Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 103576 August 22, 1996

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN
CITY, respondents.

VITUG, J.:p
Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to
obligations yet to be contracted or incurred? This question is the core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation,"
executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers
Bank of the Philippines. The mortgage stood by way of security for petitioner's corporate loan of three million pesos
(P3,000,000.00). A provision in the chattel mortgage agreement was to this effect
(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full
obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null and
void. . . .
In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the
former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations
such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on
Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory
note or notes and/or accommodations without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind
and nature, whether such obligations have been contracted before, during or after the constitution of this
1
mortgage.
In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from
2
respondent bank additional financial accommodations totalling P2,700,000.00. These borrowings were on due date also
fully paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos
(P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan was not
3
settled at maturity. Respondent bank thereupon applied for an extra judicial foreclosure of the chattel mortgage, herein
before cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for injunction,
with damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case
No. C-12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held
petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage.
4

Petitioner corporation appealed to the Court of Appeals which, on 14 August 1991, affirmed, "in all respects," the
decision of the court a quo. The motion for reconsideration was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially dinied on 04 March 1992 by this Court for having
been insufficient in form and substance. Private respondent filed a motion to dismiss the petition while petitioner

corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's
first motion for reconsideration but granted a second motion for reconsideration, thereby reinstating the petition and
5
requiring private respondent to comment thereon.
6

Except in criminal cases where the penalty of reclusion perpetua or death is imposed which the Court so reviews as a
matter of course, an appeal from judgments of lower courts is not a matter of right but of sound judicial discretion. The
circulars of the Court prescribing technical and other procedural requirements are meant to weed out unmeritorious
petitions that can unnecessarily clog the docket and needlessly consume the time of the Court. These technical and
procedural rules, however, are intended to help secure, not suppress, substantial justice. A deviation from the rigid
enforcement of the rules may thus be allowed to attain the prime objective for, after all, the dispensation of justice is the
core reason for the existence of courts. In this instance, once again, the Court is constrained to relax the rules in order to
give way to and uphold the paramount and overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship, the
faithful performance of the obligation by the principal debt or is secured by the personal commitment of another (the
guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is
secured by an encumbrance of property in pledge, the placing of movable property in the possession of the creditor; in
chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate
mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a
written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to
apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit upon the essential
condition that if the obligation becomes due and the debtor defaults, then the property encumbered can be alienated for
7
the payment of the obligation, but that should the obligation be duly paid, then the contract is automatically extinguished
8
proceeding from the accessory character of the agreement. As the law so puts it, once the obligation is complied with,
9
then the contract of security becomes, ipso facto, null and void.
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these
10
future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the
mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be
contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel
11
Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation
can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but,
of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the
chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the
Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is
not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid
12
between the parties (not against third persons acting in good faith ), the fact, however, that the statute has
provided that the parties to the contract must execute an oath that
. . . (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof,
and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the
13
purpose of fraud.
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated.
In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the
P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage
Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In Belgian
14
Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., the Court
said
. . . A mortgage that contains a stipulation in regard to future advances in the credit will take effect only
15
from the date the same are made and not from the date of the mortgage.
The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to
16
exist coincidentally with the full payment of the P3,000,000.00 loan, there no longer was any chattel mortgage
that could cover the new loans that were concluded thereafter.

We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific
finding on the amount of damages it has sustained "as a result of the unlawful action taken by respondent bank against
1
it." 7 This prayer is not reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way
18
19
of moral damages. In LBC Express, Inc. vs. Court of Appeals, we have said:
Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A
corporation, being an artificial person and having existence only in legal contemplation, has no feelings,
no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows,
20
and griefs of life all of which cannot be suffered by respondent bank as an artificial person.
While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so named
as a party in representation of petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out to
be, however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on the
petition his so-called "One Final Word;" viz:
In simply quoting in toto the patently erroneous decision of the trial court, respondent Court of Appeals
should be required to justify its decision which completely disregarded the basic laws on obligations and
contracts, as well as the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of
this Honorable Court; that in the event that its explanation is wholly unacceptable, this Honorable Court
should impose appropriate sanctions on the erring justices. This is one positive step in ridding our courts
of law of incompetent and dishonest magistrates especially members of a superior court of appellate
21
jurisdiction. (Emphasis supplied.)
The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero
22
vs. Villamor; thus:
(L)awyers . . . should bear in mind their basic duty "to observe and maintain the respect due to the courts
of justice and judicial officers and . . . (to) insist on similar conduct by others." This respectful attitude
towards the court is to be observed, "not for the sake of the temporary incumbent of the judicial office, but
for the maintenance of its supreme importance." And it is through a scrupulous preference for respectful
language that a lawyer best demonstrates his observance of the respect due to the courts and judicial
23
officers . . .
The virtues of humility and of respect and concern for others must still live on even in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to the
appropriate legal recourse by private respondent as may still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.
Padilla, J., took no part.
Bellosillo, J., ic on leave.
Footnotes
1 Rollo, p. 45.
2 Ibid., p. 34.

3 Ibid.
4 Associate Justice Consuelo Ynares Santiago, ponente, with Associate Justices Ricardo L. Pronove, Jr. and
Nicolas p. Lapea, Jr., concurring.
5 In the Court's resolution, dated 27 May 1992, Rollo, p. 91.
6 Sec. 5 (2) (d), Art. VIII, 1987 Constitution.
7 See Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and 2140, Civil Code.
8 See Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA 515.
9 See Sec. 3, Act 1508.
10 See Mojica vs. Court of Appeals, 201 SCRA 517; Lim Julian vs. Lutero, 49 Phil. 703.
11 Act No. 1508.
12 See Philippine Refining Co. vs. Jarque, 61 Phil. 229.
13 Civil Code. Vol. 3, 1990 Edition by Ramon C. Aquino and Carolina C. Grio-Aquino, pp. 610-611
14 49 Phil. 647.
15 At p. 655. This ruling was reiterated in Jaca vs. Davao Lumber Company, 113 SCRA 107.
16 Being merely accessory in nature, it cannot exist independently of the principal obligation.
17 Petitioner's Memorandum, p. 5; Rollo, p. 119.
18 Complaint, p. 6; Record, p. 9.
19 236 SCRA 602.
20 At p. 607.
21 Rollo, p. 113.
22 179 SCRA 355, 362.
23 At p. 362.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 59255 December 29, 1995

OLIVIA M. NAVOA and ERNESTO NAVOA, petitioners,

vs.
COURT OF APPEALS, TERESITA DOMDOMA and EDUARDO DOMDOMA, respondents.

BELLOSILLO, J.:
1

Petitioners Olivia M. Navoa and Ernesto Navoa seek reversal of the decision of the Court of Appeals which "modified"
the order of the trial court dismissing the complaint for lack of cause of action. The appellate court remanded the case to
the court a quo for private respondents to file their responsive pleading and for trial on the merits.
On 17 December 1977 private respondents filed with the Regional Trial Court of Manila an action against petitioners for
collection of various sums of money based on loans obtained by the latter. On 3 January 1978 petitioners filed a motion to
dismiss the complaint on the ground that the complaint stated no cause of action and that plaintiffs had no capacity to sue.
After private respondents submitted their opposition to the motion to dismiss on 9 January 1978 the trial court dismissed
the case. A motion to reconsider the dismissal was denied.
On 27 March 1978 private respondents appealed to the Court of Appeals which on 11 December 1980 modified the order
of dismissal "by returning the records of this case for trial on the merits, upon filing of an answer subject to the provisions
of Articles 1182 and 1197 of the Civil Code for the first cause of action. The other causes of action should be tried on the
merits subject to the defenses the defendants may allege in their answer."
The instant petition alleges that respondent court erred: (a) in not dismissing the appeal for lack of appellate jurisdiction
over the case which involves merely a question of law; (b) in not affirming the order of dismissal for lack of cause of
action; and, (c) in holding that private respondents have a cause of action under the second to the sixth causes of action
2
of the complaint.
We cannot sustain the petition. Petitioners are now estopped from assailing the appellate jurisdiction of the Court of
3
Appeals after receiving an adverse judgment therefrom. Having participated actively in the proceedings before the
appellate court, petitioners can no longer question its authority.
Petitioners submit that private respondents failed to specify in their complaint a fixed period within which petitioners
should pay their obligations; that instead of stating that petitioners failed to discharge their obligations upon maturity
private respondents sought to collect on the checks which were issued to them merely as security for the loans; and, that
private respondents failed to make a formal demand on petitioners to satisfy their obligations before filing the action.
For a proper determination of whether the complaint filed by private respondents sufficiently stated a cause of action, we
shall examine the relevant allegations in the complaint, to wit:
Allegations Common To All Causes of Actions
xxx xxx xxx
3. That sometime in . . . February, 1977, when the Reycard Duet was in Manila, plaintiff Teresita got
acquainted with defendant Olivia in the jewelry business, the former selling the jewelries of the latter; that
to the Reycard Duet alone, plaintiff Teresita sold jewelries worth no less than ONE HUNDRED TWENTY
THOUSAND (P120,000.00) PESOS in no less than twenty (20) transactions; that even when the
Reycards have already left, their association continued, and up to the month of August, 1977, plaintiff
Teresita sold for defendant Olivia jewelries worth no less than TWENTY THOUSAND (P20,000.00)
PESOS, in ten (10) transactions more or less;
xxx xxx xxx
5. That sometime in the month of June and July of 1977, defendant Olivia, on two occasions, asked for a
loan from plaintiff Teresita, for the purpose of investing the same in the purchase of jewelries, which loan
were secured by personal checks of the former; that in connection with these loans, defendant promised
plaintiff a participation in an amount equivalent to one half (1/2) of the profit to be realized; that on these

loans, plaintiff was given a share in the amount of P1,200.00 in the first transaction, and in the second
transaction, the sum of P950.00;
First Cause of Action
6. That on August 15, 1977, defendant Olivia got from plaintiff Teresita, one diamond ring, one and one
half (1-1/2) karats, heart shape, valued in the amount of Fifteen thousand (P15,000.00) Pesos; that as a
security for the said ring, Olivia issued a Philippine Commercial and Industrial Bank Check, San
Sebastian Branch, dated August 15, 1977, No. 13894, copy of which is hereto attached and made a part
hereof as Annex "A";
7. That the condition of the issuance of the check was if the ring is not returned within fifteen (15) days
from August 15, 1977, the ring is considered sold; that after fifteen days, plaintiff Teresita asked
defendant Olivia if she could deposit the check, and the answer of defendant Olivia was hold it for
sometime, until I tell you to deposit the same; that the check was held until the month of November, 1977,
and when deposited, it was dishonored for lack of sufficient funds; that for the reason that the
aforementioned check was not honored when deposited, defendant Olivia should be held liable for
interest at the rate of one percent a month, from date of issue, until the same is fully paid;
Second Cause of Action
8. That on August 25, 1977, plaintiff Teresita extended a loan to the herein defendant Olivia in the amount
of TEN THOUSAND (P10,000.00) PESOS, secured by a Philippine Commercial and Industrial Bank
Check, PCIBANK Singalong Branch, No. 14307, dated Sept. 25, 1977, photo copy of which is hereto
attached and made a part hereof as Annex "B";
9. That this loan was extended upon representation of defendant Olivia that she needed money to pay for
jewelries which she can resell for a big profit; that having established her goodwill, by reason of the
transaction mentioned in par. "5" hereof, the loan was extended by plaintiff;
10. That this check, Annex "B", when deposited was dishonored; that for the reason that the check was
dishonored when deposited, defendant Olivia should be held liable for interest at the rate of one percent
(1%) per month, from the date of issue until fully paid;
Third Cause of Action
11. That on August 27, 1977, plaintiff extended to defendant Olivia a loan in the amount of FIVE
THOUSAND PESOS (P5,000.00), secured by a Philippine Commercial & Industrial Bank check,
PCIBANK Singalong Branch, No. 14308, dated Sept. 27, 1977, photo copy of which is hereto attached
and made a part hereof as Annex "C";
12. That this loan was extended on the same representation made by defendant Olivia, stated in par. "9",
under the terms and conditions stated in par. "5" hereof;
13. That the check Annex "C", has not as yet been paid up to now, hence, defendant Olivia should be
held liable for interest at the rate of one percent (1%) monthly, from date of issue, until fully paid;
Fourth Cause of Action
14. That on August 30, 1977, plaintiff Teresita, extended a loan in favor of defendant Olivia, in the amount
of Five Thousand (P5,000.00) Pesos, secured by a Philippine Commercial and Industrial Bank Check,
PCIBANK Singalong Branch, No. 14311, dated Sept. 30, 1977, photo copy of which is hereto attached
and made a part hereof as Annex "D";
15. That this loan was extended on the same representation made by defendant Olivia, as stated in par.
"9" hereof, under the terms and conditions stated in par. "5" hereof;
16. That this check, Annex "D" has not as yet been paid up to now, hence, she should be held liable for
interest thereon at the rate of one percent (1%) per month, from date of issue, until fully paid;

Fifth Cause of Action

17. That on Sept. 15, 1977, plaintiff Teresita extended a loan in favor of defendant Olivia, in the amount of
TEN THOUSAND (P10,000.00) PESOS, secured by a Philippine Commercial & Industrial Bank check,
PCIBANK Singalong Branch, No. 14320, dated October 15, 1977, photo copy of which is hereto attached
and made a part hereof as Annex "E";
18. That this loan was given on the same representation made by defendant Olivia, stated on par. "9"
hereof, and under the terms and conditions stated in par. "5" hereof;
19. That this check Annex "E" when deposited was dishonored; that for the reason that the check was
dishonored when deposited, defendant Olivia should be held liable for interest at the rate of one percent
(1%) monthly, from date of issue, until fully paid;
Sixth Cause of Action
20. That on Sept. 27, 1977, plaintiff Teresita extended a loan to defendant Olivia, in the amount of TEN
THOUSAND (P10,000.00) PESOS, secured by a Philippine Commercial & Industrial Bank check, No.
14325, dated October 27, 1977, photo copy of which is hereto attached and made a part hereof as Annex
"F";
21. That this loan was given on the same representation made by defendant Olivia, stated in par. "9"
hereof, and under the terms and conditions stated in par. "5" hereof;
22. That this check, Annex F, when deposited was dishonored; that for the reason that the check was
dishonored when deposited, defendant Olivia should be held liable for interest thereon, at the rate of one
percent (1%) monthly, from date of issue, until fully paid;
Seventh Cause of Action
23. That plaintiff, by reason of the two transactions in par. "5" hereof, reposed trust and confidence on
defendant Olivia, however, by virtue of these trust and confidence, she availed of the same in securing
the loans aforementioned by misrepresentations, and as a direct consequence thereof, the loans have
not as yet been settled up to now, for which plaintiff Teresita suffered sleepless nights, mental torture and
wounded feelings, for the reason that the money used in said transactions do all belong to her; that this
situation is further aggravated by the malicious act of defendant Olivia, by having filed a complaint with
the Manila Police, to the effect that she (Teresita) stole the checks involved in this case; that as a
consequence thereof, she was investigated and she suffered besmirched reputation, social humiliation,
wounded feelings, moral shock and similar injuries, for which defendant Olivia should be held liable, as
and by way of moral damages in the amount of EIGHTY THOUSAND (P80,000.00) PESOS;
Eight Cause of Action
24. That as and by way of exemplary or corrective damages, to serve as an example or correction for the
public good, defendant Olivia should be held liable to pay to the herein plaintiff Teresita, the amount of
Ten Thousand Pesos, as exemplary damages;
Ninth Cause of Action
25. That plaintiff, in order to protect her rights and interests, engaged the services of the undersigned,
and she committed herself to pay the following:
a. The amount of P200.00 for every appearance in the trial of this case.
b. The amount of P2,000.00 as retainers fees.
c. An amount equivalent to ten percent of any recover from defendant.

On the basis of the allegations under the heading Allegations Common to all Causes of Action above stated as well as
those found under the First Cause of Action to the Ninth Cause of Action, should the complaint be dismissed for want of
cause of action?
A cause of action is the fact or combination of facts which affords a party a right to judicial interference in his behalf. The
requisites for a cause of action are: (a) a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created, (b) an obligation on the part of the defendant to respect and not to violate such right; and, (c) an act or
omission on the part of the defendant constituting a violation of the plaintiff's right or breach of the obligation of the
4
defendant to the plaintiff. Briefly stated, it is the reason why the litigation has come about; it is the act or omission of
5
defendant resulting in the violation of someone's right.
In determining the existence of a cause of action, only the statements in the complaint may properly be considered. Lack
of cause of action must appear on the face of the complaint and its existence may be determined only by the allegations
of the complaint, consideration of other facts being proscribed and any attempt to prove extraneous circumstances not
being allowed.
If a defendant moves to dismiss the complaint on the ground of lack of cause of action, such as what petitioners did in the
case at bar, he is regarded as having hypothetically admitted all the averments thereof. The test of sufficiency of the facts
found in a complaint as constituting a cause of action is whether or not admitting the facts alleged the court can render a
valid judgment upon the same in accordance with the prayer thereof. The hypothetical admission extends to the relevant
and material facts well pleaded in the complaint and inferences fairly deducible therefrom. Hence, if the allegations in a
complaint furnish sufficient basis by which the complaint can be maintained, the same should not be dismissed regardless
6
of the defense that may be assessed by the defendants.
In their first cause of action private respondents Eduardo and Teresita Domdoma alleged that petitioner Olivia Navoa
obtained from the latter a ring valued at P15,000.00 and issued as security therefor a check for the same amount dated
15 August 1977 with the condition that if the ring was not returned within fifteen (15) days the ring would be considered
sold; and, after the lapse of the period, private respondent Teresita Domdoma asked to deposit the check but petitioner
Olivia Navoa requested the former not to deposit it in the meantime; that when Teresita Domdoma deposited the check
after holding it for sometime the same was dishonored for lack of funds. Private respondent Teresita Domdoma sought to
collect the amount of P15,000.00 plus interest from 15 August 1977 until fully paid.
From these facts the ring was considered sold to petitioner Olivia Navoa 15 days from 15 August 1977 and despite the
sale the latter failed to pay the price therefor even as the former was given ample time to pay the agreed amount covered
by a check. Clearly, respondent Teresita Domdoma's right under the agreement with petitioner Olivia Navoa was violated
by the latter.
In the second to the sixth causes of action it was alleged that private respondents granted loans to petitioners in different
amounts on different dates. All these loans were secured by separate checks intended for each amount of loan obtained
and dated one month after the contracts of loan were executed. That when these checks were deposited on their due
dates they were all dishonored by the bank. As a consequence, private respondents prayed that petitioners be ordered to
pay the amounts of the loans granted to them plus one percent interest monthly from the dates the checks were
dishonored until fully paid.
Culled from the above, the right of private respondents to recover the amounts loaned to petitioners is clear. Moreover,
the corresponding duty of petitioners to pay private respondents is undisputed. The question now is whether Petitioners
committed an act or omission constituting a violation of the right of private respondents.
All the loans granted to petitioners are secured by corresponding checks dated a month after each loan was obtained. In
this regard, the term security is defined as a means of ensuring the enforcement of an obligation or of protecting some
interest in property. It may be personal, as when an individual becomes a surety or a guarantor; or a property security, as
when a mortgage, pledge, charge, lien, or other device is used to have property held, out of which the person to be made
7
8
secure can be compensated for loss. Security is something to answer for as a promissory note. That is why a secured
9
creditor is one who holds a security from his debtor for payment of a debt. From the allegations in the complaint there is
no other fair inference than that the loans were payable one month after they were contracted and the checks issued by
petitioners were drawn to answer for their debts to private respondents.
Petitioners failed to make good the checks on their due dates for the payment of their obligations. Hence, private
respondents filed the action with the trial court precisely to compel petitioners to pay their due and demandable
obligations. Art. 1169 of the Civil Code is explicit those obliged to deliver or to do something incur in delay from the

time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. The continuing refusal of
petitioners to heed the demand of private respondents stated in their complaint unmistakably shows the existence of a
cause of action on the part of the latter against the former.
Quite obviously, the trial court erred in dismissing the case on the ground of lack of cause of action. Respondent Court of
Appeals therefore is correct in remanding the case to the trial court for the filing of an answer by petitioners and to try the
case on the merits.
WHEREFORE, the petition is DENIED. The judgment of the Court of Appeals dated 11 December 1980 remanding the
case to the trial court for the filing of petitioners' answer and thereafter for trial on the merits is AFFIRMED. Costs against
petitioners.
SO ORDERED.
Padilla, Davide, Jr., Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes
1 Penned by Associate Justice Jorge R. Coquia, concurred in by Associate Justices Samuel F. Reyes
and Mariano A. Zosa.
2 Rollo, pp. 10-13.
3 Summit Guaranty and Insurance Company, Inc. v. Court of Appeals, G.R. No. 51539, 14 December
1981, 110 SCRA 241.
4 Rava Development Corporation v. Court of Appeals, G.R. No. 96825, 3 July 1992, 211 SCRA 114.
5 Paras, Edgar L., Rules of Court Annotated, 1989 Ed., Vol. I, p. 44.
6 See Note 4.
7 Sibal, Jose Agaton R., Philippine Legal Encyclopedia, 1986 Ed., p. 928.
8 Moreno, Federico B., Philippine Law Dictionary, 1988 Ed., p. 868.
9 See Note 8.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19190

November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.

MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio
Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized an extension
of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential in
view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local
manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could
be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y
Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest,
were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000;
Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin,
"casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board
of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No.
2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to
imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency,
and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly
be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of the members of the
board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person who
shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by
imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919
when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued
adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an exceptionally
accurate and comprehensive brief, answers the proposition of appellant one by one.
The question presented are reduced to their simplest elements in the opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion,
President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the
concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito" (credit)
and not of a " prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that
he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the
delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied,
to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a
"credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion,
President of the Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is
commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor
whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the Acting Insular
Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction upon
discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to
ascertain if the instant transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction.
But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these distinctions: (1) In a
discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is
always on double-name paper; a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the
conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper
but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid
when the notes fell due; and (2) they were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the
Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, so should
we here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio
Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No.
2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection,
it should be recalled that the wife of the defendant held one-half of the capital of this partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the
Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a
director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve
two masters that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is
shown that the husband is financially interested in the success or failure of his wife's business venture, a loan to
partnership of which the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315,
1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of a
director of a bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that
in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit
the loan P300,000 to a partnership of no established reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland
said:
What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and
"if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished
by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the bank, against the
temptation to which the directors and officers might be exposed, and the power which as such they must
necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the
implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the
most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan
was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act
No. 2747 in relation with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938,
prior to the finding of the information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act,
provides a punishment for any person who shall violate any of the provisions of the Act. It is contended, however, by the

appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal
prosecution.
This same question has been previously submitted and has received an answer adverse to such contention in the cases
of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and
Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must
again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which
penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try,
convict, and sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion,
President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of
said Act provides a punishment not on the bank when it violates any provisions of the law, but on a person violating any
provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section 35 is
without penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors,
and to each director separately and individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit
of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled by rulings
coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership "Puno y
Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated, criminal
intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and public interest,
constitutes the crime. And, in this instance, as previously demonstrated, the acts of the President of the Philippine
National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have
controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders.
The law will not allow private profit from a trust, and will not listen to any proof of honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the
appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to the
conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty
beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the
limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.
Araullo, C. J., Johnson, Street, Avancea, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16106

December 30, 1961

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK, ET AL., defendants,
THE FIRST NATIONAL CITY BANK OF NEW YORK, defendant-appellee.
Office of the Solicitor General for plaintiff-appellant.
Picazo, Lichauco and Agcaoili for defendant-appellee.
BAUTISTA ANGELO, J.:
The Republic of the Philippines filed on September 25, 1957 before the Court of First Instance of Manila a complaint for
escheat of certain unclaimed bank deposits balances under the provisions of Act No. 3936 against several banks, among
them the First National City Bank of New York. It is alleged that pursuant to Section 2 of said Act defendant banks
forwarded to the Treasurer of the Philippines a statement under oath of their respective managing officials of all the
credits and deposits held by them in favor of persons known to be dead or who have not made further deposits or
withdrawals during the period of 10 years or more. Wherefore, it is prayed that said credits and deposits be escheated to
the Republic of the Philippines by ordering defendant banks to deposit them to its credit with the Treasurer of the
Philippines.
In its answer the First National City Bank of New York claims that, while it admits that various savings deposits, pre-war
inactive accounts, and sundry accounts contained in its report submitted to the Treasurer of the Philippines pursuant to
Act No. 3936, totalling more than P100,000.00, which remained dormant for 10 years or more, are subject to escheat
however, it has inadvertently included in said report certain items amounting to P18,589.89 which, properly speaking, are
not credits or deposits within the contemplation of Act No. 3936. Hence, it prayed that said items be not included in the
claim of plaintiff.
After hearing the court a quo rendered judgment holding that cashier's is or manager's checks and demand drafts as
those which defendant wants excluded from the complaint come within the purview of Act No. 3936, but not the
telegraphic transfer payment which orders are of different category. Consequently, the complaint was dismissed with
regard to the latter. But, after a motion to reconsider was filed by defendant, the court a quo changed its view and held
that even said demand drafts do not come within the purview of said Act and so amended its decision accordingly. Plaintiff
has appealed.lawphil.net
Section 1, Act No. 3936, provides:
Section 1. "Unclaimed balances" within the meaning of this Act shall include credits or deposits of money, bullion,
security or other evidence of indebtedness of any kind, and interest thereon with banks, as hereinafter defined, in
favor of any person unheard from for a period of ten years or more. Such unclaimed balances, together with the
increase and proceeds thereof, shall be deposited with the Insular Treasure to the credit of the Government of the
Philippine Islands to be as the Philippine Legislature may direct.
It would appear that the term "unclaimed balances" that are subject to escheat include credits or deposits money, or other
evidence of indebtedness of any kind with banks, in favor of any person unheard from for a period of 10 years or more.
And as correctly stated by the trial court, the term "credit" in its usual meaning is a sum credited on the books of a
company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to
imply ability, by reason of property or estates, to make a promised payment ( In re Ford, 14 F. 2d 848, 849). It is the
correlative to debt or indebtedness, and that which is due to any person, a distinguished from that which he owes
(Mountain Motor Co. vs. Solof, 124 S.E., 824, 825; Eric vs. Walsh, 61 Atl. 2d 1, 4; See also Libby vs. Hopkins, 104 U.S.
303, 309; Prudential Insurance Co. of America vs. Nelson, 101 F. 2d, 441, 443; Barnes vs. Treat, 7 Mass. 271, 274). The
same is true with the term "deposits" in banks where the relationship created between the depositor and the bank is that
of creditor and debtor (Article 1980, Civil Code; Gullas vs. National Bank, 62 Phil. 915; Gopoco Grocery, et al. vs. Pacific
Coast Biscuit Co., et al., 65 Phil. 443).

The questions that now arise are: Do demand draft and telegraphic orders come within the meaning of the term "credits"
or "deposits" employed in the law? Can their import be considered as a sum credited on the books of the bank to a person
who appears to be entitled to it? Do they create a creditor-debtor relationship between drawee and the payee?
The answers to these questions require a digression the legal meaning of said banking terminologies.
To begin with, we may say that a demand draft is a bill of exchange payable on demand (Arnd vs. Aylesworth, 145 Iowa
185; Ward vs. City Trust Company, 102 N.Y.S. 50; Bank of Republic vs. Republic State Bank, 42 S.W. 2d, 27).
Considered as a bill of exchange, a draft is said to be, like the former, an open letter of request from, and an order by, one
person on another to pay a sum of money therein mentioned to a third person, on demand or at a future time therein
specified (13 Words and Phrases, 371). As a matter of fact, the term "draft" is often used, and is the common term, for all
bills of exchange. And the words "draft" and "bill of exchange" are used indiscriminately (Ennis vs. Coshoctan Nat. Bank,
108 S.E., 811; Hinnemann vs. Rosenback, 39 N.Y. 98, 100, 101; Wilson vs. Bechenau, 48 Supp. 272, 275).
On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law (Act No. 2031) does not
operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts it. This
is the clear import of Section 127. It says: "A bill of exchange of itself does not operate as an assignment of the funds in
the hands of the drawee available for the payment thereon and the drawee is not liable on the bill unless and until he
accepts the same." In other words, in order that a drawee may be liable on the draft and then become obligated to the
payee it is necessary that he first accepts the same. In fact, our law requires that with regard to drafts or bills of exchange
there is need that they be presented either for acceptance or for payment within a reasonable time after their issuance or
after their last negotiation thereof as the case may be (Section 71, Act 2031). Failure to make such presentment will
discharge the drawer from liability or to the extent of the loss caused by the delay (Section 186, Ibid.)
Since it is admitted that the demand drafts herein involved have not been presented either for acceptance or for payment,
the inevitable consequence is that the appellee bank never had any chance of accepting or rejecting them. Verily,
appellee bank never became a debtor of the payee concerned and as such the aforesaid drafts cannot be considered as
credits subject to escheat within the meaning of the law.
But a demand draft is very different from a cashier's or manager's cheek, contrary to appellant's pretense, for it has been
held that the latter is a primary obligation of the bank which issues it and constitutes its written promise to pay upon
demand. Thus, a cashier's check has been clearly characterized in In Re Bank of the United States, 277 N.Y.S. 96. 100,
as follows:
A cashier's check issued by a bank, however, is not an ordinary draft. The latter is a bill of exchange payable
demand. It is an order upon a third party purporting to drawn upon a deposit of funds. Drinkall v. Movious State
Bank, 11 N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep. 693; State v. Tyler County State Bank (Tex. Com.
App.) 277 S.W. 625, 42 A.L.R. 1347. A cashier's check is of a very different character. It is the primary obligation
of the bank which issues it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and constitutes its written promise
to pay upon demand (Steinmetz v. Schultz, 59 S.D. 603, 241 N.W. 734)....lawphil.net
The following definitions cited by appellant also confirm this view:
A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a bill of exchange drawn
by a bank on itself and accepted in advance by the act of issuance (10 C.J.S. 409).
A cashier's check issued on request of a depositor is the substantial equivalent of a certified check and the
deposit represented by the check passes to the credit of the checkholder, who is thereafter a depositor to that
amount (Lummus Cotton Gin Co. v. Walker, 70 So. 754, 756, 195 Ala. 552).
A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in advance by the act
of issuance, is not subject to countermand by the payee after indorsement, and has the same legal effects as a
certificate deposit or a certified check (Walker v. Sellers, 77 So. 715, 201 Ala. 189).
A demand draft is not therefore of the same category as a cashier's check which should come within the purview of the
law.
The case, however, is different with regard to telegraphic payment order. It is said that as the transaction is for the
establishment of a telegraphic or cable transfer the agreement to remit creates a contractual obligation a has been termed
a purchase and sale transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer upon making payment completes

the transaction insofar as he is concerned, though insofar as the remitting bank is concerned the contract is executory
until the credit is established (Ibid.) We agree with the following comment the Solicitor General: "This is so because the
drawer bank was already paid the value of the telegraphic transfer payment order. In the particular cases under
consideration it appears in the books of the defendant bank that the amounts represented by the telegraphic payment
orders appear in the names of the respective payees. If the latter choose to demand payment of their telegraphic transfers
at the time the same was (were) received by the defendant bank, there could be no question that this bank would have to
pay them. Now, the question is, if the payees decide to have their money remain for sometime in the defendant bank, can
the latter maintain that the ownership of said telegraphic payment orders is now with the drawer bank? The latter was
already paid the value of the telegraphic payment orders otherwise it would not have transmitted the same to the
defendant bank. Hence, it is absurd to say that the drawer banks are still the owners of said telegraphic payment orders."
WHEREFORE, the decision of the trial court is hereby modified in the sense that the items specifically referred to and
listed under paragraph 3 of appellee bank's answer representing telegraphic transfer payment orders should be
escheated in favor of the Republic of the Philippines. No costs.
Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur.
Bengzon, C.J., Padilla, Labrador and Concepcion, JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-48349 December 29, 1986
FRANCISCO HERRERA, plaintiff-appellant,
vs.
PETROPHIL CORPORATION, defendant-appellee.
Paterno R. Canlas Law Offices for plaintiff-appellant.

CRUZ, J.:
This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of First Instance of Rizal on a pure
1
question of law.
The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on
the factual antecedents.
The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later substituted
by Petrophil Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion of his
property for a period of twenty (20) years from said date, subject inter alia to the following conditions:
3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400 sqm. and are to be
expropriated later on (sic) or P560 per month and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per
month or a total of P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance within the 1st twenty
days of each year; provided, a financial aid in the sum of P15,000 to clear the leased premises of existing
improvements thereon is paid in this manner; P10,000 upon execution of this lease and P5,000 upon delivery of
leased premises free and clear of improvements thereon within 30 days from the date of execution of this
agreement. The portion on the side of the leased premises with an area of 365 sqrm. more or less, will be
occupied by LESSEE without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is paid
8 years advance rental based on P2,930.70 per month discounted at 12% interest per annum or a total net

amount of P130,288.47 before registration of lease. Leased premises shall be delivered within 30 days after 1st
2
partial payment of financial aid.
On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the plaintfff-appellant advance
rentals for the first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting
the interest or discount for the first eight years, in the total sum P180,288.47. On August 20, 1970, the defendantappellee, explaining that there had been a mistake in computation, paid to the appellant the additional sum of P2,182.70,
3
thereby reducing the deducted amount to only P98,828.03.
On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest, claiming
4
this had been illegally deducted from him in violation of the Usury Law. He also prayed for moral damages and attorney's
fees. In its answer, the defendant-appellee admitted the factual allegations of the complaint but argued that the amount
5
deducted was not usurious interest but a given to it for paying the rentals in advance for eight years. Judgment on the
6
pleadings was rendered for the defendant.
Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the
interest collected out of the rentals paid for the first eight years; that such interest was excessive and violative of the Usury
Law; and that he had neither agreed to nor accepted the defendant-appellant's computation of the total amount to be
7
deducted for the eight years advance rentals.
The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, which read:
6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that
allowable by law, because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly
rental; and considering that the interest should be computed excluding the first year rental because at the time the
amount of P281, 199.20 was paid it was already due under the lease contract hence no interest should be
collected from the rental for the first year, the amount of P29,536.42 only as the total interest should have been
deducted by defendant from the sum of P281,299.20.
The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and
above that allowed by law.
As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a
"LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease.
The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no
grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendantappellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment
that it was getting a rebate or discount.
The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may establish
such stipulations, clauses, terms and condition as they may want to include; and as long as such agreements are not
8
contrary to law, morals, good customs, public policy or public order, they shall have the force of law between them.
There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it
9
allow him to use its money already in his possession. There was neither loan nor forbearance but a mere discount which
the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine,
and any reduction thereof, by any amount, would not contravene the Usury Law.
The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or
10
forbearance is subject to repayment and is therefore governed by the laws on usury.
To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it
must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and
11
in addition to interest allowed by law."
It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties
that the money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be
paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of

money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be
12
declared.
Concerning the computation of the deductible discount, the trial court declared:
As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant) shag pay the lessor
(plaintiff) eight (8) years in advance rentals based on P2,930.20 per month discounted at 12% interest per annum.
Thus, the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest
therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first eight (8)
years should be only P33,755.90 (P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendant
claimed it to be.
The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading.
He just computed the annual discount to be at P4,129.4880 and then simply multiplied it by eight (8) years. He did
not take into consideration the naked fact that the rentals due on the eight year were paid in advance by seven (7)
years, the rentals due on the seventh year were paid in advance by six (6) years, those due on the sixth year by
five (5) years, those due on the fifth year by four (4) years, those due on the fourth year by three (3) years, those
due on the third year by two (2) years, and those due on the second year by one (1) year, so much so that the
total number of years by which the annual rental of P4,129.4880 was paid in advance is twenty-eight (28),
resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as the discount. However,
defendant was most fair to plaintiff. It did not simply multiply the annual rental discount by 28 years. It computed
the total discount with the principal diminishing month to month as shown by Annex 'A' of its memorandum. This is
why the total discount amount to only P 8,828.03.
The allegation of plaintiff that defendant made the computation in a compounded manner is erroneous. Also after
making its own computations and after examining closely defendant's Annex 'A' of its memorandum, the court
finds that defendant did not charge 12% discount on the rentals due for the first year so much so that the
computation conforms with the provision of the Lease Agreement to the effect that the rentals shall be 'payable
yearly in advance within the 1st 20 days of each year. '
We do not agree. The above computation appears to be too much technical mumbo-jumbo and could not have been the
intention of the parties to the transaction. Had it been so, then it should have been clearly stipulated in the contract.
Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious
13
intendment.
The plaintfff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and
this amount would be the same for each of the eight years. There is no showing that the intricate computation applied by
the trial court was explained to him by the defendant-appellee or that he knowingly accepted it.
The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a
12% reduction for advance rentals for all of twenty eight years. That is absurd. It is not normal for a person to agree to a
reduction corresponding to twenty eight years advance rentals when all he is receiving in advance rentals is for only eight
years.
The deduction shall be for only eight years because that was plainly what the parties intended at the time they signed the
lease agreement. "Simplistic" it may be, as the Solicitor General describes it, but that is how the lessor understood the
arrangement. In fact, the Court will reject his subsequent modification that the interest should be limited to only seven
years because the first year rental was not being paid in advance. The agreement was for a uniform deduction for the
advance rentals for each of the eight years, and neither of the parties can deviate from it now.
On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was
P281,347.20 from which was deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting
from this amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.
The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single
stipulation invoked by the respondent for the flat reduction of P130,288.47.
WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil Corporation is
ordered to pay plaintiff-appellant the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five

Centavos (P65,114.35), with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's
fees. Costs against the defendant-appellee.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera and Feliciano, JJ., concur.

Footnotes
1 Rollo, p. 28,
2 Rec. on Appeal, pp.14-15.
3 Rollo, p. 28.
4 Record on Appeal, pp. 1-6
5 Ibid., pp. 22-26.
6 Id., pp. 72-81.
7 Brief for the Appellant, pp. 8-21.
8 Articies 1159, 1306, Civil Code.
9 Art. 1953, Civil Code; Monte de Piedad vs. Javier, et al., 36 O.G. 2176; Tolentino vs. Gonzales, 60 Phil. 560.
10 Tolentino v. Gonzales Sy Chian, 50 Phil. 558.
11 Manufacturers Finance Trust vs. Stone, 251 III. App. 414.
12 Jenkins v. Dugger, C. C., A. Tenn., p. 96 F. 2nd 727, 729, 119 A.L.R. 1488.
13 Article 1370. Civil Code.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-24968 April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.

Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing
defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import
and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and
attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC),
before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the
construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase
price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of
a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure
its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a
first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be
installed. Among the other terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers,
Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds,
and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having
otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid
down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of
its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up
a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for
Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board
of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with
special reference as to the advisability of financing this particular project based on present conditions obtaining in the
operations of jute mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan,
and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution
No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in
Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each

other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation
that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement
already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China
Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the
following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in
Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura,
President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No.
3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S.,
from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various
aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based
on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura
Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as
may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of
Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd.
jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as
cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage
be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied
by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view
of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are
concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd.
"will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally
approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it
appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but
with the following proviso:
That in view of observations made of the shortage and high cost of imported raw materials, the
Department of Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its operation are available in
the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the requirements of the
factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was
explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of
the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials."
This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the
factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure
(Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura
Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture copra and corn bags,
runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on
page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown

raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill
is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to
require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the
availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the
defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the
Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting
"assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be
necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equipment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the opening of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of your
loan under consideration of P500,000. As stated in our letter of December 22, 1954, the
releases of the loan, if revived, are proposed to be made from time to time, subject to
availability of funds towards the end that the sack factory shall be placed in actual
operating status. We shall be able to act on your request for revised purpose and manner
of releases upon re-appraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural
Resources certify that the raw materials needed are available in the immediate vicinity
and that there is prospect of increased production thereof to provide adequately the
requirements of the factory, we wish to reiterate that the basis of the original approval is
to develop the manufacture of sacks on the basis of the locally available raw materials.
Your statement that you will have to rely on the importation of jute and your request that
we give you assurance that your company will be able to bring in sufficient jute materials
as may be necessary for the operation of your factory, would not be in line with our
principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it
requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation
and delivered it to Ramon F. Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on
August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc.
had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It
appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15,
1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the
latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply
with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that
the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the
plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which
provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the
object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact
alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore
entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be
constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in
line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to
the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrowercorporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased
production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no
means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said
conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that
the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building
P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for working
capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote
its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year,"
and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a
deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a
diversion of part of the proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the
implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's
conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the
mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf
1
mutual desistance what Manresa terms "mutuo disenso" which is a mode of extinguishing obligations. It is a
concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the
2
parties can cause its extinguishment.
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract
by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried
no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even
applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in
1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for
damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual
desistance and that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective
briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiffappellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.

Footnotes
1 8 Manresa, p. 294.
2 2 Castan, p. 560.

epublic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49101 October 24, 1983
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents.
Edgardo I. De Leon for petitioners.
Siguion Reyna, Montecillo & Associates for private respondent.

GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals, now Intermediate
Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs. Philippine Bank of Commerce, et al.,"
1
promulgated August 11, 1978 as well as the Resolution denying the motion for reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance of Rizal against
respondent Philippine Bank of Commerce sought the annulment of the Deed of Mortgage dated December 6, 1966
executed in favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as well as
the extrajudicial foreclosure made on September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks
consideration and (b) the mortgage was executed by one who was not the owner of the mortgaged property. It further
alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended, without, however, complying
with the condition imposed for a valid foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it
finally alleged that respondent Bank should have accepted petitioner's offer to redeem the property under the principle of
equity said justice.
On the other hand, the answer of defendant Bank, now private respondent herein, specifically denied most of the
allegations in the complaint and raised the following affirmative defenses: (a) that the defendant has not given its consent,

much less the requisite written consent, to the sale of the mortgaged property to plaintiff and the assumption by the latter
of the loan secured thereby; (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his
address; (c) that it was notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d)
that the law on contracts requires defendant's consent before Jose Lozano can be released from his bilateral agreement
with the former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the loan of
P75,000.00 which was secured by mortgage, after two renewals remain unpaid despite countless reminders and
demands; of that the property in question remained registered in the name of Jose M. Lozano in the land records of Rizal
and there was no entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established banking practice
that payments against accounts need not be personally made by the debtor himself; and (h) that it is not true that the
mortgage, at the time of its execution and registration, was without consideration as alleged because the execution and
registration of the securing mortgage, the signing and delivery of the promissory note and the disbursement of the
proceeds of the loan are mere implementation of the basic consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a motion for intervention.
The intervention was premised on the Deed of Assignment executed by petitioner Honesto Bonnevie in favor of petitioner
Raoul SV Bonnevie covering the rights and interests of petitioner Honesto Bonnevie over the subject property. The
intervention was ultimately granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as follows:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered dismissing the
complaint with costs against the plaintiff and the intervenor.
After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to respondent Court of
Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage executed by Jose Lozano was null
and void;
2. The lower court erred in not finding that the auction sale decide on August 19, 1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the property;
4. The lower court erred in not finding that the defendant acted in bad faith; and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower court, and on
October 3. 1978 denied the motion for reconsideration. Hence, the present petition for review.
The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby adopt the facts found
the trial court and found by the Court of Appeals to be consistent with the evidence adduced during trial, to wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property
which they mortgaged on December 6, 1966, to secure the payment of the loan in the principal amount of
P75,000.00 they were about to obtain from defendant-appellee Philippine Bank of Commerce; that on
December 8, 1966, executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in
consideration of the sum of P100,000.00, P25,000.00 of which amount being payable to the Lozano
spouses upon the execution of the document, and the balance of P75,000.00 being payable to defendantappellee; that on December 6, 1966, when the mortgage was executed by the Lozano spouses in favor of
defendant-appellee, the loan of P75,000.00 was not yet received them, as it was on December 12, 1966
when they and their co-maker Alfonso Lim signed the promissory note for that amount; that from April 28,
1967 to July 12, 1968, plaintiff-appellant made payments to defendant-appellee on the mortgage in the
total amount of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all his rights under the Deed
of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968,
defendant-appellee applied for the foreclosure of the mortgage, and notice of sale was published in the
Luzon Weekly Courier on June 30, July 7, and July 14, 1968; that auction sale was conducted on August
19, 1968, and the property was sold to defendant-appellee for P84,387.00; and that offers from plaintiffappellant to repurchase the property failed, and on October 9, 1969, he caused an adverse claim to be
annotated on the title of the property. (Decision of the Court of Appeals, p. 5).

Presented for resolution in this review are the following issues:

I
Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was
validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in refusing their offers to
repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack the
validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next, they attack the validity of the
extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of the deed of mortgage, they
contended that when it was executed on December 6, 1966, there was yet no principal obligation to secure as the loan of
P75,000.00 was not received by the Lozano spouses "So much so that in the absence of a principal obligation, there is
want of consideration in the accessory contract, which consequently impairs its validity and fatally affects its very
existence." (Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the
mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did
not collect from the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A
contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of
mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and
does not indicate lack of consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using as
security the same property which the Lozano spouses had already sold to petitioners, rendered the mortgage null and
void,
This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of,
mortgage and encumbrance of the mortgaged properties, without the written consent of the mortgagee, as well as the
additional proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage
in the terms and conditions under which it is constituted. These provisions are expressly made part and parcel of the
Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage.
Coupled with the fact that the sale/assignment was not registered so that the title remained in the name of the Lozano
spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly mortgage the
property. Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look
for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee
for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the
respondent Bank is that a mortgage follows the property whoever the possessor may be and subjects the fulfillment of the
obligation for whose security it was constituted. Finally, it can also be said that petitioners voluntarily assumed the
mortgage when they entered into the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from
impugning its validity whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:
a) petitioners were never notified of the foreclosure sale.

b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was not in accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to the Deed
of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the same and hence, it may not be
obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice because as of May 14,
1968, he had transferred and assigned all his rights and interests over the property in favor of intervenor Raoul Bonnevie
and respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice.
Most importantly, Act No. 3135 does not require personal notice on the mortgagor. The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least
three public places of the municipality or city where the property is situated, and if such property is worth
more than four hundred pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and notices
of the sale were posted for not less than twenty days in at least three (3) public places in the Municipality where the
property is located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a judicial
foreclosure and the sale to the vendee of the mortgaged property was duly registered making the mortgaged privy to the
sale.
As regards the claim that the period of publication of the notice of auction sale was not in accordance with law, namely:
once a week for at least three consecutive weeks, the Court of Appeals ruled that the publication of notice on June 30,
July 7 and July 14, 1968 satisfies the publication requirement under Act No. 3135 notwithstanding the fact that June 30 to
July 14 is only 14 days. We agree. Act No. 3135 merely requires that such notice shall be published once a week for at
least three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not
mean that notice should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with law as said
newspaper is not of general circulation must likewise be disregarded. The affidavit of publication, executed by the
Publisher, business/advertising manager of the Luzon Weekly Courier, stares that it is "a newspaper of general circulation
in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July 7 and July 14, 1968. This
constitutes prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news and general
information; that it has a bona fide subscription list of paying subscribers; that it is published at regular intervals." (Basa
vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so long as it is of general circulation.
Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read the Luzon Weekly Courier is no proof
that said newspaper is not a newspaper of general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It can no longer
be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126). Nevertheless, the records show that copies
of said notice were posted in three conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice, the
Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice were also posted in the place
where the property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez
Street. The following statement of Atty. Santiago Pastor, head of the legal department of respondent bank, namely:
Q How many days were the notices posted in these two places, if you know?
A We posted them only once in one day. (TSN, p. 45, July 25, 1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting requirement in the
absence of proof or even of allegation that the notices were removed before the expiration of the twenty- day period. A
single act of posting (which may even extend beyond the period required by law) satisfies the requirement of law. The
burden of proving that the posting requirement was not complied with is now shifted to the one who alleges noncompliance.

On the question of whether or not the petitioners had a right to redeem the property, We hold that the Court of Appeals did
not err in ruling that they had no right to redeem. No consent having been secured from respondent Bank to the sale with
assumption of mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their rights were never
recorded and hence, respondent Bank is charged with the obligation to recognize the right of redemption only of the
Lozano spouses. But even granting that as purchaser or assignee of the property, as the case may be, the petitioners had
acquired a right to redeem the property, petitioners failed to exercise said right within the period granted by law. Thru
certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption period expired
on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and
offered to redeem the property. Moreover, on September 29, 1969, Honesto had at that time already transferred his rights
to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did not act in bad
faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent Bank dated December 8, 1966
advising the latter that Honesto Bonnevie was authorized to make payments for the amount secured by the mortgage on
the subject property, to receive acknowledgment of payments, obtain the Release of the Mortgage after full payment of
the obligation and to take delivery of the title of said property. On the assumption that the letter was received by
respondent Bank, a careful reading of the same shows that the plaintiff was merely authorized to do acts mentioned
therein and does not mention that petitioner is the new owner of the property nor request that all correspondence and
notice should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the maturity of said loan up
to said date and accordingly on June 10, 1968 when defendant applied for the foreclosure of the mortgage, the loan was
not yet due and demandable, is totally incorrect and misleading. The undeniable fact is that the loan matured on
December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure, the loan was already six months
overdue. Petitioners' payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank
inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not
only the payment of the accrued interest is necessary but also the payment of interest for the proposed period of renewal
as well. Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the
discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED. Costs
against petitioners.
SO ORDERED.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.
Concepcion J J., took no part.
De Castro, J., is on leave.
Footnotes
1 Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.
2 4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber the mortgaged
properties without the written consent of MORTGAGEE. If in spite of this stipulation, a mortgaged
property is sold, the Vendee shall assume the mortgaged in the terms and conditions under which it is
constituted, it being understood that the assumption of the Vendee (does) not release the Vendor of his
obligation to the MORTGAGEE; on the contrary, both the Vendor and the Vendee shall be jointly and
severally liable for said mortgage obligation. ...

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT
OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No.
52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of
Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required
that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a
subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3
years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release
of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed
by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its
vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity
problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the
Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in government
securities] excluding extensions or renewals of already approved loans, provided that such extensions or
renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as
may be necessary to insure correction of the bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to
restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp.
48-49, rec).

On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed
an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M.
Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed
to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island
Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be
delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order
enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio
M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting Superintendent of
Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of
Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal
charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136.
rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island
Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be
foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they
undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for
that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one
party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is
not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay
was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M.
Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From
such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in
furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the
Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is
recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from
making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan
agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the
obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs.
Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)

The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to
P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect
the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person
cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted
interest was an exercise of his right to it, which right exist independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying
with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank officials and
employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan,
Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they approve the
loan application of their customers, they must investigate the existence and evaluation of the properties being offered as a
loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued
underscore the importance of this responsibility. The mere reliance by bank officials and employees on their customer's
representation regarding the loan collateral being offered as loan security is a patent non-performance of this
responsibility. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation
of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation
made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower
court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation
because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is
sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the
Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in
either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution
No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the
P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the
bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and
executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00
loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall
belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date
for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot
possibly be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations,
the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank
for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on
his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived
some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P
17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco
de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a
debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is
the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).

The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence, as
there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate
mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution
of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter.
But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it
is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage,
Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of
such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness
actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be
enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed.,
Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate
mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder
of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts
of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among the successors in
interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor
or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED,
AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY
22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985
UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES
SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND
IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.

Republic of the Philippines

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
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the
breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this
complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued
on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the
appointment of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December
1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull
Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull,
the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of
execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her
motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence,
this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and
Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva
Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January
1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum
of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two
bulls which already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon
the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death
was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The
contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding
purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull,
was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends
that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it
1
should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous. If the breeding fee be
considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after
the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the
Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the
bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period
of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it
was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had
each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46.
It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be
exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value
being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October
1951, is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost
jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal
representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30)
days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides
that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of
such death . . . and to give the name and residence of the executory administrator, guardian, or other legal
representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased
Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral
expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said
claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of
the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed
administratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to be notified of
the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify,
because the attorney who appeared for the defendant was the same who represented the administratrix in the special
proceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representative

could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in
another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as
required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the
sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the
custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January
1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been
instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be
enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the
administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal,
JJ., concur.
Barrera, J., concurs in the result.

Footnotes
1

Article 1933 of the Civil Code.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-8321

October 14, 1913

ALEJANDRA MINA, ET AL., plaintiffs-appellants,

vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
N. Segundo for appellants.
Iigo Bitanga for appellees.

ARELLANO, C.J.:
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during his lifetime, on March 12,
1874, a lot in the center of the town of Laoag, the capital of the Province of Ilocos Norte, the property having been
awarded to him through its purchase at a public auction held by the alcalde mayor of that province. The lot has a frontage
of 120 meters and a depth of 15.
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the said lot, embracing 14
meters of its frontage by 11 meters of its depth.

Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro Mina, et al., were recognized
without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta Pascual were recognized
likes without discussion, though it is not said how, and consequently are entitled to the said building, or rather, as Ruperta
Pascual herself stated, to only six-sevenths of one-half of it, the other half belonging, as it appears, to the plaintiffs
themselves, and the remaining one-seventh of the first one-half to the children of one of the plaintiffs, Elena de Villanueva.
The fact is that the plaintiffs and the defendants are virtually, to all appearance, the owners of the warehouse; while the
plaintiffs are undoubtedly, the owners of the part of the lot occupied by that building, as well as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian of her minor children, the herein
defendants, petitioned the Curt of First Instance of Ilocos Norte for authorization to sell "the six-sevenths of the one-half of
the warehouse, of 14 by 11 meters, together with its lot." The plaintiffs that is Alejandra Mina, et al. opposed the
petition of Ruperta Pascual for the reason that the latter had included therein the lot occupied by the warehouse, which
they claimed was their exclusive property. All this action was taken in a special proceeding in re guardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion, to decide the question of
the ownership of the lot before it pass upon the petition for the sale of the warehouse. But the court before determining the
matter of the ownership of the lot occupied by the warehouse, ordered the sale of this building, saying:
While the trial continues with respect to the ownership of the lot, the court orders the sale at public auction of the
said warehouse and of the lot on which it is built, with the present boundaries of the land and condition of the
building, at a price of not less than P2,890 Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the other defendant in this case, for the
price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court decided it by holding that
this land belonged to the owner of the warehouse which had been built thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court and held that the appellants were the
1
owners of the lot in question.
When the judgment became final and executory, a writ of execution issued and the plaintiffs were given possession of the
lot; but soon thereafter the trial court annulled this possession for the reason that it affected Cu Joco, who had not been a
party to the suit in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of having the sale of the said lot declared null
and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as follows:
9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the Supreme Court which found
for them by holding that they are the owners of the lot in question, although there existed and still exists a
commodatum by virtue of which the guardianship (meaning the defendants) had and has the use, and the
plaintiffs the ownership, of the property, with no finding concerning the decree of the lower court that ordered the
sale.
The obvious purport of the cause "although there existed and still exists a commodatum," etc., appears to be that it is a
part of the decision of the Supreme Court and that, while finding the plaintiffs to be the owners of the lot, we recognized in
principle the existence of a commodatum under which the defendants held the lot. Nothing could be more inexact.
Possibly, also, the meaning of that clause is that, notwithstanding the finding made by the Supreme Court that the
plaintiffs were the owners, these former and the defendants agree that there existed, and still exists, a commodatum, etc.
But such an agreement would not affect the truth of the contents of the decision of this court, and the opinions held by the
litigants in regard to this point could have no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least influence in our previous decision to require our
making any finding in regard thereto, for, with or without that decree, the Supreme Court had to decide the ownership of

the lot consistently with its titles and not in accordance with the judicial acts or proceedings had prior to the setting up of
the issue in respect to the ownership of the property that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs have the ownership, and
they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the manner in which the
sale was effected, whether judicially or extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being a transfer of the
ownership of the thing, it is evident that he who has only the mere use of the thing cannot transfer its ownership. The sale
of a thing effected by one who is not its owner is null and void. The defendants never were the owners of the lot sold. The
sale of it by them is necessarily null and void. On cannot convey to another what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization conferred upon me on the 31st
of July, 1909, by the Court of First Instance of Ilocos Norte, proceeded with the sale at public auction of the sixsevenths part of the one-half of the warehouse constructed of rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all the land and all the rights
title, interest, and ownership in the said property to Cu Joco, who was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and assigns, all the interest,
ownership and inheritance rights and others that, as the guardian of the said minors, I have and may have in the
said property, etc.
The purchaser could not acquire anything more than the interest that might be held by a person to whom realty in
possession of the vendor might be sold, for at a judicial auction nothing else is disposed of. What the minor children of
Ruperta Pascual had in their possession was the ownership of the six-sevenths part of one-half of the warehouse and the
use of the lot occupied by his building. This, and nothing more, could the Chinaman Cu Joco acquire at that sale: not the
ownership of the lot; neither the other half, nor the remaining one-seventh of the said first half, of the warehouse.
Consequently, the sale made to him of this one-seventh of one-half and the entire other half of the building was null and
void, and likewise with still more reason the sale of the lot the building occupies.
The purchaser could and should have known what it was that was offered for sale and what it was that he purchased.
There is nothing that can justify the acquisition by the purchaser of the warehouse of the ownership of the lot that this
building occupies, since the minors represented by Ruperta Pascual never were the owners of the said lot, nor were they
ever considered to be such.
The trial court, in the judgment rendered, held that there were no grounds for the requested annulment of the sale, and
that the plaintiffs were entitled to the P600 deposited with the clerk of the court as the value of the lot in question. The
defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved from the complaint, without express finding as to
costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to accept the price set on the lot
by expert appraisers, not even though the plaintiffs be considered as coowner of the warehouse. It would be much indeed
that, on the ground of coownership, they should have to abide by and tolerate the sale of the said building, which point
this court does not decide as it is not a question submitted to us for decision, but, as regards the sale of the lot, it is in all
respects impossible to hold that the plaintiffs must abide by it and tolerate, it, and this conclusion is based on the fact that
they did not give their consent (art. 1261, Civil Code), and only the contracting parties who have given it are obliged to
comply (art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot; but subsequently the
plaintiffs, through motion, asked for an amendment by their complaint in the sense that the action should be deemed to be
one for the recovery of possession of a lot and for the annulment of its sale. The plaintiff's petition was opposed by the
defendant's attorney, but was allowed by the court; therefore the complaint seeks, after the judicial annulment of the sale
of the lot, to have the defendants sentenced immediately to deliver the same to the plaintiffs.

Such a finding appears to be in harmony with the decision rendered by the Supreme Court in previous suit, wherein it was
held that the ownership of the lot lay in the plaintiffs, and for this reason steps were taken to give possession thereof to
the defendants; but, as the purchaser Cu Joco was not a party to that suit, the present action is strictly one for recover
against Cu Joco to compel him, once the sale has been annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this and in the previous suit, that Andres Fontanilla, the
defendants' predecessor in interest, erected the warehouse on the lot, some thirty years ago, with the explicit
consent of his brother Francisco Fontanilla, the plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the defendants are the coowners of the
warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla nor his successors paid any
consideration or price whatever for the use of the lot occupied by the said building; whence it is, perhaps, that
both parties have denominated that use a commodatum.
Upon the premise of these facts, or even merely upon that of the first of them, the sentencing of the defendants to deliver
the lot to the plaintiffs does not follow as a necessary corollary of the judicial declaration of ownership made in the
previous suit, nor of that of the nullity of the sale of the lot, made in the present case.
The defendants do not hold lawful possession of the lot in question.1awphil.net
But, although both litigating parties may have agreed in their idea of the commodatum, on account of its not being, as
indeed it is not, a question of fact but of law, yet that denomination given by them to the use of the lot granted by
Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts are not to be interpreted in conformity
with the name that the parties thereto agree to give them, but must be construed, duly considering their constitutive
elements, as they are defined and denominated by law.
By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the
latter may use it during the certain period and return it to the former, in which case it is called commodatum . . .
(art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing belonging to another shall for a certain
period. Francisco Fontanilla did not fix any definite period or time during which Andres Fontanilla could have the use of
the lot whereon the latter was to erect a stone warehouse of considerable value, and so it is that for the past thirty years of
the lot has been used by both Andres and his successors in interest. The present contention of the plaintiffs that Cu Joco,
now in possession of the lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the commodatum
sustained by them, since, according to the second paragraph of the aforecited article 1740, "commodatum is essentially
gratuitous," and, if what the plaintiffs themselves aver on page 7 of their brief is to be believed, it never entered
Francisco's mind to limit the period during which his brother Andres was to have the use of the lot, because he expected
that the warehouse would eventually fall into the hands of his son, Fructuoso Fontanilla, called the adopted son of Andres,
which did not come to pass for the reason that Fructuoso died before his uncle Andres. With that expectation in view, it
appears more likely that Francisco intended to allow his brother Andres a surface right; but this right supposes the
payment of an annual rent, and Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on another's ground, the question should be
decided in accordance with the statutes that, thirty years ago, governed accessions to real estate, and which were Laws
41 and 42, title 28, of the third Partida, nearly identical with the provisions of articles 361 and 362 of the Civil Code. So,
then, pursuant to article 361, the owner of the land on which a building is erected in good faith has a right to appropriate
such edifice to himself, after payment of the indemnity prescribed in articles 453 and 454, or to oblige the builder to pay
him the value of the land. Such, and no other, is the right to which the plaintiff are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made by Ruperta Pascual, in
representation of her minor children, to Cu Joco, and to maintain the latter in the use of the lot until the plaintiffs shall
choose one or the other of the two rights granted them by article 361 of the Civil Code.1awphil.net
The judgment appealed from is reversed and the sale of the lot in question is held to be null and void and of no force or
effect. No special finding is made as to the costs of both instances.

Torres, Johnson, Carson, Moreland and Trent, JJ., concur.

Footnotes
1

Pascual vs. Mina, 20 Phil. Rep., 202.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long time ago can
properly be considered res judicata by respondent Court of Appeals in the present two cases between petitioner and two
private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of Respondent Court
1
of Appeals in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both
for Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional
Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion
as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the
Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan
Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo
Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is hereby denied.
Said defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions that the
Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme
Court, touched on the ownership of lots 2 and 3 in question; that the two lots were possessed by the predecessors-ininterest of private respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had been in
possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it
applied for registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there is no

possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without;
that the principle of res judicata on these findings by the Court of Appeals will bar a reopening of these questions of facts;
and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two aforementioned cases (CA
G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows
... The documents and records presented reveal that the whole controversy started when
the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed
with the Court of First Instance of Baguio Benguet on September 5, 1962 an application
for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion
Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the
Catholic Church building, convents, high school building, school gymnasium, school
dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and
the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
respectively, asserting ownership and title thereto. After trial on the merits, the land
registration court promulgated its Decision, dated November 17, 1965, confirming the
registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of
Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of
the land registration court to the then Court of Appeals, docketed as CA-G.R. No. 38830R. The Court of Appeals rendered its decision, dated May 9, 1977, reversing the decision
of the land registration court and dismissing the VICAR's application as to Lots 2 and 3,
the lots claimed by the two sets of oppositors in the land registration case (and two sets
of plaintiffs in the two cases now at bar), the first lot being presently occupied by the
convent and the second by the women's dormitory and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the
Court of Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio
Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their
motion for reconsideration praying that both Lots 2 and 3 be ordered registered in the
names of the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977, the Court of
Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on the
ground that there was "no sufficient merit to justify reconsideration one way or the other
...," and likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of
the decision of the Court of Appeals dismissing his (its) application for registration of Lots
2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of the Mountain
Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the Heirs of
Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme Court a
petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and
Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O.
Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of
VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for
lack of merit. Upon the finality of both Supreme Court resolutions in G.R. No. L-46832
and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court of First Instance
of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs of
Octaviano be placed in possession of Lot 3. The Court, presided 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. BB-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
2
decision, and not its body, is the controlling pronouncement of the Court of Appeals.
The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE
BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ AND
OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO WERE IN POSSESSION
OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND THE
PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST TITLE IS A PRIME
NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY
ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED
BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND 3
AND THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3
UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR
ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT RIGHTS
OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE
3
DECISION IN CA G.R. NO. 038830.
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 CAG.R. No. 38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CAG.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
4
requires 30 years.
On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R. No. 38830-R,
affirmed by this Court, We see no error in respondent appellate court's ruling that said findings are res judicata between
the parties. They can no longer be altered by presentation of evidence because those issues were resolved with finality a
long time ago. To ignore the principle of res judicata would be to open the door to endless litigations by continuous
determination of issues without end.
5

An examination of the Court of Appeals Decision dated May 4, 1977, First Division in CA-G.R. No. 38830-R, shows that
6
it reversed the trial court's Decision finding petitioner to be entitled to register the lands in question under its ownership,
on its evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive prescription
over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription
because of the absence of just title. The appellate court did not believe the findings of the trial court that Lot 2 was
acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner
Vicar because there was absolutely no documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and Octaviano
had Free Patent Application for those lots since 1906. The predecessors of private respondents, not petitioner Vicar, were
in possession of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2 and 3, because the
buildings standing thereon were only constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for
taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was
appointed only in 1947, the church was constructed only in 1951 and the new convent only 2 years before the trial in
1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from Fructuoso Valdez.
Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church
and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they
became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter
of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the
property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for

taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary
acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of
ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and
repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact
have become incontestible. This Court declined to review said decision, thereby in effect, affirming it. It has become final
and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of discretion, when it held that the
Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the principle of res judicata, hence the rule,
in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that
decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision dated
Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs against
petitioner.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

Footnotes
1 Associate Justices Conrado T. Limcaoco, Jose C. Campos, Jr. and Gloria C. Paras.
2 Decision in CA-G.R. No. CV Nos. 05148 and 05149 dated August 31, 1987; pp. 11 2-117, Rollo.
3 Pp. 5-15, Petition; pp. 6-17, Rollo.
4 Arts. 1134 and 1129, Civil Code.
5 Presiding Justice Magno S. Gatmaitan, Associate Justices Pacifico P. de Castro and Samuel Reyes.
6 Land Reg. No. N-91, LRC Rec. No. N-22991 of the then C.F.I. of Baguio City.

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.
Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.