262 SUPREME COURT REPORTS ANNOTATED
Republic vs. Bagtas value of the bulls. Upon the expiration on 7 May 1949 of the contract, the
No. L-17474. October 25, 1962.
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.
Contracts; Loan of bulls for breeding purposes; Nature of contract
affected by payment of fee.—The loan by the Bureau of Animal Industry to
the defendant of three bulls for breeding purposes for a period of one year,
later on renewed for another as regards one bull, was subject to the payment
by the borrower of breeding fee of 10% of the book value of the bulls. If the
breeding fee be considered a compensation, the contract would be a lease of
the bulls; it could not be a contract of commodatum, because that contract is
essentially gratuitous.
Judgments; Proceedings for administration and settlement of estate of
the deceased; Enforcement of money judgments.—Where special
proceedings for the administration and settlement of the estate of the
deceased have been instituted, the money judgment rendered in favor of a
party cannot be enforced by means of a writ of execution, but must be
presented to the probate court for payment by the administrator appointed
by the court.
APPEAL from a decision of the Court of First Instance of Manila.
Macadaeg, J.
The facts are stated in the opinion of the Court.
D. T. Reyes, Luison & Associates for petitioner-appellant.
Solicitor General for plaintiff-appellee.
263
VOL. 6, OCTOBER 25, 1962 263
Republic vs. Bagtas
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
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
264
264 SUPREME COURT REPORTS ANNOTATED
Republic vs. Bagtas
of the bulls corresponding yearly depreciation of 8% from the date of
acquisition, to which depreciation the Auditor General did not object, he
could not return the animals nor pay their value and prayed for the dismissal
of the complaint.
After hearing, on 30 July 1956 the trial court rendered judgment—
x x x sentencing the latter (defendant) to pay the sum of P3, 625.09 the total
value of the three bulls plus the breeding fees in the amount of P626.17 with
interest on both sums of (at) the legal rate from the filing of this complaint
and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which
the court granted on 18 October and issued on 11 November 1958. On 2
December 1958 it granted an ex parte motion filed by the plaintiff on 28
November 1958 for the appointment of a special sheriff to serve the writ
outside Manila. Of this order appointing a special sheriff, on 6 December
1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose V.
Bagtas who died on 23 October 1951 and as administratrix of his estate, was
notified. On 7 January 1959 she filed a motion alleging that on 26 June 1952
the two bulls, Sindhi and Bhagnari, were returned to the Bureau of Animal
Industry and that sometime in November 1958 the third bull, the Sahiniwal,
died from gunshot wounds 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
265
VOL. 6, OCTOBER 25, 1962 265
Republic vs. Bagtas
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 Huks in November 1953 upon the surrounding barrios of
Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and
that as such death was due to force majeure she is relieved from the duty of
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—
x x x is liable for loss of the things, even if it should be through a fortuitous
event:
1. (2)If he keeps it longer than the period stipulated x x x
2. (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
_______________
1
Article 1933 of the Civil Code.
266
266 SUPREME COURT REPORTS ANNOTATED
Republic vs. Bagtas
appellant kept and used the bull until November 1953 when during a Huk raid
it was killed by stray bullets. Furthermore, when lent and delivered to the
deceased husband of the appellant the bulls had each an appraised book
value, to wit: the Sindhi, at P1,176.46, the Bhagnari, at P1,320.56 and the
Sahiniwal, at P744.46. It was not stipulated that in case of loss of the bull due
to fortuitous event the late husband of the appellant would be exempt from
liability. The appellant’s contention that the demand or prayer by the
appellee for the return of the bull or the payment of its value being a money
claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without merit.
However, the claim that his civil personality having ceased to exist the trial
court lost jurisdiction over the case against him, is untenable, because section
17 of Rule 3 of the Rules of Court provides that—
After a party dies and the claim is not thereby extinguished, the court shall
order, upon proper notice, the legal representative of the deceased to appear
and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. x x x.
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 x x x it shall be the duty of his
attorney to inform the court promptly of such death x x x and to give the
name and residence of the executor, administrator, guardian, or other legal
representative of the deceased x x x.
The notice by the probate court and its publication in the Voz de Manila that
Felicidad M. Bagtas had been issued letters of administration of the estate of
the late Jose V. Bagtas and that “all persons having claims for money 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 money
against him, to file said claims with the Clerk of this Court at the City Hall
Bldg., Highway 54, Quezon City, within
267
VOL. 6, OCTOBER 25, 1962 267
Republic vs. Bagtas
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, 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.
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs and
appellants, vs.BECK, defendant and appellee.
1. 1.COMMODATUM; OBLIGATION OF THE PARTIES.—The contract
entered into between the parties is one of commodatum, because
under it the plaintiff gratuitously granted the use of the furniture to
the defendant, reserving for herself the ownership thereof; by this
contract the defendant bound himself to return the furniture to the
plaintiff, upon the latter's demand (Clause 7 of the contract, Exhibit
"A"; articles 1740, paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to return the
furniture upon the plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence or house. The
defendant did not comply with this obligation when he merely
placed them at the disposal of
109
VOL. 69, NOVEMBER 3, 1939 109
Quintos and Ansaldo vs. Beck
1. the plaintiff, retaining for his benefit the three gas heaters and the
four electric lamps.
1. 2.ID.; ID.; EXPENSES FOR DEPOSIT OF FURNITURE.—As the defendant
had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to
bear the expenses occasioned by the deposit of the furniture at the
defendant's behest. The latter, as bailee, was not entitled to place
the furniture on deposit; nor was the plaintiff under a duty to accept
 the offer to return the furniture, because the defendant wanted to
retain the three gas heaters and the four electric lamps.
1. 3.ID.; ID.; VALUE OF FURNITURE.—As to the value of the furniture.
we do not believe that the plaintiff is entitled to the payment
thereof by the defendant in case of his inability to return some of
the furniture, because under paragraph 6 of the stipulation of facts,
the defendant has neither agreed to nor admitted the correctness
of the said value. Should the defendant fail to deliver some of the
furniture, the value thereof should be later determined by the trial
Court through evidence which the parties may desire to present.
1. 4.COSTS OF LITIGATION.—The costs in both instances should be
borne by the defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The defendant was the
one who breached the contract of Commodatum, and without any
reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable
that he pay the legal expenses and other judicial costs which the
plaintiff would not have otherwise defrayed.
APPEAL from a judgment of the Court of First Instance of Manila. Vera, J.
The facts are stated in the opinion of the court.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return to her
certain furniture which she lent him for his use. She appealed from the
judgment of the Court of First Instance of Manila which ordered that the
defendant return to her the three gas heaters and the four electric lamps
found in the possession of the Sheriff of said city,
110
110 PHILIPPINE REPORTS ANNOTATED
Quintos and Ansaldo vs. Beck
that she call for the other furniture from the said Sheriff of Manila at her own
expense, and that the fees which the Sheriff may charge for the deposit of
the furniture be paid pro rata by both parties, without pronouncement as to
the costs.
The defendant was a tenant of the plaintiff and as such occupied the
latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon
the novation of the contract of lease between the plaintiff and the defendant,
the former gratuitously granted to the latter the use of the furniture
described in the third paragraph of the stipulation of facts, subject to the
condition that the defendant would return them to the plaintiff upon the
latter's demand. The plaintiff sold the property to Maria Lopez and Rosario
Lopez and on September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease. There after the plaintiff required the
defendant to return all the furniture transferred to him for his use. The
defendant answered that she may call for them in the house where they are
found. On November 5, 1936, the defendant, through another person, wrote
to the plaintiff reiterating that she may call for the furniture in the ground
floor of the house. On the 7th of the same month, the defendant wrote
another letter to the plaintiff informing her that he could not give up the
three gas heaters and the four electric lamps because he would use them
until the 15th of the same month when the lease is due to expire. The plaintiff
refused to get the furniture in view of the fact that the defendant had
declined to make delivery of all of them. On November 15th, before vacating
the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse
situated at No. 1521, Rizal Avenue. in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court
incorrectly applied the law: in holding that they violated the contract by not
calling for all the furni-
111
VOL. 69, NOVEMBER 3, 1939 111
Quintos and Ansaldo vs. Beck
ture on November 5, 1936, when the defendant placed them at their disposal;
in not ordering the defendant to pay them the value of the furniture in case
they are not deilvered; in holding that they should get all the furniture from
the Sheriff at their expenses; in ordering them to pay one-half of the expenses
claimed by the Sheriff for the deposit of the furniture; in ruling that both
parties should pay their respective legal expenses or the costs; and in denying
the motions for reconsideration and new trial. To dispose of the case, it is
only necessary to decide whether the defendant complied with his obligation
to return the furniture upon the plaintiff's demand; whether the latter is
bound to bear the deposit fees thereof, and whether she is entitled to the
costs of litigation.
The contract entered into between the parties is one
of commodatum, because under it the plaintiff gratuitously granted the use
of the furniture to the defendant, reserving for herself the ownership thereof;
by this contract the defendant bound himself to return the furniture to the
plaintiff, upon the latter's demand (clause 7 of the contract, Exhibit A; articles
1740, paragraph 1, and 1741 of the Civil Code). The obligation voluritarily
assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's
residence or house. The defendant did not comply with this obligation when
he merely placed them at the disposal of the plaintiff, retaining for his benefit
the three gas heaters and the four electric lamps. The provisions of article
1169 of the Civil Code cited by counsel for the parties are not squarely
applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply /with her obligation to get the
furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to
the plaintiff, upon the latter's demand, the Court could not legally compel her
to bear the expenses occasioned by the deposit of the furniture at the
defendant's behest. The latter, as bailee, was not entitled to
112
112 PHILIPPINE REPORTS ANNOTATED
Quintos and Ansaldo vs. Beck
place the furniture on deposit; nor was the plaintiff under a duty to accept
the offer to return the furniture, because the defendant wanted to retain the
three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is
entitled to the payment thereof by the defendant in case of his inability to
return some of the furniture, because under paragraph 6 of the stipulation of
facts, the defendant has neither agreed to nor admitted the correctness of
the said value. Should the defendant fail to deliver some of the furniture, the
value thereof should be later determined by the trial Court through evidence
which the parties may desire to present.
The costs in both instances should be borne by the defendant because the
plaintiff is the prevailing party (section 487 of the Code of Civil Procedure).
The defendant was the one who breached the contract of commodatum, and
without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay
the legal expenses and other judicial costs which the plaintiff would not have
otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to
return and deliver to the plaintiff, in the residence or house of the latter, all
the f urniture described in paragraph 3 of the stipulation of facts Exhibit A.
The expenses which may be occasioned by the delivery to and deposit of the
furniture with the Sheriff shall be for the account of the defendant. The
defendant shall pay the costs in both instances. So ordered.
Avanceña, C. J., Villa-Real, Diaz, Laurel, Concepcion, and Moran,
JJ.,concur.
Judgment modified.
______________
Saura v DBP
Civil Law; Obligations and Contracts; When contract of simple loan
perfected.—Where an application for a loan of money was approved by
resolution of the defendant corporation and the corresponding mortgage
was executed and registered, there arises a perfected-consensual contract of
loan.
Same; Extinguishment of obligations by mutual desistance.—Where
after approval of his loan, the borrower, instead of insisting for its release,
asked that the mortgage given as security be cancelled and the creditor
acceded thereto, the action taken by both parties was in the nature of mutual
desistance—what Manresa terms “mutuo disenso”—which is a mode of
extinguishing obligations. It is a concept that derives from, the principle that
since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment.
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
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.
RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory buildings to be
constructed, the land site thereof, and the machinery and equipment to be
installed. AFTERRRR THE RE EVALUATION, It appears, however, that despite
the formal execution of the loan agreement the re-examination
contemplated in Resolution No. 736 proceeded. In a meeting of the RFC
Board of Governors on June 10, 1954, at which Ramon Saura, President of
Saura, Inc., was present, it was decided to reduce the loan from P500,000.00
to P300,000.00. On June 19, 1954 another hitch developed. F.R. Hailing, who
had signed the promissory note for China Engineers Ltd. jointly and severally
with the other co-signers, wrote RFC that his company no longer wished to
avail of the loan and therefore considered the same cancelled as far as it was
concerned. A follow-up letter dated July 2 requested RFC that the registration
of the mortgage be withdrawn.
CHINA ENGINEERS ARE WILLING TO SIGN AS LONG AS THE FOLLOWING
PROVISO: “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. 1.That the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and
2. 2.That there is prospect of increased production thereof to provide
adequately for the requirements of the factory.”
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did
not pursue the matter further. Instead, it requested RFC to cancel the
mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of
cancellation and delivered it to Ramon F. Saura himself as president of Saura,
Inc.
It appears that the cancellation was requested to make way for the
registration of a mortgage contract, executed on August 6, 1954, over the
same property in favor of the Prudential Bank and Trust Co., under which
contract Saura, Inc. had up to December 31 of the same year within which to
pay its obligation on the trust receipt heretofore mentioned. It appears
further that for failure to pay the said obligation the Prudential Bank and
Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, almost 9 years after the mortgage in favor of RFC was
cancelled at the request of Saura, Inc., the latter commenced the present suit
for damages, alleging failure of RFC (as predecessor of the defendant DBP) to
comply with its obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or paying
contractual commitments it had entered into, in connection with its jute mill
project.
The trial court rendered judgment for the plaintiff, ruling that there was a
perfected contract between the parties and that the defendant was guilty of
breach thereof. The defendant pleaded below, and reiterates in this appeal:
(1) that the plaintiff’s cause of action had prescribed, or that its claim had
been waived or abandoned; (2) that there was no perfected contract; and (3)
that assuming there was, the plaintiff itself did not comply with the terms
thereof.
We hold that there was indeed a perfected consensual contract, as
recognized in Article 1934 of the Civil Code, which provides:
“ART. 1954. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract.”
There was undoubtedly offer and acceptance in this case: the application of
Saura, Inc. for a loan of P500,000.00 was approved by resolution of the
defendant, and the corresponding 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 that 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 Mortgages; Contracts; A mortgage contract does not become invalid by
proceeds of the loan shall be utilized exclusively for the following purposes: mere failure of debtor to get the mortgage consideration on
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 * SECOND DIVISION.
meet the conditions required by RFC, and so wrote its letter of January 21,
123
1955, stating that local jute “will not be available in sufficient quantity this
the date the mortgage was executed. A loan is a consensual contract.—
year or probably next year,” and asking that out of the loan agreed upon the
This contention is patently devoid of merit. From the recitals of the mortgage
sum of P67,586.09 be released “for raw materials and labor.” This was a
deed itself, it is clearly seen that the mortgage deed was executed for and on
deviation from the terms laid down in Resolution No. 145 and embodied in
condition of the loan granted to the Lozano spouses. The fact that the latter
the mortgage contract, implying as it did a diversion of part of the proceeds
did not collect from the respondent Bank the consideration of the mortgage
of the loan to purposes other than those agreed upon.
on the date it was executed is immaterial. A contract of loan being a
When RFC turned down the request in its letter of January 25, 1955 the
consensual contract, the herein contract of loan was perfected at the same
negotiations which had been going on for the implementation of the
time the contract of mortgage was executed. The promissory note executed
agreement reached an impasse. Saura, Inc, obviously was in no position to
on December 12, 1966 is only an evidence of indebtedness and does not
comply with RFC’s conditions. So instead of doing so and insisting that the
indicate lack of consideration of the mortgage at the time of its execution.
loan be released as agreed upon, Saura, Inc. asked that the mortgage be
Same; Same; A mortgage is not rendered null and void by the use thereof
cancelled, which was done on June 15, 1955. The action thus taken by both
as security in the renewal of the original loan after the property mortgaged
parties was in the nature of mutual desistance—what Manresa terms “mutuo
had already been sold to another without the sale being registered.—This
disenso”1—which is a mode of extinguishing obligations. It is a concept that
argument failed to consider the provision of the contract of mortgage which
derives from the principle that since mutual agreement can create a contract,
prohibits the sale, disposition of, mortgage and encumbrance of the
mutual disagreement by the parties can cause its extinguishment.2
mortgaged properties, without the written consent of the mortgagee, as well
The subsequent conduct of Saura, Inc. confirms this desistance. It did not
as the additional proviso that if in spite of said stipulation, the mortgaged
protest against any alleged breach of contract by RFC, or even point out that
property is sold, the vendee shall assume the mortgage in the terms and
the latter’s stand was legally unjustified. Its request for cancellation of the
conditions under which it is constituted. These provisions are expressly made
mortgage carried no reservation of whatever rights it believed it might have
part and parcel of the Deed of Sale with Assumption of Mortgage.
against RFC for the latter’s noncompliance. In 1962 it even applied with DBP
Same; Same; Same.—Petitioners admit that they did not secure the
for another loan to finance a rice and corn project, which application was
consent of respondent Bank to the sale with assumption of mortgage.
disapproved. It was only in 1964, nine years after the loan agreement had
Coupled with the fact that the sale/assignment was not registered so that the
been cancelled at its own request, that Saura, Inc. brought this action for
title remained in the name of the Lozano spouses, insofar as respondent Bank
damages. All these circumstances demonstrate beyond doubt that the said
was concerned, the Lozano spouses could rightfully and validly mortgage the
agreement had been extinguished by mutual desistance—and that on the
property. Respondent Bank had every right to rely on the certificate of title.
initiative of the plaintiff-appellee itself.
It was not bound to go behind the same to look for flaws in the mortgagor’s
With this view we take of the case, we find it unnecessary to consider and
title, the doctrine of innocent purchaser for
resolve the other issues raised in the respective briefs of the parties.
value being applicable to an innocent mortgagee for value. (Roxas vs.
WHEREFORE, the judgment appealed from is reversed and the complaint
Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another
dismissed, with costs against the plaintiff-appellee.
argument for the respondent Bank is that a mortgage follows the property
whoever the possessor may be and subjects the fulfillment of the obligation
Bonnevie vs CA 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.
124
Same; Creditor has no duty to notify buyer of mortgaged estate of the
foreclosure thereof where creditor not notified of said sale.—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 was 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.
Same; Notice of auction sale once a week for three consecutive weeks
does not mean that the notice must be published for three full weeks.—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.
Same; Notices; Affidavit of editor that the Luzon Weekly Courier is a
newspaper of general circulation is prima facie evidence thereof.—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, states
that it is “a newspaper of general circulation in x x x 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 facieevidence of compliance with the requisite
publication. (Sadang vs. GSIS, 18 SCRA 491).
Same; Same; When a newspaper is of general circulation explained.—To
be a newspaper of general circulation, it is enough that “it is published for the
dissemination of local news and general
125
information; that it has a bona ride 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.
Same; Same; Posting of notice of auction sale a question of fact not
reviewable by Supreme Court.—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.
Same; Same; A single act of posting the notice of auction sale satisfies
the requirements of law.—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.
Mortgages; Redemption; There is no right conferred by law in favor of
buyer of mortgaged property to redeem the same where sale to such third
party was not with consent of mortgaged creditor.—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.
Same; Same; Even if as assignee of mortgaged property, petitioners
acquired right to redeem it, the fact is said right was not exercised within the
prescribed period.—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
126
failed to exercise said right within the period granted by law. The
certificate of sale in favor of the 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.
Same; Same; No bad faith can be inferred from failure of creditor to give
notices to petitioner where his letter to the creditor did not say that he is the
new owner of the mortgaged estate and that all notices should be given to
him.—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 Jose 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 said 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.
Same; Same; Loan; Contracts; Receipt by bank of interest payment on
long matured loan does not result in renewal or extension of maturity period
of the loan.—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
iniquitous nor does it ipso factoresult 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
127
depend on the debtor but more so on the discretion of the bank.
Respondent Bank may not be, therefore, charged of bad faith.
 December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano
secured their loan of P75K from Philippine Bank of Commerce (PBC) by
mortgaging their property
 December 8, 1966: Executed Deed of Sale with Mortgage to Honesto
Bonnevie where P75K is payable to PBC and P25K is payable to Spouses
Lanzano.
 April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total
of P18,944.22 to PBC
 May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed
of Sale with Assumption of Mortgage to his brother, intervenor Raoul
Bonnevie
 June 10, 1968: PBC applied for the foreclosure of the mortgage, and
notice of sale was published
 January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal
against Philippine Bank of Commerce for the annulment of the Deed of
Mortgage dated December 6, 1966 as well as the extrajudicial
foreclosure made on September 4, 1968.
 CFI: Dismissed the complaint with costs against the Bonnevies
 CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly executed.
HELD: YES. CA affirmed
 A contract of loan being a consensual contract is 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.
 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.
 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 Honesto Bonnevie first
wrote respondent and offered to redeem the property.
 loan matured on December 26, 1967 so when respondent Bank applied
for foreclosure, the loan was already six months overdue. Payment of
interest on July 12, 1968 does not make the earlier act of PBC
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.
GSIS vs Racho
Civil Law; Obligations and Contracts; Mortgage Contracts; The fact that
the loans were contracted solely for the benefit of the Lagasca spouses would
not invalidate the mortgage with respect to private respondent’s share in the
mortgaged property, the latter having given a
________________
* of the private respondents would not have been required.
SECOND DIVISION.
534
534 SUPREME COURT REPORTS
ANNOTATED
Government Service Insurance System
vs. Court of Appeals
valid consent to such mortgage.—However, contrary to the holding of
the respondent court, it cannot be said that private respondents are without
liability under the aforesaid mortgage contracts. The factual context of this
case is precisely what is contemplated in the last paragraph of Article 2085 of
the Civil Code to the effect that third persons who are not parties to the
principal obligation may secure the latter by pledging or mortgaging their
own property. So long as valid consent was given, the fact that the loans were
solely for the benefit of the Lagasca spouses would not invalidate the
mortgage with respect to private respondents’ share in the property. In
consenting thereto, even assuming that private respondents may not be
assuming personal liability for the debt, their share in the property shall
nevertheless secure and respond for the performance of the principal
obligation. The parties to the mortgage could not have intended that the
same would apply only to the aliquot portion of the Lagasca spouses in the
property, otherwise the consent of the private respondents would not have
been required.
Remedial Law; Extra-Judicial Foreclosure of Mortgage; Notice; Act No.
3135 does not require personal notice on the mortgagor of the extrajudicial
foreclosure sale.
This case is precisely what is contemplated in the last paragraph of Article
2085 of the Civil Code to the effect that third persons who are not parties to
the principal obligation may secure the latter by pledging or mortgaging their
own property.
So long as valid consent was given, the fact that the loans were solely for
the benefit of the Lagasca spouses would not invalidate the mortgage with
respect to private respondents’ share in the property. In consenting thereto,
even assuming that private respondents may not be assuming personal
liability for the debt, their share in the property shall nevertheless secure and
respond for the performance of the principal obligation. The parties to the
mortgage could not have intended that the same would apply only to the
aliquot portion of the Lagasca spouses in the property, otherwise the consent
The supposed requirement of prior demand on the private respondents
would not be in point here since the mortgage contracts created obligations
with specific terms for the compliance thereof. The facts further show that
the private respondents expressly bound themselves as solidary debtors in
the promisory note hereinbefore quoted.
Ligutan v CA
 Same; Same; The question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly objective.—The question of
whether a penalty is reasonable or iniquitous can be partly subjective and
partly objective. Its resolution would depend on such factors as, but not
necessarily confined to, the type, extent and purpose of the penalty, the
nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties, and the
like, the application of which, by and large, is addressed to the sound
discretion of the court. In Rizal Commercial Banking Corp. vs. Court of
Appeals, just an example, the Court has tempered the penalty charges after
taking into account the debtor’s pitiful situation and its offer to settle the
entire obligation with the creditor bank. The stipulated penalty might likewise
be reduced when a partial or irregular performance is made by the debtor.
The stipulated penalty might even be deleted such as when there has been
substantial performance in good faith by the obligor, when the penalty clause
itself suffers from fatal infirmity, or when exceptional circumstances so exist
as to warrant it.
Same; Same; Interests; The essence or rationale for the payment of
interest, quite often referred to as cost of money, is not exactly the same as
that of a surcharge or a penalty, and a penalty stipulation is not necessarily
preclusive of interest, if there is an agreement to that effect, the two being
distinct concepts which may separately be demanded; What may justify a
court in not allowing the creditor to impose full surcharges and
562
562 SUPREME COURT REPORTS
ANNOTATED
Ligutan vs. Court of Appeals
penalties, despite an express stipulation therefor in a valid agreement,
may not equally justify the non-payment or reduction of interest.—Anent the
stipulated interest of 15.189% per annum, petitioners, for the first time,
question its reasonableness and prays that the Court reduce the amount. This
contention is a fresh issue that has not been raised and ventilated before the
courts below. In any event, the interest stipulation, on its face, does not
appear as being that excessive. The essence or rationale for the payment of
interest, quite often referred to as cost of money, is not exactly the same as
that of a surcharge or a penalty. A penalty stipulation is not necessarily
preclusive of interest, if there is an agreement to that effect, the two being
distinct concepts which may separately be demanded. What may justify a
court in not allowing the creditor to impose full surcharges and penalties,
despite an express stipulation therefor in a valid agreement, may not equally
justify the non-payment or reduction of interest. Indeed, the interest
prescribed in loan financing arrangements is a fundamental part of the
banking business and the core of a bank’s existence.
Eastern Shipping v CA
FACTS:
The carrier in this case is Eastern Shipping Lines Inc while the
shipper/consignee is Stresstek Post Tensioning Philippines Inc. The insurer is
the First Nationwide Assurance Corporation while the Arrastre Operator is
E. Razon Inc.
Eastern Shipping Lines Inc shipped uncoated 7-wire stress relieved wire
strand for prestressed concrete were shipped on board the vessel “Japri
Venture,”. Upon arrival at the port of Manila, it discharged the cargo to the
custody of the defendant E. Razon, Inc. from whom the consignee’s customs
broker received it for delivery to the consignee’s warehouse. First
Nationwide Assurance, indemnified the consignee in the amount of
P171,923.00 for damage and loss to the insured cargo, whereupon the
former was subrogated for the latter. The insurer now seeks to recover from
the defendants what it has indemnified the consignee. The petitioner
protested alleging that it should not be held liable to answer for damages
for the event that caused the rusting of the goods was due to the
“encountered very rough seas and stormy weather” classified as force
majeure, hence relieving them of any liability. Aggrieved, respondent filed a
case against petitioner.
The RTC dismissed the case but the CA set aside the RTC’s decision and
ordered petitioner to pay respondent.
ISSUE:

Whether or not petitioner was negligent and should be held liable for the
payment of damages.
HELD:
YES. Plainly, the heavy seas and rains referred to in the master’s report were
not caso fortuito, but normal occurrences that an ocean-going vessel,
particularly in the month of September which, in our area, is a month of
rains and heavy seas would encounter as a matter of routine. They are
neither unforeseen nor unforeseeable. These are conditions that ocean-
going vessels would encounter and provide for, in the ordinary course of a
voyage. That rain water (not sea water) found its way into the holds of the
Japri Venture is a clear indication that care and foresight did not attend the
closing of the ship’s hatches so that rainwater would not find its way into
the cargo holds of the ship.
Moreover, under Article 1733 of the Civil Code, common carriers are bound
to observe “extra-ordinary vigilance over goods . . . .according to all
circumstances of each case,” and Article 1735 of the same Code states, to
wit:
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of
the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as
required in article 1733.
Since the carrier has failed to establish any caso fortuito, the presumption
by law of fault or negligence on the part of the carrier applies; and the
carrier must present evidence that it has observed the extraordinary
diligence required by Article 1733 of the Civil Code in order to escape
liability for damage or destruction to the goods that it had admittedly
carried in this case. No such evidence exists of record. Thus, the carrier
cannot escape liability.
The presumption, therefore, that the cargo was in apparent good condition
when it was delivered by the vessel to the arrastre operator by the clean
tally sheets has been overturned and traversed. The evidence is clear to the
effect that the damage to the cargo was suffered while aboard petitioner’s
vessel.
Producer’s Bank vs CA
Civil Law; Contracts; Loan; Distinguished from Commodatum; Article
1933 of the Civil Code distinguishes between the two kinds of loans.—By the
contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return
it, in which case the contract is called a commodatum; or money or other
consumable thing, upon the condition that the same amount of the same kind
and quality shall be paid, in which case the contract is simply called a loan
or mutuum. Commodatum is essentially gratuitous. Simple loan may be
gratuitous or with a stipulation to pay interest. In commodatum, the bailor
retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
However, there are some instances where a commodatum may have for its
object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for
exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or
when the intention of the parties is to lend consumable goods and to have
the very same goods returned at the end of the period agreed upon, the loan
is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded
primordial consideration in determining the actual character of a
contract.27 In case of doubt, the contemporaneous and subsequent acts of
the parties shall be considered in such determination.28
As correctly pointed out by both the Court of Appeals and the trial court,
the evidence shows that private respondent agreed to deposit his money in
the savings account of Sterela specifically for the purpose of making it appear
“that said firm had sufficient capitalization for incorporation, with the
promise that the amount shall be returned within thirty (30) days.”29 Private
respondent merely “accommodated” Doronilla by lending his money without
consideration, as a favor to his good friend Sanchez. It was however clear to
the parties to the transaction that the money would not be removed from
Sterela’s savings account and would be returned to private respondent after
thirty (30) days.
Garcia vs Thio
Respondent Thio received from petitioner Garcia two crossed checks which
amount to US$100,000 and US$500,000, respectively, payable to the order
of Marilou Santiago. According to petitioner, respondent failed to pay the
principal amounts of the loans when they fell due and so she filed a
complaint for sum of money and damages with the RTC. Respondent denied
that she contracted the two loans and countered that it was Marilou Satiago
to whom petitioner lent the money. She claimed she was merely asked y
petitioner to give the checks to Santiago. She issued the checks for P76,000
and P20,000 not as payment of interest but to accommodate petitioner’s
request that respondent use her own checks instead of Santiago’s.
Petitioner insists that it was upon respondent’s instruction that both
checks were made payable to Santiago.27 She maintains that it was also upon
respondent’s instruction that both checks were delivered to her (respondent)
so that she could, in turn, deliver the same to Santiago.28Furthermore, she
argues that once respondent received the checks, the latter had possession
and control of them such that she had the choice to either forward them to
Santiago (who was already her debtor), to retain them or to return them to
petitioner.29
We agree with petitioner. Delivery is the act by which the res or substance
thereof is placed within the actual or constructive possession or control of
another.30 Although respondent did not physically receive the proceeds of
the checks, these instruments were placed in her control and possession
under an arrangement whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know
Santiago.31 It was highly improbable that petitioner would grant two loans to
a complete stranger without requiring as much as promissory notes or any
written acknowledgment of the debt considering that the amounts involved
were quite big. Respondent, on the other hand, already had transactions with
Santiago at that time.32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and
whose name appeared in both parties’ list of witnesses) testified that
respondent’s plan was for petitioner to lend her money at a monthly interest
rate of 3%, after which respondent would lend the same amount to Santiago
at a higher rate of 5% and realize a profit of 2%.33 This explained why
respondent instructed petitioner to make the checks payable to Santiago.
Respondent has not shown any reason why Ruiz’ testimony should not be
believed.
Third, for the US$100,000 loan, respondent admitted issuing her own
checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight
months to cover the monthly interest. For the P500,000 loan, she also issued
her own checks in the amount of P20,000 each for four months.34
_______________
According to respondent, she merely accommodated petitioner’s request for
her to issue her own checks to cover the interest payments since petitioner
was not personally acquainted with Santiago.35 She claimed, however, that
Santiago would replace the checks with cash.36 Her explanation is simply
incredible. It is difficult to believe that respondent would put herself in a
position where she would be compelled to pay interest, from her own funds,
for loans she allegedly did not contract. We declared in one case that:
“In the assessment of the testimonies of witnesses, this Court is guided by the
rule that for evidence to be believed, it must not only proceed from the
mouth of a credible witness, but must be credible in itself such as the
common experience of mankind can approve as probable under the
circumstances. We have no test of the truth of human testimony except its
conformity to our knowledge, observation, and experience. Whatever is
repugnant to these belongs to the miraculous, and is outside of juridical
cognizance.”37
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was
respondent, not petitioner, who was listed as one of her (Santiago’s)
creditors.38
Last, respondent inexplicably never presented Santiago as a witness to
corroborate her story.39 The presumption is that “evidence willfully
suppressed would be adverse if pro-duced.”40 Respondent was not able to
overturn this presumption.
We hold that the CA committed reversible error when it ruled that
respondent did not borrow the amounts of
______US$100,000 and P500,000 from petitioner. We instead agree with
the ruling of the RTC making respondent liable for the principal amounts of
the loans.
 We do not, however, agree that respondent is liable for the 3% and 4%
monthly interest for the US$100,000 and P500,000 loans respectively. There
was no written proof of the interest payable except for the verbal agreement
that the loans would earn 3% and 4% interest per month. Article 1956 of the
Civil Code provides that “[n]o interest shall be due unless it has been
expressly stipulated in writing.”
Be that as it may, while there can be no stipulated interest, there can be
legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that:
“When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.”41
Hence, respondent is liable for the payment of legal interest per annum to be
computed from November 21, 1995, the date when she received petitioner’s
demand letter.42From the finality of the decision until it is fully paid, the
amount due shall earn interest at 12% per annum, the interim period being
deemed equivalent to a forbearance of credit.43
_______
The award of actual damages in the amount of P50,000 and P100,000
attorney’s fees is deleted since the RTC decision did not explain the factual
bases for these damages.
REVERSED
Pajuyo vs CA
same; Same; Contracts; Commodatum; Precarium; Words and
Phrases; An essential feature of commodatum is that it is gratuitous, while
another feature is that the use of the thing belonging to another is for a
certain period; If the use of the thing is merely tolerated by the bailor, he can
demand the return of the thing at will, in which case the contractual relation
is called a precarium; Precarium is a kind of commodatum.—In a contract
of commodatum,one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return
it. An essential feature of commodatum is that it is gratuitous. Another
feature of commodatum is that the use of the thing belonging to another is
for a certain period. Thus, the bailor cannot demand the return of the thing
loaned until after expiration of the period stipulated, or after
accomplishment of the use for which the commodatum is constituted. If the
bailor should have urgent need of the thing, he may demand its return for
temporary use. If the use of the thing is merely tolerated by the bailor, he can
demand the return of the thing at will, in which case the contractual relation
is called a precarium. Under the Civil Code, precarium is a kind
of commodatum.
This principle should apply with greater force in cases where a contract
embodies the permission or tolerance to use the property.
The Kasunduan expressly articulated Pajuyo’s forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot in
good condition. Guevarra expressly vowed in the Kasunduan that he would
vacate the property on demand. Guevarra’s refusal to comply with Pajuyo’s
demand to vacate made Guevarra’s continued possession of the property
unlawful.
We do not subscribe to the Court of Appeals’ theory that the Kasunduan is
one of commodatum.
In a contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for a certain
time and return it.63 An essential feature of
___commodatum is that it is gratuitous. Another feature of commodatum is
that the use of the thing belonging to another is for a certain period.64 Thus,
the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for
which the commodatum is constituted.65 If the bailor should have urgent
need of the thing, he may demand its return for temporary use.66 If the use
of the thing is merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is called
a precarium.67Under the Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not require
Guevarra to pay rent, it obligated him to maintain the property in good
condition. The imposition of this obligation makes the Kasunduan a contract
different from a commodatum. The effects of the Kasunduanare also
different from that of a commodatum. Case law on ejectment has treated
relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in
_______________
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower.
64
Pascual v. Mina, 20 Phil. 202 (1911).
65
Art. 1946. The bailor cannot demand the return of the thing loaned till
after the expiration of the period stipulated, or after the accomplishment of
the use for which the commodatum has been constituted. However, if in the
meantime, he should have urgent need of the thing, he may demand its
return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is
suspended while the thing is in the possession of the bailor.
66
Ibid.
67
Art. 1947. The bailor may demand the thing at will, and the contractual
relation is called a precarium,in the following cases:
1. (1)If neither the duration of the contract nor the use to which the
thing loaned should be devoted, has been stipulated; or
2. (2)If the use of the thing is merely tolerated by the owner.
the termination of the lease.69 The tenant’s withholding of the property
would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one
of commodatum, Guevarra as bailee would still have the duty to turn over
possession of the property to Pajuyo, the bailor. The obligation to deliver or
to return the thing received attaches to contracts for safekeeping, or
contracts of commission, administration and commodatum.70 These
contracts certainly involve the obligation to deliver or return the thing
received.71
Guevarra turned his back on the Kasunduan on the sole ground that like
him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter
into a contract involving the land they illegally occupy. Guevarra insists that
the contract is void.
Guevarra should know that there must be honor even between squatters.
Guevarra freely entered into the Kasunduan.Guevarra cannot now impugn
the Kasunduan after he had benefited from it. The Kasunduan binds
Guevarra.
The Kasunduan is not void for purposes of determining who between
Pajuyo and Guevarra has a right to physical possession of the contested
property. The Kasunduan is the undeniable evidence of Guevarra’s
recognition of Pajuyo’s better right of physical possession. Guevarra is clearly
a possessor in bad faith. The absence of a contract would not yield a different
result, as there would still be an implied promise to vacate.
Guevarra contends that there is “a pernicious evil that is sought to be
avoided, and that is allowing an absentee squatter who (sic) makes (sic) a
profit out of his illegal act.”72 Guevarra bases his argument on the preferential
right given to the actual occupant or caretaker under Proclamation No. 137
on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because
Guevarra stayed in the property without paying any rent. There is also no
proof that Pajuyo is a professional squatter who
rents out usurped properties to other squatters. Moreover, it is for the proper
government agency to decide who between Pajuyo and Guevarra qualifies
for socialized housing. The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua non in
ejectment.73 This is one of the distinctions between forcible entry and
unlawful detainer.74 In forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force, intimidation, threat,
strategy or stealth. Thus, he must allege and prove prior possession.75 But in
unlawful detainer, the defendant unlawfully withholds possession after the
expiration or termination of his right to possess under any contract, express
or implied. In such a case, prior physical possession is not required.76
Pajuyo’s withdrawal of his permission to Guevarra terminated
the Kasunduan.Guevarra’s transient right to possess the property ended as
well. Moreover, it was Pajuyo who was in actual possession of the property
because Guevarra had to seek Pajuyo’s permission to temporarily hold the
property and Guevarra had to follow the conditions set by Pajuyo in
the Kasunduan.Control over the property still rested with Pajuyo and this is
evidence of actual possession.
Pajuyo’s absence did not affect his actual possession of the disputed
property. Possession in the eyes of the law does not mean that a man has to
have his feet on every square meter of the ground before he is deemed in
possession.77 One may acquire possession not only by physical occupation,
but also by the fact that a thing is subject to the action of one’s will.78 Actual
or physical occupation is not always necessary.79
People vs Puig
Petitioner explains that under Article 1980 of the New Civil Code, “fixed,
savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loans.” Corollary thereto,
Article 1953 of the same Code provides that “a person who receives a loan
of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality.”
Thus, it posits that the depositors who place their money with the bank are
considered creditors of the bank. The bank acquires ownership of the
money deposited by its clients, making the money taken by respondents as
belonging to the bank.
It is beyond doubt that tellers, Cashiers, Bookkeepers and other
employees of a Bank who come into possession of the monies deposited
therein enjoy the confidence reposed in them by their employer. Banks, on
the other hand, where monies are deposited, are considered the owners
thereof. This is very clear not only from the express provisions of the law, but
from established jurisprudence. The relationship between banks and
depositors has been held to be that of creditor and debtor. Articles 1953 and
1980 of the New Civil Code, as appropriately pointed out by petitioner,
provide as follows:
“Article 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning loan.”
In a long line of cases involving Qualified Theft, this Court has firmly
established the nature of possession by the Bank of the money deposits
therein, and the duties being performed by its employees who have custody
of the money or have come into possession of it. The Court has consistently
considered the allegations in the Information that such employees acted with
grave abuse of cofidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as sufficient to
make out a case of Qualified Theft.
In summary, the Bank acquires ownership of the money deposited by its
clients; and the employees of the Bank, who are entrusted with the
possession of money of the Bank due to the confidence reposed in them,
occupy positions of confidence. The Informations, therefore, sufficiently
allege all the essential elements constituting the crime of Qualified Theft
BPI vs CA
1) Franco had a better right to the deposits in the subject accounts which are
part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to
interest on his current account; (3) Franco can recover the P400,000.00
deposit in Quiaoit’s savings account; (4) the dishonor of Franco’s checks was
not legally in order; (5) BPI-FB is liable for interest on Franco’s time deposit,
and for moral and exemplary damages; and (6) BPI-FB’s counter-claim has no
factual and legal anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that BPI-
FB cannot unilaterally freeze Franco’s accounts and preclude him from
withdrawing his deposits. However, contrary to the appellate court’s ruling,
we hold that Franco is not entitled to unearned interest on the time deposit
as well as to moral and exemplary damages.
BPI-FB’s argument is unsound. To begin with, the movable property
mentioned in Article 559 of the Civil Code pertains to a specific or
determinate thing.30 A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of the same
kind.31
In this case, the deposit in Franco’s accounts consists of money which,
albeit characterized as a movable, is generic and fungible.32 The quality of
being fungible depends upon the possibility of the property, because of its
nature or the will of the parties, being substituted by others of the same kind,
not having a distinct individuality.33
Significantly, while Article 559 permits an owner who has lost or has been
unlawfully deprived of a movable to recover
_______________
30
See Article 1460, paragraph 1 of the Civil Code. A thing is determinate
when it is particularly designated or physically segregated from all others of
the same class.
31
Tolentino, Civil Code of the Philippines Commentaries and
Jurisprudence, Vol. IV, 1985, p. 90.
 32
See Article 418 of the Civil Code, taken from Article 337 of the Old Civil
Code which used the words “fungible or non-fungible.”
33
Tolentino, Civil Code of the Philippines Commentaries and
Jurisprudence, Vol. II, 1983, p. 26.
196
196 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Franco
the exact same thing from the current possessor, BPI-FB simply claims
ownership of the equivalent amount of money, i.e., the value thereof, which
it had mistakenly debited from FMIC’s account and credited to Tevesteco’s,
and subsequently traced to Franco’s account. In fact, this is what BPI-FB did
in filing the Makati Case against Franco, et al. It staked its claim on the money
itself which passed from one account to another, commencing with the
forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar
ownership,34 and this characteristic is all the more manifest in the instant
case which involves money in a banking transaction gone awry. Its primary
function is to pass from hand to hand as a medium of exchange, without other
evidence of its title.35 Money, which had
passed through various transactions in the general course of banking
business, even if of traceable origin, is no exception.
Thus, inasmuch as what is involved is not a specific or determinate
personal property, BPI-FB’s illustrative example, ostensibly based on Article
559, is inapplicable to the instant case.
More importantly, BPI-FB does not have a unilateral right to freeze the
accounts of Franco based on its mere suspicion that the funds therein were
proceeds of the multi-million peso scam Franco was allegedly involved in. To
grant BPI-FB, or any bank for that matter, the right to take whatever action
it pleases on deposits which it supposes are derived from shady
transactions, would open the floodgates of public distrust in the banking
industry.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION
that the award of unearned interest on the time deposit and of moral and
exemplary damages is DELETED.
Naguiat vs CA and Queaño
FACTS
Queaño applied with Naguiat a loan for P200,000, which the latter granted.
Naguiat indorsed to Queaño Associated bank Check No. 090990 for the
amount of P95,000 and issued also her own Filmanbank Check to the order
of Queaño for the amount of P95,000. The proceeds of these checks were to
constitute the loan granted by Naguiat to Queaño. To secure the loan,
Queaño executed a Deed of Real Estate Mortgage in favor of Naguiat, and
surrendered the owner’s duplicates of titles of the mortgaged properties.
The deed was notarized and Queaño issued to Naguiat a promissory note
for the amount of P200,000. Queaño also issued a post-dated check
amounting to P200,000 payable to the order of Naguait. The check was
dishonoured for insufficiency of funds. Demand was sent to Queaño.
Shortly, Queaño, and one Ruby Reubenfeldt met with Naguiat. Queaño told
Naguiat that she did not receive the loan proceeds, adding that the checks
were retained by Reubenfeldt, who purportedly was Naguiat’s agent.
Naguiat applied for extrajudicial foreclosure of the mortgage. RTC declared
the Deed as null and void and ordered Naguiat to return to Queaño the
owner’s duplicates of titles of the mortgaged lots.
ISSUE
Whether or not the issuance of check resulted in the perfection of the loan
contract.
HELD
The Court held in the negative. No evidence was submitted by Naguiat that
the checks she issued or endorsed were actually encashed or deposited. The
mere issuance of the checks did not result in the perfection of the contract
of loan. The Civil Code provides that the
 delivery of bills of exchange and mercantile documents such as checks shall
produce the effect of payment only when they have been cashed. It is only
after the checks have been produced the effect of payment that the
contract of loan may have been perfected.
Article 1934 of the Civil Code provides: An accepted promise to deliver
something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itsel shall not be perfected
until the delivery of the object of the contract. A loan contract is a real
contract, not consensual, and as such, is perfected only upon the delivery of
the objects of the contract
Naguiat vs CA
Same; Mortgages; A mortgage contract being a mere accessory contract, its
validity would depend on the validity of the loan secured by it.—All told, we
find no compelling reason to disturb the finding of the courts a quo that the
lender did not remit and the borrower did not receive the proceeds of the
loan. That being the case, it follows that the mortgage which is supposed to
secure the loan is null and void. The consideration of the mortgage contract
is the same as that of the principal contract from which it receives life, and
without which it cannot exist as an independent contract. A mortgage
contract being a mere accessory contract, its validity would depend on the
validity of the loan secured by it.
A loan contract is a real contract, not consensual, and, as such, is perfected
only upon the delivery of the object of the contract.21 In this case, the objects
of the contract are the loan proceeds which Queaño would enjoy only upon
the encashment of the checks signed or indorsed by Naguiat. If indeed the
checks were encashed or deposited, Naguiat would have certainly presented
the corresponding documentary evidence, such as the returned checks and
the pertinent bank records. Since Naguiat presented no such proof, it follows
that the checks were not encashed or credited to Queaño’s account
ISSUE
Whether or not the issuance of check resulted in the perfection of the loan
contract.
HELD
The Court held in the negative. No evidence was submitted by Naguiat that
the checks she issued or endorsed were actually encashed or deposited. The
mere issuance of the checks did not result in the perfection of the contract of
loan. The Civil Code provides that the delivery of bills of exchange and
mercantile documents such as checks shall produce the effect of payment
only when they have been cashed. It is only after the checks have been
produced the effect of payment that the contract of loan may have been
perfected.
Cebu Intl. vs CA
FACTS: Cebu International Finance Corporation (CIFC) is a quasi-banking
institution engaged in money market operations. On April 25, 1991, private
respondent Vicente Alegre invested with CIFC P500, 000.00 in cash. Petitioner
issued a promissory note to mature on May 27, 1991. The note for P516, 238.
67 covered private respondent’s placement plus interest at 20.5% for 32 days.
On May 27, 1991, CIFC issued BPI Check No. 513397 for P514, 390.94 in favor
of the private respondent as proceeds of his mature investment plus interest.
The check was drawn from petitioner’s current account maintained with Bank
of the Philippine Islands (BPI) main branch at Makati City. On June 17, 1991,
private respondent’s wife deposited the check with Rizal Commercial Banking
Corp. (RCBC) in Puerto Princesa, Palawan. BPI dishonored the check, that the
check is subject of an investigation. BPI took custody of the check pending an
investigation of several counterfeit checks drawn against CIFC’s checking
account. BPI used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored check and
demanded that he be paid in cash. CIFC denied the request and instead
instructed private respondent to wait for its ongoing bank reconciliation with
BPI. Private respondent made a formal demand of his money market
placement. In turn, CIFC promised to replace the check but required an
impossible condition that the original check must first be surrendered.
On February 25, 1992, Alegre filed a complaint for recovery of sum of money
against petitioner. On July 13, 1992, CIFC sought to recover its lost funds and
formally filed against BPI a separate civil action for collection of a sum of
money with RTC- Makati Branch. It alleged that BPI unlawfully deducted from
CIFC’s checking account, counterfeit checks amounting to P1, 724, 364. 58.
The action included the prayer to collect the amount of the check paid to
Alegre but dishonored by BPI. CIFC in its response to Alegre’s complaint filed
for leaver of court and impleaded BPI to enforce a right, for contribution and
indemnity. The court granted CIFC’s motion but upon the motion to dismiss
the third-party complaint filed by BPI, the court dismissed the third-party
complaint. During the hearing, BPI through its Manager, testified that on July
16, 1993, BPI encashed and deducted the said amount from the account of
CIFC, but the proceeds, as well as the check remained in BPI’s custody. This
was alleged in accordance with the Compromise Agreement it entered with
CIFC to end the litigation in RTC-Makati Branch. On July 27, 1993, BPI filed a
separate collection suit against Alegre, alleging that he had connived with
other persons to forge several checks of BPI’s client, amounting to P1, 724,
364.58. On September 27, 1993, RTC-Makati Branch rendered its judgment in
favor of private respondent. CIFC appealed from the said decision, but the
appellate court affirmed in toto the decision of the lower court.
ISSUE: Whether or not the petitioner is still liable for the payment of check
even though BPI accepted the instrument
RULING: The Supreme Court held that the money market transaction
between the petitioner and private respondent is in the nature of loan. In a
loan transaction, the obligation to pay a sum certain in money may be paid in
money, which is the legal tender or, by the use of a check. A check is not a
legal tender, and therefore cannot constitute valid tender of payment. In
effect, CIFC has not yet tendered a valid payment of its obligation to the
private respondent. Tender of payment involves a positive and unconditional
act by the obligor of offering legal tender currency as payment to the obligee
for the former’s obligation and demanding that the latter accept the same.
Tender of payment cannot be presumed by a mere inference from
surrounding circumstances. Hence, CIFC is still liable for the payment of the
check.
Wherefore, the assailed decision is affirmed and the petition is denied.
Civil Law; Commercial Law; Loan; In a money market transaction, the
investor is a lender who loans his money to a borrower through a middleman
or dealer.—Considering the nature of a money market transaction, the
above-quoted provision should be applied in the present controversy. As held
in Perez vs. Court of Appeals, a “money market is a market dealing in
standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a middleman
or dealer.
Same; Same; Same; Check; A check is not a legal tender, and therefore
cannot constitute valid tender of payment.—In a loan transaction, the
obligation to pay a sum certain in money may be paid in money, which is the
legal tender or, by the use of a check. A check is not a legal tender, and
therefore cannot constitute valid tender of payment. In the case of Philippine
Airlines, Inc. vs. Court of Appeals, this Court held: “Since a negotiable
instrument is only a substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment (citation omitted). A
check, whether a manager’s check or ordinary check, is not legal tender, and
an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. Mere
delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the payment
by commercial document is actually realized (Art. 1249, Civil Code, par. 3.)”
BPI Investment Corp vs CA
Facts:
Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of BPI
Investment Corp. (BPIIC), for the construction of a house on his lot in New
Alabang Village, Muntinlupa.
He mortgaged the house and lot to AIDC as security for the loan.
1980: Roa sold the house and lot to ALS Management & Development Corp.
and Antonio Litonjua for P850K who paid P350K in cash and assumed the
P500K indebtness of ROA with AIDC.
AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested
rate of 20%/annum and service fee of 1%/annum on the outstanding balance
payable within 10 years through equal monthly amortization of P9,996.58
and penalty interest of 21%/annum/day from the date the amortization
becomes due and payable.
March 1981: ALS and Litonjua executed a mortgage deed containing the new
stipulation with the provision that the monthly amortization will commence
on May 1, 1981
August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K
principal loan to P457,204.90.
September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting
to be what was left of their loan after full payment of Roa’s loan
June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua
on the ground that they failed to pay the mortgage indebtedness which from
May 1, 1981 to June 30, 1984 amounting to P475,585.31
August 13, 1984: Notice of sheriff's sale was published
February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC
alleging that they are not in arrears and instead they made an overpayment
as of June 30, 1984 since the P500K loan was only released September 13,
1982 which marked the start of the amortization and since only P464,351.77
was released applying legal compensation the balance of P35,648.23 should
be applied to the monthly amortizations
RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by
BPI to ALS and Litonjua was only in the principal sum of P464,351.77 and
awarding moral damages, exemplary damages and attorneys fees for the
publication
CA: Affirmed reasoning that a simple loan is perfected upon delivery of the
object of the contract which is on September 13, 1982
ISSUE: W/N the contract of loan was perfected only on September 13, 1982
or the second release of the loan?
HELD: YES. AFFIRMED WITH MODIFICATION as to the award of damages. The
award of moral and exemplary damages in favor of private respondents is
DELETED, but the award to them of attorney’s fees in the amount of P50,000
is UPHELD. Additionally, petitioner is ORDERED to pay private respondents
P25,000 as nominal damages. Costs against petitioner.
obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract
contract of loan involves a reciprocal obligation, wherein the obligation or
promise of each party is the consideration for that of the other. It is a basic
principle in reciprocal obligations that neither party incurs in delay, if the
other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. Consequently, petitioner could only demand
for the payment of the monthly amortization after September 13, 1982 for it
was only then when it complied with its obligation under the loan contract.
BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the
amount actually released and the date when it was released. Such negligence
resulted in damage for which an award of nominal damages should be given
SSS where we awarded attorney’s fees because private respondents
were compelled to litigate, we sustain the award of P50,000 in favor of
private respondents as attorney’s fees
Obligations and Contracts; Loans; A loan contract is not a consensual
contract but a real contract, perfected only upon the delivery of the object of
the contract.—We agree with private respondents. A loan contract is not a
consensual contract but a real contract. It is perfected only upon the delivery
of the object of the contract. Petitioner misapplied Bonnevie. The contract
in Bonnevie declared by this Court as a perfected consensual contract falls
under the first clause of Article 1934, Civil Code. It is an accepted promise to
deliver something by way of simple loan.
Same; Same; While a perfected loan contract can give rise to an action
for damages, said contract does not constitute the real contract of loan which
requires the delivery of the object of the contract for its perfection and which
gives rise to obligations only on the part of the borrower.—In Saura Import
and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter
approved the application through a board resolution. Thereafter, the
corresponding mortgage was executed and registered. However, because of
acts attributable to petitioner, the loan was not released. Later, petitioner
instituted an action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have made the
bank liable for not releasing the loan. However, since the fault was
attributable to petitioner therein, the court did not award it damages. A
perfected consensual contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real contract of loan
which requires the delivery of the object of the contract for its perfection and
which gives rise to obligations only on the part of the borrower.
Same; Same; A contract of loan involves a reciprocal obligation, wherein
the obligation or promise of each party is the consideration for that of the
other; It is a basic principle in reciprocal obligations that neither party incurs
in delay, if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him.—We also agree with private
respondents that a contract of loan involves a reciprocal
______________
*
SECOND DIVISION.
118
118 SUPREME COURT REPORTS
ANNOTATED
BPI Investment Corporation vs. Court of
Appeals
obligation, wherein the obligation or promise of each party is the
consideration for that of the other. As averred by private respondents, the
promise of BPIIC to extend and deliver the loan is upon the consideration that
ALS and Litonjua shall pay the monthly amortization commencing on May 1,
1981, one month after the supposed release of the loan. It is a basic principle
in reciprocal obligations that neither party incurs in delay, if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. Only when a party has performed his part of the
contract can he demand that the other party also fulfills his own obligation
and if the latter fails, default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization after September 13,
1982 for it was only then when it complied with its obligation under the loan
contract. Therefore, in computing the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the mortgage, the starting date is
October 13, 1982 and not May 1, 1981.
Same; Same; Foreclosure of Mortgage; Damages; Where the borrower
was irregular in the payment of its monthly amortization, it may not claim
moral and exemplary damages due to the erroneous foreclosure proceedings
initiated by the creditor-mortgagor.—Private respondents counter that BPIIC
was guilty of bad faith and should be liable for said damages because it
insisted on the payment of amortization on the loan even before it was
released. Further, it did not make the corresponding deduction in the
monthly amortization to conform to the actual amount of loan released, and
it immediately initiated foreclosure proceedings when private respondents
failed to make timely payment. But as admitted by private respondents
themselves, they were irregular in their payment of monthly amortization.
Conformably with our ruling in SSS, we can not properly declare BPIIC in bad
faith. Consequently, we should rule out the award of moral and exemplary
damages.
Same; Same; Same; Same; The negligence of the creditor-mortgagor in
relying merely on the entries found in the deed of mortgage, without checking
and correspondingly adjusting its records on the amount actually released to
the borrower and the date when it was released, which negligence resulted in
damages to the latter, entitles the borrower to an award of nominal damages
in recognition of its rights which were violated.—In our view, BPIIC was
negligent in relying merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its records on the amount
actually released to private respondents and the date when it was released.
Such negligence resulted in damage to private respondents, for which an
award of nominal damages should be given in
119
VOL. 377, FEBRUARY 15, 119
2002
BPI Investment Corporation vs. Court of
Appeals
recognition of their rights which were violated by BPIIC. For this
purpose, the amount of P25,000 is sufficient.
Pantaleon vs AM
FACTS:
After the Amsterdam incident that happened involving the delay of American
Express Card to approve his credit card purchases worth US$13,826.00 at the
Coster store, Pantaleon commenced a complaint for moral and exemplary
damages before the RTC against American Express. He said that he and his
family experienced inconvenience and humiliation due to the delays in credit
authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached
its obligations to Pantaleon, as the purchase at Coster deviated from
Pantaleon's established charge purchase pattern.
2. Yes. The reason why Pantaleon is entitled to damages is not simply because
AmEx incurred delay, but because the delay, for which culpability lies under
Article 1170, led to the particular injuries under Article 2217 of the Civil Code
for which moral damages are remunerative. The somewhat unusual
attending circumstances to the purchase at Coster – that there was a deadline
for the completion of that purchase by petitioner before any delay would
redound to the injury of his several traveling companions – gave rise to the
moral shock, mental anguish, serious anxiety, wounded feelings and social
humiliation sustained by Pantaleon, as concluded by the RTC.

ISSUE:

1. Whether or not AmEx had committed a breach of its obligations to

Pantaleon.

2. Whether or not AmEx is liable for damages.

RULING:

1. Yes. The popular notion that credit card purchases are approved “within
seconds,” there really is no strict, legally determinative point of demarcation
on how long must it take for a credit card company to approve or disapprove
a customer’s purchase, much less one specifically contracted upon by the
parties. One hour appears to be patently unreasonable length of time to
approve or disapprove a credit card purchase.

The culpable failure of AmEx herein is not the failure to timely approve
petitioner’s purchase, but the more elemental failure to timely act on the
same, whether favorably or unfavorably. Even assuming that AmEx’s credit
authorizers did not have sufficient basis on hand to make a judgment, we see
no reason why it could not have promptly informed Pantaleon the reason for
the delay, and duly advised him that resolving the same could take some time.