Republic of the Philippines

SUPREMECOURT
Manila
EN BANC
G.R. No. L-24968April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANKOFTHEPHILIPPINES,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
sentencingdefendant Development Bank of the Philippines (DBP) to payactual and consequential
damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the
legal rate fromthe date the complaint was filed and attorney's fees in theamount of P5,000.00. The
present appeal is fromthat judgment.
In July1953 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 workingcapital.
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 payingthe draft, Saura, Inc. executed a trust
receipt in favor of the said bank.
On January 7, 1954 RFCpassed Resolution No. 145 approvingthe loan application for P500,000.00, to be
secured by a first mortgage on the factory buildingto be constructed, the land site thereof, and the
machinery and equipment to be installed. Amongthe 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 factorybuildingP250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For workingcapital 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 havingotherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requestinga
modification of the terms laid down by it, namely: that in lieu of havingChina Engineers, Ltd. (which was
willingto assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on
the correspondingpromissory 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, havingacquired the latter's shares in Saura, Inc.
In view of such request RFCapproved Resolution No. 736 on February 4, 1954, designatingof 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 financingthis particular
project based on present conditions obtainingin the operations of jute mills, and to submit his findings
thereon at the next meetingof the Board."
On March 24, 1954 Saura, Inc. wrote RFCthat 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 appointingits 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," referringto 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,
representingChina Engineers, Ltd., as one of the co-signers; and the correspondingdeed of mortgage,
which was duly registered on the followingApril 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a meetingof the RFCBoard of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan
fromP500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducingthe Loan Granted Saura Import & Export Co., Inc. under Resolution No.
145, C.S., fromP500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizingthe 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 financingthe manufacture of jute sacks in Davao, with special
reference as to the advisability of financingthis particular project based on present conditions obtaining
in the operation of jute mills, and after havingheard Ramon E. Saura and after extensive discussion on
the subject the Board, upon recommendation of the Chairman, RESOLVEDthat the loan granted the
Saura Import & Export Co. be REDUCED fromP500,000 to P300,000 and that releases up to P100,000
may be authorized as may be necessary fromtime 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 RFCthat 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 RFCthat the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFCrequestingthat 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 ... fromthe 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 RFCthat China
Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFCreleases to us the
P500,000.00 originally approved by you.".
On December 17, 1954 RFCpassed Resolution No. 9083, restoringthe loan to the original amount of
P500,000.00, "it appearingthat China Engineers, Ltd. is now willingto sign the promissory notes jointly
with the borrower-corporation," but with the followingproviso:
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 carryout 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 RFCdated 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 locallyavailable 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 buildingin Davao
was for the manufacture of bags fromlocal 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 aKenafmill 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 notablykenaf which is
presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."
This fact, accordingto defendant DBP, is what moved RFCto approve the loan application in the first
place, and to require, in its Resolution No. 9083, a certification fromthe 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) statingthat accordingto a special study made bythe 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 bringin sufficient jute materials as may be
necessary for the full operation of thejute mill;" and (3) askingthat 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 equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ingof 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 readyto operate.
On January 25, 1955 RFCsent to Saura, Inc. the followingreply:
Dear Sirs:
This is with reference to your letter of January 21, 1955,
regardingthe 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
fromtime to time, subject to availabilityof funds towards
the end that the sack factoryshall be placed in actual
operatingstatus. 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
relyon 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 approvingthe loan.
With the foregoingletter the negotiations came to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it requested RFCto cancel the mortgage, and so, on June 17, 1955 RFCexecuted the
correspondingdeed 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 amortgage 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 heretoforementioned. 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 RFCwas cancelled at the request of
Saura, Inc., the latter commenced the present suit for damages, allegingfailure 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 preventingthe plaintiff fromcompletingor payingcontractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, rulingthat there was a perfected contract between
the parties and that the defendant was guiltyof breachthereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claimhad been
waived or abandoned; (2) that there was no perfected contract; and (3) that assumingthere 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 commodatumor
simple loan is bindingupon the parties, but the commodatumor 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 correspondingmortgage was
executed and registered. But this fact alone falls short of resolvingthe basic claimthat the defendant
failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.
It should be noted that RFCentertained the loan application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw materials, principallykenaf. There is no serious
dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved
on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two
conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carryout 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 fromthe terms of the agreement, but rather a step in its implementation.
There was nothingin said conditions that contradicted the terms laid down in RFCResolution No. 145,
passed on January 7, 1954, namely "that the proceeds of the loan shall be utilizedexclusivelyfor the
followingpurposes: for construction of factory buildingP250,000.00; for payment of the balance of
purchase price of machinery and equipment P240,900.00; for workingcapital P9,100.00." Evidently
Saura, Inc. realized that it could not meet the conditions required byRFC, and so wrote its letter of
January21, 1955, statingthat local jute "will not be able in sufficient quantity this year or probably next
year," and askingthat out of the loan agreed upon the sumof P67,586.09 be released "for raw materials
and labor." This was a deviation fromthe terms laid down in Resolution No. 145 and embodied in the
mortgage contract, implyingas it did a diversion of part of the proceeds of the loan to purposes other
thanthose agreed upon.
When RFCturned down the request in its letter of January 25, 1955 the negotiations which had been
goingon 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 doingso and insistingthat the loan be released as
agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The
action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo
disenso"
1
which is a mode of extinguishingobligations. It is a concept that derives fromthe principle
that since mutual agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment.
2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged
breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for
cancellation of the mortgage carried no reservation of whatever rights it believed it might have against
RFCfor 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 fromis reversed and the complaint dismissed, with costs against
the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
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 redeemthe foreclosed property.
IV
Grantingthat petitioners had such a right, whether respondent was justified in
refusingtheir offers to repurchase the property.
As clearly seen fromthe foregoingissues 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
attackingthe validity of the deed of mortgage, theycontended 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. Fromthe 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 fromthe respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. A contract of loan beinga 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 grantingthe validityof the mortgage, the subsequent renewals of the
original loan, usingas 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 relyon
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 beingapplicable 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. Theyare, therefore, estopped fromimpugningits validity whether on the original loan or
renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the followinggrounds:
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 flimsyground. Respondent Bank not beinga
partyto the Deed of Sale with Assumption of Mortgage, it can validly claimthat it was not aware of the
same and hence, it may not be obliged to notifypetitioners. 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 postingnotices of the sale for not less than
twentydays 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 bypetitioners is inapplicable because said case
involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered
makingthe mortgaged privy to the sale.
As regards the claimthat the period of publication of the notice of auction sale was not in accordance
withlaw, namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the
publication of notice on June 30, July7 and July 14, 1968 satisfies the publication requirement under Act
No. 3135 notwithstandingthe fact that June 30 toJuly 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 thisCourt 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/advertisingmanager 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 July14, 1968. This constitutes prima facie evidence of
compliance with the requisite publication. Sadangvs. 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 payingsubscribers; that it is
published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the
largest circulation so longas it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of
three witnesses that theydo 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 periodrequired 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 PasigMunicipal Market and PasigMunicipal
Hall. In the same manner, copies of said notice were also posted in the place where the property was
located, namely: the Municipal Buildingof San Juan, Rizal; the Municipal Market and on Benitez Street.
The followingstatement 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 themonly once in one day. (TSN, p. 45, July 25,
1973)
is not a sufficient countervailingevidence 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 provingthat the postingrequirement
was not complied with is now shifted to the one who alleges non-compliance.
On the question of whether or not the petitioners had a right to redeemthe property, We hold that the
Court of Appeals did not err in rulingthat they had no right to redeem. No consent havingbeen secured
fromrespondent 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
redeemthe 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 redeemthe 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 holdingthat 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 advisingthe 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 readingof 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 claimof 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 accordinglyon 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 sixmonths 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 beingdevoid 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 propertyis sold, the Vendee shall
assume the mortgaged in the terms and conditions under which it is constituted, it
beingunderstood 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. ...
SECOND DIVISION
[G.R. No. 133632. February 15, 2002]
BPI INVESTMENT CORPORATION,petitioner, vs. HON. COURT OFAPPEALSand ALSMANAGEMENT &
DEVELOPMENT CORPORATION,respondents.
DECI SI O N
QUISUMBING,J.:
This petition for certiorari assails the decision datedFebruary 28, 1997, of the Court of Appeals
and its resolution datedApril 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the
judgment of the Regional Trial Court of PasigCity, Branch 151, in (a) Civil Case No. 11831, for foreclosure
of mortgage by petitioner BPI Investment Corporation (BPIICfor brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua,
[1]
consolidated with (b) Civil Case
No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their
monthly amortization, hence, the extrajudicial foreclosure conducted by BPIICwas premature and made
in bad faith. It awarded private respondents the amount of P300,000 for moral damages, P50,000 for
exemplarydamages, andP50,000 for attorneys fees and expenses for litigation. It likewise dismissed the
foreclosure suit for beingpremature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4%per annumfromAyala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on
his lot inNewAlabangVillage, Muntinlupa. Said house and lot were mortgaged to AIDCto secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALSand Antonio Litonjua
for P850,000. They paidP350,000 in cash and assumed theP500,000 balance of Roas indebtedness with
AIDC. The latter, however, was not willingto extend the old interest rate to private respondents and
proposed to grant thema new loan of P500,000 to be applied to Roas debt and secured by the same
property, at an interest rate of 20%per annumand service fee of 1%per annumon the outstanding
principal balance payable within ten years in equal monthly amortization ofP9,996.58 and penalty
interest at the rate of 21%per annumper day fromthe date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the
above stipulations with the provision that payment of the monthly amortization shall commence onMay
1, 1981.
OnAugust 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum
of P190,601.35. This reduced Roas principal balance toP457,204.90 which, in turn, was liquidated when
BPIICapplied thereto the proceeds of private respondents loan of P500,000.
OnSeptember 13, 1982, BPIICreleased to private respondentsP7,146.87, purportingto be what
was left of their loan after full payment of Roas loan.
In June 1984, BPIICinstituted foreclosure proceedings against private respondents on the ground
that they failed to pay the mortgage indebtedness which fromMay 1, 1981toJune 30, 1984, amounted
to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A
notice of sheriffs sale was published onAugust 13, 1984.
OnFebruary 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged,
among others, that they were not in arrears in their payment, but in fact made an overpayment as
of June 30, 1984. They maintained that they should not be made to pay amortization before the actual
release of theP500,000 loan in August and September 1982. Further, out of theP500,000 loan, only the
total amount of P464,351.77 was released to private respondents. Hence, applyingthe effects of legal
compensation, the balance ofP35,648.23 should be applied to the initial monthly amortization for the
loan.
OnAugust 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093,
thus:
WHEREFORE, judgment is hereby rendered in favor of ALSManagement and Development Corporation
and Antonio K. Litonjuaand against BPI Investment Corporation, holdingthat the amount of loan
granted by BPI to ALSand Litonjua was only in the principal sumof P464,351.77, with interest at 20%
plus service charge of 1%per annum, payable on equal monthly and successive amortizations at
P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule attached
as AnnexA to the Deed of Mortgage is correspondingly reformed as aforestated.
The Court further finds that ALSand Litonjua suffered compensable damages when BPI caused their
publication in a newspaper of general circulation as defaultingdebtors, and therefore orders BPI to pay
ALSand Litonjua the followingsums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for beingpremature.
Costs against BPI.
SO ORDERED.
[2]
Both parties appealed to the Court of Appeals. However, private respondents appeal was
dismissed for non-payment of docket fees.
OnFebruary 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion
reads:
WHEREFORE,findingno error in the appealed decision the same is hereby AFFIRMEDintoto.
SO ORDERED.
[3]
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the
delivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was
perfected only onSeptember 13, 1982, the date when BPIIC released the purported balance of
theP500,000 loan after deducting therefromthe value of Roas indebtedness. Thus, payment of the
monthly amortization should commence only a month after the said date, as can be inferred fromthe
stipulations in the contract. This, despite the express agreement of the parties that payment shall
commence onMay 1, 1981. From October 1982 to June 1984, the total amortization due was
onlyP194,960.43. Evidence showed that private respondents had an overpayment, because as of June
1984, they already paid a total amount of P201,791.96. Therefore, there was no basis for BPIIC to
extrajudicially foreclose the mortgage and cause the publication in newspapers concerning private
respondents delinquency in the payment of their loan. This fact constituted sufficient ground for moral
damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIICwas likewise denied, hence this petition,
where BPIICsubmits for resolution the followingissues:
I. WHETHER OR NOT A CONTRACT OF LOAN ISA CONSENSUAL CONTRACT IN THE LIGHT OF
THE RULE LAID DOWN INBONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES
AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND
OPPOSED TO THE RULE LAID DOWN INSOCIAL SECURITY SYSTEM VS. COURT OF
APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a
simple loan is perfected upon the delivery of the object of the contract, the loan contract in this case was
perfected only onSeptember 13, 1982. Petitioner claims that a contract of loan is a consensual contract,
and a loan contract is perfected at the time the contract of mortgage is executed conformablywith our
ruling inBonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was
perfected onMarch 31, 1981, the date when the mortgage deed was executed, hence, the amortization
and interests on the loan should be computed fromsaid date.
Petitioner also argues that while the documents showed that the loan was released only on
August 1982, the loan was actually released onMarch 31, 1981, when BPIIC issued a cancellation of
mortgage of Frank Roas loan. This finds support in the registration onMarch 31, 1981of the Deed of
Absolute Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS
executingthe Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of
the loan should be attributed to private respondents. As BPIIConly agreed to extend aP500,000 loan,
private respondents were required to reduce Frank Roas loan below said amount. According to
petitioner, private respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code,
[4]
a
simple loan is perfected upon the delivery of the object of the contract, hence a real contract. In this
case, even though the loan contract was signed onMarch 31, 1981, it was perfected only onSeptember
13, 1982, when the full loan was released to private respondents. They submit that petitioner
misreadBonnevie. To give meaningto Article 1934, accordingto private respondents, Bonneviemust be
construed to mean that the contract to extend the loan was perfected onMarch 31, 1981but the
contract of loan itself was only perfected upon the delivery of the full loan to private respondents
onSeptember 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was
perfected onMarch 31, 1981, and their payment did not start a month thereafter, still no default took
place. According to private respondents, a perfected loan agreement imposes reciprocal obligations,
where the obligation or promise of each party is the consideration of the other party. In this case, the
consideration for BPIICin enteringinto the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIICto deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did
not incur in delay when they did not commence payingthe monthly amortization onMay 1, 1981, as it
was only onSeptember 13, 1982when petitioner fully complied with its obligation under the loan
contract.
We agree with private respondents. A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract.
[5]
Petitioner
misappliedBonnevie. The contract inBonneviedeclared by this Court as a perfected consensual contract
falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver somethingby
way of simple loan.
InSaura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application
through a board resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not released. Later,
petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract
which under normal circumstances could have made the bank liable for not releasingthe loan. However,
since the fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery of the
object of the contract for its perfection and which gives rise to obligations only on the part of the
borrower.
[6]
In the present case, the loan contract between BPI, on the one hand, and ALSand Litonjua, on the
other, was perfected only onSeptember 13, 1982, the date of the second release of the loan. Following
the intentions of the parties on the commencement of the monthly amortization, as found by the Court
of Appeals, private respondents obligation to pay commenced only on October 13, 1982, a month after
the perfection of the contract.
[7]
We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each partyis the consideration for that of the other.
[8]
As averred
by private respondents, the promise of BPIICto extend and deliver the loan is upon the consideration
that ALSand Litonjua shall pay the monthly amortization commencingonMay 1, 1981, one month after
the supposed release of the loan. It is a basic principle in reciprocal obligations that neither party incurs
in delay, if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.
[9]
Only when a partyhas performed his part of the contract can he demand that
the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization after September 13, 1982for
it was only then when it complied with its obligation under the loan contract. Therefore, in computing
the amount due as of the date when BPIICextrajudicially caused the foreclosure of the mortgage, the
startingdate isOctober 13, 1982and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual
release of the loan and whether private respondents were the cause of the delay in the release of the
loan, are factual. Since petitioner has not shown that the instant case is one of the exceptions to the
basic rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules of
Court,
[10]
factual matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.
On thesecond issue, petitioner claims that it should not be held liable for moral and exemplary
damages for it did not act maliciously when it initiatedthe foreclosure proceedings. It merely exercised
its right under the mortgage contract because private respondents were irregular in their monthly
amortization. It invoked our rulinginSocial Security Systemvs. Court of Appeals, 120 SCRA 707, where
wesaid:
Nor can the SSSbe held liable for moral and temperate damages. As concluded by the Court of Appeals
the negligence of the appellant is not so gross as to warrant moral and temperate damages, except
that, said Court reduced those damages by onlyP5,000.00 instead of eliminatingthem. Neither can we
agree with the findings of both the Trial Court and respondent Court that the SSShad acted maliciously
or in bad faith. The SSSwas of the belief that it was actingin the legitimate exercise of its right under the
mortgage contract in the face of irregular payments made by private respondents and placed reliance on
the automatic acceleration clause in the contract. The filingalone of the foreclosure application should
not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is
not amongthe grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said
damages because it insisted on the payment of amortization on the loan even before it was
released. Further, it did not make the correspondingdeduction in the monthly amortization to conform
to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private
respondentsfailed to make timelypayment.
But as admitted by private respondents themselves, they were irregular in their payment of
monthly amortization. Conformably with our ruling inSSS, we can not properly declare BPIIC in bad
faith. Consequently, we should rule out the award of moral and exemplary damages.
[11]
However, in our view, BPIICwas negligent in relyingmerely on the entries found in the deed of
mortgage, without checkingand correspondingly adjustingits records on the amount actually released
to private respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given in recognition of their
rights which were violated by BPIIC.
[12]
For this purpose, the amount of P25,000 is sufficient.
Lastly, as inSSSwhere we awarded attorneys fees because private respondents were compelled
to litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision datedFebruary 28, 1997, of the Court of Appeals and its resolution
datedApril 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of
moral and exemplary damages in favor of private respondents is DELETED, but the award to themof
attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondentsP25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, andDe Leon, Jr., JJ., concur.
SECOND DIVISION
[G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT,petitioner, vs. COURT OFAPPEALSand AURORA QUEAO,respondents.
DECI SI O N
TINGA,J.:
Before us is a Petition for Review onCertiorari under Rule 45, assailing the decision of the
Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 1994
[1]
, which
affirmedin totothe decision handed down by the Regional Trial Court (RTC) of Pasay City.
[2]
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a
complaint before the Pasay City RTCfor cancellation of aReal Estate Mortgageshe had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the questionedReal
Estate Mortgagevoid, which Naguiat appealed to the Court of Appeals. After the Court of Appeals
upheld the RTCdecision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated Bank
Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00),
which was earlier issued to Naguiat by the Corporate Resources FinancingCorporation. She also issued
her own Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the
amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute
the loan granted by Naguiat to Queao.
[3]
To secure the loan, Queao executed aDeed of Real Estate Mortgagedated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the
mortgaged properties.
[4]
On the same day, the mortgage deed was notarized, and Queao issued to
Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with
interest at 12%per annum, payable on 11 September 1980.
[5]
Queao also issued a Security Bank and
Trust Company check, postdated 11 September 1980, for the amount of TWO HUNDRED THOUSAND
PESOS(P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency
of funds. On the followingday, 12 September 1980, Queaorequested Security Bank to stop payment of
her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests
if the check is drawn against insufficient funds.
[6]
On 16 October 1980, Queao received a letter fromNaguiats lawyer, demandingsettlement of
the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the proceeds of the loan, addingthat the checks
were retained byRuebenfeldt, who purportedly was Naguiats agent.
[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province,
who then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale,
Queao filed the case before the Pasay City RTC,
[8]
seekingthe annulment of the mortgage deed. The
trial court eventually stopped the auction sale.
[9]
On 8 March 1991, the RTCrendered judgment, declaringtheDeed of Real Estate Mortgagenull
and void, and orderingNaguiat to return to Queao the owners duplicates of her titles to the mortgaged
lots.
[10]
Naguiat appealed the decision before the Court of Appeals, making no less than eleven
assignments of error. The Court of Appeals promulgated the decision now assailed before us that
affirmedin totothe RTCdecision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of
whether Queao had actually received the loan proceeds which were supposed to be covered by the
two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public
document, the mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and pronouncements of Ruebenfeldt, invokingthe
rule on the non-bindingeffect of the admissions of third persons.
[11]
The resolution of the issues presented before this Court by Naguiat involves the determination of
facts, a function which this Court does not exercise in an appeal bycertiorari. Under Rule 45 which
governs appeal by certiorari, only questions of law may be raised
[12]
as the Supreme Court is not a trier of
facts.
[13]
The resolution of factual issues is the function of lower courts, whose findings on these matters
are received with respect and are in fact generally bindingon the Supreme Court.
[14]
A question of law
which the Court may pass upon must not involve an examination of the probative value of the evidence
presented by the litigants.
[15]
There is a question of law in a given case when the doubt or difference
arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts.
[16]
Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts
of the lower courts.
[17]
But Naguiats case does not fall under any of the exceptions. In any event, both
the decisions of the appellate and trial courts are supported by the evidence on record and the
applicable laws.
Against the common findingof the courts below, Naguiat vigorously insists that Queao received
the loan proceeds. Capitalizingon the status of the mortgage deed as a public document, she cites the
rule that a public document enjoys the presumption of validity and truthfulness of its contents. The
Court of Appeals, however, is correct in rulingthat the presumption of truthfulness of the recitals in a
public document was defeated by the clear and convincing evidence in this case that pointed to the
absence of consideration.
[18]
This Court has held that the presumption of truthfulness engendered by
notarized documents is rebuttable, yieldingas it does to clear and convincingevidence to the contrary,
as in this case.
[19]
On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued
or endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code provides that the deliveryof bills of exchange and
mercantile documents such as checks shall produce the effect of payment only when they have been
cashed.
[20]
It is only after the checks have produced the effect of payment that the contract of loan may
be deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver somethingby way of commodatumor simple loan is bindingupon the
parties, but the commodatumor simple loan itself shall not be perfected until the delivery of the object
of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery
of the object of the contract.
[21]
In this case, the objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed
the checks were encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by Ruebenfeldt
on the ground that they could not bind her following theres inter alia acta alteri nocere non
debet rule. The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an
authorized representative or agent of Naguiat the situation falls under a recognized exception to the
rule.
[22]
Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt
is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not
a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold fromQueao the
checks she issued or indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction that Queao came to know Naguiat.
[23]
It was
also Ruebenfeldt who accompanied Queao in her meetingwith Naguiat and on that occasion, on her
own and without Queao askingfor it, Reubenfeldt actually drew a check for the sumof P220,000.00
payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.
[24]
The Court of Appeals recognized the existence of an agency by estoppel
[25]
citingArticle 1873 of
the Civil Code.
[26]
Apparently, it considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of
Naguiat, but Naguiat did nothingto correct Queaos impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds himout to the public as such,
cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of
innocent third parties dealingwith such person in good faith, and in the honest belief that he is what he
appears to be.
[27]
The Court of Appeals is correct in invokingthe said rule on agencyby estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is
irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed or
deposited to her account of Naguiat.
All told, we find no compellingreason to disturb the findingof the courtsa quothat the lender did
not remit and the borrower did not receive the proceeds of the loan. That beingthe case, it follows that
the mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage
contract is the same as that of the principal contract fromwhich it receives life, and without which it
cannot exist as an independent contract.
[28]
A mortgage contract being a mere accessory contract, its
validity would depend on the validity of the loan secured by it.
[29]
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Austria-Martinez, andCallejo, Sr., JJ., concur.
Republic of the Philippines
SUPREMECOURT
Manila
FIRST DIVISION
G.R. No. 154878 March 16, 2007
CAROLYN M. GARCIA,Petitioner,
vs.
RICA MARIES. THIO,Respondent.
D E CI SI O N
CORONA, J.:
Assailed in this petition for review on certiorari
1
are the June 19, 2002 decision
2
and August 20, 2002
resolution
3
of the Court of Appeals (CA) in CA-G.R. CV No. 56577which set aside the February 28, 1997
decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February1995, respondent Rica Marie S. Thio received frompetitioner Carolyn M. Garcia a
crossed check
4
dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain
Marilou Santiago.
5
Thereafter, petitioner received fromrespondent every month (specifically, on March
24, April 26, June 26 and July 26, all in 1995) the amount of US$3,000
6
andP76,500
7
on July 26,
8
August
26, September 26 and October 26, 1995.
In June 1995, respondent received frompetitioner another crossed check
9
dated June 29, 1995 in the
amount ofP500,000, also payable to the order of Marilou Santiago.
10
Consequently, petitioner received
fromrespondent the amount of P20,000 everymonth on August 5, September 5, October 5 and
November 5, 1995.
11
Accordingto petitioner, respondent failed to pay the principal amounts of the loans (US$100,000
andP500,000) when theyfell due. Thus, on February 22, 1996, petitioner filed a complaint for sumof
money and damages in the RTCof Makati City, Branch 58 against respondent, seekingto collect the sums
of US$100,000, with interest thereon at 3%a month fromOctober 26, 1995 andP500,000, with interest
thereon at 4%a month fromNovember 5, 1995, plus attorneys fees and actual damages.
12
Petitioner alleged that on February 24, 1995, respondent borrowed fromher the amount of US$100,000
with interest thereon at the rate of 3%per month, which loan would mature on October 26, 1995.
13
The
amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the
amount of P500,000 at an agreed monthlyinterest of 4%, the maturity date of which was on November
5, 1995.
14
The amount of this loan was covered by the second check. For both loans, no promissory note
was executed since petitioner and respondent were close friends at the time.
15
Respondent paid the
stipulated monthlyinterest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.
16
1awphi1.nt
Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whompetitioner lent the money. She claimed she was merely asked by petitioner to give the
crossed checks to Santiago.
17
She issued the checks for P76,000 andP20,000 not as payment of interest
but to accommodate petitioners request that respondent use her own checks instead of Santiagos.
18
In a decision dated February 28, 1997, the RTCruled in favor of petitioner.
19
It found that respondent
borrowed frompetitioner the amounts of US$100,000 with monthlyinterest of 3%andP500,000 at a
monthly interest of 4%:
20
WHEREFORE, findingpreponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of [petitioner], sentencing[respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3%per month from
October 26, 1995 until fullypaid;
2. P500,000.00 with interest thereon at 4%per month fromNovember 5, 1995 until fully paid.
3. P100,000.00 as and for attorneys fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, [respondents] counterclaimis perforce dismissed.
With costs against [respondent].
IT ISSO ORDERED.
21
On appeal, the CA reversed the decision of the RTCand ruled that there was no contract of loan between
the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claimthat
[respondent] indeed borrowed money fromher. There isnothinginthe record that showsthat
[respondent] received money from[petitioner].What is evident is the fact that [respondent] received a
MetroBank [crossed] check dated February24, 1995 in the sumof US$100,000.00, payable to the order
of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00,
again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks
received by [respondent], beingcrossed, may not be encashed but only deposited in the bank by the
payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossinga check has the followingeffects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only onceto onewho has an account with
the bank; (c) and the act of crossingthe check serves as warningto the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the
payee in contemplation of law since the latter is not the person who could take the checks as a holder,
i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as
an agent of Marilou Santiago with respect to the checks because she was merelyfacilitatingthe
transactions between the former and [petitioner].
With the foregoingcircumstances, it may be fairlyinferred that there were really no contracts of loan
that existed between the parties. xxx(emphasis supplied)
22
Hence this petition.
23
As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the
CA (which held that there werenocontracts of loan between petitioner and respondent) and the RTC
(which held that there werecontracts of loan) are contradictory.
24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the deliveryof the object of
the contract.
25
This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver somethingby way of commodatumor simple loan is bindinguponthe
parties, but the commodatumor simpleloan itself shall not be perfected until the delivery of the object
of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor when
the checks were encashed) the debtor acquires ownership of such moneyor loan proceeds and is bound
to paythe creditor an equal amount.
26
It is undisputed that thechecks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main
question to be answered is: who borrowed money frompetitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made payable to
Santiago.
27
She maintains that it was also upon respondents instruction that both checks were delivered
to her (respondent) so that she could, in turn, deliver the same to Santiago.
28
Furthermore, she argues
that once respondent received the checks, the latter had possession and control of themsuch that she
had the choice to either forward themto Santiago (who was already her debtor), to retain themor to
return themto petitioner.
29
We agree with petitioner. Delivery is the act by which theresor substance thereof is placed within the
actual or constructive possession or control of another.
30
Although respondent did not physically receive
the proceeds of the checks, these instruments were placed in her control and possession under an
arrangement whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago.
31
It was highly improbable
that petitioner would grant two loans to a complete stranger without requiringas much as promissory
notes or any written acknowledgment of the debt consideringthat the amounts involved were quite big.
Respondent, on the other hand, already had transactions with Santiago at that time.
32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both
parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher
rate of 5%and realize a profit of 2%.
33
This explained why respondent instructed petitioner to make the
checks payable to Santiago. Respondent has not shown any reason whyRuiz testimony should not be
believed.
Third, for the US$100,000 loan, respondent admitted issuingher own checks in the amount of P76,000
each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For theP500,000
loan, she also issued her own checks in the amount of P20,000 each for four months.
34
Accordingto
respondent, she merely accommodated petitioners request for her to issue her own checks to cover the
interest payments since petitioner was not personally acquainted with Santiago.
35
She claimed, however,
that Santiago would replace the checks with cash.
36
Her explanation is simply incredible. It is difficult to
believe that respondent would put herself in a position where she would be compelled to pay interest,
fromher own funds, for loans she allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be
believed, it must not only proceed fromthe mouth of a credible witness, but must be credible in itself
such as the common experience of mankind can approve as probable under the circumstances. We have
no test of the truth of human testimony except its conformity to our knowledge, observation, and
experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical
cognizance.
37
Fourth, in the petition for insolvencysworn to and filed bySantiago, it was respondent, not petitioner,
who was listed as one of her (Santiagos) creditors.
38
Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.
39
The
presumption is that "evidence willfully suppressed would be adverse if produced."
40
Respondent was not
able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the
amounts of US$100,000 andP500,000 frompetitioner. We instead agree with the rulingof the RTC
makingrespondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3%and 4%monthly interest for the
US$100,000 andP500,000 loans respectively. There was no writtenproof of the interest payable except
for theverbal agreement that the loans would earn 3%and 4%interest per month. Article 1956 of the
Civil Code provides that "[n]o interest shall be due unless it has been expresslystipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article
2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sumof money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest fromthe time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12%per annumto be computed fromdefault, i.e.,
fromjudicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
41
Hence, respondent is liable for the payment of legal interest per annumto be computed fromNovember
21, 1995, the date when she received petitioners demand letter.
42
Fromthe finality of the decision until
it is fully paid, the amount due shall earn interest at 12%per annum, the interimperiod beingdeemed
equivalent to a forbearance of credit.
43
The award of actual damages in the amount of P50,000 andP100,000 attorneys fees is deleted since the
RTCdecision did not explain the factual bases for these damages.
WHEREFORE, the petition is herebyGRANTEDand the June 19, 2002 decision and August 20, 2002
resolution of the Court of Appeals in CA-G.R. CV No. 56577 areREVERSEDandSET ASIDE. The February
28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 isAFFIRMEDwith
theMODIFICATIONthat respondent is directed to pay petitioner the amounts of US$100,000
andP500,000 at 12%per annuminterest fromNovember 21, 1995 until the finality of the decision. The
total amount due as of the date of finalitywill earn interest of 12%per annumuntil fully paid. The award
of actual damages and attorneys fees is deleted.
SO ORDERED.
Republic of thePhilippines
Supreme Court
Manila
SPECIALSECONDDIVISION
POLOS. PANTALEON,
Petitioner,
- versus -
AMERICAN EXPRESSINTERNATIONAL, INC.,
Respondent.
G.R. No. 174269
Present:
CARPIO MORALES, J.,
Acting Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION, and

*
BERSAMIN, JJ.
Promulgated:

August 25, 2010
x----------------------------------------------------------------------------------------x
RESO LU T I O N
BRION,J.:
We resolve the motion for reconsideration filed by respondent American Express International, Inc.
(AMEX) datedJune 8, 2009,
[1]
seeking to reverse our Decision datedMay 8, 2009where we ruled that
AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder petitioner Polo
Pantaleon. Based on this conclusion, we held AMEXliable for moral and exemplarydamages, as well as
attorneys fees and costs of litigation.
[2]
FACTUALANTECEDENTS
The established antecedents of the case are narrated below.
AMEXis a resident foreign corporation engaged in the business of providingcredit services through
the operation of a charge card system. Pantaleon has been an AMEXcardholder since 1980.
[3]
In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son
(Adrian Roberto), went on a guided European tour. OnOctober 25, 1991, the tour group arrived
inAmsterdam. Due to their late arrival, they postponed the tour of the city for the followingday.
[4]
The next day, the group began their sightseeingat around8:50 a.m. with a trip to the Coster
Diamond House (Coster). To have enough time for take a guided city tour of Amsterdambefore their
departure scheduled on that day, the tour group planned to leave Coster by9:30a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of
US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for this
purchase. He did this at around9:15 a.m. The sales clerk swiped the credit card and asked Pantaleon to
sign the charge slip, which was then electronically referred to AMEXsAmsterdamoffice at 9:20 a.m.
[5]
At around9:40 a.m., Coster had not received approval fromAMEXfor the purchase so Pantaleon
asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few
more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking for bank
references; Pantaleon responded by givingthe names of his Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEXstill had not
approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the tour
bus, Coster decided to release at around10:05 a.m. the purchased items to Pantaleon even without
AMEXs approval.
When the Pantaleons finally returned to the tour bus, they found their travel companions
visibly irritated. This irritation intensified when the tour guide announced that they would have to
cancel the tour because of lack of time as they all had to be inCalais, Belgiumby3 p.m. to catch the ferry
toLondon.
[6]
Fromthe records, it appears that after Pantaleons purchase was transmitted for approval to
AMEXsAmsterdamoffice at 9:20 a.m.; was referred to AMEXsManilaoffice at 9:33 a.m.; and was
approved by theManilaoffice at 10:19 a.m. At 10:38 a.m., AMEXsManilaoffice finally transmitted the
Approval Code to AMEXsAmsterdamoffice. In all, it took AMEXa total of 78 minutes to approve
Pantaleonspurchase and to transmit the approval to the jewelry store.
[7]

After the trip toEurope, the Pantaleon family proceeded to theUnited States. Again, Pantaleon
experienced delay in securing approval for purchases using his American Express credit card on two
separate occasions. He experienced the first delay when he wanted to purchase golf equipment in the
amount of US$1,475.00 at the Richard MetzGolf Studio inNew YorkonOctober 30, 1991. Another delay
occurred when he wanted to purchase childrens shoes worth US$87.00 at the Quiency Market
inBostononNovember 3, 1991.
Upon return toManila, Pantaleon sent AMEX a letter demandingan apology for the humiliation
and inconvenience he and his family experienced due to the delays in obtainingapproval for his credit
card purchases. AMEXresponded by explainingthat the delay in Amsterdamwas due to the amount
involved the charged purchase of US$13,826.00 deviated fromPantaleons established charge
purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the
credit card companywith the Makati City Regional Trial Court (RTC).


OnAugust 5, 1996, the RTCfound AMEXguilty of delay, and awarded PantaleonP500,000.00
as moral damages, P300,000.00 as exemplary damages,P100,000.00 as attorneys fees, andP85,233.01
as litigation expenses.
On appeal, the CA reversed the awards.
[8]
While the CA recognized that delay in the nature
of mora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it disagreed
with the RTCs findingthat AMEXhad breached its contract, notingthat the delay was not attended by
bad faith, malice or gross negligence. The appellate court found that AMEXexercised diligent efforts to
effect the approval of Pantaleons purchases; the purchase at Coster posed particularly a problem
because it was at variance with Pantaleons established charge pattern. As there was no proof that
AMEX breached its contract, or that it acted in a wanton, fraudulent or malevolent manner, the
appellate court ruled that AMEXcould not be held liable for anyformof damages.
Pantaleon questioned this decisionviaa petition for review oncertiorari with this Court.
In our May 8, 2009decision, we reversed the appellate courts decision and held that AMEX
was guilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit
provider to act on Pantaleons purchase requests, whether to approve or disapprove them, with timely
dispatch. Based on the evidence on record, we found that AMEXfailed to timely act on Pantaleons
purchases.
Based onthe testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for
credit card charges would be three to four seconds under regular circumstances. In Pantaleons case, it
took AMEX 78 minutes to approve theAmsterdampurchase. We attributed this delay to
AMEXsManilacredit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history,
his payment record and his credit and bank references before he approved the purchase. Findingthis
delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and exemplary
damages, as well as attorneys fees and costs of litigation.
THEMOTION FORRECONSIDERATION
In its motion for reconsideration, AMEXargues that this Court erred when it found AMEXguilty of
culpable delay in complying with its obligation to act with timely dispatch on Pantaleons purchases.
While AMEX admits that it normally takes seconds to approve charge purchases, it emphasizes that
Pantaleon experienced delay inAmsterdambecause his transaction was not a normal one. To recall,
Pantaleon sought to charge in asingle transactionjewelry items purchased fromCoster in the total
amount of US$13,826.00 or P383,746.16. While the total amount of Pantaleons previous purchases
usinghis AMEXcredit card did exceed US$13,826.00, AMEXpoints out that these purchases were made
in a span of more than 10 years, not in a single transaction.
Because this was the biggest single transaction that Pantaleon ever made using his AMEX
credit card, AMEX argues that the transaction necessarily required the credit authorizer to carefully
review Pantaleons credit history and bank references. AMEX maintains that it did this not only to
ensure Pantaleons protection (to minimize the possibility that a third party was fraudulently usinghis
credit card), but also to protect itself fromthe risk that Pantaleon might not be able to pay for his
purchases on credit. This careful review, accordingto AMEX, is also in keepingwith the extraordinary
degree of diligence required of banks in handlingits transactions. AMEXconcluded that in these lights,
the thorough review of Pantaleons credit record was motivated by legitimate concerns and could not be
evidence of anyill will, fraud, or negligence by AMEX.
AMEX further points out that the proximate cause of Pantaleons humiliation and
embarrassment was his own decision to proceed with the purchase despite his awareness that the tour
group was waiting for him and his wife. Pantaleon could have prevented the humiliation had he
cancelled the sale when he noticed that the credit approval for the Coster purchase was unusually
delayed.
In his Comment datedFebruary24, 2010, Pantaleon maintains that AMEXwas guilty of mora
solvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on
jurisprudence, a just cause for delay does not relieve the debtor in delay fromthe consequences of
delay; thus, even if AMEXhad a justifiable reason for the delay, this reason would not relieve it fromthe
liability arisingfromits failure to timely act on Pantaleons purchase.
In response to AMEXs assertion that the delay was in keeping with its duty to performits
obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or prompt
performance of its obligation.
As to AMEXs contention that moral or exemplary damages cannot be awarded absent a
findingof malice, Pantaleon argues that evil motive or design is not always necessary to support a finding
of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient basis for the
award of moral and exemplary damages.
OURRULING
WeGRANTthe motionfor reconsideration.
Brief historical background
A credit card is defined as any card, plate, coupon book, or other credit device existingfor
the purpose of obtainingmoney, goods, property, labor or services or anythingof value on credit.
[9]
It
traces its roots to thecharge card first introduced by the Diners Club inNew York Cityin
1950.
[10]
American Express followed suit by introducing its own charge card to the American market
in1958.
[11]
In thePhilippines, the now defunct Pacific Bank was responsible for bringingthe first credit
card into the country in the 1970s.
[12]
However, it was only in the early 2000s that credit card use gained
wide acceptance in the country, as evidenced bythe surge in the number of credit card holders then.
[13]
Nature of Credit Card Transactions
To better understand the dynamics involved in credit card transactions, we turn to theUnited
Statescase of Harris Trust & Savings Bank v. McCray
[14]
which explains:
The bank credit card systeminvolves a tripartite relationship between
the issuer bank, the cardholder, and merchants participating in the system. The
issuer bank establishes an account on behalf of the person to whomthe card is
issued, and the two parties enter into an agreement which governs their
relationship. This agreement provides that the bank will pay for cardholders
account the amount of merchandise or services purchased through the use of the
credit card and will also make cash loans available to the cardholder. It also states
that the cardholder shall be liable to the bank for advances and payments made by
the bank and that the cardholders obligation to pay the bank shall not be affected
or impaired by any dispute, claim, or demand by the cardholder with respect to
any merchandise or service purchased.
The merchants participating in the systemagree to honor the banks
credit cards. The bank irrevocably agrees to honor and pay the sales slips
presented by the merchant if the merchant performs his undertakings such as
checkingthe list of revoked cards before acceptingthe card. x x x.
These slips are forwarded to the member bank which originally issued
the card. The cardholder receives a statement fromthe bank periodically and may
then decide whether to make payment to the bank in full within a specified period,
free of interest, or to defer payment and ultimatelyincur an interest charge.
We adopted a similar view inCIR v. American Express International, Inc. (Philippine
branch),
[15]
where we also recognized that credit card issuers are not limited to banks. We said:
Under RA 8484, the credit card that is issued by banks in general, or by
non-banks in particular, refers to any card x x x or other credit device existing
for the purpose of obtainingx x x goods x x xor services x x x on credit; and
is beingused usually on a revolvingbasis. This means that the consumer-credit
arrangement that exists between the issuer and the holder of the credit card
enables the latter to procure goods or services on a continuingbasis as longas
the outstanding balance does not exceed a specified limit. The card holder is,
therefore, given the power to obtain present control of goods or service on a
promise to payfor themin the future.
Business establishments may extend credit sales through the use of the
credit card facilities of a non-bank credit card company to avoid the risk of
uncollectible accounts from their customers. Under this system, the
establishments do not deposit in their bank accounts the credit card drafts that
arise fromthe credit sales. Instead, they merely record their receivables fromthe
credit card company and periodically send the drafts evidencingthose receivables
to the latter.
The credit card company, in turn, sends checks as payment to these business
establishments, but it does not redeemthe drafts at full price. The agreement
between themusually provides for discounts to be taken by the company upon its
redemption of the drafts. At the end of each month, it then bills its credit card
holders for their respective drafts redeemed during the previous month. If the
holders fail to paythe amounts owed, the company sustains the loss.
Simply put, every credit card transaction involves three contracts, namely: (a) thesales
contractbetween the credit card holder and the merchant or the business establishment which
accepted the credit card; (b) theloan agreementbetween the credit card issuer and the credit card
holder; and lastly, (c) thepromise to paybetween the credit card issuer and the merchant or business
establishment.
[16]

Credit card issuer cardholder
relationship
When a credit card company gives the holder the privilege of charging items at
establishments associated with the issuer,
[17]
a necessary question in a legal analysis is when does this
relationship begin? There are two diverging views on the matter. InCity Stores Co. v.
Henderson,
[18]
another U.S. decision, held that:
The issuance of a credit card is but an offer to extend a line of open
account credit. It is unilateral and supported by no consideration. The offer may be
withdrawn at any time, without prior notice, for any reason or, indeed, for no
reason at all, and its withdrawal breaches no duty for there is no duty to
continueit and violates no rights.
Thus, under this view, each credit card transaction is considered a separate offer and acceptance.
Novack v. Cities Service Oil Co.
[19]
echoed this view, with the court ruling that the mere
issuance of a credit card did not create a contractual relationship with the cardholder.
On the other end of the spectrumisGray v. American Express Company
[20]
which recognized the
card membership agreement itself as a binding contract between the credit card issuer and the card
holder. Unlike in theNovackand theCity Storescases, however, the cardholder inGraypaid an annual
fee for the privilege of beingan American Express cardholder.
In our jurisdiction, we generally adhere to theGrayruling, recognizingthe relationship between the
credit card issuer and the credit card holder as a contractual one that is governed by the terms and
conditions found in the card membership agreement.
[21]
This contract provides the rights and liabilities of
a credit card company to its cardholders and vice versa.
We note that a card membership agreement is a contract of adhesionas its terms are
prepared solely by the credit card issuer, with the cardholder merely affixinghis signature signifyinghis
adhesion to these terms.
[22]
This circumstance, however, does not render the agreement void; we have
uniformly held that contracts of adhesion are as bindingas ordinary contracts, the reason beingthat the
partywho adheres to the contract is free to reject it entirely.
[23]
The only effect is that the terms of the
contract areconstrued strictly against the party who drafted it.
[24]
On AMEXs obligations to Pantaleon
We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the
issuance of his AMEXcredit card, and on which he anchors his claims. First, Pantaleon presumes that
since his credit card has no pre-set spendinglimit, AMEXhas the obligation to approve all his charge
requests. Conversely, even if AMEXhas no such obligation, at the very least it is obliged to act on his
charge requests within a specific period of time.
i. Use of credit card a mere offer to enter into loan agreements
Although we recognize the existence of a relationship between the credit card issuer and the
credit card holder upon the acceptance by the cardholder of the terms of the card membership
agreement (customarilysignified by the act of the cardholder in signingthe back of the credit card), we
have to distinguish this contractual relationship fromthe creditor-debtor relationship which only
arisesafter the credit card issuer has approved the cardholders purchase request.The first relates
merely to an agreement providing for credit facility to the cardholder. The latter involves the actual
credit on loan agreement involvingthree contracts, namely: thesalescontractbetweenthe credit card
holder and the merchant or the business establishment which accepted the credit card; theloan
agreementbetween the credit card issuer and the credit card holder; and thepromise to paybetween
the credit card issuer and the merchant or business establishment.
Fromthe loan agreement perspective, the contractual relationship begins to exist only upon
the meeting of the offer
[25]
and acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan
agreements with the credit card company. Only after the latter approves the purchase requests that the
parties enter into bindingloan contracts, in keepingwith Article 1319 of the Civil Code, which provides:
Article 1319. Consent is manifested by the meetingof the offer and the
acceptance upon the thingand the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.
This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearlystates that AMEXreserve[s] the right to deny authorization for
any requested Charge. By so providing, AMEX made its position clear that it has no obligation to
approve any and all charge requests made by its card holders.
ii. AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the purchase requests of its credit cardholders,
Pantaleon cannot claimthat AMEX defaulted in its obligation. Article 1169 of the Civil Code, which
provides the requisites to hold a debtor guilty of culpable delay, states:
Article 1169. Those obliged to deliver or to do somethingincur in delay
fromthe time the obligee judicially or extrajudicially demands fromthemthe
fulfillment of their obligation. x xx.
The three requisites for a finding of default are: (a) that the obligation is demandable and
liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially requires
the debtors performance.
[26]
Based on the above, the first requisite is no longer met because AMEX, bythe express terms
of the credit card agreement, is not obligated to approve Pantaleons purchase request. Without a
demandable obligation, there can be no findingof default.
Apart fromthe lack of any demandable obligation, we also find that Pantaleon failed to make
the demand required by Article 1169 of the Civil Code.
As previouslyestablished, the use of a credit card to pay for a purchase is only an offer to the
credit card company to enter a loan agreement with the credit card holder. Before the credit card issuer
accepts thisoffer, no obligation relatingto the loan agreement existsbetween them.On the other
hand, a demand is defined as the assertion of a legal right; xxx an askingwith authority, claimingor
challengingas due.
[27]
A demand presupposesthe existence of an obligation between the parties.
Thus, everytime that Pantaleonused his AMEX credit card to pay for his purchases, what the
stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not be
classified as the demand required by law to make the debtor in default, given that no obligation could
arise on the part of AMEX until after AMEXtransmitted its acceptance of Pantaleons offers. Pantaleons
act of insistingon and waitingfor the charge purchases to be approved by AMEX
[28]
is not the demand
contemplated by Article 1169 of the Civil Code.
For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is
guilty of culpable delay in approvinghis purchase requests must fail.
iii. On AMEXs obligation to act on the offer within a specific period of time
Even assumingthat AMEXhad the right to review his credit card historybefore it approved his
purchase requests, Pantaleon insists that AMEXhad an obligation to act on his purchase requests, either
to approve or deny, in a matter of seconds or in timely dispatch. Pantaleon impresses upon us the
existence of this obligation by emphasizingtwo points: (a) his card has no pre-set spendinglimit; and (b)
in his twelve years of using his AMEX card, AMEX had always approved his charges in a matter of
seconds.
Pantaleons assertions fail to convince us.
We originally held that AMEXwas in culpable delay when it acted on the Coster transaction,
as well as the two other transactions in theUnited Stateswhich took AMEX approximately 15 to 20
minutes to approve. This conclusion appears valid and reasonable at first glance, comparingthetime it
took to finally get the Coster purchase approved (a total of 78 minutes), to AMEXs normal approval
time of three to four seconds (based on the testimony of Edgardo Jaurigue, as well as Pantaleons
previous experience). We come to a different result, however, after a closer look at the factual and legal
circumstances of the case.
AMEXs credit authorizer, Edgardo Jaurigue, explained that havingno pre-set spendinglimit in
a credit card simply means that the charges made by the cardholder are approved based on his ability to
pay, as demonstrated by his past spending, payment patterns, and personal
resources.
[29]
Nevertheless, every time Pantaleon chargesa purchase on hiscredit card, the credit card
company still hasto determine whether it will allow thischarge, based on hispast credit history. This
right to review a card holders credit history, although not specificallyset out in the card membership
agreement, is a necessaryimplication of AMEXs right to deny authorization for any requested charge.
As for Pantaleons previous experiences with AMEX(i.e., that in the past 12 years, AMEXhas
always approved his charge requests in three or four seconds), this record does not establish that
Pantaleon had a legally enforceable obligation to expect AMEXto act on his charge requests within a
matter of seconds. For one, Pantaleon failed to present any evidence to support his assertion that AMEX
acted on purchase requests in a matter of three or four seconds as an established practice. More
importantly, even if Pantaleon did prove that AMEX, as a matter of practice or custom, acted on its
customers purchase requests in a matter of seconds, thiswould still not be enough to establish a legally
demandable right; as a general rule, a practice or customis not asource of a legally demandable or
enforceable right.
[30]
We next examine the credit card membership agreement, the contract that primarily governs
the relationship between AMEX and Pantaleon. Significantly, there isno provision in thisagreement
that obligatesAMEXto act on all cardholderpurchase requestswithin a specifically defined period of
time. Thus, regardless of whether the obligation is worded was to act in a matter of seconds or to act
in timely dispatch, the fact remains that no obligation exists on the part of AMEXto act within a specific
period of time. Even Pantaleon admits in his testimony that he could not recall any provision in the
Agreement that guaranteed AMEXs approval of his charge requests within a matter of minutes.
[31]
Nor can Pantaleonlook to the law or government issuances as the source of AMEXs alleged
obligation to act upon his credit card purchases within a matter of seconds. As the followingsurveyof
Philippine law on credit card transactions demonstrates, the State does not require credit card
companies to act upon its cardholders purchase requests within a specific period of time.
Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved
onFebruary 11, 1998, is the controlling legislation
that regulates the issuance and use of access devices,
[32]
including credit cards. The more salient
portions of this law include the imposition of the obligation on a credit card company to disclose certain
important financial information
[33]
to credit card applicants, as well as a definition of the acts that
constitute access device fraud.
As financial institutions engaged in the business of providingcredit, credit card companies fall
under thesupervisory powers of the Bangko Sentral ng Pilipinas (BSP).
[34]
BSP Circular No. 398
datedAugust 21, 2003embodies the BSPs policy when it comes to credit cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the development of
consumer credit through innovative products such as credit cards under conditions
of fair and sound consumer credit practices. The BSP likewise encourages
competition and transparency to ensure more efficient delivery of services andfair
dealings with customers. (Emphasis supplied)
Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their subsidiary
credit card companies must exercise proper diligence by ascertainingthat applicants possess good credit
standingand are financially capable of fulfillingtheir credit commitments.
[35]
As the above-quoted policy
expressly states, the general intent is to foster fair and sound consumer credit practices.
Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued
onSeptember 24, 2004, but this circular merely enumerates the unfair collection practices of credit card
companies a matter not relevant to the issue at hand.
In light of the foregoing, we find and so hold that AMEXis neither contractually bound
nor legally obligated to act on its cardholders purchase requests within any specific period of time, much
less a period of a matter of seconds that Pantaleon uses as his standard. The standard therefore is
implicit and, as in all contracts, must be based on fairness and reasonableness, read in relation to the
Civil Code provisions on human relations, as will be discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a) AMEXhad neither a contractual nor a legal
obligation to act upon Pantaleons purchases within a specific period of time; and (b) AMEXhas a right to
review a cardholders credit card history. Our recognition of these entitlements, however, doesnot give
AMEXan unlimited right to put off action on cardholders purchase requestsfor indefinite periodsof
time. In actingon cardholders purchase requests, AMEXmust takecare not to abuse its rights and cause
injuryto its clients and/or third persons. We cite in this regard Article 19, in conjunction with Article 21,
of the Civil Code, which provide:
Article 19. Every person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due and observe honesty and good
faith.
Article 21. Any person who willfully causes loss or injuryto another in a manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage.
Article 19 pervades the entire legal systemand ensures that a person sufferingdamage in the
course of anothers exercise of right or performance of duty, should find himself without relief.
[36]
It sets
the standard for the conduct of all persons, whether artificial or natural, and requires that everyone, in
the exercise of rights and the performance of obligations, must: (a) act with justice, (b) give everyone his
due, and (c) observe honesty and good faith. It is not because a person invokes his rights that he can do
anything, even to the prejudice and disadvantage of another.
[37]
While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the
person injured by the willful act, an action for damages. We explained how these two provisions
correlate with each other inGF Equity, Inc. v. Valenzona:
[38]
[Article 19], known to contain what is commonly referred to as the
principle of abuse of rights, sets certain standards which must be observed not
only in the exercise of one's rights but also in the performance of one's duties.
These standards are the following: to act with justice; to give everyone his due;
and to observe honesty and good faith. The law, therefore, recognizes a primordial
limitation on all rights; that in their exercise, the norms of human conduct set
forth in Article 19 must be observed. A right, though by itself legal because
recognized or granted by law assuch, may neverthelessbecome the source of
some illegality. When a right isexercised in a manner which doesnot conform
with the normsenshrined in Article 19and resultsin damage to another, a legal
wrong is thereby committed for which the wrongdoer must be held
responsible.But while Article 19 lays down a rule of conduct for the government
of human relations and for the maintenance of social order, it does not provide a
remedy for its violation. Generally, an action for damages under either Article 20
or Article 21 would be proper.
In the context of a credit card relationship, although there is neither a contractual stipulation nor a
specific law requiring the credit card issuer to act on the credit card holders offer within a definite
period of time, these principles provide the standard by which to judge AMEXs actions.
Accordingto Pantaleon, even if AMEXdid have a right to review his charge purchases, it abused
this right when it unreasonably delayed the processing of the Coster charge purchase, as well as his
purchase requests at the Richard Metz Golf Studio and Kids Unlimited Store; AMEXshould have known
that its failure to act immediately on charge referrals would entail inconvenience and result in
humiliation, embarrassment, anxiety and distress to its cardholders who would be required to wait
before closingtheir transactions.
[39]
It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of
provingbad faith rests upon the party allegingit.
[40]
Although it took AMEXsome time before it approved
Pantaleons three charge requests, we find no evidence to suggest that it acted with deliberate intent to
cause Pantaleon any loss or injury, or acted in a manner that was contrary to morals, good customs or
public policy. We give credence to AMEXs claim that its review procedure was done to ensure
Pantaleons own protection as a cardholder and to prevent the possibility that the credit card was being
fraudulently used by a third person.
Pantaleon countered that this review procedure is primarily intended to protect AMEXs
interests, to make sure that the cardholder makingthe purchase has enough means to pay for the credit
extended. Even if this were the case, however, we do not find any taint of bad faith in such motive. It is
but natural for AMEXto want to ensure that it will extend credit only to people who will have sufficient
means to pay for their purchases. AMEX, after all, is running a business, not a charity, and it would
simply be ludicrous to suggest that it would not want to earn profit for its services. Thus, so long as
AMEXexercises its rights, performs its obligations, and generally acts with good faith, with no intent to
cause harm, even if it may occasionally inconvenience others, it cannot be held liable for damages.
We also cannot turn a blind eye to the circumstances surrounding the Coster transaction
which, in our opinion, justified the wait. In Edgardo Jaurigues own words:
Q 21: With reference to the transaction at the Coster Diamond House covered by
Exhibit H, also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after
the request was relayed at1:33 a.m., can you explain why the approval came after
about 46 minutes, more or less?
A21: Because we have to make certain considerations and evaluations of
[Pantaleons] past spending pattern with [AMEX] at that time before approving
plaintiffs request because [Pantaleon] was at that time makinghisvery first
singlecharge purchase of US$13,826[this is below the US$16,112.58 actually
billed and paid for by the plaintiff because the difference was already
automatically approved by [AMEX] office in Netherland[s] and the record of
[Pantaleons] past spendingwith [AMEX] at that time doesnot favorably support
his ability to pay for such purchase. In fact, if the foregoing internal policy of
[AMEX] had been strictly followed, the transaction would not have been approved
at all considering that the past spending pattern of the plaintiff with [AMEX] at
that time does not support his ability to pay for such purchase.
[41]
x x x x
Q: Why did it take so long?
A: It took time to review the account on credit, so, if there is any delinquencies
[sic] of the cardmember. There are factors on decidingthe charge itself which are
standard measures in approving the authorization. Now in the case of Mr.
Pantaleon although his account is single charge purchase of US$13,826. [sic] this is
below the US$16,000. plus actually billed x x x we would have already declined
the charge outright and asked himhis bank account to support his charge. But due
to the length of his membership as cardholder we had to make a decision on
hand.
[42]
As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was
because he had to go over Pantaleons credit card history for the past twelve months.
[43]
It would
certainly be unjust for us to penalize AMEXfor merely exercisingits right to review Pantaleons credit
history meticulously.
Finally, we said inGarciano v. Court of Appealsthat the right to recover [moral damages]
under Article 21 is based on equity, and he who comes to court to demand equity, must come with clean
hands. Article 21 should be construed as granting the right to recover damages to injured persons who
are not themselves at fault.
[44]
As will be discussed below, Pantaleon is not a blameless party in all this.
Pantaleons action was the proximate
cause for his injury
Pantaleon mainly anchors his claim for moral and exemplary damages on the
embarrassment and humiliation that he felt when the European tour group had to wait for himand his
wife for approximately 35 minutes, and eventually had to cancel theAmsterdamcity tour. After
thoroughly reviewingthe records of this case, we have come to the conclusion that Pantaleon is the
proximate cause for this embarrassment and humiliation.
As borne by the records, Pantaleon knew even before enteringCoster that the tour group
would have to leave the store by9:30 a.m. to have enough time to take the city tour
of Amsterdambefore they left the country. After 9:30 a.m., Pantaleons son, who had boarded the bus
ahead of his family, returned to the store to informhis family that they were the only ones not on the
bus and that the entire tour group was waitingfor them. Significantly, Pantaleon tried to cancel the sale
at9:40a.m.because he did not want to cause any inconvenience to the tour group. However, when
Costers sale manager asked himto wait a few more minutes for the credit card approval, he agreed,
despite the knowledge that he had already caused a 10-minute delayand that the city tour could not
start without him.
InNikko Hotel Manila Garden v. Reyes,
[45]
we ruled that a person who knowingly and
voluntarily exposes himself to danger cannot claimdamages for the resultinginjury:
The doctrine of volenti non fit injuria(to which a person assents is not
esteemed in law as injury) refers to self-inflicted injury or to the consent to injury
which precludes the recovery of damages by one who has knowingly and
voluntarily exposed himself to danger, even if he is not negligent in doingso.
This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that
the most basic rule when travelling in a tour group is that you must never be a cause of any delay
because the schedule is very strict.
[46]
When Pantaleon made up his mind to push through with his
purchase, he must have known that the group would become annoyed and irritated with him. This was
the natural, foreseeable consequence of his decision to make themall wait.
We do not discount the fact that Pantaleon and his family did feel humiliated and
embarrassed when they had to wait for AMEXto approve the Coster purchase inAmsterdam. We have
to acknowledge, however, that Pantaleon was not a helpless victimin this scenario at any time, he
could have cancelled the sale so that the group could go on with the city tour. But he did not.
More importantly, AMEXdid not violate any legal duty to Pantaleon under the circumstances
under the principle of damnumabsque injuria, or damages without legal wrong, loss without injury.
[47]
As
we held inBPI Express Card v. CA:
[48]
We do not dispute the findings of the lower court that private
respondent suffered damages as a result of the cancellation of hiscredit card.
However, there is a material distinction between damages and injury. Injury is the
illegal invasion of a legal right; damage is the loss, hurt, or harmwhich results from
the injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury in those instancesin
which the lossor harmwasnot theresult of a violation of a legal duty. In such
cases, the consequences must be borne by the injured person alone, the law
affords no remedy for damages resultingfroman act which does not amount to a
legal injury or wrong. These situations are often calleddamnumabsque injuria.
In other words, in order that a plaintiff may maintain an action for the
injuries of which he complains, he must establish that such injuries resulted froma
breach of duty which the defendant owed to the plaintiff - a concurrence of injury
to the plaintiff and legal responsibility by the person causing it. The underlying
basisfor the award of tort damagesisthe premise that an individual wasinjured
in contemplation of law. Thus, there must first be a breach of some duty and the
imposition of liability for that breach before damages may be awarded; and the
breach of such duty should be the proximate cause of the injury.
Pantaleon is not entitled to damages
Because AMEXneither breached its contract with Pantaleon, nor acted with culpable delay or
the willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.
Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can
only be awarded if a defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.
[49]
The plaintiff must also show that he is entitled to moral, temperate, or compensatory
damages before the court may consider the question of whether or not exemplarydamages should be
awarded.
[50]
As previouslydiscussed, it took AMEXsome time to approve Pantaleons purchase requests
because it had legitimate concerns on the amount being charged; no malicious intent was ever
established here. In the absence of any other damages, the award of exemplary damages clearly lacks
legal basis.
Neither do we find any basis for the award of attorneys fees and costs of litigation. No
premiumshould be placed on the right to litigate and not every winningparty is entitled to an automatic
grant of attorney's fees.
[51]
To be entitled to attorneys fees and litigation costs, a party must show that
he falls under one of the instances enumerated inArticle 2208 of the Civil Code.
[52]
This, Pantaleon failed
to do. Since we eliminated the award of moral and exemplarydamages, so must we delete the award for
attorney's fees and litigation expenses.
Lastly, although we affirmthe result of the CA decision, we do so for the reasons stated in this
Resolution and not for those found in the CA decision.
WHEREFORE,premises considered, weSET ASIDEour May 8, 2009Decision andGRANTthe
present motion for reconsideration. The Court of Appeals Decision datedAugust 18, 2006is
herebyAFFIRMED.No costs.
SO ORDERED.
Republic of the Philippines
SUPREMECOURT
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 duringhis
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 havingbeen awarded to himthrough its purchase at a public auction held by
thealcalde 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, embracing14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, beingdead, the herein plaintiffs, Alejandro Mina, et al.,
were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also havingdied, 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 remainingone-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 theone-half of the warehouse, of 14 by 11 meters, together withitslot." 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 proceedingin reguardianship.
The plaintiffs did more than oppose Pascual'spetition; 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 determiningthe 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 byholdingthat 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 owners of the lot in question.
1
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 partyto the suit in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of havingthe 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 therefromto the
Supreme Court which found for themby holdingthat they are the owners of the lot in
question, although there existed and still exists a commodatumby virtue of which the
guardianship (meaningthedefendants) had and has the use, and the plaintiffs the ownership,
of the property, with no findingconcerningthe 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 findingthe plaintiffs to be the
owners of the lot, we recognized in principle the existence of a commodatumunder which the
defendants held the lot. Nothingcould be more inexact. Possibly, also, the meaningof that clause is that,
notwithstandingthe findingmade 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 bearingwhatever 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 makinganyfindingin 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 settingup 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 nullityof 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 thingcannot validly sell the thingitself. The effect of the sale beinga
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 thingeffected 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 themis necessarily null and void.
On cannot convey to another what he has never had himself.
The returns of the auction contain the followingstatements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization conferred
upon me on the 31st of July, 1909, bythe Court of First Instance of Ilocos Norte, proceeded
with the sale at public auction of the six-sevenths 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 anythingmore than the interest that might be held by a person to
whomrealty in possession of the vendor might be sold, for at a judicial auction nothingelse 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
nothingmore, could the Chinaman Cu Joco acquire at that sale: not the ownership of the lot; neither the
other half, nor the remainingone-seventh of the said first half, of the warehouse. Consequently, the sale
made to himof this one-seventh of one-half and the entire other half of the buildingwas null and void,
and likewise with still more reason the sale of the lot the buildingoccupies.
The purchaser could and should have known what it was that was offered for sale and what it was that
he purchased. There is nothingthat can justify the acquisition by the purchaser of the warehouse of the
ownership of the lot that this buildingoccupies, since the minors represented byRuperta Pascual never
were the owners of the said lot, nor were they ever considered to besuch.
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
fromthe complaint, without express findingas 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 decideas 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 byit 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 contractingparties who have given it are obliged
to comply (art. 1091, idem).
The sole purpose of the action in the beginningwas 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 findingappears 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 layin 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 litigatingparties, 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 sentencingof 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 litigatingparties may have agreed in their ideaof 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 themto 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 consideringtheir constitutive elements, as they are defined and
denominated by law.
By the contract of loan, one of the parties delivers to the other, either anythingnot
perishable, in order that the latter may use it duringthecertain periodand return it to the
former, in which case it is calledcommodatum. . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatumthat the use of the thingbelongingto another
shall for a certain period. Francisco Fontanilla did not fixanydefinite period or time duringwhich 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, accordingto the second paragraph of the aforecited article 1740,
"commodatumis 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 duringwhich 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 buildingwas 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 thirdPartida, 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 buildingis erected in good faith has a right to appropriate such edifice to himself, after payment
of the indemnityprescribed in articles 453 and 454, or to oblige the builder to pay himthe value of the
land. Such, and no other, is the right to which the plaintiff are entitled.
For the foregoingreasons, 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 thembyarticle 361
of the Civil Code.1awphil.net
The judgment appealed fromis reversed and the sale of the lot in question is held to be null and void
and of no force or effect. No special findingis made as to the costs of both instances.
Torres, Johnson, Carson, Moreland and Trent, JJ., concur.
Republic of the Philippines
SUPREMECOURT
Manila
EN BANC
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOSand ANGELA. 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
himfor hisuse. She appealed fromthe 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 fromthe said sheriff of Manila
at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be
paidpro rataby 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 January14, 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
themto 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, givinghim
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 himfor themin the house
where they were found. On November 5, 1936, the defendant, through another person, wrote to
the plaintiff reiteratingthat 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 informingher that he could not give
up the three gas heaters and the four electric lamps because he would use themuntil 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
vacatingthe house, the defendant deposited with the Sheriff all the furniture belongingto 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
holdingthat they violated the contract bynot callingfor all the furniture on November 5, 1936, when the
defendant placed themat their disposal; in not orderingthe defendant to pay themthe value of the
furniture in case they are not delivered; in holdingthat they should get all the furniture fromthe Sheriff
at their expenses; in orderingthemto pay-half of the expenses claimed by the Sheriff for the deposit of
the furniture; in rulingthat both parties should pay their respective legal expenses or the costs; and in
denyingpay their respective legal expenses or the costs; and in denyingthe 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
gratuitouslygranted the use of the furniture to the defendant, reservingfor 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 1741of 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 themto the plaintiff at the latter's residence or house. The
defendant did not comply with this obligation when he merelyplaced themat the disposal of the
plaintiff, retainingfor 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 complywith 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 wasthe 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 inabilityto 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 prevailingparty
(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.
Republic vs. Court of Appeals, No. L-46145, 146SCRA 15, November 26, 1986
G.R. No. L-46145November 26, 1986
REPUBLICOFTHEPHILIPPINES(BUREAU OFLANDS),petitioner,
vs.
THEHON. COURT OFAPPEALS, HEIRSOFDOMINGO P. BALOY, represented by RICARDO BALOY, ET
AL.,respondents.
Pelaez, Jalondoni, Adriano and Associates for respondents.
PARAS,J.:p
This case originally emanated froma decision of the then Court of First Instance of Zambales in LRCCase
No. 11-0, LRCRecord No. N-29355, denyingrespondents' application for registration. Fromsaid order of
denial the applicants, heirs of Domingo Baloy, represented by Ricardo P. Baloy, (herein private
respondents) interposed on appeal to the Court of Appeals which was docketed as CA-G.R. No. 52039-R.
The appellate court, thru its Fifth Division with the Hon. Justice Magno Gatmaitan asponente, rendered
a decision dated February 3, 1977 reversingthe decision appealed fromand thus approvingthe
application for registration. Oppositors (petitioners herein) filed their Motion for Reconsideration
allegingamongother things that applicants' possessory information title can no longer be invoked and
that they were not able to prove a registerable title over the land. Said Motion for Reconsideration was
denied, hence this petition for review on certiorari.
Applicants' claimis anchored on their possessory information title (Exhibit F which had been translated
in Exhibit F-1) coupled with their continuous, adverse and public possession over the land in question. An
examination of the possessory information title shows that the description and the area of the land
stated therein substantially coincides with the land applied for and that said possessory information title
had been regularly issued havingbeen acquired by applicants' predecessor, Domingo Baloy, under the
provisions of the Spanish Mortgage Law. Applicants presented their taxdeclaration on said lands on April
8, 1965.
The Director of Lands opposed the registration allegingthat this land had become public land thru the
operation of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to the executive
order of the President of the U.S., the area was declared within the U.S. Naval Reservation. Under Act
627 as amended by Act 1138, a period was fixed within which persons affected thereby could file their
application, (that is within 6 months fromJuly 8, 1905) otherwise "the said lands or interest therein will
be conclusively adjudged to be public lands and all claims on the part of private individuals for such lands
or interests therein not to presented will be forever barred." Petitioner argues that since Domingo Baloy
failed to file his claimwithin the prescribed period, the land had become irrevocably public and could not
be the subject of a valid registration for private ownership.
Consideringthe foregoingfacts respondents Court of Appeals ruled as follows:
... perhaps, the consequence was that upon failure of Domingo Baloyto have filed his application within
that period the land had become irrevocably public; but perhaps also, for the reason that warningwas
fromtheClerk of the Court of Land Registration, named J.R. Wilson and there has not been presented a
formal order or decision of the said Court of Land Registration so declaringthe land public because of
that failure, it can with plausibility be said that after all, there was no judicial declaration to that effect, it
is true that the U.S. Navydid occupy it apparently for some time, as a recreation area, as this Court
understands fromthe communication of the Department of Foreign Affairs to the U.S. Embassy exhibited
in the record, but the very tenor of the communication apparently seeks to justify the title of herein
applicants, in other words, what this Court has taken fromthe occupation by the U.S. Navyis that during
the interim, the title of applicants was in a state of suspended animation so to speak but it had not died
either; and the fact beingthat this land was reallyoriginallyprivate fromand after the issuance and
inscription of the possessory information Exh. F duringthe Spanish times, it would be most difficult to
sustain position of Director of Lands that it was land of no private owner; open to public disposition, and
over which he has control; and since immediately after U.S. Navyhad abandoned the area, applicant
came in and asserted title once again, only to be troubled by first Crispiniano Blanco who however in due
time, quitclaimed in favor of applicants, and then by private oppositors now, apparently originally
tenants of Blanco, but that entry of private oppositors sought to be given color of ownership when they
sought to and did file taxdeclaration in 1965, should not prejudice the original rights of applicants thru
their possessory information secured regularly so longago, the conclusion must have to be that after all,
applicants had succeeded in bringingthemselves within the provisions of Sec. 19 of Act 496, the land
should be registered in their favor;
IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment appealed fromthe
application is approved, and once this decision shall have become final, if ever it would be, let decree
issue in favor of applicants with the personal circumstances outlined in the application, costs against
private oppositors.
Petitioner now comes to Us with the following:
ASSIGNMENTOF ERRORS:
1. Respondent court erred in holdingthat to bar private respondents fromassertingany right under their
possessory information title there is need for a court order to that effect.
2. Respondent court erred in not holdingthat private respondents' rights by virtue of their possessory
information title was lost by prescription.
3. Respondent court erred in concludingthat applicants have registerable title.
A cursory readingof Sec. 3, Act 627 reveals that several steps are to be followed before any affected land
can "be conclusively adjudged to be public land." Sec. 3, Act 627 reads as follows:
SEC. 3. Immediately upon receipt of the notice fromthe civil Governor in the preceedingsection
mentioned it shall be the duty of the judge of the Court of Land Registration to issue a notice, stating
that the lands within the limits aforesaid have been reserved for military purposes, and announced and
declared to be military reservations, and that claims for all private lands, buildings, and interests therein,
within the limits aforesaid, must be presented for registration under the Land Registration Act within six
calendar months fromthe date of issuingthe notice, and that all lands, buildings, and interests therein
within the limits aforesaid not so presented within the time therein limited will be conclusively adjudged
to be public lands and all claims on the part of private individuals for such lands, buildings, or an interest
therein not so presented will be forever barred. The clerk of the Court of Land Registration shall
immediately upon the issuingof such notice by the judge cause the same to be published once a week
for three successive weeks in two newspapers, one of which newspapers shall be in the English
Language, and one in the Spanish language in the city or province where the land lies, if there be no such
Spanish or English newspapers havinga general circulation in the city or province wherein the land lies,
then it shall be a sufficient compliance with this section if the notice be published as herein provided, in
a dailynewspaper in the Spanish language and one in the English language, in the City of Manila, having
a general circulation. The clerk shall also cause a duly attested copy of the notice in the Spanish language
to be posted in conspicuous place at each angle formed by the lines of the limits of the land reserved.
The clerk shall also issue and cause to be personally served the notice in the Spanish language upon
everyperson livingupon or in visible possession of any part of the military reservation. If the person in
possession is the head of the family livingupon the hand, it shall be sufficient to serve the notice upon
him, and if he is absent it shall be sufficient to leave a copyat his usual place of residence. The clerk shall
certify the manner in which the notices have been published, posted, and served, and his certificate shall
be conclusive proof of such publication, posting, and service, but the court shall have the power to cause
such further notice to be given as in its opinion may be necessary.
Clearlyunder said provisions, private land could be deemed to have become public land only by virtue of
a judicial declaration after due notice and hearing. It runs contrarytherefore to the contention of
petitioners that failure to present claims set forth under Sec. 2 of Act 627 made the landipso factopublic
without any deed of judicial pronouncement. Petitioner in makingsuch declaration relied on Sec. 4of
Act 627 alone. But in construinga statute the entire provisions of the law must be considered in order to
establish the correct interpretation as intended by the law-makingbody. Act 627 byits terms is not self-
executory and requires implementation bythe Court of Land Registration. Act 627, to the extent that it
creates a forfeiture, is a penal statute in derogation of private rights, so it must be strictly construed so
as to safeguard private respondents' rights. Significantly, petitioner does not even allege the existence of
any judgment of the Land Registration court with respect to the land in question. Without a judgment or
order declaringthe land to be public, its private character and the possessory information title over it
must be respected. Since no such order has been rendered by the Land Registration Court it necessarily
follows that it never became public land thru the operation of Act 627. To assume otherwise is to deprive
private respondents of their property without due process of law. In fact it can be presumed that the
notice required by law to be given by publication and bypersonal service did not include the name of
Domingo Baloy and the subject land, and hence he and his lane were never brought within the operation
of Act 627 as amended. The procedure laid down in Sec. 3 is a requirement of due process. "Due process
requires that the statutes which under it is attempted to deprive a citizen of private property without or
against his consent must, as in expropriation cases, be strictly complied with, because such statutes are
in derogation of general rights." (Arriete vs. Director of Public Works, 58 Phil. 507, 508, 511).
We also find with favor private respondents' views that court judgments are not to be presumed. It
would be absurd to speak of a judgment by presumption. If it could be contended that such a judgment
may be presumed, it could equally be contended that applicants' predecessor Domingo Baloy
presumably seasonably filed a claim, in accordance with the legal presumption that a person takes
ordinary care of his concerns, and that a judgment in his favor was rendered.
The findingof respondent court that duringthe interimof 57 years fromNovember 26, 1902 to
December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or heirs were
merely suspended and not lost by prescription, is supported by Exhibit "U," a communication or letter
No. 1108-63, dated June 24, 1963, which contains an official statement of the position of the Republic of
the Philippines with regard to the status of the land in question. Said letter recognizes the fact that
Domingo Baloy and/or his heirs have been in continuous possession of said land since 1894 as attested
by an "Informacion Possessoria" Title, which was granted by the Spanish Government. Hence, the
disputed property is private land and this possession was interrupted only by the occupation of the land
by the U.S. Navy in 1945 for recreational purposes. The U.S. Navyeventually abandoned the premises.
The heirs of the late Domingo P. Baloy, are now in actual possession, and this has been so since the
abandonment by the U.S. Navy. A new recreation area is now beingused by the U.S. Navy personnel and
this place is remote fromthe land in question.
Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of
acommodatum. It cannot therefore militate against the title of Domingo Baloyand his successors-in-
interest. One's ownership of a thingmay be lost byprescription by reason of another's possession if such
possession be under claimof ownership, not where the possession is only intended to be transient, as in
the case of the U.S. Navy's occupation of the land concerned, in which case the owner is not divested of
his title, although it cannot be exercised in the meantime.
WHEREFORE, premises considered, findingno merit in the petition the appealed decision is hereby
AFFIRMED.
SO ORDERED.
Feria (Chairman), Alampay and Feliciano, * JJ., concur.
Gutierrez, Jr., J., concurs in the results.
Fernan J., took no part.
SECOND DIVISION
[G.R. No. 115324. February 19, 2003]
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK),petitioner, vs. HON.
COURT OFAPPEALSANDFRANKLIN VIVES,respondents.
DECI SI O N
CALLEJO, SR.,J.:
This is a petition for review oncertiorari of the Decision
[1]
of the Court of Appeals dated June 25,
1991 in CA-G.R. CV No. 11791 and of its Resolution
[2]
dated May 5, 1994, denying the motion for
reconsideration of said decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporatinghis business,
the Sterela Marketingand Services (Sterela for brevity). Specifically, Sanchez asked private respondent
to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his money fromsaid account
within a months time. Private respondent asked Sanchez to bringDoronilla to their house so that they
could discuss Sanchezs request.
[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relyingon the assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompanyDoronilla and Sanchez in openinga savings account in the name of Sterela
in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives
and Dumagpi went to the bank to deposit the check. They had with theman authorization letter from
Doronilla authorizingSanchez and her companions, in coordination with Mr. Rufo Atienza, to open an
account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account
No. 10-1567 was thereafter issued to Mrs. Vives.
[4]
Subsequently, private respondent learned that Sterela was no longer holdingoffice in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still
intact. The bank manager referred themto Mr. Rufo Atienza, the assistant manager, who informed
themthat part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that
onlyP90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said
remainingamount because it had to answer for some postdated checks issued by Doronilla. According
to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current
Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the
amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said current
account, Sterela, through Doronilla, obtained a loan of P175,000.00 fromthe Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.
[5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter fromDoronilla, assuring himthat his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos
(P212,000.00) in favor of private respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to
present the same check on September 15, 1979 but when the latter presented the check, it was again
dishonored.
[6]
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check forP212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.
[7]
Private respondent instituted an action for recovery of sumof money in the Regional Trial Court
(RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed
as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the
RTC. However, Sanchez passed away on March 16, 1985 while the case was pending before the trial
court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No.
44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencingdefendants Arturo J. Doronila,
Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and
severally
(a) the amount of P200,000.00, representingthe money deposited, with interest at the legal rate from
the filingof the complaint until the same is fully paid;
(b) the sumof P50,000.00 for moral damages and a similar amount for exemplarydamages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.
[8]
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June
25, 1991, the appellate court affirmedin totothe decision of the RTC.
[9]
It likewise denied with finality
petitioners motion for reconsideration in its Resolution dated May5, 1994.
[10]
On June 30, 1994, petitioner filed the present petition, arguingthat
I.
THE HONORABLE COURT OF APPEALSERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE
DEFENDANT DORONILLA AND RESPONDENT VIVESWASONE OF SIMPLE LOAN ANDNOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALSERRED IN UPHOLDING THAT PETITIONERSBANK MANAGER, MR.
RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTSIN DEFRAUDINGPETITIONER(Sic. Should be
PRIVATE RESPONDENT) AND ASA CONSEQUENCE, THEPETITIONER SHOULD BE HELD LIABLE UNDER THE
PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALSERRED IN ADOPTING THE ENTIRE RECORDSOF THE REGIONAL
TRIAL COURT ANDAFFIRMING THE JUDGMENT APPEALED FROM, ASTHE FINDINGSOF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALSERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES
VS. MARTINEZ, 29 SCRA 745, UPHOLDINGTHE LIABILITY OF AN EMPLOYER FOR ACTSCOMMITTED BY AN
EMPLOYEE ISAPPLICABLE;
V.
THE HONORABLE COURT OF APPEALSERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT
HEREIN PETITIONER BANK ISJOINTLY ANDSEVERALLY LIABLE WITH THE OTHER DEFENDANTSFOR THE
AMOUNT OF P200,000.00 REPRESENTING THE SAVINGSACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FORATTORNEYSFEESAND THE COSTS
OF SUIT.
[11]
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Replythereto
on September 25, 1995. The Court then required private respondent to submit a rejoinder to the
reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing
private respondent with copy of the reply
[12]
and several substitutions of counsel on the part of private
respondent.
[13]
On January 17, 2001, the Court resolved to give due course to the petition and required
the parties to submit their respective memoranda.
[14]
Petitioner filed its memorandumon April 16, 2001
while private respondent submitted his memorandumon March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple
loan (mutuum) since all the elements of amutuumare present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount
of P212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank
account.
[15]
Moreover, the fact that private respondent sued his good friend Sanchez for his failure to
recover his money fromDoronilla shows that the transaction was not merely gratuitous but had a
business angle to it. Hence, petitioner argues that it cannot be held liable for the return of private
respondentsP200,000.00 because it is not privyto the transaction between the latter and Doronilla.
[16]
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for
allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank,
authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain any
authorization for these two to withdraw fromsaid account. Hence, the authority to withdraw therefrom
remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal
title to the savings account.
[17]
Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented duringtrial to prove that private respondent deposited
hisP200,000.00 in Sterelas account for purposes of its incorporation.
[18]
Hence, petitioner should not be
held liable for allowingDoronilla to withdraw fromSterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirmingthe trial courts decision since
the findings of fact therein were not accord with the evidence presented by petitioner duringtrial to
prove that the transaction between private respondent and Doronilla was amutuum, and that it
committed no wrongin allowingDoronilla to withdraw fromSterelas savings account.
[19]
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable
for the actual damages suffered by private respondent, and neither may it be held liable for moral and
exemplarydamages as well as attorneys fees.
[20]
Private respondent, on the other hand, argues that the transaction between himand Doronilla is
not amutuumbut an accommodation,
[21]
since he did not actually part with the ownership of
hisP200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a
certification can be issued to the effect that Sterela had sufficient funds for purposes of its incorporation
but at the same time, he retained some degree of control over his money through his wife who was
made a signatory to the savings account and in whose possession the savings account passbook was
given.
[22]
He likewise asserts that the trial court did not err in findingthat petitioner, Atienzas employer, is
liable for the return of his money. He insists that Atienza, petitioners assistant manager, connived with
Doronilla in defraudingprivate respondent since it was Atienza who facilitated the openingof Sterelas
current account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for
said company, as well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.
[23]
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for
review filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh
all over again the evidence presented by the parties duringtrial.
[24]
The Courts jurisdiction is in principle
limited to reviewingerrors of law that might have been committed by the Court of Appeals.
[25]
Moreover,
factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive
on this Court unless these findings are not supported by the evidence on record.
[26]
There is no showing
of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require
this Court to review and overturn the factual findings of that court, especially since the conclusions of
fact of the Court of Appeals and the trial court are not only consistent but are also amply supported by
the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was acommodatumand not amutuum. A circumspect examination of
the records reveals that the transaction between themwas acommodatum. Article 1933 of the Civil
Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either somethingnot consumable so that
the latter may use the same for a certain time and return it, in which case the contract is called a
commodatum; or moneyor other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatumis essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thingloaned, while in simple loan, ownership
passes to the borrower.
The foregoingprovision seems to imply that if the subject of the contract is a consumable thing,
such as money, the contract would be amutuum. However, there are some instances where
acommodatummay have for its object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatumif the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the very same goods returned at the end of the period
agreedupon, the loan is acommodatumand not amutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.
[27]
In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.
[28]
As correctlypointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for the
purpose of making it appear that said firmhad sufficient capitalization for incorporation, with the
promise that the amount shall be returned within thirty (30) days.
[29]
Private respondent merely
accommodated Doronilla by lendinghis money without consideration, as a favor to his good friend
Sanchez. It was however clear to the parties to the transaction that the money would not be removed
fromSterelas savings account and would be returned to private respondent after thirty(30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, allegedly representinginterest on
themutuum, did not convert the transaction fromacommodatuminto amutuumbecause such was not
the intent of the parties and because the additionalP12,000.00 corresponds to the fruits of the lendingof
theP200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee
incommodatumacquires the use of the thingloaned but not its fruits. Hence, it was only proper for
Doronilla to remit to private respondent the interest accruing to the latters money deposited with
petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents money because it was not privy to the transaction between Doronilla and
private respondent. The nature of said transaction, that is, whether it is amutuumor acommodatum,
has no bearing on the question of petitioners liability for the return of private respondents money
because the factual circumstances of the case clearly show that petitioner, through its employee Mr.
Atienza, was partly responsible for the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expresslystates that
2. Deposits and withdrawals must be made by the depositor personally or upon his written authority
duly authenticated, andneither a deposit nor a withdrawal will be permitted except upon the
production of the depositor savingsbank bookin which will be entered by the Bank the amount
deposited or withdrawn.
[30]
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant
Branch Manager for the BuendiaBranch of petitioner, to withdraw therefromeven without presenting
the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but
several times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals
because he was party to Doronillas scheme of defraudingprivate respondent:
X X X
But the scheme could not have been executed successfullywithout the knowledge, help and cooperation
of RufoAtienza, assistant manager and cashier of the Makati (Buendia) branch of the defendant
bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of the fraud
but he likewise helped in devisingthe means by which it can be done in such manner as to make it
appear that the transaction was in accordance with bankingprocedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key
officer therein. The records show that plaintiff had suggested that theP200,000.00 be deposited in his
bank, the Manila BankingCorporation, but Doronilla and Dumagpi insisted that it must be in defendants
branch in Makati for it will be easier for themto get a certification. In fact before he was introduced
to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager
authorizingAngeles B. Sanchez and company to open a savings account for Sterela in the amount
ofP200,000.00, as per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank xxx (Exh.
1). This is a clear manifestation that the other defendants had been in consultation with Atienza from
the inception of the scheme. Significantly, there were testimonies and admission that Atienza is the
brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla
and Atienza, the latter knew before hand that the money deposited did not belongto Doronilla nor to
Sterela. Aside fromsuch foreknowledge, he was explicitly told by Inocencia Vives that the money
belonged to her and her husband and the deposit was merelyto accommodate Doronilla. Atienza even
declared that the money came fromMrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that the onlyones
empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertainingto this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B.
Sanchez. Atienza stated that it is the usual bankingprocedure that withdrawals of savings deposits could
only be made by persons whose authorized signatures are in the signature cards on file with the
bank. He, however, said that this procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authorityto withdraw by virtue of such
ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the time aware
that the money came fromVives and did not belongto Sterela. He was also told by Mrs. Vives that they
were only accommodatingDoronilla so that a certification can be issued to the effect that Sterela had a
deposit of so much amount to be sued in the incorporation of the firm. In the second place, the
signature of Doronilla was not authorized in so far as that account is concerned inasmuch as he had not
signed the signature card provided by the bank whenever a deposit is opened. In the third place, neither
Mrs. Vives nor Sanchez had given Doronilla the authorityto withdraw.
Moreover, the transfer of fund was done without the passbook havingbeen presented. It is an accepted
practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of
the passbook. In this case, such recognized practice was dispensed with. The transfer fromthe savings
account to the current account was without the submission of the passbookwhich Atienza had given to
Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate
passbook was issued to Sterelabecause the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigningthe savings account (Exh. C). Atienza, who
undoubtedly had a hand in the execution of this certification, was aware that the contents of thesame
are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it
to her. Besides, as assistant manager of the branch and the bank official servicingthe savings and
current accounts in question, he also was aware that the original passbook was never surrendered. He
was also cognizant that Estrella Dumagpi was not amongthose authorized to withdraw so her
certification had no effect whatsoever.
The circumstance surroundingthe openingof the current account also demonstrate that Atienzas active
participation in the perpetration of the fraud and deception that caused the loss. The records indicate
that this account was opened three days later after theP200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and posted regardingthe openingof the current
account consideringthat Doronilla was all the while in coordination with him. That it was he who
facilitated the approval of the authority to debit the savings account to cover anyoverdrawings in the
current account (Exh. 2) is not hard to comprehend.
ClearlyAtienza had committed wrongful acts that had resulted to the loss subject of this case. xxx.
[31]
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. To hold the
employer liable under this provision, it must be shown that an employer-employee relationship exists,
and that the employee was actingwithin the scope of his assigned task when the act complained of was
committed.
[32]
Case law in the United States of America has it that a corporation that entrusts a general
duty to its employee is responsible to the injured party for damages flowing fromthe employees
wrongful act done in the course of his general authority, even though in doingsuch act, the employee
may have failed in its duty to the employer and disobeyed the latters instructions.
[33]
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not
deny that Atienza was acting within the scope of his authority as Assistant Branch Manager when he
assisted Doronilla in withdrawingfunds fromSterelas Savings Account No. 10-1567, in which account
private respondents money was deposited, and in transferring the money withdrawn to Sterelas
Current Account with petitioner. Atienzas acts of helpingDoronilla, a customer of the petitioner, were
obviously done in furtherance of petitioners interests
[34]
even though in the process, Atienza violated
some of petitioners rules such as those stipulated in its savings account passbook.
[35]
It was established
that the transfer of funds fromSterelas savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance
which was the cause of private respondents loss.
The foregoingshows that the Court of Appeals correctly held that under Article 2180 of the Civil
Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi
for the return of theP200,000.00 since it is clear that petitioner failed to prove that it exercised due
diligence to prevent the unauthorized withdrawals fromSterelas savings account, and that it was not
negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the
appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of suit to
private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, QuisumbingandAustria-Martinez, JJ., concur.