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If the contract was one of lease, then the 10% breeding charge is
compensation (rent) for the use of the bull and Bagtas, as lessee, is
subject to the responsibilities of a possessor. He is also in bad faith
because he continued to possess the bull even though the term of
the contract has already expired.

If the contract was one of commodatum, he is still liable because: (1)

he kept the bull longer than the period stipulated; and (2) the thing
loaned has been delivered with appraisal of its value (10%). No
stipulation that in case of loss of the bull due to fortuitous event the
late husband of the appellant would be exempt from liability.

REPUBLIC VS BAGTAS [G.R. No. L-17474 October 25, 1962] PADILLA,


Jose Bagtas borrowed from the Bureau of Animal Industry three bulls
for a period of one year for breeding purposes subject to a
government charge of breeding fee of 10% of the book value of the

Upon the expiration of the contract, Bagtas asked for a renewal for
another one year, however, the Secretary of Agriculture and Natural
Resources approved only the renewal for one bull and other two bulls
be returned.

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.

Bagtas then wrote a letter to the Director of Animal Industry that he

would pay the value of the three bulls with a deduction of yearly
depreciation. The Director advised him that the value cannot be
depreciated and asked Bagtas to either return the bulls or pay their
book value.

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.

Bagtas neither paid nor returned the bulls. The Republic then
commenced an action against Bagtas ordering him to return the bulls
or pay their book value.



After hearing, the trial Court ruled in favor of the Republic, as such,
the Republic moved ex parte for a writ of execution which the court

Felicidad Bagtas, the surviving spouse and administrator of Bagtas

estate, returned the two bulls and filed a motion to quash the writ of
execution since one bull cannot be returned for it was killed by
gunshot during a Huk raid. The Court denied her motion hence, this
appeal certified by the Court of Appeals because only questions of
law are raised.

ISSUE: WON the contract was commodatum;thus, Bagtas be held liable for
its loss due to force majeure.


A contract of commodatum is essentially gratuitous. Supreme Court

held that Bagtas was liable for the loss of the bull even though it was
caused by a fortuitous event.

- 1962: Catholic Vicar Apostolic of the Mountain Province (Vicar),

petitioner, filed with the court an application for the registration of
title over lots 1, 2, 3 and 4 situated in Poblacion Central, Benguet,
said lots being used as sites of the Catholic Church, building,
convents, high school building, school gymnasium, dormitories, social
hall and stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed
that they have ownership over lots 1, 2 and 3. (2 separate civil cases)
- 1965: The land registration court confirmed the registrable title of
Vicar to lots 1 , 2, 3 and 4. Upon appeal by the private respondents
(heirs), the decision of the lower court was reversed. Title for lots 2
and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his
application for registration of Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one (1) witness, who
testified on the alleged ownership of the land in question (Lot 3) by
their predecessor-in-interest, Egmidio Octaviano; his written demand
to Vicar for the return of the land to them; and the reasonable rentals
for the use of the land at P10,000 per month. On the other hand,

Vicar presented the Register of Deeds for the Province of Benguet,

Atty. Sison, who testified that the land in question is not covered by
any title in the name of Egmidio Octaviano or any of the heirs. Vicar
dispensed with the testimony of Mons. Brasseur when the heirs
admitted that the witness if called to the witness stand, would testify
that Vicar has been in possession of Lot 3, for 75 years continuously
and peacefully and has constructed permanent structures thereon.
ISSUE: WON Vicar had been in possession of lots 2 and 3 merely as
bailee borrower in commodatum, a gratuitous loan for use.

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 petitioner Vicar 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.

It may be recalled that the Special Purpose Vehicle (SPV) Act of 2002 was
enacted into law on December 23, 2002 and became effective on April 9,
2003. It is intended to help banks dispose of their NPAs (non-performing
assets) by waiving some of the taxes and reducing fees usually collected in
the sale or transfer of assets. The SPV Law waived the documentary stamp
tax, capital gains tax and EVAT and reduced the applicable registration and

transfer fees by 50%. The COE (Certificate of Eligibility) is the document

issued by the BSP (Bangko Central ng Pilipinas) to qualify the sale or transfer
of NPAs to the tax exemptions and reduced fees.
Fiscal benefits include exemption from payments of documentary stamp tax,
capital gains tax, creditable withholding tax and value added tax or gross
receipts tax. Transactions qualified under the SPV law are also entitled to
various fee reductions such as mortgage and land registration, filing fees,
transfer fees. On top of these, banks are allowed to deduct a portion of their
losses from the SPV transactions from their taxable gross income for up to 10
The SPV Act stated that only loans/assets which are nonperforming are
qualified. The BSP required all banks to report each loan that was non
performing or under litigation. The BSP combined them together with the
masterlist of all qualified
NPAs in the financial system. All related
transactions by banks or SPVs that are covered by the Act would have to be
reconciled with the BSP masterlist for the issuance of Certificate of Eligibility.
The COEs are then used by the seller or buyer of assets to avail of the tax
exemptions and fees reduction when approaching concerned government
agencies, example BIR.

It has to be a true sale

Asset completely removed from the banks or debtors control
Has no equity share excedding 5% in the buying SPV and no direct or
indirect management
The originating bank cannot extend credit facility, guaranty or any
other similar financial transactions, whether directly or indirectly to
the transferee SPV.
Required to notify the borrowers about the impending transfer of
their loans and to give them a 90-day period for renegotiation and
restructuring, if they are interested.

The SPV is organized as a stock corporation under Philipp ine Laws with
the primary purpose of investing in or acquiring NPAs of financial
institutions, and disposing of them through various strategies. If the SPV
will acquire land, foreign investors face a maximum of 40% share of its
capital stock, with the rest being owned by Philippine Nationals. The SPVs
can issue equity or participation certificates or other forms of Investment
Unit Instruments for the purpose of acquiring, managing, improving and
disposing of the NPAs. Banks are not allowed to purchase IUIs issued by
the SPV that acquired its NPAs.

from the date of commencement of the proceedings. If the plan is not

finalized or the court does not approve the plan within such period,
the matter will proceed to liquidation of the debtor. All claims against
the debtor are suspended while rehabilitation proceedings are
pending in court.

The Financial Rehabilitation and Insolvency Act (FRIA)

The Financial Rehabilitation and Insolvency Act (FRIA) was passed into law by
the Philippine Congress in early 2010. As well as providing for the liquidation
of bankrupt companies, the legislation also allows possible rehabilitation for
debtors who are able to get more than a 50 percent approval rate from their
creditors. an act providing for the rehabilitation or liquidation of financially

Pre-negotiated rehabilitation - In these proceedings, a debtor files a

petition with the court for the approval of a rehabilitation plan which
has been previously agreed upon by the debtor and its creditors
representing at least 2/3 of the debtor's total liabilities (and at least
67% and 75% of the debtor's secured and unsecured obligations,
respectively). The court is required to approve the plan within 120
days from the date the petition if filed, failing which, the plan shall be
deemed approved. The court may also order that the matter proceed
to the liquidation of the debtor if it finds that the plan is not
meritorious or the parties acted in bad faith. All claims against the
debtor are suspended while rehabilitation proceedings are pending in

Out-of-court or informal restructuring agreements or rehabilitation

plans - In this scenario, the debtor and creditors representing at least
85% of the debtor's total liabilities (and at least 67% and 75% of the
debtor's secured and unsecured obligations, respectively) agree on a
restructuring or rehabilitation plan. As long as these thresholds are
met, the plan is binding on the parties (and on the debtor's other
creditors) even without court approval. A standstill period may be
enforced during the negotiations, provided that such standstill is
approved by creditors representing more than 50% of the debtor's
total liabilities. The standstill period may not, however, exceed 120


Under the Financial Rehabilitation and Insolvency Act, shareholders

will be able to recover value from collapsed listed companies much
more speedily, thus improving lender confidence in the country.
Furthermore, both businesses and individuals on the verge of
bankruptcy can ask for a suspension of payments to their creditors. If
their assets amount to less than their liabilities, they may also
petition for a discharge from their debts.

The Fria replaces and repeals the Insolvency Law (Act No. 1956), which was
enacted in 1909 and was almost universally acknowledged as outdated and
obsolete. The Fria also impliedly amends the Interim Rules on Corporate
Rehabilitation first issued by the Supreme Court in 2000 (and amended in
2008), given several inconsistencies between those rules and the new Fria. It
is expected that the Supreme Court will issue new rules on procedure to
govern corporate rehabilitation in conformity with the Fria.
Under the Fria, a debtor is considered "insolvent" if it is "generally unable to
pay its or his liabilities as they fall due in the ordinary course of business or
has liabilities that are greater than its or his assets." The Fria provides for the
following modes of rehabilitating an insolvent corporate debtor:

Court-supervised rehabilitation proceedings - These may be

commenced by either the debtor (or a group of affiliated debtors) or
by creditors representing a specified minimum amount of claims. The
court conducts the rehabilitation proceedings, appoints a receiver
and determines which claims against the debtor are valid, with the
goal of putting a rehabilitation plan in place. A plan must be approved
by the debtor and creditors representing more than 50% of the
claims of each class of creditors. The rehabilitation plan must be
agreed upon, and the court must approve such plan, within one year

Another notable change is that while court-supervised proceedings are

pending, all taxes and fees due from the debtor to the national and local
governments shall be considered waived. Similarly, the amount by which any
indebtedness or obligation of the debtor is reduced or forgiven shall not be
subject to any tax.
Banks, insurance companies and pre-need companies are not covered by the
Fria. The rehabilitation of such entities is governed by other laws.