CREDIT TRANSACTIONS CASE DIGEST

PART 1

CATHOLIC VICAR APOSTOLIC v. CA

G.R. No. L-80294-95 September 21, 1988
Gancayco, J.
Doctrine:
The bailees’ failure to return the subject matter of commodatum to the bailor does not mean
adverse possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum.
Facts:
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for
registration of title over Lots 1, 2, 3, and 4, said Lots being the sites of the Catholic Church
building, convents, high school building, school gymnasium, school dormitories, social hall,
stonewalls, etc. The Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto
since their predecessors’ house was borrowed by petitioner Vicar after the church and the
convent were destroyed.. After trial on the merits, the land registration court promulgated its
Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez appealed the decision of the land registration court to the then Court
of Appeals, The Court of Appeals reversed the decision. Thereupon, the VICAR filed with the
Supreme Court a petition for review on certiorari of the decision of the Court of Appeals
dismissing his application for registration of Lots 2 and 3.
Issue:
Whether or not the failure to return the subject matter of commodatum constitutes an adverse
possession on the part of the owner
Held:
No. The bailees’ failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum.
Petitioner repudiated the trust by declaring the properties in its name for taxation purposes.

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 Catholic Vicar Apostolic v. CA
Facts:
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of
First Instance of Baguio Benguet on September 5, 1962 an application for registration of title
over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet,
docketed as LRC N-91, said Lots being the sites of the Catholic Church building, convents,
high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. On
March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed
their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title
thereto.

Issue:
 Whether or not there is an error in finding that petitioner had been in possession of lots 2 and
3 merely as bailee borrower in commodatum, a gratuitous loan for use

Held:
 The Court of Appeals found that petitioner did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement
of 10 years possession for ordinary acquisitive prescription because of the absence of just title.
The appellate court did not believe the findings of the trial court that Lot 2 was acquired from
Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by
petitioner Vicar because there was absolutely no documentary evidence to support the same
and the alleged purchases were never mentioned in the application for registration.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but
not Lots 2 and 3, because the buildings standing thereon were only constructed after liberation
in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The
improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed
only in 1947, the church was constructed only in 1951 and the new convent only 2 years
before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the
lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in
1962.

Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they became bailors in commodatum
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and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum
to the bailor did not mean adverse possession on the part of the borrower. The bailee held in
trust the property subject matter of commodatum. The adverse claim of petitioner came only in
1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such
adverse claim could not ripen into title by way of ordinary acquisitive prescription because of
the absence of just title.

REPUBLIC VS BAGTAS
Facts:
Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal
Industry three bulls for a period of one year subject to a government charge of breeding fee of
10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the
borrower asked for a renewal for another period of one year. However, was 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. Jose V. Bagtas failed to pay the book value of the three
bulls or to return them. 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.
Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23
October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she file a
motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the
Bureau Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal,
died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying
that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31
January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto.
On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the
Court of Appeals to this Court as stated at the beginning of this opinion.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk
in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao,
Cagayan, where the animal was kept, and that as such death was due to force majeure she is
relieved from the duty of returning the bull or paying its value to the appellee. The contention is
without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls
for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on
renewed for another year as regards one bull, was subject to the payment by the borrower of
breeding fee of 10% of the book value of the bulls. The appellant contends that the contract
was commodatum and that, for that reason, as the appellee retained ownership or title to the
bull it should suffer its loss due to force majeure.
Issue:
Whether the borrowing of the Bull from the appellee is a commodatum contract and that, for

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that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to
force majeure.?
Held:
No, A contract of commodatum is essentially gratuitous. If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil
Code the lessee would be subject to the responsibilities of a possessor in bad faith, because
she had continued possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum is liable for loss of the things, even if it
should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated.
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;

Republic v. Bagtas
Facts: Bagtas borrowed three bulls from the Bureau of Animal Industry for one year for
breeding purposes subject to payment of breeding fee of 10% of book value of the bull. Upon
expiration, Bagtas asked for renewal. The renewal was granted only to one bull. Bagtas
offered to buy the bulls at its book value less depreciation but the Bureau refused. The Bureau
said that Bagtas should either return or buy it at book value. Bagtas proved that he already
returned two of the bulls, and the other bull died during a Huk raid, hence, obligation already
extinguished. He claims that the contract is a commodatum hence, loss through fortuitous
event should be borne by the owner.

Issue: WON Bagtas is liable for the death of the bull.

Held: Yes. Commodatum is essentially gratuitous. However, in this case, there is a 10%
charge. If this is considered compensation, then the case at bar is a lease. Lessee is liable as
possessor in bad faith because the period already lapsed.
Even if this is a commodatum, Bagtas is still liable because the fortuitous event happened
when he held the bull and the period stipulated already expired and he is liable because the
thing loaned was delivered with appraisal of value and there was no contrary stipulation
regarding his liability in case there is a fortuitous event.

Saura Import & Export Co., Inc.

-vs-
DBP

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 GR No. L-24968, 27 April 972
44 SCRA 445

FACTS
  Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion into
DBP, for an industrial loan to be used for construction of factory building, for payment of the
balance of the purchase price of the jute machinery and equipment and as additional working
capital. In Resolution No.145, the loan application was approved to be secured first by
mortgage on the factory buildings, the land site, and machinery and equipment to be installed.

The mortgage was registered and documents for the promissory note were executed. The
cancellation of the mortgage was requested to make way for the registration of a mortgage
contract over the same property in favor of Prudential Bank and Trust Co., the latter having
issued Saura letter of credit for the release of the jute machinery. As security, Saura execute a
trust receipt in favor of the Prudential. For failure of Saura to pay said obligation, Prudential
sued Saura.

After 9 years after the mortgage was cancelled, Saura sued RFc alleging failure to comply with
tits obligations to release the loan proceeds, thereby prevented it from paying the obligation to
Prudential Bank.

The trial court ruled in favor of Saura, ruling that there was a perfected contract between the
parties ad that the RFC was guilty of breach thereof.

ISSUE
Whether or not there was a perfected contract between the parties.

HELD
The Court held in the affirmative. Article 1934 provides: An accepted promise to deliver
something by way of commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until delivery of the object of the
contract.

There was undoubtedly offer and acceptance in the case. When an application for a loan of
money was approved by resolution of the respondent corporation and the responding
mortgage was executed and registered, there arises a perfected consensual contract.

FACTS:

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  In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an
industrial loan of P500,000 to be used for the construction of a factory building, to pay
the balance of the jute mill machinery and equipment and as additional working capital.
In Resolution No.145, the loan application was approved to be secured first by
mortgage on the factory buildings, the land site, and machinery and equipment to be
installed.
 The mortgage was registered and documents for the promissory note were executed.
But then, later on, was cancelled to make way for the registration of a mortgage contract
over the same property in favor of Prudential Bank and Trust Co., the latter having
issued Saura letter of credit for the release of the jute machinery. As security, Saura
execute a trust receipt in favor of the Prudential. For failure of Saura to pay said
obligation, Prudential sued Saura.
 After almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on
the latter to comply with its obligations to release 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 ruled in favor of Saura, ruling that there was a perfected contract between
the parties and that the RFC was guilty of breach thereof.
ISSUE: Whether or not there was a perfected contract between the parties. YES. There was
indeed a perfected consensual contract.

HELD:
·Article 1934 provides: An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until delivery of the object of the contract.
· There was undoubtedly offer and acceptance in the 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. The defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
· When an application for a loan of money was approved by resolution of the respondent
corporation and the responding mortgage was executed and registered, there arises a
perfected consensual contract.
· However, it should be noted that RFC imposed two conditions (availability of raw materials
and increased production) when it restored the loan to the original amount of P500,000.00.
· Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead of doing
so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage
be cancelled.The action thus taken by both parties was in the nature of mutual
desistance which is a mode of extinguishing obligations. It is a concept that derives
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from the principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.
·WHEREFORE, the judgment appealed from is reversed and the complaint dismissed.

Herrera vs Petro Phil Corp 146 Scra 385

FACTS: On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil
Corp.,) entered into a lease agreement, whereby the former leased to the latter a portion of his
property for a period of 20yrs. subject to the condition that monthly rentals should be paid and
there should be an advance payment of rentals for the first eight years of the contract, to which
ESSO paid on December 31, 1969. However, ESSO deducted the amount of 101, 010.73 as
interest or discount for the eight years advance rental.  On August 20, 1970, ESSO informed
Herrera that there had been a mistake in the computation of the interest and paid an additional
sum of 2,182.70; thus, it was reduced to 98, 828.03.  As such, Herrera sued ESSO for the
sum of 98, 828.03, with interest, claiming that this had been illegally deducted to him in
violation of the Usury Law.  ESSO argued that amount deducted was not usurious interest
but rather a discount given to it for paying the rentals in advance. Judgment on the pleadings
was rendered in favor of ESSO. Thus, the matter was elevated to the SC for only questions of
law was involve.
ISSUE : W/N the contract between the parties is one of loan or lease.
RULING :
 Contract between the parties is one of lease and not of loan. It is clearly denominated a
"LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties
intended a loan rather than a lease. The provision for the payment of rentals in advance
cannot be construed as a repayment of a loan because there was no grant or forbearance of
money as to constitute an indebtedness on the part of the lessor. On the contrary, the
defendant-appellee was discharging its obligation in advance by paying the eight years rentals,
and it was for this advance payment that it was getting a rebate or discount.
 ---  There is no usury in this case because no money was given by the defendant-appellee
to the plaintiff-appellant, nor did it allow him to use its money already in his possession. There
was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the
defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor
had the right to determine, and any reduction thereof, by any amount, would not contravene
the Usury Law.
 The difference between a discount and a loan or forbearance is that the former does not
have to be repaid. The loan or forbearance is subject to repayment and is therefore governed
by the laws on usury.
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  To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to interest
allowed by law."
 It has been held that the elements of usury are
(1) a loan, express or implied;
(2) an understanding between the parties that the money lent shall or may be returned; that
for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be
paid, as the case may be;
and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless
these four things concur in every transaction, it is safe to affirm that no case of usury can be
declared.

Integrated Realty Corp vs PNB

GR No. 60705, 28 June 1989
174 SCRA 295

FACTS
            Raul Santos made a time deposit with OBM in the amount of P500H and he was
issued a certificate of time deposits. On another date, Santos again made a time deposit with
OBM in the amount of P200H, he was again issued a CTD. IRC, thru its president Raul
Santos, applied for a loan and/or credit line (P700H) with PNB. To secure such, Santos
executed a Deed of Assignment of the 2 time deposits. After due dates of the time deposit
certificates, OBM did not pay PNB. PNB then demanded payment from IRC and Santos, but
they replied that the loan was deemed paid with the irrevocable assignment of the time deposit
certificates.

            PB then filed with RTC to collect from IRC and Santos with interest. The trial court
ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount of P700H plus
interest of 9% PA, 2% additional interest and 1& PA penalty interest. On appeal, the CA
ordered OBM to pay IRC and Santos whatever amts they will to PNB with interest.

            IRC and Santos now claim that OBM should reimburse them for whatever amts they
may be adjudged to pay PNB by way of compensation for damages incurred.

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ISSUE
            Whether or not the claim of IRC and Santos will prosper.

HELD
            The Court held in the affirmative. The 2 time deposits matured on 11 January 1968 and
6 February 1968, respectively. However, OBM was not allowed and suspended to operate only
on 31 July 1968 and resolved on 2 August 1968. There was a yet no obstacle to the faithful
compliance by OBM of its liabilities. For having incurred in delay in the performance of its
obligation, OBM should be held for damages. OBM contends that it had agreed to pay interest
only up to the dates of maturity of the CTD and that Santos is not entitled to interest after
maturity dates had expired.

            While it is true that under Article 1956 of the CC, no interest shall be due unless it has
been expressly stipulated in writing, this applies only to interest for the use of money. It does
not comprehend interest paid as damages. OBM is being required to pay such interest, not as
interest income stipulated in the CTD, but as damages fro failure and delay in the payment of
its obligations which thereby compelled IRC and Santos to resort to the courts.

            The applicable rule is that LI, in the nature of damages for non-compliance with an
obligation to puy sum of money, is recoverable from the date judicially or extra-judicially
demand is made.

Case Digest # I-b-3 | GR No. L-48145 | Republic v Court of Appeals |  Paras

FACTS:
The heirs of Domingo Baloy, represented by Ricardo Baloy, filed an application for land
registration with a possessory title acquired under the provisions of the Spanish Mortgage Law.
The Court of First Instance of Zambales, denied the application thus it was interposed on
appeal to the Court of Appeals. The appellate court, thru its Fifth Division reversed the decision
and approved the application for registration. The petitioners filed their Motion for
reconsideration and was denied.
A communication/letter which contains an official statement, recognizes the fact that Domingo
Baloy and/or his heirs have been in continuous possession of the said land since 1894, as
attested by an “Informacion Possessoria” Title, which was granted by the Spanish
Government. And was interrupted only by the occupation of the land by the US Navy in 1945.
ISSUES:

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 1. Whether or not there is a need for a court order for a private land to be deemed to have
become public land.
2. Whether or not the private respondents’ rights by virtue of their possessory information
title was lost by prescription.
HELD:
The appealed decision is AFFIRMED.
RULING:
1. Under Sec 3 Act 827. Private land could be deemed to have become public land by
virtue of a judicial declaration after due process and hearing. Without a judgement or
order declaring the land to be public, its private character and the possessory
information title over it must be respected.
2. During the interim of 57 years from November 26, 1902 to December 17, 1959 the
possessory rights of Baloy or his heirs were merely suspended and not lost by
prescription.  The occupancy of the US Navy was not in the concept of owner. It
partakes of the character of a commodatum. One’s ownership of a thing may be lost by
prescription by reason of another’s possession if such possession be under claim of
ownership, not where the possession is only intended to be transient, in which case the
owner is not divested of his title, although it cannot be exercised in the meantime.

G.R. No. L-46145 November 26, 1986

REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner,
vs.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY, represented by RICARDO BALOY, ET AL., respondents.
Pelaez, Jalondoni, Adriano and Associates for respondents.

PARAS, J.:p
This case originally emanated from a decision of the then Court of First Instance of Zambales in LRC Case No. 11-0, LRC Record No. N-
29355, denying respondents' application for registration. From said order of denial the applicants, heirs of Domingo Baloy, represented
by Ricardo P. Baloy, (herein private respondents) interposed on appeal to the Court of Appeals which was docketed as CA-G.R. No. 52039-
R. The appellate court, thru its Fifth Division with the Hon. Justice Magno Gatmaitan as ponente, rendered a decision dated February 3,
1977 reversing the decision appealed from and thus approving the application for registration. Oppositors (petitioners herein) filed their
Motion for Reconsideration alleging among other things that applicants' possessory information title can no longer be invoked and that
they were not able to prove a registerable title over the land. Said Motion for Reconsideration was denied, hence this petition for review
on certiorari.
Applicants' claim is anchored on their possessory information title (Exhibit F which had been translated in Exhibit F-1) coupled with their
continuous, adverse and public possession over the land in question. An examination of the possessory information title shows that the
description and the area of the land stated therein substantially coincides with the land applied for and that said possessory information
title had been regularly issued having been acquired by applicants' predecessor, Domingo Baloy, under the provisions of the Spanish
Mortgage Law. Applicants presented their tax declaration on said lands on April 8, 1965.
The Director of Lands opposed the registration alleging that this land had become public land thru the operation of Act 627 of the
Philippine Commission. On November 26, 1902 pursuant to the executive order of the President of the U.S., the area was declared within
the U.S. Naval Reservation. Under Act 627 as amended by Act 1138, a period was fixed within which persons affected thereby could file
their application, (that is within 6 months from July 8, 1905) otherwise "the said lands or interest therein will be conclusively adjudged to
be public lands and all claims on the part of private individuals for such lands or interests therein not to presented will be forever barred."

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Petitioner argues that since Domingo Baloy failed to file his claim within the prescribed period, the land had become irrevocably public
and could not be the subject of a valid registration for private ownership.
Considering the foregoing facts respondents Court of Appeals ruled as follows:
... perhaps, the consequence was that upon failure of Domingo Baloy to have filed his application within that period the land had become
irrevocably public; but perhaps also, for the reason that warning was from the Clerk of the Court of Land Registration, named J.R. Wilson
and there has not been presented a formal order or decision of the said Court of Land Registration so declaring the land public because of
that failure, it can with plausibility be said that after all, there was no judicial declaration to that effect, it is true that the U.S. Navy did
occupy it apparently for some time, as a recreation area, as this Court understands from the communication of the Department of
Foreign Affairs to the U.S. Embassy exhibited in the record, but the very tenor of the communication apparently seeks to justify the title
of herein applicants, in other words, what this Court has taken from the occupation by the U.S. Navy is that during the interim, the title of
applicants was in a state of suspended animation so to speak but it had not died either; and the fact being that this land was really
originally private from and after the issuance and inscription of the possessory information Exh. F during the Spanish times, it would be
most difficult to sustain position of Director of Lands that it was land of no private owner; open to public disposition, and over which he
has control; and since immediately after U.S. Navy had abandoned the area, applicant came in and asserted title once again, only to be
troubled by first Crispiniano Blanco who however in due time, quitclaimed in favor of applicants, and then by private oppositors now,
apparently originally tenants of Blanco, but that entry of private oppositors sought to be given color of ownership when they sought to
and did file tax declaration in 1965, should not prejudice the original rights of applicants thru their possessory information secured
regularly so long ago, the conclusion must have to be that after all, applicants had succeeded in bringing themselves within the provisions
of Sec. 19 of Act 496, the land should be registered in their favor;
IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment appealed from the application is approved, and
once this decision shall have become final, if ever it would be, let decree issue in favor of applicants with the personal circumstances
outlined in the application, costs against private oppositors.
Petitioner now comes to Us with the following:
ASSIGNMENT OF ERRORS:
1. Respondent court erred in holding that to bar private respondents from asserting any right under their possessory information title
there is need for a court order to that effect.
2. Respondent court erred in not holding that private respondents' rights by virtue of their possessory information title was lost by
prescription.
3. Respondent court erred in concluding that applicants have registerable title.
A cursory reading of Sec. 3, Act 627 reveals that several steps are to be followed before any affected land can "be conclusively adjudged
to be public land." Sec. 3, Act 627 reads as follows:
SEC. 3. Immediately upon receipt of the notice from the civil Governor in the preceeding section mentioned it shall be the duty of the
judge of the Court of Land Registration to issue a notice, stating that the lands within the limits aforesaid have been reserved for military
purposes, and announced and declared to be military reservations, and that claims for all private lands, buildings, and interests therein,
within the limits aforesaid, must be presented for registration under the Land Registration Act within six calendar months from the date
of issuing the notice, and that all lands, buildings, and interests therein within the limits aforesaid not so presented within the time
therein limited will be conclusively adjudged to be public lands and all claims on the part of private individuals for such lands, buildings, or
an interest therein not so presented will be forever barred. The clerk of the Court of Land Registration shall immediately upon the issuing
of such notice by the judge cause the same to be published once a week for three successive weeks in two newspapers, one of which
newspapers shall be in the English Language, and one in the Spanish language in the city or province where the land lies, if there be no
such Spanish or English newspapers having a general circulation in the city or province wherein the land lies, then it shall be a sufficient
compliance with this section if the notice be published as herein provided, in a daily newspaper in the Spanish language and one in the
English language, in the City of Manila, having a general circulation. The clerk shall also cause a duly attested copy of the notice in the
Spanish language to be posted in conspicuous place at each angle formed by the lines of the limits of the land reserved. The clerk shall
also issue and cause to be personally served the notice in the Spanish language upon every person living upon or in visible possession of
any part of the military reservation. If the person in possession is the head of the family living upon the hand, it shall be sufficient to serve
the notice upon him, and if he is absent it shall be sufficient to leave a copy at his usual place of residence. The clerk shall certify the
manner in which the notices have been published, posted, and served, and his certificate shall be conclusive proof of such publication,
posting, and service, but the court shall have the power to cause such further notice to be given as in its opinion may be necessary.
Clearly under said provisions, private land could be deemed to have become public land only by virtue of a judicial declaration after due
notice and hearing. It runs contrary therefore to the contention of petitioners that failure to present claims set forth under Sec. 2 of Act
627 made the land ipso facto public without any deed of judicial pronouncement. Petitioner in making such declaration relied on Sec. 4 of
Act 627 alone. But in construing a statute the entire provisions of the law must be considered in order to establish the correct
interpretation as intended by the law-making body. Act 627 by its terms is not self-executory and requires implementation by the Court
of Land Registration. Act 627, to the extent that it creates a forfeiture, is a penal statute in derogation of private rights, so it must be
strictly construed so as to safeguard private respondents' rights. Significantly, petitioner does not even allege the existence of any
judgment of the Land Registration court with respect to the land in question. Without a judgment or order declaring the land to be public,
its private character and the possessory information title over it must be respected. Since no such order has been rendered by the Land
Registration Court it necessarily follows that it never became public land thru the operation of Act 627. To assume otherwise is to deprive

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

Margarita Quintos and Angel Ansaldo v BeckGR No. L-46240,

November 3, 1939
Facts: Beck was a tenant of the plaintiffs. In January 14, 1936, upon a novation of the contract
of lease, plaintiff gratuitously granted to Beck the use of the furniture subject to the condition
that he would return them upon demand.In September 14, 1936, plaintiff sold property to the
Lopezs. Beck was notified and was given 60 days to vacate the premises. Plaintiff required
Beck to return all furniture. Beck wrote that he could not give up the 3 gas heaters and 4
electric lamps because he would use them until the 15th of November when the lease was
about to expire. Plaintiff refusedto get the furniture because Beck declined to deliver ALL of
them.November 15, Beck deposited with the Sheriff all furniture.Plaintiff brought action to
compel Beck to return furniture.CFI ordered Beck to return her heaters and gas lamps. As for
the other furniture, at plaintiff’s own expense na. Di mo kinuha eh. (Art. 1169)Plaintiffs
appealed, CFI incorrectly applied the law. Bakit kami magbabayad??? Beck dapat!
Issues:
WoN Beck complied with his obligation t return the furniture upon plaintiff’s demand – NO
WoN plaintiff bound to bear the deposit fees and to the costs of litigation – NO
Held:

12
The contract entered into between the parties is one of commadatum. Plaintiff gratuitously
granted the use of the furniture to Beck, reserving for herself the ownership thereof; by this
contract Beck bound himself to return the furniture to the plaintiff, upon the latter’s demand.
The obligation voluntarily assumed by Beck 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
CFI erred in applying Art. 1169 in concluding plaintiff failed to comply with her obligation to get
furniture when they were offered to her.Costs to be borne by Beck because he was the one
who breached the contract of commodatum and without reason refused to return and deliver
ALL furniture upon demand. Judgment modified. Beck to return and deliver to plaintiff all
furniture at his own expense

Republic v Grijaldo[G.R. No. L-20240. December 31, 1965.]

Art 1953: A person who receives a loan of money or any other fungible thing acquires
theownership thereof, and is bound to pay to the creditor an equal amount of the same
kindand quality.
FACTS:
Jose Grijaldo obtained five crop loans from the branch office of the Bank of Taiwan, Ltd. in
Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6%per annum,
compounded quarterly. These loans are evidenced by five promissory notes executed by the
appellant in favor of the Bank. All notes without due dates, but because the loans were crop
loans it was considered that the loans were due one year after they were incurred. To secure
the payment of the loans the appellant executed a chattel mortgage on the standing crops on
his land known as Hacienda Campugas.By virtue of “Trading with the Enemy Act” the assets in
the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United States
which were subsequently transferred to the Republic of the Philippines.Grijaldo failed to pay
the crop loans despite the extra-judicial demand of the Governmentof the Philippines. He
argued that the Government has no cause of action, that because the loans were secured by a
chattel mortgage on the standing crops on a land owned by him and those crops were lost or
destroyed through enemy action his obligation to pay the loans was thereby extinguished.
ISSUE:
Whether or not Grijaldo’s obligation to pay the crop loans had extinguished due to the crops
that were lost or destroyed through enemy action.
HELD/RATIO:
NO. The obligation of the Grijaldo under the five promissory notes was not to deliver a
determinate thing; namely, the crops to be harvested from his land, or the value of the crops
that would be harvested from his land. Rather, his obligation was to pay a generic thing the
13
amount of money representing the total sum of the five loans, with interest.The chattel
mortgage on the crops growing on appellant's land simply stood asa security for the fulfillment
of appellant's obligation covered by the five promissorynotes, and the loss of the crops did not
extinguish his obligation to pay, because theaccount could still be paid from other sources
aside from the mortgaged crops.The court ordered the estate of Grijaldo to answer for the
settlement of the crop loans.

FELIX DE LOS SANTOSvs. AGUSTINA JARRA, administratrix of the estate

of Magdaleno Jimenea,deceased ( February 10, 1910)
]Felix de los Santos brought suit against Agustina Jarra, the administratrix of the estate of
Magdaleno Jimenea (his father-in-law) , alleging that Jimenea borrowed and obtained from the
plaintiff ten first-class carabaos, to be used at the animal-power mill of his hacienda, without
consideration, under the sole condition that they should be returned to the owner as soon as
the work at the mill was terminated.However, Jimenea did not return the carabaos even after
he demanded their return after the work at themill was finished. After Jimenea died, Jarra was
appointed administratrix of his estate.De los sanots presented his claim to the commissioners
of the estate of Jimenea for the return of the said ten carabaos, but the said commissioners
rejected his claim. Hence, he commenced an action against Jarra as the administratrix of the
estate of the deceased ordering her to return the ten first-class carabaos loaned to the late
Jimenea, or their present value, and to pay the costs.The defendant, in answer to the
complaint, she said that it was true that the late Magdaleno Jimenea asked the plaintiff to loan
him ten carabaos, but that he only obtained three second-class animals, which were
afterwards transferred by sale by the plaintiff to the said Jimenea.RTC = Jarra must return the
remaining six 2ndand 3rdclass carabaos, or their value at P120 each, or P720 total with the
costs. (4 of the carabaos died of rinderpest)
Issue: WON the contract is one of a commodatum?
Held:
Yes.
The carabaos were given on commodatum as these were delivered to be used by defendant.
Upon failure of defendant to return the cattle upon demand, he is under the obligation to
indemnify the plaintiff by paying him their value. Since the 6 carabaos were not the property of
the deceased or of any of his descendants, it is the duty of the administratrix of the estate to
either return them or indemnify the owner thereof of their value.

Mina v. Pascual, 25 Phil 540

Francisco is the owner of land and he allowed his brother, Andres, to erect a warehouse in that

14
lot. Both Francisco and Andres died and their children became their respective heirs: Mina for
Francisco and Pascual for Andres. Pascual sold his share of the warehouse and lot. Mina
opposed because the lot is hers because her predecessor (Francisco) never parted with its
ownership when he let Andres construct a warehouse, hence, it was a contract of
commodatum. What is the nature of the contract between Francisco and Andres?

The Supreme Court held that it was not a commodatum. It is an essential feature of
commodatum that the use of the thing belonging to another shall be for a certain period. The
parties never fixed a definite period during which Andres could use the lot and afterwards
return it.

NOTA BENE: It would seem that the Supreme Court failed to consider the possibility of a
contract of precardium between Francisco and Andres. Precardium is a kind of commodatum
wherein the bailor may demand the object at will if the contract does not stipulate a period or
use to which the thing is devoted.

ALEJANDRA MINA ET AL VS. RUPERTA PASCUAL ART. 1947 (SARENAS)

Facts:
Francisco and Andres Fontanilla were brothers. Francisco acquired a lot in Laoag, Ilocos
Norte on 1874. Andres erected a warehouse on a part of the lot with the consent of his
brother. They both died later on. Plaintiffs are heirs of Francisco, defendants are heirs of
Andres. Plaintiffs and defendants are co-owners of the building (50/50) and plaintiffs are
owners of the whole lot, including the lot that the building is on. 1904: Pascual, in behalf of
her minor children, asked the trial court if she could sell 6/7 of ½ (representing her kids‘ share)
of the building together with its lot. This was opposed by Mina. But the court still gave it a go
signal and later on it was sold to a Cu Joco.
Issue:
W/N the sale is valid
Held:
The sale of a thing effected by one who is not its owner is null and void. The defendants
never were the owners of the lot sold. The defendants agree that the plaintiffs have the
ownership, and they themselves only the use, of the said lot. It is impossible to hold that the
plaintiffs must abide by the sale based on the fact that they did not give their consent, and only
the contracting parties who have given it are obliged to comply. It is an essential feature of a
commodatum that the use of a thing belonging to another shall be for a definite period. But
Francisco never fixed a period of time during which Andres could have use of the lot The
contention of the petitioners that Cu Joco should pay rent would destroy the theory of
commodatum because ―commodatum is essentially gratuitous‖Article 361 of the Civil Code
states that the owner of the land on which a building is erected in good faith has a right to

15
appropriate such edifice to himself after payment of indemnity or to oblige the builder to pay
him the value of the land. This is the right that the plaintiffs are entitled.

BRIONES VS CAMMAYO

GR 23559 October 4, 1971

FACTS:

Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo, Nicasio,
Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and
severally, the amount of P1,500.00, plus damages, attorney's fees and costs of suit.

Defendants executed the real estate mortgage as security for the loan of P1,200.00 given to
Primitivo P. Cammayo upon the usurious agreement that defendant pays to the plaintiff, out of
the alleged loan of P1,500.00 (which includes as interest the sum of P300.00) for one year.

Although the mortgage contract was executed for securing the payment of P1,500.00 for a
period of one year, without interest, the truth and the real fact is that plaintiff delivered to the
defendant Primitivo P. Cammayo only the sum of P1,200.00 and withheld the sum of P300.00
which was intended as advance interest for one year.

            On account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to the
plaintiff during the period from October 1955 to July 1956 the total sum of P330.00 which
plaintiff, illegally and unlawfully refused to acknowledge as part payment of the account but as
in interest of the said loan for an extension of another term of one year.

ISSUE:

Can Briones recover the amount of P1,500.00?

RULING:

Loan is valid but usurious interest is void. Creditor has the right to recover his capital by judicial
action. To discourage stipulations on usurious interest, said stipulations are treated as wholly
void, so that the loan becomes one without stipulation as to payment of interest. It should not,
16
 however, be interpreted to mean forfeiture even of the principal, for this would unjustly enrich
the borrower at the expense of the lender. Furthermore, penal sanctions are available against
a usurious lender, as a further deterrence to usury.

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only one that is illegal.

Lopez v. Del Rosario

44 PHIL 98
Facts:
>  Benita Del Rosario is the owner of a bonded warehouse in Manila where copra and other
merchandise are deposited.
>  Among those who had copra deposited in the warehouse was Froilan Lopez, the owner of
14 warehouse receipts with a declared value of P107,990.40 in his name.
>  Del Rosario secured insurance on the warehouse and its contents with 5 different insurance
companies in the amount of P404,800.
>  All policies were in the name of Del Rosario, except for one (with Nat’l Insurance Co.) for
40T, in favor of Compania Copra de Tayabas.
>  The warehouse and its contents were destroyed by fire.  When Bayne, a fire loss adjuster,
failed to effect a settlement between the Insurance companies and Del Rosario, the latter
authorized Atty. Fisher to negotiate with the Companies.
>  An agreement was reached to submit the matter to arbitration.  The claims by different
people who had stored copra in the warehouse were settled with the exception of Friolan
Lopez.
>  A case was filed in CFI by Lopez.  The court awarded him the sum of P88,492.21 with legal
interest.

Issue:

Whether or not Del Rosario acted as the agent of Lopez in taking out the insurance on the
contents of the warehouse or whether she acted as the reinsurer of the copra.

17
Held: 
She acted as the agent of Lopez.
The agency can be deduced from the warehouse receipts, the insurance policies and the
circumstances surrounding the transaction.  Under any aspect, Del Rosario is liable.  The law
is that a policy effected by a bailee and covering by its terms in his own property and property
held in trust, inures, in the event of loss, equally and proportionately to the benefit of all owners
of the property insured.  Even if one secured insurance covering his own goods and goods
stored with him, and even if the owner of the stored goods did not request or know the
insurance, and did not ratify it before the payment of the loss, it has been held by a reputable
court that the warehouseman is liable to the owner of such stored goods for his share.

ZOBEL VS CITY OF MANILA

47 Phil. 169

STREET, J.:
This action was instituted in the Court of First Instance of the City of Manila on May 24, 1923,
by the minors Jacobo Zobel, Alfonso Zobel, and Mercedes Zobel, under the guardianship of
Fernando Zobel, to recover of the City of Manila the amount of the first two instalments of the
purchase price of a tract of land located in the Province of Rizal near the corporate limits of the
City of Manila, which has been conveyed by the guardian of the minor-plaintiffs by deed
(Exhibit E) dated 21st of February, 1922, said instalments amounting respectively to
P41,666.66 and with interest upon the first instalment from May 21, 1922, and upon the
second from the date of the making of the contract. Upon hearing the cause the trial judge
gave judgment in favor of the plaintiffs to recover both the principal sums claimed, amounting
to P83,333.32, with interest upon only one installment at the rate of five per centum per
annum. From this judgment the plaintiffs appealed from so much of the decision as failed to
allow interest on both instalments at the rate claimed in the complaint, while the defendant
appealed from so much of the judgment as was favorable to the plaintiffs. For convenience in
the disposition of the controverted points, the appeal of the defendant will first be considered.
It appears that for several years the responsible officials of the City of Manila have appreciated
the necessity for the establishment of a cemetery near the city and on the south side of the
Pasig River. Admittedly the only tract of land available for this purpose consists of a part of
the Hacienda San Pedro Macati, belonging to the plaintiffs, who are minors. This estate lies in
the Province of Rizal, beyond the corporate limits of the city, but one of its corners juts into the
southern, or southeastern suburbs of the city, in such manner as to bring the desired tract
close in populous centres. The hacienda, it may be stated, has never been built upon or
improved for city purposes and forms a solid block, practically untraversed by public streets or
roads. Owing to the character of the subsoil the land has little value for agricultural purposes,
18
which is the only use to which it has heretofore been put; and it is taxed in the Province of
Rizal on the low basis of agricultural land.
In February, 1920, the Municipal Board of the City of Manila passed an ordinance (No. 726)
appropriating the sum of P703,750 to be used for "the establishment of a cemetery in the south
district of Manila and the acquisition of the land necessary therefor."
In consequence of the passage of this resolution the Honorable Ramon J. Fernandez, at that
time the Mayor of the City, entered into negotiations with the guardian of the appellees, the
result of which was a letter, written July 1, 1920, in which the appellees offered to sell to the
city upon the terms therein set forth twenty-five hectares of the San Pedro Macati Estate for
cemetery purposes (Exhibit A).
Upon receipt of this letter the Mayor endorsed it for recommendation and comment to the city
engineer, and made request in writing of the Honorable Francis Burton Harrison, then
Governor-General, that he designate some one to continue negotiations for the purchase of
the land.
On July 10, 1920, the city engineer returned the papers to the Mayor, stating that in his opinion
the site selected was "the best location available and the only one suitable for cemetery
purposes on the south side of the city."
On July 23, 1920, Governor-General Harrison appointed the city engineer, Mr. Artiaga, a
committee of one to negotiate for the purchase of a tract of land to be used for the proposed
south cemetery, whereupon the city engineer referred the communication of the Mayor to the
Director of Health, requesting his concurrence. On August 18, 1920, the Director of Health
returned the papers to the Mayor, concurring in the recommendation that the tract of land in
question be purchased. Thereafter the city engineer reported to the Mayor that the proposed
site was desirable and recommended its purchase at the rate of one peso per square meter.
On August 26, 1920, the city engineer sent to the Governor-General a copy of his report to the
Mayor.
Two or three days after the receipt of Mr. Artiaga's report, the Mayor referred the letter of offer
and the other papers connected with the case, including the report of the city engineer, to the
Municipal Board, requesting that the Board concur in his selection of the San Pedro Macati site
for the location of the proposed south cemetery. On August 31, 1920, the Municipal Board, at a
meeting at which all the members were present, adopted unanimously a resolution which
reads as follows:
"Endorsement by the Mayor requesting concurrence of the Board regarding the land selected
by his office for the proposed south cemetery, namely, a parcel of land of the San Pedro
Macati Estate belonging to Mr. Enrique Zobel, who is willing to sell it at the rate of one peso
per square gratuitously to give access to the cemetery from Calle Vito Cruz, referred to the
committee on cemeteries for comment and recommendation."
In accordance with this resolution, the matter was referred to the committee on cemeteries of
the Municipal Board of the City of Manila. Under date of September 10, 1920, that committee

19
returned the papers to the Municipal Board "recommending the approval of the construction of
the south cemetery on the site here indicated as the conditions of the said site are appropriate
for the purpose."
On September 10, 1920, the report of the committee was received by the Municipal Board and
a resolution of the following tenor was adopted:
"Endorsement of the committee on cemeteries recommending the approval of the site selected
by the Mayor for the south cemetery situated at the San Pedro Macati Estate, containing
approximately twenty-five hectares. The recommendation is approved and it is ordered that the
matter be returned to the Mayor inviting his attention to this approval."
After the adoption of this resolution, on September 23, 1920, the Honorable Ramon J.
Fernandez, at that time Mayor of the City of Manila, and acting on its behalf, and Mr. Enrique
Zobel, as guardian of the appellees, acting on their behalf, entered into a preliminary contract
in writing, prepared by the city fiscal of the City of Manila, embodying therein the terms of the
agreement under which the City of Manila was to buy and the appellees were to sell the tract
of land in question. (Exhibit C.)
On December 10, 1920, the Municipal Board of Manila adopted a resolution requesting
authority pursuant to Act No, 2894 to issue bonds for the construction of works and permanent
improvements in the amount of P5,500,000. This resolution was duly approved, the bonds
mentioned were issued and sold, and on February 21, 1922, there was an unexpended
balance from the proceeds of these bonds, amounting to P1,341,994.35, which was available
to defray the cost of the south cemetery project.
The preliminary contract bears date of September 23, 1920; but on account of delay in the
preparation of the plans and technical description of the property necessary to make possible
its transfer under the Land Registration Act, it was not until February, 1922, that the final deed
of conveyance (Exhibit E) was executed.
On February 20, 1922, the Municipal Board of Manila adopted a resolution (Resolution No. 31,
series of 1922) making an appropriation in the amount of P180,000 from the public works and
permanent improvements bond issue fund of the city for the purpose of the south cemetery.
This resolution was approved by the Secretary of the Interior in accordance with the provisions
of section 1 of Act No. 2894.
The day after Resolution No. 31 was adopted, the appellees' guardian, acting on their behalf,
with the approval of the Court of First Instance of the City of Manila, and the Honorable Ramon
J. Fernandez, acting on behalf of the City of Manila, executed a final deed of sale of the land in
question. (Exhibit E.) This deed was drafted under the direction of the city fiscal of the City of
Manila. On February 24, 1922, said deed was filed for record with the register of deeds of the
Province of Rizal, together with appellees' certificates of title. Thereupon transfer certificates of
title were duly issued to the City of Manila as owner.
After the execution and delivery to it of the deed of sale to the land in question, and the
issuance to it of the certificates of title thereto under the Land Registration Act, the City of

20
Manila took possession of the property and placed boundary monuments on the corners of the
land conveyed to it to mark the limits thereof.
By the terms of the conveyance the purchase price of P250,000 was to be paid in six
instalments of P41,666.66 each, the first to be made three months after the date of the
execution of the deed, and the remainder in yearly instalments thereafter. The first instalment
was not to bear interest but the remaining instalments were to bear interest at the rate of five
per centum per annum. On the date of the execution of the deed of sale, ample funds were
available to meet the payments, as appears from a statement in the record signed by the chief
of the department of finance of the City of Manila.
In anticipation of the falling due of the first instalment of the purchase price, the city treasurer,
on March 24, 1924, prepared and signed a warrant on the city depository for a sum sufficient
to cover said instalment. This warrant was then sent to the district auditor, one Crisanto
Ticman, to be countersigned by him. Upon looking into the matter the fact came to Ticman's
attention that the land which was being acquired by the city was assessed on the tax books of
the Province of Rizal as uncultivated agricultural land, at a valuation of about sixty pesos per
hectare. Observing the disparity between this valuation and the price which the city had
contracted to pay, Ticman refused to countersign the warrant and addressed a letter to the
Insular Auditor, E. M. Fullington, suggesting that the sale should not be permitted to go through
and observing that if the city would institute condemnation proceedings it would surely get the
land for very much less than the stipulated price of P250,000. The Insular Auditor approved the
course taken by his subordinate and reported the matter to Governor-General Wood, who,
through his secretary, appointed a committee of three, composed of Colonel C. E. Nathorst, of
the Philippine Constabulary, Mr. M. del Rosario, district auditor for Rizal, and the city engineer,
Mr. Artiaga, to investigate the matter and report to him. The result of the inquiry was that the
majority of the committee expressed the view that not more than fifty centavos per square
meter should be paid for the land, while Artiaga maintained his former position that the price of
one peso per square meter represented a reasonable valuation.
The Nathorst report was forwarded to the Mayor by the secretary to the Governor-General,
through the office of the Insular Auditor, with the indorsement, by authority of the Governor-
General, that the action of the Auditor in refusing to countersign the warrant in any amount in
excess of fifty centavos per square meter was approved.
Meanwhile on May 21, 1922, the first instalment of the purchase price of the land had fallen
due, and on June 7, 1922, Mr. Zobel, guardian of the appellees', addressed a letter to the
Mayor, reminding him that payment had not been made. On August 7, 1922, the Mayor replied
to Mr. Zobel's letter, stating that while he recognized the obligation of the city to carry out its
contract, nevertheless, in view of the intervention of the Governor-General in the matter, he
would take no further action. The result was that payment of the instalment then due was not
effected, and a similar default occurred later with respect to the second instalment.
This cause was tried in the lower court upon an agreed statements of fact, necessarily
somewhat elaborate in its details. After the cause had been decided an error was discovered
in the transcription of Resolution No. 31, series of 1922, into the agreed statements of fact,
21
which was this: In the authentic resolution there appears a paragraph cancelling Resolution
No. 276, series of 1921, but in the transcription of said resolution into the agreed statements
the first two figures of the cancelled resolution were so transposed as to make it appear that
Ordinance No. 726 was cancelled. It so happened that both Ordinance No. 726 and Resolution
No. 276 related in part to the same subject, namely, the south cemetery; with the result that no
one concerned in the litigation discovered the error, and the cause was tried in the lower court
on the erroneous supposition that Ordinance No. 726 had been repealed in so far as relates to
south cemetery by said Resolution No. 31, series of 1922. This error appears to have been
first discovered by the attorneys for the appellees after the cause was brought to this court
upon appeal, and investigations were conducted by them which revealed the further fact that
on May 10, 1921, the Municipal Board had passed an ordinance (No. 966) reverting to the
general funds the unexpended balance of the amount theretofore appropriated for the south
cemetery in Ordinance No. 726.
In view of the discovery of the error above-mentioned the appellees, on July 12, 1924, filed a
motion in this court, asking to be relieved from the erroneous stipulation upon the point
mentioned and that the court should admit as evidence the affidavits showing the facts to be
as stated in the motion. The motion was opposed by the appellant, and this court deferred
decision on the motion until the case should be considered on the merits. As it now becomes
proper to pass upon the matter, we will say that while it is not clear that the error alluded to
affects the fundamentals of the case, yet the mistake is obvious and the situation is one where
the appellees are entitled to be relieved from any prejudicial results. Furthermore, it is
desirable for the court to be able to state the facts with truthfulness. We shall therefore assume
that the records stand corrected, with leave to the appellant's attorneys to show that the facts
stated in the motion are erroneous, in the contingency that they desire to contest the same.
In dismissing this matter we may observe that, the general situation with reference to the
appropriations available for the south cemetery may be summed up in the statement that at the
time the preliminary contract (Exhibit C) was executed on September 23, 1920, there existed
an appropriation of the general funds of the city under Ordinance No. 726, of the sum of
P703,750 available for the purpose of establishing the south cemetery; while at the time the
definitive contract of sale (Exhibit E) was made, on February 21, 1922, there existed an
appropriation from the public works and permanent improvements bond issue fund in the
amount of P180,000 for the same purpose, though the appropriation from the general funds
was then no longer available.
The opposition of the auditing department to the carrying of this contract into effect
undoubtedly had its origin in a desire on the part of the district auditor to protect the interests of
the city, based on the conviction that if the contract could be nullified and condemnation
proceedings instituted the amount to be paid by the city would be considerably less than that
named in the contract. Conceding the propriety of this point of view, the consideration is one
that in no wise affects the legal aspects of the case; and it is but fair to say that the terms of
purchase were apparently as favorable to the city as could be arranged by negotiation with the
representative of the owners. At any rate the good faith of the city officials concerned in the
deal is not called in question. We observe furthermore that in the Nathorst report the principal
22
reason assigned for estimating the price that should be paid by the city at fifty centavos per
square meter, instead of one peso per square meter as agreed, is that the construction by the
city of the road to the cemetery will considerably increase the commercial value of the
remainder of the estate.
Considered as a basis for the proposed reduction in the price of the land to be taken, this
suggestion is only partially sound. Even in condemnation proceedings the law does not
unqualifiedly permit the offsetting of incidental benefits against the actual value of the property
taken. The rule, we take it, is that incidental benefits may be set off against incidental damage
but not against the basic value of the property. Otherwise an owner could be deprived of his
property without any compensation at all, as where, for instance, only a small part of an entire
parcel is taken for certain uses, with incidental benefit to the remainder. It follows that, even
upon the face of the report itself, the fact that the agreed price is excessive is not
demonstrated; and it is to be remembered that by the deed conveying the cemetery site to the
city the plaintiffs have gratuitously transferred many thousands of square meters to the city for
the construction of a road to the cemetery, with the result that if this land be included in the
estimate the price of the whole is less than eighty centavos per square meter. The
circumstance that the land in question is assessed on the tax books of the Province of Rizal at
sixty pesos per hectare is of little moment when we come to consider the value of the land in
relation with its propinquity to the City of Manila and its utility for the purpose for which it is
inevitably destined to be used.
The brief of the defendant as appellant raises several questions of a purely legal nature, which
will be discussed in the order of their logical sequence; and we shall first consider that which
relates to the antecedent appropriation necessary before a binding contract can be made
requiring the expenditure of public funds. The provision of law here applicable is found in
section 606 of the Administrative Code, wherein it is declared that no contract involving the
expenditure of public funds shall be made until there is an appropriation therefor, the
unexpended balance of which, free from other obligations, is sufficient to cover the proposed
expenditure. As we have already seen, at the time the preliminary contract was made,
Ordinance No. 726, appropriating the sum of P703,750 for the proposed cemetery was in
force. This in our opinion is a sufficient compliance with the legal requirement; and the
circumstance that before the definitive contract was made this money was reverted to the
general funds of the city did not have the effect of nullifying said contract. The question
whether the contract is valid depends upon the situation existing at the time the first agreement
was made.
The second question to be considered has reference to the applicability of section 607 of the
Administrative Code to contracts' made by the City of Manila. In the second paragraph of said
section it is declared that no contract involving the expenditure by any province, municipality,
township, or settlement of two thousand pesos or more shall be entered into or authorized until
the treasurer of the political division concerned shall have certified to the officer entering into
such contract that funds have been duly appropriated for such purpose and that the amount
necessary to cover the proposed contract is available for expenditure on account thereof. It is
admitted that no such certificate was made by the treasurer of Manila at the time the contract
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now in question was made. We are of the opinion that the provision cited has no application to
contracts of a chartered city, such as the City of Manila. Upon examining said provision (sec.
607) it will be found that the term chartered city, or other similar expression, such as would
include the City of Manila, is not used; and it is quite manifest from the careful use of terms in
said section that chartered cities were intended to be excluded. In this connection the
definitions of "province," "municipality" and "chartered city," given in section 2 of the
Administrative Code are instructive. The circumstance that for certain purposes the City of
Manila has the status both of a province and a municipality (as is true in the distribution of
revenue) is not inconsistent with this conclusion.
The next contention is that the contract in question is void because the approval of the city
council was not expressed in the form of an ordinance. The provisions of law applicable upon
this point are found partly in section 2434, subsection (t), as amended by section 4 of Act No.
2774 of the Philippine Legislature, and partly in section 2443 of the Administrative Code.
Subsection (i) of section 2434, as it originally stood in the Administrative Code, among other
things declared that the Mayor shall represent the city in all its business matters and sign on its
behalf all its bonds, contracts and obligations made in accordance with law or lawful ordinance
or resolution. The corresponding provision in the amendatory Act (No. 2774) makes it his duty
to represent the city in all its business matters and sign on its behalf all its bonds, contracts
and obligations made in accordance with the laws or ordinances. Section 2443 of the
Administrative Code, as it now and at all times has stood, clearly recognizes the power of the
board to adopt resolutions creating liability, and in the same section the Mayor is given
authority to veto such resolutions.
Now, from the omission of the word "resolution" from the amendment of subsection (i) of
section 2434, it is argued that it was the intention of the Legislature to suppress the power of
the Municipal Board to authorize the making of contracts by resolution. The validity of this
contention cannot be admitted; for even supposing that the Legislature may have entertained
the purpose attributed to it in amending subsection (i) of section 2434, this intention was not
fully accomplished by said amendment alone, the other provision (sec. 2443) having remained
without alteration. But we incline to the view that the expression "laws or ordinances," found in
the amendment of subsection (i) of section 2434, is there used in a sense broad enough to
include resolutions. The reason for this is that we find the same verbal change in two other
paragraphs of the same section, in respect to which there can be no doubt that resolution was
intended to be included in the broader expression. Thus, in subsection (a) of section 2434 of
the Administrative Code, it was made the duty of the Mayor to see that the "laws, ordinances
and resolutions" should be faithfully executed and enforced. In sub-section (m) of the same
section it was made the duty of the Mayor "to perform such other executive duties as may be
prescribed by law or be required of him by ordinance or resolution of the board." In the two
corresponding provisions of the amendatory Act (No. 2774) the word "resolution," or
"resolutions," is omitted and the inclusive expression "laws and ordinances" or "law or
ordinance" is used. Can it be maintained that the intention of the Legislature in making these
changes was to relieve the Mayor of all executive responsibility as to the enforcement of
resolutions? Certainly not: he has the same duty to enforce lawful resolutions as to enforce
any law or ordinance. Yet if the argument relied upon by the appellant is valid as to the effect
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of the omission of the word resolution in subsection (i), it would necessarily follow that the
Mayor has no administrative responsibility whatever as to the enforcement of resolutions.
It is next insisted that the resolution of the Board dated September 10, 1920, approving the
Mayor's action with respect to the cemetery site, was intended merely as an expression by the
Board of its approval of the location of the land chosen for the site, without any commitment as
to the terms upon which the property was to be acquired. We are of the opinion that this is not
a fair interpretation of the resolution. At the time the resolution was adopted, the Board had
before it the offer made by the guardian of the plaintiffs, stating the terms upon which the sale
would be made. This offer was accompanied by the favorable report and recommendation of
the city engineer, the approval of the proposed site by the Director of Health, and the
recommendation of the committee on cemeteries of the Board that the cemetery be
constructed on the site indicated. The indorsement by which the Board, with all members
present, referred the matter to this committee expressly recites that the price to be paid for the
land was at the rate of one peso per square meter, apart from the tract to be ceded
gratuitously to give access to the cemetery. In the light of these facts it is impossible to
suppose that any member of the Board was unaware of the conditions upon which the land
was to be acquired. Again, it is obvious that the matter before the Board was not the mere
question of a choice between one or more available tracts of land then at the disposal of the
city. It had reference to the only tract available for cemetery purposes. There was no possible
choice as between competitive lots, and the sole question was whether this lot was acceptable
under the terms stated in the offer.
Considered as a mere expression of the preference of the Board as to the location of the
cemetery, the resolution was wholly without efficacy and could not advance the negotiations in
the slightest degree. We are of the opinion that the intention was to approve the construction of
the cemetery on the site chosen and on the terms expressed in the offer. As a consequence
the Mayor was clothed with authority to execute the contract which he subsequently made.
The attorneys for the appellant further insist that, even supposing the resolution to have
constituted a sufficient approval of the contract in the terms expressed in the offer,
nevertheless the efficacy of the resolution was destroyed by the subsequent introduction of
material changes into the agreement. In this connection reference is made to a portion of
clause V of the deed, in which it is declared that the land shall be used exclusively for a
cemetery to be known as South Cemetery. The insertion of this term in the contract is
supposed to constitute a material variance from the offer. We are unable to agree with this
contention, as the clause to which exception is taken seems to be a mere unfolding of what
was implicit, if not actually expressed in the offer. The letter of offer (Exhibit A) used the name
South Cemetery to identify the proposed burial ground, and the fact that the land was intended
solely for cemetery purposes was patent throughout the negotiations. It will be borne in mind
that the city has no authority to acquire land for speculative or commercial uses, and as no
other purpose for this acquisition has been suggested than for the establishment of a
cemetery, we think that no material mistake was committed by the city fiscal in stating in the
deed that the property should be used exclusively for that purpose.

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Another reason advanced for supposing the contract for the purchase of this property to be
invalid, or at least unenforcible, is that the Insular Auditor has refused to countersign the
warrant for the first instalment of the purchase price; and it is insisted for the defendant that
this action on his part is conclusive against the plaintiffs. Their sole recourse, so it is claimed,
is, or rather was, by way of administrative appeal from the action of the Auditor to the
Governor-General. The suggestion is in our opinion without merit. The general provisions of
law denning the jurisdiction and powers of the Auditor and which, if literally construed, would
seem to make him absolute arbiter of all claims of any sort against all branches of the
Government must be considered to be qualified as regards the contract rights of persons
dealing with the city by the more specific provisions declaring how and by whom contracts can
be made which will be binding on it. It was not intended that the Auditor should possess a
general veto power over all city contracts, and his refusal to countersign the warrant referred to
is of no moment in this action to enforce the legal liability of the city.
Finally, exception is taken to the refusal of the trial court to require the Insular Auditor to be
brought in as a party defendant. The course pursued by the court was in our opinion correct.
The action is based exclusively upon the legal liability of the city, and no relief is sought
against the Auditor. He was therefore not a necessary or even a proper party to the action. Of
course if the claim had been based upon an obligation of the Insular Government, no action
would have lain directly against the debtor, in the absence of its consent to be sued. In such
case the plaintiffs' only remedy would have been by the writ of mandamus to compel the
Auditor to countersign a warrant for the amount due. But the debtor in this case is a municipal
corporation, which does not enjoy the State's immunity from suit, and the action can be
maintained directly against it without the intervention of the Auditor.
What has been said suffices to dispose of the contentions made in behalf of the defendant as
appellant, and we accordingly pass to the errors assigned in behalf of the plaintiffs as
appellants with respect to the matter of interest. The facts here pertinent are these: By the final
deed of sale, dated February 21, 1922, the city undertook to pay the total purchase price of
P250,000 in six instalments. The first was in the amount of P41,666.70 payable on May 21,
1922. The other five were in the amount of P41,666.66 each, successively falling due on May
21, 1923, and on the same date in each succeeding year until all should be paid.
The following stipulation with respect to interest is found in clause III of this contract:
"Of the instalments above stipulated, the first (which will fall due three months after the
execution of this writing) shall draw no interest; but the five later instalments shall draw interest
at the rate of five per centum (5%) per annum, payable to the creditors upon the date when
they shall respectively fall due."
From this it will be seen that the agreement as to interest differs in case of the two instalments
here sued on; and the situation with respect to each will therefore be dealt with separately.
As to the first instalment, which was to fall due at three months, it was stipulated that it should
bear no interest. The trial judge appears to have considered that this stipulation deprived the
plaintiffs of the right to interest after default, and no interest whatever was allowed by him upon

26
this instalment. This was error. The stipulation that this instalment should draw no interest was
made in the expectation that the obligation would be paid upon the date stipulated. After
default occurred the defendant became liable for interest as damages regardless of the
absence of any express stipulation for interest and regardless of the statement that this
instalment should draw no interest. This statement in the contract was evidently intended
merely to govern the rights of the parties with respect to interest for the three-month period
between the making of the contract and the date when the instalment was to become due.
With respect to the plaintiffs' right to interest after default the situation is to be treated precisely
as if nothing had been said about interest at all.
As already stated, the first instalment fell due on May 21, 1922, and extrajudicial demand for
payment appears to have been made in a letter dated June 7, 1922, from the guardian of the
plaintiffs addressed to the Mayor. Under the first paragraph of article 1100 of the Civil Code
and under article 1108 of the same Code, interest should be allowed upon this instalment at
the rate of six per centum per annum. Under section 510 of the Code of Civil Procedure, the
interest thus accruing must be consolidated with the principal as of the date of the judgment of
the lower court; after which interest upon the whole shall be computed at the same rate.
With respect to the second instalment interest must be allowed at the contract rate of five per
centum per annum from the date of the execution of the final deed of sale, or February 21,
1922; and under article 1109 of the Civil Code the interest that had accrued up to the date of
the filing of the complaint (May 24, 1923) must be consolidated as of that date with the capital,
after which the whole shall bear interest at the contract rate of five per centum per annum until
paid. Where interest is contracted for at a given rate the contract obligation to pay interest is
not merged in the judgment but remains in full force until the debt is paid. The circumstance
that the rate here stipulated was less than the lawful rate does not alter the case.
In connection with liability for interest it may be well to point out that section 510 of the Code of
Civil Procedure is applicable only to debts and claims with respect to which no stipulation for
interest has been made, and article 1109 of the Civil Code, providing for interest upon interest,
is applicable only to obligations containing a stipulation for interest. Furthermore, it will be
noted that, though section 510 of the Code of Civil Procedure provides that interest shall be
added "until the date of the final judgment," this is not to be understood, as inhibiting the
collection of interest thereafter accruing until the judgment is paid. A demand established by
judgment must be understood as bearing interest whether expressly so stated or not. Finally, it
hardly needs be said, a municipal corporation does not enjoy immunity from liability for
interest, when assessed as damages for the nonpayment of a debt, to the same extent as the
general government.
Our conclusion is that no error was committed by the trial court in giving judgment in favor of
the plaintiffs upon both causes of action, but the amount awarded must be modified to conform
to the rules above stated with respect to the computation of interest, with the result that the
plaintiffs shall recover of the defendant, upon the first cause of action, the sum of P45,652.84,
as of the date of January 11, 1924, with interest thereafter at the rate of six per centum per
annum until the judgment shall be paid; and upon the second cause of action the sum of
P44,283.04, as of the date of May 24, 1923, with interest thereafter at the rate of five per
27
centum per annum until the judgment shall be paid. The plaintiffs will also recover costs of both
instances. As thus modified, the judgment is affirmed. So ordered.
Malcolm, Villamor, and Ostrand, JJ., concur.
Johns, J., concurring: It may be that the land is not worth the price which the city agreed to
pay, but there is no evidence of any fraud. In the absence of fraud, the contract is valid and
should be enforced. For such reasons, I concur in the result.
Romualdez, J., with whom concur Johnson and Avanceña, JJ., dissenting: With due respect, I
dissent from the opinion of the majority. I think that the price of the land was never acted upon
by the Municipal Board either by resolution or ordinance, and consequently the contract of
purchase and sale here in question cannot be held to have been perfected.

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