G.R. No.

L-24968 April 27, 1972

T O T A L P500,000.00

SAURA
IMPORT
and
EXPORT
CO.,
INC.,
plaintiff-appellee,
vs. DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

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;

MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was
rendered on June 28, 1965 sentencing defendant Development Bank of the
Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import
and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate
from the date the complaint was filed and attorney's fees in the amount of
P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the
Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00, to be used as follows: P250,000.00 for the
construction of a factory building (for the manufacture of jute sacks); P240,900.00 to
pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential
Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its
release without first paying the draft, Saura, Inc. executed a trust receipt in favor of
the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application
for P500,000.00, to be secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be installed.
Among the other terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00

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.

For payment of the balance of purchase

price of machinery and equipment 240,900.00
For working capital 9,100.00

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:

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

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."

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 aKenaf 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 ..."

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:

2. That there is prospect of increased production thereof to provide adequately for

the requirements of the factory."

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
machineries with the Prudential Bank &

the

receipt

for

jute

mill

Trust Company P250,000.00

(For immediate release)
b) For the purchase of materials and equip- ment per attached list to enable the jute
mill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open- ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival of raw jute.
3) P17,586.09 to be released as soon as the mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of
your loan under consideration of P500,000. As stated in our letter of December 22,
1954, the releases of the loan, if revived, are proposed to be made from time to
time, subject to availability of funds towards the end that the sack factory shall be
placed in actual operating status. We shall be able to act on your request for revised
purpose and manner of releases upon re-appraisal of the securities offered for the
loan.
With respect to our requirement that the Department of Agriculture and Natural
Resources certify that the raw materials needed are available in the immediate
vicinity and that there is prospect of increased production thereof to provide
adequately the requirements of the factory, we wish to reiterate that the basis of the
original approval is to develop the manufacture of sacks on the basis of the locally
available raw materials. Your statement that you will have to rely on the importation
of jute and your request that we give you assurance that your company will be able
to bring in sufficient jute materials as may be necessary for the operation of your
factory, would not be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not
pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so,
on June 17, 1955 RFC executed the corresponding deed of cancellation and
delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of
the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to
December 31 of the same year within which to pay its obligation on the trust receipt
heretofore mentioned. It appears further that for failure to pay the said obligation
the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled
at the request of Saura, Inc., the latter commenced the present suit for damages,
alleging failure of RFC (as predecessor of the defendant DBP) to comply with its
obligation to release the proceeds of the loan applied for and approved, thereby
preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected
contract between the parties and that the defendant was guilty of breach thereof.
The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's
cause of action had prescribed, or that its claim had been waived or abandoned; (2)
that there was no perfected contract; and (3) that assuming there was, the plaintiff
itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in
Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura,
Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short
of resolving the basic claim that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. There is no serious dispute about this. It was in line with
such assumption that when RFC, by Resolution No. 9083 approved on December 17,
1954, restored the loan to the original amount of P500,000.00. it imposed two
conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and (2) that there is
prospect of increased production thereof to provide adequately for the requirements
of the factory." The imposition of those conditions was by no means a deviation from
the terms of the agreement, but rather a step in its implementation. There was
nothing in said conditions that contradicted the terms laid down in RFC Resolution
No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall
be utilizedexclusively for the following purposes: for construction of factory building
P250,000.00; for payment of the balance of purchase price of machinery and
equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc.
realized that it could not meet the conditions required by RFC, and so wrote its letter
of January 21, 1955, stating that local jute "will not be able in sufficient quantity this
year or probably next year," and asking that out of the loan agreed upon the sum of

P67,586.09 be released "for raw materials and labor." This was a deviation from the
terms laid down in Resolution No. 145 and embodied in the mortgage contract,
implying as it did a diversion of part of the proceeds of the loan to purposes other
than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations
which had been going on for the implementation of the agreement reached an
impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So
instead of doing so and insisting that the loan be released as agreed upon, Saura,
Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The
action thus taken by both parties was in the nature cf mutual desistance what
Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It
is a concept that derives from the principle that since mutual agreement can create
a contract, mutual disagreement by the parties can cause its extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest
against any alleged breach of contract by RFC, or even point out that the latter's
stand was legally unjustified. Its request for cancellation of the mortgage carried no
reservation of whatever rights it believed it might have against RFC for the latter's
non-compliance. In 1962 it even applied with DBP for another loan to finance a rice
and corn project, which application was disapproved. It was only in 1964, nine years
after the loan agreement had been cancelled at its own request, that Saura, Inc.
brought this action for damages.All these circumstances demonstrate beyond doubt
that the said agreement had been extinguished by mutual desistance and that on
the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve
the other issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed,
with costs against the plaintiff-appellee
[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.

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.

On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831
and 52093, thus:

The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence
this petition, where BPIIC submits for resolution the following issues:

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.

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.

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:

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.

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

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.

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.
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
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.

G.R. No. 174269

May 8, 2009

and listened to a lecture on the art of diamond polishing that lasted for around ten
minutes.1 Afterwards, the group was led to the stores showroom to allow them to
select items for purchase. Mrs. Pantaleon had already planned to purchase even
before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond
close enough in approximation that she decided to buy.2 Mrs. Pantaleon also
selected for purchase a pendant and a chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card
together with his passport to the Coster sales clerk. This occurred at around 9:15
a.m., or 15 minutes before the tour group was slated to depart from the store. The
sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The
charge purchase was then referred electronically to respondents Amsterdam office
at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet
been approved. His son, who had already boarded the tour bus, soon returned to
Coster and informed the other members of the Pantaleon family that the entire tour
group was waiting for them. As it was already 9:40 a.m., and he was already worried
about further inconveniencing the tour group, Pantaleon asked the store clerk to
cancel the sale. The store manager though asked plaintiff to wait a few more
minutes. After 15 minutes, the store manager informed Pantaleon that respondent
had demanded bank references. Pantaleon supplied the names of his depositary
banks, then instructed his daughter to return to the bus and apologize to the tour
group for the delay.

TINGA, J.:

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his
AmexCard, and 30 minutes after the tour group was supposed to have left the store,
Coster decided to release the items even without respondents approval of the
purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of
apology were met by their tourmates with stony silence.4 The tour groups visible
irritation was aggravated when the tour guide announced that the city tour of
Amsterdam was to be canceled due to lack of remaining time, as they had to catch a
3:00 p.m. ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping,
while her husband had to take a tranquilizer to calm his nerves.

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and
son Adrian Roberto, joined an escorted tour of Western Europe organized by
Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group arrived in
Amsterdam in the afternoon of 25 October 1991, the second to the last day of the
tour. As the group had arrived late in the city, they failed to engage in any sightseeing. Instead, it was agreed upon that they would start early the next day to see
the entire city before ending the tour.

It later emerged that Pantaleons purchase was first transmitted for approval to
respondents Amsterdam office at 9:20 a.m., Amsterdam time, then referred to
respondents Manila office at 9:33 a.m, then finally approved at 10:19 a.m.,
Amsterdam time.6 The Approval Code was transmitted to respondents Amsterdam
office at 10:38 a.m., several minutes after petitioner had already left Coster, and 78
minutes from the time the purchases were electronically transmitted by the jewelry
store to respondents Amsterdam office.

The following day, the last day of the tour, the group arrived at the Coster Diamond
House in Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that
the visit to Coster should end by 9:30 a.m. to allow enough time to take in a guided
city tour of Amsterdam. The group was ushered into Coster shortly before 9:00 a.m.,

After the star-crossed tour had ended, the Pantaleon family proceeded to the United
States before returning to Manila on 12 November 1992. While in the United States,
Pantaleon continued to use his AmEx card, several times without hassle or delay, but
with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991,

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION

Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx

card, but he cancelled his credit card purchase and borrowed money instead from a
friend, after more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase childrens
shoes worth $87.00 at a store in Boston, and it took 20 minutes before this
transaction was approved by respondent.

diligent efforts to effect the approval" of the purchases, which were "not in
accordance with the charge pattern" petitioner had established for himself, as
exemplified by the fact that at Coster, he was "making his very first single charge
purchase of US$13,826," and "the record of [petitioner]s past spending with
[respondent] at the time does not favorably support his ability to pay for such
purchase."17

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through
counsel to the respondent, demanding an apology for the "inconvenience,
humiliation and embarrassment he and his family thereby suffered" for respondents
refusal to provide credit authorization for the aforementioned purchases.8 In
response, respondent sent a letter dated 24 March 1992,9 stating among others that
the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual
charge purchase pattern established."10 Since respondent refused to accede to
Pantaleons demand for an apology, the aggrieved cardholder instituted an action
for damages with the Regional Trial Court (RTC) of Makati City, Branch 145.11
Pantaleon prayed that he be awarded P2,000,000.00, as moral damages;
P500,000.00, as exemplary damages; P100,000.00, as attorneys fees; and
P50,000.00 as litigation expenses.12

On the premise that there was an obligation on the part of respondent "to approve
or disapprove with dispatch the charge purchase," petitioner argues that the failure
to timely approve or disapprove the purchase constituted mora solvendi on the part
of respondent in the performance of its obligation. For its part, respondent
characterizes the depiction by petitioner of its obligation to him as "to approve
purchases instantaneously or in a matter of seconds."

On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon,
awarding him P500,000.00 as moral damages, P300,000.00 as exemplary damages,
P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.
Respondent filed a Notice of Appeal, while Pantaleon moved for partial
reconsideration, praying that the trial court award the increased amount of moral
and exemplary damages he had prayed for.14 The RTC denied Pantaleons motion
for partial reconsideration, and thereafter gave due course to respondents Notice of
Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award
of damages in favor of Pantaleon, holding that respondent had not breached its
obligations to petitioner. Hence, this petition.
The key question is whether respondent, in connection with the aforementioned
transactions, had committed a breach of its obligations to Pantaleon. In addition,
Pantaleon submits that even assuming that respondent had not been in breach of its
obligations, it still remained liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and
respondents credit authorizer, Edgardo Jaurigue, that the normal approval time for
purchases was "a matter of seconds." Based on that standard, respondent had been
in clear delay with respect to the three subject transactions. As it appears, the Court
of Appeals conceded that there had been delay on the part of respondent in
approving the purchases. However, it made two critical conclusions in favor of
respondent. First, the appellate court ruled that the delay was not attended by bad
faith, malice, or gross negligence. Second, it ruled that respondent "had exercised

Petitioner correctly cites that under mora solvendi, the three requisites for a finding
of default are that the obligation is demandable and liquidated; the debtor delays
performance; and the creditor judicially or extrajudicially requires the debtors
performance.18 Petitioner asserts that the Court of Appeals had wrongly applied the
principle of mora accipiendi, which relates to delay on the part of the obligee in
accepting the performance of the obligation by the obligor. The requisites of mora
accipiendi are: an offer of performance by the debtor who has the required capacity;
the offer must be to comply with the prestation as it should be performed; and the
creditor refuses the performance without just cause.19 The error of the appellate
court, argues petitioner, is in relying on the invocation by respondent of "just cause"
for the delay, since while just cause is determinative of mora accipiendi, it is not so
with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate.
Generally, the relationship between a credit card provider and its card holders is that
of creditor-debtor,20 with the card company as the creditor extending loans and
credit to the card holder, who as debtor is obliged to repay the creditor. This
relationship already takes exception to the general rule that as between a bank and
its depositors, the bank is deemed as the debtor while the depositor is considered as
the creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and
again see the credit card company as the debtor/obligor, insofar as it has the
obligation to the customer as creditor/obligee to act promptly on its purchases on
credit.
Ultimately, petitioners perspective appears more sensible than if we were to still
regard respondent as the creditor in the context of this cause of action. If there was
delay on the part of respondent in its normal role as creditor to the cardholder, such
delay would not have been in the acceptance of the performance of the debtors
obligation (i.e., the repayment of the debt), but it would be delay in the extension of
the credit in the first place. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on
credit, has already been constituted. Herein, the establishment of the debt itself

(purchases on credit of the jewelry) had not yet been perfected, as it remained
pending the approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have
to first recognize that there was indeed an obligation on the part of respondent to
act on petitioners purchases with "timely dispatch," or for the purposes of this case,
within a period significantly less than the one hour it apparently took before the
purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on
the part of respondent in acting on petitioners purchase at Coster did constitute
culpable delay on its part in complying with its obligation to act promptly on its
customers purchase request, whether such action be favorable or unfavorable. We
quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for
purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that
except for the three charge purchases subject of this case, approvals of his charge
purchases were always obtained in a matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal approval time for
charges would be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval of
plaintiffs charge purchase at the Coster Diamond House was way beyond the
normal approval time of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15
a.m. and by the time he had to leave the store at 10:05 a.m., no approval had yet
been received. In fact, the Credit Authorization System (CAS) record of defendant at
Phoenix Amex shows that defendants Amsterdam office received the request to
approve plaintiffs charge purchase at 9:20 a.m., Amsterdam time or 01:20, Phoenix
time, and that the defendant relayed its approval to Coster at 10:38 a.m.,
Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese
[sic] "Positive Identification of Card holder necessary further charges require bank
information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic
successive queries of Amexco Amsterdam which reads: "US$13,826. Cardmember
buying jewels. ID seen. Advise how long will this take?" They were sent at 01:33,

01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix. Manila Amexco could be
unaware of the need for speed in resolving the charge purchase referred to it, yet it
sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam
transaction shows how Amexco Netherlands viewed the delay as unusually
frustrating. In sequence expressed in Phoenix time from 01:20 when the charge
purchased was referred for authorization, defendants own record shows:
01:22 the authorization is referred to Manila Amexco
01:32 Netherlands gives information that the identification of the cardmember has
been presented and he is buying jewelries worth US $13,826.
01:33 Netherlands asks "How long will this take?"
02:08 Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual
obligation to act on his use of the card abroad "with special handling."22 (Citations
omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within
seconds," there really is no strict, legally determinative point of demarcation on how
long must it take for a credit card company to approve or disapprove a customers
purchase, much less one specifically contracted upon by the parties. Yet this is one
of those instances when "youd know it when youd see it," and one hour appears to
be an awfully long, patently unreasonable length of time to approve or disapprove a
credit card purchase. It is long enough time for the customer to walk to a bank a
kilometer away, withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or
disapprove" the purchase "in timely dispatch," and not "to approve the purchase
instantaneously or within seconds." Certainly, had respondent disapproved
petitioners purchase "within seconds" or within a timely manner, this particular
action would have never seen the light of day. Petitioner and his family would have
returned to the bus without delay internally humiliated perhaps over the rejection
of his card yet spared the shame of being held accountable by newly-made friends
for making them miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to
verify whether the credit it is extending upon on a particular purchase was indeed
contracted by the cardholder, and that the cardholder is within his means to make

such transaction. The culpable failure of respondent herein is not the failure to
timely approve petitioners purchase, but the more elemental failure to timely act on
the same, whether favorably or unfavorably. Even assuming that respondents credit
authorizers did not have sufficient basis on hand to make a judgment, we see no
reason why respondent could not have promptly informed petitioner the reason for
the delay, and duly advised him that resolving the same could take some time. In
that way, petitioner would have had informed basis on whether or not to pursue the
transaction at Coster, given the attending circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced
to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted
fraudulently or in bad faith, and the court should find that under the circumstances,
such damages are due. The findings of the trial court are ample in establishing the
bad faith and unjustified neglect of respondent, attributable in particular to the
"dilly-dallying" of respondents Manila credit authorizer, Edgardo Jaurique.23 Wrote
the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is
silent as to the amount of time it should take defendant to grant authorization for a
charge purchase, defendant acknowledged that the normal time for approval should
only be three to four seconds. Specially so with cards used abroad which requires
"special handling", meaning with priority. Otherwise, the object of credit or charge
cards would be lost; it would be so inconvenient to use that buyers and consumers
would be better off carrying bundles of currency or travellers checks, which can be
delivered and accepted quickly. Such right was not accorded to plaintiff in the
instances complained off for reasons known only to defendant at that time. This, to
the Courts mind, amounts to a wanton and deliberate refusal to comply with its
contractual obligations, or at least abuse of its rights, under the contract.24

Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs

account.25
It should be emphasized that the reason why petitioner is entitled to damages is not
simply because respondent incurred delay, but because the delay, for which
culpability lies under Article 1170, led to the particular injuries under Article 2217 of
the Civil Code for which moral damages are remunerative.26 Moral damages do not
avail to soothe the plaints of the simply impatient, so this decision should not be
cause for relief for those who time the length of their credit card transactions with a
stopwatch. The somewhat unusual attending circumstances to the purchase at
Coster that there was a deadline for the completion of that purchase by petitioner
before any delay would redound to the injury of his several traveling companions
gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and
social humiliation sustained by the petitioner, as concluded by the RTC.27 Those
circumstances are fairly unusual, and should not give rise to a general entitlement
for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is
no hard-and-fast rule in determining what would be a fair and reasonable amount of
moral damages, since each case must be governed by its own peculiar facts,
however, it must be commensurate to the loss or injury suffered.28 Petitioners
original prayer for P5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court of P500,000.00 in moral
damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and the
amount of P300,000.00 appropriate. There is similarly no cause though to disturb
the determined award of P100,000.00 as attorneys fees, and P85,233.01 as
expenses of litigation.

xxx
The delay committed by defendant was clearly attended by unjustified neglect and
bad faith, since it alleges to have consumed more than one hour to simply go over
plaintiffs past credit history with defendant, his payment record and his credit and
bank references, when all such data are already stored and readily available from its
computer. This Court also takes note of the fact that there is nothing in plaintiffs
billing history that would warrant the imprudent suspension of action by defendant
in processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals
is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati,
Branch 145 in Civil Case No. 92-1665 is hereby REINSTATED. Costs against
respondent.
SO ORDERED.

[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. 100320 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]

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.

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]

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]

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:

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]

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.

There is no merit in the petition.

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]

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.

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.

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:
X

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.

[G.R. No. 146364. June 3, 2004]

WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals are AFFIRMED.

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA,

respondents.
DECISION
CARPIO, J.:

SO ORDERED.

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 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 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The
dispositive portion of the MTC decision reads:

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.

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and
against defendant, ordering the latter to:

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.

A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;

On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision.
The dispositive portion of the decision reads:

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;

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.

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
SO ORDERED.[11]
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81
(RTC).

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 reclaiming 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.

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.

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.

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.

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.

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]

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.

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]

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.

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.

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]

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]

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.

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.

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

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 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.

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.

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

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.

FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law
are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through
the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of
P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one
year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government
charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on
7 May 1949 of the contract, the borrower asked for a renewal for another period of
one year. However, the Secretary of Agriculture and Natural Resources approved a
renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950
and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to
the Director of Animal Industry that he would pay the value of the three bulls. On 17
October 1950 he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General. On 19 October 1950 the
Director of Animal Industry advised him that the book value of the three bulls could
not be reduced and that they either be returned or their book value paid not later
than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls
or to return them. So, on 20 December 1950 in the Court of First Instance of Manila
the Republic of the Philippines commenced an action against him praying that he be
ordered to return the three bulls loaned to him or to pay their book value in the total
sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with
interests, and costs; and that other just and equitable relief be granted in (civil No.
12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan Valley,
particularly in the barrio of Baggao, and of the pending appeal he had taken to the
Secretary of Agriculture and Natural Resources and the President of the Philippines
from the refusal by the Director of Animal Industry to deduct from the book value of
the bulls corresponding yearly depreciation of 8% from the date of acquisition, to
which depreciation the Auditor General did not object, he could not return the
animals nor pay their value and prayed for the dismissal of the complaint.
G.R. No. L-17474

October 25, 1962

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

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE V. BAGTAS, defendant,

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

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the
court granted on 18 October and issued on 11 November 1958. On 2 December
1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the
appointment of a special sheriff to serve the writ outside Manila. Of this order
appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving
spouse of the defendant Jose Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January 1959 she file a motion
alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the
Bureau Animal of Industry and that sometime in November 1958 the third bull, the
Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda
Felicidad Intal, and praying that the writ of execution be quashed and that a writ of
preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her
motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February,
the Court denied her motion. Hence, this appeal certified by the Court of Appeals to
this Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late
defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva
Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2).
That is why in its objection of 31 January 1959 to the appellant's motion to quash
the writ of execution the appellee prays "that another writ of execution in the sum of
P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She
cannot be held liable for the two bulls which already had been returned to and
received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid
by the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad
Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due
to force majeure she is relieved from the duty of returning the bull or paying its
value to the appellee. The contention is without merit. The loan by the appellee to
the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a
period of one year from 8 May 1948 to 7 May 1949, later on renewed for another
year as regards one bull, was subject to the payment by the borrower of breeding
fee of 10% of the book value of the bulls. The appellant contends that the contract
was commodatum and that, for that reason, as the appellee retained ownership or
title to the bull it should suffer its loss due to force majeure. A contract of
commodatum is essentially gratuitous.1 If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under article 1671 of
the Civil Code the lessee would be subject to the responsibilities of a possessor in
bad faith, because she had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still the appellant is liable,
because article 1942 of the Civil Code provides that a bailee in a contract of
commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2)

If he keeps it longer than the period stipulated . . .

(3)
If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a fortuitous
event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one
bull was renewed for another period of one year to end on 8 May 1950. But the
appellant kept and used the bull until November 1953 when during a Huk raid it was
killed by stray bullets. Furthermore, when lent and delivered to the deceased
husband of the appellant the bulls had each an appraised book value, to with: the
Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was
not stipulated that in case of loss of the bull due to fortuitous event the late husband
of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return
of the bull or the payment of its value being a money claim should be presented or
filed in the intestate proceedings of the defendant who died on 23 October 1951, is
not altogether without merit. However, the claim that his civil personality having
ceased to exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order,
upon proper notice, the legal representative of the deceased to appear and to be
substituted for the deceased, within a period of thirty (30) days, or within such time
as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply
with section 16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to
inform the court promptly of such death . . . and to give the name and residence of
the executory administrator, guardian, or other legal representative of the
deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that
Felicidad M. Bagtas had been issue letters of administration of the estate of the late
Jose Bagtas and that "all persons having claims for monopoly against the deceased
Jose V. Bagtas, arising from contract express or implied, whether the same be due,
not due, or contingent, for funeral expenses and expenses of the last sickness of the
said decedent, and judgment for monopoly against him, to file said claims with the
Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6)
months from the date of the first publication of this order, serving a copy thereof
upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the
estate of the said deceased," is not a notice to the court and the appellee who were
to be notified of the defendant's death in accordance with the above-quoted rule,

and there was no reason for such failure to notify, because the attorney who
appeared for the defendant was the same who represented the administratrix in the
special proceedings instituted for the administration and settlement of his estate.
The appellee or its attorney or representative could not be expected to know of the
death of the defendant or of the administration proceedings of his estate instituted
in another court that if the attorney for the deceased defendant did not notify the
plaintiff or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the
late defendant is only liable for the sum of P859.63, the value of the bull which has
not been returned to the appellee, because it was killed while in the custody of the
administratrix of his estate. This is the amount prayed for by the appellee in its
objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant
for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal
(Q-200), the money judgment rendered in favor of the appellee cannot be enforced
by means of a writ of execution but must be presented to the probate court for
payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed
pronouncement as to costs.

from is set aside, without

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.lawphi1.net
The contract entered into between the parties is one of commadatum, because
under it the plaintiff gratuitously granted the use of the furniture to the defendant,
reserving for herself the ownership thereof; by this contract the defendant bound
himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of
the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not comply with this obligation when
he merely placed them at the disposal of the plaintiff, retaining for his benefit the

three gas heaters and the four eletric lamps. The provisions of article 1169 of the
Civil Code cited by counsel for the parties are not squarely applicable. The trial
court, therefore, erred when it came to the legal conclusion that the plaintiff failed to
comply with her obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to bear
the expenses occasioned by the deposit of the furniture at the defendant's behest.
The latter, as bailee, was not entitled to place the furniture on deposit; nor was the
plaintiff under a duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to return some of the
furniture because under paragraph 6 of the stipulation of facts, the defendant has
neither agreed to nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value thereof should be latter

determined by the trial 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.