to accept.
It is claimed by the petitioner that in adjudging it to be responsible for the
G.R. No. L-14027 November 8, 1918
LA COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, petitioner,
vs.
C. H. FRENCH, as Auditor of the Philippine Islands, and C. E. UNSON, as Acting
Purchasing Agent of the Philippine Islands, respondents.
FISHER, J.:
This is a petition for a writ of mandamus filed in this Court by the Compañia General
de Tabacos de Filipinas to compel the Purchasing Agent to draw a warrant in favor of
the petitioner for the sum of P322.93 and to compel the Insular Auditor to approve
and countersign the same. The Solicitor-General has appeared in behalf of the
respondents and interposed a demurrer, based chiefly on the ground that the
petitioner has not exhausted his administrative remedy by appealing to the Governor-
General from the adverse decision of the Insular Auditor. The case now comes before
us upon this demurrer.
The origin of the claim appears to be this: The petitioner is a common carrier engaged
in the transportation of passengers and merchandise in the Philippine coastwise
trade, and during the months of January, February, and March of the current year the
petitioner rendered services as a common carrier in transporting goods and
merchandise for the Government of the Philippine Islands, at the request of the
Purchasing Agent, as chief of the Bureau of Supply. For the services so rendered
said Bureau became indebted to the petitioner in the sum of P322.93, which
indebtedness has been fully liquidated, audited and allowed by the Government.
It further appears that on or about January 18, 1918, the petitioner received at Manila
upon one of its ships twenty cases of gasoline, to be transported to Laoag, in the
Province of Ilocos Norte. Upon the arrival of the plaintiff's ship at the port of
destination the twenty cases of gasoline were delivered to the consignee, and it was
then discovered that approximately half of the contents of two cans of a total value
P5.92, had escaped by leakage. The consignee of the gasoline thereupon made an
annotation upon the bill of lading to the effect that two cases were received in a
leaking condition and that the shipment was five gallons short.
The petition alleges that said leakage was due to causes unknown to the petitioner
and to the respondents, and was not due to any negligence or want of due diligence
on the part of the petitioner, its agents or servants. Nevertheless, the petition goes on
to state, the Purchasing Agent claims that the value of the gasoline so lost should be
deducted from the indebtedness admittedly due from the Bureau of Supply to the
petitioner, and this contention has been sustained by the Insular Auditor, who has
adjudged that the petitioner is liable to the Government for the value of the gasoline
so lost.
Acting upon this resolution the respondents have declined to issue to the petitioner a
warrant for the full sum of P322.93 and have tendered to it, in satisfaction of the entire
indebtedness, a warrant for the sum of P317.01 only which the petitioner has refused
loss aforesaid and in allowing the set-off for the value of the gasoline lost by leakage,
the Insular Auditor has acted arbitrarily and in excess of his powers, and that if his
action is permitted to go into effect, the petitioner will be deprived of property without
due process of law.
It is averred in the complaint that the bill of lading, upon which the shipment of
gasoline in question was accepted for transportation, provided, in accordance with the
requirements prescribed by the Insular Collector of Customs, that all cargo which
from its nature must be stored on deck, will be transported wholly at the risk of the
shipper; and it is alleged in the petition that gasoline constitutes cargo of this
character, and that the shipment in question was consequently so carried on deck.
The bill of lading also, upon which the gasoline was carried, contained a provision
that the merchandise was received and would be carried subject to the conditions
prescribed in the shipping regulations aforesaid. It is apparent, therefore, that the
questions squarely presented are (1) if the Purchasing Agent and the Insular Auditor
may offset against a specific, liquidated, and undisputed debt of the Government an
unliquidated claim for damages in favor of the Government against the creditor, and
(2) assuming that such set-off is improper, if they may be compelled by mandamus to
issue a warrant to the creditor for the amount of his credit without deducting what they
deem to be due from him upon the claim for damages.
The question here presented is, therefore, very clearly of greater importance than
would appear to be indicated in the petty sum in dispute; and the proper solution of
the problem requires a somewhat broader range of discussion than is disclosed in the
issue presented by the demurrer. In what is here to be said we propose to consider
the extent of the power confided to the Insular Auditor with respect to the audit and
settlement of claims due from or owing to the government and the nature of the
remedy or remedies which may be available to a person aggrieved by his decision.
The fundamental statute from which the power and authority of the Insular Auditor is
derived is the Act of Congress of August 29, 1916, generally known as the Jones
Law, in sections 24 and 25 of which the office is created and the duties and power of
the incumbent defined as follows:
SEC. 24. That there shall be appointed by the President an Auditor who shall
examine, audit, and settle all accounts pertaining to the revenues and receipts, from
whatever source, of the Philippine Government an the provincial and municipal
governments of the Philippines, including trust funds and funds derived from bond
issues; and audit, in accordance with law and administrative regulations, all
expenditures of funds or property pertaining to or held in trust by the Government or
the provinces or municipalities thereof. He shall perform a like duty with respect to all
government branches.
He shall keep the general accounts of the Government and preserve the vouchers
pertaining thereto.
It shall be the duty of the Auditor to bring to the attention of the proper administrative
officer expenditures of funds or property which, in his opinion, are irregular,
unnecessary, excessive, or extravagant.
There shall be a Deputy Auditor appointed in the same manner as the Auditor. The
Deputy Auditor shall sign such official papers as the Auditor may designate and
perform such other duties as the Auditor may prescribe, and in case of the death,
resignation, sickness, or other absence of the Auditor from his office, from any cause,
the Deputy Auditor shall have charge of such office. In case of the absence from duty,
from any cause, of both the Auditor and the Deputy Auditor, the Governor General
may designate an assistant, who shall have charge of the office.
The administrative jurisdiction of the Auditor over accounts, whether of funds or
property, and all vouchers and records pertaining thereto, shall be exclusive. With the
approval of the Governor-General he shall from time to time make an promulgate
general or special rules and regulations, not inconsistent with law, covering the
method of accounting for public funds and property, and funds and property held in
trust by the Government or any of its branches: Provided, That any officer
accountable for public funds or property may require such additional reports or
returns from his subordinates or others as he may deem necessary for his own
information and protection.
The decisions of the Auditor shall be final and conclusive upon the Executive
Branches of the Government, except that appeal therefrom may be taken by the party
aggrieved or the Head of the Department concerned within one year, in the manner
hereinafter provided, have like authority as that conferred by law upon the several
auditors of the United States and the Comptroller of the United States Treasury and is
authorized to communicate directly with any person having claims before him for
settlement, or with any department, officer, or person having official relations with his
office.
As soon after the close of each fiscal year as the accounts of said year may be
examined and adjusted, the Auditor shall submit to the Governor-General and the
Secretary of War an annual report of the fiscal concerns of the Government, showing
the receipts and disbursements of the various Departments and Bureaus of the
Government and of the various provinces and municipalities, and make such other
reports as may be required of him by the Governor-General or the Secretary of War.
In the execution of their duties the Auditor and the Deputy Auditor are authorized to
summon witnesses, administer oaths, and to take evidence, and, in the pursuance of
these provisions may issue subpoenas and enforce the attendance of witnesses, as
now provided by law.
The office of the Auditor shall be under the general supervision of the Governor-
General and shall consist of the Auditor and Deputy Auditor and such necessary
assistants as may be prescribed by law.
SEC. 25. That any person aggrieved by the action or decision of the Auditor in the
settlement of his account or claim may, within one year, take an appeal in writing to
the Governor-General, which appeal shall specifically set forth the particular action of
the Auditor to which exception is taken, with the reason and authorities relied on for
reversing such decision.
If the Governor-General shall confirm the action of the Auditor, he shall so indorse the
appeal and transmit it to the Auditor, and the action shall thereupon be final and
conclusive. Should the Governor-General fail to sustain the action of the Auditor, he
shall forthwith transmit his grounds of disapproval to the Secretary of War, together
with the appeal and the papers necessary to a proper understanding of the matter.
The decision of the Secretary of War in such case shall be final and conclusive.
The local statutory provisions relating to the organization and administration of the
Bureau of Audits are chiefly contained in the Accounting Law, which constitutes
chapter 26 (secs. 581-658) of the Administrative Code (1917). The original source of
these provisions is found in Act No. 1792 of the Philippine Commission.
The most important of the section of the Accounting Law for the purposes of this
inquiry are those defining the general jurisdiction of the Bureau of Audits (sec. 584,
Administrative Code, 1917) and authorizing set-offs (sec. 624, Administrative Code,
1917) as follows:
SEC. 584. General jurisdiction of Bureau of Audits. — The authority and powers of
the Bureau of Audits extend to and comprehend all matters relating to accounting
procedure, including the keeping of the accounts of the Government, the preservation
of vouchers, the methods of accounting, the examination and inspection of the books,
records, and papers relating to such accounts, and to the audit and settlement of the
accounts of all persons respecting funs or property received or held by them in an
accountable capacity, as well as to the examination and audit of all debts and claims
of any sort due from or owing to the Government of the Philippine Islands in any of its
branches.
SEC. 624. Retention of salary for satisfaction of indebtedness to Government. —
When any person is indebted of the Unite States, the Insular Auditor may direct the
proper officer to withhold the payment of any money due him or his estate, the same
to be applied in satisfaction of such indebtedness.
The Bureau of Audits, under the cited statutes, constitutes the accounting branch of
the governmental service. Its competency extends to two different subjects, namely
(1) Accounting procedure, and (2) the examination, audit, and settlement of all debts
and claims due from or owing to the Government. Under the latter head, it will be
noted that the authority and powers of the Bureau extend not only to the audit and
settlement of the accounts of Government officers and employees, but also to the
examination and audit of "all debts and claims of any sort due from or owing to the
Government of the Philippine Islands in any of its branches."
It would hardly be possible to frame a statement concerning the power of the Bureau
with reference to public finance in more inclusive terms; and if the power of
"examination and audit" of "all claims . . . owing to the Government" should be found
to include the power conclusively to adjudicate the existence, validity, and amount of
disputed unliquidated claims which the executive officers of the Government may
deem to exist and in its favor and to offset such claims against conceded debts of the
Government, the contention of respondents must prevail.
The first and most important branch of our inquiry involves an inquiry into the power
of the Auditor with respect to such unliquidated claims in favor of the Government, as
regards the effect of his decisions concerning them, (1) upon the executive branch of
the Government and (2) upon the alleged debtor and the courts.
So far as the executive branches of the Government are concerned the decisions of
the Auditor within the scope of his authority are conclusive (sec. 655, Administrative
Code of 1917), unless appealed from (section 653, Administrative Code, 1917) to the
higher executive authorities. If in the instant case the petitioner had acquiesced in the
findings and conclusions of the Auditor, his decision that the amount of the loss
arising from the allege leakage was P5.92 would, in the absence of an appeal under
section 653, supra, be conclusive upon the Bureau of Supply, the officer to whom the
goods were consigned, and all other officials of the Government who might be
concerned, and would subject to the provisions of section 657 of the Administrative
Code of 1917, protect the petitioner herein against any future contention on the part
of any other government official that the actual loss was greater. Furthermore, the
acquiescence of the claimant as to the amount of the counterclaim would convert it
into a liquidated debt and make it properly subject to set-off.
But as the petitioner denies the allege liability and refuses to consent to its liquidation
by the Auditor, we must determine (1) if the auditor may lawfully proceed to liquidate
and set-off the demand, regardless of such protest and objection, and (2) if his action
is conclusive upon the courts.
Section 584 of the Administrative Code of 1917 is very similar in its terms to section
236 of the Revised Statutes of the United States, which reads as follows:
All claims and demands whatever by the United States and against them, and all
accounts whatever in which the United States are concerned, either as debtors or as
creditors, shall be settled and adjusted in the Department of the Treasury.
Nevertheless, the words "all claims and demands whatever . . . against" the United
States as used in this statute have been held repeatedly not to authorize the officers
of the Treasury Department to entertain unliquidated claims against the United States
for damages. In the case of Power vs. United States (18 C. Cls. R., 275), Judge
Davis, writing the opinion of the court, said:
An account is something which may be adjusted and liquidated by an arithmetical
process . . . . But no law authorizes Treasury officials to allow and pass in accounts a
number not the result of numerical computation upon a subject within the operation of
a mutual part of a contract. Claims for unliquidated damages require for their
settlement the application of the qualities of judgment and discretion. They are
frequently, perhaps generally sustained by extraneous proof, having no relation to the
subjects to the contract, which are common to both parties . . . . The results to be
reached in such cases can in no just sense be called an account, and are not
committed by law to the control and decision of Treasury accounting officers.
Upon the same subject it was said by Judge it was said by Judge Richardson in
McKee's Case (12 C. Cls. R., 555) that this construction must properly exclude ". . .
claims for unliquidated damages, founded on neglect or breach of obligations, or
otherwise, and so, by the well defined and accepted meaning of the word "account"
and the sense in which the same and the words "accounting" and "accounting
officers" appear to be used in the numerous sections of the numerous acts of
Congress wherein they occur, it would seem that the accounting officers have no
jurisdiction of such claims except in special and exceptional cases, in which it has
been expressly conferred upon them by special or private acts. And such has been
opinion of five Attorneys-General — all who have officially advised the executive
officers on the subject: Attorney-General Taney in 1832, whose opinion is referred to
by his successors in office; Attorney-General Nelson in 1844 (4 Opins., 327);
Attorney-General Clifford in 1847 (4 Opins., 627); Attorney- General Cushing in 1854
(6 Opins., 524) and Attorney-General Williams in 1872 (14 Opins., 24). And the same
views were expressed by this court in 1866 (Carmack vs. the United States, 2 C. Cls.
R., 126. 140.)"
Attorney-General Cushing in the opinion cited by Judge Richardson (6 Op. Attys.
Gen., 523) says:
To audit is to examine an adjust an account. There is an indissoluble connection
between account and auditor, the functions of the one indicating the nature of the
other. Yet no definition of the terms audit and auditor implies the adjudication of
damages or other determination of controversy.
In the case of McClure vs. United States (19 C. Cls. R., 173) referred to the Court of
Claims by the Secretary of the Treasury under the Bowman Act, it was said:
It is further insisted by the government that this is a claim "for unliquidated damages
for the breach of a contract which the department have not and never have had,
jurisdiction to examine and settle." In a very broad sense every suit founded on
contract may be regarded as a suit for damages; but where in any proceeding the
damages do not depend upon discretion or the exercise of judicial judgment they are
not unliquidated, but certain and specific."
Again, it was said by Chief Justice Richardson, in the case of Dennis vs. United
States (20 Ct. Cls. R., 119):
Technically, all claims for money due on contracts, where the exact amount payable
is not thereby fixed, as in the case of goods purchase or work done without an agreed
price, are claims for unliquidated damages. But . . . their settlement rarely requires
anything more than the ordinary processes of accounting, the prices being readily
determined by the vouchers and reports of the public officers incurring the expense,
or by other means within reach of the accounting officers, who very properly take
jurisdiction and pass upon such claims . . . . But claims for unliquidated damages
founded on neglect or breach of obligations contrary to the terms of a contract, and
not necessarily arising therefrom, are of quite a different class. They must be
sustained by extraneous proof, often involving a broad field of investigation and
requiring the application of judgment an discretion upon the measure of damages and
the weight of conflicting evidence. As was said in Power's Case (18 Ct. Cls. R., 275),
"The results to be reached in such cases can in no sense be called an account, and
are not committee by law to the control and decision of Treasury accounting officers."
The principle under consideration was the basis of the decision in the very recent and
important case of Smith vs. Jackson, decided by the Supreme Court of the United
States, April 5, 1918 (Advance Sheets, 1918, p. 476). The plaintiff in that proceeding
was the judge of the district court of the Panama Canal Zone, and was entitled, by
statute, to an annual salary $6,000, payable at the rate of $500 a month. A dispute
arose between Judge Jackson and H. A. Smith, the auditor of the Canal Zone, arising
from the fact that the judge had occupied a house belonging to the government for
which, in the opinion of the auditor, he should have paid rent. The Auditor was also of
the opinion that the judge had overstayed his leave of absence by several days, and
that he should be deprived of his salary for the corresponding period. The judge
denied the liability. The auditor thereupon proceeded to liquidate the alleged claim of
the government against the judge, and to enforce his decision by offsetting the
supposed debt against the judge's salary. The judge declined to acquiesce in this
ruling and filed suit in the district court of the Cana Zone for a mandamus against the
auditor to compel him to pay the salary without any deductions whatsoever. The
Honorable Henry D. Clayton, district judge of the middle and northern districts of
Alabama, was designated by the President to hear the case. In a carefully prepared
opinion, based upon an exhaustive citation of authorities, Judge Clayton held that the
writ should issue, and that the auditor was without authority to set-off against the
liquidated debt of the government to the petitioner the unliquidated claim which he
conceived to exist in favor of the government.lawphil.net
From the decision the auditor appealed to the United States Court of Appeals for the
Fifth Circuit. That court adopted in its entirely (241 Fed., 747) the reasoning of the
opinion of Judge Clayton and affirmed his judgment. The respondent thereupon sued
out a writ of error to the Supreme Court of the United States, where the judgment was
again affirmed in a brief but emphatic opinion in which the Chief Justice, speaking for
the court, said that the decision of Judge Clayton made "perfectly manifest the error
of the action of the auditor," and that the prosecution of the writ of error "constituted a
plain abuse by the auditor of his administrative functions."
The doctrine stated in the elaborate opinion of Judge Clayton in the cited case,
supported as it is by the persuasive force of its logical reasoning, and the unanimous
approval of the judges of the Circuit Court of Appeals and of the Justices of the
Supreme Court of the United States, is, in our judgment, directly applicable to the
instant case. The principle underlying that case is that while an auditor may and
should offset a liquidated debt in favor of the government against a liquidated debt
due from it, he has no authority conclusively to adjudicate unliquidated and contested
claims against creditors of the government as such a course would be, in effect, the
assumption of judicial power. Upon this point Judge Clayton said:
Mr. Attorney-General Gregory was correct in saying that if the authorities in the Canal
Zone believe that the relator in the present case owed any amounts of money
whatsoever to Panama Canal, it was "a question for judicial rather than administrative
determination," and that the claim now urged by the respondent in this case 'could
only be enforced through proceedings in the courts." That is a sententious and
felicitous statement of this case.
Judge Jackson has never had his day in court. He has been deprived of his salary, or
the sum of $1,131.76. without due process of law. It has been withheld from him by
the refusal of the auditor in this case to issue his voucher upon which the salary is
paid. He denies it upon the grounds that there was no law or regulation under which
the indebtedness was or could have been created. He denies that the respondent has
authority to withhold any part of his pay in the collection of an alleged but disputed
indebtedness. And yet the executive officer has sat as a court and without evidence
or hearing, except what he considered evidence, and except what he considered a
hearing, decided a controversy that he created by his own action. He has passed
upon a disputed claim which is a disputed claim merely because he has created the
dispute in refusing to make payment where it was his plain duty to make such
payment. His conduct, however good his intention may have been, hardly falls short
of being shocking to the judicial sense of justice, proper and orderly procedure, in a
matter that is clearly justiciable. Perhaps it is not to be doubted that if, after he had
made a careful examination, the Attorney-General had found Judge Jackson was
indebted, owed the items amounting to the salary which has been withheld by the
Auditor, the account would have been settled without court proceedings. Or, if not so
settled, then appropriate court action would have been had for its collection. In any
event Judge Jackson was entitled to his day in court. But the auditor here held that,
having the money for Judge Jackson under his control and subject to his
disbursement, he had the right to determine the claim against Judge Jackson one
disputed in law and in fact, and now insists that his summary way of determining an
issue of law and an issue of fact, and the collection by deduction from the Judge's
salary of a disputed indebtedness, cannot be reviewed or questioned by the court.
Notwithstanding that view I think the Attorney-General was right in saying that the
matter "was one for judicial rather than administrative determination," and that
whatever demand or offset that the Government may have "could only bee enforced
through proceedings in the Courts."
In some of the opinions of former Attorneys-General of the United States cited by
Judge Clayton reference is made to the Act of Congress of March 3, 1875, (2 Fe.
Stat. Ann., 18) wherein it is provided, "That when any final judgment recovered
against the United States or other claim duly allowed by legal authority shall be
presented to the Secretary of the Treasury for payment and the plaintiff or claimant
therein shall be indebted to the United States in any manner, whether as principal or
surety, it shall be the duty of the Secretary to withhold payment of an amount of such
judgment or claim equal to the debt thus due to the United States; and if such plaintiff
or claimant assents to such set-off and discharges his judgment or an amount thereof
equal to said debt or claim, the Secretary shall execute a discharge of the debt due
from the plaintiff to the United States. But if such plaintiff or claimant denies his
indebtedness to the United States or refuses to consent to the set-off, then the
Secretary shall withhold payment of such further amount of such judgment or claim as
in his opinion will be sufficient to cover all legal charges and costs in prosecuting the
debt of the United States to final judgment. And if such debt is not already in suit, it
shall be the duty of the Secretary to cause legal proceedings to be immediately
commenced to enforce the same and to cause the same to be prosecuted to final
judgment with all reasonable dispatch. And if in such action judgment shall be
rendered against the United States or the amount recovered for debt an costs shall
be less than the amount so withheld, as before provided, the balance shall then be
paid over to such plaintiff by such Secretary with six per cent interest thereon for the
time it has been withheld from the plaintiff."
This Act of Congress is of great importance and is, we believe, of controlling authority
in this case. It has been noted that section 24 of the Jones Law confers upon the
Insular Auditor "like authority as that conferred by law upon the several auditors of the
United States and the Comptroller of the United States Treasury," except as
otherwise expressly provided in that Act. This grant of authority is, we believe, to be
construed as limiting as well as conferring authority, and that unless the authority now
asserted by the Insular Auditor has been conferred upon similar officials of the United
States, it has not been conferred upon him by the Jones Law.
An examination of the quoted section of the Act of March 3, 1875, will show that the
duty of acting upon contested unliquidated claims in favor of the United States against
persons holing by being reduced to judgment or "duly allowed by legal authority" is
made to devolve upon the Secretary of the Treasury, not upon the auditors and the
comptroller. Certainly, it could hardly be contended, in the light of the fact that the
statutes defining the duties of the auditors an the Comptroller of the Treasury of the
United States do not in terms confer upon them the power conclusively to allow or
disallow contested unliquidated claims for damages as set-offs against audited debts
of the Government, that they can exercise that power, which has been expressly
denied to the Secretary of the Treasury, to whom they are subordinate. It follows,
therefore, that the grant to the Insular Auditor by the quoted section of the Jones Law
of "like authority" to that conferred upon the auditors of the United States and the
comptroller of the United States Treasury did not carry with it the power conclusively
and finally to adjudicate and set-off unliquidated claims, as such power is not
possessed by those officers.
It is important to note, as an aid to the construction of our own statutes and as
indicative of the practice and policy of our Government in such matters, that the Act of
March 3, 1875 (18 Sta. at L., sec. 481) did not attempt to confer upon the Secretary of
the Treasury the power to adjudicate disputed claims of the United States for the
purpose of offsetting them. If the claimant "assents to such set-off" the deduction is
made forthwith, but if he "denies his indebtedness to the United States or refuses to
consent to the set-off," the Secretary is authorized only to retain a sufficient amount of
the claim to cover the offset, and thereupon "to cause legal proceedings to be
immediately commenced to enforce the same and to cause the same to be
prosecuted to final judgment with all reasonable dispatch."
That is to say, in no event is one who is admittedly a creditor of the United States to
be deprived of his credit by set-off against an unliquidated and disputed claim of
damages, whether arising from tort or breach of contract, without having his day in
court if he demands it. After that has been done, if it be found that the claimant is
indeed also a debtor of the government in a settle and definite sum, then both credits
being liquidated, compensation is effected by operation of law.
We conclude, therefore, that no power to adjudicate and offset disputed unliquidated
claims for damages is conferred upon Insular Auditor by the cited provisions of the
Jones Law or by the general grant of jurisdiction to examine and audit claims owing to
the Government contained in section 584 of the Administrative Code. It now remains
for us to determine if that authority is conferred by section 624 of that statute.
Section 624 of the Administrative Code of 1917 is as follows:
When any person is indebted to the Government of the Philippine Islands or
Government of the United States, the Insular Auditor may direct the proper officer to
withhold the payment of any money due him or his estate, the same to be applied in
satisfaction of such indebtedness.
This section, beyond a doubt, authorizes the Insular Auditor, when it appears that a
creditor of the Government is also "indebted to the Government" "to offset" one "debt"
against another. Does it, however, confer upon the Auditor the exclusive power to
determine whether such indebtedness exists if the supposed debtor denies it? We
think not. Certainly it is not lightly to be assumed that such an authority, to be
exercised with none of the safeguards which surround a judicial inquiry into such
matters, has been conferred.
It is important, in construing section 624 of the Administrative Code, to ascertain the
meaning of the term "indebted" as there used. To be indebted is to owe a debt. The
word "debt," in legal parlance, is of more restricted meaning than the terms
"obligation" or "liability." "A debt" says Sir John Cross, in Ex parte Thompson (Mon. &
B., 219), "is a demand for a sum certain." A debt is an amount actually ascertained.
That there must be an ascertained debt and not a mere unliquidated demand or
liability, "is sustained by all the case, legal and equitable." (In re Adams [N.Y.], 12
Daly, 454.) In Bacon's Abridgement the term "debt" is defined as limited to cases in
which the certainty of the sum is made to appear and that therefore "the plaintiff is to
recover the same in numero and not to be repaired in damages by the jury as in those
actions sounding the damage." (Watson vs. McNairy, 4 Ky., 356.)
"A debt is properly opposed to unliquidated damages . . . ." (Commercial National
Bank vs. Taylor 19 N.Y. Supp., 533.) It seems to us, therefore, quite clear that the
authority conferred upon the Auditor by section 624 of the Administrative Code of
1917 to set-off "debts" to the Government against "money due" the debtor does not
extend to unliquidated, disputed claims arising from tort or breach of contract.
The Act of Congres of March 3, 1807, which allows set-offs against claims by the
Government, has been most liberally construed by the Supreme Court of the United
States (U.S. vs. Ripley, 7 Peters, 18); but no claims based upon unliquidated
damages have ever been permitted as a set-off. (U.S. vs. Robeson, 9 Peters, 319.) It
is reasonable that this should be so, for the theory of set-off, like the compensatio of
the Civil Law, is that one of the debts extinguishes the other by operation of law. As
stated by Comptroller Lawrence, in the Kansas Case (Lawrence, First Comptroller's
Decisions, vol. 2, p. 315):
The object of compensatio, as in set-off, was the prevention of unnecessary suits and
payments.
Compensation and set-off are, therefore, forms of payment by the mutual extinction,
by operation of law, of concurring debts. In our Civil Code the subject is dealt with
under the general heading "The Extinction of Obligations;" and it is provided in article
1196 that in order for compensation to take place (1) both debts must "consist of a
sum of money
. . .;" (2) that both debts be due an demandable; and (3) that both been liquidated.
The Code in this respect is merely declaratory of the earlier law, for in its decision of
April 6, 1889, cited by Manresa (vol. 8, p. 3768) the supreme court of Spain had ruled
that "compensation can only take place between certain and liquidated debts, and in
no event can it include the unliquidated claims of one of the parties for alleged
damages or for untaxed court costs."
It is, of course, obvious, that in normal times, no one, is under legal duty to extend
credit to the Government, whether it be for the sale of merchandise or for its
transportation. Had the petitioner in this case demanded that it be paid in advance
before accepting Government cargo for transportation, its demand would have been
wholly justifiable, just as would be a like demand for cash by a merchant asked to sell
to the Government the goods on his shelf.
The manifest unfairness of taking advantage of the fact that a citizen has voluntarily
permitted the Government to become his debtor in order to extinguish by
administrative fiat a contested claim for unliquidated damages, which the Government
would otherwise have to submit to the courts, requires no comment.
An examination of the local statutes will show that the Legislature has provided a
method by which the Insular Auditor may have unliquidated claims in favor of the
Government reduced to judgment, if the liability legally exists. Section 650 of the
Administrative Code of 1917 reads as follows:
The Insular Auditor shall, through the proper channels, supervise and procedure the
collection and enforcement of all debts and claims, and the restitution of all funds and
property, found to be due the Government in his settlement and adjustment of
accounts: and if any legal proceeding is necessary to such end, he shall request the
Governor- General to authorize and direct the institution of the same.
All money demands in favor of the Government shall bear interest at six per centum
per annum from the date of the Auditor's written demand.
This section grants to the Insular Auditor and the Governor-General, jointly, the same
power vested in the Secretary of the Federal Treasury by the Act of Congress of
March 3, 1875. It is ample for the protection of the interests of the Government and
secures to the citizen the right to a full hearing before an unbiased tribunal before he
is deprived of his property. The contention which may be advanced, that it will work a
hardship upon the Government to require it to submit such controversies to the
courts, may be answered by saying that it is not to be presumed that just claims,
particularly for small amounts, will always be resisted; and, further, should they be,
the unsuccessful litigant may be made to pay the costs of the suit, in addition to
incurring the expense of employing counsel. These considerations, in the vast
majority of cases, prevent unreasonable resistance to just demands as between
private individuals and there is no reason for assuming that they would not be equally
efficacious in protecting the Government. On the other hand, it is to be remembered
that while in the United States a large class of claims against the Federal Government
arising from contract may be presented to the Court of Claims (Judicial Code, sec.
145) or to the District Courts (Judicial Code, section 24) for adjudication an that
similar provisions are to be found in the laws of several of the States, the Philippine
Government has not as yet made provision for the submission of such claims to
judicial investigations at the instance of its creditors.
The power which the Insular Auditor claims is, if it exists, clearly judicial in its nature.
It implies the hearing of evidence, the making of findings of fact, the application of the
law to such findings, and the pronouncement of a decision — all acts essentially
judicial in their character. As was said by Attorney-General Black (Vol. 9, Ops. Atty.
Gen., 198) in a similar case:
No such jurisdiction is given to the Secretary of the Treasury by any law, and if the
Constitution is not a dead letter Congress cannot confer it. The Fifth Amendment
declares that "no person shall be deprived of his life, liberty or property, without due
process of law." This means, and has always been held to mean, that the right of a
citizen to his property, as well as his life or liberty, could be taken away only upon an
open, public, and fair trial before a judicial tribunal, according to the forms prescribed
by the law of the land for the investigation of such subjects. If an executive officer can
make an order that the widow and children of Reside shall be deprived of twenty- four
thousand dollars without a trial, then the same officer may, with equal propriety, issue
a warrant to hang them, since the Constitution puts life and property on the same
footing."
As the asserted authority is judicial in character, if section 624 of the Administrative
Code must be construed as conferring it upon the Insular Auditor, the very grave
question would be presented whether such power could validly be delegated to him.
The judicial power, both by the Philippine Bill and the Jones Law, is vested in the
established courts, and Congress has reserved to itself the power of divesting it.
(Barrameda vs. Moir, 25 Phil. Rep., 44.)
Certainly, no interpretation of a statute which will bring it into conflict with the
fundamental law will be adopted if avoidable. To avoid that conflict section 624 of the
Administrative Code must bee construed, in conjunction with section 650 of the same
code, as requiring the Auditor, when his contention regarding the propriety of
offsetting unliquidated claims is disputed, to submit the controversy to the courts, and
as authorizing him, during the pendency of the litigation, to withhold payment of a
sufficient amount of the admitted indebtedness of the Government to the claimant to
offset it should the Government's contention be upheld by the court, and the
unliquidated claim converted into a liquidated debt. (Civil Code, art. 1196.)
But it is argued that the decisions of the Auditor upon all matters connected with the
accounting service are conclusive an binding upon all other branches of the
Government. That they are conclusively binding upon the executive branches of the
Government may, as we have seen, be conceded; but that conclusion does not of
necessity imply that this decisions are equally binding upon the courts. This we think,
will be apparent from a consideration of the wording of the present statutes and their
legislative antecedents.
Section 6 of the original Accounting Act contains the following language:
The decisions of the Auditor shall be final and conclusive upon the executive
branches of the Government, except that appeal therefrom may be taken by the party
aggrieved or the head of the Department concerned, within one year, in the manner
hereinafter prescribed.
This provision was carried into the Administrative Code of 1916 (Act No. 2657) by the
codifiers in the following form [sec. 687]:
A decision of the Insular Auditor or of a district auditor upon any matter within their
respective powers shall be conclusive, subject to appeal or review as hereinafter
provided.
It will be observed that the significant words "upon the executive branches of the
Government," immediately following the word "conclusive," are omitted from the
provision as it appeared in the Administrative Code of 1916. However, very shortly
after this Code went into effect, the Congress of the United States passed the Act of
August 29, 1916, commonly known as the Jones Law; an in the sixth paragraph of
section 24 of this Act (supra) is found a reenactment of the language which we have
quoted above from section 6 of Act No. 1792. A few months later the Philippine
Legislature adopted a revision of the Administrative Code which is contained in Act
No. 2711; and it is noteworthy that in this last edition of said Code, the Legislature,
doubtless in obedience to the will of the Congress of the United States as expressed
in the Jones Law, restored the words which had been omitted from section 687 of the
Administrative Code of 1916, so that the provision as it now stands in the law reads
as follows [sec. 655]:
A decision of the Insular Auditor or of a district auditor upon any matter within their
respective powers shall be conclusive upon the executive branches of the
Government, subject to appeal or review as hereinafter provided. (Administrative
Code of 1917, section 655.)
Reflection upon the meaning of the language contained in this provision, as well as a
consideration of the import of the legislative changes by which that provision acquired
its present form, leads us to believe that, in the end and after all is said and done, the
action of the Insular Auditor in passing upon the propriety and validity of any debt or
claim which comes before him for audit is purely and solely an administrative act and
has no binding force except as it affords a conclusive rule for the guidance and
control of the executive branches of the Government. This idea comports with the
principle accepted in the United States with respect to the functions of auditors; an it
is further indicated in another provision found in section 24 (supra) of the Jones Law,
which is in these words:
The administrative jurisdiction of the auditor over accounts, whether of funds or
property, and all vouchers and records pertaining thereto, shall be exclusive.
As the same provision appears in section 6 of the earlier Act No. 1792, the word
"administrative" before "jurisdiction" is wanting. Its insertion in the later Act would
seem to indicate a recognition of the fact that the acts of the Auditor are of a purely
administrative character.
The truth is that the embarrassment to which any individual is subject in his financial
relations with the Government does not arise so much from the conclusiveness of the
Insular Auditor's action upon his claim as it does from the rule that the Government is
not subject to be sued in its own courts without its consent. If a party having a
justiciable claim against the Government could go into court and maintain an action
against it, as against any other defendant, no one would ever have supposed that the
rejection of the claim by an auditor would have the effect of a conclusive adjudication
on the right. Manifestly it can have no such effect; an when the statute says that the
Insular Auditor's decision shall be conclusive on the executive branches of the
Government, it is as much as to say that it is not conclusive on the judicial branch.
This was the conclusion expressed by the Court of Claims in the case of McKnight vs.
United States (13 C. Cls. R., 307), construing a similar statute, in which it was said:
. . . in 1868 an act was passed, which is now incorporated into the Revised Statutes
as section 191, which provides that the balances certified by the comptrollers "shall
be conclusive upon the executive branch of the Government . . . ." But this
conclusiveness is probably intended to be . . . conclusive upon the executive branch
of the Government but not upon Congress or the courts.
But it is argued that the action cannot be maintained because it does not appear from
the petition that the petitioner has appealed from the action of the Insular Auditor to
the Governor-General. In section 653 of the Administrative Code (1917) it is declared
that any person aggrieved by a decision of the Insular Auditor may, within one year,
appeal to the Governor-General. In section 656 it is declared that the action of the
Governor-General affirming the Auditor's decision shall be final; but if he reverses the
Auditor, the matter goes to the Secretary of War whose decision shall be conclusive.
Provisions to the same effect are found in the Jones Law, sections 24, 25. It is our
opinion that the word "final" as used in section 656 of the Administrative Code in
speaking of the action of the Secretary of War, has reference to the finality and
conclusiveness of the proceedings in an administrative sense — that is, final and
conclusive upon the executive branches of the Government. In other words, section
656 follows the tenor of section 655 where it is said that the decision of the Insular
Auditor shall be conclusive, subject to appeal or review as in section 656 provided. It
results that the proceedings under sections 653 to 656, inclusive, of the
Administrative Code (1917) are at no stag binding upon the courts, whether an
administrative appeal is taken or not. The circumstance that no appeal to the
Governor-General was taken by the petitioner in the instant case is, therefore,
immaterial so far as the judicial solution of the controversy is concerned. By its
election not to take the matter before the Governor- General, the petitioner left the
decision of the Insular Auditor, in effect, considered as an administrative decision,
and section 653, as we have already seen defines the effect to be given to it. The
petitioner, of course, was bound to await action by the Insular Auditor because, until
this officer acted, it could not be known that the petitioner's claim was questioned.
The failure to appeal from the Auditor's decision does not affect petitioner's right of
redress in the courts.
It having been shown that an adjudication made by the Insular Auditor is not binding
on the courts, it remains to consider what remedy, if any, the law affords to a person
who considers himself aggrieved by the Auditor's action and the conditions under
which such remedy may be exerted. That no action can be brought directly by the
creditor against the Government, in the absence of an enabling statute, to recover
from it upon any supposed liability goes without saying. In the United States, as we
have stated, a judicial determination of the validity of a great variety of claims of
private individuals against the Federal Government may be submitted to judicial
investigation, and administrative courts are common in the countries of continental
Europe; but the Philippine Government, however, has not as yet made provision for
such action, although in several instances special statutes have opened the doors of
the courts to individual claimants.
In considering the case before us, it is important to bear in mind that the Government
is admittedly indebted to the petitioner in the definite and certain sum of P322.93. No
action, either administrative or judicial, is therefore necessary to fix this liability upon
the Government. In so far as legal liability can result from governmental activities,
liability exists and upon the demurrer is admitted. Furthermore, said liability is such
that it should be absolved by a warrant drawn by the Purchasing Agent and
countersigned by the Insular Auditor. The law makes provision for the payment of the
money in this way, and it cannot otherwise be gotten out of the Insular Treasury.
The legal remedy here indicate as proper is the writ of mandamus to compel the
Purchasing Agent and the Insular Auditor to issue, countersign, and deliver the proper
warrant to the petitioner. (Hoey vs. Baldwin, 1 Phil., Rep., 551.)
The liability of these officers to the coercive process of mandamus arises from the
fact that a valid claim exists for the payment of which provision has been made, that
these officers are the appointed agents for making the payment, and that under these
circumstances the execution and delivery to the creditor of the warrant are merely
ministerial functions involving no discretionary action whatever.
It is, of course, beyond dispute that the courts will not attempt to control the discretion
of executive officers; but to require of them the performance of merely ministerial acts
does not infringe upon that discretion. The decision of the Supreme Court of the
United States in the Jackson case (supra) is in itself sufficient authority, directly in
point, to uphold us in our conclusion that the execution and delivery of a warrant for
the payment of an admitted indebtedness involves the exercise of no discretion
whatever. If further justification be required we find it in the decision of the Supreme
Court of the United States in the case of Roberts vs. Valentine (176 U.S., 221)
wherein it was said:
Unless the writ of mandamus is to become practically valueless, and is to be refused
even where a public officer is commanded to do a particular act by virtue of a
particular statute, this writ should be granted. Every statute to some extent requires
construction by the public officer whose duties may be defined therein. Such officer
must read the law, and he must therefore, in a certain sense, construe it, in order to
form a judgment from its language of what duty he is directed by the statute to
perform. But that does not necessarily and in all cases make the duty of the officer
anything other than a purely ministerial one. If the law directs him to perform an act in
regard to which no discretion is committed to him, and which, upon the facts existing
he is bound to perform, then that act is ministerial, although depending upon a statute
which requires, in some degree, a construction of its language by the officer. Unless
this be so, the value of this writ is very greatly impaired. Every executive officer
whose duty is plainly devolved upon him by statute might refuse to perform it, and
when his refusal is brought before the court he might successfully plead that the
performance of the duty involved the construction of a statute by him, and therefore it
was not ministerial, and the court would on that account be powerless to give relief.
Such a limitation of the powers of the court, we think, would be most unfortunate, as it
would relieve from judicial supervision all executive officers in the performance of
their duties, whenever they should plead that the duty required of them arose upon
the construction of a statute, no matter how plain its language, nor how plainly they
violated their duty in refusing to perform the act required."
As it is averred in the complaint and admitted by the demurrer that the respondents
are not withholding the warrant to enable them, with all due diligence, to submit the
disputed claim to the courts, but that the Auditor has assumed to pass definite and
final judgment upon the validity and amount of the alleged offset, contrary to the
expressed wishes of petitioner, we are of the opinion that the petition states a cause
of action, that the demurrer is not well taken, and it, therefore, must be and is
overruled. Respondents may answer the petition within five days from the receipt of
notice of this ruling and order.
G.R. No. 154878 March 16, 2007
CAROLYN M. GARCIA
vs.  monthly interest of 3% and P500,000 at a monthly interest of 4%:[20]
RICA MARIE S. THIO
 
CORONA, J.:
 
  Assailed in this petition for review on certiorari[1] are the June 19,
2002 decision[2] and August 20, 2002 resolution[3] of the Court of Appeals (CA) in CA-
G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional
Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from
petitioner Carolyn M. Garcia a crossed check [4] dated February 24, 1995 in the
amount of US$100,000 payable to the order of a certain Marilou Santiago.
[5]
 Thereafter, petitioner received from respondent every month (specifically, on March
24, April 26, June 26 and July 26, all in 1995) the amount of
US$3,000[6] and P76,500[7] on July 26,[8] August 26, September 26 and October 26,
1995.
 
In June 1995, respondent received from petitioner another crossed
check[9] dated June 29, 1995 in the amount of P500,000, also payable to the order of
Marilou Santiago.[10] Consequently, petitioner received from respondent the amount
of P20,000 every month on August 5, September 5, October 5 and November 5,
1995.[11]
According to petitioner, respondent failed to pay the principal amounts of the
loans (US$100,000 and P500,000) when they fell due.Thus, on February 22, 1996,
petitioner filed a complaint for sum of money and damages in the RTC of Makati City,
Branch 58 against respondent, seeking to collect the sums of US$100,000, with
interest thereon at 3% a month from October 26, 1995 and P500,000, with interest
thereon at 4% a month from November 5, 1995, plus attorneys fees and actual
damages.[12]
 
Petitioner alleged that on February 24, 1995, respondent borrowed from her
the amount of US$100,000 with interest thereon at the rate of 3% per month, which
loan would mature on October 26, 1995.[13] The amount of this loan was covered by
the first check. On June 29, 1995, respondent again borrowed the amount
of P500,000 at an agreed monthly interest of 4%, the maturity date of which was
on November 5, 1995.[14] The amount of this loan was covered by the second check.
For both loans, no promissory note was executed since petitioner and respondent
were close friends at the time. [15] Respondent paid the stipulated monthly interest for
both loans but on their maturity dates, she failed to pay the principal amounts despite
repeated demands.[16]
 
Respondent denied that she contracted the two loans with petitioner and
countered that it was Marilou Santiago to whom petitioner lent the money. She
claimed she was merely asked by petitioner to give the crossed checks to Santiago.
[17]
 She issued the checks for P76,000 andP20,000 not as payment of interest but to
accommodate petitioners request that respondent use her own checks instead of
Santiagos.[18]
 
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.
 It found that respondent borrowed from petitioner the amounts of US$100,000 with
[19]
 
WHEREFORE, finding preponderance of evidence to
sustain the instant complaint, judgment is hereby rendered in favor
of [petitioner], sentencing [respondent] to pay the former the
amount of:
 
1. [US$100,000.00] or its peso equivalent with interest
thereon at 3% per month from October 26, 1995 until fully paid;
 
2. P500,000.00 with interest thereon at 4% per month
from November 5, 1995 until fully paid.
 
3. P100,000.00 as and for attorneys fees; and
4. P50,000.00 as and for actual damages.
 
For lack of merit, [respondents] counterclaim is perforce
dismissed.
 
With costs against [respondent].
 
IT IS SO ORDERED.[21]
On appeal, the CA reversed the decision of the RTC and ruled that there
was no contract of loan between the parties:
 
A perusal of the record of the case shows that [petitioner]
failed to substantiate her claim that [respondent] indeed borrowed
money from her.There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident
is the fact that [respondent] received a MetroBank [crossed] check
dated February 24, 1995 in the sum of US$100,000.00, payable to
the order of Marilou Santiago and a CityTrust [crossed] check dated
June 29, 1995 in the amount of P500,000.00, again payable to the
order of Marilou Santiago, both of which were issued by
[petitioner]. The checks received by [respondent], being
crossed, may not be encashed but only deposited in the bank
by the payee thereof, that is, by Marilou Santiago herself.
 
It must be noted that crossing a check has the following
effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only onceto one who
has an account with the bank; (c) and the act of crossing the check
serves as warning to the holder that the check has been issued for
a definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due
course.
 
Consequently, the receipt of the [crossed] check by
[respondent] is not the issuance and delivery to the payee in
 contemplation of law since the latter is not the person who could
take the checks as a holder, i.e., as a payee or indorsee thereof,
with intent to transfer title thereto. Neither could she be deemed as
an agent of Marilou Santiago with respect to the checks because
she was merely facilitating the transactions between the former and
[petitioner].
 
With the foregoing circumstances, it may be fairly inferred
that there were really no contracts of loan that existed between the
parties. x x x (emphasis supplied)[22]
Hence this petition.[23]
As a rule, only questions of law may be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court. However, this case falls under one of
the exceptions, i.e., when the factual findings of the CA (which held that there
were no contracts of loan between petitioner and respondent) and the RTC (which
held that there were contracts of loan) are contradictory.[24]
 
The petition is impressed with merit.
 
A loan is a real contract, not consensual, and as such is perfected only upon
the delivery of the object of the contract. [25] This is evident in Art. 1934 of the Civil
Code which provides:
 
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract. (Emphasis supplied)
 
Upon delivery of the object of the contract of loan (in this case the money received by
the debtor when the checks were encashed) the debtor acquires ownership of such
money or loan proceeds and is bound to pay the creditor an equal amount.[26]
It is undisputed that the checks were delivered to respondent. However,
these checks were crossed and payable not to the order of respondent but to the
order of a certain Marilou Santiago. Thus the main question to be answered is: who
borrowed money from petitioner respondent or Santiago?
 
Petitioner insists that it was upon respondents instruction that both checks
were made payable to Santiago.[27] She maintains that it was also upon respondents
instruction that both checks were delivered to her (respondent) so that she could, in
turn, deliver the same to Santiago.[28] Furthermore, she argues that once respondent
received the checks, the latter had possession and control of them such that she had
the choice to either forward them to Santiago (who was already her debtor), to retain
them or to return them to petitioner.[29]
 
We agree with petitioner. Delivery is the act by which the res or substance
thereof is placed within the actual or constructive possession or control of another.
[30]
 Although respondent did not physically receive the proceeds of the checks, these
instruments were placed in her control and possession under an arrangement
whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
 
First, respondent admitted that petitioner did not personally know Santiago.
 It was highly improbable that petitioner would grant two loans to a complete
[31]
stranger without requiring as much as promissory notes or any written
acknowledgment of the debt considering that the amounts involved were quite big.
Respondent, on the other hand, already had transactions with Santiago at that time.
[32]
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose
name appeared in both parties list of witnesses) testified that respondents plan was
for petitioner to lend her money at a monthly interest rate of 3%, after which
respondent would lend the same amount to Santiago at a higher rate of 5% and
realize a profit of 2%.[33] This explained why respondent instructed petitioner to make
the checks payable to Santiago. Respondent has not shown any reason why Ruiz
testimony should not be believed.
 
Third, for the US$100,000 loan, respondent admitted issuing her own checks
in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to
cover the monthly interest. For the P500,000 loan, she also issued her own checks in
the amount of P20,000 each for four months.[34] According to respondent, she merely
accommodated petitioners request for her to issue her own checks to cover the
interest payments since petitioner was not personally acquainted with Santiago.
[35]
 She claimed, however, that Santiago would replace the checks with cash.[36] Her
explanation is simply incredible. It is difficult to believe that respondent would put
herself in a position where she would be compelled to pay interest, from her own
funds, for loans she allegedly did not contract. We declared in one case that:
 
In the assessment of the testimonies of witnesses, this Court is
guided by the rule that for evidence to be believed, it must not only
proceed from the mouth of a credible witness, but must be credible
in itself such as the common experience of mankind can approve
as probable under the circumstances. We have no test of the truth
of human testimony except its conformity to our knowledge,
observation, and experience. Whatever is repugnant to these
belongs to the miraculous, and is outside of juridical cognizance.[37]
 
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was
respondent, not petitioner, who was listed as one of her (Santiagos) creditors.[38]
 
Last, respondent inexplicably never presented Santiago as a witness to
corroborate her story.[39] The presumption is that evidence willfully suppressed would
be adverse if produced.[40] Respondent was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that
respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner.
We instead agree with the ruling of the RTC making respondent liable for the principal
amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4%
monthly interest for the US$100,000 and P500,000 loans respectively. There was no
written proof of the interest payable except for the verbal agreement that the loans
would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides
that [n]o interest shall be due unless it has been expressly stipulated in writing.
 
Be that as it may, while there can be no stipulated interest, there can be
legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that:
  
When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded.In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.[41]
 
 
Hence, respondent is liable for the payment of legal interest per annum to be
computed from November 21, 1995, the date when she received petitioners demand
letter.[42] From the finality of the decision until it is fully paid, the amount due shall earn
interest at 12% perannum, the interim period being deemed equivalent to a
forbearance of credit.[43]
The award of actual damages in the amount of P50,000 and P100,000
attorneys fees is deleted since the RTC decision did not explain the factual bases for
these damages.
 
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002
decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No.
56577 are REVERSED and SET ASIDE. The February 28, 1997 decision of the
Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with
the MODIFICATION that respondent is directed to pay petitioner the amounts of
US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until
the finality of the decision. The total amount due as of the date of finality will earn
interest of 12% per annum until fully paid. The award of actual damages and
attorneys fees is deleted.
 
SO ORDERED.
G.R. No. L-24968April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
MAKALINTAL, J.:
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was
rendered on June 28, 1965 sentencing defendant Development Bank of the
Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import
and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from
the date the complaint was filed and attorney's fees in the amount of P5,000.00. The
present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the
Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00, to be used as follows: P250,000.00 for the
construction of a factory building (for the manufacture of jute sacks); P240,900.00 to
pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential
Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its
release without first paying the draft, Saura, Inc. executed a trust receipt in favor of
the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application
for P500,000.00, to be secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be installed.
Among the other terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
TOTAL P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and
Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly
with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance
Corporation, subject to availability of funds, and as the construction of the factory
buildings progresses, to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day
before, however, evidently having otherwise been informed of its approval, Saura,
Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it,
namely: that in lieu of having China Engineers, Ltd. (which was willing to assume
liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker
on the corresponding promissory notes, Saura, Inc. would put up a bond for
P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca
would be substituted for Inocencia Arellano as one of the other co-makers, having
acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954,
designating of the members of its Board of Governors, for certain reasons stated in
the resolution, "to reexamine all the aspects of this approved loan ... with special
reference as to the advisability of financing this particular project based on present
conditions obtaining in the operations of jute mills, and to submit his findings thereon
at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again
agreed to act as co-signer for the loan, and asked that the necessary documents be
prepared in accordance with the terms and conditions specified in Resolution No.
145. In connection with the reexamination of the project to be financed with the loan
applied for, as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other and undertake
the necessary studies, although in appointing its own committee Saura, Inc. made the
observation that the same "should not be taken as an acquiescence on (its) part to
novate, or accept new conditions to, the agreement already) entered into," referring to
its acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R.
Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the
RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of
Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to
P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc.
under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd.
Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the
loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the
purpose of financing the manufacture of jute sacks in Davao, with special reference
as to the advisability of financing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard Ramon E. Saura and
after extensive discussion on the subject the Board, upon recommendation of the
Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be
authorized as may be necessary from time to time to place the factory in actual
operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the
promissory note for China Engineers Ltd. jointly and severally with the other RFC that
his company no longer to of the loan and therefore considered the same as cancelled
as far as it was concerned. A follow-up letter dated July 2 requested RFC that the
registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00
be granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a
notification ... from the China Engineers Ltd., expressing their desire to consider the
loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and
informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as
co-signer of the note if RFC releases to us the P500,000.00 originally approved by
you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the
original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now
willing to sign the promissory notes jointly with the borrower-corporation," but with the
following proviso:
That in view of observations made of the shortage and high cost of imported raw
materials, the Department of Agriculture and Natural Resources shall certify to the
following:
1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately
for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated
December 22, 1954, wherein it was explained that the certification by the Department
of Agriculture and Natural Resources was required "as the intention of the original
approval (of the loan) is to develop the manufacture of sacks on the basis of locally
available raw materials." This point is important, and sheds light on the subsequent
actuations of the parties. Saura, Inc. does not deny that the factory he was building in
Davao was for the manufacture of bags from local raw materials. The cover page of
its brochure (Exh. M) describes the project as a "Joint venture by and between the
Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance,
manage and operate a Kenaf mill plant, to manufacture copra and corn bags,
runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal
kenaf." The explanatory note on page 1 of the same brochure states that, the venture
"is the first serious attempt in this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in theIsland of Mindanao where
the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan
application in the first place, and to require, in its Resolution No. 9083, a certification
from the Department of Agriculture and Natural Resources as to the availability of
local raw materials to provide adequately for the requirements of the factory. Saura,
Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955:
(1) stating that according to a special study made by the Bureau of Forestry "kenaf
will not be available in sufficient quantity this year or probably even next year;" (2)
requesting "assurances (from RFC) that my company and associates will be able to
bring in sufficient jute materials as may be necessary for the full operation of the jute
mill;" and (3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank & Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equipment per attached list to enable the
jute mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the opening of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival of raw jute.
3) P17,586.09 to be released as soon as the mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of your
loan under consideration of P500,000. As stated in our letter of December 22, 1954,
the releases of the loan, if revived, are proposed to be made from time to time,
subject to availability of funds towards the end that the sack factory shall be placed in
actual operating status. We shall be able to act on your request for revised purpose
and manner of releases upon re-appraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural
Resources certify that the raw materials needed are available in the immediate
vicinity and that there is prospect of increased production thereof to provide
adequately the requirements of the factory, we wish to reiterate that the basis of the
original approval is to develop the manufacture of sacks on the basis of the locally
available raw materials. Your statement that you will have to rely on the importation of
jute and your request that we give you assurance that your company will be able to
bring in sufficient jute materials as may be necessary for the operation of your factory,
would not be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not
pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so,
on June 17, 1955 RFC executed the corresponding deed of cancellation and
delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of
the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to
December 31 of the same year within which to pay its obligation on the trust receipt
heretofore mentioned. It appears further that for failure to pay the said obligation the
Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled
at the request of Saura, Inc., the latter commenced the present suit for damages,
alleging failure of RFC (as predecessor of the defendant DBP) to comply with its
obligation to release the proceeds of the loan applied for and approved, thereby
preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected
contract between the parties and that the defendant was guilty of breach thereof. The
defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of
action had prescribed, or that its claim had been waived or abandoned; (2) that there
was no perfected contract; and (3) that assuming there was, the plaintiff itself did not
comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in
Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum
or simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura,
Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short
of resolving the basic claim that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
P67,586.09 be released "for raw materials and labor." This was a deviation from the
terms laid down in Resolution No. 145 and embodied in the mortgage contract,
implying as it did a diversion of part of the proceeds of the loan to purposes other
than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations
which had been going on for the implementation of the agreement reached an
impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So
instead of doing so and insisting that the loan be released as agreed upon, Saura,
Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The
action thus taken by both parties was in the nature cf mutual desistance — what
Manresa terms "mutuo disenso"1 — which is a mode of extinguishing obligations. It is
a concept that derives from the principle that since mutual agreement can create a
contract, mutual disagreement by the parties can cause its extinguishment.2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest
against any alleged breach of contract by RFC, or even point out that the latter's
stand was legally unjustified. Its request for cancellation of the mortgage carried no
reservation of whatever rights it believed it might have against RFC for the latter's
non-compliance. In 1962 it even applied with DBP for another loan to finance a rice
and corn project, which application was disapproved. It was only in 1964, nine years
after the loan agreement had been cancelled at its own request, that Saura, Inc.
brought this action for damages.All these circumstances demonstrate beyond doubt
that the said agreement had been extinguished by mutual desistance — and that on
the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the
other issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed,
with costs against the plaintiff-appellee.

It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. There is no serious dispute about this. It was in line with
such assumption that when RFC, by Resolution No. 9083 approved on December 17,
1954, restored the loan to the original amount of P500,000.00. it imposed two
conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and (2) that there is
prospect of increased production thereof to provide adequately for the requirements
of the factory." The imposition of those conditions was by no means a deviation from
the terms of the agreement, but rather a step in its implementation. There was
nothing in said conditions that contradicted the terms laid down in RFC Resolution
No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall
be utilized exclusively for the following purposes: for construction of factory building
— P250,000.00; for payment of the balance of purchase price of machinery and
equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc.
realized that it could not meet the conditions required by RFC, and so wrote its letter
of January 21, 1955, stating that local jute "will not be able in sufficient quantity this
year or probably next year," and asking that out of the loan agreed upon the sum of
G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and
ALS MANAGEMENT & DEVELOPMENT CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the Court
of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The
appellate court affirmed the judgment of the Regional Trial Court of Pasig City,
Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage by petitioner BPI
Investment Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua,[1] consolidated
with (b) Civil Case No. 52093, for damages with prayer for the issuance of a writ of
preliminary injunction by the private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of
their monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC
was premature and made in bad faith. It awarded private respondents the amount of
P300,000 for moral damages, P50,000 for exemplary damages, and P50,000 for
attorneys fees and expenses for litigation. It likewise dismissed the foreclosure suit for
being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner
BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa.
Said house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980,
Roa sold the house and lot to private respondents ALS and Antonio Litonjua for
P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas
indebtedness with AIDC. The latter, however, was not willing to extend the old
interest rate to private respondents and proposed to grant them a new loan of
P500,000 to be applied to Roas debt and secured by the same property, at an
interest rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal monthly amortization of P9,996.58
and penalty interest at the rate of 21% per annum per day from the date the
amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed
containing the above stipulations with the provision that payment of the monthly
amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the
sum of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in
turn, was liquidated when BPIIC applied thereto the proceeds of private respondents
loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents
on the ground that they failed to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five
Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was
published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC.
They alleged, among others, that they were not in arrears in their payment, but in fact
made an overpayment as of June 30, 1984. They maintained that they should not be
made to pay amortization before the actual release of the P500,000 loan in August
and September 1982. Further, out of the P500,000 loan, only the total amount of
P464,351.77 was released to private respondents. Hence, applying the effects of
legal compensation, the balance of P35,648.23 should be applied to the initial
monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831
and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and
Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77, with interest at 20% plus service charge of
1% per annum, payable on equal monthly and successive amortizations at P9,283.83
for ten (10) years or one hundred twenty (120) months. The amortization schedule
attached as Annex A to the Deed of Mortgage is correspondingly reformed as
aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when
BPI caused their publication in a newspaper of general circulation as defaulting
debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.
Costs against BPI.
SO ORDERED.[2]
Both parties appealed to the Court of Appeals. However, private respondents appeal
was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive
portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby
AFFIRMED in toto.

SO ORDERED.[3]
In its decision, the Court of Appeals reasoned that a simple loan is perfected only
upon the delivery of the object of the contract. The contract of loan between BPIIC
and ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC
released the purported balance of the P500,000 loan after deducting therefrom the
value of Roas indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the stipulations
in the contract. This, despite the express agreement of the parties that payment shall
commence on May 1, 1981. From October 1982 to June 1984, the total amortization
due was only P194,960.43. Evidence showed that private respondents had an
overpayment, because as of June 1984, they already paid a total amount of
P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private respondents
delinquency in the payment of their loan. This fact constituted sufficient ground for
moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence
this petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN
THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS,
125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN IN
SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that
because a simple loan is perfected upon the delivery of the object of the contract, the
loan contract in this case was perfected only on September 13, 1982. Petitioner
claims that a contract of loan is a consensual contract, and a loan contract is
perfected at the time the contract of mortgage is executed conformably with our ruling
in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan
contract was perfected on March 31, 1981, the date when the mortgage deed was
executed, hence, the amortization and interests on the loan should be computed from
said date.
Petitioner also argues that while the documents showed that the loan was released
only on August 1982, the loan was actually released on March 31, 1981, when BPIIC
issued a cancellation of mortgage of Frank Roas loan. This finds support in the
registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in favor
of ALS, transferring the title of the property to ALS, and ALS executing the Mortgage
Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the
loan should be attributed to private respondents. As BPIIC only agreed to extend a
P500,000 loan, private respondents were required to reduce Frank Roas loan below
said amount. According to petitioner, private respondents were only able to do so in
August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil
Code,[4] a simple loan is perfected upon the delivery of the object of the contract,
hence a real contract. In this case, even though the loan contract was signed on
March 31, 1981, it was perfected only on September 13, 1982, when the full loan was
released to private respondents. They submit that petitioner misread Bonnevie. To
give meaning to Article 1934, according to private respondents, Bonnevie must be
construed to mean that the contract to extend the loan was perfected on March 31,
1981 but the contract of loan itself was only perfected upon the delivery of the full
loan to private respondents on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan
contract was perfected on March 31, 1981, and their payment did not start a month
thereafter, still no default took place. According to private respondents, a perfected
loan agreement imposes reciprocal obligations, where the obligation or promise of
each party is the consideration of the other party. In this case, the consideration for
BPIIC in entering into the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIIC to deliver the
money. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon
him. Therefore, private respondents conclude, they did not incur in delay when they
did not commence paying the monthly amortization on May 1, 1981, as it was only on
September 13, 1982 when petitioner fully complied with its obligation under the loan
contract.
We agree with private respondents. A loan contract is not a consensual contract but a
real contract. It is perfected only upon the delivery of the object of the contract.[5]
Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court as a
perfected consensual contract falls under the first clause of Article 1934, Civil Code. It
is an accepted promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44
SCRA 445, petitioner applied for a loan of P500,000 with respondent bank. The latter
approved the application through a board resolution. Thereafter, the corresponding
mortgage was executed and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner instituted an action for
damages. We recognized in this case, a perfected consensual contract which under
normal circumstances could have made the bank liable for not releasing the loan.
However, since the fault was attributable to petitioner therein, the court did not award
it damages.
A perfected consensual contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real contract of loan which
requires the delivery of the object of the contract for its perfection and which gives
rise to obligations only on the part of the borrower.[6]
In the present case, the loan contract between BPI, on the one hand, and ALS and
Litonjua, on the other, was perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals,
private respondents obligation to pay commenced only on October 13, 1982, a month
after the perfection of the contract.[7]
We also agree with private respondents that a contract of loan involves a reciprocal
obligation, wherein the obligation or promise of each party is the consideration for that
of the other.[8] As averred by private respondents, the promise of BPIIC to extend
and deliver the loan is upon the consideration that ALS and Litonjua shall pay the
monthly amortization commencing on May 1, 1981, one month after the supposed
release of the loan. It is a basic principle in reciprocal obligations that neither party
incurs in delay, if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him.[9] Only when a party has performed his
part of the contract can he demand that the other party also fulfills his own obligation
and if the latter fails, default sets in. Consequently, petitioner could only demand for
the payment of the monthly amortization after September 13, 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.
Other points raised by petitioner in connection with the first issue, such as the date of
actual release of the loan and whether private respondents were the cause of the
delay in the release of the loan, are factual. Since petitioner has not shown that the
instant case is one of the exceptions to the basic rule that only questions of law can
be raised in a petition for review under Rule 45 of the Rules of Court,[10] factual
matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.
properly declare BPIIC in bad faith. Consequently, we should rule out the award of
moral and exemplary damages.[11]
However, in our view, BPIIC was negligent in relying merely on the entries found in
the deed of mortgage, without checking and correspondingly adjusting its records on
the amount actually released to private respondents and the date when it was
released. Such negligence resulted in damage to private respondents, for which an
award of nominal damages should be given in recognition of their rights which were
violated by BPIIC.[12] For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents
were compelled to litigate, we sustain the award of P50,000 in favor of private
respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the
award of damages. The award of moral and exemplary damages in favor of private
respondents is DELETED, but the award to them of attorneys fees in the amount of
P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private respondents
P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.

On the second issue, petitioner claims that it should not be held liable for moral and
exemplary damages for it did not act maliciously when it initiated the foreclosure
proceedings. It merely exercised its right under the mortgage contract because
private respondents were irregular in their monthly amortization. It invoked our ruling
in Social Security System vs. Court of Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by
the Court of Appeals the negligence of the appellant is not so gross as to warrant
moral and temperate damages, except that, said Court reduced those damages by
only P5,000.00 instead of eliminating them. Neither can we agree with the findings of
both the Trial Court and respondent Court that the SSS had acted maliciously or in
bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its
right under the mortgage contract in the face of irregular payments made by private
respondents and placed reliance on the automatic acceleration clause in the contract.
The filing alone of the foreclosure application should not be a ground for an award of
moral damages in the same way that a clearly unfounded civil action is not among the
grounds for moral damages.

Private respondents counter that BPIIC was guilty of bad faith and should be liable for
said damages because it insisted on the payment of amortization on the loan even
before it was released. Further, it did not make the corresponding deduction in the
monthly amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private respondents failed to
make timely payment.

But as admitted by private respondents themselves, they were irregular in their

payment of monthly amortization. Conformably with our ruling in SSS, we can not
G.R. No. 174269 August 25, 2010
POLO S. PANTALEON
vs.
AMERICAN EXPRESS INTERNATIONAL, INC.,
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration filed by respondent American Express
International, Inc. (AMEX) dated June 8, 2009,[1] seeking to reverse our Decision
dated May 8, 2009 where we ruled that AMEX was guilty of culpable delay in fulfilling
its obligation to its cardholder petitioner Polo Pantaleon. Based on this conclusion, we
held AMEX liable for moral and exemplary damages, as well as attorneys fees and
costs of litigation.[2]
FACTUAL ANTECEDENTS
The established antecedents of the case are narrated below.
AMEX is a resident foreign corporation engaged in the business of providing credit
services through the operation of a charge card system. Pantaleon has been an
AMEX cardholder since 1980.[3]
In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina),
and son (Adrian Roberto), went on a guided European tour. On October 25, 1991, the
tour group arrived in Amsterdam. Due to their late arrival, they postponed the tour of
the city for the following day.[4]
The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the
Coster Diamond House (Coster). To have enough time for take a guided city tour of
Amsterdam before their departure scheduled on that day, the tour group planned to
leave Coster by 9:30 a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a
total of US$13,826.00. Pantaleon presented his American Express credit card to the
sales clerk to pay for this purchase. He did this at around 9:15 a.m. The sales clerk
swiped the credit card and asked Pantaleon to sign the charge slip, which was then
electronically referred to AMEXs Amsterdam office at 9:20 a.m.[5]
At around 9:40 a.m., Coster had not received approval from AMEX for the purchase
so Pantaleon asked the store clerk to cancel the sale. The store manager, however,
convinced Pantaleon to wait a few more minutes. Subsequently, the store manager
informed Pantaleon that AMEX was asking for bank references; Pantaleon responded
by giving the names of his Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX
still had not approved the purchase. Since the city tour could not begin until the
Pantaleons were onboard the tour bus, Coster decided to release at around 10:05
a.m. the purchased items to Pantaleon even without AMEXs approval.
When the Pantaleons finally returned to the tour bus, they found their travel
companions visibly irritated. This irritation intensified when the tour guide announced
that they would have to cancel the tour because of lack of time as they all had to be in
Calais, Belgium by 3 p.m. to catch the ferry to London.[6]
From the records, it appears that after Pantaleons purchase was transmitted for
approval to AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXs Manila
office at 9:33 a.m.; and was approved by the Manila office at 10:19 a.m. At 10:38
a.m., AMEXs Manila office finally transmitted the Approval Code to AMEXs
Amsterdam office. In all, it took AMEX a total of 78 minutes to approve Pantaleons
purchase and to transmit the approval to the jewelry store.[7]
After the trip to Europe, the Pantaleon family proceeded to the United States. Again,
Pantaleon experienced delay in securing approval for purchases using his American
Express credit card on two separate occasions. He experienced the first delay when
he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard
Metz Golf Studio in New York on October 30, 1991. Another delay occurred when he
wanted to purchase childrens shoes worth US$87.00 at the Quiency Market in Boston
on November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the
humiliation and inconvenience he and his family experienced due to the delays in
obtaining approval for his credit card purchases. AMEX responded by explaining that
the delay in Amsterdam was due to the amount involved the charged purchase of
US$13,826.00 deviated from Pantaleons established charge purchase pattern.
Dissatisfied with this explanation, Pantaleon filed an action for damages against the
credit card company with the Makati City Regional Trial Court (RTC).
On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon
P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00
as attorneys fees, and P85,233.01 as litigation expenses.
On appeal, the CA reversed the awards.[8] While the CA recognized that delay in the
nature of mora accipiendi or creditors default attended AMEXs approval of
Pantaleons purchases, it disagreed with the RTCs finding that AMEX had breached
its contract, noting that the delay was not attended by bad faith, malice or gross
negligence. The appellate court found that AMEX exercised diligent efforts to effect
the approval of Pantaleons purchases; the purchase at Coster posed particularly a
problem because it was at variance with Pantaleons established charge pattern. As
there was no proof that AMEX breached its contract, or that it acted in a wanton,
fraudulent or malevolent manner, the appellate court ruled that AMEX could not be
held liable for any form of damages.
Pantaleon questioned this decision via a petition for review on certiorari with this
Court.
In our May 8, 2009 decision, we reversed the appellate courts decision and held that
AMEX was guilty of mora solvendi, or debtors default. AMEX, as debtor, had an
obligation as the credit provider to act on Pantaleons purchase requests, whether to
approve or disapprove them, with timely dispatch. Based on the evidence on record,
we found that AMEX failed to timely act on Pantaleons purchases.
Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval
time for credit card charges would be three to four seconds under regular
circumstances. In Pantaleons case, it took AMEX 78 minutes to approve the
Amsterdam purchase. We attributed this delay to AMEXs Manila credit authorizer,
Edgardo Jaurique, who had to go over Pantaleons past credit history, his payment
record and his credit and bank references before he approved the purchase. Finding
this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon
moral and exemplary damages, as well as attorneys fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues that this Court erred when it found
AMEX guilty of culpable delay in complying with its obligation to act with timely
dispatch on Pantaleons purchases. While AMEX admits that it normally takes
seconds to approve charge purchases, it emphasizes that Pantaleon experienced
delay in Amsterdam because his transaction was not a normal one. To recall,
Pantaleon sought to charge in a single transaction jewelry items purchased from
Coster in the total amount of US$13,826.00 or P383,746.16. While the total amount of
Pantaleons previous purchases using his AMEX credit card did exceed
US$13,826.00, AMEX points out that these purchases were made in a span of more
than 10 years, not in a single transaction.
Because this was the biggest single transaction that Pantaleon ever made using his
AMEX credit card, AMEX argues that the transaction necessarily required the credit
authorizer to carefully review Pantaleons credit history and bank references. AMEX
maintains that it did this not only to ensure Pantaleons protection (to minimize the
possibility that a third party was fraudulently using his credit card), but also to protect
itself from the risk that Pantaleon might not be able to pay for his purchases on credit.
This careful review, according to AMEX, is also in keeping with the extraordinary
degree of diligence required of banks in handling its transactions. AMEX concluded
that in these lights, the thorough review of Pantaleons credit record was motivated by
legitimate concerns and could not be evidence of any ill will, fraud, or negligence by
AMEX.
AMEX further points out that the proximate cause of Pantaleons humiliation and
embarrassment was his own decision to proceed with the purchase despite his
awareness that the tour group was waiting for him and his wife. Pantaleon could have
prevented the humiliation had he cancelled the sale when he noticed that the credit
approval for the Coster purchase was unusually delayed.
In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty
of mora solvendi, or delay on the part of the debtor, in complying with its obligation to
him. Based on jurisprudence, a just cause for delay does not relieve the debtor in
delay from the consequences of delay; thus, even if AMEX had a justifiable reason for
the delay, this reason would not relieve it from the liability arising from its failure to
timely act on Pantaleons purchase.
In response to AMEXs assertion that the delay was in keeping with its duty to
perform its obligation with extraordinary diligence, Pantaleon claims that this duty
includes the timely or prompt performance of its obligation.
As to AMEXs contention that moral or exemplary damages cannot be awarded
absent a finding of malice, Pantaleon argues that evil motive or design is not always
necessary to support a finding of bad faith; gross negligence or wanton disregard of
contractual obligations is sufficient basis for the award of moral and exemplary
damages.
OUR RULING
We GRANT the motion for reconsideration.
Brief historical background
A credit card is defined as any card, plate, coupon book, or other credit device
existing for the purpose of obtaining money, goods, property, labor or services or
anything of value on credit.[9] It traces its roots to the charge card first introduced by
the Diners Club in New York City in 1950.[10] American Express followed suit by
introducing its own charge card to the American market in 1958.[11]
In the Philippines, the now defunct Pacific Bank was responsible for bringing the first
credit card into the country in the 1970s.[12] However, it was only in the early 2000s
that credit card use gained wide acceptance in the country, as evidenced by the
surge in the number of credit card holders then.[13]
Nature of Credit Card Transactions
To better understand the dynamics involved in credit card transactions, we turn to the
United States case of Harris Trust & Savings Bank v. McCray[14] which explains:
The bank credit card system involves a tripartite relationship between the issuer bank,
the cardholder, and merchants participating in the system. The issuer bank
establishes an account on behalf of the person to whom the card is issued, and the
two parties enter into an agreement which governs their relationship. This agreement
provides that the bank will pay for cardholders account the amount of merchandise or
services purchased through the use of the credit card and will also make cash loans
available to the cardholder. It also states that the cardholder shall be liable to the
bank for advances and payments made by the bank and that the cardholders
obligation to pay the bank shall not be affected or impaired by any dispute, claim, or
demand by the cardholder with respect to any merchandise or service purchased.
The merchants participating in the system agree to honor the banks credit cards. The
bank irrevocably agrees to honor and pay the sales slips presented by the merchant if
the merchant performs his undertakings such as checking the list of revoked cards
before accepting the card. x x x.
These slips are forwarded to the member bank which originally issued the card. The
cardholder receives a statement from the bank periodically and may then decide
whether to make payment to the bank in full within a specified period, free of interest,
or to defer payment and ultimately incur an interest charge.
We adopted a similar view in CIR v. American Express International, Inc. (Philippine
branch),[15] where we also recognized that credit card issuers are not limited to
banks. We said:
Under RA 8484, the credit card that is issued by banks in general, or by non-banks in
particular, refers to any card x x x or other credit device existing for the purpose of
obtaining x x x goods x x x or services x x x on credit; and is being used usually on a
revolving basis. This means that the consumer-credit arrangement that exists
between the issuer and the holder of the credit card enables the latter to procure
goods or services on a continuing basis as long as the outstanding balance does not
exceed a specified limit. The card holder is, therefore, given the power to obtain
present control of goods or service on a promise to pay for them in the future.
Business establishments may extend credit sales through the use of the credit card
facilities of a non-bank credit card company to avoid the risk of uncollectible accounts
from their customers. Under this system, the establishments do not deposit in their
bank accounts the credit card drafts that arise from the credit sales. Instead, they
merely record their receivables from the credit card company and periodically send
the drafts evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these business
establishments, but it does not redeem the drafts at full price. The agreement
between them usually provides for discounts to be taken by the company upon its
redemption of the drafts. At the end of each month, it then bills its credit card holders
for their respective drafts redeemed during the previous month. If the holders fail to
pay the amounts owed, the company sustains the loss.
Simply put, every credit card transaction involves three contracts, namely: (a) the
sales contract between the credit card holder and the merchant or the business
establishment which accepted the credit card; (b) the loan agreement between the
credit card issuer and the credit card holder; and lastly, (c) the promise to pay
between the credit card issuer and the merchant or business establishment.[16]
Credit card issuer cardholder relationship
When a credit card company gives the holder the privilege of charging items at
establishments associated with the issuer,[17] a necessary question in a legal
analysis is when does this relationship begin? There are two diverging views on the
matter. In City Stores Co. v. Henderson,[18] another U.S. decision, held that:
The issuance of a credit card is but an offer to extend a line of open account credit. It
is unilateral and supported by no consideration. The offer may be withdrawn at any
time, without prior notice, for any reason or, indeed, for no reason at all, and its
withdrawal breaches no duty for there is no duty to continue it and violates no rights.
Thus, under this view, each credit card transaction is considered a separate offer and
acceptance.
Novack v. Cities Service Oil Co.[19] echoed this view, with the court ruling that the
mere issuance of a credit card did not create a contractual relationship with the
cardholder.
On the other end of the spectrum is Gray v. American Express Company[20] which
recognized the card membership agreement itself as a binding contract between the
credit card issuer and the card holder. Unlike in the Novack and the City Stores
cases, however, the cardholder in Gray paid an annual fee for the privilege of being
an American Express cardholder.
In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship
between the credit card issuer and the credit card holder as a contractual one that is
governed by the terms and conditions found in the card membership agreement.[21]
This contract provides the rights and liabilities of a credit card company to its
cardholders and vice versa.
We note that a card membership agreement is a contract of adhesion as its terms are
prepared solely by the credit card issuer, with the cardholder merely affixing his
signature signifying his adhesion to these terms.[22] This circumstance, however,
does not render the agreement void; we have uniformly held that contracts of
adhesion are as binding as ordinary contracts, the reason being that the party who
adheres to the contract is free to reject it entirely.[23] The only effect is that the terms
of the contract are construed strictly against the party who drafted it.[24]
On AMEXs obligations to Pantaleon
We begin by identifying the two privileges that Pantaleon assumes he is entitled to
with the issuance of his AMEX credit card, and on which he anchors his claims. First,
Pantaleon presumes that since his credit card has no pre-set spending limit, AMEX
has the obligation to approve all his charge requests. Conversely, even if AMEX has
no such obligation, at the very least it is obliged to act on his charge requests within a
specific period of time.
i. Use of credit card a mere offer to enter into loan agreements
Although we recognize the existence of a relationship between the credit card issuer
and the credit card holder upon the acceptance by the cardholder of the terms of the
card membership agreement (customarily signified by the act of the cardholder in
signing the back of the credit card), we have to distinguish this contractual
relationship from the creditor-debtor relationship which only arises after the credit
card issuer has approved the cardholders purchase request. The first relates merely
to an agreement providing for credit facility to the cardholder. The latter involves the
actual credit on loan agreement involving three contracts, namely: the sales contract
between the credit card holder and the merchant or the business establishment which
accepted the credit card; the loan agreement between the credit card issuer and the
credit card holder; and the promise to pay between the credit card issuer and the
merchant or business establishment.
From the loan agreement perspective, the contractual relationship begins to exist only
upon the meeting of the offer[25] and acceptance of the parties involved. In more
concrete terms, when cardholders use their credit cards to pay for their purchases,
they merely offer to enter into loan agreements with the credit card company. Only
after the latter approves the purchase requests that the parties enter into binding loan
contracts, in keeping with Article 1319 of the Civil Code, which provides:
Article 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-
offer.
This view finds support in the reservation found in the card membership agreement
itself, particularly paragraph 10, which clearly states that AMEX reserve[s] the right to
deny authorization for any requested Charge. By so providing, AMEX made its
position clear that it has no obligation to approve any and all charge requests made
by its card holders.
ii. AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the purchase requests of its credit
cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article
1169 of the Civil Code, which provides the requisites to hold a debtor guilty of
culpable delay, states:
Article 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. x x x.
The three requisites for a finding of default are: (a) that the obligation is demandable
and liquidated; (b) the debtor delays performance; and (c) the creditor judicially or
extrajudicially requires the debtors performance.[26]
Based on the above, the first requisite is no longer met because AMEX, by the
express terms of the credit card agreement, is not obligated to approve Pantaleons
purchase request. Without a demandable obligation, there can be no finding of
default.
Apart from the lack of any demandable obligation, we also find that Pantaleon failed
to make the demand required by Article 1169 of the Civil Code.
As previously established, the use of a credit card to pay for a purchase is only an
offer to the credit card company to enter a loan agreement with the credit card holder.
Before the credit card issuer accepts this offer, no obligation relating to the loan
agreement exists between them. On the other hand, a demand is defined as the
assertion of a legal right; xxx an asking with authority, claiming or challenging as due.
[27] A demand presupposes the existence of an obligation between the parties.
Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases,
what the stores transmitted to AMEX were his offers to execute loan contracts. These
obviously could not be classified as the demand required by law to make the debtor in
default, given that no obligation could arise on the part of AMEX until after AMEX
transmitted its acceptance of Pantaleons offers. Pantaleons act of insisting on and
waiting for the charge purchases to be approved by AMEX[28] is not the demand
contemplated by Article 1169 of the Civil Code.
For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX
is guilty of culpable delay in approving his purchase requests must fail.
iii. On AMEXs obligation to act on the offer within a specific period of time
Even assuming that AMEX had the right to review his credit card history before it
approved his purchase requests, Pantaleon insists that AMEX had an obligation to
act on his purchase requests, either to approve or deny, in a matter of seconds or in
timely dispatch. Pantaleon impresses upon us the existence of this obligation by
emphasizing two points: (a) his card has no pre-set spending limit; and (b) in his
twelve years of using his AMEX card, AMEX had always approved his charges in a
matter of seconds.
Pantaleons assertions fail to convince us.
We originally held that AMEX was in culpable delay when it acted on the Coster
transaction, as well as the two other transactions in the United States which took
AMEX approximately 15 to 20 minutes to approve. This conclusion appears valid and
reasonable at first glance, comparing the time it took to finally get the Coster
purchase approved (a total of 78 minutes), to AMEXs normal approval time of three to
four seconds (based on the testimony of Edgardo Jaurigue, as well as Pantaleons
previous experience). We come to a different result, however, after a closer look at
the factual and legal circumstances of the case.
AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set
spending limit in a credit card simply means that the charges made by the cardholder
are approved based on his ability to pay, as demonstrated by his past spending,
payment patterns, and personal resources.[29] Nevertheless, every time Pantaleon
charges a purchase on his credit card, the credit card company still has to determine
whether it will allow this charge, based on his past credit history. This right to review a
card holders credit history, although not specifically set out in the card membership
agreement, is a necessary implication of AMEXs right to deny authorization for any
requested charge.
As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years,
AMEX has always approved his charge requests in three or four seconds), this record
does not establish that Pantaleon had a legally enforceable obligation to expect
AMEX to act on his charge requests within a matter of seconds. For one, Pantaleon
failed to present any evidence to support his assertion that AMEX acted on purchase
requests in a matter of three or four seconds as an established practice. More
importantly, even if Pantaleon did prove that AMEX, as a matter of practice or
custom, acted on its customers purchase requests in a matter of seconds, this would
still not be enough to establish a legally demandable right; as a general rule, a
practice or custom is not a source of a legally demandable or enforceable right.[30]
We next examine the credit card membership agreement, the contract that primarily
governs the relationship between AMEX and Pantaleon. Significantly, there is no
provision in this agreement that obligates AMEX to act on all cardholder purchase
requests within a specifically defined period of time. Thus, regardless of whether the
obligation is worded was to act in a matter of seconds or to act in timely dispatch, the
fact remains that no obligation exists on the part of AMEX to act within a specific
period of time. Even Pantaleon admits in his testimony that he could not recall any
provision in the Agreement that guaranteed AMEXs approval of his charge requests
within a matter of minutes.[31]
Nor can Pantaleon look to the law or government issuances as the source of AMEXs
alleged obligation to act upon his credit card purchases within a matter of seconds.
As the following survey of Philippine law on credit card transactions demonstrates,
the State does not require credit card companies to act upon its cardholders purchase
requests within a specific period of time.
Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998,
approved on February 11, 1998, is the controlling legislation
that regulates the issuance and use of access devices,[32] including credit cards. The
more salient portions of this law include the imposition of the obligation on a credit
card company to disclose certain important financial information[33] to credit card
applicants, as well as a definition of the acts that constitute access device fraud.
As financial institutions engaged in the business of providing credit, credit card
companies fall under the supervisory powers of the Bangko Sentral ng Pilipinas
(BSP).[34] BSP Circular No. 398 dated August 21, 2003 embodies the BSPs policy
when it comes to credit cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer
credit through innovative products such as credit cards under conditions of fair and
sound consumer credit practices. The BSP likewise encourages competition and
transparency to ensure more efficient delivery of services and fair dealings with
customers. (Emphasis supplied)
Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their
subsidiary credit card companies must exercise proper diligence by ascertaining that
applicants possess good credit standing and are financially capable of fulfilling their
credit commitments.[35] As the above-quoted policy expressly states, the general
intent is to foster fair and sound consumer credit practices.
Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued
on September 24, 2004, but this circular merely enumerates the unfair collection
practices of credit card companies a matter not relevant to the issue at hand.
In light of the foregoing, we find and so hold that AMEX is neither contractually bound
nor legally obligated to act on its cardholders purchase requests within any specific
period of time, much less a period of a matter of seconds that Pantaleon uses as his
standard. The standard therefore is implicit and, as in all contracts, must be based on
fairness and reasonableness, read in relation to the Civil Code provisions on human
relations, as will be discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a) AMEX had neither a contractual nor a
legal obligation to act upon Pantaleons purchases within a specific period of time; and
(b) AMEX has a right to review a cardholders credit card history. Our recognition of
these entitlements, however, does not give AMEX an unlimited right to put off action
on cardholders purchase requests for indefinite periods of time. In acting on
cardholders purchase requests, AMEX must take care not to abuse its rights and
cause injury to its clients and/or third persons. We cite in this regard Article 19, in
conjunction with Article 21, of the Civil Code, which provide:
Article 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due and observe honesty and good
faith.
Article 21. Any person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
Article 19 pervades the entire legal system and ensures that a person suffering
damage in the course of anothers exercise of right or performance of duty, should find
himself without relief.[36] It sets the standard for the conduct of all persons, whether
artificial or natural, and requires that everyone, in the exercise of rights and the
performance of obligations, must: (a) act with justice, (b) give everyone his due, and
(c) observe honesty and good faith. It is not because a person invokes his rights that
he can do anything, even to the prejudice and disadvantage of another.[37]
While Article 19 enumerates the standards of conduct, Article 21 provides the remedy
for the person injured by the willful act, an action for damages. We explained how
these two provisions correlate with each other in GF Equity, Inc. v. Valenzona:[38]
[Article 19], known to contain what is commonly referred to as the principle of abuse
of rights, sets certain standards which must be observed not only in the exercise of
one's rights but also in the performance of one's duties. These standards are the
following: to act with justice; to give everyone his due; and to observe honesty and
good faith. The law, therefore, recognizes a primordial limitation on all rights; that in
their exercise, the norms of human conduct set forth in Article 19 must be observed.
A right, though by itself legal because recognized or granted by law as such, may
nevertheless become the source of some illegality. When a right is exercised in a
manner which does not conform with the norms enshrined in Article 19 and results in
damage to another, a legal wrong is thereby committed for which the wrongdoer must
be held responsible. But while Article 19 lays down a rule of conduct for the
government of human relations and for the maintenance of social order, it does not
provide a remedy for its violation. Generally, an action for damages under either
Article 20 or Article 21 would be proper.
In the context of a credit card relationship, although there is neither a contractual
stipulation nor a specific law requiring the credit card issuer to act on the credit card
holders offer within a definite period of time, these principles provide the standard by
which to judge AMEXs actions.
According to Pantaleon, even if AMEX did have a right to review his charge
purchases, it abused this right when it unreasonably delayed the processing of the
Coster charge purchase, as well as his purchase requests at the Richard Metz Golf
Studio and Kids Unlimited Store; AMEX should have known that its failure to act
immediately on charge referrals would entail inconvenience and result in humiliation,
embarrassment, anxiety and distress to its cardholders who would be required to wait
before closing their transactions.[39]
It is an elementary rule in our jurisdiction that good faith is presumed and that the
burden of proving bad faith rests upon the party alleging it.[40] Although it took AMEX
some time before it approved Pantaleons three charge requests, we find no evidence
to suggest that it acted with deliberate intent to cause Pantaleon any loss or injury, or
acted in a manner that was contrary to morals, good customs or public policy. We
give credence to AMEXs claim that its review procedure was done to ensure
Pantaleons own protection as a cardholder and to prevent the possibility that the
credit card was being fraudulently used by a third person.
Pantaleon countered that this review procedure is primarily intended to protect
AMEXs interests, to make sure that the cardholder making the purchase has enough
means to pay for the credit extended. Even if this were the case, however, we do not
find any taint of bad faith in such motive. It is but natural for AMEX to want to ensure
that it will extend credit only to people who will have sufficient means to pay for their
purchases. AMEX, after all, is running a business, not a charity, and it would simply
be ludicrous to suggest that it would not want to earn profit for its services. Thus, so
long as AMEX exercises its rights, performs its obligations, and generally acts with
good faith, with no intent to cause harm, even if it may occasionally inconvenience
others, it cannot be held liable for damages.
We also cannot turn a blind eye to the circumstances surrounding the Coster
transaction which, in our opinion, justified the wait. In Edgardo Jaurigues own words:
Q 21: With reference to the transaction at the Coster Diamond House covered by
Exhibit H, also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the
request was relayed at 1:33 a.m., can you explain why the approval came after about
46 minutes, more or less?
A21: Because we have to make certain considerations and evaluations of
[Pantaleons] past spending pattern with [AMEX] at that time before approving
plaintiffs request because [Pantaleon] was at that time making his very first single
charge purchase of US$13,826 [this is below the US$16,112.58 actually billed and
paid for by the plaintiff because the difference was already automatically approved by
[AMEX] office in Netherland[s] and the record of [Pantaleons] past spending with
[AMEX] at that time does not favorably support his ability to pay for such purchase. In
fact, if the foregoing internal policy of [AMEX] had been strictly followed, the
transaction would not have been approved at all considering that the past spending
pattern of the plaintiff with [AMEX] at that time does not support his ability to pay for
such purchase.[41]
xxxx
Q: Why did it take so long?
A: It took time to review the account on credit, so, if there is any delinquencies [sic] of
the cardmember. There are factors on deciding the charge itself which are standard
measures in approving the authorization. Now in the case of Mr. Pantaleon although
his account is single charge purchase of US$13,826. [sic] this is below the
US$16,000. plus actually billed x x x we would have already declined the charge
outright and asked him his bank account to support his charge. But due to the length
of his membership as cardholder we had to make a decision on hand.[42]
As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs
approval was because he had to go over Pantaleons credit card history for the past
twelve months.[43] It would certainly be unjust for us to penalize AMEX for merely
exercising its right to review Pantaleons credit history meticulously.
Finally, we said in Garciano v. Court of Appeals that the right to recover [moral
damages] under Article 21 is based on equity, and he who comes to court to demand
equity, must come with clean hands. Article 21 should be construed as granting the
right to recover damages to injured persons who are not themselves at fault.[44] As
will be discussed below, Pantaleon is not a blameless party in all this.
Pantaleons action was the proximate cause for his injury
Pantaleon mainly anchors his claim for moral and exemplary damages on the
embarrassment and humiliation that he felt when the European tour group had to wait
for him and his wife for approximately 35 minutes, and eventually had to cancel the
Amsterdam city tour. After thoroughly reviewing the records of this case, we have
come to the conclusion that Pantaleon is the proximate cause for this embarrassment
and humiliation.
As borne by the records, Pantaleon knew even before entering Coster that the tour
group would have to leave the store by 9:30 a.m. to have enough time to take the city
tour of Amsterdam before they left the country. After 9:30 a.m., Pantaleons son, who
had boarded the bus ahead of his family, returned to the store to inform his family that
they were the only ones not on the bus and that the entire tour group was waiting for
them. Significantly, Pantaleon tried to cancel the sale at 9:40 a.m. because he did not
want to cause any inconvenience to the tour group. However, when Costers sale
manager asked him to wait a few more minutes for the credit card approval, he
agreed, despite the knowledge that he had already caused a 10-minute delay and
that the city tour could not start without him.
In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who knowingly
and voluntarily exposes himself to danger cannot claim damages for the resulting
injury:
The doctrine of volenti non fit injuria (to which a person assents is not esteemed in
law as injury) refers to self-inflicted injury or to the consent to injury which precludes
the recovery of damages by one who has knowingly and voluntarily exposed himself
to danger, even if he is not negligent in doing so.
This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified
that the most basic rule when travelling in a tour group is that you must never be a
cause of any delay because the schedule is very strict.[46] When Pantaleon made up
his mind to push through with his purchase, he must have known that the group
would become annoyed and irritated with him. This was the natural, foreseeable
consequence of his decision to make them all wait.
We do not discount the fact that Pantaleon and his family did feel humiliated and
embarrassed when they had to wait for AMEX to approve the Coster purchase in
Amsterdam. We have to acknowledge, however, that Pantaleon was not a helpless
victim in this scenario at any time, he could have cancelled the sale so that the group
could go on with the city tour. But he did not.
malicious intent was ever established here. In the absence of any other damages, the
award of exemplary damages clearly lacks legal basis.
Neither do we find any basis for the award of attorneys fees and costs of litigation. No
premium should be placed on the right to litigate and not every winning party is
entitled to an automatic grant of attorney's fees.[51] To be entitled to attorneys fees
and litigation costs, a party must show that he falls under one of the instances
enumerated in Article 2208 of the Civil Code.[52] This, Pantaleon failed to do. Since
we eliminated the award of moral and exemplary damages, so must we delete the
award for attorney's fees and litigation expenses.
Lastly, although we affirm the result of the CA decision, we do so for the reasons
stated in this Resolution and not for those found in the CA decision.

More importantly, AMEX did not violate any legal duty to Pantaleon under the WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and
circumstances under the principle of damnum absque injuria, or damages without GRANT the present motion for reconsideration. The Court of Appeals Decision dated
legal wrong, loss without injury.[47] As we held in BPI Express Card v. CA:[48] August 18, 2006 is hereby AFFIRMED. No costs.

We do not dispute the findings of the lower court that private respondent suffered SO ORDERED.
damages as a result of the cancellation of his credit card. However, there is a material
distinction between damages and injury. Injury is the illegal invasion of a legal right;
damage is the loss, hurt, or harm which results from the injury; and damages are the
recompense or compensation awarded for the damage suffered. Thus, there can be
damage without injury in those instances in which the loss or harm was not the result
of a violation of a legal duty. In such cases, the consequences must be borne by the
injured person alone, the law affords no remedy for damages resulting from an act
which does not amount to a legal injury or wrong. These situations are often called
damnum absque injuria.

In other words, in order that a plaintiff may maintain an action for the injuries of which
he complains, he must establish that such injuries resulted from a breach of duty
which the defendant owed to the plaintiff - a concurrence of injury to the plaintiff and
legal responsibility by the person causing it. The underlying basis for the award of tort
damages is the premise that an individual was injured in contemplation of law. Thus,
there must first be a breach of some duty and the imposition of liability for that breach
before damages may be awarded; and the breach of such duty should be the
proximate cause of the injury.

Pantaleon is not entitled to damages

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

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

damages can only be awarded if a defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.[49] The plaintiff must also show that he is entitled
to moral, temperate, or compensatory damages before the court may consider the
question of whether or not exemplary damages should be awarded.[50]

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

requests because it had legitimate concerns on the amount being charged; no
G.R. No. 115324. February 19, 2003
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK),
petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals
dated June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution[2] dated May 5,
1994, denying the motion for reconsideration of said decision filed by petitioner
Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and
friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and Services (Sterela for brevity).
Specifically, Sanchez asked private respondent to deposit in a bank a certain amount
of money in the bank account of Sterela for purposes of its incorporation. She
assured private respondent that he could withdraw his money from said account
within a months time. Private respondent asked Sanchez to bring Doronilla to their
house so that they could discuss Sanchezs request.[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella
Dumagpi, Doronillas private secretary, met and discussed the matter. Thereafter,
relying on the assurances and representations of Sanchez and Doronilla, private
respondent issued a check in the amount of Two Hundred Thousand Pesos
(P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account
in the name of Sterela in the Buendia, Makati branch of Producers Bank of the
Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to
deposit the check. They had with them an authorization letter from Doronilla
authorizing Sanchez and her companions, in coordination with Mr. Rufo Atienza, to
open an account for Sterela Marketing Services in the amount of P200,000.00. In
opening the account, the authorized signatories were Inocencia Vives and/or Angeles
Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs.
Vives.[4]
Subsequently, private respondent learned that Sterela was no longer holding office in
the address previously given to him. Alarmed, he and his wife went to the Bank to
verify if their money was still intact. The bank manager referred them to Mr. Rufo
Atienza, the assistant manager, who informed them that part of the money in Savings
Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00
remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by
Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings
Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and
authorized the Bank to debit Savings Account No. 10-1567 for the amounts
necessary to cover overdrawings in Current Account No. 10-0320. In opening said
current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the
Bank. To cover payment thereof, Doronilla issued three postdated checks, all of
which were dishonored. Atienza also said that Doronilla could assign or withdraw the
money in Savings Account No. 10-1567 because he was the sole proprietor of
Sterela.[5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29,
1979, he received a letter from Doronilla, assuring him that his money was intact and
would be returned to him. On August 13, 1979, Doronilla issued a postdated check for
Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private respondent.
However, upon presentment thereof by private respondent to the drawee bank, the
check was dishonored. Doronilla requested private respondent to present the same
check on September 15, 1979 but when the latter presented the check, it was again
dishonored.[6]
Private respondent referred the matter to a lawyer, who made a written demand upon
Doronilla for the return of his clients money. Doronilla issued another check for
P212,000.00 in private respondents favor but the check was again dishonored for
insufficiency of funds.[7]
Private respondent instituted an action for recovery of sum of money in the Regional
Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and
petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal
actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez
passed away on March 16, 1985 while the case was pending before the trial court.
On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil
Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants
Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay
plaintiff Franklin Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the
legal rate from the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary
damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.[8]
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision
dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC.[9] It
likewise denied with finality petitioners motion for reconsideration in its Resolution
dated May 5, 1994.[10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE
TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT
VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE
OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE
HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE
RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT
APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE
BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE
CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING
THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS
APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION
OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND
SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF
P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00
FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00
FOR ATTORNEYS FEES AND THE COSTS OF SUIT.[11]
Private respondent filed his Comment on September 23, 1994. Petitioner filed its
Reply thereto on September 25, 1995. The Court then required private respondent to
submit a rejoinder to the reply. However, said rejoinder was filed only on April 21,
1997, due to petitioners delay in furnishing private respondent with copy of the
reply[12] and several substitutions of counsel on the part of private respondent.[13]
On January 17, 2001, the Court resolved to give due course to the petition and
required the parties to submit their respective memoranda.[14] Petitioner filed its
memorandum on April 16, 2001 while private respondent submitted his memorandum
on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a
simple loan (mutuum) since all the elements of a mutuum are present: first, what was
delivered by private respondent to Doronilla was money, a consumable thing; and
second, the transaction was onerous as Doronilla was obliged to pay interest, as
evidenced by the check issued by Doronilla in the amount of P212,000.00, or
P12,000 more than what private respondent deposited in Sterelas bank account.[15]
Moreover, the fact that private respondent sued his good friend Sanchez for his
failure to recover his money from Doronilla shows that the transaction was not merely
gratuitous but had a business angle to it. Hence, petitioner argues that it cannot be
held liable for the return of private respondents P200,000.00 because it is not privy to
the transaction between the latter and Doronilla.[16]
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be
faulted for allowing Doronilla to withdraw from the savings account of Sterela since
the latter was the sole proprietor of said company. Petitioner asserts that Doronillas
May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to
open a savings account for Sterela, did not contain any authorization for these two to
withdraw from said account. Hence, the authority to withdraw therefrom remained
exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had
legal title to the savings account.[17] Petitioner points out that no evidence other than
the testimonies of private respondent and Mrs. Vives was presented during trial to
prove that private respondent deposited his P200,000.00 in Sterelas account for
purposes of its incorporation.[18] Hence, petitioner should not be held liable for
allowing Doronilla to withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts
decision since the findings of fact therein were not accord with the evidence
presented by petitioner during trial to prove that the transaction between private
respondent and Doronilla was a mutuum, and that it committed no wrong in allowing
Doronilla to withdraw from Sterelas savings account.[19]
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is
not liable for the actual damages suffered by private respondent, and neither may it
be held liable for moral and exemplary damages as well as attorneys fees.[20]
Private respondent, on the other hand, argues that the transaction between him and
Doronilla is not a mutuum but an accommodation,[21] since he did not actually part
with the ownership of his P200,000.00 and in fact asked his wife to deposit said
amount in the account of Sterela so that a certification can be issued to the effect that
Sterela had sufficient funds for purposes of its incorporation but at the same time, he
retained some degree of control over his money through his wife who was made a
signatory to the savings account and in whose possession the savings account
passbook was given.[22]
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas
employer, is liable for the return of his money. He insists that Atienza, petitioners
assistant manager, connived with Doronilla in defrauding private respondent since it
was Atienza who facilitated the opening of Sterelas current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for said company,
as well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.[23]
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a
petition for review filed with this Court. The Court has repeatedly held that it is not its
function to analyze and weigh all over again the evidence presented by the parties
during trial.[24] The Courts jurisdiction is in principle limited to reviewing errors of law
that might have been committed by the Court of Appeals.[25] Moreover, factual
findings of courts, when adopted and confirmed by the Court of Appeals, are final and
conclusive on this Court unless these findings are not supported by the evidence on
record.[26] There is no showing of any misapprehension of facts on the part of the
Court of Appeals in the case at bar that would require this Court to review and
overturn the factual findings of that court, especially since the conclusions of fact of
the Court of Appeals and the trial court are not only consistent but are also amply
supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction
between private respondent and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them
was a commodatum. Article 1933 of the Civil Code distinguishes between the two
kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in
which case the contract is called a commodatum; or money or other consumable
thing, upon the condition that the same amount of the same kind and quality shall be
paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there
are some instances where a commodatum may have for its object a consumable
thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract
is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not a
mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract.[27] In case of doubt,
the contemporaneous and subsequent acts of the parties shall be considered in such
determination.[28]
As correctly pointed out by both the Court of Appeals and the trial court, the evidence
shows that private respondent agreed to deposit his money in the savings account of
Sterela specifically for the purpose of making it appear that said firm had sufficient
capitalization for incorporation, with the promise that the amount shall be returned
within thirty (30) days.[29] Private respondent merely accommodated Doronilla by
lending his money without consideration, as a favor to his good friend Sanchez. It was
however clear to the parties to the transaction that the money would not be removed
from Sterelas savings account and would be returned to private respondent after
thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which
the latter deposited in Sterelas account together with an additional P12,000.00,
allegedly representing interest on the mutuum, did not convert the transaction from a
commodatum into a mutuum because such was not the intent of the parties and
because the additional P12,000.00 corresponds to the fruits of the lending of the
P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee in
commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only
proper for Doronilla to remit to private respondent the interest accruing to the latters
money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable
for the return of private respondents money because it was not privy to the
transaction between Doronilla and private respondent. The nature of said transaction,
that is, whether it is a mutuum or a commodatum, has no bearing on the question of
petitioners liability for the return of private respondents money because the factual
circumstances of the case clearly show that petitioner, through its employee Mr.
Atienza, was partly responsible for the loss of private respondents money and is liable
for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on
behalf of Sterela for Savings Account No. 10-1567 expressly states that
2. Deposits and withdrawals must be made by the depositor personally or upon his
written authority duly authenticated, and neither a deposit nor a withdrawal will be
permitted except upon the production of the depositor savings bank book in which will
be entered by the Bank the amount deposited or withdrawn.[30]
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the
Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom
even without presenting the passbook (which Atienza very well knew was in the
possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals
and the trial court found that Atienza allowed said withdrawals because he was party
to Doronillas scheme of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the knowledge,
help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati
(Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza
had not only facilitated the commission of the fraud but he likewise helped in devising
the means by which it can be done in such manner as to make it appear that the
transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely
because Atienza was a key officer therein. The records show that plaintiff had
suggested that the P200,000.00 be deposited in his bank, the Manila Banking
Corporation, but Doronilla and Dumagpi insisted that it must be in defendants branch
in Makati for it will be easier for them to get a certification. In fact before he was
introduced to plaintiff, Doronilla had already prepared a letter addressed to the
Buendia branch manager authorizing Angeles B. Sanchez and company to open a
savings account for Sterela in the amount of P200,000.00, as per coordination with
Mr. Rufo Atienza, Assistant Manager of the Bank x x x (Exh. 1). This is a clear
manifestation that the other defendants had been in consultation with Atienza from
the inception of the scheme. Significantly, there were testimonies and admission that
Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business
associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination
between Doronilla and Atienza, the latter knew before hand that the money deposited
did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was
explicitly told by Inocencia Vives that the money belonged to her and her husband
and the deposit was merely to accommodate Doronilla. Atienza even declared that
the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose
that the only ones empowered to withdraw the same were Inocencia Vives and
Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the
authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated
that it is the usual banking procedure that withdrawals of savings deposits could only
be made by persons whose authorized signatures are in the signature cards on file
with the bank. He, however, said that this procedure was not followed here because
Sterela was owned by Doronilla. He explained that Doronilla had the full authority to
withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza.
In the first place, he was all the time aware that the money came from Vives and did
not belong to Sterela. He was also told by Mrs. Vives that they were only
accommodating Doronilla so that a certification can be issued to the effect that
Sterela had a deposit of so much amount to be sued in the incorporation of the firm.
In the second place, the signature of Doronilla was not authorized in so far as that
account is concerned inasmuch as he had not signed the signature card provided by
the bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor
Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been
presented. It is an accepted practice that whenever a withdrawal is made in a savings
deposit, the bank requires the presentation of the passbook. In this case, such
recognized practice was dispensed with. The transfer from the savings account to the
current account was without the submission of the passbook which Atienza had given
to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela because the original
passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly
had a hand in the execution of this certification, was aware that the contents of the
same are not true. He knew that the passbook was in the hands of Mrs. Vives for he
was the one who gave it to her. Besides, as assistant manager of the branch and the
bank official servicing the savings and current accounts in question, he also was
aware that the original passbook was never surrendered. He was also cognizant that
Estrella Dumagpi was not among those authorized to withdraw so her certification
had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate
that Atienzas active participation in the perpetration of the fraud and deception that
caused the loss. The records indicate that this account was opened three days later
after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes
that Atienza was mindful and posted regarding the opening of the current account
considering that Doronilla was all the while in coordination with him. That it was he
who facilitated the approval of the authority to debit the savings account to cover any
overdrawings in the current account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of
this case. x x x.[31]
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily
liable for damages caused by their employees acting within the scope of their
assigned tasks. To hold the employer liable under this provision, it must be shown
that an employer-employee relationship exists, and that the employee was acting
within the scope of his assigned task when the act complained of was committed.[32]
Case law in the United States of America has it that a corporation that entrusts a
general duty to its employee is responsible to the injured party for damages flowing
from the employees wrongful act done in the course of his general authority, even
though in doing such act, the employee may have failed in its duty to the employer
and disobeyed the latters instructions.[33]
There is no dispute that Atienza was an employee of petitioner. Furthermore,
petitioner did not deny that Atienza was acting within the scope of his authority as
Assistant Branch Manager when he assisted Doronilla in withdrawing funds from
Sterelas Savings Account No. 10-1567, in which account private respondents money
was deposited, and in transferring the money withdrawn to Sterelas Current Account
with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were
obviously done in furtherance of petitioners interests[34] even though in the process,
Atienza violated some of petitioners rules such as those stipulated in its savings
account passbook.[35] It was established that the transfer of funds from Sterelas
savings account to its current account could not have been accomplished by Doronilla
without the invaluable assistance of Atienza, and that it was their connivance which
was the cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180
of the Civil Code, petitioner is liable for private respondents loss and is solidarily liable
with Doronilla and Dumagpi for the return of the P200,000.00 since it is clear that
petitioner failed to prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterelas savings account, and that it was not negligent in the
selection and supervision of Atienza. Accordingly, no error was committed by the
appellate court in the award of actual, moral and exemplary damages, attorneys fees
and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution
of the Court of Appeals are AFFIRMED.
SO ORDERED.
G.R. No. 146364. June 3, 2004
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA,
respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December
2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of
Appeals set aside the 11 November 1996 decision[3] of the Regional Trial Court of
Quezon City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the
Metropolitan Trial Court of Quezon City, Branch 31.[6]
The Antecedents
In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez
for the rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then
constructed a house made of light materials on the lot. Pajuyo and his family lived in
the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra)
executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed
Guevarra to live in the house for free provided Guevarra would maintain the
cleanliness and orderliness of the house. Guevarra promised that he would voluntarily
vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and
demanded that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of
Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession
over the lot where the house stands because the lot is within the 150 hectares set
aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from
December 1985 to September 1994, Pajuyo did not show up or communicate with
him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The
dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff
and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as
reasonable compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81
(RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion
of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the
decision appealed from, being in accord with the law and evidence presented, and
the same is hereby affirmed en toto.
SO ORDERED.[8]
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until
14 December 1996 to file his appeal with the Court of Appeals. Instead of filing his
appeal with the Court of Appeals, Guevarra filed with the Supreme Court a Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for
extension). Guevarra theorized that his appeal raised pure questions of law. The
Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution[9]
referring the motion for extension to the Court of Appeals which has concurrent
jurisdiction over the case. The case presented no special and important matter for the
Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution[10] granting the motion for extension conditioned on the timeliness of the
filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras
petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
decision. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil
Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that
the ejectment case filed against defendant-appellant is without factual and legal
basis.
SO ORDERED.[11]

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the
Court of Appeals should have dismissed outright Guevarras petition for review
because it was filed out of time. Moreover, it was Guevarras counsel and not
Guevarra who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos
motion for reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No
costs.
SO ORDERED.[12]
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is
the house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra
to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on
Pajuyos demand made Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant
relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound
Guevarra to return possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the
Revised National Government Center Housing Project Code of Policies and other
pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights
under these laws. The RTC declared that in an ejectment case, the only issue for
resolution is material or physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and
Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez
had no right or title over the lot because it is public land. The assignment of rights
between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did
not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault.
The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the
Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord
and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease
contract but a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the
appellate court held that Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino (President Aquino) issued
Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical
possession of the property. Under Article VI of the Code of Policies Beneficiary
Selection and Disposition of Homelots and Structures in the National Housing Project
(the Code), the actual occupant or caretaker of the lot shall have first priority as
beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the
hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos
claim that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the
Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts
Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a
date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra
filed the motion for extension on time on 13 December 1996 since he filed the motion
one day before the expiration of the reglementary period on 14 December 1996.
Thus, the motion for extension properly complied with the condition imposed by the
Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained
that the thirty-day extension to file the petition for review was deemed granted
because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have
dismissed the petition for review because it was Guevarras counsel and not Guevarra
who signed the certification against forum-shopping. The Court of Appeals pointed
out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held
that Pajuyo could not now seek the dismissal of the case after he had extensively
argued on the merits of the case. This technicality, the appellate court opined, was
clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND
DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of
thirty days to file petition for review at the time when there was no more period to
extend as the decision of the Regional Trial Court had already become final and
executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review
even though the certification against forum-shopping was signed only by counsel
instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a
commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court
and in holding that the ejectment case filed against defendant-appellant is without
legal and factual basis.
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case
No. Q-96-26943 and in holding that the parties are in pari delicto being both
squatters, therefore, illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of
the National Government Center Housing Project instead of deciding the same under
the Kasunduan voluntarily executed by the parties, the terms and conditions of which
are the laws between themselves.[13]
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the
substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras
petition for review because the RTC decision had already become final and executory
when the appellate court acted on Guevarras motion for extension to file the petition.
Pajuyo points out that Guevarra had only one day before the expiry of his period to
appeal the RTC decision. Instead of filing the petition for review with the Court of
Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to
file a petition for review. This Court merely referred the motion to the Court of
Appeals. Pajuyo believes that the filing of the motion for extension with this Court did
not toll the running of the period to perfect the appeal. Hence, when the Court of
Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are
appealable to the Court of Appeals by petition for review in cases involving questions
of fact or mixed questions of fact and law.[14] Decisions of the regional trial courts
involving pure questions of law are appealable directly to this Court by petition for
review.[15] These modes of appeal are now embodied in Section 2, Rule 41 of the
1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law.
Guevarra thus filed his motion for extension to file petition for review before this Court
on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for review
with this Court. A perusal of Guevarras petition for review gives the impression that
the issues he raised were pure questions of law. There is a question of law when the
doubt or difference is on what the law is on a certain state of facts.[16] There is a
question of fact when the doubt or difference is on the truth or falsity of the facts
alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the facts.
Guevarras petition for review raised these questions: (1) Do ejectment cases pertain
only to possession of a structure, and not the lot on which the structure stands? (2)
Does a suit by a squatter against a fellow squatter constitute a valid case for
ejectment? (3) Should a Presidential Proclamation governing the lot on which a
squatters structure stands be considered in an ejectment suit filed by the owner of the
structure?
These questions call for the evaluation of the rights of the parties under the law on
ejectment and the Presidential Proclamation. At first glance, the questions Guevarra
raised appeared purely legal. However, some factual questions still have to be
resolved because they have a bearing on the legal questions raised in the petition for
review. These factual matters refer to the metes and bounds of the disputed property
and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for
review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate
Court,[18] we declared that the Court of Appeals could grant extension of time in
appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the
prohibition against granting an extension of time applies only in a case where ordinary
appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A petition for review, unlike
an ordinary appeal, requires preparation and research to present a persuasive
position.[20] The drafting of the petition for review entails more time and effort than
filing a notice of appeal.[21] Hence, the Court of Appeals may allow an extension of
time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,
[22] we held that Liboros clarification of Lacsamana is consistent with the Revised
Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They all
allow an extension of time for filing petitions for review with the Court of Appeals. The
extension, however, should be limited to only fifteen days save in exceptionally
meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment
becomes a fact on the lapse of the reglementary period to appeal if no appeal is
perfected.[23] The RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarras motion for extension. The Court of Appeals gave due course to the motion
for extension because it complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that the Court of Appeals
would only give due course to the motion for extension if filed on time. The motion for
extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion
for extension are (1) the date of receipt of the judgment or final order or resolution
subject of the petition, and (2) the date of filing of the motion for extension.[24] It is
the date of the filing of the motion or pleading, and not the date of execution, that
determines the timeliness of the filing of that motion or pleading. Thus, even if the
motion for extension bears no date, the date of filing stamped on it is the reckoning
point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision.
Guevarra filed his motion for extension before this Court on 13 December 1996, the
date stamped by this Courts Receiving Clerk on the motion for extension. Clearly,
Guevarra filed the motion for extension exactly one day before the lapse of the
reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarras appeal on
technical grounds, Pajuyo did not ask the appellate court to deny the motion for
extension and dismiss the petition for review at the earliest opportunity. Instead,
Pajuyo vigorously discussed the merits of the case. It was only when the Court of
Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against
Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse
decision on the merits, is estopped from attacking the jurisdiction of the court.[25]
Estoppel sets in not because the judgment of the court is a valid and conclusive
adjudication, but because the practice of attacking the courts jurisdiction after
voluntarily submitting to it is against public policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras
failure to sign the certification against forum shopping. Instead, Pajuyo harped on
Guevarras counsel signing the verification, claiming that the counsels verification is
insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the
partys failure to sign personally the verification. The certificate of non-forum shopping
must be signed by the party, and not by counsel.[27] The certification of counsel
renders the petition defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and not a
jurisdictional requisite.[29] It is intended simply to secure an assurance that what are
alleged in the pleading are true and correct and not the product of the imagination or
a matter of speculation, and that the pleading is filed in good faith.[30] The party need
not sign the verification. A partys representative, lawyer or any person who personally
knows the truth of the facts alleged in the pleading may sign the verification.[31]
We agree with the Court of Appeals that the issue on the certificate against forum
shopping was merely an afterthought. Pajuyo did not call the Court of Appeals
attention to this defect at the early stage of the proceedings. Pajuyo raised this
procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction
to Resolve the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will
not divest the inferior court of its jurisdiction over the ejectment case.[32] Even if the
pleadings raise the issue of ownership, the court may pass on such issue to
determine only the question of possession, especially if the ownership is inseparably
linked with the possession.[33] The adjudication on the issue of ownership is only
provisional and will not bar an action between the same parties involving title to the
land.[34] This doctrine is a necessary consequence of the nature of the two summary
actions of ejectment, forcible entry and unlawful detainer, where the only issue for
adjudication is the physical or material possession over the real property.[35]
In this case, what Guevarra raised before the courts was that he and Pajuyo are not
the owners of the contested property and that they are mere squatters. Will the
defense that the parties to the ejectment case are not the owners of the disputed lot
allow the courts to renounce their jurisdiction over the case? The Court of Appeals
believed so and held that it would just leave the parties where they are since they are
in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action
for recovery of possession. The parties cannot present evidence to prove ownership
or right to legal possession except to prove the nature of the possession when
necessary to resolve the issue of physical possession.[36] The same is true when the
defendant asserts the absence of title over the property. The absence of title over the
contested lot is not a ground for the courts to withhold relief from the parties in an
ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is
entitled to the physical possession of the premises, that is, to the possession de facto
and not to the possession de jure.[37] It does not even matter if a partys title to the
property is questionable,[38] or when both parties intruded into public land and their
applications to own the land have yet to be approved by the proper government
agency.[39] Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or
terror.[40] Neither is the unlawful withholding of property allowed. Courts will always
uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even
against the owner himself.[41] Whatever may be the character of his possession, if he
has in his favor prior possession in time, he has the security that entitles him to
remain on the property until a person with a better right lawfully ejects him.[42] To
repeat, the only issue that the court has to settle in an ejectment suit is the right to
physical possession.
In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government
did not authorize either the plaintiff or the defendant in the case of forcible entry case
to occupy the land. The plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending application for the land
with the Bureau of Lands when the defendant ousted him from possession. The
plaintiff filed the action of forcible entry against the defendant. The government was
not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of
possession because while the application of the plaintiff was still pending, title
remained with the government, and the Bureau of Public Lands had jurisdiction over
the case. We disagreed with the defendant. We ruled that courts have jurisdiction to
entertain ejectment suits even before the resolution of the application. The plaintiff, by
priority of his application and of his entry, acquired prior physical possession over the
public land applied for as against other private claimants. That prior physical
possession enjoys legal protection against other private claimants because only a
court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue[44] as
squatters, strictly speaking, their entry into the disputed land was illegal. Both the
plaintiff and defendant entered the public land without the owners permission. Title to
the land remained with the government because it had not awarded to anyone
ownership of the contested public land. Both the plaintiff and the defendant were in
effect squatting on government property. Yet, we upheld the courts jurisdiction to
resolve the issue of possession even if the plaintiff and the defendant in the ejectment
case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession
because of the public need to preserve the basic policy behind the summary actions
of forcible entry and unlawful detainer. The underlying philosophy behind ejectment
suits is to prevent breach of the peace and criminal disorder and to compel the party
out of possession to respect and resort to the law alone to obtain what he claims is
his.[45] The party deprived of possession must not take the law into his own hands.
[46] Ejectment proceedings are summary in nature so the authorities can settle
speedily actions to recover possession because of the overriding need to quell social
disturbances.[47]
We further explained in Pitargue the greater interest that is at stake in actions for
recovery of possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take
cognizance of possessory actions involving these public lands before final award is
made by the Lands Department, and before title is given any of the conflicting
claimants? It is one of utmost importance, as there are public lands everywhere and
there are thousands of settlers, especially in newly opened regions. It also involves a
matter of policy, as it requires the determination of the respective authorities and
functions of two coordinate branches of the Government in connection with public
land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old,
which was in force in this country before the American occupation, or in the new, we
have a possessory action, the aim and purpose of which is the recovery of the
physical possession of real property, irrespective of the question as to who has the
title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary
proceeding which could be brought within one year from dispossession (Roman
Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1,
1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the
Philippine Commission) we implanted the common law action of forcible entry
(section 80 of Act No. 190), the object of which has been stated by this Court to be to
prevent breaches of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons who, believing themselves
entitled to the possession of property, resort to force to gain possession rather than to
some appropriate action in the court to assert their claims. (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public
Land Act (Act No. 926) the action of forcible entry was already available in the courts
of the country. So the question to be resolved is, Did the Legislature intend, when it
vested the power and authority to alienate and dispose of the public lands in the
Lands Department, to exclude the courts from entertaining the possessory action of
forcible entry between rival claimants or occupants of any land before award thereof
to any of the parties? Did Congress intend that the lands applied for, or all public
lands for that matter, be removed from the jurisdiction of the judicial Branch of the
Government, so that any troubles arising therefrom, or any breaches of the peace or
disorders caused by rival claimants, could be inquired into only by the Lands
Department to the exclusion of the courts? The answer to this question seems to us
evident. The Lands Department does not have the means to police public lands;
neither does it have the means to prevent disorders arising therefrom, or contain
breaches of the peace among settlers; or to pass promptly upon conflicts of
possession. Then its power is clearly limited to disposition and alienation, and while it
may decide conflicts of possession in order to make proper award, the settlement of
conflicts of possession which is recognized in the court herein has another ultimate
purpose, i.e., the protection of actual possessors and occupants with a view to the
prevention of breaches of the peace. The power to dispose and alienate could not
have been intended to include the power to prevent or settle disorders or breaches of
the peace among rival settlers or claimants prior to the final award. As to this,
therefore, the corresponding branches of the Government must continue to exercise
power and jurisdiction within the limits of their respective functions. The vesting of the
Lands Department with authority to administer, dispose, and alienate public lands,
therefore, must not be understood as depriving the other branches of the Government
of the exercise of the respective functions or powers thereon, such as the authority to
stop disorders and quell breaches of the peace by the police, the authority on the part
of the courts to take jurisdiction over possessory actions arising therefrom not
involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the
effect that courts have no jurisdiction to determine the rights of claimants to public
lands, and that until the disposition of the land has passed from the control of the
Federal Government, the courts will not interfere with the administration of matters
concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this principle.
The determination of the respective rights of rival claimants to public lands is different
from the determination of who has the actual physical possession or occupation with
a view to protecting the same and preventing disorder and breaches of the peace. A
judgment of the court ordering restitution of the possession of a parcel of land to the
actual occupant, who has been deprived thereof by another through the use of force
or in any other illegal manner, can never be prejudicial interference with the
disposition or alienation of public lands. On the other hand, if courts were deprived of
jurisdiction of cases involving conflicts of possession, that threat of judicial action
against breaches of the peace committed on public lands would be eliminated, and a
state of lawlessness would probably be produced between applicants, occupants or
squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of
possession between rivals or conflicting applicants or claimants would be no other
than that of forcible entry. This action, both in England and the United States and in
our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and
quiet possession may recover the possession of which he has been deprived by a
stronger hand, by violence or terror; its ultimate object being to prevent breach of the
peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312,
314.) The basis of the remedy is mere possession as a fact, of physical possession,
not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to
possession is never in issue in an action of forcible entry; as a matter of fact,
evidence thereof is expressly banned, except to prove the nature of the possession.
(Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no
stretch of the imagination can conclusion be arrived at that the use of the remedy in
the courts of justice would constitute an interference with the alienation, disposition,
and control of public lands. To limit ourselves to the case at bar can it be pretended at
all that its result would in any way interfere with the manner of the alienation or
disposition of the land contested? On the contrary, it would facilitate adjudication, for
the question of priority of possession having been decided in a final manner by the
courts, said question need no longer waste the time of the land officers making the
adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We
explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and
in pari delicto potior est conditio defedentis. The law will not aid either party to an
illegal agreement. It leaves the parties where it finds them.[49]
The application of the pari delicto principle is not absolute, as there are exceptions to
its application. One of these exceptions is where the application of the pari delicto rule
would violate well-established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of
forcible entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that,
regardless of the actual condition of the title to the property, the party in peaceable
quiet possession shall not be turned out by strong hand, violence or terror. In
affording this remedy of restitution the object of the statute is to prevent breaches of
the peace and criminal disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would create that some advantage
must accrue to those persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some appropriate action in
the courts to assert their claims. This is the philosophy at the foundation of all these
actions of forcible entry and detainer which are designed to compel the party out of
possession to respect and resort to the law alone to obtain what he claims is his.[52]
Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of pari
delicto would openly invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally occupied, emboldened
by the knowledge that the courts would leave them where they are. Nothing would
then stand in the way of the ousted squatter from re-claiming his prior possession at
all cost.
Petty warfare over possession of properties is precisely what ejectment cases or
actions for recovery of possession seek to prevent.[53] Even the owner who has title
over the disputed property cannot take the law into his own hands to regain
possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit
are squatters. The determination of priority and superiority of possession is a serious
and urgent matter that cannot be left to the squatters to decide. To do so would make
squatters receive better treatment under the law. The law restrains property owners
from taking the law into their own hands. However, the principle of pari delicto as
applied by the Court of Appeals would give squatters free rein to dispossess fellow
squatters or violently retake possession of properties usurped from them. Courts
should not leave squatters to their own devices in cases involving recovery of
possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The
Court of Appeals refused to rule on the issue of physical possession. Nevertheless,
the appellate court held that the pivotal issue in this case is who between Pajuyo and
Guevarra has the priority right as beneficiary of the contested land under
Proclamation No. 137.[54] According to the Court of Appeals, Guevarra enjoys
preferential right under Proclamation No. 137 because Article VI of the Code declares
that the actual occupant or caretaker is the one qualified to apply for socialized
housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a
relocation site under Proclamation No. 137. Proclamation No. 137 laid down the
metes and bounds of the land that it declared open for disposition to bona fide
residents.
The records do not show that the contested lot is within the land specified by
Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is
within the coverage of Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra
merely alleged that in the survey the project administrator conducted, he and not
Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No.
137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President
Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his
earliest demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied
as beneficiary of Proclamation No. 137. Even when Guevarra already knew that
Pajuyo was reclaiming possession of the property, Guevarra did not take any step to
comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No.
137 and Guevarra has a pending application over the lot, courts should still assume
jurisdiction and resolve the issue of possession. However, the jurisdiction of the
courts would be limited to the issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions
involving public land to determine the issue of physical possession. The determination
of the respective rights of rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has a better right of
physical possession.[56] The administrative disposition and alienation of public lands
should be threshed out in the proper government agency.[57]
The Court of Appeals determination of Pajuyo and Guevarras rights under
Proclamation No. 137 was premature. Pajuyo and Guevarra were at most merely
potential beneficiaries of the law. Courts should not preempt the decision of the
administrative agency mandated by law to determine the qualifications of applicants
for the acquisition of public lands. Instead, courts should expeditiously resolve the
issue of physical possession in ejectment cases to prevent disorder and breaches of
peace.[58]
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the
house built on it. Guevarra expressly admitted the existence and due execution of the
Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay
nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa
nasabing bahay at lote ng walang bayad. Kaugnay nito, kailangang panatilihin nila
ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang
reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot
free of rent, but Guevarra was under obligation to maintain the premises in good
condition. Guevarra promised to vacate the premises on Pajuyos demand but
Guevarra broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which the
latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate
on demand, failing which, an action for unlawful detainer will lie.[60] The defendants
refusal to comply with the demand makes his continued possession of the property
unlawful.[61] The status of the defendant in such a case is similar to that of a lessee
or tenant whose term of lease has expired but whose occupancy continues by
tolerance of the owner.[62]
This principle should apply with greater force in cases where a contract embodies the
permission or tolerance to use the property. The Kasunduan expressly articulated
Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to
maintain the house and lot in good condition. Guevarra expressly vowed in the
Kasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the
property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of
commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it.[63]
An essential feature of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another is for a certain period.
[64] Thus, the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for which the
commodatum is constituted.[65] If the bailor should have urgent need of the thing, he
may demand its return for temporary use.[66] If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium.[67] Under the Civil Code, precarium is a
kind of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra
was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay
rent, it obligated him to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a commodatum. The
effects of the Kasunduan are also different from that of a commodatum. Case law on
ejectment has treated relationship based on tolerance as one that is akin to a
landlord-tenant relationship where the withdrawal of permission would result in the
termination of the lease.[69] The tenants withholding of the property would then be
unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as bailee would still have the duty to turn over possession of
the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum.[70] These contracts certainly involve the obligation
to deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo
is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract
involving the land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after
he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested property. The
Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos better
right of physical possession. Guevarra is clearly a possessor in bad faith. The
absence of a contract would not yield a different result, as there would still be an
implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and
that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal
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]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan.
Guevarras transient right to possess the property ended as well. Moreover, it was
Pajuyo who was in actual possession of the property because Guevarra had to seek
Pajuyos permission to temporarily hold the property and Guevarra had to follow the
conditions set by Pajuyo in the Kasunduan. Control over the property still rested with
Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property.
Possession in the eyes of the law does not mean that a man has to have his feet on
every square meter of the ground before he is deemed in possession.[77] One may
acquire possession not only by physical occupation, but also by the fact that a thing is
subject to the action of ones will.[78] Actual or physical occupation is not always
necessary.[79]
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that squatters and
intruders who clandestinely enter into titled government property cannot, by such act,
acquire any legal right to said property.[80] We made this declaration because the
person who had title or who had the right to legal possession over the disputed
property was a party in the ejectment suit and that party instituted the case against
squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the
ejectment case. This case is between squatters. Had the government participated in
this case, the courts could have evicted the contending squatters, Pajuyo and
Guevarra.
Since the party that has title or a better right over the property is not impleaded in this
case, we cannot evict on our own the parties. Such a ruling would discourage
squatters from seeking the aid of the courts in settling the issue of physical
possession. Stripping both the plaintiff and the defendant of possession just because
they are squatters would have the same dangerous implications as the application of
the principle of pari delicto. Squatters would then rather settle the issue of physical
possession among themselves than seek relief from the courts if the plaintiff and
defendant in the ejectment case would both stand to lose possession of the disputed
property. This would subvert the policy underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to
remain on the property until a person who has title or a better right lawfully ejects him.
Guevarra is certainly not that person. The ruling in this case, however, does not
preclude Pajuyo and Guevarra from introducing evidence and presenting arguments
before the proper administrative agency to establish any right to which they may be
entitled under the law.[81]
In no way should our ruling in this case be interpreted to condone squatting. The
ruling on the issue of physical possession does not affect title to the property nor
constitute a binding and conclusive adjudication on the merits on the issue of
ownership.[82] The owner can still go to court to recover lawfully the property from the
person who holds the property without legal title. Our ruling here does not diminish
the power of government agencies, including local governments, to condemn, abate,
remove or demolish illegal or unauthorized structures in accordance with existing
laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo.
Attorneys fees as part of damages are awarded only in the instances enumerated in
Article 2208 of the Civil Code.[83] Thus, the award of attorneys fees is the exception
rather than the rule.[84] Attorneys fees are not awarded every time a party prevails in
a suit because of the policy that no premium should be placed on the right to litigate.
[85] We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra.
Guevarra did not dispute this factual finding of the two courts. We find the amount
reasonable compensation to Pajuyo. The P300 monthly rental is counted from the last
demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and
Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No.
43129 are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial
Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision
dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in
Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys
fees is deleted. No costs.
SO ORDERED.
G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law
are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through
the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of
P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one
year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government
charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7
May 1949 of the contract, the borrower asked for a renewal for another period of one
year. However, the Secretary of Agriculture and Natural Resources approved a
renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the
Director of Animal Industry that he would pay the value of the three bulls. On 17
October 1950 he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General. On 19 October 1950 the
Director of Animal Industry advised him that the book value of the three bulls could
not be reduced and that they either be returned or their book value paid not later than
31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to
return them. So, on 20 December 1950 in the Court of First Instance of Manila the
Republic of the Philippines commenced an action against him praying that he be
ordered to return the three bulls loaned to him or to pay their book value in the total
sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with
interests, and costs; and that other just and equitable relief be granted in (civil No.
12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan Valley,
particularly in the barrio of Baggao, and of the pending appeal he had taken to the
Secretary of Agriculture and Natural Resources and the President of the Philippines
from the refusal by the Director of Animal Industry to deduct from the book value of
the bulls corresponding yearly depreciation of 8% from the date of acquisition, to
which depreciation the Auditor General did not object, he could not return the animals
nor pay their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of
the three bulls plus the breeding fees in the amount of P626.17 with interest on both
sums of (at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court
granted on 18 October and issued on 11 November 1958. On 2 December 1958
granted an ex-parte motion filed by the plaintiff on November 1958 for the
appointment of a special sheriff to serve the writ outside Manila. Of this order
appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving
spouse of the defendant Jose Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging
that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau
Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal,
died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and
praying that the writ of execution be quashed and that a writ of preliminary injunction
be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February
1959 she filed a reply thereto. On the same day, 6 February, the Court denied her
motion. Hence, this appeal certified by the Court of Appeals to this Court as stated at
the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late
defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva
Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That
is why in its objection of 31 January 1959 to the appellant's motion to quash the writ
of execution the appellee prays "that another writ of execution in the sum of P859.53
be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be
held liable for the two bulls which already had been returned to and received by the
appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by
the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal,
Baggao, Cagayan, where the animal was kept, and that as such death was due to
force majeure she is relieved from the duty of returning the bull or paying its value to
the appellee. The contention is without merit. The loan by the appellee to the late
defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards
one bull, was subject to the payment by the borrower of breeding fee of 10% of the
book value of the bulls. The appellant contends that the contract was commodatum
and that, for that reason, as the appellee retained ownership or title to the bull it
should suffer its loss due to force majeure. A contract of commodatum is essentially
gratuitous.1 If the breeding fee be considered a compensation, then the contract
would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be
subject to the responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the contract be
commodatum, still the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a fortuitous
event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one
bull was renewed for another period of one year to end on 8 May 1950. But the
appellant kept and used the bull until November 1953 when during a Huk raid it was
killed by stray bullets. Furthermore, when lent and delivered to the deceased husband
of the appellant the bulls had each an appraised book value, to with: the Sindhi, at
P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not
stipulated that in case of loss of the bull due to fortuitous event the late husband of
the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of
the bull or the payment of its value being a money claim should be presented or filed
in the intestate proceedings of the defendant who died on 23 October 1951, is not
altogether without merit. However, the claim that his civil personality having ceased to
exist the trial court lost jurisdiction over the case against him, is untenable, because
section 17 of Rule 3 of the Rules of Court provides that —
means of a writ of execution but must be presented to the probate court for payment
by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes,
Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.

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

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

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

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

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

Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal
(Q-200), the money judgment rendered in favor of the appellee cannot be enforced by
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ,
respondents.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by respondent
Court of Appeals in the present two cases between petitioner and two private
respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of
the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil
Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for
Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T.
Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No.
3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar
Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357
to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial
court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in
CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on
the ownership of lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good
faith from 1906 to 1951; that petitioner had been in possession of the same lots as
bailee in commodatum up to 1951, when petitioner repudiated the trust and when it
applied for registration in 1962; that petitioner had just been in possession as owner
for eleven years, hence there is no possibility of acquisitive prescription which
requires 10 years possession with just title and 30 years of possession without; that
the principle of res judicata on these findings by the Court of Appeals will bar a
reopening of these questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in
the two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows
— over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the
... The documents and records presented reveal that the whole controversy started
when the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for
brevity) filed with the Court of First Instance of Baguio Benguet on September 5, 1962
an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated
at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being
the sites of the Catholic Church building, convents, high school building, school
gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the
Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title
thereto. After trial on the merits, the land registration court promulgated its Decision,
dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3,
and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs
of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the
decision of the land registration court to the then Court of Appeals, docketed as CA-
G.R. No. 38830-R. The Court of Appeals rendered its decision, dated May 9, 1977,
reversing the decision of the land registration court and dismissing the VICAR's
application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the
land registration case (and two sets of plaintiffs in the two cases now at bar), the first
lot being presently occupied by the convent and the second by the women's dormitory
and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the
Court of Appeals to order the registration of Lot 3 in the names of the Heirs of
Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita
Valdez filed their motion for reconsideration praying that both Lots 2 and 3 be ordered
registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August
12,1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs
of Juan Valdez on the ground that there was "no sufficient merit to justify
reconsideration one way or the other ...," and likewise denied that of the Heirs of
Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari
of the decision of the Court of Appeals dismissing his (its) application for registration
of Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of
the Mountain Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the Heirs
of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme
Court a petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan
Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano
and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both petitions
(of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the
other) for lack of merit. Upon the finality of both Supreme Court resolutions in G.R.
No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court
of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying
that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided
ground that the Court of Appeals decision in CA-G.R. No. 38870 did not grant the
Heirs of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a
petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled
Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision
dated May 16, 1979, the Court of Appeals dismissed the petition.

It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano
filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3;
and the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979,
likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano
presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano
(Exh. C ); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the
land to them; and the reasonable rentals for the use of the land at P10,000.00 per
month. On the other hand, defendant Vicar presented the Register of Deeds for the
Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8).
The defendant dispensed with the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the witness stand, would testify that
defendant Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in dispute,
submitted the case on the sole issue of whether or not the decisions of the Court of
Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect
declared the plaintiffs the owners of the land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting
up the defense of ownership and/or long and continuous possession of the two lots in
question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs contend that the question of
possession and ownership have already been determined by the Court of Appeals
(Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh.
1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains
that the principle of res judicata would not prevent them from litigating the issues of
long possession and ownership because the dispositive portion of the prior judgment
in CA-G.R. No. 038830-R merely dismissed their application for registration and titling
of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the
decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to petitioner
are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2
AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY
EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS
2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT
THE FORMER OWNERS WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE
RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST
FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE
PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE
RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3
ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134
IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE
PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS
IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830
TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE
RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION OF LOTS
2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF
LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A
GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND
BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND
REIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS
OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148
and 05149, when it clearly held that it was in agreement with the findings of the trial
court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No.
38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court
of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private
respondents as owners of the land, neither was it declared that they were not owners
of the land, but it held that the predecessors of private respondents were possessors
of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951. Petitioner
was in possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When petitioner
applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept
of owner only for eleven years. Ordinary acquisitive prescription requires possession
for ten years, but always with just title. Extraordinary acquisitive prescription requires
30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of
Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in
respondent appellate court's ruling that said findings are res judicata between the
parties. They can no longer be altered by presentation of evidence because those
issues were resolved with finality a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations by continuous determination to review said decision, thereby in effect, affirming it. It has become final and
of issues without end. executory a long time ago.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5
in CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding
petitioner to be entitled to register the lands in question under its ownership, on its
evaluation of evidence and conclusion of facts.
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.
Respondent appellate court did not commit any reversible error, much less grave
abuse of discretion, when it held that the Decision of the Court of Appeals in CA-G.R.
No. 38830-R is governing, under the principle of res judicata, hence the rule, in the
present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported
by evidence established in that decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for
lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by
respondent Court of Appeals is AFFIRMED, with costs against petitioner.
SO ORDERED.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and
Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots
since 1906. The predecessors of private respondents, not petitioner Vicar, were in
possession of the questioned lots since 1906.

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 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.

The Court of Appeals found that the predecessors-in-interest and private respondents
were possessors under claim of ownership in good faith from 1906; that petitioner
Vicar was only a bailee in commodatum; and that the adverse claim and repudiation
of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-
G.R. No. 38830-R. Its findings of fact have become incontestible. This Court declined
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture
which she lent him for his use. She appealed from the judgment of the Court of First
Instance of Manila which ordered that the defendant return to her the three has
heaters and the four electric lamps found in the possession of the Sheriff of said city,
that she call for the other furniture from the said sheriff of Manila at her own expense,
and that the fees which the Sheriff may charge for the deposit of the furniture be paid
pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on
M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the
contract of lease between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture described in the third paragraph of the
stipulation of facts, subject to the condition that the defendant would return them to
the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez
and Rosario Lopez and on September 14, 1936, these three notified the defendant of
the conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease. There after the plaintiff required the defendant to
return all the furniture transferred to him for them in the house where they were found.
On November 5, 1936, the defendant, through another person, wrote to the
plaintiff reiterating that she may call for the furniture in the ground floor of the house.
On the 7th of the same month, the defendant wrote another letter to the plaintiff
informing her that he could not give up the three gas heaters and the four electric
lamps because he would use them until the 15th of the same month when the lease
in due to expire. The plaintiff refused to get the furniture in view of the fact that the
defendant had declined to make delivery of all of them. On November 15th, before
vacating the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse situated at
No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly
applied the law: in holding that they violated the contract by not calling for all the
furniture on November 5, 1936, when the defendant placed them at their disposal; in
not ordering the defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the Sheriff at their
expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the
deposit of the furniture; in ruling that both parties should pay their respective legal
expenses or the costs; and in denying pay their respective legal expenses or the
costs; and in denying the motions for reconsideration and new trial. To dispose of the
case, it is only necessary to decide whether the defendant complied with his
obligation to return the furniture upon the plaintiff's demand; whether the latter is
bound to bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.
The contract entered into between the parties is one of commadatum, because under
it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving
for herself the ownership thereof; by this contract the defendant bound himself to
return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract,
Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation
voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's
residence or house. The defendant did not comply with this obligation when he
merely placed them at the disposal of the plaintiff, retaining for his benefit the three
gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely applicable. The trial court, therefore,
erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as
bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a
duty to accept the offer to return the furniture, because the defendant wanted to retain
the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to return some of the
furniture because under paragraph 6 of the stipulation of facts, the defendant has
neither agreed to nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value thereof should be latter
determined by the trial Court through evidence which the parties may desire to
present.
The costs in both instances should be borne by the defendant because the plaintiff is
the prevailing party (section 487 of the Code of Civil Procedure). The defendant was
the one who breached the contract of commodatum, and without any reason he
refused to return and deliver all the furniture upon the plaintiff's demand. In these
circumstances, it is just and equitable that he pay the legal expenses and other
judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver
to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or
house of the latter, all the furniture described in paragraph 3 of the stipulation of facts
Exhibit A. The expenses which may be occasioned by the delivery to and deposit of
the furniture with the Sheriff shall be for the account of the defendant. the defendant
shall pay the costs in both instances.
So ordered.
G.R. Nos. 173654-765 August 28, 2008
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
TERESITA PUIG and ROMEO PORRAS, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of Court with
petitioner People of the Philippines, represented by the Office of the Solicitor General,
praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the
Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo,
dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig
and Romeo Porras, and denying petitioner’s Motion for Reconsideration, in Criminal
Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68
of the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents
Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and
Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The
cases were docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations1 filed before the RTC were uniform and pro-forma,
except for the amounts, date and time of commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province
of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, above-named
[respondents], conspiring, confederating, and helping one another, with grave abuse
of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc.,
Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank
and with intent of gain, did then and there willfully, unlawfully and feloniously take,
steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00),
Philippine Currency, to the damage and prejudice of the said bank in the aforesaid
amount.
After perusing the Informations in these cases, the trial court did not find the
existence of probable cause that would have necessitated the issuance of a warrant
of arrest based on the following grounds:
(1) the element of ‘taking without the consent of the owners’ was missing on the
ground that it is the depositors-clients, and not the Bank, which filed the complaint in
these cases, who are the owners of the money allegedly taken by respondents and
hence, are the real parties-in-interest; and
(2) the Informations are bereft of the phrase alleging "dependence, guardianship or
vigilance between the respondents and the offended party that would have created a
high degree of confidence between them which the respondents could have abused."
It added that allowing the 112 cases for Qualified Theft filed against the respondents
to push through would be violative of the right of the respondents under Section
14(2), Article III of the 1987 Constitution which states that in all criminal prosecutions,
the accused shall enjoy the right to be informed of the nature and cause of the
accusation against him. Following Section 6, Rule 112 of the Revised Rules of
Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to
issue a warrant of arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was
issued by the RTC, finding as follows:
Accordingly, the prosecution’s Motion for Reconsideration should be, as it hereby,
DENIED. The Order dated January 30, 2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review on Certiorari under Rule
45, raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT
SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT
OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE
OF CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the Orders
dated 30 January 2006 and 9 June 2006 issued by the trial court, and that it be
directed to proceed with Criminal Cases No. 05-3054 to 05-3165.
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.
Petitioner also insists that the Informations sufficiently allege all the elements of the
crime of qualified theft, citing that a perusal of the Informations will show that they
specifically allege that the respondents were the Cashier and Bookkeeper of the
Rural Bank of Pototan, Inc., respectively, and that they took various amounts of
money with grave abuse of confidence, and without the knowledge and consent of the
bank, to the damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge the petition on
the ground that a Petition for Review on Certiorari via Rule 45 is the wrong mode of
appeal because a finding of probable cause for the issuance of a warrant of arrest
presupposes evaluation of facts and circumstances, which is not proper under said
Rule.
Respondents further claim that the Department of Justice (DOJ), through the
Secretary of Justice, is the principal party to file a Petition for Review on Certiorari,
considering that the incident was indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of
the Informations and, therefore, because of this defect, there is no basis for the
existence of probable cause which will justify the issuance of the warrant of arrest.
Petitioner assails the dismissal contending that the Informations for Qualified Theft
sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse
of confidence; and (b) the element of taking, with intent to gain and without the
consent of the owner, which is the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the RTC
judge found the allegations in the Information inadequate. He ruled that the
Information failed to state facts constituting the qualifying circumstance of grave
abuse of confidence and the element of taking without the consent of the owner,
since the owner of the money is not the Bank, but the depositors therein. He also
cites People v. Koc Song,4 in which this Court held:
There must be allegation in the information and proof of a relation, by reason of
dependence, guardianship or vigilance, between the respondents and the offended
party that has created a high degree of confidence between them, which the
respondents abused.
At this point, it needs stressing that the RTC Judge based his conclusion that there
was no probable cause simply on the insufficiency of the allegations in the
Informations concerning the facts constitutive of the elements of the offense charged.
This, therefore, makes the issue of sufficiency of the allegations in the Informations
the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal
Code, is committed as follows, viz:
ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next
higher by two degrees than those respectively specified in the next preceding article,
if committed by a domestic servant, or with grave abuse of confidence, or if the
property stolen is motor vehicle, mail matter or large cattle or consists of coconuts
taken from the premises of a plantation, fish taken from a fishpond or fishery or if
property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or
any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical
taking of another’s property without violence or intimidation against persons or force
upon things. The elements of the crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owner’s consent;
5. That it be accomplished without the use of violence or intimidation against persons,
nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court
requires, inter alia, that the information must state the acts or omissions complained
of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the
Rules of Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as
constituting the offense and the qualifying and aggravating circumstances must be
stated in ordinary and concise language and not necessarily in the language used in
the statute but in terms sufficient to enable a person of common understanding to
know what offense is being charged as well as its qualifying and aggravating
circumstances and for the court to pronounce judgment.
It is evident that the Information need not use the exact language of the statute in
alleging the acts or omissions complained of as constituting the offense. The test is
whether it enables a person of common understanding to know the charge against
him, and the court to render judgment properly.5
The portion of the Information relevant to this discussion reads:
A]bove-named [respondents], conspiring, confederating, and helping one another,
with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank
of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the
management of the Bank x x x.
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 confidence, 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. For a graphic
illustration, we cite Roque v. People,6 where the accused teller was convicted for
Qualified Theft based on this Information:
That on or about the 16th day of November, 1989, in the municipality of
Floridablanca, province of Pampanga, Philippines and within the jurisdiction of his
Honorable Court, the above-named accused ASUNCION GALANG ROQUE, being
then employed as teller of the Basa Air Base Savings and Loan Association Inc.
(BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as
such was authorized and reposed with the responsibility to receive and collect capital
contributions from its member/contributors of said corporation, and having collected
and received in her capacity as teller of the BABSLA the sum of TEN THOUSAND
PESOS (P10,000.00), said accused, with intent of gain, with grave abuse of
confidence and without the knowledge and consent of said corporation, did then and
there willfully, unlawfully and feloniously take, steal and carry away the amount of
P10,000.00, Philippine currency, by making it appear that a certain depositor by the
name of Antonio Salazar withdrew from his Savings Account No. 1359, when in truth
and in fact said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to
the damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine
currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the bank places money in the
teller’s possession due to the confidence reposed on the teller, the felony of qualified
theft would be committed.7
Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of
Qualified Theft based on the Information as herein cited:
That in or about and during the period compressed between January 24, 1992 and
February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the said
accused did then and there wilfully, unlawfully and feloniously, with intent of gain and
without the knowledge and consent of the owner thereof, take, steal and carry away
the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging to the
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta
Branch, Manila represented by its Branch Manager, HELEN U. FARGAS, to the
damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00,
Philippine Currency.
That in the commission of the said offense, herein accused acted with grave abuse of
confidence and unfaithfulness, he being the Branch Operation Officer of the said
complainant and as such he had free access to the place where the said amount of
money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the Philippine Commercial
and Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the
crime had he not been holding the position of Luneta Branch Operation Officer which
gave him not only sole access to the bank vault xxx. The management of the PCIB
reposed its trust and confidence in the appellant as its Luneta Branch Operation
Officer, and it was this trust and confidence which he exploited to enrich himself to the
damage and prejudice of PCIB x x x.9
From another end, People v. Locson,10 in addition to People v. Sison, described the
nature of possession by the Bank. The money in this case was in the possession of
the defendant as receiving teller of the bank, and the possession of the defendant
was the possession of the Bank. The Court held therein that when the defendant, with
grave abuse of confidence, removed the money and appropriated it to his own use
without the consent of the Bank, there was taking as contemplated in the crime of
Qualified Theft.11
Conspicuously, in all of the foregoing cases, where the Informations merely alleged
the positions of the respondents; that the crime was committed with grave abuse of
confidence, with intent to gain and without the knowledge and consent of the Bank,
without necessarily stating the phrase being assiduously insisted upon by
respondents, "of a relation by reason of dependence, guardianship or vigilance,
between the respondents and the offended party that has created a high degree of
confidence between them, which respondents abused,"12 and without employing the
word "owner" in lieu of the "Bank" were considered to have satisfied the test of
sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of the
Bank in this case, there is even no reason to quibble on the allegation in the
Informations that they acted with grave abuse of confidence. In fact, the Information
which alleged grave abuse of confidence by accused herein is even more precise, as
this is exactly the requirement of the law in qualifying the crime of 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.
On the theory of the defense that the DOJ is the principal party who may file the
instant petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is
instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State, the interest of the private
complainant or the offended party is limited to the civil liability arising therefrom.
Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a
reconsideration of the order of dismissal or acquittal may be undertaken, whenever
legally feasible, insofar as the criminal aspect thereof is concerned and may be made
only by the public prosecutor; or in the case of an appeal, by the State only, through
the OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is
well-settled that in appeals by certiorari under Rule 45 of the Rules of Court, only
errors of law may be raised,14 and herein petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases,

a closer look at the records of the preliminary investigation conducted will show that,
indeed, probable cause exists for the indictment of herein respondents. Pursuant to
Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest
only upon a finding of probable cause after personally evaluating the resolution of the
prosecutor and its supporting evidence. Soliven v. Makasiar,15 as reiterated in Allado
v. Driokno,16 explained that probable cause for the issuance of a warrant of arrest is
the existence of such facts and circumstances that would lead a reasonably discreet
and prudent person to believe that an offense has been committed by the person
sought to be arrested.17 The records reasonably indicate that the respondents may
have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the
judge, as the case may be, to relieve the respondents from the pain of going through
a trial once it is ascertained that no probable cause exists to form a sufficient belief as
to the guilt of the respondents, conversely, it is also equally imperative upon the judge
to proceed with the case upon a showing that there is a prima facie case against the
respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby

GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC
dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE.
Let the corresponding Warrants of Arrest issue against herein respondents
TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in
Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054
to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.

SO ORDERED.
G.R. No. 123498 November 23, 2007
BPI FAMILY BANK
vs.
AMADO FRANCO and COURT OF APPEALS
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with meticulous care and
utmost fidelity. We reiterate this exhortation in the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court of
Appeals (CA) Decision[1] in CA-G.R. CV No. 43424 which affirmed with modification
the judgment[2] of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil
Case No. 90-53295.
This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI
Family Bank (BPI-FB) allegedly by respondent Amado Franco (Franco) in conspiracy
with other individuals,[3] some of whom opened and maintained separate accounts
with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a
savings and current account with BPI-FB. Soon thereafter, or on August 25, 1989,
First Metro Investment Corporation (FMIC) also opened a time deposit account with
the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year
thence.
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,
[4] savings,[5] and time deposit,[6] with BPI-FB. The current and savings accounts
were respectively funded with an initial deposit of P500,000.00 each, while the time
deposit account had P1,000,000.00 with a maturity date of August 31, 1990. The total
amount of P2,000,000.00 used to open these accounts is traceable to a check issued
by Tevesteco allegedly in consideration of Francos introduction of Eladio Teves,[7]
who was looking for a conduit bank to facilitate Tevestecos business transactions, to
Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, the funding
for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from
FMICs time deposit account and credited to Tevestecos current account pursuant to
an Authority to Debit purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs officers on the Authority to Debit
were forged.[8] On September 4, 1989, Antonio Ong,[9] upon being shown the
Authority to Debit, personally declared his signature therein to be a forgery.
Unfortunately, Tevesteco had already effected several withdrawals from its current
account (to which had been credited the P80,000,000.00 covered by the forged
Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to
Franco.
On September 8, 1989, impelled by the need to protect its interests in light of FMICs
forgery claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed
Jesus Arangorin[10] to debit Francos savings and current accounts for the amounts
remaining therein.[11] However, Francos time deposit account could not be debited
due to the capacity limitations of BPI-FBs computer.[12]
In the meantime, two checks[13] drawn by Franco against his BPI-FB current account
were dishonored upon presentment for payment, and stamped with a notation
account under garnishment. Apparently, Francos current account was garnished by
virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati
RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB
against Franco et al.,[14] to recover the P37,455,410.54 representing Tevestecos
total withdrawals from its account.
Notably, the dishonored checks were issued by Franco and presented for payment at
BPI-FB prior to Francos receipt of notice that his accounts were under garnishment.
[15] In fact, at the time the Notice of Garnishment dated September 27, 1989 was
served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ
of attachment was issued.
It was only on May 15, 1990, through the service of a copy of the Second Amended
Complaint in Civil Case No. 89-4996, that Franco was impleaded in the Makati case.
[16] Immediately, upon receipt of such copy, Franco filed a Motion to Discharge
Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the
Order of Attachment was served on BPI-FB on even date, with Franco demanding the
release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-
FBs new manager, could not forthwith comply with the demand as the funds, as
previously stated, had already been debited because of FMICs forgery claim. As
such, BPI-FBs computer at the SFDM Branch indicated that the current account
record was not on file.
With respect to Francos savings account, it appears that Franco agreed to an
arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings
account was temporarily transferred to Domingo Quiaoits savings account, subject to
its immediate return upon issuance of a certificate of deposit which Quiaoit needed in
connection with his visa application at the Taiwan Embassy. As part of the
arrangement, Sebastian retained custody of Quiaoits savings account passbook to
ensure that no withdrawal would be effected therefrom, and to preserve Francos
deposits.
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted
the amount of P63,189.00 from the remaining balance of the time deposit account
representing advance interest paid to him.
These transactions spawned a number of cases, some of which we had already
resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount of
P80,000,000.00 debited from its account.[17] The case eventually reached this
Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,
[18] we upheld the finding of the courts below that BPI-FB failed to exercise the
degree of diligence required by the nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the
debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus interest
at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall
itself earn interest at 12% from October 4, 1989 until fully paid.
In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica
(Buenaventura, et al.),[19] recipients of a P500,000.00 check proceeding from the
P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et
al., as in the case of Franco, were also prevented from effecting withdrawals[20] from
their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch.
Likewise, when the case was elevated to this Court docketed as BPI Family Bank v.
Buenaventura,[21] we ruled that BPI-FB had no right to freeze Buenaventura, et al.s
accounts and adjudged BPI-FB liable therefor, in addition to damages.
Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to
be the perpetrators of the multi-million peso scam.[22] In the criminal case, Franco,
along with the other accused, except for Manuel Bienvenida who was still at large,
were acquitted of the crime of Estafa as defined and penalized under Article 351, par.
2(a) of the Revised Penal Code.[23] However, the civil case[24] remains under
litigation and the respective rights and liabilities of the parties have yet to be
adjudicated.
Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his
accounts and release his deposits therein, the latter filed on June 4, 1990 with the
Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs:
(1) the interest on the remaining balance[25] of his current account which was
eventually released to him on October 31, 1991; (2) the balance[26] on his savings
account, plus interest thereon; (3) the advance interest[27] paid to him which had
been deducted when he pre-terminated his time deposit account; and (4) the payment
of actual, moral and exemplary damages, as well as attorneys fees.
BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts
of Franco and refusing to release his deposits, claiming that it had a better right to the
amounts which consisted of part of the money allegedly fraudulently withdrawn from it
by Tevesteco and ending up in Francos accounts. BPI-FB asseverated that the
claimed consideration of P2,000,000.00 for the introduction facilitated by Franco
between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian,
on the other, spoke volumes of Francos participation in the fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of
which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of
[Franco] and against [BPI-FB], ordering the latter to pay to the former the following
sums:
1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00
from May 18, 1990 to October 31, 1991;
2. P498,973.23 representing the balance on [Francos] savings account as of May 18,
1990, together with the interest thereon in accordance with the banks guidelines on
the payment therefor;
3. P30,000.00 by way of attorneys fees; and
4. P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.
Costs against [BPI-FB].
SO ORDERED.[28]
Unsatisfied with the decision, both parties filed their respective appeals before the
CA. Franco confined his appeal to the Manila RTCs denial of his claim for moral and
exemplary damages, and the diminutive award of attorneys fees. In affirming with
modification the lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED
with modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the
interest deducted from the time deposit of plaintiff-appellant. P200,000.00 as moral
damages and P100,000.00 as exemplary damages, deleting the award of nominal
damages (in view of the award of moral and exemplary damages) and increasing the
award of attorneys fees from P30,000.00 to P75,000.00.
Cost against [BPI-FB].
SO ORDERED.[29]
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (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 Quiaoits savings account; (4) the
dishonor of Francos checks was not legally in order; (5) BPI-FB is liable for interest
on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs
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 Francos accounts and preclude him from withdrawing his deposits.
However, contrary to the appellate courts ruling, we hold that Franco is not entitled to
unearned interest on the time deposit as well as to moral and exemplary damages.
First. On the issue of who has a better right to the deposits in Francos accounts, BPI-
FB urges us that the legal consequence of FMICs forgery claim is that the money
transferred by BPI-FB to Tevesteco is its own, and considering that it was able to
recover possession of the same when the money was redeposited by Franco, it had
the right to set up its ownership thereon and freeze Francos accounts.
BPI-FB contends that its position is not unlike that of an owner of personal property
who regains possession after it is stolen, and to illustrate this point, BPI-FB gives the
following example: where Xs television set is stolen by Y who thereafter sells it to Z,
and where Z unwittingly entrusts possession of the TV set to X, the latter would have
the right to keep possession of the property and preclude Z from recovering
possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code,
which provides:
Article 559. The possession of movable property acquired in good faith is equivalent
to a title. Nevertheless, one who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.
BPI-FBs 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 Francos 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 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 FMICs account and credited to
Tevestecos, and subsequently traced to Francos 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-FBs illustrative example, ostensibly based on Article 559, is inapplicable to the
instant case.
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco,
but not as a legal consequence of its unauthorized transfer of FMICs deposits to
Tevestecos account. BPI-FB conveniently forgets that the deposit of money in banks
is governed by the Civil Code provisions on simple loan or mutuum.[36] As there is a
debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Francos deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand.[37] Although BPI-
FB owns the deposits in Francos accounts, it cannot prevent him from demanding
payment of BPI-FBs obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus, when Franco issued
checks drawn against his current account, he had every right as creditor to expect
that those checks would be honored by BPI-FB as debtor.
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.
Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals[38]
continues to resonate, thus:
The banking system is an indispensable institution in the modern world and plays a
vital role in the economic life of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as active instruments of business
and commerce, banks have become an ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has not hesitated to entrust his lifes
savings to the bank of his choice, knowing that they will be safe in its custody and will
even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling of
his monthly bills and the payment of ordinary expenses. x x x.
In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions. The
bank must record every single transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he sees fit, confident that
the bank will deliver it as and to whomever directs. A blunder on the part of the bank,
such as the dishonor of the check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and criminal
litigation.
The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know
the signatures of its customers. Having failed to detect the forgery in the Authority to
Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB
cannot now shift liability thereon to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their respective accounts without the
appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the authenticity of
the signature in the Authority to Debit, effected the transfer of P80,000,000.00 from
FMICs to Tevestecos account, when FMICs account was a time deposit and it had
already paid advance interest to FMIC. Considering that there is as yet no indubitable
evidence establishing Francos participation in the forgery, he remains an innocent
party. As between him and BPI-FB, the latter, which made possible the present
predicament, must bear the resulting loss or inconvenience.
Second. With respect to its liability for interest on Francos current account, BPI-FB
argues that its non-compliance with the Makati RTCs Order Lifting the Order of
Attachment and the legal consequences thereof, is a matter that ought to be taken up
in that court.
The argument is tenuous. We agree with the succinct holding of the appellate court in
this respect. The Manila RTCs order to pay interests on Francos current account
arose from BPI-FBs unjustified refusal to comply with its obligation to pay Franco
pursuant to their contract of mutuum. In other words, from the time BPI-FB refused
Francos demand for the release of the deposits in his current account, specifically,
from May 17, 1990, interest at the rate of 12% began to accrue thereon.[39]
Undeniably, the Makati RTC is vested with the authority to determine the legal
consequences of BPI-FBs non-compliance with the Order Lifting the Order of
Attachment. However, such authority does not preclude the Manila RTC from ruling
on BPI-FBs liability to Franco for payment of interest based on its continued and
unjustified refusal to perform a contractual obligation upon demand. After all, this was
the core issue raised by Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoits account, we find no
reason to depart from the factual findings of both the Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are
actually owned by Franco who simply accommodated Jaime Sebastians request to
temporarily transfer P400,000.00 from Francos savings account to Quiaoits account.
[40] His testimony cannot be characterized as hearsay as the records reveal that he
had personal knowledge of the arrangement made between Franco, Sebastian and
himself.[41]
BPI-FB makes capital of Francos belated allegation relative to this particular
arrangement. It insists that the transaction with Quiaoit was not specifically alleged in
Francos complaint before the Manila RTC. However, it appears that BPI-FB had
impliedly consented to the trial of this issue given its extensive cross-examination of
Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of evidence. When
issues not raised by the pleadings are tried with the express or implied consent of the
parties, they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not affect the result
of the trial of these issues. If evidence is objected to at the trial on the ground that it is
now within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of the action
and the ends of substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made. (Emphasis supplied)
In all, BPI-FBs argument that this case is not the right forum for Franco to recover the
P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial,
unequivocally disclaimed ownership of the funds in his account, and pointed to
Franco as the actual owner thereof. Clearly, Francos action for the recovery of his
deposits appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor
of Francos checks respectively dated September 11 and 18, 1989 was legally in order
in view of the Makati RTCs supplemental writ of attachment issued on September 14,
1989. It posits that as the party that applied for the writ of attachment before the
Makati RTC, it need not be served with the Notice of Garnishment before it could
place Francos accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FBs clever but
transparent ploy to circumvent Section 4,[42] Rule 13 of the Rules of Court. It should
be noted that the strict requirement on service of court papers upon the parties
affected is designed to comply with the elementary requisites of due process. Franco
was entitled, as a matter of right, to notice, if the requirements of due process are to
be observed. Yet, he received a copy of the Notice of Garnishment only on
September 27, 1989, several days after the two checks he issued were dishonored by
BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze
Francos accounts without even awaiting service of the Makati RTCs Notice of
Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of attachment
cannot be made without including in the main suit the owner of the property attached
by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically provides that no
levy or attachment pursuant to the writ issued x x x shall be enforced unless it is
preceded, or contemporaneously accompanied, by service of summons, together with
a copy of the complaint, the application for attachment, on the defendant within the
Philippines.
Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC
had yet to acquire jurisdiction over the person of Franco when BPI-FB garnished his
accounts.[43] Effectively, therefore, the Makati RTC had no authority yet to bind the
deposits of Franco through the writ of attachment, and consequently, there was no
legal basis for BPI-FB to dishonor the checks issued by Franco.
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the
advance interest it deducted from Francos time deposit account, and for moral as well
as exemplary damages, we find it proper to reinstate the ruling of the trial court, and
allow only the recovery of nominal damages in the amount of P10,000.00. However,
we retain the CAs award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account and for moral and
exemplary damages, the CA attributed bad faith to BPI-FB because it (1) completely
disregarded its obligation to Franco; (2) misleadingly claimed that Francos deposits
were under garnishment; (3) misrepresented that Francos current account was not on
file; and (4) refused to return the P400,000.00 despite the fact that the ostensible
owner, Quiaoit, wanted the amount returned to Franco.
In this regard, we are guided by Article 2201 of the Civil Code which provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen or
could have reasonable foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the non-performance of the
obligation. (Emphasis supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection
and not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind
contemplated in Article 2201 and should not be held liable for all damages now being
imputed to it for its breach of obligation. For the same reason, it is not liable for the
unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it partakes of the
nature of fraud.[44] We have held that it is a breach of a known duty through some
motive of interest or ill will.[45] In the instant case, we cannot attribute to BPI-FB fraud
or even a motive of self-enrichment. As the trial court found, there was no denial
whatsoever by BPI-FB of the existence of the accounts. The computer-generated
document which indicated that the current account was not on file resulted from the
prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the
garnishment, or even the outright refusal to honor any transaction thereon was
resorted to solely for the purpose of holding on to the funds as a security for its
intended court action,[46] and with no other goal but to ensure the integrity of the
accounts.
We have had occasion to hold that in the absence of fraud or bad faith,[47] moral
damages cannot be awarded; and that the adverse result of an action does not per se
make the action wrongful, or the party liable for it. One may err, but error alone is not
a ground for granting such damages.[48]
Attorneys fees may be awarded when a party is compelled to litigate or incur
expenses to protect his interest,[54] or when the court deems it just and equitable.[55]
In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the
Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering
assertion that the P400,000.00 was part of Francos savings account. This refusal
constrained Franco to incur expenses and litigate for almost two (2) decades in order
to protect his interests and recover his deposits. Therefore, this Court deems it just
and equitable to grant Franco P75,000.00 as attorneys fees. The award is reasonable
in view of the complexity of the issues and the time it has taken for this case to be
resolved.[56]
Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs
ruling, as affirmed by the CA, that BPI-FB is not entitled to recover P3,800,000.00 as
actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as
already pointed out, of its own making. Accordingly, the denial of its counter-claim is
in order.
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.
No pronouncement as to costs.
SO ORDERED.

An award of moral damages contemplates the existence of the following requisites:

(1) there must be an injury clearly sustained by the claimant, whether physical, mental
or psychological; (2) there must be a culpable act or omission factually established;
(3) the wrongful act or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award for damages is predicated on any of the
cases stated in Article 2219 of the Civil Code.[49]

Franco could not point to, or identify any particular circumstance in Article 2219 of the
Civil Code,[50] upon which to base his claim for moral damages.

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages
under Article 2220 of the Civil Code for breach of contract.[51]

We also deny the claim for exemplary damages. Franco should show that he is
entitled to moral, temperate, or compensatory damages before the court may even
consider the question of whether exemplary damages should be awarded to him.[52]
As there is no basis for the award of moral damages, neither can exemplary damages
be granted.

While it is a sound policy not to set a premium on the right to litigate,[53] we,
however, find that Franco is entitled to reasonable attorneys fees for having been
compelled to go to court in order to assert his right. Thus, we affirm the CAs grant of
P75,000.00 as attorneys fees.
G.R. No. 106064 October 13, 2005
SPOUSES RENATO CONSTANTINO, JR. and LOURDES CONSTANTINO
vs.
HON. JOSE B. CUISIA, in his capacity as Governor of the Central Bank,
HON. RAMON DEL ROSARIO, in his capacity as Secretary of Finance, HON.
EMMANUEL V. PELAEZ, in his capacity as Philippine Debt Negotiating Chairman,
and the NATIONAL TREASURER
DECISION
TINGA, J.:
The quagmire that is the foreign debt problem has especially confounded developing
nations around the world for decades. It has defied easy solutions acceptable both to
debtor countries and their creditors. It has also emerged as cause celebre for various
political movements and grassroots activists and the wellspring of much scholarly
thought and debate.
The present petition illustrates some of the ideological and functional differences
between experts on how to achieve debt relief. However, this being a court of law, not
an academic forum or a convention on development economics, our resolution has to
hinge on the presented legal issues which center on the appreciation of the
constitutional provision that empowers the President to contract and guarantee
foreign loans. The ultimate choice is between a restrictive reading of the constitutional
provision and an alimentative application thereof consistent with time-honored
principles on executive power and the alter ego doctrine.
This Petition for Certiorari, Prohibition and Mandamus assails said contracts which
were entered into pursuant to the Philippine Comprehensive Financing Program for
1992 (Financing Program or Program). It seeks to enjoin respondents from executing
additional debt-relief contracts pursuant thereto. It also urges the Court to issue an
order compelling the Secretary of Justice to institute criminal and administrative cases
against respondents for acts which circumvent or negate the provisions Art. XII of the
Constitution.[1]
Parties and Facts
The petition was filed on 17 July 1992 by petitioners spouses Renato Constantino, Jr.
and Lourdes Constantino and their minor children, Renato Redentor, Anna Marika
Lissa, Nina Elissa, and Anna Karmina, Filomeno Sta. Ana III, and the Freedom from
Debt Coalition, a non-stock, non-profit, non-government organization that advocates a
pro-people and just Philippine debt policy.[2] Named respondents were the then
Governor of the Bangko Sentral ng Pilipinas, the Secretary of Finance, the National
Treasurer, and the Philippine Debt Negotiation Chairman Emmanuel V. Pelaez.[3] All
respondents were members of the Philippine panel tasked to negotiate with the
countrys foreign creditors pursuant to the Financing Program.
The operative facts are sparse and there is little need to elaborate on them.
The Financing Program was the culmination of efforts that began during the term of
former President Corazon Aquino to manage the countrys external debt problem
through a negotiation-oriented debt strategy involving cooperation and negotiation
with foreign creditors.[4] Pursuant to this strategy, the Aquino government entered
into three restructuring agreements with representatives of foreign creditor
governments during the period of 1986 to 1991.[5] During the same period, three
similarly-oriented restructuring agreements were executed with commercial bank
creditors.[6]
On 28 February 1992, the Philippine Debt Negotiating Team, chaired by respondent
Pelaez, negotiated an agreement with the countrys Bank Advisory Committee,
representing all foreign commercial bank creditors, on the Financing Program which
respondents characterized as a multi-option financing package.[7] The Program was
scheduled to be executed on 24 July 1992 by respondents in behalf of the Republic.
Nonetheless, petitioners alleged that even prior to the execution of the Program
respondents had already implemented its buyback component when on 15 May 1992,
the Philippines bought back P1.26 billion of external debts pursuant to the Program.
[8]
The petition sought to enjoin the ratification of the Program, but the Court did not
issue any injunctive relief. Hence, it came to pass that the Program was signed in
London as scheduled. The petition still has to be resolved though as petitioners seek
the annulment of any and all acts done by respondents, their subordinates and any
other public officer pursuant to the agreement and program in question.[9] Even after
the signing of the Program, respondents themselves acknowledged that the
remaining principal objective of the petition is to set aside respondents actions.[10]
Petitioners characterize the Financing Program as a package offered to the countrys
foreign creditors consisting of two debt-relief options.[11] The first option was a cash
buyback of portions of the Philippine foreign debt at a discount.[12] The second
option allowed creditors to convert existing Philippine debt instruments into any of
three kinds of bonds/securities: (1) new money bonds with a five-year grace period
and 17 years final maturity, the purchase of which would allow the creditors to convert
their eligible debt papers into bearer bonds with the same terms; (2) interest-reduction
bonds with a maturity of 25 years; and (3) principal-collateralized interest-reduction
bonds with a maturity of 25 years.[13]
On the other hand, according to respondents the Financing Program would cover
about U.S. $5.3 billion of foreign commercial debts and it was expected to deal
comprehensively with the commercial bank debt problem of the country and pave the
way for the countrys access to capital markets.[14] They add that the Program carried
three basic options from which foreign bank lenders could choose, namely: to lend
money, to exchange existing restructured Philippine debts with an interest reduction
bond; or to exchange the same Philippine debts with a principal collateralized interest
reduction bond.[15]
Issues for Resolution
Petitioners raise several issues before this Court.
First, they object to the debt-relief contracts entered into pursuant to the Financing
Program as beyond the powers granted to the President under Section 20,
Article VII of the Constitution.[16] The provision states that the President may contract
or guarantee foreign loans in behalf of the Republic. It is claimed that the buyback
and securitization/bond conversion schemes are neither loans nor guarantees, and
hence beyond the power of the President to execute.
Second, according to petitioners even assuming that the contracts under the
Financing Program are constitutionally permissible, yet it is only the President who
may exercise the power to enter into these contracts and such power may not be
delegated to respondents.
Third, petitioners argue that the Financing Program violates several constitutional
policies and that contracts executed or to be executed pursuant thereto were or will
be done by respondents with grave abuse of discretion amounting to lack or excess
of jurisdiction.
Petitioners contend that the Financing Program was made available for debts that
were either fraudulently contracted or void. In this regard, petitioners rely on a 1992
Commission on Audit (COA) report which identified several behest loans as either
contracted or guaranteed fraudulently during the Marcos regime.[17] They posit that
since these and other similar debts, such as the ones pertaining to the Bataan
Nuclear Power Plant,[18] were eligible for buyback or conversion under the Program,
the resultant relief agreements pertaining thereto would be void for being waivers of
the Republics right to repudiate the void or fraudulently contracted loans.
For their part, respondents dispute the points raised by petitioners. They also
question the standing of petitioners to institute the present petition and the
justiciability of the issues presented.
The Court shall tackle the procedural questions ahead of the substantive issues.
The Courts Rulings
Standing of Petitioners
The individual petitioners are suing as citizens of the Philippines; those among them
who are of age are suing in their additional capacity as taxpayers.[19] It is not
indicated in what capacity the Freedom from Debt Coalition is suing.
Respondents point out that petitioners have no standing to file the present suit since
the rule allowing taxpayers to assail executive or legislative acts has been applied
only to cases where the constitutionality of a statute is involved. At the same time,
however, they urge this Court to exercise its wide discretion and waive petitioners
lack of standing. They invoke the transcendental importance of resolving the validity
of the questioned debt-relief contracts and others of similar import.
The recent trend on locus standi has veered towards a liberal treatment in taxpayers
suits. In Tatad v. Garcia Jr.,[20] this Court reiterated that the prevailing doctrines in
taxpayers suits are to allow taxpayers to question contracts entered into by the
national government or government owned and controlled corporations allegedly in
contravention of law.[21] A taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the enforcement
of an invalid or unconstitutional law.[22]
Moreover, a ruling on the issues of this case will not only determine the validity or
invalidity of the subject pre-termination and bond-conversion of foreign debts but also
create a precedent for other debts or debt-related contracts executed or to be
executed in behalf of the President of the Philippines by the Secretary of Finance.
Considering the reported Philippine debt of P3.80 trillion as of November 2004, the
foreign public borrowing component of which reached P1.81 trillion in November,
equivalent to 47.6% of total government borrowings,[23] the importance of the issues
raised and the magnitude of the public interest involved are indubitable.
Thus, the Courts cognizance of this petition is also based on the consideration that
the determination of the issues presented will have a bearing on the state of the
countrys economy, its international financial ratings, and perhaps even the Filipinos
way of life. Seen in this light, the transcendental importance of the issues herein
presented cannot be doubted.
Where constitutional issues are properly raised in the context of alleged facts,
procedural questions acquire a relatively minor significance.[24] We thus hold that by
the very nature of the power wielded by the President, the effect of using this power
on the economy, and the well-being in general of the Filipino nation, the Court must
set aside the procedural barrier of standing and rule on the justiciable issues
presented by the parties.
Ripeness/Actual Case Dimension
Even as respondents concede the transcendental importance of the issues at bar, in
their Rejoinder they ask this Court to dismiss the Petition. Allegedly, petitioners
arguments are mere attempts at abstraction.[25] Respondents are correct to some
degree. Several issues, as shall be discussed in due course, are not ripe for
adjudication.
The allegation that respondents waived the Philippines right to repudiate void and
fraudulently contracted loans by executing the debt-relief agreements is, on many
levels, not justiciable.
In the first place, records do not show whether the so-called behest loansor other
allegedly void or fraudulently contracted loans for that matterwere subject of the debt-
relief contracts entered into under the Financing Program.
Moreover, asserting a right to repudiate void or fraudulently contracted loans begs the
question of whether indeed particular loans are void or fraudulently contracted.
Fraudulently contracted loans are voidable and, as such, valid and enforceable until
annulled by the courts. On the other hand, void contracts that have already been
fulfilled must be declared void in view of the maxim that no one is allowed to take the
law in his own hands.[26] Petitioners theory depends on a prior annulment or
declaration of nullity of the pre-existing loans, which thus far have not been submitted
to this Court. Additionally, void contracts are unratifiable by their very nature; they are
null and void ab initio. Consequently, from the viewpoint of civil law, what petitioners
present as the Republics right to repudiate is yet a contingent right, one which cannot
be allowed as an anticipatory basis for annulling the debt-relief contracts. Petitioners
contention that the debt-relief agreements are tantamount to waivers of the Republics
right to repudiate so-called behest loans is without legal foundation.
It may not be amiss to recognize that there are many advocates of the position that
the Republic should renege on obligations that are considered as illegitimate.
However, should the executive branch unilaterally, and possibly even without prior
court determination of the validity or invalidity of these contracts, repudiate or
otherwise declare to the international community its resolve not to recognize a certain
set of illegitimate loans, adverse repercussions[27] would come into play. Dr. Felipe
Medalla, former Director General of the National Economic Development Authority,
has warned, thus:
One way to reduce debt service is to repudiate debts, totally or selectively. Taken to
its limit, however, such a strategy would put the Philippines at such odds with too
many enemies. Foreign commercial banks by themselves and without the
cooperation of creditor governments, especially the United States, may not be in a
position to inflict much damage, but concerted sanctions from commercial banks,
multilateral financial institutions and creditor governments would affect not only our
sources of credit but also our access to markets for our exports and the level of
development assistance. . . . [T]he country might face concerted sanctions even if
debts were repudiated only selectively.
The point that must be stressed is that repudiation is not an attractive alternative if net
payments to creditors in the short and medium-run can be reduced through an
agreement (as opposed to a unilaterally set ceiling on debt service payments) which
provides for both rescheduling of principal and capitalization of interest, or its
equivalent in new loans, which would make it easier for the country to pay interest.
[28]
Sovereign default is not new to the Philippine setting. In October 1983, the Philippines
declared a moratorium on principal payments on its external debts that eventually
lasted four years,[29] that virtually closed the country’s access to new foreign
money[30] and drove investors to leave the Philippine market, resulting in some
devastating consequences.[31] It would appear then that this beguilingly attractive
and dangerously simplistic solution deserves the utmost circumspect cogitation
before it is resorted to.
In any event, the discretion on the matter lies not with the courts but with the
executive. Thus, the Program was conceptualized as an offshoot of the decision
made by then President Aquino that the Philippines should recognize its sovereign
debts[32] despite the controversy that engulfed many debts incurred during the
Marcos era. It is a scheme whereby the Philippines restructured its debts following a
negotiated approach instead of a default approach to manage the bleak Philippine
debt situation.
As a final point, petitioners have no real basis to fret over a possible waiver of the
right to repudiate void contracts. Even assuming that spurious loans had become the
subject of debt-relief contracts, respondents unequivocally assert that the Republic
did not waive any right to repudiate void or fraudulently contracted loans, it having
incorporated a no-waiver clause in the agreements.[33]
Substantive Issues
It is helpful to put the matter in perspective before moving on to the merits. The
Financing Program extinguished portions of the country’s pre-existing loans through
either debt buyback or bond-conversion. The buyback approach essentially pre-
terminated portions of public debts while the bond-conversion scheme extinguished
public debts through the obtention of a new loan by virtue of a sovereign bond
issuance, the proceeds of which in turn were used for terminating the original loan.
First Issue: The Scope of Section 20, Article VII
For their first constitutional argument, petitioners submit that the buyback and bond-
conversion schemes do not constitute the loan contract or guarantee contemplated in
the Constitution and are consequently prohibited. Sec. 20, Art. VII of the Constitution
provides, viz:
The President may contract or guarantee foreign loans in behalf of the Republic of the
Philippines with the prior concurrence of the Monetary Board and subject to such
limitations as may be provided under law. The Monetary Board shall, within thirty
days from the end of every quarter of the calendar year, submit to the Congress a
complete report of its decisions on applications for loans to be contracted or
guaranteed by the government or government-owned and controlled corporations
which would have the effect of increasing the foreign debt, and containing other
matters as may be provided by law.
On Bond-conversion
Loans are transactions wherein the owner of a property allows another party to use
the property and where customarily, the latter promises to return the property after a
specified period with payment for its use, called interest.[34] On the other hand,
bonds are interest-bearing or discounted government or corporate securities that
obligate the issuer to pay the bondholder a specified sum of money, usually at
specific intervals, and to repay the principal amount of the loan at maturity.[35] The
word bond means contract, agreement, or guarantee. All of these terms are
applicable to the securities known as bonds. An investor who purchases a bond is
lending money to the issuer, and the bond represents the issuers contractual promise
to pay interest and repay principal according to specific terms. A short-term bond is
often called a note.[36]
The language of the Constitution is simple and clear as it is broad. It allows the
President to contract and guarantee foreign loans. It makes no prohibition on the
issuance of certain kinds of loans or distinctions as to which kinds of debt instruments
are more onerous than others. This Court may not ascribe to the Constitution
meanings and restrictions that would unduly burden the powers of the President. The
plain, clear and unambiguous language of the Constitution should be construed in a
sense that will allow the full exercise of the power provided therein. It would be the
worst kind of judicial legislation if the courts were to misconstrue and change the
meaning of the organic act.
The only restriction that the Constitution provides, aside from the prior concurrence of
the Monetary Board, is that the loans must be subject to limitations provided by law.
In this regard, we note that Republic Act (R.A.) No. 245 as amended by Pres. Decree
(P.D.) No. 142, s. 1973, entitled An Act Authorizing the Secretary of Finance to
Borrow to Meet Public Expenditures Authorized by Law, and for Other Purposes,
allows foreign loans to be contracted in the form of, inter alia, bonds. Thus:
Sec. 1. In order to meet public expenditures authorized by law or to provide for the
purchase, redemption, or refunding of any obligations, either direct or guaranteed of
the Philippine Government, the Secretary of Finance, with the approval of the
President of the Philippines, after consultation with the Monetary Board, is authorized
to borrow from time to time on the credit of the Republic of the Philippines such sum
or sums as in his judgment may be necessary, and to issue therefor evidences of
indebtedness of the Philippine Government."
Such evidences of indebtedness may be of the following types:
....
c. Treasury bonds, notes, securities or other evidences of indebtedness having
maturities of one year or more but not exceeding twenty-five years from the date of
issue. (Emphasis supplied.)
Under the foregoing provisions, sovereign bonds may be issued not only to
supplement government expenditures but also to provide for the purchase,[37]
redemption,[38] or refunding[39] of any obligation, either direct or guaranteed, of the
Philippine Government.
Petitioners, however, point out that a supposed difference between contracting a loan
and issuing bonds is that the former creates a definite creditor-debtor relationship
between the parties while the latter does not.[40] They explain that a contract of loan
enables the debtor to restructure or novate the loan, which benefit is lost upon the
conversion of the debts to bearer bonds such that the Philippines surrenders the
novatable character of a loan contract for the irrevocable and unpostponable
demandability of a bearer bond.[41] Allegedly, the Constitution prohibits the President
from issuing bonds which are far more onerous than loans.[42]
This line of thinking is flawed to say the least. The negotiable character of the subject
bonds is not mutually exclusive with the Republics freedom to negotiate with
bondholders for the revision of the terms of the debt. Moreover, the securities market
provides some flexibilityif the Philippines wants to pay in advance, it can buy out its
bonds in the market; if interest rates go down but the Philippines does not have
money to retire the bonds, it can replace the old bonds with new ones; if it defaults on
the bonds, the bondholders shall organize and bring about a re-negotiation or
settlement.[43] In fact, several countries have restructured their sovereign bonds in
view either of inability and/or unwillingness to pay the indebtedness.[44] Petitioners
have not presented a plausible reason that would preclude the Philippines from acting
in a similar fashion, should it so opt.
This theory may even be dismissed in a perfunctory manner since petitioners are
merely expecting that the Philippines would opt to restructure the bonds but with the
negotiable character of the bonds, would be prevented from so doing. This is a
contingency which petitioners do not assert as having come to pass or even
imminent. Consummated acts of the executive cannot be struck down by this Court
merely on the basis of petitioners anticipatory cavils.
On the Buyback Scheme
In their Comment, petitioners assert that the power to pay public debts lies with
Congress and was deliberately withheld by the Constitution from the President.[45] It
is true that in the balance of power between the three branches of government, it is
Congress that manages the countrys coffers by virtue of its taxing and spending
powers. However, the law-making authority has promulgated a law ordaining an
automatic appropriations provision for debt servicing[46] by virtue of which the
President is empowered to execute debt payments without the need for further
appropriations. Regarding these legislative enactments, this Court has held, viz:
Congress deliberates or acts on the budget proposals of the President, and
Congress in the exercise of its own judgment and wisdom formulates an appropriation
act precisely following the process established by the Constitution, which specifies
that no money may be paid from the Treasury except in accordance with an
appropriation made by law.
Debt service is not included in the General Appropriation Act, since authorization
therefor already exists under RA Nos. 4860 and 245, as amended, and PD 1967.
Precisely in the light of this subsisting authorization as embodied in said Republic
Acts and PD for debt service, Congress does not concern itself with details for
implementation by the Executive, but largely with annual levels and approval thereof
upon due deliberations as part of the whole obligation program for the year. Upon
such approval, Congress has spoken and cannot be said to have delegated its
wisdom to the Executive, on whose part lies the implementation or execution of the
legislative wisdom.[47]
Specific legal authority for the buyback of loans is established under Section 2 of
Republic Act (R.A.) No. 240, viz:
Sec. 2. The Secretary of Finance shall cause to be paid out of any moneys in the
National Treasury not otherwise appropriated, or from any sinking funds provided for
the purpose by law, any interest falling due, or accruing, on any portion of the public
debt authorized by law. He shall also cause to be paid out of any such money, or from
any such sinking funds the principal amount of any obligations which have matured,
or which have been called for redemption or for which redemption has been
demanded in accordance with terms prescribed by him prior to date of issue:
Provided, however, That he may, if he so chooses and if the holder is willing,
exchange any such obligation with any other direct or guaranteed obligation or
obligations of the Philippine Government of equivalent value. In the case of interest-
bearing obligations, he shall pay not less than their face value; in the case of
obligations issued at a discount he shall pay the face value at maturity; or, if
redeemed prior to maturity, such portion of the face value as is prescribed by the
terms and conditions under which such obligations were originally issued. (Emphasis
supplied.)
The afore-quoted provisions of law specifically allow the President to pre-terminate
debts without further action from Congress.
Petitioners claim that the buyback scheme is neither a guarantee nor a loan since its
underlying intent is to extinguish debts that are not yet due and demandable.[48]
Thus, they suggest that contracts entered pursuant to the buyback scheme are
unconstitutional for not being among those contemplated in Sec. 20, Art. VII of the
Constitution.
Buyback is a necessary power which springs from the grant of the foreign borrowing
power. Every statute is understood, by implication, to contain all such provisions as
may be necessary to effectuate its object and purpose, or to make effective rights,
powers, privileges or jurisdiction which it grants, including all such collateral and
subsidiary consequences as may be fairly and logically inferred from its terms.[49]
The President is not empowered to borrow money from foreign banks and
governments on the credit of the Republic only to be left bereft of authority to
implement the payment despite appropriations therefor.
Even petitioners concede that [t]he Constitution, as a rule, does not enumerate let
alone enumerate all the acts which the President (or any other public officer) may not
do,[50] and [t]he fact that the Constitution does not explicitly bar the President from
exercising a power does not mean that he or she does not have that power.[51] It is
inescapable from the standpoint of reason and necessity that the authority to contract
foreign loans and guarantees without restrictions on payment or manner thereof
coupled with the availability of the corresponding appropriations, must include the
power to effect payments or to make payments unavailing by either restructuring the
loans or even refusing to make any payment altogether.
More fundamentally, when taken in the context of sovereign debts, a buyback is
simply the purchase by the sovereign issuer of its own debts at a discount. Clearly
then, the objection to the validity of the buyback scheme is without basis.
Second Issue: Delegation of Power
Petitioners stress that unlike other powers which may be validly delegated by the
President, the power to incur foreign debts is expressly reserved by the Constitution
in the person of the President. They argue that the gravity by which the exercise of
the power will affect the Filipino nation requires that the President alone must
exercise this power. They submit that the requirement of prior concurrence of an
entity specifically named by the Constitutionthe Monetary Boardreinforces the
submission that not respondents but the President alone and personally can validly
bind the country.
Petitioners position is negated both by explicit constitutional[52] and legal[53]
imprimaturs, as well as the doctrine of qualified political agency.
The evident exigency of having the Secretary of Finance implement the decision of
the President to execute the debt-relief contracts is made manifest by the fact that the
process of establishing and executing a strategy for managing the governments debt
is deep within the realm of the expertise of the Department of Finance, primed as it is
to raise the required amount of funding, achieve its risk and cost objectives, and meet
any other sovereign debt management goals.[54]
If, as petitioners would have it, the President were to personally exercise every aspect
of the foreign borrowing power, he/she would have to pause from running the country
long enough to focus on a welter of time-consuming detailed activitiesthe propriety of
incurring/guaranteeing loans, studying and choosing among the many methods that
may be taken toward this end, meeting countless times with creditor representatives
to negotiate, obtaining the concurrence of the Monetary Board, explaining and
defending the negotiated deal to the public, and more often than not, flying to the
agreed place of execution to sign the documents. This sort of constitutional
interpretation would negate the very existence of cabinet positions and the respective
expertise which the holders thereof are accorded and would unduly hamper the
Presidents effectivity in running the government.
Necessity thus gave birth to the doctrine of qualified political agency, later adopted in
Villena v. Secretary of the Interior[55] from American jurisprudence, viz:
With reference to the Executive Department of the government, there is one purpose
which is crystal-clear and is readily visible without the projection of judicial
searchlight, and that is the establishment of a single, not plural, Executive. The first
section of Article VII of the Constitution, dealing with the Executive Department,
begins with the enunciation of the principle that "The executive power shall be vested
in a President of the Philippines." This means that the President of the Philippines is
the Executive of the Government of the Philippines, and no other. The heads of the
executive departments occupy political positions and hold office in an advisory
capacity, and, in the language of Thomas Jefferson, "should be of the President's
bosom confidence" (7 Writings, Ford ed., 498), and, in the language of Attorney-
General Cushing (7 Op., Attorney-General, 453), "are subject to the direction of the
President." Without minimizing the importance of the heads of the various
departments, their personality is in reality but the projection of that of the President.
Stated otherwise, and as forcibly characterized by Chief Justice Taft of the Supreme
Court of the United States, "each head of a department is, and must be, the
President's alter ego in the matters of that department where the President is required
by law to exercise authority" (Myers vs. United States, 47 Sup. Ct. Rep., 21 at 30; 272
U. S., 52 at 133; 71 Law. ed., 160).[56]
As it was, the backdrop consisted of a major policy determination made by then
President Aquino that sovereign debts have to be respected and the concomitant
reality that the Philippines did not have enough funds to pay the debts. Inevitably, it
fell upon the Secretary of Finance, as the alter ego of the President regarding the
sound and efficient management of the financial resources of the Government,[57] to
formulate a scheme for the implementation of the policy publicly expressed by the
President herself.
Nevertheless, there are powers vested in the President by the Constitution which may
not be delegated to or exercised by an agent or alter ego of the President. Justice
Laurel, in his ponencia in Villena, makes this clear:
Withal, at first blush, the argument of ratification may seem plausible under the
circumstances, it should be observed that there are certain acts which, by their very
nature, cannot be validated by subsequent approval or ratification by the President.
There are certain constitutional powers and prerogatives of the Chief Executive of the
Nation which must be exercised by him in person and no amount of approval or
ratification will validate the exercise of any of those powers by any other person.
Such, for instance, in his power to suspend the writ of habeas corpus and proclaim
martial law (PAR. 3, SEC. 11, Art. VII) and the exercise by him of the benign
prerogative of mercy (par. 6, sec. 11, idem).[58]
These distinctions hold true to this day. There are certain presidential powers which
arise out of exceptional circumstances, and if exercised, would involve the
suspension of fundamental freedoms, or at least call for the supersedence of
executive prerogatives over those exercised by co-equal branches of government.
The declaration of martial law, the suspension of the writ of habeas corpus, and the
exercise of the pardoning power notwithstanding the judicial determination of guilt of
the accused, all fall within this special class that demands the exclusive exercise by
the President of the constitutionally vested power. The list is by no means exclusive,
but there must be a showing that the executive power in question is of similar gravitas
and exceptional import.
We cannot conclude that the power of the President to contract or guarantee foreign
debts falls within the same exceptional class. Indubitably, the decision to contract or
guarantee foreign debts is of vital public interest, but only akin to any contractual
obligation undertaken by the sovereign, which arises not from any extraordinary
incident, but from the established functions of governance.
Another important qualification must be made. The Secretary of Finance or any
designated alter ego of the President is bound to secure the latters prior consent to or
subsequent ratification of his acts. In the matter of contracting or guaranteeing foreign
loans, the repudiation by the President of the very acts performed in this regard by
the alter ego will definitely have binding effect. Had petitioners herein succeeded in
demonstrating that the President actually withheld approval and/or repudiated the
Financing Program, there could be a cause of action to nullify the acts of
respondents. Notably though, petitioners do not assert that respondents pursued the
Program without prior authorization of the President or that the terms of the contract
were agreed upon without the Presidents authorization. Congruent with the avowed
preference of then President Aquino to honor and restructure existing foreign debts,
the lack of showing that she countermanded the acts of respondents leads us to
conclude that said acts carried presidential approval.
With constitutional parameters already established, we may also note, as a source of
suppletory guidance, the provisions of R.A. No. 245. The afore-quoted Section 1
thereof empowers the Secretary of Finance with the approval of the President and
after consultation[59] of the Monetary Board, to borrow from time to time on the credit
of the Republic of the Philippines such sum or sums as in his judgment may be
necessary, and to issue therefor evidences of indebtedness of the Philippine
Government. Ineluctably then, while the President wields the borrowing power it is the
Secretary of Finance who normally carries out its thrusts.
In our recent rulings in Southern Cross Cement Corporation v. The Philippine Cement
Manufacturers Corp.,[60] this Court had occasion to examine the authority granted by
Congress to the Department of Trade and Industry (DTI) Secretary to impose
safeguard measures pursuant to the Safeguard Measures Act. In doing so, the Court
was impelled to construe Section 28(2), Article VI of the Constitution, which allowed
Congress, by law, to authorize the President to fix within specified limits, and subject
to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government.[61]
While the Court refused to uphold the broad construction of the grant of power as
preferred by the DTI Secretary, it nonetheless tacitly acknowledged that Congress
could designate the DTI Secretary, in his capacity as alter ego of the President, to
exercise the authority vested on the chief executive under Section 28(2), Article VI.
[62] At the same time, the Court emphasized that since Section 28(2), Article VI
authorized Congress to impose limitations and restrictions on the authority of the
President to impose tariffs and imposts, the DTI Secretary was necessarily subjected
to the same restrictions that Congress could impose on the President in the exercise
of this taxing power.
Similarly, in the instant case, the Constitution allocates to the President the exercise
of the foreign borrowing power subject to such limitations as may be provided under
law. Following Southern Cross, but in line with the limitations as defined in Villena, the
presidential prerogative may be exercised by the Presidents alter ego, who in this
case is the Secretary of Finance.
It bears emphasis that apart from the Constitution, there is also a relevant statute,
R.A. No. 245, that establishes the parameters by which the alter ego may act in
behalf of the President with respect to the borrowing power. This law expressly
provides that the Secretary of Finance may enter into foreign borrowing contracts.
This law neither amends nor goes contrary to the Constitution but merely implements
the subject provision in a manner consistent with the structure of the Executive
Department and the alter ego doctine. In this regard, respondents have declared that
they have followed the restrictions provided under R.A. No. 245,[63] which include the
requisite presidential authorization and which, in the absence of proof and even
allegation to the contrary, should be regarded in a fashion congruent with the
presumption of regularity bestowed on acts done by public officials.
Moreover, in praying that the acts of the respondents, especially that of the Secretary
of Finance, be nullified as being in violation of a restrictive constitutional
interpretation, petitioners in effect would have this Court declare R.A. No. 245
unconstitutional. We will not strike down a law or provisions thereof without so much
as a direct attack thereon when simple and logical statutory construction would
suffice.
Petitioners also submit that the unrestricted character of the Financing Program
violates the framers intent behind Section 20, Article VII to restrict the power of the
President. This intent, petitioners note, is embodied in the proviso in Sec. 20, Art. VII,
which states that said power is subject to such limitations as may be provided under
law. However, as previously discussed, the debt-relief contracts are governed by the
terms of R.A. No. 245, as amended by P.D. No. 142 s. 1973, and therefore were not
developed in an unrestricted setting.
Third Issue: Grave Abuse of Discretion and Violation of Constitutional Policies
We treat the remaining issues jointly, for in view of the foregoing determination, the
general allegation of grave abuse of discretion on the part of respondents would arise
from the purported violation of various state policies as expressed in the Constitution.
Petitioners allege that the Financing Program violates the constitutional state policies
to promote a social order that will ensure the prosperity and independence of the
nation and free the people from poverty,[64] foster social justice in all phases of
national development,[65] and develop a self-reliant and independent national
economy effectively controlled by Filipinos;[66] thus, the contracts executed or to be
executed pursuant thereto were or would be tainted by a grave abuse of discretion
amounting to lack or excess of jurisdiction.
Respondents cite the following in support of the propriety of their acts:[67] (1) a
Department of Finance study showing that as a result of the implementation of
voluntary debt reductions schemes, the countrys debt stock was reduced by U.S.
$4.4 billion as of December 1991;[68] (2) revelations made by independent
individuals made in a hearing before the Senate Committee on Economic Affairs
indicating that the assailed agreements would bring about substantial benefits to the
country;[69] and (3) the Joint Legislative-Executive Foreign Debt Councils
endorsement of the approval of the financing package containing the debt-relief
agreements and issuance of a Motion to Urge the Philippine Debt Negotiating Panel
to continue with the negotiation on the aforesaid package.[70]
Even with these justifications, respondents aver that their acts are within the arena of
political questions which, based on the doctrine of separation of powers,[71] the
judiciary must leave without interference lest the courts substitute their judgment for
that of the official concerned and decide a matter which by its nature or law is for the
latter alone to decide.[72]
On the other hand, in furtherance of their argument on respondents violation of
constitutional policies, petitioners cite an article of Jude Esguerra, The 1992 Buyback
and Securitization Agreement with Philippine Commercial Bank Creditors,[73] in
illustrating a best-case scenario in entering the subject debt-relief agreements. The
computation results in a yield of $218.99 million, rather than the $2,041.00 million
claimed by the debt negotiators.[74] On the other hand, the worst-case scenario
allegedly is that a net amount of $1.638 million will flow out of the country as a result
of the debt package.[75]
Assuming the accuracy of the foregoing for the nonce, despite the watered-down
parameters of petitioners computations, we can make no conclusion other than that
respondents efforts were geared towards debt-relief with marked positive results and
towards achieving the constitutional policies which petitioners so hastily declare as
having been violated by respondents. We recognize that as with other schemes
dependent on volatile market and economic structures, the contracts entered into by
respondents may possibly have a net outflow and therefore negative result. However,
even petitioners call this latter event the worst-case scenario. Plans are seldom
foolproof. To ask the Court to strike down debt-relief contracts, which, according to
independent third party evaluations using historically-suggested rates would result in
substantial debt-relief,[76] based merely on the possibility of petitioners worst-case
scenario projection, hardly seems reasonable.
Moreover, the policies set by the Constitution as litanized by petitioners are not a
panacea that can annul every governmental act sought to be struck down. The gist of
petitioners arguments on violation of constitutional policies and grave abuse of
discretion boils down to their allegation that the debt-relief agreements entered into by
respondents do not deliver the kind of debt-relief that petitioners would want.
Petitioners cite the aforementioned article in stating that that the agreement achieves
little that cannot be gained through less complicated means like postponing
(rescheduling) principal payments,[77] thus:
[T]he price of success in putting together this debt-relief package (indicates) the
possibility that a simple rescheduling agreement may well turn out to be less
expensive than this comprehensive debt-relief package. This means that in the next
six years the humble and simple rescheduling process may well be the lesser evil
because there is that distinct possibility that less money will flow out of the country as
a result.
Note must be taken that from these citations, petitioners submit that there is possibly
a better way to go about debt rescheduling and, on that basis, insist that the acts of
respondents must be struck down. These are rather tenuous grounds to condemn the
subject agreements as violative of constitutional principles.
Conclusion
The raison d etre of the Financing Program is to manage debts incurred by the
Philippines in a manner that will lessen the burden on the Filipino taxpayersthus the
term debt-relief agreements. The measures objected to by petitioners were not aimed
at incurring more debts but at terminating pre-existing debts and were backed by the
know-how of the countrys economic managers as affirmed by third party empirical
analysis.
That the means employed to achieve the goal of debt-relief do not sit well with
petitioners is beyond the power of this Court to remedy. The exercise of the power of
judicial review is merely to checknot supplantthe Executive, or to simply ascertain
whether he has gone beyond the constitutional limits of his jurisdiction but not to
exercise the power vested in him or to determine the wisdom of his act.[78] In cases
where the main purpose is to nullify governmental acts whether as unconstitutional or
done with grave abuse of discretion, there is a strong presumption in favor of the
validity of the assailed acts. The heavy onus is in on petitioners to overcome the
presumption of regularity.
We find that petitioners have not sufficiently established any basis for the Court to
declare the acts of respondents as unconstitutional.
WHEREFORE the petition is hereby DISMISSED. No costs.
SO ORDERED.
G.R. No. L-43446May 3, 1988
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant,
vs.
NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, defendant-appellee.
GRIÑO-AQUINO, J.:
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter referred to as "FPFC"
for brevity) appealed the dismissal of its complaint against defendant National
Waterworks and Sewerage Authority (NAWASA) by the Court of First Instance of
Manila on September 5, 1973. The appeal was originally brought to the Court of
Appeals. However, finding that the principal purpose of the action was to secure a
judicial declaration that there exists 'extraordinary inflation' within the meaning of
Article 1250 of the New Civil Code to warrant the application of that provision, the
Court of Appeals, pursuant to Section 3, Rule 50 of the Rules of Court, certified the
case to this Court for proper disposition.
On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC for the
latter to supply it with 4" and 6" diameter centrifugally cast iron pressure pipes worth
P270,187.50 to be used in the construction of the Anonoy Waterworks in Masbate
and the Barrio San Andres-Villareal Waterworks in Samar. Defendant NAWASA paid
in installments on various dates, a total of One Hundred Thirty-Four Thousand and
Six Hundred Eighty Pesos (P134,680.00) leaving a balance of One Hundred Thirty-
Five Thousand, Five Hundred Seven Pesos and Fifty centavos (P135,507.50)
excluding interest. Having completed the delivery of the pipes, the plaintiff demanded
payment from the defendant of the unpaid balance of the price with interest in
accordance with the terms of their contract. When the NAWASA failed to pay the
balance of its account, the plaintiff filed a collection suit on March 16, 1967 which was
docketed as Civil Case No. 66784 in the Court of First Instance of Manila.
On November 23, 1967, the trial court rendered judgment in Civil Case No. 66784
ordering the defendant to pay the unpaid balance of P135,507.50 in NAWASA
negotiable bonds, redeemable after ten years from their issuance with interest at 6%
per annum, P40,944.73 as interest up to March 15, 1966 and the interest accruing
thereafter to the issuance of the bonds at 6% per annum and the costs. Defendant,
however, failed to satisfy the decision. It did not deliver the bonds to the judgment
creditor. On February 18, 1971, the plaintiff FPFC filed another complaint which was
docketed as Civil Case No. 82296, seeking an adjustment of the unpaid balance in
accordance with the value of the Philippine peso when the decision in Civil Case No.
66784 was rendered on November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground
that it is barred by the 1967 decision in Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the motion to dismiss on the
ground that the bar by prior judgment did not apply to the case because the causes of
action in the two cases are different: the first action being for collection of the
defendant's indebtedness for the pipes, while the second case is for adjustment of the
value of said judgment due to alleged supervening extraordinary inflation of the
Philippine peso which has reduced the value of the bonds paid to the plaintiff.
Article 1250 of the Civil Code provides:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary..
The court suggested to the parties during the trial that they present expert testimony
to help it in deciding whether the economic conditions then, and still prevailing, would
justify the application of Article 1250 of the Civil Code. The plaintiff presented
voluminous records and statistics showing that a spiralling inflation has marked the
progress of the country from 1962 up to the present. There is no denying that the
price index of commodities, which is the usual evidence of the value of the currency
has been rising.
The trial court pointed out, however, than this is a worldwide occurence, but hardly
proof that the inflation is extraordinary in the sense contemplated by Article 1250 of
the Civil Code, which was adopted by the Code Commission to provide "a just
solution" to the "uncertainty and confusion as a result of Malabanan contracts entered
into or payments made during the last war." (Report of the Code Commission, 132-
133.)
Noting that the situation situation during the Japanese Occupation "cannot that the be
compared with the economic conditions today," the a. Malabanan trial court, on
September 5, 1973, rendered judgment dismissing the complaint.
The only issue before Us whether, on the basis of the continously spiralling price
index indisputably shown by the plaintiff, there exists an extraordinary inflation of the
currency justifying an adjustment of defendant appellee's unpaid judgment obligation
the plaintiff-appellant.
Extraordinary inflation exists "when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation
in the value said currency, and such decrease or increase could not have reasonably
foreseen or was manifestly beyond contemplation the the parties at the time of the
establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the
Civil Code Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of what happened to
the Deutschmark in 1920:
More recently, in the 1920's Germany experienced a case of hyperinflation. In early
1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same
year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that
by October 1923, it had reached 4.2 trillion to the U.S. dollar! (Bernardo M. Villegas &
Victor R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every hour.
Women were paid several times a day so that they could rush out and exchange their
money for something of value before what little purchasing power was left dissolved
in their hands. Some workers tried to beat the constantly rising prices by throwing
their money out of the windows to their waiting wives, who would rush to upload the
nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread,
billions." (Sidney Rutberg, "The Money Balloon" New York: Simon and Schuster,
1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)

While appellant's voluminous records and statistics proved that there has been a
decline in the purchasing power of the Philippine peso, this downward fall of the
currency cannot be considered "extraordinary." It is simply a universal trend that has
not spared our country.

WHEREFORE, finding no reversible error in the appealed decision of the trial court,
We affirm it in toto. No costs.

SO ORDERED.
G.R. No. 137798. October 4, 2000
LUCIA R. SINGSON, petitioner, vs. CALTEX (PHILIPPINES), INC. respondent.
DECISION
GONZAGA-REYES, J.:
Petitioner seeks a review on certiorari of the decision of the former Special Second
Division of the Court of Appeals dated November 27, 1998,[1] affirming the decision
of the Regional Trial Court of Manila, Branch 25[2] which dismissed petitioner's action
for reformation of contract and adjustment of rentals.
The facts of the case are undisputed ---
Petitioner and respondent entered into a contract of lease on July 16, 1968 over a
parcel of land in Cubao, Quezon City. The land, which had an area of 1,400 square
meters and was covered by Transfer Certificates of Title No. 43329 and 81636 issued
by the Register of Deeds of Quezon City, was to be used by respondent as a gasoline
service station.
The contract of lease provides that the lease shall run for a period of twenty (20)
years and shall abide by the following rental rates:
xxx xxx xxx xxx
Rental. --- The LESSEE agrees to pay the following rental for said premises:
P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m. per month from
the 11th to 20th years, payable monthly in advance within the 1st 15 days of each
month; provided that the rentals for the 1st 5 years less a discount of eleven (11)
percent per annum computed on a monthly diminishing balance, shall be paid to
LESSOR upon compliance of the three (3) conditions provided in clause (2) above.
LESSEE also agrees to pay lessor, the sum of Six Thousand Pesos (P6,000.00) as
demolition expenses, upon effectivity of this lease.
The rental herein provided for is in any event the maximum rental which LESSOR
may collect during the term of this lease or any renewal or extension thereof.
LESSEE further agrees for thirty (30) days after written notice of such default has
actually been delivered to the General Manager of Caltex (Philippines), Inc. LESSOR
shall then have the right to terminate this lease on thirty (30) days written notice to
LESSEE. xxx xxx xxx [3]
Thus, based on the foregoing provisions of the lease contract, the monthly rental was
fixed at P3,500.00 for the first ten years, and at P4,200.00 for the succeeding ten
years of the lease.
On June 23, 1983, or five years before the expiration of the lease contract, petitioner
asked respondent to adjust or increase the amount of rentals citing that the country
was experiencing extraordinary inflation. In a letter dated August 3, 1983, respondent
refused petitioner's request and declared that the terms of the lease contract are clear
as to the rental amounts therein provided being "the maximum rental which the lessor
may collect during the term of the lease."[4]
On September 21, 1983, petitioner instituted a complaint before the RTC praying for,
among other things, the payment by respondent of adjusted rentals based on the
value of the Philippine peso at the time the contract of lease was executed. The
complaint invoked Article 1250 of the Civil Code, stating that since the execution of
the contract of lease in 1968 an extraordinary inflation had supervened resulting from
the deterioration of worldwide economic conditions, a circumstance that was not
foreseen and could not have been reasonably foreseen by the parties at the time they
entered into contract.
To substantiate its allegation of extraordinary inflation, petitioner presented as witness
Mr. Narciso Uy, Assistant Director of the Supervising and Examining Sector of the
Central Bank, who attested that the inflation rate increased abruptly during the period
1982 to 1985, caused mainly by the devaluation of the peso.[5] Petitioner also
submitted into evidence a certification of the official inflation rates from 1966 to 1986
prepared by the National Economic Development Authority ("NEDA") based on
consumer price index, which reflected that at the time the parties entered into the
subject contract, the inflation rate was only 2.06%; then, it soared to 34.51% in 1974,
and in 1984, reached a high of 50.34%.[6]
In a decision rendered on July 15, 1991, the RTC dismissed the complaint for lack of
merit. This judgment was affirmed by the Court of Appeals. Both courts found that
petitioner was unable to prove the existence of extraordinary inflation from 1968 to
1983 (or from the year of the execution of the contract up to the year of the filing of
the complaint before the RTC) as to justify an adjustment or increase in the rentals
based upon the provisions of Article 1250 of the Civil Code.
The Court of Appeals declared that although, admittedly, there was an economic
inflation during the period in question, it was not such as to call for the application of
Article 1250 which is made to apply only to "violent and sudden changes in the price
level or uncommon or unusual decrease of the value of the currency. (It) does not
contemplate of a normal or ordinary decline in the purchasing power of the peso."[7]
The Court of Appeals also found similarly with the trial court that the terms of rental in
the contract of lease dated July 16, 1968 are clear and unequivocal as to the specific
amount of the rental rates and the fact that the rentals therein provided shall be the
"maximum rental" which petitioner as lessor may collect. Absent any showing that
such contractual provisions are contrary to law, morals, good customs, public order or
public policy, the Court of Appeals held that there was no basis for not acknowledging
their binding effect upon the parties. It also upheld the application by the trial court of
the ruling in Filipino Pipe and Foundry Corporation vs. National Waterworks and
Sewerage Authority, 161 SCRA 32, where the Court held that although there has
been a decline in the purchasing power of the Philippine peso during the period 1961
to 1971, such downward fall of the currency could not be considered "extraordinary"
and was simply a universal trend that has not spared the Philippines.
Thus, the dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, in view of the foregoing, the appeal is hereby DISMISSED and the
decision appealed from is hereby AFFIRMED.
SO ORDERED.[8]
Petitioner's motion for reconsideration of the above decision was denied by the Court
of Appeals in a resolution dated March 10, 1999.
Aggrieved, petitioner filed this petition for review on certiorari where she assails as
erroneous the decision of the Court of Appeals, specifically, (1) in ruling that Article
1250 of the Civil Code is inapplicable to the instant case, (2) in not recognizing the
applicability of the principle of rebus sic stantibus, and (3) in applying the ruling in
Filipino Pipe and Foundry Corporation vs. NAWASA.
Petitioner contends that the monthly rental of P3.00 per square meter is patently
inequitable. Based on the inflation rates supplied by NEDA, there was an unusual
increase in inflation that could not have been foreseen by the parties; otherwise, they
would not have entered into a relatively long-term contract of lease. She argued that
the rentals in this case should not be regarded by their quantitative or nominal value,
but as "debts of value", that is, the rental rates should be adjusted to reflect the value
of the peso at the time the lease was contracted.[9]
Petitioner also insists that the factual milieu of the present case is distinct from that in
Filipino Pipe and Foundry Corporation vs. NAWASA. She pointed out that the inflation
experienced by the country during the period 1961 to 1971 (the pertinent time period
in the Filipino Pipe case) had a lowest of 1.35% in 1969 and a highest of 15.03% in
1971, whereas in the instant case, involving the period 1968 to 1983, there had been
highly abnormal inflation rates like 34.51% in 1974 (triggered by the OPEC oil price
increases in 1973) and 50.34% in 1984 (caused by the assassination of Benigno
Aquino, Jr. in 1983). Petitioner argues that the placing of the country under martial
rule in 1972, the OPEC oil price increases in 1973, and the Aquino assassination
which triggered the EDSA revolution, were fortuitous events that drastically affected
the Philippine economy and were beyond the reasonable contemplation of the
parties.
To further bolster her arguments, petitioner invokes by analogy the principle of rebus
sic stantibus in public international law, under which a vital change of circumstances
justifies a state's unilateral withdrawal from a treaty. In the herein case, petitioner
posits that in pegging the monthly rental rates of P2.50 and P3.00 per square meter,
respectively, the parties were guided by the economic conditions prevalent in 1968,
when the Philippines faced robust economic prospects. Petitioner contends that
between her and respondent, a corporation engaged in high stakes business and
employing economic and business experts, it is the latter who had the unmistakable
advantage to analyze the feasibility of entering into a 20-year lease contract at such
meager rates.
The only issue crucial to the present appeal is whether there existed an extraordinary
inflation during the period 1968 to 1983 that would call for the application of Article
1250 of the Civil Code and justify an adjustment or increase of the rentals between
the parties.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
Article 1250 was inserted in the Civil Code of 1950 to abate the uncertainty and
confusion that affected contracts entered into or payments made during World War II,
and to help provide a just solution to future cases.[10] The Court has, in more than
one occasion, been asked to interpret the provisions of Article 1250, and to expound
on the scope and limits of "extraordinary inflation".
We have held extraordinary inflation to exist when there is a decrease or increase in
the purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.[11]
An example of extraordinary inflation, as cited by the Court in Filipino Pipe and
Foundry Corporation vs. NAWASA, supra, is that which happened to the deutschmark
in 1920. Thus:
"More recently, in the 1920s, Germany experienced a case of hyperinflation. In early
1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same
year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that
by October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas
& Victor R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every hour.
Women were paid several times a day so that they could rush out and exchange their
money for something of value before what little purchasing power was left dissolved
in their hands. Some workers tried to beat the constantly rising prices by throwing
their money out of the windows to their waiting wives, who would rush to unload the
nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread,
billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and Schuster,
1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)
The supervening of extraordinary inflation is never assumed.[12] The party alleging it
must lay down the factual basis for the application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records
and statistics submitted by plaintiff-appellant proved that there has been a decline in
the purchasing power of the Philippine peso, but this downward fall cannot be
considered "extraordinary" but was simply a universal trend that has not spared our
country.[13] Similarly, in Huibonhoa vs. Court of Appeals,[14] the Court dismissed
plaintiff-appellant's unsubstantiated allegation that the Aquino assassination in 1983
caused building and construction costs to double during the period July 1983 to
February 1984. In Serra vs. Court of Appeals,[15] the Court again did not consider the
decline in the peso's purchasing power from 1983 to 1985 to be so great as to result
in an extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also raises as basis for the
application of Article 1250 the Philippine economic crisis in the early 1980s --- when,
based on petitioner's evidence, the inflation rate rose to 50.34% in 1984. We hold that
there is no legal or factual basis to support petitioner's allegation of the existence of
extraordinary inflation during this period, or, for that matter, the entire time frame of
1968 to 1983, to merit the adjustment of the rentals in the lease contract dated July
16, 1968. Although by petitioner's evidence there was a decided decline in the
purchasing power of the Philippine peso throughout this period, we are hard put to
treat this as an "extraordinary inflation" within the meaning and intent of Article 1250.
Rather, we adopt with approval the following observations of the Court of Appeals on
petitioner's evidence, especially the NEDA certification of inflation rates based on
consumer price index:

xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100%
in any single year; (b) the highest official inflation rate recorded was in 1984 which
reached only 50.34%; (c) over a twenty one (21) year period, the Philippines
experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969,
1975, 1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972,
1973, 1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the Philippines
experienced double-digit inflation rates, the average of those rates was only 20.88%;
(e) while there was a decline in the purchasing power of the Philippine currency from
the period 1966 to 1986, such cannot be considered as extraordinary; rather, it is a
normal erosion of the value of the Philippine peso which is a characteristic of most
currencies.[16]

"Erosion" is indeed an accurate description of the trend of decline in the value of the
peso in the past three to four decades. Unfortunate as this trend may be, it is certainly
distinct from the phenomenon contemplated by Article 1250.

Moreover, this Court has held that the effects of extraordinary inflation are not to be
applied without an official declaration thereof by competent authorities.[17]

Lastly, the provisions on rentals in the lease contract dated July 16, 1968 between
petitioner and respondent are clear and categorical, and we have no reason to
suppose that such lease contract does not reflect or express their true intention and
agreement. The contract is the law between the parties and if there is indeed reason
to adjust the rent, the parties could have by themselves negotiated the amendment of
the contract.[18]

WHEREFORE, the petition seeking the reversal of the decision of the Court of
Appeals in CA-G.R. CV No. 54115 is DENIED.

SO ORDERED.
G.R. No. 90676 June 19, 1991
STATE INVESTMENT HOUSE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. JUDGE PERLITA J. TRIA
TIRONA, Presiding Judge of the Regional Trial Court of Quezon City, Branch CII and
SPS. RAFAEL and REFUGIO AQUINO, respondents.
FELICIANO, J.:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain
shares of stock to petitioner State Investment House, Inc. ("State") in order to secure
a loan of P120,000.00 designated as Account No. IF-82-0631-AA. Prior to the
execution of the pledge, respondent-spouses, as an accommodation to and together
with the spouses Jose and Marcelina Aquino, signed an agreement (Account No. IF-
82-1379-AA) with petitioner State for the latter's purchase of receivables amounting to
P375,000.00. When Account No. IF-82-0631-AA fell due, respondent spouses paid
the same partly with their own funds and partly from the proceeds of another loan
which they obtained also from petitioner State designated as Account No. IF-82-0904-
AA. This new loan was secured by the same pledge agreement executed in relation
to Account No. IF-820631-AA. When the new loan matured, State demanded
payment. Respondents expressed willingness to pay, requesting that upon payment,
the shares of stock pledged be released. Petitioner State denied the request on the
ground that the loan which it had extended to the spouses Jose and Marcelina Aquino
(Account No. IF-82-1379- AA) had remained unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of
Notarial Sale stating that upon request of State and by virtue of the pledge
agreement, he would sell at public auction the shares of stock pledged to State. This
prompted respondents to file a case before the Regional Trial Court of Quezon City
alleging that the intended foreclosure sale was illegal because from the time the
obligation under Account No. IF-82-0904-AA became due, they had been able and
willing to pay the same, but petitioner had insisted that respondents pay even the loan
account of Jose and Marcelina Aquino which had not been secured by the pledge. It
was further alleged that their failure to pay their loan (Account No. IF-82-0904-AA)
was excused because the petitioner State itself had prevented the satisfaction of the
obligation.
The trial court, in a decision dated 14 December 1984 rendered by Judge Willelmo
Fortun, initially dismissed the complaint. Respondent spouses filed a motion for
reconsideration praying for a new decision ordering petitioner State to release the
shares upon payment of respondents' loan "without interest," as the latter had not
been in delay in the performance of their obligation. State countered that the pledge
executed by respondent spouses also covered the loan extended to Jose and
Marcelina Aquino, which too should be paid before the shares may be released.
Acting on the motion for reconsideration, Judge Fortun set aside his original decision
and rendered a new judgment dated 29 January 1985, ordering State to immediately
release the pledge and to deliver to respondents the share of stock "upon payment of
the loan under Code No. 82-0904-AA."
On appeal, the Court of Appeals affirmed in toto the new decision of the trial court,
holding that the loan extended to Jose and Marcelina Aquino, having been executed
prior to the pledge was not covered by the pledge which secured only loans executed
subsequently. Thus, upon payment of the loan under Code No. IF-0904-AA, the
shares of stock should be released. The decisions of the Court of Appeals and of
Judge Fortun became final and executory.
Upon remand of the records of the case to the trial court for execution, there
developed disagreement over the amount which respondent spouses Rafael and
Refugio Aquino should pay to secure the release of the shares of stock — petitioner
State contending that respondents should also pay interest and respondents arguing
they should not. Respondent spouses then filed a motion with the trial court to clarify
the Fortun decision praying that an order issue clarifying the phrase "upon payment of
plaintiffs' loan" to mean upon payment of plaintiff' loan in the principal amount of
P110,000.00 alone, "without interest, penalties and other charges."
On 17 February 1989, the trial court, speaking this time through Judge Perlita Tria
Tirona, rendered a decision purporting to clarify the decision of Judge Fortun and
ruling that petitioner State shall release respondents' shares of stock upon payment
by respondents of the principal of the loan as set forth in PN No. 82-0904-AA in the
amount of P110,000.00, without interest, penalties and other charges.
Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the appeal
was dismissed. The Court of Appeals agreed with Judge Tirona that no interest need
be paid and added that the clarificatory (Tirona) decision of the trial court merely
restated what had been provided for in the earlier (Fortun) decision; that the Tirona
decision did not go beyond what had been adjudged in the earlier decision. The
motion for reconsideration filed by petitioner was accordingly denied.
Hence, this Petition for Review contending that no manifest ambiguity existed in the
decision penned by Judge Fortun; that the trial court through Judge Tirona, erred in
clarifying the decision of Judge Fortun; and that the amendment sought to be
introduced in the Fortun decision by respondents may not be made as the same was
substantial in nature and the Fortun decision had become final.
We begin by noting that the trial court has asserted authority to issue the clarificatory
order in respect of the decision of Judge Fortun, even though that judgment had
become final and executory. In Reinsurance Company of the Orient, Inc. v. Court of
Appeals,1 this Court had occasion to deal with the applicable doctrine to some extent:
- - - [E]ven a judgment which has become final and executory may be clarified under
certain circumstances. The dispositive portion of the judgment may, for instance,
contain an error clearly clerical in nature (perhaps best illustrated by an error in
arithmetical computation) or an ambiguity arising from inadvertent omission, which
error may be rectified or ambiguity clarified and the omission supplied by reference
primarily to the body of the decision itself Supplementary reference to the pleadings
previously filed in the case may also be resorted to by way of corroboration of the
existence of the error or of the ambiguity in the dispositive part of the judgment. In
Locsin, et al. v. Parades, et al., this Court allowed a judgment which had become final
and executory to be clarified by supplying a word which had been inadvertently
omitted and which, when supplied, in effect changed the literal import of the original
phraseology:

. . . it clearly appears from the allegations of the complaint, the promissory note
reproduced therein and made a part thereof, the prayer and the conclusions of fact
and of law contained in the decision of the respondent judge, that the obligation
contracted by the petitioners is joint and several and that the parties as well as the
trial judge so understood it. Under the juridical rule that the judgment should be in
accordance with the allegations, the evidence and the conclusions of fact and law, the
dispositive part of the judgment under consideration should have ordered that the
debt be paid 'severally' and in omitting the word or adverb 'severally' inadvertently,
said judgment became ambiguous. This ambiguity may be clarified at any time after
the decision is rendered and even after it had become final (34 Corpus Juris, 235,
326). This respondent judge did not, therefore, exceed his jurisdiction in clarifying the
dispositive part of the judgment by supplying the omission. (Emphasis supplied)
In Filipino Legion Corporation vs. Court of Appeals, et al., the applicable principle was
set out in the following terms:
[W]here there is ambiguity caused by an omission or mistake in the dispositive portion
of a decision, the court may clarify such ambiguity by an amendment even after the
judgment had become final, and for this purpose it may resort to the pleadings filed by
the parties, the court's findings of facts and conclusions of law as expressed in the
body of the decision. (Emphasis supplied)
In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court, the
Court, in applying the above doctrine, said:
. . . We clarify, in other words, what we did affirm. That is involved here is not what is
ordinarily regarded as a clerical error in the dispositive part of the decision of the
Court of First Instance, . . . At the same time, what is involved here is not a correction
of an erroneous judgment or dispositive portion of a judgment. What we believe is
involved here is in the nature of an inadvertent omission on the part of the Court of
First Instance (which should have been noticed by private respondents' counsel who
had prepared the complaint), of what might be described as a logical follow-through of
something set forth both in the body of the decision and in the dispositive portion
thereof; the inevitable follow-through, or translation into, operational or behavioral
terms, of the annulment of the Deed of Sale with Assumption of Mortgage, from which
petitioners' title or claim of title embodied in TCT 133153 flows. (Emphasis supplied)2
(Underscoring in the original; citations omitted)
The question we must resolve is thus whether or not there is an ambiguity or clerical
error or inadvertent omission in the dispositive portion of the decision of Judge Fortun
which may be legitimately clarified by referring to the body of the decision and
perhaps even the pleadings filed before him. The decision of Judge Fortun disposing
of the motion for reconsideration filed by respondent spouses Rafael and Refugio
Aquino consisted basically of quoting practically the whole motion for reconsideration.
In its dispositive portion, Judge Fortun's decision stated:
WHEREFORE, plaintiffs "Motion for Reconsideration" dated January 3, 1985, is
granted and the decision of this Court dated December 14, 1984 is hereby revoked
and set aside and another judgment is hereby rendered in favor of plaintiffs as
follows:
(1) Ordering defendants to immediately release the pledge on, and to deliver to
plaintiffs, the shares of stocks enumerated and described in paragraph 4 of plaintiffs'
complaint dated July 17, 1984, upon payment of plaintiffs loan under Code No. 82-
0904-AA to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to plaintiffs
P10,000.00 as moral damages, P5,000.00 as exemplary damages, P6,000.00 as
attorney's fees, plus costs;
(3) Dismissing defendants' counterclaim, for lack of merit and making the
preliminary injunction permanent.
SO ORDERED.3
Judge Fortun evidently meant to act favorably on the motion for reconsideration of the
respondent Aquino spouses and in effect accepted respondent spouses' argument
that they had not incurred mora considering that their failure to pay PN No. IF82-
0904-AA on time had been due to petitioner State's unjustified refusal to release the
shares pledged to it. It is not, however, clear to what precise extent Judge Fortun
meant to grant the motion for reconsideration. The promissory note in Account No. IF-
82-0904-AA had three (3) components: (a) principal of the loan in the amount of
P110,000.00; (b) regular interest in the amount of seventeen percent (17%) per
annum; and (c) additional or penalty interest in case of non-payment at maturity, at
the rate of two percent (2%) per month or twenty-four percent (24%) per annum. In
the dispositive part of his resolution, Judge Fortun did not specify which of these
components of the loan he was ordering respondent spouses to pay and which
component or components he was in effect deleting. We cannot assume that Judge
Fortun meant to grant the relief prayed for by respondent spouses in all its parts. For
one thing, respondent spouses in their motion for reconsideration asked for "at least
P50,000.00" for moral damages and "at least P50,000.00" for exemplary damages, as
well as P20,000.00 by way of attorney's fees and litigation expenses. Judge Fortun
granted respondent spouses only P10,000.00 as moral damages and P5,000.00 as
exemplary damages, plus P6,000.00 as attorney's fees and costs. For another,
respondent spouses asked Judge Fortun to order the release of the shares pledged
"upon payment of [respondent spouses'] loan under Code No. 82-0904-AA without
interest, as plaintiffs were not in delay in accordance with Article 69 of the New Civil
Code –– " (Emphasis supplied). In other words, respondent spouses did not
themselves become very clear what they were asking Judge Fortun to grant them;
they did not apparently distinguish between regular interest or "monetary interest" in
the amount of seventeen percent (17%) per annum and penalty charges or
"compensatory interest" in the amount of two percent (2%) per month or twenty-four
percent (24%) per annum.
It thus appears that the Fortun decision was ambiguous in the sense that it was
cryptic. We believe that in these circumstances, we must assume that Judge Fortun
meant to decide in accordance with law, that we cannot fairly assume that Judge
Fortun was grossly ignorant of the law, or that he intended to grant the respondent
spouses relief to which they were not entitled under law. Thus, the ultimate question
which arises is: if respondent Aquino spouses were not in delay, what should they
have been held liable for in accordance with law?
We believe and so hold that since respondent Aquino spouses were held not to have
been in delay, they were properly liable only for: (a) the principal of the loan or
P110,000.00; and (b) regular or monetary interest in the amount of seventeen percent
(17%) per annum. They were not liable for penalty or compensatory interest, fixed by
the promissory note in Account No. IF-82-0904-AA at two percent (2%) per month or
twenty-four (24%) per annum. It must be stressed in this connection that under Article
2209 of the Civil Code which provides that
. . . [i]f the obligation consists in the payment of a sum of money, and the debtor
incurs in delay. the indemnity for damages, there being no stimulation to the contrary.
shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six per cent per annum.
the appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum or money, is the payment of penalty interest at the
rate agreed upon; and in the absence of a stipulation of a particular rate of penalty
interest, then the payment of additional interest at a rate equal to the regular
monetary interest; and if no regular interest had been agreed upon, then payment of
legal interest or six percent (6%) per annum.4
The fact that the respondent Aquino spouses were not in default did not mean that
they, as a matter of law, were relieved from the payment not only of penalty or
compensatory interest at the rate of twenty-four percent (24%) per annum but also of
regular or monetary interest of seventeen percent (17%) per annum. The regular or
monetary interest continued to accrue under the terms of the relevant promissory
note until actual payment is effected. The payment of regular interest constitutes the
price or cost of the use of money and thus, until the principal sum due is returned to
the creditor, regular interest continues to accrue since the debtor continues to use
such principal amount. The relevant rule is set out in Article 1256 of the Civil Code
which provides as follows:
Art. 1256. If the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of
payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (Emphasis supplied)
Where the creditor unjustly refuses to accept payment, the debtor desirous of being
released from his obligation must comply with two (2) conditions: (a) tender of
payment; and (b) consignation of the sum due. Tender of payment must be
accompanied or followed by consignation in order that the effects of payment may be
produced. Thus, in Llamas v. Abaya,5 the Supreme Court stressed that a written
tender of payment alone, without consignation in court of the sum due, does not
suspend the accruing of regular or monetary interest.
In the instant case, respondent spouses Aquino, while they are properly regarded as
having made a written tender of payment to petitioner State, failed to consign in court
the amount due at the time of the maturity of Account No. IF-820904-AA. It follows
that their obligation to pay principal-cum-regular or monetary interest under the terms
and conditions of Account No. IF-82-0904-AA was not extinguished by such tender of
payment alone.
For the respondent spouses to continue in possession of the principal of the loan
amounting to P110,000.00 and to continue to use the same after maturity of the loan
without payment of regular or monetary interest, would constitute unjust enrichment
on the part of the respondent spouses at the expense of petitioner State even though
the spouses had not been guilty of mora. It is precisely this unjust enrichment which
Article 1256 of the Civil Code prevents by requiring, in addition to tender of payment,
the consignation of the amount due in court which amount would thereafter be
deposited by the Clerk of Court in a bank and earn interest to which the creditor
would be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED DUE COURSE. The
Decision of the Court of Appeals dated 30 August 1989 in C.A.-G.R. No. 17954 and
the Decision of the Regional Trial Court dated 17 February 1989 in Civil Case No. Q-
42188 are hereby REVERSED and SET ASIDE. The dispositive portion of the
decision of Judge Fortun is hereby clarified so as to read as follows:
(1) Ordering defendants to immediately release the pledge and to deliver to the
plaintiff spouses Rafael and Refugio Aquino the shares of stock enumerated and
described in paragraph 4 of said spouses' complaint dated 17 July 1984, upon full
payment of the amount of P110,000.00 plus seventeen percent (17%) per annum
regular interest computed from the time of maturity of the plaintiffs' loan (Account No.
IF-82-0904-AA) and until full payment of such principal and interest to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to the plaintiff
spouses Rafael and Refugio Aquino P10,000.00 as moral damages, P5,000.00 as
exemplary damages, P6,000.00 as attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit and making the
preliminary injunction permanent."
No pronouncement as to costs.
SO ORDERED.
G.R. No. 155223 April 4, 2007
BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA,
Petitioner,
vs.
FLORA SAN DIEGO-SISON, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias
represented by her Attorney-in-fact, Marie Regine F. Fujita (petitioner) seeking to
annul the Decision1 dated June 18, 2002 and the Resolution2 dated September 11,
2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala
Alabang, Muntinlupa, Metro Manila, which she acquired from Island Masters Realty
and Development Corporation (IMRDC) by virtue of a Deed of Sale dated Nov. 16,
1990.3 The property is covered by TCT No. 168173 of the Register of Deeds of
Makati in the name of IMRDC.4
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-
Sison (respondent), as the SECOND PARTY, entered into a Memorandum of
Agreement5 over the property with the following terms:
NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS
(₱3,000,000.00) receipt of which is hereby acknowledged by the FIRST PARTY from
the SECOND PARTY, the parties have agreed as follows:
1. That the SECOND PARTY has a period of Six (6) months from the date of the
execution of this contract within which to notify the FIRST PARTY of her intention to
purchase the aforementioned parcel of land together within (sic) the improvements
thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS
(₱6,400,000.00). Upon notice to the FIRST PARTY of the SECOND PARTY’s
intention to purchase the same, the latter has a period of another six months within
which to pay the remaining balance of ₱3.4 million.
2. That prior to the six months period given to the SECOND PARTY within which to
decide whether or not to purchase the above-mentioned property, the FIRST PARTY
may still offer the said property to other persons who may be interested to buy the
same provided that the amount of ₱3,000,000.00 given to the FIRST PARTY BY THE
SECOND PARTY shall be paid to the latter including interest based on prevailing
compounded bank interest plus the amount of the sale in excess of ₱7,000,000.00
should the property be sold at a price more than ₱7 million.
3. That in case the FIRST PARTY has no other buyer within the first six months from
the execution of this contract, no interest shall be charged by the SECOND PARTY
on the P3 million however, in the event that on the sixth month the SECOND PARTY
would decide not to purchase the aforementioned property, the FIRST PARTY has a
period of another six months within which to pay the sum of ₱3 million pesos provided
that the said amount shall earn compounded bank interest for the last six months
only. Under this circumstance, the amount of P3 million given by the SECOND
PARTY shall be treated as [a] loan and the property shall be considered as the
security for the mortgage which can be enforced in accordance with law.
x x x x.6
Petitioner received from respondent two million pesos in cash and one million pesos
in a post-dated check dated February 28, 1990, instead of 1991, which rendered said
check stale.7 Petitioner then gave respondent TCT No. 168173 in the name of
IMRDC and the Deed of Absolute Sale over the property between petitioner and
IMRDC.
Respondent decided not to purchase the property and notified petitioner through a
letter8 dated March 20, 1991, which petitioner received only on June 11, 1991,9
reminding petitioner of their agreement that the amount of two million pesos which
petitioner received from respondent should be considered as a loan payable within six
months. Petitioner subsequently failed to pay respondent the amount of two million
pesos.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a
complaint10 for sum of money with preliminary attachment against petitioner. The
case was docketed as Civil Case No. 93-65367 and raffled to Branch 30. Respondent
alleged the foregoing facts and in addition thereto averred that petitioner tried to
deprive her of the security for the loan by making a false report11 of the loss of her
owner’s copy of TCT No. 168173 to the Tagig Police Station on June 3, 1991,
executing an affidavit of loss and by filing a petition12 for the issuance of a new
owner’s duplicate copy of said title with the RTC of Makati, Branch 142; that the
petition was granted in an Order13 dated August 31, 1991; that said Order was
subsequently set aside in an Order dated April 10, 199214 where the RTC Makati
granted respondent’s petition for relief from judgment due to the fact that respondent
is in possession of the owner’s duplicate copy of TCT No. 168173, and ordered the
provincial public prosecutor to conduct an investigation of petitioner for perjury and
false testimony. Respondent prayed for the ex-parte issuance of a writ of preliminary
attachment and payment of two million pesos with interest at 36% per annum from
December 7, 1991, ₱100,000.00 moral, corrective and exemplary damages and
₱200,000.00 for attorney’s fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a
writ of preliminary attachment upon the filing of a bond in the amount of two million
pesos.15
Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement
was conceived and arranged by her lawyer, Atty. Carmelita Lozada, who is also
respondent’s lawyer; that she was asked to sign the agreement without being given
the chance to read the same; that the title to the property and the Deed of Sale
between her and the IMRDC were entrusted to Atty. Lozada for safekeeping and
were never turned over to respondent as there was no consummated sale yet; that
out of the two million pesos cash paid, Atty. Lozada took the one million pesos which
has not been returned, thus petitioner had filed a civil case against her; that she was
never informed of respondent’s decision not to purchase the property within the six
month period fixed in the agreement; that when she demanded the return of TCT No.
168173 and the Deed of Sale between her and the IMRDC from Atty. Lozada, the
latter gave her these documents in a brown envelope on May 5, 1991 which her
secretary placed in her attache case; that the envelope together with her other
personal things were lost when her car was forcibly opened the following day; that
she sought the help of Atty. Lozada who advised her to secure a police report, to
execute an affidavit of loss and to get the services of another lawyer to file a petition
for the issuance of an owner’s duplicate copy; that the petition for the issuance of a
new owner’s duplicate copy was filed on her behalf without her knowledge and
neither did she sign the petition nor testify in court as falsely claimed for she was
abroad; that she was a victim of the manipulations of Atty. Lozada and respondent as
shown by the filing of criminal charges for perjury and false testimony against her;
that no interest could be due as there was no valid mortgage over the property as the
principal obligation is vitiated with fraud and deception. She prayed for the dismissal
of the complaint, counter-claim for damages and attorney’s fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,17 the
dispositive portion of which reads:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the
rate of thirty two (32%) per cent per annum beginning December 7, 1991 until fully
paid.
2) Ordering defendant to pay plaintiff the sum of ₱70,000.00 representing premiums
paid by plaintiff on the attachment bond with legal interest thereon counted from the
date of this decision until fully paid.
3) Ordering defendant to pay plaintiff the sum of ₱100,000.00 by way of moral,
corrective and exemplary damages.
4) Ordering defendant to pay plaintiff attorney’s fees of ₱100,000.00 plus cost of
litigation.18
The RTC found that petitioner was under obligation to pay respondent the amount of
two million pesos with compounded interest pursuant to their Memorandum of
Agreement; that the fraudulent scheme employed by petitioner to deprive respondent
of her only security to her loaned money when petitioner executed an affidavit of loss
and instituted a petition for the issuance of an owner’s duplicate title knowing the
same was in respondent’s possession, entitled respondent to moral damages; and
that petitioner’s bare denial cannot be accorded credence because her testimony and
that of her witness did not appear to be credible.
The RTC further found that petitioner admitted that she received from respondent the
two million pesos in cash but the fact that petitioner gave the one million pesos to
Atty. Lozada was without respondent’s knowledge thus it is not binding on
respondent; that respondent had also proven that in 1993, she initially paid the sum of
₱30,000.00 as premium for the issuance of the attachment bond, ₱20,000.00 for its
renewal in 1994, and ₱20,000.00 for the renewal in 1995, thus plaintiff should be
reimbursed considering that she was compelled to go to court and ask for a writ of
preliminary attachment to protect her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA
affirmed the RTC decision with modification, the dispositive portion of which reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in the
sense that the rate of interest is reduced from 32% to 25% per annum, effective June
7, 1991 until fully paid.19
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her
commission and partly as a loan; respondent did not replace the mistakenly dated
check of one million pesos because she had decided not to buy the property and
petitioner knew of her decision as early as April 1991; the award of moral damages
was warranted since even granting petitioner had no hand in the filing of the petition
for the issuance of an owner’s copy, she executed an affidavit of loss of TCT No.
168173 when she knew all along that said title was in respondent’s possession;
petitioner’s claim that she thought the title was lost when the brown envelope given to
her by Atty. Lozada was stolen from her car was hollow; that such deceitful conduct
caused respondent serious anxiety and emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest should
be charged for six months only and no more; that a loan always bears interest
otherwise it is not a loan; that interest should commence on June 7, 199120 with
compounded bank interest prevailing at the time the two million was considered as a
loan which was in June 1991; that the bank interest rate for loans secured by a real
estate mortgage in 1991 ranged from 25% to 32% per annum as certified to by
Prudential Bank,21 that in fairness to petitioner, the rate to be charged should be 25%
only.
Petitioner’s motion for reconsideration was denied by the CA in a Resolution dated
September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the
following issues:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE
LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF
AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY
DAMAGES AND ATTORNEY’S FEES IS PROPER EVEN IF NOT MENTIONED IN
THE TEXT OF THE DECISION.22
Petitioner contends that the interest, whether at 32% per annum awarded by the trial
court or at 25% per annum as modified by the CA which should run from June 7,
1991 until fully paid, is contrary to the parties’ Memorandum of Agreement; that the
agreement provides that if respondent would decide not to purchase the property,
petitioner has the period of another six months to pay the loan with compounded bank
interest for the last six months only; that the CA’s ruling that a loan always bears
interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code which
provides that no interest shall be due unless it has been expressly stipulated in
writing.
We are not persuaded.

While the CA’s conclusion, that a loan always bears interest otherwise it is not a loan,
is flawed since a simple loan may be gratuitous or with a stipulation to pay interest,23
we find no error committed by the CA in awarding a 25% interest per annum on the
two-million peso loan even beyond the second six months stipulated period.
The Memorandum of Agreement executed between the petitioner and respondent on
December 7, 1990 is the law between the parties. In resolving an issue based upon a
contract, we must first examine the contract itself, especially the provisions thereof
which are relevant to the controversy.24 The general rule is that if the terms of an
agreement are clear and leave no doubt as to the intention of the contracting parties,
the literal meaning of its stipulations shall prevail.25 It is further required that the
various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.26
In this case, the phrase "for the last six months only" should be taken in the context of
the entire agreement. We agree with and adopt the CA’s interpretation of the phrase
in this wise:
Their agreement speaks of two (2) periods of six months each. The first six-month
period was given to plaintiff-appellee (respondent) to make up her mind whether or
not to purchase defendant-appellant’s (petitioner's) property. The second six-month
period was given to defendant-appellant to pay the P2 million loan in the event that
plaintiff-appellee decided not to buy the subject property in which case interest will be
charged "for the last six months only", referring to the second six-month period. This
means that no interest will be charged for the first six-month period while appellee
was making up her mind whether to buy the property, but only for the second period
of six months after appellee had decided not to buy the property. This is the meaning
of the phrase "for the last six months only". Certainly, there is nothing in their
agreement that suggests that interest will be charged for six months only even if it
takes defendant-appellant an eternity to pay the loan.27
The agreement that the amount given shall bear compounded bank interest for the
last six months only, i.e., referring to the second six-month period, does not mean that
interest will no longer be charged after the second six-month period since such
stipulation was made on the logical and reasonable expectation that such amount
would be paid within the date stipulated. Considering that petitioner failed to pay the
amount given which under the Memorandum of Agreement shall be considered as a
loan, the monetary interest for the last six months continued to accrue until actual
payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of money and
thus, until the principal sum due is returned to the creditor, regular interest continues
to accrue since the debtor continues to use such principal amount.28 It has been held
that for a debtor to continue in possession of the principal of the loan and to continue
to use the same after maturity of the loan without payment of the monetary interest,
would constitute unjust enrichment on the part of the debtor at the expense of the
creditor.29
Petitioner and respondent stipulated that the loaned amount shall earn compounded
bank interests, and per the certification issued by Prudential Bank, the interest rate for
loans in 1991 ranged from 25% to 32% per annum. The CA reduced the interest rate
to 25% instead of the 32% awarded by the trial court which petitioner no longer
assailed.1awphi1.nét
In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum
interest on a ₱142,326.43 loan. In Garcia v. Court of Appeals,31 we sustained the
agreement of the parties to a 24% per annum interest on an ₱8,649,250.00 loan.
Thus, the interest rate of 25% per annum awarded by the CA to a ₱2 million loan is
fair and reasonable.
Petitioner next claims that moral damages were awarded on the erroneous finding
that she used a fraudulent scheme to deprive respondent of her security for the loan;
that such finding is baseless since petitioner was acquitted in the case for perjury and
false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an
obligation not arising from the act or omission complained of as a felony, such civil
action may proceed independently of the criminal proceedings and regardless of the
result of the latter.32
While petitioner was acquitted in the false testimony and perjury cases filed by
respondent against her, those actions are entirely distinct from the collection of sum
of money with damages filed by respondent against petitioner.
We agree with the findings of the trial court and the CA that petitioner’s act of trying to
deprive respondent of the security of her loan by executing an affidavit of loss of the
title and instituting a petition for the issuance of a new owner’s duplicate copy of TCT
No. 168173 entitles respondent to moral damages.1a\^/phi1.net Moral damages may
be awarded in culpa contractual or breach of contract cases when the defendant
acted fraudulently or in bad faith. Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It partakes of the nature of fraud.33
The Memorandum of Agreement provides that in the event that respondent opts not
to buy the property, the money given by respondent to petitioner shall be treated as a
loan and the property shall be considered as the security for the mortgage. It was
testified to by respondent that after they executed the agreement on December 7,
1990, petitioner gave her the owner’s copy of the title to the property, the Deed of
Sale between petitioner and IMRDC, the certificate of occupancy, and the certificate
of the Secretary of the IMRDC who signed the Deed of Sale.34 However,
notwithstanding that all those documents were in respondent’s possession, petitioner
executed an affidavit of loss that the owner’s copy of the title and the Deed of Sale
were lost.
Although petitioner testified that her execution of the affidavit of loss was due to the
fact that she was of the belief that since she had demanded from Atty. Lozada the
return of the title, she thought that the brown envelope with markings which Atty.
Lozada gave her on May 5, 1991 already contained the title and the Deed of Sale as
those documents were in the same brown envelope which she gave to Atty. Lozada
prior to the transaction with respondent.35 Such statement remained a bare
statement. It was not proven at all since Atty. Lozada had not taken the stand to
corroborate her claim. In fact, even petitioner’s own witness, Benilda Ynfante
(Ynfante), was not able to establish petitioner's claim that the title was returned by
Atty. Lozada in view of Ynfante's testimony that after the brown envelope was given
to petitioner, the latter passed it on to her and she placed it in petitioner’s attaché
case36 and did not bother to look at the envelope.37

It is clear therefrom that petitioner’s execution of the affidavit of loss became the basis
of the filing of the petition with the RTC for the issuance of new owner’s duplicate
copy of TCT No. 168173. Petitioner’s actuation would have deprived respondent of
the security for her loan were it not for respondent’s timely filing of a petition for relief
whereby the RTC set aside its previous order granting the issuance of new title. Thus,
the award of moral damages is in order.

The entitlement to moral damages having been established, the award of exemplary
damages is proper.38 Exemplary damages may be imposed upon petitioner by way
of example or correction for the public good.39 The RTC awarded the amount of
₱100,000.00 as moral and exemplary damages. While the award of moral and
exemplary damages in an aggregate amount may not be the usual way of awarding
said damages,40 no error has been committed by CA. There is no question that
respondent is entitled to moral and exemplary damages.

Petitioner argues that the CA erred in awarding attorney’s fees because the trial
court’s decision did not explain the findings of facts and law to justify the award of
attorney’s fees as the same was mentioned only in the dispositive portion of the RTC
decision.

We agree.

Article 220841 of the New Civil Code enumerates the instances where such may be
awarded and, in all cases, it must be reasonable, just and equitable if the same were
to be granted.42 Attorney's fees as part of damages are not meant to enrich the
winning party at the expense of the losing litigant. They are not awarded every time a
party prevails in a suit because of the policy that no premium should be placed on the
right to litigate.43 The award of attorney's fees is the exception rather than the
general rule. As such, it is necessary for the trial court to make findings of facts and
law that would bring the case within the exception and justify the grant of such award.
The matter of attorney's fees cannot be mentioned only in the dispositive portion of
the decision.44 They must be clearly explained and justified by the trial court in the
body of its decision. On appeal, the CA is precluded from supplementing the bases
for awarding attorney’s fees when the trial court failed to discuss in its Decision the
reasons for awarding the same. Consequently, the award of attorney's fees should be
deleted.

WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the
Resolution dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No.
52839 are AFFIRMED with MODIFICATION that the award of attorney’s fees is
DELETED.

No pronouncement as to costs.

SO ORDERED.