1
Republic of the Philippines . . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the
SUPREME COURT
Manila
EN BANC
G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari,
of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May
1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book
value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a
renewal for another period of one year. However, the Secretary of Agriculture and Natural
Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7
May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to
the Director of Animal Industry that he would pay the value of the three bulls. On 17 October
1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be
approved by the Auditor General. On 19 October 1950 the Director of Animal Industry advised
him that the book value of the three bulls could not be reduced and that they either be returned
or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book
value of the three bulls or to return them. So, on 20 December 1950 in the Court of First
Instance of Manila the Republic of the Philippines commenced an action against him praying
that he be ordered to return the three bulls loaned to him or to pay their book value in the total
sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and
costs; and that other just and equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of
Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural
Resources and the President of the Philippines from the refusal by the Director of Animal
Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from
the date of acquisition, to which depreciation the Auditor General did not object, he could not
return the animals nor pay their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
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;
 2

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution
renewed for another period of one year to end on 8 May 1950. But the appellant kept and used but must be presented to the probate court for payment by the appellant, the administratrix
the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, appointed by the court.
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
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event
costs.
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
 3

Republic v. Bagtas

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

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

Held: Yes. Commodatum is essentially gratuitous. However, in this case, there is a 10% charge.
If this is considered compensation, then the case at bar is a lease. Lessee is liable as possessor
in bad faith because the period already lapsed.

Even if this is a commodatum, Bagtas is still liable because the fortuitous event happened when
he held the bull and the period stipulated already expired and he is liable because the thing
loaned was delivered with appraisal of value and there was no contrary stipulation regarding his
liability in case there is a fortuitous event.
 4

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

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO.
038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON
OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3
MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano.
Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The
predecessors of private respondents, not petitioner Vicar, were in possession of the questioned
lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not
Lots 2 and 3, because the buildings standing thereon were only constructed after liberation in
1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The
improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only
in 1947, the church was constructed only in 1951 and the new convent only 2 years before the
trial in 1963.

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the
FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY
lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in
THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
1962.

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and
05149, when it clearly held that it was in agreement with the findings of the trial court that the
Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of
ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-
R) did not positively declare private respondents as owners of the land, neither was it declared
that they were not owners of the land, but it held that the predecessors of private respondents
were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951.
Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When petitioner applied for
registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for
eleven years. Ordinary acquisitive prescription requires possession for ten years, but always
with just title. Extraordinary acquisitive prescription requires 30 years. 4
Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they became bailors
in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter
of commodatum to the bailor did not mean adverse possession on the part of the borrower. The
bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner
came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar
by such adverse claim could not ripen into title by way of ordinary acquisitive prescription
because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a
bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No.
On the above findings of facts supported by evidence and evaluated by the Court of Appeals in
38830-R. Its findings of fact have become incontestible. This Court declined to review said
CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's
decision, thereby in effect, affirming it. It has become final and executory a long time ago.
ruling that said findings are res judicatabetween the parties. They can no longer be altered by
presentation of evidence because those issues were resolved with finality a long time ago. To
ignore the principle of res judicata would be to open the door to endless litigations by continuous Respondent appellate court did not commit any reversible error, much less grave abuse of
determination of issues without end. discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is
governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R. No.
05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R.
may no longer be altered.
No. 38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to
register the lands in question under its ownership, on its evaluation of evidence and conclusion
of facts. WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of
merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court
of Appeals is AFFIRMED, with costs against petitioner.
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The SO ORDERED.
appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.
petitioner Vicar because there was absolutely no documentary evidence to support the same
and the alleged purchases were never mentioned in the application for registration.
 7

CATHOLIC VICAR APOSTOLIC v. CA

G.R. No. L-80294-95 September 21, 1988

Gancayco, J.

Doctrine:

The bailees’ failure to return the subject matter of commodatum to the bailor does not mean
adverse possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum.

Facts:

Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for
registration of title over Lots 1, 2, 3, and 4, said Lots being the sites of the Catholic Church
building, convents, high school building, school gymnasium, school dormitories, social hall,
stonewalls, etc. The Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto
since their predecessors’ house was borrowed by petitioner Vicar after the church and the
convent were destroyed.. After trial on the merits, the land registration court promulgated its
Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez appealed the decision of the land registration court to the then Court of
Appeals, The Court of Appeals reversed the decision. Thereupon, the VICAR filed with the
Supreme Court a petition for review on certiorari of the decision of the Court of Appeals
dismissing his application for registration of Lots 2 and 3.

Issue:

Whether or not the failure to return the subject matter of commodatum constitutes an adverse
possession on the part of the owner

Held:

No. The bailees’ failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum.

Petitioner repudiated the trust by declaring the properties in its name for taxation purposes.
 8
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for 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.
Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.
 9

Pajuyo v. CA
GR No. 146364 June 3, 2004

Facts: Pajuyo entrusted a house to Guevara for the latter's use provided he should return the
same upon demand and with the condition that Guevara should be responsible of the
maintenance of the property. Upon demand Guevara refused to return the property to Pajuyo.
The petitioner then filed an ejectment case against Guevara with the MTC who ruled in favor of
the petitioner. On appeal with the CA, the appellate court reversed the judgment of the lower
court on the ground that both parties are illegal settlers on the property thus have no legal right
so that the Court should leave the present situation with respect to possession of the property as
it is, and ruling further that the contractual relationship of Pajuyo and Guevara was that of a
commodatum.

Issue: Is the contractual relationship of Pajuyo and Guevara that of a commodatum?

Held: No. The Court of Appeals’ theory that the Kasunduan is one of commodatum is devoid of
merit. In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of
the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return
of the thing loaned until after expiration of the period stipulated, or after accomplishment of the
use for which the commodatum is constituted. If the bailor should have urgent need of the thing,
he may demand its return for temporary use. If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case the contractual relation is
called a precarium. Under the Civil Code, precarium is a kind of commodatum. 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. The tenant’s withholding of the property would then be unlawful.
 10

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

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
[G.R. No. 146364. June 3, 2004] defendant, ordering the latter to:

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

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as
GUEVARRA, respondents. reasonable compensation for the use of the premises starting from the last
demand;
DECISION C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
CARPIO, J.: D) pay the cost of suit.

SO ORDERED.[7]
The Case
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81
(RTC).
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 On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the
RTC decision reads:
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] 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.

The Antecedents
SO ORDERED.[8]

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.
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14
December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the
Court of Appeals, Guevarra filed with the Supreme Court a Motion for Extension of Time to File
Appeal by Certiorari Based on Rule 42 (motion for extension). Guevarra theorized that his
appeal raised pure questions of law. The Receiving Clerk of the Supreme Court received the
motion for extension on 13 December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution[9] referring
the motion for extension to the Court of Appeals which has concurrent jurisdiction over the case.
The case presented no special and important matter for the Supreme Court to take cognizance
of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution[10] granting the motion for extension conditioned on the timeliness of the filing of the
motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras
petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
decision. The dispositive portion of the decision reads:
 11
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No.
Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case
filed against defendant-appellant is without factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court
of Appeals should have dismissed outright Guevarras petition for review because it was filed out
of time. Moreover, it was Guevarras counsel and not Guevarra who signed the certification
against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion
for reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.[12]
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the
house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the
house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made
Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship
between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return
possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the
Revised National Government Center Housing Project Code of Policies and other pertinent laws.
In an ejectment suit, the RTC has no power to decide Guevarras rights under these laws. The
RTC declared that in an ejectment case, the only issue for resolution is material or physical
possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and
Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had
no right or title over the lot because it is public land. The assignment of rights between Perez
and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal
effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where
they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and
tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but
a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate
court held that Guevarra has a better right over the property under Proclamation No.
137.President Corazon C. Aquino (President Aquino) issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical possession of the property. Under
Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and
Structures in the National Housing Project (the Code), the actual occupant or caretaker of the lot
shall have first priority as beneficiary of the project. The Court of Appeals concluded that
Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos
claim that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the
Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts Receiving
Clerk. The Court of Appeals concluded that the motion for extension bore a date, contrary to
Pajuyos claim that the motion for extension was undated. Guevarra filed the motion for
extension on time on 13 December 1996 since he filed the motion one day before the expiration
of the reglementary period on 14 December 1996. Thus, the motion for extension properly
complied with the condition imposed by the Court of Appeals in its 28 January 1997
Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for
review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have
dismissed the petition for review because it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping. The Court of Appeals pointed out that Pajuyo
did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now
seek the dismissal of the case after he had extensively argued on the merits of the case. This
technicality, the appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND
DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for
an Extension of thirty days to file petition for review at the time
when there was no more period to extend as the decision of the
Regional Trial Court had already become final and executory.
 12
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
 13
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]
 14

We further explained in Pitargue the greater interest that is at stake in actions for recovery disposition of the land has passed from the control of the Federal Government, the courts will
of possession. We made the following pronouncements in Pitargue: 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
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
occupation with a view to protecting the same and preventing disorder and breaches of the
possessory actions involving these public lands before final award is made by the Lands
peace. A judgment of the court ordering restitution of the possession of a parcel of land to the
Department, and before title is given any of the conflicting claimants? It is one of utmost
actual occupant, who has been deprived thereof by another through the use of force or in any
importance, as there are public lands everywhere and there are thousands of settlers, especially
other illegal manner, can never be prejudicial interference with the disposition or alienation of
in newly opened regions. It also involves a matter of policy, as it requires the determination of
public lands. On the other hand, if courts were deprived of jurisdiction of cases involving
the respective authorities and functions of two coordinate branches of the Government in
conflicts of possession, that threat of judicial action against breaches of the peace
connection with public land conflicts.
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,
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in not right or justice, would rule.
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,
It must be borne in mind that the action that would be used to solve conflicts of possession
irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had
between rivals or conflicting applicants or claimants would be no other than that of forcible entry.
the accion interdictal, a summary proceeding which could be brought within one year from
This action, both in England and the United States and in our jurisdiction, is a summary and
dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as
expeditious remedy whereby one in peaceful and quiet possession may recover the possession
October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the
of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being
Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act
to prevent breach of the peace and criminal disorder. (Supia and Batioco vs. Quintero and
No. 190), the object of which has been stated by this Court to be to prevent breaches of the
Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical
peace and criminal disorder which would ensue from the withdrawal of the remedy, and
possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to
the reasonable hope such withdrawal would create that some advantage must accrue to
possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is
those persons who, believing themselves entitled to the possession of property, resort to
expressly banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules of
force to gain possession rather than to some appropriate action in the court to assert
Court.) With this nature of the action in mind, by no stretch of the imagination can conclusion be
their claims. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the
arrived at that the use of the remedy in the courts of justice would constitute an interference with
enactment of the first Public Land Act (Act No. 926) the action of forcible entry was already
the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it
available in the courts of the country. So the question to be resolved is, Did the Legislature
be pretended at all that its result would in any way interfere with the manner of the alienation or
intend, when it vested the power and authority to alienate and dispose of the public lands in the
disposition of the land contested? On the contrary, it would facilitate adjudication, for the
Lands Department, to exclude the courts from entertaining the possessory action of forcible
question of priority of possession having been decided in a final manner by the courts, said
entry between rival claimants or occupants of any land before award thereof to any of the
question need no longer waste the time of the land officers making the adjudication or
parties? Did Congress intend that the lands applied for, or all public lands for that matter, be
award. (Emphasis ours)
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 The Principle of Pari Delicto is not Applicable to Ejectment Cases
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 The Court of Appeals erroneously applied the principle of pari delicto to this case.
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 Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We
peace. The power to dispose and alienate could not have been intended to include the explained the principle of pari delicto in these words:
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 The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari
Government must continue to exercise power and jurisdiction within the limits of their respective delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement. It
functions. The vesting of the Lands Department with authority to administer, dispose, and leaves the parties where it finds them.[49]
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 The application of the pari delicto principle is not absolute, as there are exceptions to its
authority on the part of the courts to take jurisdiction over possessory actions arising application. One of these exceptions is where the application of the pari delicto rule would violate
therefrom not involving, directly or indirectly, alienation and disposition. well-established public policy.[50]

In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of
Our attention has been called to a principle enunciated in American courts to the effect that forcible entry and unlawful detainer. We held that:
courts have no jurisdiction to determine the rights of claimants to public lands, and that until the
 15
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of
the actual condition of the title to the property, the party in peaceable quiet possession shall not
be turned out by strong hand, violence or terror. In affording this remedy of restitution the object
of the statute is to prevent breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some appropriate action in the courts
to assert their claims. This is the philosophy at the foundation of all these actions of forcible entry
and detainer which are designed to compel the party out of possession to respect and resort to
the law alone to obtain what he claims is his.[52]
Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of pari
delicto would openly invite mayhem and lawlessness. A squatter would oust another squatter
from possession of the lot that the latter had illegally occupied, emboldened by the knowledge
that the courts would leave them where they are. Nothing would then stand in the way of the
ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions
for recovery of possession seek to prevent.[53] Even the owner who has title over the disputed
property cannot take the law into his own hands to regain possession of his property. The owner
must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are
squatters. The determination of priority and superiority of possession is a serious and urgent
matter that cannot be left to the squatters to decide. To do so would make squatters receive
better treatment under the law. The law restrains property owners from taking the law into their
own hands. However, the principle of pari delicto as applied by the Court of Appeals would give
squatters free rein to dispossess fellow squatters or violently retake possession of properties
usurped from them. Courts should not leave squatters to their own devices in cases involving
recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The
Court of Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate
court held that the pivotal issue in this case is who between Pajuyo and Guevarra has the
priority right as beneficiary of the contested land under Proclamation No. 137. [54] According to
the Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because
Article VI of the Code declares that the actual occupant or caretaker is the one qualified to apply
for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a
relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes and
bounds of the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation
No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage of
Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra merely
alleged that in the survey the project administrator conducted, he and not Pajuyo appeared as
the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No.
137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino signed
Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for
Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as
beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was
reclaiming possession of the property, Guevarra did not take any step to comply with the
requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137
and Guevarra has a pending application over the lot, courts should still assume jurisdiction and
resolve the issue of possession. However, the jurisdiction of the courts would be limited to the
issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving
public land to determine the issue of physical possession. The determination of the respective
rights of rival claimants to public land is, however, distinct from the determination of who has the
actual physical possession or who has a better right of physical possession. [56] The
administrative disposition and alienation of public lands should be threshed out in the proper
government agency.[57]
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation
No. 137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the
law. Courts should not preempt the decision of the administrative agency mandated by law to
determine the qualifications of applicants for the acquisition of public lands. Instead, courts
should expeditiously resolve the issue of physical possession in ejectment cases to prevent
disorder and breaches of peace.[58]
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house
built on it. Guevarra expressly admitted the existence and due execution of
the Kasunduan.The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay
nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing
bahay at lote ng walang bayad.Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of
rent, but Guevarra was under obligation to maintain the premises in good condition. Guevarra
 16
promised to vacate the premises on Pajuyos demand but Guevarra broke his promise and
refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which the latter is
entitled after the expiration or termination of the formers right to hold possession under a
contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate on
demand, failing which, an action for unlawful detainer will lie.[60] The defendants refusal to
comply with the demand makes his continued possession of the property unlawful. [61] The status
of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has
expired but whose occupancy continues by tolerance of the owner. [62]
This principle should apply with greater force in cases where a contract embodies the
permission or tolerance to use the property. The Kasunduan expressly articulated Pajuyos
forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and
lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the
property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made
Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one
of commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. [63] An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of
the thing belonging to another is for a certain period.[64] Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period stipulated, or after accomplishment
of the use for which the commodatum is constituted.[65] If the bailor should have urgent need of
the thing, he may demand its return for temporary use.[66] If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium.[67] Under the Civil Code, precarium is a kind
of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition of this obligation makes
the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission
would result in the termination of the lease.[69] The tenants withholding of the property would then
be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one
of commodatum, Guevarra as bailee would still have the duty to turn over possession of the
property to Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to
contracts for safekeeping, or contracts of commission, administration
and commodatum.[70] These contracts certainly involve the obligation to deliver or return the
thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is
also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land
they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely
entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested property. The Kasunduan is the
undeniable evidence of Guevarras recognition of Pajuyos better right of physical possession.
Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a
different result, as there would still be an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is
allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act. [72] Guevarra
bases his argument on the preferential right given to the actual occupant or caretaker under
Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the
property without paying any rent. There is also no proof that Pajuyo is a professional squatter
who rents out usurped properties to other squatters. Moreover, it is for the proper government
agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only
issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the
distinctions between forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff is
deprived of physical possession of his land or building by means of force, intimidation, threat,
strategy or stealth. Thus, he must allege and prove prior possession.[75] But in unlawful detainer,
the defendant unlawfully withholds possession after the expiration or termination of his right to
possess under any contract, express or implied. In such a case, prior physical possession is not
required.[76]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras
transient right to possess the property ended as well. Moreover, it was Pajuyo who was in actual
possession of the property because Guevarra had to seek Pajuyos permission to temporarily
hold the property and Guevarra had to follow the conditions set by Pajuyo in
theKasunduan. Control over the property still rested with Pajuyo and this is evidence of actual
possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession
in the eyes of the law does not mean that a man has to have his feet on every square meter of
the ground before he is deemed in possession.[77] One may acquire possession not only by
physical occupation, but also by the fact that a thing is subject to the action of ones will.[78]Actual
or physical occupation is not always necessary.[79]
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that squatters and
intruders who clandestinely enter into titled government property cannot, by such act, acquire
any legal right to said property.[80] We made this declaration because the person who had title or
who had the right to legal possession over the disputed property was a party in the ejectment
suit and that party instituted the case against squatters or usurpers.
 17

In this case, the owner of the land, which is the government, is not a party to the ejectment
case. This case is between squatters. Had the government participated in this case, the courts
could have evicted the contending squatters, Pajuyo and Guevarra.

Since the party that has title or a better right over the property is not impleaded in this
case, we cannot evict on our own the parties. Such a ruling would discourage squatters from
seeking the aid of the courts in settling the issue of physical possession. Stripping both the
plaintiff and the defendant of possession just because they are squatters would have the same
dangerous implications as the application of the principle of pari delicto. Squatters would then
rather settle the issue of physical possession among themselves than seek relief from the courts
if the plaintiff and defendant in the ejectment case would both stand to lose possession of the
disputed property. This would subvert the policy underlying actions for recovery of possession.

Since Pajuyo has in his favor priority in time in holding the property, he is entitled to
remain on the property until a person who has title or a better right lawfully ejects him. Guevarra
is certainly not that person. The ruling in this case, however, does not preclude Pajuyo and
Guevarra from introducing evidence and presenting arguments before the proper administrative
agency to establish any right to which they may be entitled under the law.[81]

In no way should our ruling in this case be interpreted to condone squatting. The ruling on
the issue of physical possession does not affect title to the property nor constitute a binding and
conclusive adjudication on the merits on the issue of ownership. [82] The owner can still go to
court to recover lawfully the property from the person who holds the property without legal
title. Our ruling here does not diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or unauthorized structures in
accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to
Pajuyo. Attorneys fees as part of damages are awarded only in the instances enumerated in
Article 2208 of the Civil Code.[83] Thus, the award of attorneys fees is the exception rather than
the rule.[84] Attorneys fees are not awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to litigate.[85] We therefore delete the
attorneys fees awarded to Pajuyo.

We sustain the P300 monthly rentals the MTC and RTC assessed against
Guevarra. Guevarra did not dispute this factual finding of the two courts. We find the amount
reasonable compensation to Pajuyo. The P300 monthly rental is counted from the last demand
to vacate, which was on 16 February 1995.

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution
dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE.The
Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil
Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial
Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with
MODIFICATION. The award of attorneys fees is deleted. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.
 18
THIRD DIVISION
[G.R. No. 114398. October 24, 1997]
CARMEN LIWANAG, petitioner, vs. THE HON. COURT OF APPEALS and THE PEOPLE OF
THE PHILIPPINES, represented by the Solicitor General, respondents.
DECISION
ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC),
Branch 93, Quezon City, in an information which reads as follows:
That on or between the month of May 19, 1988 and August, 1988 in Quezon City, Philippines and within
the jurisdiction of this Honorable Court, the said accused, with intent of gain, with unfaithfulness, and
abuse of confidence, did then and there, willfully, unlawfully and feloniously defraud one ISIDORA
ROSALES, in the following manner, to wit: on the date and in the place aforementioned, said
accused received in trust from the offended party cash money amounting to P536,650.00, Philippine
Currency, with the express obligation involving the duty to act as complainants agent in purchasing local
cigarettes (Philip Morris and Marlboro cigarettes), to resell them to several stores, to give her commission
corresponding to 40% of the profits; and to return the aforesaid amount of offended party, but said
accused, far from complying her aforesaid obligation, and once in possession thereof, misapplied,
misappropriated and converted the same to her personal use and benefit, despite repeated demands made
upon her, accused failed and refused and still fails and refuses to deliver and/or return the same to the
damage and prejudice of the said ISIDORA ROSALES, in the aforementioned amount and in such other
amount as may be awarded under the provision of the Civil Code.
CONTRARY TO LAW.
The antecedent facts are as follows:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of
complainant Isidora Rosales (Rosales) and asked her to join them in the business of buying and
selling cigarettes. Convinced of the feasibility of the venture, Rosales readily agreed. Under their
agreement, Rosales would give the money needed to buy the cigarettes while Liwanag and
Tabligan would act as her agents, with a corresponding 40% commission to her if the goods are
sold; otherwise the money would be returned to Rosales. Consequently, Rosales gave several
cash advances to Liwanag and Tabligan amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to Rosales to
report on the progress of the transactions. The visits, however, suddenly stopped, and all efforts
by Rosales to obtain information regarding their business proved futile.
Alarmed by this development and believing that the amounts she advanced were being
misappropriated, Rosales filed a case of estafa against Liwanag.
After trial on the merits, the trial court rendered a decision dated January 9, 1991, finding
Liwanag guilty as charged. The dispositive portion of the decision reads thus:
WHEREFORE, the Court holds, that the prosecution has established the guilt of the accused, beyond
reasonable doubt, and therefore, imposes upon the accused, Carmen Liwanag, an Indeterminate Penalty of
SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21) DAYS OF PRISION
CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF PRISION MAYOR
AS MAXIMUM, AND TO PAY THE COSTS.
The accused is likewise ordered to reimburse the private complainant the sum of P526,650.00, without
subsidiary imprisonment, in case of insolvency.
SO ORDERED.
Said decision was affirmed with modification by the Court of Appeals in a decision dated
November 29, 1993, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed with the
correction of the nomenclature of the penalty which should be: SIX (6) YEARS, EIGHT (8) MONTHS
and TWENTY ONE (21) DAYS of prision mayor, as minimum, to FOURTEEN (14) YEARS and EIGHT
(8) MONTHS of reclusion temporal, as maximum. In all other respects, the decision is AFFIRMED.
SO ORDERED.
Her motion for reconsideration having been denied in the resolution of March 16, 1994,
Liwanag filed the instant petition, submitting the following assignment of errors:
1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE CONVICTION
OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA, WHEN CLEARLY THE
CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER AND COMPLAINANT IS
EITHER THAT OF A SIMPLE LOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE
HENCE THE NON RETURN OF THE MONEY OF THE COMPLAINANT IS PURELY CIVIL IN
NATURE AND NOT CRIMINAL.
2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING THE
ACCUSED-PETITIONER ON GROUNDS OF REASONABLE DOUBT BY APPLYING THE
EQUIPOISE RULE.
Liwanag advances the theory that the intention of the parties was to enter into a contract
of partnership, wherein Rosales would contribute the funds while she would buy and sell the
cigarettes, and later divide the profits between them. [1] She also argues that the transaction can
also be interpreted as a simple loan, with Rosales lending to her the amount stated on an
installment basis.[2]
The Court of Appeals correctly rejected these pretenses.
While factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court, and carry more weight when these affirm the factual findings
of the trial court,[3] we deem it more expedient to resolve the instant petition on its merits.
 19

Estafa is a crime committed by a person who defrauds another causing him to suffer
damages, by means of unfaithfulness or abuse of confidence, or of false pretenses of fraudulent
acts.[4]

From the foregoing, the elements of estafa are present, as follows: (1) that the accused
defrauded another by abuse of confidence or deceit; and (2) that damage or prejudice capable
of pecuniary estimation is caused to the offended party or third party,[5] and it is essential that
there be a fiduciary relation between them either in the form of a trust, commission or
administration.[6]

The receipt signed by Liwanag states thus:

May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX THOUSAND AND
SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine Currency, to purchase cigarrets (sic) (Philip &
Marlboro) to be sold to customers. In the event the said cigarrets (sic) are not sold, the proceeds of the sale
or the said products (shall) be returned to said Mrs. Isidora P. Rosales the said amount of P526,650.00 or
the said items on or before August 30, 1988.

(SGD & Thumbedmarked) (sic)

CARMEN LIWANAG
26 H. Kaliraya St.
Quezon City

Signed in the presence of:

(Sgd) Illegible (Sgd) Doming Z. Baligad

The language of the receipt could not be any clearer. It indicates that the money delivered
to Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be returned to Rosales.

Thus, even assuming that a contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or property have been received by a
partner for a specific purpose (such as that obtaining in the instant case) and he later
misappropriated it, such partner is guilty of estafa.[7]

Neither can the transaction be considered a loan, since in a contract of loan once the
money is received by the debtor, ownership over the same is transferred.[8] Being the owner, the
borrower can dispose of it for whatever purpose he may deem proper.

In the instant petition, however, it is evident that Liwanag could not dispose of the money
as she pleased because it was only delivered to her for a single purpose, namely, for the
purchase of cigarettes, and if this was not possible then to return the money to Rosales. Since in
this case there was no transfer of ownership of the money delivered, Liwanag is liable for
conversion under Art. 315, par. 1(b) of the Revised Penal Code.

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals
dated November 29, 1993, is AFFIRMED. Costs against petitioner.

SO ORDERED.
 20
[G.R. No. 127246. April 21, 1999]
SPOUSES LUIS M. ERMITAO and MANUELITA C. ERMITAO, petitioners, vs. THE COURT
OF APPEALS AND BPI EXPRESS CARD CORP., respondents.
DECISION
QUISUMBING, J.:
This petition for review under Rule 45, of the Rules of Court, seeks to set aside the
decision of the Court of Appeals in C.A.-G.R. CV No. 47888 reversing the trial courts[1] judgment
in Civil Case No. 61357, as well as the resolution of the Court of Appeals denying petitioners
motion for reconsideration.
In dispute is the validity of the stipulation embodied in the standard application form for
credit cards furnished by private respondent. The stipulation makes the cardholder liable for
purchases made through his lost or stolen credit card until (a) notice of such loss or theft has
been given to private respondent and (b) the latter has communicated such loss or theft to its
member-establishments.
The facts, as found by the trial court, are not disputed.
Petitioner Luis Ermitao applied for a credit card from private respondent BPI Express Card
Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension cardholder. The
spouses were given credit cards with a credit limit of P10,000.00. They often exceeded this
credit limit without protest from BECC.
On August 29, 1989, Manuelitas bag was snatched from her as she was shopping at the
Greenbelt Mall in Makati, Metro Manila. Among the items inside the bag was her BECC credit
card. That same night she informed, by telephone, BECC of the loss. The call was received by
BECC offices through a certain Gina Banzon. This was followed by a letter dated August 30,
1989. She also surrendered Luis credit card and requested for replacement cards. In her letter,
Manuelita stated that she shall not be responsible for any and all charges incurred [through the
use of the lost card] after August 29, 1989.[2]
However, when Luis received his monthly billing statement from BECC dated September
20, 1989, the charges included amounts for purchases made on August 30, 1989 through
Manuelitas lost card. Two purchases were made, one amounting to P2,350.05 and the
other, P607.50. Manuelita received a billing statement dated October 20, 1989 which required
her to immediately pay the total amount of P3,197.70 covering the same (unauthorized)
purchases. Manuelita again wrote BECC disclaiming responsibility for those charges, which
were made after she had served BECC with notice of the loss of her card.
Despite the spouses refusal to pay and the fact that they repeatedly exceeded their
monthly credit limit, BECC sent them a notice dated December 29, 1989 stating that their cards
had been renewed until March 1991. Notwithstanding this, however, BECC continued to include
in the spouses billing statements those purchases made through Manuelitas lost card. Luis
protested this billing in his letter dated June 20, 1990.
However, BECC, in a letter dated July 13, 1990, pointed out to Luis the following
stipulation in their contract:
In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft
in writing to BECC ... purchases made/incurred arising from the use of the lost/stolen card shall
be for the exclusive account of the cardholder and the cardholder continues to be liable for the
purchases made through the use of the lost/stolen BPI Express Card until after such notice has
been given to BECC and the latter has communicated such loss/theft to its member
establishments.[3]
Pursuant to this stipulation, BECC held Luis liable for the amount of P3,197.70 incurred
through the use of his wifes lost card, exclusive of interest and penalty charges.
In his reply dated July 18, 1990, Luis stressed that the contract BECC was referring to was
a contract of adhesion and warned that if BECC insisted on charging him and his wife for the
unauthorized purchases, they will sue BECC for damages. This warning notwithstanding, BECC
continued to bill the spouses for said purchases.[4]
On April 10, 1991, Luis used his credit card to purchase gasoline at a Caltex station. The
latter, however, dishonored his card. In reply to Luis demand for an explanation, BECC wrote
that it transferred the balance of his old credit card to his new one, including the unauthorized
charges. Consequently, his outstanding balance exceeded his credit limit of P10,000.00. He was
informed that his credit card had not been cancelled but, since he exceeded his credit limit, he
could not avail of his credit privileges.
Once more, Luis pointed out that notice of the lost card was given to BECC before the
purchases were made.
Subsequently, BECC cancelled the spouses credit cards and advised them to settle the
account immediately or risk being sued for collection of said account.
Constrained, petitioners sued BECC for damages. The trial court ruled in their favor,
stating that there was a waiver on the part of BECC in enforcing the spouses liability, as
indicated by the following circumstances:
(1) Its failure to inform the spouses that the unauthorized charges on the lost card
would be carried over to their replacement cards; and
(2) Its act of unqualifiedly replacing the lost card and Luis card which were both
surrendered by the spouses, even after the spouses unequivocally denied
liability for the unauthorized purchases.
The trial court further noted that the suspension of the spouses credit cards was based
upon the lame excuse that the credit limit had been exceeded, despite the fact that BECC
allowed the spouses previously to exceed their credit limit, even for almost two years after the
loss of Manuelitas card. Moreover, the credit limit was exceeded only after BECC added the
unauthorized purchases to the liability of the spouses. BECC continued to send the spouses
separate billing statements that included the unauthorized purchases, with interest and penalty
charges.
The trial court opined that the only purpose for the suspension of the spouses credit
privileges was to compel them to pay for the unauthorized purchases. The trial court ruled that
the latter portion of the condition in the parties contract, which states that liability for purchases
made after a card is lost or stolen shall be for the account of the cardholder until after notice of
the loss or theft has been given to BECC and after the latter has informed its member
establishments, is void for being contrary to public policy and for being dependent upon the sole
will of the debtor.[5]
 21
Moreover, the trial court observed that the contract between BECC and the Ermitaos was
a contract of adhesion, whose terms must be construed strictly against BECC, the party that
prepared it.
The dispositive portion of the trial courts decision reads:
WHEREFORE, and IN VIEW OF THE ALL THE FOREGOING CONSIDERATIONS, judgment is
hereby rendered in favor of the plaintiffs, Spouses Luis M. Ermitao and Manuelita C. Ermitao
and against defendant BPI Express Card Corporation:
1. Ordering the said defendant to pay the plaintiffs the sum of P100,000.00 as moral damages.
2. Ordering said defendant to pay the plaintiffs the sum of P50,000.00 as exemplary damages.
3. Ordering said defendant to pay the plaintiffs the sum equivalent to twenty per cent (20%) of
the amounts abovementioned as and for attorneys fees and expenses of litigation; and
4. Ordering the said defendant to pay the costs of suit.
SO ORDERED.
But, on appeal this decision was reversed. The Court of Appeals stated that the spouses
should be bound by the contract, even though it was one of adhesion. It also said that Luis,
being a lawyer, had all the tools to drive a hard bargain had he wanted to.[6] It cited the case
of Serra v. Court of Appeals[7] wherein this Court ruled that contracts of adhesion are as binding
as ordinary contracts. The petitioner in Serra was a CPA-lawyer, a highly educated man ... who
should have been more cautious in (his) transactions...[8] The Court of Appeals therefore
disposed of the appeal as follows:
THE FOREGOING CONSIDERED, the contested decision is REVERSED. Plaintiffs/appellees
are hereby directed to pay the defendant/appellant the amount of P3,197.70 with 3% interest per
month and an additional 3% penalty equivalent to the amount due every month until full
payment. Without cost.
SO ORDERED.[9]
Hence, this recourse by petitioners, in which they claim that the Court of Appeals gravely
erred in:
(i) Ruling that petitioners should be bound by the stipulations contained in the credit card
application -- a document wholly prepared by private respondent itself -- taking into
consideration the professional credentials of petitioner Luis M. Ermitao;
(ii) Relying on the case of Serra v. Court of Appeals, 229 SCRA 60, because unlike that case,
petitioners have no chance at all to contest the stipulations appearing in the credit card
application that was drafted entirely by private respondent, thus, a clear contract of adhesion;
(iii) Ruling that private respondent is not estopped by its subsequent acts after having been
notified of the loss/theft of the credit card issued to petitioners; and
(iv) Holding that the onerous and unconscionable condition in the credit card application that the
cardholder continues to be liable for purchases made on lost or stolen credit cards not only after
such notice has been given to appellant but also after the latter has communicated such loss/
theft to its member establishments without any specific time or period -- is valid.[10]
At the outset, we note that the contract between the parties in this case is indeed a
contract of adhesion, so-called because its terms are prepared by only one party while the other
party merely affixes his signature signifying his adhesion thereto.[11] Such contracts are not void
in themselves.[12] They are as binding as ordinary contracts. Parties who enter into such
contracts are free to reject the stipulations entirely. This Court, however, will not hesitate to rule
out blind adherence to such contracts if they prove to be too one-sided under the attendant facts
and circumstances.[13]
The resolution of this petition, in our view, hinges on the validity and fairness of the
stipulation on notice required by private respondent in case of loss or theft of a BECC-issued
credit card. Because of the peculiar nature of contracts of adhesion, the validity thereof must be
determined in light of the circumstances under which the stipulation is intended to apply. [14]
The stipulation in question reads:
In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft
in writing to BECC ... purchases made/incurred arising from the use of the lost/stolen card shall
be for the exclusive account of the cardholder and the cardholder continues to be liable for the
purchases made through the use of the lost/stolen BPI Express Card until after such notice has
been given to BECC and the latter has communicated such loss/theft to its member
establishments.
For the cardholder to be absolved from liability for unauthorized purchases made through
his lost or stolen card, two steps must be followed: (1) the cardholder must give written notice to
BECC, and (2) BECC must notify its member establishments of such loss or theft, which,
naturally, it may only do upon receipt of a notice from the cardholder. Both the cardholder and
BECC, then, have a responsibility to perform, in order to free the cardholder from any liability
arising from the use of a lost or stolen card.
In this case, the cardholder, Manuelita, has complied with what was required of her under
the contract with BECC. She immediately notified BECC of the loss of her card on the same day
it was lost and, the following day, she sent a written notice of the loss to BECC. That she gave
such notices to BECC is admitted by BECC in the letter sent to Luis by Roberto L. Maniquiz,
head of BECCs Collection Department.[15]
Having thus performed her part of the notification procedure, it was reasonable for
Manuelita -- and Luis, for that matter -- to expect that BECC would perform its part of the
procedure, which is to forthwith notify its member-establishments. It is not unreasonable to
assume that BECC would do this immediately, precisely to avoid any unauthorized charges.
Clearly, what happened in this case was that BECC failed to notify promptly the
establishment in which the unauthorized purchases were made with the use of Manuelitas lost
card.Thus, Manuelita was being liable for those purchases, even if there is no showing that
Manuelita herself had signed for said purchases, and after notice by her concerning her cards
loss was already given to BECC.
BECC asserts that the period that elapsed from the time of the loss of the card to the time
of its unauthorized use was too short such that it would be next to impossible for respondent to
notify all its member-establishments regarding the fact of the loss.[16] Nothing, however, prevents
 22

said member-establishments from observing verification procedures including ascertaining the

genuine signature and proper identification of the purported purchaser using the credit card.

BECC states that, between two persons who are negligent, the one who made the wrong
possible should bear the loss. We take this to be an admission that negligence had occurred.In
effect, BECC is saying that the company, and the member-establishments or the petitioners
could be negligent. However, according to BECC, petitioners should be the ones to bear the loss
since it was they who made possible the commission of a wrong. This conclusion, however, is
self-serving and obviously untenable.

From one perspective, it was not petitioners who made possible the commission of the
wrong. It could be BECC for its failure to immediately notify its member-establishments, who
appear lacking in care or instruction by BECC in proper procedures, regarding signatures and
the identification of card users at the point of actual purchase of goods or services. For how else
could an unauthorized person succeed to use Manuelitas lost card?

The cardholder was no longer in control of the procedure after it has notified BECC of the
cards loss or theft. It was already BECCs responsibility to inform its member-establishments of
the loss or theft of the card at the soonest possible time. We note that BECC is not a neophyte
financial institution, unaware of the intricacies and risks of providing credit privileges to a large
number of people. It should have anticipated an occurrence such as the one in this case and
devised effective ways and means to prevent it, or otherwise insure itself against such risk.

Prompt notice by the cardholder to the credit card company of the loss or theft of his card
should be enough to relieve the former of any liability occasioned by the unauthorized use of his
lost or stolen card. The questioned stipulation in this case, which still requires the cardholder to
wait until the credit card company has notified all its member-establishments, puts the
cardholder at the mercy of the credit card company which may delay indefinitely the notification
of its members to minimize if not to eliminate the possibility of incurring any loss from
unauthorized purchases. Or, as in this case, the credit card company may for some reason fail
to promptly notify its members through absolutely no fault of the cardholder. To require the
cardholder to still pay for unauthorized purchases after he has given prompt notice of the loss or
theft of his card to the credit card company would simply be unfair and unjust. The Court cannot
give its assent to such a stipulation which could clearly run against public policy. [17]

On the matter of the damages petitioners are seeking, we must delete the award of
exemplary damages, absent any clear showing that BECC acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner, as required by Article 2232 of the Civil Code. We
likewise reduce the amount of moral damages to P50,000.00, considering the circumstances of
the parties to the case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 47888 is hereby
REVERSED and the decision of the Regional Trial Court, Branch 157, Pasig City in Civil Case
No. 61375 is REINSTATED, with the MODIFICATION that the award of exemplary damages in
the amount of P50,000.00 is hereby deleted; and the amount of moral damages is reduced
to P50,000.00; but private respondent is further ordered to pay P25,000 as attorneys fees and
litigation expenses.

Costs against private respondents.

SO ORDERED.
 23

Republic of the Philippines

check
SUPREME COURT
Manila
Interest on
4,53
c/a
EN BANC

4,932.48
G.R. Nos. L-43697 and L-442200 March 31, 1938
Surety
460.00
In re Liquidation of the Mercantile Bank of China, deposit
GOPOCO GROCERY (GOPOCO), ET AL., claimants-appellants,
vs. III. The claim of Tan Locko is for the sum of P7,624.20, and he describes it in turn as
PACIFIC COAST BISCUIT CO., ET AL., oppositors-appellees. follows:

Balance
A.M. Zarate for appellants Gopoco Grocery et al. due on
Laurel, Del Rosario and Sabido for appellant Tiong-Chui Gion. open
Ross, Lawrence and Selph for appellees Pacific Coast Biscuit Co. et al. account P7,610.44
Eusebio Orense and Carmelino G. Alvendia for appellees Chinese Grocers Asso. et al. subject to
Marcelo Nubla for appellees Ang Cheng Lian et al. check L-
759
DIAZ, J.:
Savings
account
On petition of the Bank Commissioner who alleged to have found, after an investigation, that the No. 156
Mercantile Bank of China could not continue operating as such without running the risk of (foreign)
suffering losses and prejudice its depositors and customers; and that with the requisite approval with
of the corresponding authorities, he had taken charge of all the assets thereof; the Court of First Mercantile
Instance of Manila declared the said bank in liquidation; approved all the acts theretofore Bank of
executed by the commissioner; prohibited the officers and agents of the bank from interfering China L-
with said commissioner in the possession of the assets thereof, its documents, deed, vouchers, 1611
books of account, papers, memorandum, notes, bond, bonds and accounts, obligations or Amoy
securities and its real and personal properties; required its creditors and all those who had any $15,000,00
claim against it, to present the same in writing before the commissioner within ninety days; and Interest on
ordered the publication, as was in fact done, of the order containing all these provisions, for the said
two consecutive weeks in two news-papers of general circulation in the City of Manila, at the Savings
expenses of the aforesaid bank. After these publications, and within the period of ninety days, Account
the following creditors, among others, presented their presented their claims: No. 156 8.22

Tiong Chui Gion, Gopoco Grocery, Tan Locko, Woo & Lo & Co., Sy Guan Huat and La Bella Interest on
Tondeña. checking 10.54
a/c

I. The claim of Tiong Chui Gion is for the sum of P10,285.27. He alleged that he
deposited said sum in the bank under liquidation on current account. 7,624.20

II. The claim of Gopoco Grocery (Gopoco) is for the sum of P4,932.48 plus P460. It IV. The claim of Woo & Lo & Co. is for the sum of P6,972.88 and is set out in its
described its claim as follows: written claim appearing in the record on appeal as follows:

Balance Balance
due on due on
open P4,927.95 open
P6,961.01
account subject to
subject to check L-
845
 24

had a current account in the bank in the sum of P5,392.48, but it is indebted to it, in Turn, in the
Interest on
sum of $2,334.80, the amount of certain drafts which it had accepted; (c) the claimant Tan Locko
checking 11.37
had a deposit of P7,624.20, but he owed $1,378.90, the amount of a draft which he also
a/c
accepted; (d) the claimant Woo & Lo & Co. had a deposit of P6,972.88, but it was indebted in
the sum of $3,464.84, the amount also of certain drafts accepted by it; (e) the claimants Sy
6,972.83
Guan Huat and Sy Kia had a deposit of P6,232.88, but they owed the sum of $3,107.37, for two
drafts accepted by them and already due; and (f) the claimant La Bella Tondeña had, in turn, a
V. The claim of Sy Guan Huat is for the sum of P6,232.88 and the described it as
deposit of P1,912.79, but it was, in turn, indebted in the sum of $565.40 including interest and
follows:
other expenses, the amount of two drafts drawn upon and accepted by it.
Balance
due on The lower court approved all the recommendations of The commissioner and referee as to
open claims of the six appellants as follows; (1) To approve the claim of Tiong Chui Gion (P10,285.27)
account P6,224.34 but only as an ordinary credit, minus the amount of the draft for P664.77; (2) to approve the
subject to claim of Gopoco Grocery (Gopoco) but also as an ordinary credit only (P5,387.95 according to
check L- the referee), minus its obligation amounting to $2,334.80 or P4,669.60; (3) to approve the claim
718 of Tan Locko but as an ordinary credit only (P7,610.44 according to the referee), deducting
therefrom his obligation amounting to $1,378.90 or P2,757.80; to approve the claim of Woo & Lo
Interest on & Co. but only as an ordinary credit (P6,961.01 according to the referee). after deducting its
checking 8.54 obligation to the bank, amounting to $3,464.84 or P6,929.68; (5) to approve the claim of Sy
a/c Guan Huat but only as an ordinary credit (P6,224.34 according to the referee), after deducting
his obligation amounting to $3,107.37) or P6,214.74; and, finally, (6) to approve the claim of la
Bella Tondeña but also as an ordinary credit only (1,917.50 according to the referee), after
6,232.88 deducting it obligation amounting to $565.40 or P1,130.80; but he expressly refused to authorize
the payment of the interest by reason of impossibility upon the ground set out in the decision.
VI. The claim of La Bella Tondeña is for the sum of P1,912.79, also described as Not agreeable to the decision of the lower court, each of the interested parties appealed
follows: therefrom and thereafter filed their respective briefs.

Balance
due on Tiong Chui Gion argues in his brief filed in case in G. R. No. 442200, that the lower court erred:
open
P1910.59
account 1. In holding that his deposit of P10,285.27 in the Mercantile Bank of China,
subject to constitutes an ordinary credit only and not a preferred credit.
check

Interest on
2.20
account
1,912.79
To better resolve not only these claims but also the many others which were presented against
the bank, the lower court, on July 15, 1932, appointed Fulgencio Borromeo as commissioner
and referee to receive the evidence which the interested parties may desire to present; and the
commissioner and referee thus named, after qualifying for the office and receiving the evidence
presented to him, resolved the aforesaid six claims by recommending that the same be
considered as an ordinary credit only, and not as a preferred credit as the interested parties
wanted, because they were at the same time debtors of the bank.
The evidence adduced and the very admissions of the said interested parties in fact show that
(a) the claimant Tiong Chui Gion, while he was a creditor of the Mercantile Bank of China in the
sum of P10,285.27 which he deposited on current account, was also a debtor not only in the
sum of P633.76 but also in the sum of P664.77, the amount of a draft which he accepted, plus
interest thereon and the protest fees paid therefor; (b) the claimant Gopoco Grocery (Gopoco)
2. In holding as preferred credits the drafts and checks issued by the bank under
liquidation in payment of the drafts remitted to it for collection from merchants residing
in the country, by foreign entities or banks; and in not holding that the deposits on
current account in said bank should enjoy preference over said drafts and checks; and
3. In holding that the amount of P633.76 (which should be understood as P664.77),
which the claimant owes to the bank under liquidation, be deducted from his current
account deposit therein, amounting to P10,285.27, upon the distribution of the assets
of the bank among its various creditors, instead of holding that, after deducting the
aforesaid sum of P633.76 (should be P664.77) from his aforesaid deposit, there be
turned over to him the balance together with the dividends or shares then
corresponding to him, on the basis of said amount.
The other five claimants, that is, Gopoco Grocery Tan Locko, Woo & Lo & Co., Sy Guan Huat
and La Bella Tondeña, in turn argue in the brief they jointly filed in case G. R. No. 43697, that
the lower court erred:
1. In not first deducting from their respective deposits in the bank under liquidation,
whose payment they claim, their respective obligation thereto.
 25
2. In not holding that their claims constitute a preferred credit.
3. In holding that the drafts and checks issued by the bank under liquidation in
payment of the drafts remitted to it by foreign entitles and banks for collection from the
certain merchant residing in the country, are preferred credits; and in not holding that
the deposits made by each of them enjoy preference over said drafts and checks, and
4. In denying their motion for a new trial base on the proposition that the appealed
decision is not in accordance with law and is contrary to the evidence adduced at the
trial.
The questions raised by the appellant in case G. R. No. 44200 and by appellants in case G.R.
43697 being identical in nature, we believe it practical and proper to resolve said questions
jointly in one decision. Before proceeding, however, it is convenient to note that the
commissioner and referee, classifying the various claims presented against the bank, placed
under one group those partaking of the same nature, the classification having resulted in six
groups.
In the first group he included all the claims for current account, savings and fixed deposits.
In the second group he included the claims for checks or drafts sold by the bank under
liquidation and not paid by the agents or banks in whose favor they had been issued.
In the third group he included the claims checks or drafts issued by the bank under liquidation in
payment or reimbursement of the drafts or goods remitted to it for collection, from resident
merchants and entitles, by foreign banks and entities.
In the fourth group he included the claims for drafts or securities to be collected from resident
merchants and entities to be collected from resident merchants and entities which were pending
collection on the date payments were suspended.
In the fifth group he included the claims of certain depositors or creditors of the bank who were
at the same time debtors thereof; and he considered of this class the claims of the appellants in
these two cases, and
In the sixth group he included the other claims different in nature from the of the aforesaid five
claims.
I. Now, then, should the appellants' deposits on current account in the bank now under
liquidation be considered preferred credits, and not otherwise, or should they be considered
ordinary credits only? The appellants contend that they are preferred credits only? The
appellants contend that they are preferred credits because they are deposits in contemplation of
law, and as such should be returned with the corresponding interest thereon. In support thereof
they cite Manresa (11 Manresa, Civil Code, page 663), and what has been insinuated in the
case of Rogers vs. Smith, Bell & Co. (10 Phil., 319), citing the said commentator who maintains
that, notwithstanding the provisions of articles 1767 and 1768 and others of the aforesaid Code,
from which it is inferred that the so-called irregular deposits no longer exist, the fact is that said
deposits still exist. And they contend and argue that what they had in the bank should be
considered as of this character. But it happens that they themselves admit that the bank owes
them interest which should have been paid to them before it was declared in a state of
liquidation. This fact undoubtedly destroys the character which they nullifies their contention that
the same be considered as irregular deposits, because the payment of interest only takes place
in the case of loans. On the other hand, as we stated with respect to the claim of Tan Tiong Tick
(In re Liquidation of Mercantile Bank of China, G.R. No. 43682), the provisions of the Code of
Commerce, and not those of the Civil Code, are applicable to cases of the nature of those at bar,
which have to do with parties who are both merchants. (Articles 303 and 309, Code of
Commerce.) We there said, and it is not amiss to repeat now, that the so-called current account
and savings deposits have lost their character of deposits, properly so-called and are convertible
into simple commercial loans because, in cases of such deposits, the bank has made use
thereof in the ordinary course of its transactions as an institution engaged in the banking
business, not because it so wishes, but precisely because of the authority deemed to have been
granted to it by the appellants to enable them to collect the interest which they had been and
they are now collecting, and by virtue further of the authority granted to it by section 125 of the
Corporation Law (Act No. 1459), as amended by Acts Nos. 2003 and 3610 and section 9 of the
Banking Law (Act No. 3154), without considering of course the provisions of article 1768 of the
Civil Code. Wherefore, it is held that the deposits on current account of the appellants in the
bank under liquidation, with the right on their right on their part to collect interest, have not
created and could not create a juridical relation between them except that of creditors and
debtor, they being the creditors and the bank the debtor.
What has so far been said resolves adversely the contention of the appellants, the question
raised in the first and second assigned errors Tiong Chui Gion in case G. R. No. 44200, and the
appellants' second and third assigned errors in case G. R. No. 43697.
II. As to the third and first errors attributed to lower court by Tiong Chui Gion in his case, and by
the other appellants in theirs, respectively, it should be stated that the question of set-off raised
by them cannot be resolved a like question in the said case, G. R. No. 43682, entitled "In
re Liquidation of Mercantile Bank of China. Tan Tiong Tick, claimant." It is proper that set-offs be
made, inasmuch as the appellants and the bank being reciprocally debtors and creditors, the
same is only just and according to law (art. 1195, Civil Code), particularly as none of the
appellants falls within the exceptions mentioned in section 58 of the Insolvency Law (Act No.
1956), reading:
SEC. 58. In all cases of mutual debts and mutual credits between the parties, the account
between them shall be stated, and one debt set off against the other, and the balance only shall
be allowed and paid. But no set-off or counterclaim shall be allowed of a claim in its nature not
provable against the estate: Provided, That no set-off on counterclaim shall be allowed in favor
of any debtor to the insolvent of a claim purchased by or transferred to such debtor within thirty
days immediately preceding the filing, or after the filing of the petition by or against the insolvent.
It has been said with much basis by Morse, in his work on Bank and Banking (6th ed., vol. 1,
pages 776 and 784) that:
The rules of law as to the right of set-off between the bank and its depositors are not different
from those applicable to other parties. (Page 776.)
Where the bank itself stops payment and becomes insolvent, the customer may avail himself in
set-off against his indebtedness to the bank of any indebtedness of the bank to himself, as, for
example, the balance due him on his deposit account. (Page 784.)
 26

But if set-offs are proper in these cases, when and how should they be made, considering that
the appellants ask for the payment of interest? Are they by any chance entitled to interest? If
they are, when and until what time should they be paid the same?

The question of whether they are entitled to interest should be resolved in the same way that we
resolved the case of the claimant Tan Tiong Tick in the said case, G. R. No. 43682. The
circumstances in these two cases are certainly the same as those in the said case with
reference to the said question. The Mercantile Bank of China owes to each of the appellants the
interest claimed by them, corresponding to the year ending December 4, 1931, the date it was
declared in a state of liquidation, but not which the appellants claim should be earned by their
deposits after said date and until the full amounts thereof are paid to them. And with respect to
the question of set-off, this should be deemed made, of course, as of the date when the
Mercantile Bank of China was declared in a state of liquidation, that is, on December 4, 1931, for
then there was already a reciprocal concurrence of debts, with respect to said bank and the
appellants. (Arts. 1195 and 1196 of the Civil Code; 8 Manresa, 4th ed., p. 361.)

III. With respect to the fourth assigned error of the appellants in case G. R. No. 43697, we hold,
in view of the considerations set out in resolving the other assignments of errors, that the lower
court properly denied the motion for new trial of said appellants.

In view of the foregoing, we modify the appealed judgments by holding that the deposits claimed
by the appellants, and declared by the lower court to be ordinary credits are for the following
amounts: P10,285.27 of Tiong Chui Gion; P5,387.95 of Gopoco Grocery (Gopoco); P7,610.44 of
Tan Locko; P6961.01 of Woo & Lo & Co.; P6,224.34 of Sy Guan Huat; and P1,917.50 of La
Bella Tondeña, plus their corresponding interest up to December 4, 1931; that their obligations
to the bank under liquidation which should be set off against said deposits, are respectively for
the following amounts: P664.77 of Tiong Chui Gion; P4,669.60 of Gopoco Grocery (Gopoco);
P2,757.80 of Tan Locko; P6,929.68 of Woo & Lo & Co.; P6,214.74 of Sy Huat; and P1,130.80 of
La Bella Todeña; and we order that the set-offs in question be made in the manner stated in this
decision, that is, as of the date already indicated, December 4, 1931. In all other respects, we
affirm the aforesaid judgments, without special pronouncement as to costs. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial and Horrilleno, JJ., concur.
 27
[G.R. No. 127246. April 21, 1999]
SPOUSES LUIS M. ERMITAO and MANUELITA C. ERMITAO, petitioners, vs. THE COURT
OF APPEALS AND BPI EXPRESS CARD CORP., respondents.
DECISION
QUISUMBING, J.:
This petition for review under Rule 45, of the Rules of Court, seeks to set aside the
decision of the Court of Appeals in C.A.-G.R. CV No. 47888 reversing the trial courts[1] judgment
in Civil Case No. 61357, as well as the resolution of the Court of Appeals denying petitioners
motion for reconsideration.
In dispute is the validity of the stipulation embodied in the standard application form for
credit cards furnished by private respondent. The stipulation makes the cardholder liable for
purchases made through his lost or stolen credit card until (a) notice of such loss or theft has
been given to private respondent and (b) the latter has communicated such loss or theft to its
member-establishments.
The facts, as found by the trial court, are not disputed.
Petitioner Luis Ermitao applied for a credit card from private respondent BPI Express Card
Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension cardholder. The
spouses were given credit cards with a credit limit of P10,000.00. They often exceeded this
credit limit without protest from BECC.
On August 29, 1989, Manuelitas bag was snatched from her as she was shopping at the
Greenbelt Mall in Makati, Metro Manila. Among the items inside the bag was her BECC credit
card. That same night she informed, by telephone, BECC of the loss. The call was received by
BECC offices through a certain Gina Banzon. This was followed by a letter dated August 30,
1989. She also surrendered Luis credit card and requested for replacement cards. In her letter,
Manuelita stated that she shall not be responsible for any and all charges incurred [through the
use of the lost card] after August 29, 1989.[2]
However, when Luis received his monthly billing statement from BECC dated September
20, 1989, the charges included amounts for purchases made on August 30, 1989 through
Manuelitas lost card. Two purchases were made, one amounting to P2,350.05 and the
other, P607.50. Manuelita received a billing statement dated October 20, 1989 which required
her to immediately pay the total amount of P3,197.70 covering the same (unauthorized)
purchases. Manuelita again wrote BECC disclaiming responsibility for those charges, which
were made after she had served BECC with notice of the loss of her card.
Despite the spouses refusal to pay and the fact that they repeatedly exceeded their
monthly credit limit, BECC sent them a notice dated December 29, 1989 stating that their cards
had been renewed until March 1991. Notwithstanding this, however, BECC continued to include
in the spouses billing statements those purchases made through Manuelitas lost card. Luis
protested this billing in his letter dated June 20, 1990.
However, BECC, in a letter dated July 13, 1990, pointed out to Luis the following
stipulation in their contract:
In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft
in writing to BECC ... purchases made/incurred arising from the use of the lost/stolen card shall
be for the exclusive account of the cardholder and the cardholder continues to be liable for the
purchases made through the use of the lost/stolen BPI Express Card until after such notice has
been given to BECC and the latter has communicated such loss/theft to its member
establishments.[3]
Pursuant to this stipulation, BECC held Luis liable for the amount of P3,197.70 incurred
through the use of his wifes lost card, exclusive of interest and penalty charges.
In his reply dated July 18, 1990, Luis stressed that the contract BECC was referring to was
a contract of adhesion and warned that if BECC insisted on charging him and his wife for the
unauthorized purchases, they will sue BECC for damages. This warning notwithstanding, BECC
continued to bill the spouses for said purchases.[4]
On April 10, 1991, Luis used his credit card to purchase gasoline at a Caltex station. The
latter, however, dishonored his card. In reply to Luis demand for an explanation, BECC wrote
that it transferred the balance of his old credit card to his new one, including the unauthorized
charges. Consequently, his outstanding balance exceeded his credit limit of P10,000.00. He was
informed that his credit card had not been cancelled but, since he exceeded his credit limit, he
could not avail of his credit privileges.
Once more, Luis pointed out that notice of the lost card was given to BECC before the
purchases were made.
Subsequently, BECC cancelled the spouses credit cards and advised them to settle the
account immediately or risk being sued for collection of said account.
Constrained, petitioners sued BECC for damages. The trial court ruled in their favor,
stating that there was a waiver on the part of BECC in enforcing the spouses liability, as
indicated by the following circumstances:
(1) Its failure to inform the spouses that the unauthorized charges on the lost card
would be carried over to their replacement cards; and
(2) Its act of unqualifiedly replacing the lost card and Luis card which were both
surrendered by the spouses, even after the spouses unequivocally denied
liability for the unauthorized purchases.
The trial court further noted that the suspension of the spouses credit cards was based
upon the lame excuse that the credit limit had been exceeded, despite the fact that BECC
allowed the spouses previously to exceed their credit limit, even for almost two years after the
loss of Manuelitas card. Moreover, the credit limit was exceeded only after BECC added the
unauthorized purchases to the liability of the spouses. BECC continued to send the spouses
separate billing statements that included the unauthorized purchases, with interest and penalty
charges.
The trial court opined that the only purpose for the suspension of the spouses credit
privileges was to compel them to pay for the unauthorized purchases. The trial court ruled that
the latter portion of the condition in the parties contract, which states that liability for purchases
made after a card is lost or stolen shall be for the account of the cardholder until after notice of
the loss or theft has been given to BECC and after the latter has informed its member
establishments, is void for being contrary to public policy and for being dependent upon the sole
will of the debtor.[5]
 28
Moreover, the trial court observed that the contract between BECC and the Ermitaos was
a contract of adhesion, whose terms must be construed strictly against BECC, the party that
prepared it.
The dispositive portion of the trial courts decision reads:
WHEREFORE, and IN VIEW OF THE ALL THE FOREGOING CONSIDERATIONS, judgment is
hereby rendered in favor of the plaintiffs, Spouses Luis M. Ermitao and Manuelita C. Ermitao
and against defendant BPI Express Card Corporation:
1. Ordering the said defendant to pay the plaintiffs the sum of P100,000.00 as moral damages.
2. Ordering said defendant to pay the plaintiffs the sum of P50,000.00 as exemplary damages.
3. Ordering said defendant to pay the plaintiffs the sum equivalent to twenty per cent (20%) of
the amounts abovementioned as and for attorneys fees and expenses of litigation; and
4. Ordering the said defendant to pay the costs of suit.
SO ORDERED.
But, on appeal this decision was reversed. The Court of Appeals stated that the spouses
should be bound by the contract, even though it was one of adhesion. It also said that Luis,
being a lawyer, had all the tools to drive a hard bargain had he wanted to.[6] It cited the case
of Serra v. Court of Appeals[7] wherein this Court ruled that contracts of adhesion are as binding
as ordinary contracts. The petitioner in Serra was a CPA-lawyer, a highly educated man ... who
should have been more cautious in (his) transactions...[8] The Court of Appeals therefore
disposed of the appeal as follows:
THE FOREGOING CONSIDERED, the contested decision is REVERSED. Plaintiffs/appellees
are hereby directed to pay the defendant/appellant the amount of P3,197.70 with 3% interest per
month and an additional 3% penalty equivalent to the amount due every month until full
payment. Without cost.
SO ORDERED.[9]
Hence, this recourse by petitioners, in which they claim that the Court of Appeals gravely
erred in:
(i) Ruling that petitioners should be bound by the stipulations contained in the credit card
application -- a document wholly prepared by private respondent itself -- taking into
consideration the professional credentials of petitioner Luis M. Ermitao;
(ii) Relying on the case of Serra v. Court of Appeals, 229 SCRA 60, because unlike that case,
petitioners have no chance at all to contest the stipulations appearing in the credit card
application that was drafted entirely by private respondent, thus, a clear contract of adhesion;
(iii) Ruling that private respondent is not estopped by its subsequent acts after having been
notified of the loss/theft of the credit card issued to petitioners; and
(iv) Holding that the onerous and unconscionable condition in the credit card application that the
cardholder continues to be liable for purchases made on lost or stolen credit cards not only after
such notice has been given to appellant but also after the latter has communicated such loss/
theft to its member establishments without any specific time or period -- is valid.[10]
At the outset, we note that the contract between the parties in this case is indeed a
contract of adhesion, so-called because its terms are prepared by only one party while the other
party merely affixes his signature signifying his adhesion thereto.[11] Such contracts are not void
in themselves.[12] They are as binding as ordinary contracts. Parties who enter into such
contracts are free to reject the stipulations entirely. This Court, however, will not hesitate to rule
out blind adherence to such contracts if they prove to be too one-sided under the attendant facts
and circumstances.[13]
The resolution of this petition, in our view, hinges on the validity and fairness of the
stipulation on notice required by private respondent in case of loss or theft of a BECC-issued
credit card. Because of the peculiar nature of contracts of adhesion, the validity thereof must be
determined in light of the circumstances under which the stipulation is intended to apply. [14]
The stipulation in question reads:
In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft
in writing to BECC ... purchases made/incurred arising from the use of the lost/stolen card shall
be for the exclusive account of the cardholder and the cardholder continues to be liable for the
purchases made through the use of the lost/stolen BPI Express Card until after such notice has
been given to BECC and the latter has communicated such loss/theft to its member
establishments.
For the cardholder to be absolved from liability for unauthorized purchases made through
his lost or stolen card, two steps must be followed: (1) the cardholder must give written notice to
BECC, and (2) BECC must notify its member establishments of such loss or theft, which,
naturally, it may only do upon receipt of a notice from the cardholder. Both the cardholder and
BECC, then, have a responsibility to perform, in order to free the cardholder from any liability
arising from the use of a lost or stolen card.
In this case, the cardholder, Manuelita, has complied with what was required of her under
the contract with BECC. She immediately notified BECC of the loss of her card on the same day
it was lost and, the following day, she sent a written notice of the loss to BECC. That she gave
such notices to BECC is admitted by BECC in the letter sent to Luis by Roberto L. Maniquiz,
head of BECCs Collection Department.[15]
Having thus performed her part of the notification procedure, it was reasonable for
Manuelita -- and Luis, for that matter -- to expect that BECC would perform its part of the
procedure, which is to forthwith notify its member-establishments. It is not unreasonable to
assume that BECC would do this immediately, precisely to avoid any unauthorized charges.
Clearly, what happened in this case was that BECC failed to notify promptly the
establishment in which the unauthorized purchases were made with the use of Manuelitas lost
card.Thus, Manuelita was being liable for those purchases, even if there is no showing that
Manuelita herself had signed for said purchases, and after notice by her concerning her cards
loss was already given to BECC.
BECC asserts that the period that elapsed from the time of the loss of the card to the time
of its unauthorized use was too short such that it would be next to impossible for respondent to
notify all its member-establishments regarding the fact of the loss.[16] Nothing, however, prevents
 29

said member-establishments from observing verification procedures including ascertaining the

genuine signature and proper identification of the purported purchaser using the credit card.

BECC states that, between two persons who are negligent, the one who made the wrong
possible should bear the loss. We take this to be an admission that negligence had occurred.In
effect, BECC is saying that the company, and the member-establishments or the petitioners
could be negligent. However, according to BECC, petitioners should be the ones to bear the loss
since it was they who made possible the commission of a wrong. This conclusion, however, is
self-serving and obviously untenable.

From one perspective, it was not petitioners who made possible the commission of the
wrong. It could be BECC for its failure to immediately notify its member-establishments, who
appear lacking in care or instruction by BECC in proper procedures, regarding signatures and
the identification of card users at the point of actual purchase of goods or services. For how else
could an unauthorized person succeed to use Manuelitas lost card?

The cardholder was no longer in control of the procedure after it has notified BECC of the
cards loss or theft. It was already BECCs responsibility to inform its member-establishments of
the loss or theft of the card at the soonest possible time. We note that BECC is not a neophyte
financial institution, unaware of the intricacies and risks of providing credit privileges to a large
number of people. It should have anticipated an occurrence such as the one in this case and
devised effective ways and means to prevent it, or otherwise insure itself against such risk.

Prompt notice by the cardholder to the credit card company of the loss or theft of his card
should be enough to relieve the former of any liability occasioned by the unauthorized use of his
lost or stolen card. The questioned stipulation in this case, which still requires the cardholder to
wait until the credit card company has notified all its member-establishments, puts the
cardholder at the mercy of the credit card company which may delay indefinitely the notification
of its members to minimize if not to eliminate the possibility of incurring any loss from
unauthorized purchases. Or, as in this case, the credit card company may for some reason fail
to promptly notify its members through absolutely no fault of the cardholder. To require the
cardholder to still pay for unauthorized purchases after he has given prompt notice of the loss or
theft of his card to the credit card company would simply be unfair and unjust. The Court cannot
give its assent to such a stipulation which could clearly run against public policy.[17]

On the matter of the damages petitioners are seeking, we must delete the award of
exemplary damages, absent any clear showing that BECC acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner, as required by Article 2232 of the Civil Code. We
likewise reduce the amount of moral damages to P50,000.00, considering the circumstances of
the parties to the case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 47888 is hereby
REVERSED and the decision of the Regional Trial Court, Branch 157, Pasig City in Civil Case
No. 61375 is REINSTATED, with the MODIFICATION that the award of exemplary damages in
the amount of P50,000.00 is hereby deleted; and the amount of moral damages is reduced
to P50,000.00; but private respondent is further ordered to pay P25,000 as attorneys fees and
litigation expenses.

Costs against private respondents.

SO ORDERED.
 30

G.R. No. L-47878 July 24, 1942 We hold therefore, that as the contract is clear and unmistakable and the terms employed
therein have not been shown to belie or otherwise fail to express the true intention of the parties
and that the deed has not been assailed on the ground of mutual mistake which would require its
GIL JARDENIL, plaintiff-appellant,
reformation, same should be given its full force and effect. When a party sues on a written
vs.
contract and no attempt is made to show any vice therein, he cannot be allowed to lay any claim
HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee.
more than what its clear stipulations accord. His omission, to which the law attaches a definite
warning as an in the instant case, cannot by the courts be arbitrarily supplied by what their own
Eleuterio J. Gustilo for appellant. notions of justice or equity may dictate.
Jose C. Robles for appellee.
Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400
MORAN, J.: from November 8, 1932 to March 31, 1934. And it being a fact that extra judicial demands have
been made which we may assume to have been so made on the expiration of the year of grace,
he shall be entitled to legal interest upon the principal and the accrued interest from April 1,
This is an action for foreclosure of mortgage. The only question raised in this appeal is: Is 1935, until full payment.
defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in
the promissory note, or up to the date payment is effected? This question is, in our opinion
controlled by the express stipulation of the parties. Thus modified judgment is affirmed, with costs against appellant.

Paragraph 4 of the mortgage deed recites: Yulo, C.J., Ozaeta and Bocobo, JJ., concur.

Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS
PESOS (P2,4000.00), moneda filipina, que el Sr. Hepti Solas se compromete a pagar
al Sr. Jardenil en o antes del dia treintaiuno (31) de marzo de mil novecientos
treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por ciento (12%)
anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de
marzo de mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti Solas
cede y traspasa, por via de primera hipoteca, a favor del Sr. Jardenil, sus herederos y
causahabientes, la parcela de terreno descrita en el parrafo primero (1.º) de esta
escritura.

Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity,
or until March 31, 1934. As the contract is silent as to whether after that date, in the event of
non-payment, the debtor would continue to pay interest, we cannot in law, indulge in any
presumption as to such interest; otherwise, we would be imposing upon the debtor an obligation
that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that
"interest shall be due only when it has been expressly stipulated." (Emphasis supplied.)

A writing must be interpreted according to the legal meaning of its language (section 286, Act
No. 190, now section 58, Rule 123), and only when the wording of the written instrument
appears to be contrary to the evident intention of the parties that such intention must prevail.
(Article 1281, Civil Code.) There is nothing in the mortgage deed to show that the terms
employed by the parties thereto are at war with their evident intent. On the contrary the act of the
mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage,
an extension of one year from the date of maturity within which to make payment, without
making any mention of any interest which the mortgagor should pay during the additional period
(see Exhibit B attached to the complaint), indicates that the true intention of the parties was that
no interest should be paid during the period of grace. What reason the parties may have
therefor, we need not here seek to explore.

Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to
express their agreement, for if such mistake existed, plaintiff would have undoubtedly adduced
evidence to establish it and asked that the deed be reformed accordingly, under the parcel-
evidence rule.
31