mortgaged on December 6,
1966, to secure the payment of the loan in the principal amount of P75,000.00 they were about to obtain from defendant-appellee Philippine
Bank of Commerce; that on December 8, 1966, executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in
consideration of the sum of P100,000.00, P25,000.00 of which amount being payable to the Lozano spouses upon the execution of the
document, and the balance of P75,000.00 being payable to defendant- appellee; that on December 6, 1966, when the mortgage was executed
by the Lozano spouses in favor of defendant-appellee, the loan of P75,000.00 was not yet received them, as it was on December 12, 1966 when
they and their co-maker Alfonso Lim signed the promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant
made payments to defendant-appellee on the mortgage in the total amount of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all
his rights under the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968, defendant-
appellee applied for the foreclosure of the mortgage, and notice of sale was published in the Luzon Weekly Courier on June 30, July 7, and July
14, 1968; that auction sale was conducted on August 19, 1968, and the property was sold to defendant-appellee for P84,387.00; and that offers
from plaintiff-appellant to repurchase the property failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title of
the property. (Decision of the Court of Appeals, p. 5).

Presented for resolution in this review are the following issues:

I
 Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and legally executed.

II

Whether the extrajudicial foreclosure of the said mortgage was validly and legally effected.

III

Whether petitioners had a right to redeem the foreclosed property.

IV

Granting that petitioners had such a right, whether respondent was justified in refusing their offers to repurchase the property.

As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack the validity of the mortgage executed by the Lozano
spouses in favor of respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of
the deed of mortgage, they contended that when it was executed on December 6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was
not received by the Lozano spouses "So much so that in the absence of a principal obligation, there is want of consideration in the accessory contract, which
consequently impairs its validity and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7).

This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition
of the loan granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was
executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was
executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at
the time of its execution.

Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using as security the same property which the Lozano
spouses had already sold to petitioners, rendered the mortgage null and void,

This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged
properties, without the written consent of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged property is sold, the
vendee shall assume the mortgage in the terms and conditions under which it is constituted. These provisions are expressly made part and parcel of the Deed of Sale
with Assumption of Mortgage.

Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage. Coupled with the fact that the sale/assignment
was not registered so that the title remained in the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and
validly mortgage the property. Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the
mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs.
De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor may be and subjects the
fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered
into the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or renewals thereof.

Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:

a) petitioners were never notified of the foreclosure sale.

b) The notice of auction sale was not posted for the period required by law.

c) publication of the notice of auction sale in the Luzon Weekly Courier was not in accordance with law.

The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to the Deed of Sale with Assumption of Mortgage, it
can validly claim that it was not aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to
any notice because as of May 14, 1968, he had transferred and assigned all his rights and interests over the property in favor of intervenor Raoul Bonnevie and
respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not require
personal notice on the mortgagor. The requirement on notice is that:

Section 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or
city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city

In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and notices of the sale were posted for not less than
twenty days in at least three (3) public places in the Municipality where the property is located. Petitioners were thus placed on constructive notice.

The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a judicial foreclosure and the sale to the vendee of the
mortgaged property was duly registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in accordance with law, namely: once a week for at least three consecutive
weeks, the Court of Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act No. 3135
notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that such notice shall be published once a week for at least
three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should be published for three full
weeks.

The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with law as said newspaper is not of general circulation must
likewise be disregarded. The affidavit of publication, executed by the Publisher, business/advertising manager of the Luzon Weekly Courier, stares that it is "a
newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July 7 and July 14, 1968. This constitutes
prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).

To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news and general information; that it has a bona fide
subscription list of paying subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation
so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read the Luzon Weekly Courier is no proof that
said newspaper is not a newspaper of general circulation in the province of Rizal.

Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It can no longer be entertained by this Court. (see Reyes, et
al. vs. CA, et al., 107 SCRA 126). Nevertheless, the records show that copies of said notice were posted in three conspicuous places in the municipality of Pasig, Rizal
namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice were also posted in the place where the
property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street. The following statement of Atty. Santiago
Pastor, head of the legal department of respondent bank, namely:

Q How many days were the notices posted in these two places, if you know?

A We posted them only once in one day. (TSN, p. 45, July 25, 1973)

is not a sufficient countervailing evidence to prove that there was no compliance with the posting requirement in the absence of proof or even of allegation that the
notices were removed before the expiration of the twenty- day period. A single act of posting (which may even extend beyond the period required by law) satisfies
the requirement of law. The burden of proving that the posting requirement was not complied with is now shifted to the one who alleges non-compliance.

On the question of whether or not the petitioners had a right to redeem the property, We hold that the Court of Appeals did not err in ruling that they had no right to
redeem. No consent having been secured from respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not validly substituted as
debtors. In fact, their rights were never recorded and hence, respondent Bank is charged with the obligation to recognize the right of redemption only of the Lozano
spouses. But even granting that as purchaser or assignee of the property, as the case may be, the petitioners had acquired a right to redeem the property, petitioners
failed to exercise said right within the period granted by law. Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one year
redemption period expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and offered to
redeem the property. Moreover, on September 29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.

On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did not act in bad faith, petitioners rely on Exhibit "B" which is
the letter of lose Lozano to respondent Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make payments for the amount
secured by the mortgage on the subject property, to receive acknowledgment of payments, obtain the Release of the Mortgage after full payment of the obligation
and to take delivery of the title of said property. On the assumption that the letter was received by respondent Bank, a careful reading of the same shows that the
plaintiff was merely authorized to do acts mentioned therein and does not mention that petitioner is the new owner of the property nor request that all
correspondence and notice should be sent to him.

The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the maturity of said loan up to said date and accordingly on June 10,
1968 when defendant applied for the foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and misleading. The undeniable fact
is that the loan matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure, the loan was already six months overdue.
Petitioners' payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank inequitous nor does it ipso facto result in the renewal of
the loan. In order that a renewal of a loan may be effected, not only the payment of the accrued interest is necessary but also the payment of interest for the
proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the discretion of the bank.
Respondent Bank may not be, therefore, charged of bad faith.

WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Aquino, J., concur.

Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.

Concepcion J J., took no part.

De Castro, J., is on leave.

Footnotes
 1 Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.

2 4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber the mortgaged properties without the written consent
of MORTGAGEE. If in spite of this stipulation, a mortgaged property is sold, the Vendee shall assume the mortgaged in the terms and conditions
under which it is constituted, it being understood that the assumption of the Vendee (does) not release the Vendor of his obligation to the
MORTGAGEE; on the contrary, both the Vendor and the Vendee shall be jointly and severally liable for said mortgage obligation. ...

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. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes
unenforceable to the 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 mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins.
Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).

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 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.

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 REPRESENTING 12% INTEREST
PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985
UNTIL PAID;

2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.

NO COSTS. SO ORDERED.

Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.

Aquino (Chairman) and Abad Santos, JJ., took no part.

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.

Office of the Solicitor General for plaintiff-appellee.

PADILLA, J.:

The Court of Appeals certified this case to this Court because only questions of law are raised.

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of
P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a
government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for
another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May
1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the
value of the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor
General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be
returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December
1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls
loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that
other just and equitable relief be granted in (civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley,
particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines
from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition,
to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.

After hearing, on 30 July 1956 the trial court render judgment —

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding fees in the amount of P626.17 with
interest on both sums of (at) the legal rate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued on 11 November 1958. On 2 December
1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this order
appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the
Bureau Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda
Felicidad Intal, and praying that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her
motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals
to this Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2).
That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum
of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had been returned to and
received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad
Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its
value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a
period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding
fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or
title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation,
then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because
article 1942 of the Civil Code provides that a bailee in a contract of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the
appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased
husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was
not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value being a money claim should be presented
or filed in the intestate proceedings of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality
having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that —

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear
and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. . . .

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

Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and
residence of the executory administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of administration of the estate of the late Jose
Bagtas and that "all persons having claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not
due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the
Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order, serving a copy thereof
upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee who
were to be notified of the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who
appeared for the defendant was the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his
estate. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the administration proceedings of his estate
instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which
has not been returned to the appellee, because it was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in
its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-
200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for
payment by the appellant, the administratrix appointed by the court.

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.

ALEJANDRA MINA, ET AL., plaintiffs-appellants,

vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.

N. Segundo for appellants.

Iñigo Bitanga for appellees.

ARELLANO, C.J.:

Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during his lifetime, on March 12, 1874, a lot in the center of the town of
Laoag, the capital of the Province of Ilocos Norte, the property having been awarded to him through its purchase at a public auction held by the alcalde mayor of that
province. The lot has a frontage of 120 meters and a depth of 15.

Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the said lot, embracing 14 meters of its frontage by 11 meters of its
depth.

Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro Mina, et al., were recognized without discussion as his heirs.

Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta Pascual were recognized likes without discussion, though it is not
said how, and consequently are entitled to the said building, or rather, as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other half
belonging, as it appears, to the plaintiffs themselves, and the remaining one-seventh of the first one-half to the children of one of the plaintiffs, Elena de Villanueva.
The fact is that the plaintiffs and the defendants are virtually, to all appearance, the owners of the warehouse; while the plaintiffs are undoubtedly, the owners of the
part of the lot occupied by that building, as well as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian of her minor children, the herein defendants, petitioned the Curt of First
Instance of Ilocos Norte for authorization to sell "the six-sevenths of the one-half of the warehouse, of 14 by 11 meters, together with its lot." The plaintiffs — that is
Alejandra Mina, et al. — opposed the petition of Ruperta Pascual for the reason that the latter had included therein the lot occupied by the warehouse, which they
claimed was their exclusive property. All this action was taken in a special proceeding in reguardianship.

The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion, to decide the question of the ownership of the lot before it pass
upon the petition for the sale of the warehouse. But the court before determining the matter of the ownership of the lot occupied by the warehouse, ordered the
sale of this building, saying:

While the trial continues with respect to the ownership of the lot, the court orders the sale at public auction of the said warehouse and of the lot on which
it is built, with the present boundaries of the land and condition of the building, at a price of not less than P2,890 Philippine currency . . . .

So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the other defendant in this case, for the price mentioned.

The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court decided it by holding that this land belonged to the owner of the
warehouse which had been built thereon thirty years before.

The plaintiffs appealed and this court reversed the judgment of the lower court and held that the appellants were the owners of the lot in question. 1

When the judgment became final and executory, a writ of execution issued and the plaintiffs were given possession of the lot; but soon thereafter the trial court
annulled this possession for the reason that it affected Cu Joco, who had not been a party to the suit in which that writ was served.

It was then that the plaintiffs commenced the present action for the purpose of having the sale of the said lot declared null and void and of no force and effect.

An agreement was had ad to the facts, the ninth paragraph of which is as follows:

9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the Supreme Court which found for them by holding that they are the
owners of the lot in question, although there existed and still exists a commodatum by virtue of which the guardianship (meaning the defendants) had and
has the use, and the plaintiffs the ownership, of the property, with no finding concerning the decree of the lower court that ordered the sale.

The obvious purport of the cause "although there existed and still exists a commodatum," etc., appears to be that it is a part of the decision of the Supreme Court and
that, while finding the plaintiffs to be the owners of the lot, we recognized in principle the existence of a commodatum under which the defendants held the lot.
Nothing could be more inexact. Possibly, also, the meaning of that clause is that, notwithstanding the finding made by the Supreme Court that the plaintiffs were the
owners, these former and the defendants agree that there existed, and still exists, a commodatum, etc. But such an agreement would not affect the truth of the
contents of the decision of this court, and the opinions held by the litigants in regard to this point could have no bearing whatever on the present decision.

Nor did the decree of the lower court that ordered the sale have the least influence in our previous decision to require our making any finding in regard thereto, for,
with or without that decree, the Supreme Court had to decide the ownership of the lot consistently with its titles and not in accordance with the judicial acts or
proceedings had prior to the setting up of the issue in respect to the ownership of the property that was the subject of the judicial decree.

What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs have the ownership, and they themselves only the use, of the said lot.

On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the manner in which the sale was effected, whether judicially or
extrajudicially.

He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being a transfer of the ownership of the thing, it is evident that he who has
only the mere use of the thing cannot transfer its ownership. The sale of a thing effected by one who is not its owner is null and void. The defendants never were the
owners of the lot sold. The sale of it by them is necessarily null and void. On cannot convey to another what he has never had himself.

The returns of the auction contain the following statements:

I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization conferred upon me on the 31st of July, 1909, by the Court of First
Instance of Ilocos Norte, proceeded with the sale at public auction of the six-sevenths part of the one-half of the warehouse constructed of rubble stone,
etc.

Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all the land and all the rights title, interest, and ownership in the said
property to Cu Joco, who was the highest bidder, etc.

Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and assigns, all the interest, ownership and inheritance rights and others
that, as the guardian of the said minors, I have and may have in the said property, etc.

The purchaser could not acquire anything more than the interest that might be held by a person to whom realty in possession of the vendor might be sold, for at a
judicial auction nothing else is disposed of. What the minor children of Ruperta Pascual had in their possession was the ownership of the six-sevenths part of one-half
of the warehouse and the use of the lot occupied by his building. This, and nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of the
lot; neither the other half, nor the remaining one-seventh of the said first half, of the warehouse. Consequently, the sale made to him of this one-seventh of one-half
and the entire other half of the building was null and void, and likewise with still more reason the sale of the lot the building occupies.

The purchaser could and should have known what it was that was offered for sale and what it was that he purchased. There is nothing that can justify the acquisition
by the purchaser of the warehouse of the ownership of the lot that this building occupies, since the minors represented by Ruperta Pascual never were the owners of
the said lot, nor were they ever considered to be such.

The trial court, in the judgment rendered, held that there were no grounds for the requested annulment of the sale, and that the plaintiffs were entitled to the P600
deposited with the clerk of the court as the value of the lot in question. The defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved from the
complaint, without express finding as to costs.

The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to accept the price set on the lot by expert appraisers, not even though the
plaintiffs be considered as coowner of the warehouse. It would be much indeed that, on the ground of coownership, they should have to abide by and tolerate the
sale of the said building, which point this court does not decide as it is not a question submitted to us for decision, but, as regards the sale of the lot, it is in all
respects impossible to hold that the plaintiffs must abide by it and tolerate, it, and this conclusion is based on the fact that they did not give their consent (art. 1261,
Civil Code), and only the contracting parties who have given it are obliged to comply (art. 1091, idem).

The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot; but subsequently the plaintiffs, through motion, asked for an
amendment by their complaint in the sense that the action should be deemed to be one for the recovery of possession of a lot and for the annulment of its sale. The
plaintiff's petition was opposed by the defendant's attorney, but was allowed by the court; therefore the complaint seeks, after the judicial annulment of the sale of
the lot, to have the defendants sentenced immediately to deliver the same to the plaintiffs.

Such a finding appears to be in harmony with the decision rendered by the Supreme Court in previous suit, wherein it was held that the ownership of the lot lay in the
plaintiffs, and for this reason steps were taken to give possession thereof to the defendants; but, as the purchaser Cu Joco was not a party to that suit, the present
action is strictly one for recover against Cu Joco to compel him, once the sale has been annulled, to deliver the lot to its lawful owners, the plaintiffs.

As respects this action for recovery, this Supreme Court finds:

1. That it is a fact admitted by the litigating parties, both in this and in the previous suit, that Andres Fontanilla, the defendants' predecessor in interest,
erected the warehouse on the lot, some thirty years ago, with the explicit consent of his brother Francisco Fontanilla, the plaintiff's predecessor in
interest.

2. That it also appears to be an admitted fact that the plaintiffs and the defendants are the coowners of the warehouse.

3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla nor his successors paid any consideration or price whatever for the
use of the lot occupied by the said building; whence it is, perhaps, that both parties have denominated that use a commodatum.

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

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

But, although both litigating parties may have agreed in their idea of the commodatum, on account of its not being, as indeed it is not, a question of fact but of law,
yet that denomination given by them to the use of the lot granted by Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts are not to be
interpreted in conformity with the name that the parties thereto agree to give them, but must be construed, duly considering their constitutive elements, as they are
defined and denominated by law.

By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the latter may use it during the certain
period and return it to the former, in which case it is called commodatum . . . (art. 1740, Civil Code).

It is, therefore, an essential feature of the commodatum that the use of the thing belonging to another shall for a certain period. Francisco Fontanilla did not fix any
definite period or time during which Andres Fontanilla could have the use of the lot whereon the latter was to erect a stone warehouse of considerable value, and so
it is that for the past thirty years of the lot has been used by both Andres and his successors in interest. The present contention of the plaintiffs that Cu Joco, now in
possession of the lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the commodatum sustained by them, since, according to the
second paragraph of the aforecited article 1740, "commodatum is essentially gratuitous," and, if what the plaintiffs themselves aver on page 7 of their brief is to be
believed, it never entered Francisco's mind to limit the period during which his brother Andres was to have the use of the lot, because he expected that the
warehouse would eventually fall into the hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not come to pass for the reason that
Fructuoso died before his uncle Andres. With that expectation in view, it appears more likely that Francisco intended to allow his brother Andres a surface right; but
this right supposes the payment of an annual rent, and Andres had the gratuitous use of the lot.

Hence, as the facts aforestated only show that a building was erected on another's ground, the question should be decided in accordance with the statutes that,
thirty years ago, governed accessions to real estate, and which were Laws 41 and 42, title 28, of the third Partida, nearly identical with the provisions of articles 361
and 362 of the Civil Code. So, then, pursuant to article 361, the owner of the land on which a building is erected in good faith has a right to appropriate such edifice to
himself, after payment of the indemnity prescribed in articles 453 and 454, or to oblige the builder to pay him the value of the land. Such, and no other, is the right to
which the plaintiff are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made by Ruperta Pascual, in representation of her minor children, to Cu
Joco, and to maintain the latter in the use of the lot until the plaintiffs shall choose one or the other of the two rights granted them by article 361 of the Civil
Code.1awphil.net

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

Torres, Johnson, Carson, Moreland and Trent, JJ., concur.